3. 3
Return on Investment
𝐺𝐺𝐺𝐺 − 𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺/𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺
Return on Assets
How efficiently do companies use assets to turn into profits
𝐺𝐺𝐺 𝐺𝐺𝐺𝐺𝐺𝐺/𝐺𝐺𝐺𝐺𝐺𝐺𝐺 𝐺𝐺 𝐺𝐺𝐺𝐺𝐺 𝐺𝐺𝐺𝐺𝐺𝐺(2 𝐺𝐺𝐺𝐺𝐺)
Current Ratios
𝐺𝐺𝐺𝐺𝐺𝐺𝐺 𝐺𝐺𝐺𝐺𝐺𝐺/𝐺𝐺𝐺𝐺𝐺𝐺𝐺 𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺
Debt Ratios
𝐺𝐺𝐺𝐺𝐺 𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺/𝐺𝐺𝐺𝐺𝐺 𝐺𝐺𝐺𝐺𝐺𝐺
Dollar Cost Averaging
Using dollar cost averaging, this table presents the amount that was earned in the past five years
when buying $2,500 worth of shares every 6 months for the past 5 years starting in March of
2010. When this is done, the investor can do particularly well as the market is volatile but over
time is a steady increase from 5 years ago.
Introduction:
We understand that you, Mr. Abraham, are a man of wealth, and setting aside $100,000 is
a small portion of your portfolio, but that enables us to invest in stocks that are stable and also
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will provide you with huge growth later in the future, which you can use to invest in small
growing companies. Our investment strategy is to invest in four sectors, basic materials,
technology, healthcare, and services. Stocks in these sectors have shown huge growth in the past
five years and continue to show potential. The plan is to use all the assets and invest $25,000 into
each sector. The basic materials, and healthcare sectors are very volatile and unstable, there is
high risk, but on the contrary, there can be high returns. It is not safe to invest large sums of
money into one sector since it will only provide instability. It is safer, however, to invest small
portions of the assets into several sectors. Here are our top choices of stock from each sector:
Apple, Amgen, BP, and Yahoo.
Apple (AAPL)
Synopsis
Apple Inc designs and manufactures, media devices, personal computers, portable digital
music players, and sells a variety of related software, services, accessories, networking solutions,
and third-party digital content. They recently launched the Apple Watch, which has received a
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relatively good response from the public. Apple has grown into a major company in the past five
years and it will still grow in the future. With a solid P/E ratio of 17.09, their stock is considered
a safe and stable stock with slow growth. Their return of assets is a modest 18.3%. The company
has used its assets to design and build products such as the iPad which has lead to huge profits.
SWOT Analysis
Apple has many strengths, and one of those strengths are its profitability margins. With a
gross margin of 39.7% and an operation margin of 29.67%, these high margins means that
Apple is running efficiently and is generating high profits. Another strength is that Apple is in
two industries: the computer industry and the cell phone industry. In case if one industry fails,
the company would still be stable. A rival of Apple in mobile technology, Blackberry, has a
51.70% in gross profit, but their operation margin is -17.83%. Apple is beating Blackberry, and
is generating more revenue.
There are weaknesses to Apple, they are facing stiff competition on the global market
from other companies such as Samsung and HTC, and these companies combined hold a large
percentage of the mobile market. Samsung and HTC are able to create formidable cell phones to
pitch against the iPhone, which the market is also attracted to. But Apple has the upper hand
since Apple creates both the software and hardware, which means that they have more flexibility
and control. Apple has boundless opportunities with their budget. The company has recently
ventured into creating new products such as the Apple Watch and is currently exploring the car
industry.
The threats the company faces are lawsuits and the international market. The company
was recently sued by Smartflash, a Texas Company, who licenses data storages. Apple violated
three of its patents on storing and managing data, and payment information. The company had to
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pay $533 million in reparations. This could potentially damage the image and brand of the
company. The brand and image of the company must stay intact for the company to survive.
Apple is not faring well in the international market, sales in China, and India are slow. Their
relation and laws of the company have limited the market of Apple which hinders the market for
their products.
Dollar Cost Averaging
Stock: AAPL
Initial investment amount: $2,500.00
Recurring investment amount: $2,500.00
Recurring investment interval (months): 6
Initial investment number shares 78.939
Number recurring investments 10
Total recurring investment amount $25,000.00
Number recurring investment shares purchased 423.698
Total number shares purchased: initial plus
recurring
502.637
Average recurring investment cost per share $414.33
Highest recurring investment price shares $128.46
Lowest recurring investment price shares $32.76
Final value of all shares $62,015.36
Amgen (AMGN)
Synopsis
Amgen, based in California, is a biotechnology company that discovers, develops,
manufactures and delivers human therapeutics. Their gross margin is 78.0% and the operational
margin is 30.9%. Compare to Celgene, their gross margin is 96.50% and the operational margins
is 41.79%. Despite the margins being higher than Amgen’s, Celgene has a dangerously high P/E
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ratio of 51.11, which makes its stock much more unpredictable and unstable. Amgen has a
moderately high P/E ratio of 24.78. In a five year time period, Amgen has shown a greater
growth than Celgene.
