Lecture Presentation Software   to accompany Investment Analysis and  Portfolio Management Seventh Edition by  Frank K. Re...
Company Analysis and Stock Valuation <ul><li>After analyzing the economy and stock markets for several countries, you have...
Company Analysis and Stock Valuation <ul><li>Good companies are not necessarily good investments </li></ul><ul><li>Compare...
<ul><li>Growth companies have historically been defined as companies that consistently experience above-average increases ...
Growth Stocks <ul><li>Growth stocks are not necessarily shares in growth companies </li></ul><ul><li>A growth stock has a ...
Defensive Companies and Stocks <ul><li>Defensive companies’ future earnings are more likely to withstand an economic downt...
Cyclical Companies and Stocks <ul><li>Cyclical companies are those whose sales and earnings will be heavily influenced by ...
Speculative Companies and Stocks <ul><li>Speculative companies are those whose assets involve great risk but those that al...
Value versus Growth Investing <ul><li>Growth stocks will have positive earnings surprises and above-average risk adjusted ...
Economic, Industry, and Structural Links to Company Analysis <ul><li>Company analysis is the final step in the top-down ap...
Economic and Industry Influences <ul><li>If trends are favorable for an industry, the company analysis should focus on fir...
Structural Influences <ul><li>Social trends, technology, political, and regulatory influences can have significant influen...
Company Analysis <ul><li>Industry competitive environment </li></ul><ul><li>SWOT analysis </li></ul><ul><li>Present value ...
Firm Competitive Strategies <ul><li>Current rivalry </li></ul><ul><li>Threat of new entrants </li></ul><ul><li>Potential s...
Firm Competitive Strategies <ul><li>Defensive strategy involves positioning firm so that it its capabilities provide the b...
Porter's Competitive Strategies  <ul><li>Low-Cost Strategy </li></ul><ul><ul><li>The firm seeks to be  the  low-cost produ...
Focusing a Strategy <ul><li>Select segments in the industry </li></ul><ul><li>Tailor strategy to serve those specific grou...
SWOT Analysis <ul><li>Examination of a firm’s: </li></ul><ul><ul><li>S trengths </li></ul></ul><ul><ul><li>W eaknesses </l...
SWOT Analysis <ul><li>Examination of a firm’s: </li></ul><ul><ul><li>S trengths </li></ul></ul><ul><ul><li>W eaknesses </l...
SWOT Analysis <ul><li>Examination of a firm’s: </li></ul><ul><ul><li>S trengths </li></ul></ul><ul><ul><li>W eaknesses </l...
Some Lessons from Peter Lynch  <ul><li>Favorable Attributes of Firms </li></ul><ul><li>1. Firm’s product should not be fad...
Tenets of Warren Buffet <ul><li>Business Tenets  </li></ul><ul><li>Management Tenets </li></ul><ul><li>Financial Tenets </...
Business Tenets <ul><li>Is the business simple and understandable? </li></ul><ul><li>Does the business have a consistent o...
Management Tenets <ul><li>Is management rational? </li></ul><ul><li>Is management candid with with its shareholders? </li>...
Financial Tenets <ul><li>Focus on return on equity, not earnings per share </li></ul><ul><li>Calculate “owner earnings” </...
Market Tenets <ul><li>What is the value of the business? </li></ul><ul><li>Can the business be purchased at a significant ...
Estimating Intrinsic Value <ul><li>A. Present value of cash flows (PVCF) </li></ul><ul><ul><li>1. Present value of dividen...
Present Value of Dividends <ul><li>Simplifying assumptions help in estimating present value of future dividends </li></ul>...
Growth Rate Estimates <ul><li>Average Dividend Growth Rate </li></ul>
Growth Rate Estimates <ul><li>Average Dividend Growth Rate </li></ul><ul><li>Sustainable Growth Rate = RR  X  ROE </li></ul>
Required Rate of Return Estimate <ul><li>Nominal risk-free interest rate </li></ul><ul><li>Risk premium </li></ul><ul><li>...
