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STOCK SELECTION PROJECT
Objective: To explore stock selection tools and analyze stocks using sources in the internet so as to construct a portfolio of stocks for a hypothetical investor.
The investor has $500,000 to invest to meet some concrete, tangible goal(s) within a time horizon. You decide the tangible goal(s) and the time horizon. Do not say, “I want to maximize returns”. Example of goals would be: (a) buying a house after (say) 5 years, (b) starting a business after (say) 10 years, (c) sending a child to college (say) after 15 years, etc. You may or may not pursue multiple goals. But the portfolio should appear logical enough to be able to meet the goal(s). Your report should contain investor profile: goal(s) the investor wants to meet,
required rate of return (in percentage)
, time horizon, and the investor’s risk preference (high/medium/low).
Stock screening: The screening criteria should match the needs and preferences of the investor. You will find stock screening tools at the following sites (you may do Google search and type “Stock Screener” to find additional websites):
(a) screen.morningstar.com/StockSelector.html
(b) screen.yahoo.com/stocks.html
You don’t have to use more than one screening site.
After including enough screening criteria, you should come up with a list of 15-20 stocks (roughly speaking). Submit as Exhibit 1a printout of the stocks you get from screening.
Stock analysis: Then you use the following site to get some in-depth analysis on these stocks:
http://finance.yahoo.com/
(This is a suggested site. You can use some other site which is at least as good).
In this site (yahoo), you type in the ticker symbol of a stock and choose “Basic” information on the stock. Then click the button “Get Quotes”. In the box where you have links to various types of information on the stock, click “Profile”.
The profile will tell you what the company does as well as a wealth of information and data/ratios. See if the company seems to possess any distinctive competitive advantage. See what might attract you. Take a good look at the chart. The chart shows a one-year history of price performance that might indicate how it might do in the future. You may want to infer something from that. You may want to view a longer-term price chart.
From the profile page, you may want to go to two more links: “Research” (for research summary and earnings growth rates), and “Ratio Comparisons” (Comparisons of different ratios and growth rates of company against the industry, sector and the S&P500. “Research” link is towards the top of the profile page. “Ratio Comparisons” link is towards the middle of the page (on the left side).
You will select five stocks for the portfolio. Present as Exhibit 2, the list of 5 stocks, date of purchase, number of shares purchased, stock price, value of shares (# of shares times price), and at the end, total value of the portfolio.
For each of the five stocks, include a one-page analysis justifying your selection (your own analysis from secondary sources – not copying and pasting from different sources). For each stock, you should include 5-year price chart, historical data, and ratios that are relevant to your selection decision.
The whole write-up would be about 8-10 pages. In addition, you may include at the end any # of pages as appendixes. But printing and including analysis from various sources is not required.
In selecting stocks, please remember you may not want to put all your eggs in one basket.
Sections of the write-up: The write-up should include the following section headings (please don’t forget the section headings):
1. Introduction (what is the project about)
2. Investor profile (investor background, goal(s) desired, time horizon, rate of return required to meet goal(s), risk tolerance, etc.)
3. Criteria (used for screening); (a) explain each criterion, (b) give rationale for selecting the criterion (why did you select a criterion out of so many), (c) give acceptable range for the criterion, e.g., beta should be from 0.95 to 1.2, roe should be greater than 20%, etc.). Under each criterion I want to see these three points discussed. The list of criteria should match the needs and references of the investor
4. Analysis of five selected stocks: one page per stock, including the 5-year stock price chart. The price chart should cover a small part of the page.
Use bullets as much as possible in your analysis of each stock. Do not copy and paste materials
5. Conclusion
6. References
Do not forget to include the two required appendixes (Exhibits 1 and 2) after this.
Please provide a cover page with:
(a) Title of the project
(b) Course #
(c) Prepared by (your name)
(d) Prepared for (instructor’s name in this case).
These are some information that a typical cover page of a report should include.
Please contact me if you require further clarification.
Investorprofile
Goal: invest $50,000 and would like to get profit and might be marriage in next 5 years.
Risk preference: low
Rate of Return:
1
5 %
P/E (Price per ratio)
Price per ratio helps investors to estimate stock price and refer to stock value. Normally, the high P/E also has the high risk. The higher P/E ratio probably implies that stock might be over value. In this case, I would prefer the low risk investment, and the P/E ratio should be between 5 and 15.
