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Succeeding with Wall Street
A Guide for the C-Suite and Board
Cindy Shaw, CFA
May 2010
WIIFM?* Investors Want to Know:
©2010 Cindy Shaw, CFA. All rights reserved. 2
* What’s In It For Me?
Will the stock make m...
©2010 Cindy Shaw, CFA. All rights reserved. 3
Most Companies Do Little to
Help Answer the 1st* Question
* Will the stock m...
©2010 Cindy Shaw, CFA. All rights reserved. 4
What We Have Here is Failure to
Communicate the Right Information
IBM Communicates the Right Stuff
2010 – 2015 EPS CAGR of ~14% due to:
  Margin expansion (mix shift to software)
  Mid-s...
5000+ Stocks Trade on US Markets
6©2010 Cindy Shaw, CFA. All rights reserved.
Help investors find a
needle in the haystack...
Stocks are Products
The Three Key Reasons Products Fail Are:
  Poor Awareness
  Poor Understanding of its Benefits
  Fa...
8
Needles in a Haystack:
Developing Awareness
and Understanding
©2010 Cindy Shaw, CFA. All rights reserved.
Know Your Product and Customer
9©2010 Cindy Shaw, CFA. All rights reserved.
Wall Street’s “Sides”
BUY-SIDE SELL-SIDE
Business Investing Transactions & advice
Win By
Gathering, making &
preserving mo...
Analysts Recommend, PMs Decide	
  
©2010 Cindy Shaw, CFA. All rights reserved. 11
Portfolio
Manager
(“PM”)
Sell-Side Analy...
Where Did All the Sell-Side
Analysts Go?
2,600
2000 2009
16,200
12
Sources: Ernst & Young, Tabb Group and Meet the Street
...
Sell-Side Research Funding
Then Now
Investment
Banking
Client
Trades
13©2010 Cindy Shaw, CFA. All rights reserved.
Investors Get Information From
  Sell-Side Analysts
  Competitors, Customers and Suppliers
  The Media
  The Company
1...
Understanding Wall Street
Their Strengths:
  Access to info
  See the big picture
  Smart, educated
  Have seen many
i...
Working with Investors
Elevator Summary
Facilitate Fast, Easy Research
Be Prudent, Transparent & Credible
16©2010 Cindy Sh...
17
Will the Stock be a
Moneymaker?
©2010 Cindy Shaw, CFA. All rights reserved.
Investors Evaluate:
18
Sentiment
Fundamentals
Valuation
©2010 Cindy Shaw, CFA. All rights reserved.
Sentiment: “Tao Jones” Index
~ 50% Macro
~ 35% Sector
~ 15% Stock
19©2010 Cindy Shaw, CFA. All rights reserved.
Fundamental Strategies
 Increase revenue
 New customers / products / geographies
 Raise prices?
 Divest or fix a weak ...
Valuation Varies — A Lot
Source: Seeking Alpha, 4/23/10 market close
21©2010 Cindy Shaw, CFA. All rights reserved.
13
16
2...
Valuation Multiple Determinants
  Profit Expectations
  Prospects (Strategy / Market / Position)
  Execution (History /...
Market Factors
  Price
  Liquidity & Market Cap
  Research / Trading Coverage
  Pure Play Opportunities
  Simplicity ...
Strategic Factors
  The Usual: 5 Forces, SWOT, Life Cycle, 7S,
Boston Box and Value Chain
  Size / Growth of the Market
...
Operational Factors
  Quality and Depth of the Management
  Visibility (Orders, Guidance)
  Consistency of Performance
...
Financial Factors
  Earnings Per Share Growth
  Quality of Earnings
  Revenue Growth
  Margin Levels and Trends
  Fre...
Investor Rules of Thumb
27©2010 Cindy Shaw, CFA. All rights reserved.
  Beware declining margins and slowing revenue grow...
Recommendations
28©2010 Cindy Shaw, CFA. All rights reserved.
Develop Awareness & Understanding
  Elevator Summary
  Facilitate Fast, Easy Research
  Be Prudent, Transparent & Credi...
Discuss the Outlook and Its Drivers
©2010 Cindy Shaw, CFA. All rights reserved. 30
Make It Easy to Learn and Explain Why
Your Stock Could be a Moneymaker	
  