Required Rate of Return Estimate <ul><li>Nominal risk-free interest rate </li></ul><ul><li>Risk premium </li></ul><ul><li>...
The Present Value of  Dividends Model (DDM) <ul><li>Model requires k>g </li></ul><ul><li>With g>k, analyst must use multi-...
Present Value of  Free Cash Flow to Equity <ul><li>FCFE =  </li></ul><ul><ul><li>Net Income  </li></ul></ul><ul><ul><li>+ ...
Present Value of  Free Cash Flow to Equity <ul><li>FCFE = the expected free cash flow in period 1  </li></ul><ul><li>k = t...
Present Value of  Operating Free Cash Flow <ul><li>Discount the firm’s operating free cash flow to the firm (FCFF) at the ...
Present Value of  Operating Free Cash Flow
Present Value of  Operating Free Cash Flow <ul><li>Where: FCFF 1  = the free cash flow in period 1 </li></ul><ul><li>Oper....
An Alternate Measure of Growth <ul><li>g = (RR)(ROIC) </li></ul><ul><li>where: </li></ul><ul><ul><li>RR = the average rete...
Calculation of WACC <ul><li>WACC =  W E k + W d i </li></ul><ul><li>where: </li></ul><ul><li>W E  = the proportion of equi...
Relative Valuation Techniques <ul><li>Price Earnings Ratio </li></ul><ul><ul><li>Affected by two variables: </li></ul></ul...
Analysis of Growth Companies <ul><li>Generating rates of return greater than the firm’s cost of capital is considered to b...
Analysis of Growth Companies <ul><li>Growth companies and the DDM </li></ul><ul><ul><li>constant growth model not appropri...
Analysis of Growth Companies <ul><li>Long-run growth models </li></ul><ul><ul><li>assumes some earnings are reinvested </l...
Simple Growth Model (cont.) <ul><li>(Present value of Constant Dividend plus the Present Value of Growth Investment) </li>...
Expansion Model <ul><li>Firm retains earnings to reinvest, but receives a  rate of return on its investment equal to its c...
Negative Growth Model <ul><li>Firm retains earnings, but reinvestment returns are below the firm’s cost of capital </li></...
The Capital Gain Component <ul><li>bEm/k </li></ul><ul><li>b  Percentage of earnings retained for reinvestment </li></ul><...
Dynamic True Growth Model <ul><li>Firm invests a constant percentage of current earnings in projects that generate rates o...
Measures of Value-Added <ul><li>Economic Value-Added (EVA) </li></ul><ul><ul><li>Compare net operating profit less adjuste...
Measures of Value-Added <ul><li>Market Value-Added (MVA) </li></ul><ul><ul><li>Measure of external performance </li></ul><...
Measures of Value-Added <ul><li>The Franchise Factor </li></ul><ul><ul><li>Breaks P/E into two components </li></ul></ul><...
Intra-Industry Analysis <ul><li>Directly compare two firms in the same industry </li></ul><ul><li>An alternative use of T ...
Site Visits and the  Art of the Interview <ul><li>Focus on management’s plans, strategies, and concerns </li></ul><ul><li>...
When to Sell <ul><li>Holding a stock too long may lead to lower returns than expected </li></ul><ul><li>If stocks decline ...
Efficient Markets <ul><li>Opportunities are mostly among less well-known companies </li></ul><ul><li>To outperform the mar...
Influences on Analysts <ul><li>Investment bankers may push for favorable evaluations </li></ul><ul><li>Corporate officers ...
Global Company and Stock Analysis <ul><li>Factors to Consider: </li></ul><ul><ul><li>Availability of Data </li></ul></ul><...
The Internet Investments Online <ul><li>www.better-investing.com </li></ul><ul><li>www.fool.com </li></ul><ul><li>www.cfon...