SWOT Analysis
Amgen has strengths of their own—they have a well known brand name; they are an
industry leader; and they have good relationships with healthcare providers, which provides for
consistent revenue. The weaknesses of Amgen are its few products. This can lead to risks from
government actions, cause safety concerns, supply concerns and output problems. The cost of
capital will increase and the value of the company will decrease. The opportunities present for
the company is that it still has room for growth. Healthcare providers are growing worldwide,
which provides the company with a long term growth. The company has opportunities to make
more medicinal remedies which would increase the sales and eventually the price of the stock
will increase. The threats the company face are the declining sales due to the few products that it
sells, and the company is also facing huge competition from companies such as Johnson and
Johnson. Amgen’s return of assets is 7.6%, and the median in the healthcare industry is 6.6 %.
Dollar Cost Averaging
Stock: AMGN
Initial investment amount: $2,500.00
Recurring investment amount: $2,500.00
Recurring investment interval (months): 6
Initial investment number shares 44.907
Number recurring investments 10
Commented [1]: Needs la graph
Commented [2]: where do we get the graph from
Commented [3]: We find a five year chart and stick it
on here
Commented [4]: cannot find anything on google
Commented [5]: sorry can't find anything
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Total recurring investment amount $25,000.00
Number recurring investment shares purchased 340.723
Total number shares purchased: initial plus
recurring
385.630
Average recurring investment cost per share $524.45
Highest recurring investment price shares $164.44
Lowest recurring investment price shares $47.48
Final value of all shares $61,939.90
British Petroleum
Synopsis
British Petroleum provides energy products and services. The company explores for oil
and natural gas and also engages in supply and trading of oil. BP’s gross margin is 13.8% and
their operational margins is 1.3%. These values are less compared to Exxon Mobil, which has a
gross margin of 36.16% and operational margins of 10.49%, but BP has a high dividend yield of
6%. In case if the stock price drops or is performing poorly, a dividend will still be paid. The P/E
ratio of BP is 33.48, and the P/E ratio of Exxon Mobil is 11.18. Even though BP has a higher risk
than Exxon Mobil, the dividend is double than Exxon Mobil. Due to the recent price drop of the
oil barrel, which damaged the price of the oil industries, the oil stocks are oversold.
SWOT Analysis
The strengths that BP has is that they were able to recover quickly from losses resulting
from low oil barrel prices, and the value of the stock continued to grow. The weakness of the
stock is that it is too volatile, however, the company has been in the market for a long time, and
this provides stability to stockholders. BP has a handful of opportunities of their own: the
company is discovering new oil and gas resources with help of advancements in technology and
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drilling techniques. BP found a field in Oman, which has the largest tight gas accumulations.
Discoveries like these will provide jobs, growth in business, and will lead to an increase in the
stock price. The threats that still loom over BP is the Gulf Oil Spill of 2010. The company has
spent huge amounts of their assets to clean the disaster, and were fined for criminal charges. An
event like this almost destroyed the company’s brand image and severely damaged their
reputation. For BP to survive, they cannot allow another incident such as this to occur again.
The energy sector is a growing industry worldwide, and a stock like BP will provide stable
growth in the future which is a major advantage to have in an investment portfolio.
Stock: BP
Initial investment amount: $2,500.00
Recurring investment amount: $2,500.00
Recurring investment interval (months): 6
Initial investment number shares 54.336
Number recurring investments 10
Total recurring investment amount $25,000.00
Number recurring investment shares purchased 632.864
Total number shares purchased: initial plus
recurring
687.200
Average recurring investment cost per share $232.06
Highest recurring investment price shares $50.62
Lowest recurring investment price shares $23.67
Final value of all shares $27,494.88
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Yahoo
Synopsis
Yahoo! is a technology company that offers search content and communication on mobile
phone, tablet or desktop. Their gross margins is a high 71.9%. Google, the main competitor of
Yahoo!, has a lower gross margin of 61.77%. Yahoo!’s P/E ratio is 5.98 and Google’s P/E ratio
is 27.41. Compared to Yahoo!, Google is a high-risk stock, and high risk stocks provide huge
growth, but in your portfolio we already included two high risk stocks (Amgen and BP), and it
will be beneficial to add a stable stock in the portfolio.