©2010 Cindy Shaw, CFA. All rights reserved. 31
Appendix
32
Cindy Shaw, CFA
shaw@stanfordalumni.org
LinkedIn: www.linkedin.com/in/CindyShawCFA
©2010 Cindy Shaw, CFA. All ...
HAPPY MAD
MAD
REAL
MAD
SELLBUY
Right
Wrong
Company and Long Investor Perspective
33©2010 Cindy Shaw, CFA. All rights reser...
~65% Buy
~30% Hold
~5% Sell
HAPPY MAD
MAD REAL
MAD
SELLBUY
Right
Wrong
Therefore
34©2010 Cindy Shaw, CFA. All rights reser...
The Power of a 1% Cost Cut
35©2010 Cindy Shaw, CFA. All rights reserved.
Cost
Cut
STARTING
Margin
ENDING
Margin
% Profit
I...
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Succeeding with Wall Street, A Guide for The C-Suite and Board of Directors

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Insights on how to work with Wall Street to achieve fair value for a company’s stock price.

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Succeeding with Wall Street, A Guide for The C-Suite and Board of Directors

  1. 1. Succeeding with Wall Street A Guide for the C-Suite and Board Cindy Shaw, CFA May 2010
  2. 2. WIIFM?* Investors Want to Know: ©2010 Cindy Shaw, CFA. All rights reserved. 2 * What’s In It For Me? Will the stock make me money? What are the risks?
  3. 3. ©2010 Cindy Shaw, CFA. All rights reserved. 3 Most Companies Do Little to Help Answer the 1st* Question * Will the stock make me money?
  4. 4. ©2010 Cindy Shaw, CFA. All rights reserved. 4 What We Have Here is Failure to Communicate the Right Information
  5. 5. IBM Communicates the Right Stuff 2010 – 2015 EPS CAGR of ~14% due to:   Margin expansion (mix shift to software)   Mid-single digit revenue growth   Share buybacks Source: IBM at its May 2010 Analyst Day; many supporting details were also provided. 5©2010 Cindy Shaw, CFA. All rights reserved.
  6. 6. 5000+ Stocks Trade on US Markets 6©2010 Cindy Shaw, CFA. All rights reserved. Help investors find a needle in the haystack (your company’s stock).
  7. 7. Stocks are Products The Three Key Reasons Products Fail Are:   Poor Awareness   Poor Understanding of its Benefits   Failure to Deliver the Benefits Source: “New Product Marketing”, a graduate-level course at The Wharton School at the Univ. of Pennsylvania 7©2010 Cindy Shaw, CFA. All rights reserved.
  8. 8. 8 Needles in a Haystack: Developing Awareness and Understanding ©2010 Cindy Shaw, CFA. All rights reserved.
  9. 9. Know Your Product and Customer 9©2010 Cindy Shaw, CFA. All rights reserved.
  10. 10. Wall Street’s “Sides” BUY-SIDE SELL-SIDE Business Investing Transactions & advice Win By Gathering, making & preserving money Trading & transactions (indirectly: being listened to) Clients Pensions, endowments, 401k plans, mutual fund investors BUY-SIDE and individual (“retail”) investors Examples Fidelity, American Funds, Dodge & Cox, Vanguard, PIMCO, BlackRock, Franklin Morgan Stanley, Goldman, JP Morgan, Merrill (BofA), Pacific Crest, Piper J., Jeffries, JMP Per Analyst 25 - 200+ stocks 12 - 18 stocks Other Financial background common Valued for access to management, industry contacts and unique info 10©2010 Cindy Shaw, CFA. All rights reserved.
  11. 11. Analysts Recommend, PMs Decide   ©2010 Cindy Shaw, CFA. All rights reserved. 11 Portfolio Manager (“PM”) Sell-Side Analyst Buy-Side Analyst
  12. 12. Where Did All the Sell-Side Analysts Go? 2,600 2000 2009 16,200 12 Sources: Ernst & Young, Tabb Group and Meet the Street ©2010 Cindy Shaw, CFA. All rights reserved.
  13. 13. Sell-Side Research Funding Then Now Investment Banking Client Trades 13©2010 Cindy Shaw, CFA. All rights reserved.
  14. 14. Investors Get Information From   Sell-Side Analysts   Competitors, Customers and Suppliers   The Media   The Company 14©2010 Cindy Shaw, CFA. All rights reserved.