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Lecture Presentation Software to accompany

  1. 1. Lecture Presentation Software to accompany Investment Analysis and Portfolio Management Seventh Edition by Frank K. Reilly & Keith C. Brown Chapter 15
  2. 2. Company Analysis and Stock Valuation <ul><li>After analyzing the economy and stock markets for several countries, you have decided to invest some portion of your portfolio in common stocks </li></ul><ul><li>After analyzing various industries, you have identified those industries that appear to offer above-average risk-adjusted performance over your investment horizon </li></ul><ul><li>Which are the best companies? </li></ul><ul><li>Are they overpriced? </li></ul>
  3. 3. Company Analysis and Stock Valuation <ul><li>Good companies are not necessarily good investments </li></ul><ul><li>Compare the intrinsic value of a stock to its market value </li></ul><ul><li>Stock of a great company may be overpriced </li></ul><ul><li>Stock of a growth company may not be growth stock </li></ul>
  4. 4. <ul><li>Growth companies have historically been defined as companies that consistently experience above-average increases in sales and earnings </li></ul><ul><li>Financial theorists define a growth company as one with management and opportunities that yield rates of return greater than the firm’s required rate of return </li></ul>Growth Companies
  5. 5. Growth Stocks <ul><li>Growth stocks are not necessarily shares in growth companies </li></ul><ul><li>A growth stock has a higher rate of return than other stocks with similar risk </li></ul><ul><li>Superior risk-adjusted rate of return occurs because of market undervaluation compared to other stocks </li></ul>
  6. 6. Defensive Companies and Stocks <ul><li>Defensive companies’ future earnings are more likely to withstand an economic downturn </li></ul><ul><li>Low business risk </li></ul><ul><li>Not excessive financial risk </li></ul><ul><li>Stocks with low or negative systematic risk </li></ul>
  7. 7. Cyclical Companies and Stocks <ul><li>Cyclical companies are those whose sales and earnings will be heavily influenced by aggregate business activity </li></ul><ul><li>Cyclical stocks are those that will experience changes in their rates of return greater than changes in overall market rates of return </li></ul>
  8. 8. Speculative Companies and Stocks <ul><li>Speculative companies are those whose assets involve great risk but those that also have a possibility of great gain </li></ul><ul><li>Speculative stocks possess a high probability of low or negative rates of return and a low probability of normal or high rates of return </li></ul>
  9. 9. Value versus Growth Investing <ul><li>Growth stocks will have positive earnings surprises and above-average risk adjusted rates of return because the stocks are undervalued </li></ul><ul><li>Value stocks appear to be undervalued for reasons besides earnings growth potential </li></ul><ul><li>Value stocks usually have low P/E ratio or low ratios of price to book value </li></ul>
  10. 10. Economic, Industry, and Structural Links to Company Analysis <ul><li>Company analysis is the final step in the top-down approach to investing </li></ul><ul><li>Macroeconomic analysis identifies industries expected to offer attractive returns in the expected future environment </li></ul><ul><li>Analysis of firms in selected industries concentrates on a stock’s intrinsic value based on growth and risk </li></ul>
  11. 11. Economic and Industry Influences <ul><li>If trends are favorable for an industry, the company analysis should focus on firms in that industry that are positioned to benefit from the economic trends </li></ul><ul><li>Firms with sales or earnings particularly sensitive to macroeconomic variables should also be considered </li></ul><ul><li>Research analysts need to be familiar with the cash flow and risk of the firms </li></ul>