Beta coefficient
Beta is used to measure risk of stock. In the case, we are looking to invest and get profit in next 5 years which is the long term investment. The range of beta is between 0.5 to 1.0.
EPS growth rate
Earning per share growth rate would show the raise of earning per share in period of time. In the long term period, we set the EPS growth rate up to 25% in next 5 years approximately.
Appendix A
BUD
Anheuser-Busch Inbev SA Sponsor
0.81
20.43
30.492%
CAMP
CalAmp Corp.
0.69
21.39
29.448%
FCFS
First Cash Financial Services,
0.69
20.23
28.891%
ISBC
Investors Bancorp, Inc.
0.85
22.11
44.736%
LQDT
Liquidity Services, Inc.
-0.64
24.86
50.348%
MA
Mastercard Incorporated Common
0.82
23.84
29.625%
MLNX
Mellanox Technologies, Ltd.
0.67
20.83
29.77%
MBRG
Middleburg Financial Corporatio
0.59
20.48
27.203%
EDU
New Oriental Education & Techno
0.99
22.73
48.156%
OSIS
OSI Systems, Inc.
0.89
24.84
30.362%
SLW
Silver Wheaton Corp Common Shar
22.55
53.243%
TRIB
Trinity Biotech plc
0.67
22.16
30.956%
VPFG
ViewPoint Financial Group, Inc.
0.88
21.18
44.251%
Appendix B
|
BUD |
|
I |
Anheuser-Busch Inbev SA Sponsor (BUD)
|
BUD |
Company profile
Anheuser-Bush Inbev is the brewing company, engages in the production, marketing, and distribution of beer in Latin America, North America, Europe, and Asia pacific. The company has approximately 200 beer bands, and the global brands are called Budweiser, Stella Artois, and Beck. Multi-country brands consist of Leffe and Hoegaarden; and local brands comprise such as Bud Light. The company also produces and distributes soft drinks. Anheuser-Busch InBev SA/NV was founded in 1366 and is headquartered in Leuven, Belgium.
Analysis
– Beta is 0.81, it means that the risk of BUD is low and the investor could buy and hold this stock for the long term investment.
– The market capital is approximately $149.40 billion, and the 5 years growth rate of 30.492% that would be profitable for the investor who wants to hold stock and make profit for long term, due to the large market capital and the profile of company, an investor would be confidence with this stock.
Investors Bancorp, Inc. (ISBC)
|
I |
Company Profile
Investors Bancorp, Inc. operates as the holding company for Investors Bank that provides a range of banking services for various businesses and individuals in the United States. This company offers deposit products. The company loans portfolio includes commercial real estate, construction, and commercial and industrial loans. It operates 87 branch offices located throughout northern, central NJ, and NY. The company was founded in 1926.
Analysis
– Although, this company is not the popular company, but we can see the confidence of this firm from the date that has been in the stock market that was a long time.
– ISBC has the beta at 0.85 which is below than 1.0, and the 5 years growth rate is approximately 44.763% which is the high number.
– The market capital is approximately $1.93 billion, so it indicates that this stock would be good investment for this period.
Liquidity Services, Inc. (LQDT)
|
LQDT |
Company Profile
Liquidity Services, Inc. operates various online auction marketplaces for surplus, salvage, and scrap assets in the United States. It has been distributed since 1999. There are many websites that this company operates, and they operate in United States, Europe, and Asia to sell manufacturing surplus and salvage capital assets.
Analysis
Beta -0.64, P/E ratio 24.86, 5 years growth rate 50.348%
– Even if, the company is looked new from the investors because it has been operated for 14 years.
– The beta has the low number, moreover, the 5 years growth rate is greater than 50%, so if an investor wants to hold this stock and sell in next 5 years, then they can earn much profit.
– E-commerce has become important for the business, because seller does not have to pay for the rental, they pay just shipping, and that is why this company can make a lot of profit.
New Oriental Education & Techno (EDU)
|
EDU |
Company Profile
New Oriental Education & Technology Group Inc. provides private educational services primarily in China. The company offers language training courses that consist of various types of English language training courses, as well as training courses for other foreign languages, including German, Japanese, French, Korean, and Spanish. The company was founded in 1993 and is headquartered in Beijing, the Peoples Republic of China.