SWOT Analysis
One of Yahoo!’s strengths is its better connectivity with social networking sites such as
Twitter and Facebook. The website offers many services such as sports, finance, weather, news,
and other useful components. The weaknesses for Yahoo! is the company’s weak search engine.
They lag behind competitors like Microsoft Bing and Google. Yahoo! also has a low operating
margin of 3.1%. The presented opportunities for Yahoo! is their increasing user base. On a daily
basis, the amount of users on the Internet is growing and Yahoo! can benefit from this. The
major threats to Yahoo! are competition from Microsoft and Google. Online security is also a
major issue that Yahoo will face, and more people are resorting to social networking to find
information rather than using search engines.
Stock: YHOO
Initial investment amount: $2,500.00
Recurring investment amount: $2,500.00
Recurring investment interval (months): 6
Initial investment number shares 151.240
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Number recurring investments 10
Total recurring investment amount $25,000.00
Number recurring investment shares purchased 1,214.085
Total number shares purchased: initial plus
recurring
1,365.325
Average recurring investment cost per share $146.73
Highest recurring investment price shares $51.74
Lowest recurring investment price shares $13.10
Final value of all shares $60,347.38
Investment Decision Process
In the beginning of the competition, the team decided to invest in at least one stock from each
sector, and at the end of the competition, the team decided to invest in stocks that had stable
growth. A number of tools were used in the analysis process: P/E ratios, slow stochastic graphs,
five-year stock chart, and stock analysis reports and recommendations from Wall Street helped
the team to determine which stocks to invested in. The P/E ratio and the five-year stock chart
was effective in achieving the overall risk and health of the stock, but the analysis reports, and
the slow stochastic graphs proved to be the most effective. To be different in the investment
decision process is to have a SWOT analysis of the stock and one of the major competitors of the
company to examine the growth. We learnt that, we should be patient with our stocks and not
react immediately if a stock price goes down. Taking immediate decisions also led to our
downfall, because we did not really examine how Wall Street would take bad news of a
company. This competition really helped us in understanding that the stock of a company should
be seen in a long term and not short term. Through the investment decision making process, we
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also learnt that it is a must invest in a stable stock and a cheap stock and we always cannot invest
in big name companies such as Google and Tesla.
Team Dynamics
It was easy to find ourselves questioning and voicing concern about one's investment
recommendations. It was the team's top concern to have the most intelligent and researched
investment picks for the utmost success to the team. One team member would come with
recommendations, we would then each evaluate the individual companies, and thoroughly
research and form our opinions. From that we would come together to calculate the amount of
shares we wanted and when exactly we want to buy in. Each team member has their own unique
qualities and opinions. Every one of us has real-world experience and past competition
experience when dealing with investing. This team was a well qualified, high caliber group of
knowledge and experience. Traits that we possessed that made us successful were knowledge,
instinct, problem solving and awareness.
Ethics
There will always be a way to cheat for a quick dollar, but we believe that in the broad picture
that reporting such activities to the authorities would be the most ethical and moral choice. The
risk taken in that type of situation far outweighs the reward, and this is never something that we
would dare to do with even our own money. As a responsible citizen, we would report it to the
U.S Securities and Exchange Commission, and they will look into it. The amount of people
investing in the stock market has decreased because of insider trading, and due to this regular
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public do not have a chance in making extra money. It is important to have high ethical
standards, because we want investors to have trust in us, and we do not want to harm investors
because of our mistakes. It is immoral to bring down another person due to some other persons
mistakes. When an investor looks to us, we want their trust and comfort in knowing that we
make the correct, knowledgeable decision every buy and sell.
Another possible ethical issue that can come up is being honest and realistic with our investors.
We take great confidence in our investment choices, and we would never want to misrepresent a
stock by over exaggerating what they are really buying.
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Section 5
From engaging in this competition, our team has gained a deeper understanding of the
stock market, and learned several skills such as managing portfolios, budgeting money in
different sectors, working in a team, and learning how to tackle losses. We learned that this
challenge was difficult at first, but when we continued to make gains we grew in confidence and
knowledge. By the end of the competition we were making great picks and making bigger gains.
Before this competition, we did not know how to invest stocks based on P/E ratios, return on
assets, company revenue, gross margins, operating margins etc. Throughout the competition we
were able to grow bigger in our vocabulary.
What our team would have done differently in hindsight is to diversify the portfolio by
purchasing few stocks each sector, rather than investing large portions in one sector.
Our team was very happy with how the competition was drawn out. We found it very beneficial
to our investment knowledge.