  12. 12. Structural Influences <ul><li>Social trends, technology, political, and regulatory influences can have significant influence on firms </li></ul><ul><li>Early stages in an industry’s life cycle see changes in technology which followers may imitate and benefit from </li></ul><ul><li>Politics and regulatory events can create opportunities even when economic influences are weak </li></ul>
  13. 13. Company Analysis <ul><li>Industry competitive environment </li></ul><ul><li>SWOT analysis </li></ul><ul><li>Present value of cash flows </li></ul><ul><li>Relative valuation ratio techniques </li></ul>
  14. 14. Firm Competitive Strategies <ul><li>Current rivalry </li></ul><ul><li>Threat of new entrants </li></ul><ul><li>Potential substitutes </li></ul><ul><li>Bargaining power of suppliers </li></ul><ul><li>Bargaining power of buyers </li></ul>
  15. 15. Firm Competitive Strategies <ul><li>Defensive strategy involves positioning firm so that it its capabilities provide the best means to deflect the effect of competitive forces in the industry </li></ul><ul><li>Offensive strategy involves using the company’s strength to affect the competitive industry forces, thus improving the firm’s relative industry position </li></ul><ul><li>Porter suggests two major strategies: low-cost leadership and differentiation </li></ul>
  16. 16. Porter's Competitive Strategies <ul><li>Low-Cost Strategy </li></ul><ul><ul><li>The firm seeks to be the low-cost producer, and hence the cost leader in its industry </li></ul></ul><ul><li>Differentiation Strategy </li></ul><ul><ul><li>firm positions itself as unique in the industry </li></ul></ul>
  17. 17. Focusing a Strategy <ul><li>Select segments in the industry </li></ul><ul><li>Tailor strategy to serve those specific groups </li></ul><ul><li>Determine which strategy a firm is pursuing and its success </li></ul><ul><li>Evaluate the firm’s competitive strategy over time </li></ul>
  18. 18. SWOT Analysis <ul><li>Examination of a firm’s: </li></ul><ul><ul><li>S trengths </li></ul></ul><ul><ul><li>W eaknesses </li></ul></ul><ul><ul><li>O pportunities </li></ul></ul><ul><ul><li>T hreats </li></ul></ul>
  19. 19. SWOT Analysis <ul><li>Examination of a firm’s: </li></ul><ul><ul><li>S trengths </li></ul></ul><ul><ul><li>W eaknesses </li></ul></ul><ul><ul><li>O pportunities </li></ul></ul><ul><ul><li>T hreats </li></ul></ul>INTERNAL ANALYSIS
  20. 20. SWOT Analysis <ul><li>Examination of a firm’s: </li></ul><ul><ul><li>S trengths </li></ul></ul><ul><ul><li>W eaknesses </li></ul></ul><ul><ul><li>O pportunities </li></ul></ul><ul><ul><li>T hreats </li></ul></ul>EXTERNAL ANALYSIS
  21. 21. Some Lessons from Peter Lynch <ul><li>Favorable Attributes of Firms </li></ul><ul><li>1. Firm’s product should not be faddish </li></ul><ul><li>2. Firm should have some long-run comparative advantage over its rivals </li></ul><ul><li>3. Firm’s industry or product has market stability </li></ul><ul><li>4. Firm can benefit from cost reductions </li></ul><ul><li>5. Firms that buy back shares show there are putting money into the firm </li></ul>
  22. 22. Tenets of Warren Buffet <ul><li>Business Tenets </li></ul><ul><li>Management Tenets </li></ul><ul><li>Financial Tenets </li></ul><ul><li>Market Tenets </li></ul>
  23. 23. Business Tenets <ul><li>Is the business simple and understandable? </li></ul><ul><li>Does the business have a consistent operating history? </li></ul><ul><li>Does the business have favorable long-term prospects? </li></ul>