Analysis
Beta 0.99, P/E ratio 22.73, 5 years growth rate 48.156%
– It is not only the low risk according to the low beta but also stability of this stock would be attractive enough for investor who needs to invest in low risk stock in term of long period.
– The business that is about the education usually be stable for the long period, and nowadays, foreign language becomes important in China.
– Although, the number of beta closes to 1.0, but it will not be risky for investing with education business, because second language becomes important to Chinese people today.
– This company has more than 18,000 full-time employees.
OSI Systems, Inc. (OSIS)
|
OSIS |
Company Profile
OSI Systems, Inc., together with its subsidiaries, designs and manufactures electronic systems and components for homeland security, healthcare, defense, and aerospace markets worldwide. Its products include baggage and parcel inspection, cargo and vehicle inspection, hold baggage screening, The company was founded in 1987, and is headquartered in Hawthorne, California.
Analysis
– OSIS actually has the high beta which closes to 1.0, and the 5 years growth rate is 30.362% which is not high much, but if we are looking at the long term investment then we have to focus on the stock that has high confidence that investor can believe in that stock.
– The return of this stock might not be too high but I strongly play safe if investor doesn’t have a huge budget to invest.
– In the huge country as United States, the freight service is the most important thing to do the business, and many companies and airport usually have the cargo screening, and this becomes popular in many international airports.
Conclusion
I chose one stock that has the high risk and high return because we invest with low risk for the rest, and the return might not be high, and then it is probably to get high return from LQDT stock. According to the company that just be in the stock market, they usually face with the risk as LQDT, but when we look at the company profile and the company’s website, it can gain confidence to investors, because nowadays, e-commerce becomes to the important part of business, and the company that is raising up, it will be great for the investor for investing. The thing is many companies that want to get into the stock market, they adjust numbers and show to the public that they has the high profit, then investor should concern about the production, and service that company produces, and compare with the business today that it can be profitable or not.
For the long term stock investment, if the investor want to be confidence that those companies that they invest will not be bankrupt, they should consider about the large firm by focusing that the company profile, background, and market capital. Actually, investor could invest to them, but there is the high cost and low return, so the reason I recommend to invest with one stock with high risk and low risk for the rest is to get profit with the risk that investor could receive. For example, EDU is the stock which is about the education and BUD which is the large brewing company, both of stocks is the large companies that investors can trust and invest for long term, so investor can invest in those stocks more than the rest to be confidence for the return.
It is not only to look at the Beta or P/E, but investor should focus on the business today that which way that the business is going. E-commerce is coming popular in that business today, and carrier services become important for the worldwide business.
References
– Screener.finance.yahoo.com
– http://www.ab-inbev.com
– http://www.isbnj.com
– http://www.liquidityservicesinc.com
– http://www.neworiental.org
– http://www.osi-systems.com
StockSelection Project 1
Introduction
As the stock selection criteria are the first important step for selecting stock for investment, it is an interesting method to maximize the total return on stock investment with the requirement of specific holding period, limited risk, and an appropriate degree of portfolio diversification. Many investors around the world can benefit from the stock screening websites since they can search for stocks that meet their preferences and requirements, and financial criteria.
In this stock selection project, I will explore selection tools and criteria, and analyze the selected stocks by using sources from financial-based websites to create a briefly stock portfolio for the hypothetical investor. This project is designed to consult an investor who has $200,000 to invest in the stock market in order to meet her goal in the next 10 years.
Goal: Tiffany Smith would like to start her own company in the United States. Her company specializes in export and import several kinds of leather products. The products will sell all over the world, mostly in USA, UK, and Asian countries.
Time Horizon: Next 10 years
Investors’ risk preference: Medium
Rate of return required to meet goal: 20%
she needs to invest approximately $200,000 in the stock this year in order to achieve her goal.
Criteria
·
Beta
Coefficient: Tiffany Smith should choose the beta ranging from
0.5 to 1.5
because she needs to invest in the long term and medium level of risk preferences. Beta ranging from 0.5 to 1.5 will ensure the return and average risk. This beta range follows the market and takes risk in the medium level as investors’ risk requirement.
· P/E ratio: The measurement of the price paid for a share which relatives to the annual net income or profit earned by the firm per share. As Tiffany Smith prefers medium risk level, she should choose P/E ratio from
5 to 20
so that she can buy the stocks in the low price and sell it later.