  15. 15. Understanding Wall Street Their Strengths:   Access to info   See the big picture   Smart, educated   Have seen many investment theses play out… or not Their Challenges:   Perform or out   Nowhere else to go   Highly competitive   Typically no industry experience   Need to decide now   Time management 15©2010 Cindy Shaw, CFA. All rights reserved.
  16. 16. Working with Investors Elevator Summary Facilitate Fast, Easy Research Be Prudent, Transparent & Credible 16©2010 Cindy Shaw, CFA. All rights reserved.
  17. 17. 17 Will the Stock be a Moneymaker? ©2010 Cindy Shaw, CFA. All rights reserved.
  18. 18. Investors Evaluate: 18 Sentiment Fundamentals Valuation ©2010 Cindy Shaw, CFA. All rights reserved.
  19. 19. Sentiment: “Tao Jones” Index ~ 50% Macro ~ 35% Sector ~ 15% Stock 19©2010 Cindy Shaw, CFA. All rights reserved.
  20. 20. Fundamental Strategies  Increase revenue  New customers / products / geographies  Raise prices?  Divest or fix a weak operation  Reduce share count  Cut costs 20©2010 Cindy Shaw, CFA. All rights reserved.
  21. 21. Valuation Varies — A Lot Source: Seeking Alpha, 4/23/10 market close 21©2010 Cindy Shaw, CFA. All rights reserved. 13 16 24 27 26 17 25 32 0 5 10 15 20 25 30 35 Price-to-Earnings (P/E) Ratio
  22. 22. Valuation Multiple Determinants   Profit Expectations   Prospects (Strategy / Market / Position)   Execution (History / Consistency)   Risk (Credibility / Transparency / Visibility)   Market Factors   Investor Awareness and Understanding 22©2010 Cindy Shaw, CFA. All rights reserved.
  23. 23. Market Factors   Price   Liquidity & Market Cap   Research / Trading Coverage   Pure Play Opportunities   Simplicity of the Investment   Interest Rates / Outlook 23©2010 Cindy Shaw, CFA. All rights reserved.
  24. 24. Strategic Factors   The Usual: 5 Forces, SWOT, Life Cycle, 7S, Boston Box and Value Chain   Size / Growth of the Market   Industry / Market Position   Barriers to Entry   First Mover Advantage   Law of Large #s 24©2010 Cindy Shaw, CFA. All rights reserved.
  25. 25. Operational Factors   Quality and Depth of the Management   Visibility (Orders, Guidance)   Consistency of Performance   Global Reach   Market Share Gains   Breadth of Product Lines 25©2010 Cindy Shaw, CFA. All rights reserved.
  26. 26. Financial Factors   Earnings Per Share Growth   Quality of Earnings   Revenue Growth   Margin Levels and Trends   Free Cash Flow   Economies of Scale   Operating Leverage   Strong Balance Sheet 26©2010 Cindy Shaw, CFA. All rights reserved.
  27. 27. Investor Rules of Thumb 27©2010 Cindy Shaw, CFA. All rights reserved.   Beware declining margins and slowing revenue growth   Analysts never forget   Portfolio Managers have better memories than analysts   “Accretive acquisition” is an oxymoron   Turnarounds often don’t   Events happen in trilogies   Fixes take time
  28. 28. Recommendations 28©2010 Cindy Shaw, CFA. All rights reserved.
  29. 29. Develop Awareness & Understanding   Elevator Summary   Facilitate Fast, Easy Research   Be Prudent, Transparent & Credible Deliver 29 ©2010 Cindy Shaw, CFA. All rights reserved.
  30. 30. Discuss the Outlook and Its Drivers ©2010 Cindy Shaw, CFA. All rights reserved. 30
  31. 31. Make It Easy to Learn and Explain Why Your Stock Could be a Moneymaker   ©2010 Cindy Shaw, CFA. All rights reserved. 31
  32. 32. Appendix 32 Cindy Shaw, CFA shaw@stanfordalumni.org LinkedIn: www.linkedin.com/in/CindyShawCFA ©2010 Cindy Shaw, CFA. All rights reserved.
  33. 33. HAPPY MAD MAD REAL MAD SELLBUY Right Wrong Company and Long Investor Perspective 33©2010 Cindy Shaw, CFA. All rights reserved.
  34. 34. ~65% Buy ~30% Hold ~5% Sell HAPPY MAD MAD REAL MAD SELLBUY Right Wrong Therefore 34©2010 Cindy Shaw, CFA. All rights reserved.
  35. 35. The Power of a 1% Cost Cut 35©2010 Cindy Shaw, CFA. All rights reserved. Cost Cut STARTING Margin ENDING Margin % Profit Increase 1% + 1% = 2% 100% 1% + 2% = 3% 50% 1% + 5% = 6% 20% 1% + 10% = 11% 10% 1% + 20% = 21% 5% 1% + 30% = 31% 3.3%

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