  24. 24. Management Tenets <ul><li>Is management rational? </li></ul><ul><li>Is management candid with with its shareholders? </li></ul><ul><li>Does management resist the institutional imperative? </li></ul>
  25. 25. Financial Tenets <ul><li>Focus on return on equity, not earnings per share </li></ul><ul><li>Calculate “owner earnings” </li></ul><ul><li>Look for companies with high profit margins </li></ul><ul><li>For every dollar retained, make sure the company has created at least one dollar of market value </li></ul>
  26. 26. Market Tenets <ul><li>What is the value of the business? </li></ul><ul><li>Can the business be purchased at a significant discount to its fundamental intrinsic value? </li></ul>
  27. 27. Estimating Intrinsic Value <ul><li>A. Present value of cash flows (PVCF) </li></ul><ul><ul><li>1. Present value of dividends (DDM) </li></ul></ul><ul><ul><li>2. Present value of free cash flow to equity (FCFE) </li></ul></ul><ul><ul><li>3. Present value of free cash flow (FCFF) </li></ul></ul><ul><li>B. Relative valuation techniques </li></ul><ul><ul><li>1. Price earnings ratio (P/E) </li></ul></ul><ul><ul><li>2. Price cash flow ratios (P/CF) </li></ul></ul><ul><ul><li>3. Price book value ratios (P/BV) </li></ul></ul><ul><ul><li>4. Price sales ratio (P/S) </li></ul></ul>
  28. 28. Present Value of Dividends <ul><li>Simplifying assumptions help in estimating present value of future dividends </li></ul><ul><li>Assumption of constant growth rate </li></ul><ul><li>Intrinsic Value = D 1 /(k-g) </li></ul><ul><li>D 1 = D 0 (1+g) </li></ul>
  29. 29. Growth Rate Estimates <ul><li>Average Dividend Growth Rate </li></ul>
  30. 30. Growth Rate Estimates <ul><li>Average Dividend Growth Rate </li></ul><ul><li>Sustainable Growth Rate = RR X ROE </li></ul>
  31. 31. Required Rate of Return Estimate <ul><li>Nominal risk-free interest rate </li></ul><ul><li>Risk premium </li></ul><ul><li>Market-based risk estimated from the firm’s characteristic line using regression </li></ul>
  32. 32. Required Rate of Return Estimate <ul><li>Nominal risk-free interest rate </li></ul><ul><li>Risk premium </li></ul><ul><li>Market-based risk estimated from the firm’s characteristic line using regression </li></ul>
  33. 33. The Present Value of Dividends Model (DDM) <ul><li>Model requires k>g </li></ul><ul><li>With g>k, analyst must use multi-stage model </li></ul>
  34. 34. Present Value of Free Cash Flow to Equity <ul><li>FCFE = </li></ul><ul><ul><li>Net Income </li></ul></ul><ul><ul><li>+ Depreciation Expense </li></ul></ul><ul><ul><li>- Capital Expenditures </li></ul></ul><ul><ul><li>-  in Working Capital </li></ul></ul><ul><ul><li>- Principal Debt Repayments </li></ul></ul><ul><ul><li>+ New Debt Issues </li></ul></ul>
  35. 35. Present Value of Free Cash Flow to Equity <ul><li>FCFE = the expected free cash flow in period 1 </li></ul><ul><li>k = the required rate of return on equity for the firm </li></ul><ul><li>g FCFE = the expected constant growth rate of free cash flow to equity for the firm </li></ul>
  36. 36. Present Value of Operating Free Cash Flow <ul><li>Discount the firm’s operating free cash flow to the firm (FCFF) at the firm’s weighted average cost of capital (WACC) rather than its cost of equity </li></ul><ul><li>FCFF = EBIT (1-Tax Rate) </li></ul><ul><ul><li>+ Depreciation Expense - Capital Spending </li></ul></ul><ul><ul><li>-  in Working Capital -  in other assets </li></ul></ul>
  37. 37. Present Value of Operating Free Cash Flow
  38. 38. Present Value of Operating Free Cash Flow <ul><li>Where: FCFF 1 = the free cash flow in period 1 </li></ul><ul><li>Oper. FCF 1 = the firm’s operating free cash flow in period 1 </li></ul><ul><li>WACC = the firm’s weighted average cost of capital </li></ul><ul><li>g FCFF = the firm’s constant infinite growth rate of free cash flow </li></ul><ul><li>g OFCF = the constant infinite growth rate of operating free cash flow </li></ul>