· EPS Growth Rate: The percentage that indicates how much earning per share increases. In this case, Tiffany Smith wants to invest $200,000 in the stock in order to start her business in the next ten years. She also prefers medium risk level. Therefore, ESP Growth rate more than
15%
can match with her preference.
· Stock Price: As Tiffany Smith prefers medium risk level, she should choose the stocks which have low to medium price. In this case, the share price from
$5 to $50
can match her preference.
·
Profit Margin
: As Tiffany Smith prefers medium risk level, she should find the return on sales about
30%
in order to achieve her goal.
|
Condition |
|
|
Share Price |
$5 to $50 |
|
Beta |
0.5 to 1.5 |
|
Profit Margin |
30% |
|
P/E Ratio |
5 to 20 |
|
The Growth Rate during 5 years |
15% |
Stock Screening
Five Selected Stocks
|
Symbol |
Company |
Retail Price |
Beta | Profit Margin |
P/E |
5 yrs Growth |
|||||||
|
BOFI |
BofI Holding, Inc. |
15.85 |
0.99 |
33.90% |
8.48 |
61.339% |
|||||||
|
BIP |
Brookfield Infrastructure Partn |
25.79 |
0.76 |
44.40% |
6.74 |
54.303% |
|||||||
|
KEYN |
Keynote Systems, Inc. |
21.93 |
1.11 |
49.4% |
7.54 |
67.315% |
|||||||
|
SBSI |
Southside Bancshares, Inc. |
20.58 |
0.91 |
30.9% |
9.03 |
26.045% |
|||||||
|
EBIX |
Ebix Inc |
17.26 |
1.28 |
46.5% |
9.89 |
56.119% |
Analysis Five Selected Stocks
1. BofI Holding INC. (BOFI)
BofI Holding, Inc. is the holding company for BofI Federal Bank which provides numerous consumer and wholesale banking services primarily through the Internet in the United States. The company offers various deposit products, including demand deposit, savings, and certificates of deposit accounts. Its competitors are Mizuho Financial Group, Inc., Sumitomo Mitsui Financial Group Inc., and so on.
Analysis: Beta 0.99, % yr Growth 61.339%
· The Beta of BOFI is 0.99 which indicates that the stock is following the market.
· The risk of BOFI is low and related to the investor who prefers long term investment with the medium risk level.
· The profit margin 33.90% and the operating margin 62.17% can ensure an investor’s gain from the stock investment.
· According to the key statistics, the ROE of BOFI is 14.83% which is higher than the savings and loans industry (5.4%).
· From the Analyst opinion, most of the recommendations are strong buy.
· Therefore, BOFI is a good choice for stock investment with medium risk preference.
2. Brookfield Infrastructure Partners L.P. (BIP)
Brookfield Infrastructure Partners L.P. operates in utilities, transport and energy, and timber sectors. The company provides a port facility, which exports metallurgical and thermal coal mined to many countries such as Australia, Chile, and Canada. Also it distributes electricity and natural gas to New Zealand, the United Kingdom, and the United States. For energy industry, its competitors are BP, XOM, TOT, CVX and etc. And for utility industry, its competitors are EONGY.PK, RWEY.PK and so on.
Analysis: Beta 0.76, % yr Growth 54.303%
· The Beta of BIP is 0.76 which indicates that the risk of BIP is a little bit low and related to the investor who prefers long term investment with the medium risk level.
· As the Beta is lower than 1, this stock is following the market but is not too risky.
· The profit margin 44.44% and the operating margin 31.43% can ensure an investor’s gain from the stock investment.
· According to the key statistics, the ROE of BIP is 19.87% which is higher than the Electric Utilities industry (7.10%).
· From the Analyst opinion, most of the recommendations are to buy.
· Therefore, BIP is a good choice for long-term stock investment with medium risk preference.
3. Keynote Systems Inc. (KEYN)
Keynote Systems, Inc. was founded in 1995 and the headquarters is in San Mateo, California. The company offers Internet and mobile cloud monitoring solutions worldwide. Its competitors are Yahoo! Inc., MSN, AOL, Inc., Disney online, Move, Inc., Match.com, LLC, Sina Corp., and Daum Communications Corp.