  39. 39. An Alternate Measure of Growth <ul><li>g = (RR)(ROIC) </li></ul><ul><li>where: </li></ul><ul><ul><li>RR = the average retention rate </li></ul></ul><ul><ul><li>ROIC = EBIT (1-Tax Rate)/Total Capital </li></ul></ul>
  40. 40. Calculation of WACC <ul><li>WACC = W E k + W d i </li></ul><ul><li>where: </li></ul><ul><li>W E = the proportion of equity in total capital </li></ul><ul><li>k = the after-tax cost of equity (from the SML) </li></ul><ul><li>W D = the proportion of debt in total capital </li></ul><ul><li>i = the after-tax cost of debt </li></ul>
  41. 41. Relative Valuation Techniques <ul><li>Price Earnings Ratio </li></ul><ul><ul><li>Affected by two variables: </li></ul></ul><ul><ul><li>1. Required rate of return on its equity (k) </li></ul></ul><ul><ul><li>2. Expected growth rate of dividends (g) </li></ul></ul><ul><li>Price/Cash Flow Ratio </li></ul><ul><li>Price/Book Value Ratio </li></ul><ul><li>Price-to-Sales Ratio </li></ul>
  42. 42. Analysis of Growth Companies <ul><li>Generating rates of return greater than the firm’s cost of capital is considered to be temporary </li></ul><ul><li>Earnings higher the required rate of return are pure profits </li></ul><ul><li>How long can they earn these excess profits? </li></ul><ul><li>Is the stock properly valued? </li></ul>
  43. 43. Analysis of Growth Companies <ul><li>Growth companies and the DDM </li></ul><ul><ul><li>constant growth model not appropriate </li></ul></ul><ul><li>Alternative growth models </li></ul><ul><ul><li>no growth firm </li></ul></ul><ul><li>E = r X Assets = Dividends </li></ul>
  44. 44. Analysis of Growth Companies <ul><li>Long-run growth models </li></ul><ul><ul><li>assumes some earnings are reinvested </li></ul></ul><ul><li>Simple growth model </li></ul>
  45. 45. Simple Growth Model (cont.) <ul><li>(Present value of Constant Dividend plus the Present Value of Growth Investment) </li></ul>(Present value of Constant Earnings plus the Present Value of Excess Earnings from Growth Investment)
  46. 46. Expansion Model <ul><li>Firm retains earnings to reinvest, but receives a rate of return on its investment equal to its cost of capital </li></ul><ul><li>m = 1 so r = k </li></ul>
  47. 47. Negative Growth Model <ul><li>Firm retains earnings, but reinvestment returns are below the firm’s cost of capital </li></ul><ul><li>Since growth will be positive, but slower than it should be, the value will decline when the investors discount the reinvestment stream at the cost of capital </li></ul>
  48. 48. The Capital Gain Component <ul><li>bEm/k </li></ul><ul><li>b Percentage of earnings retained for reinvestment </li></ul><ul><li>m relates the firm’s rate of return on investments and the firm’s required rate of return (cost of capital) </li></ul><ul><ul><li>1 = cost of capital </li></ul></ul><ul><ul><li>>1 is growth company </li></ul></ul><ul><li>Time period for superior investments </li></ul>
  49. 49. Dynamic True Growth Model <ul><li>Firm invests a constant percentage of current earnings in projects that generate rates of return above the firm’s required rate of return </li></ul>
  50. 50. Measures of Value-Added <ul><li>Economic Value-Added (EVA) </li></ul><ul><ul><li>Compare net operating profit less adjusted taxes (NOPLAT) to the firm’s total cost of capital in dollar terms, including the cost of equity </li></ul></ul><ul><li>EVA return on capital </li></ul><ul><ul><li>EVA/Capital </li></ul></ul><ul><li>Alternative measure of EVA </li></ul><ul><ul><li>Compare return on capital to cost of capital </li></ul></ul>
  51. 51. Measures of Value-Added <ul><li>Market Value-Added (MVA) </li></ul><ul><ul><li>Measure of external performance </li></ul></ul><ul><ul><li>How the market has evaluated the firm’s performance in terms of market value of debt and market value of equity compared to the capital invested in the firm </li></ul></ul><ul><li>Relationships between EVA and MVA </li></ul><ul><ul><li>mixed results </li></ul></ul>
  52. 52. Measures of Value-Added <ul><li>The Franchise Factor </li></ul><ul><ul><li>Breaks P/E into two components </li></ul></ul><ul><ul><ul><li>P/E based on ongoing business (base P/E) </li></ul></ul></ul><ul><ul><ul><li>Franchise P/E the market assigns to the expected value of new and profitable business opportunities </li></ul></ul></ul><ul><ul><li>Franchise P/E = Observed P/E - Base P/E </li></ul></ul><ul><ul><li>Incremental Franchise P/E = Franchise Factor X Growth Factor </li></ul></ul>
  53. 53. Intra-Industry Analysis <ul><li>Directly compare two firms in the same industry </li></ul><ul><li>An alternative use of T to determine a reasonable P/E ratio </li></ul><ul><li>Factors to consider </li></ul><ul><ul><li>A major difference in the risk involved </li></ul></ul><ul><ul><li>Inaccurate growth estimates </li></ul></ul><ul><ul><li>Stock with a low P/E relative to its growth rate is undervalued </li></ul></ul><ul><ul><li>Stock with high P/E and a low growth rate is overvalued </li></ul></ul>
  54. 54. Site Visits and the Art of the Interview <ul><li>Focus on management’s plans, strategies, and concerns </li></ul><ul><li>Restrictions on nonpublic information </li></ul><ul><li>“ What if” questions can help gauge sensitivity of revenues, costs, and earnings </li></ul><ul><li>Management may indicate appropriateness of earnings estimates </li></ul><ul><li>Discuss the industry’s major issues </li></ul><ul><li>Review the planning process </li></ul><ul><li>Talk to more than just the top managers </li></ul>
  55. 55. When to Sell <ul><li>Holding a stock too long may lead to lower returns than expected </li></ul><ul><li>If stocks decline right after purchase, is that a further buying opportunity or an indication of incorrect analysis? </li></ul><ul><li>Continuously monitor key assumptions </li></ul><ul><li>Evaluate closely when market value approaches estimated intrinsic value </li></ul><ul><li>Know why you bought it and watch for that to change </li></ul>
  56. 56. Efficient Markets <ul><li>Opportunities are mostly among less well-known companies </li></ul><ul><li>To outperform the market you must find disparities between stock values and market prices - and you must be correct </li></ul><ul><li>Concentrate on identifying what is wrong with the market consensus and what earning surprises may exist </li></ul>
  57. 57. Influences on Analysts <ul><li>Investment bankers may push for favorable evaluations </li></ul><ul><li>Corporate officers may try to convince analysts </li></ul><ul><li>Analyst must maintain independence and have confidence in his or her analysis </li></ul>
  58. 58. Global Company and Stock Analysis <ul><li>Factors to Consider: </li></ul><ul><ul><li>Availability of Data </li></ul></ul><ul><ul><li>Differential Accounting Conventions </li></ul></ul><ul><ul><li>Currency Differences (Exchange Rate Risk) </li></ul></ul><ul><ul><li>Political (Country) Risk </li></ul></ul><ul><ul><li>Transaction Costs </li></ul></ul><ul><ul><li>Valuation Differences </li></ul></ul>
  59. 59. The Internet Investments Online <ul><li>www.better-investing.com </li></ul><ul><li>www.fool.com </li></ul><ul><li>www.cfonews.com </li></ul><ul><li>www.ibes.com </li></ul><ul><li>www.zacks.com </li></ul><ul><li>www.valueline.com </li></ul><ul><li>www.financialweb.com </li></ul><ul><li>investor.msn.com </li></ul><ul><li>www.marketedge.com </li></ul><ul><li>www.nyssa.org </li></ul>

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