Analysis: Beta 1.11, % yr Growth 67.315%
· The Beta of KEYN is 1.11 which indicates that the risk of the KEYN is over the market and low taking risk from this stock.
· KEYN is suitable for the investor who prefers the low to medium risk investment.
· The profit margin 49.40% and the operating margin 14.60% can ensure an investor’s gain from the stock investment.
· Investor can make decision by analyzing from the 5 years growth rate 67.315%.
· According to the key statistics, the ROE of KEYN is 26.94% which is higher than the Internet Software and Services industry (6.30%).
· From the Analyst opinion, most of the recommendations are to buy.
· Therefore, KEYN is a good choice for long-term stock investment with medium risk preference.
4. Southside Bancshares Inc. (SBSI)
Southside Bancshares, Inc. is the holding company for Southside Bank which offers financial products and services to individuals, businesses, municipal entities, and non-profit organizations. Southside Bancshares, Inc provides savings, money market, interest and noninterest bearing checking accounts, and certificates of deposit. Its competitors are Citigroup, Inc., Sumitomo Mitsui Financial Group Inc., HSBC Holdings plc, and so on.
Analysis: Beta 0.91, % yr Growth 26.045%
· The Beta of SBSI is 0.91 which indicates that the risk of the SBSI follows the market and a little bit low.
· From this point, SBSI is a good stock for the investor who prefers the medium risk in stock investment.
· SBSI stock seems to be stable and attractive to investor since the profit margin 30.93% and the operating margin 41.86%.
· Investor can also make decision by analyzing from the 5 years growth rate 26.045%.
· According to the key statistics, the ROE of SBSI is 15.96%. From the Analyst opinion, most of the recommendations are to hold.
· Therefore, SBSI is a good choice for stock investment with medium risk preference.
5. Ebix Inc. (EBIX)
Ebix, Inc. was founded in 1976, and its headquarters is in Atlanta, Georgia. The company operates as on-demand software and e-commerce solutions to the insurance industry primarily in North America, Australia, New Zealand, India, and Singapore. The company operates data exchanges between consumers, agents, carriers, and third party providers.
Analysis: Beta 1.28, % yr Growth 56.119%
· The Beta of EBIX is 1.28 which indicates that the risk of the EBIX is over the market and low. From this point, EBIX is suitable for the investor who prefers the medium risk in stock investment.
· EBIX seems to be stable and attractive to investor since the profit margin 46.50% and the operating margin 39.40%.
· Investor can also make decision by analyzing from the 5 years growth rate 56.119%.
· According to the key statistics, the ROE of EBIX is 26.41% which is higher than the Business Software and Services industry (11.40%).
· From the Analyst opinion, most of the recommendations are strong buy.
· Therefore, EBIX is a good choice for stock investment with medium risk preference.
Conclusion
Mrs. Tiffany Smith is a 42-year-old marketing senior manager of a marketing company in Massachusetts. In her position, she earns $60,000 per year. However, she plans to run her own export-import business in the next 10 years. She needs to invest approximately $200,000 in the stock this year so that she can reach the goal. In order to achieve the spectacular requirement of her investment, she should invest in five stocks which consist of BofI Holding, Inc. (BOFI), Brookfield Infrastructure Partners L.P. (BIP), Keynote Systems Inc. (KEYN), Southside Bancshares Inc. (SBSI), Ebix Inc. (EBIX).
Since these five stocks have low risk, medium to high profit margin, and reasonable price of stock, she can be ensured that these five stocks are related to her preference of long-term stock investment with medium risk level.
Appendix 1
Appendix 2
Symbol
Company
Retail Price
Beta
Profit Margin
P/E
5 yrs Growth
BOFI
BofI Holding, Inc.
15.85
0.99
33.90%
8.48
61.339%
BIP
Brookfield Infrastructure Partn
25.79
0.76
44.40%
6.74
54.303%
KEYN
Keynote Systems, Inc.
21.93
1.11
49.4%
7.54
67.315%
SBSI
Southside Bancshares, Inc.
20.58
0.91
30.9%
9.03
26.045%
EBIX
Ebix Inc
17.26
1.28
46.5%
9.89
56.119%
References
http://finance.yahoo.com
http://screen.yahoo.com/stocks.html
http://quote.morningstar.com
