Spreadsheets for Tracking Stocks

							Guidelines for Company Reports

The company reports are designed to get you ready for the new stock presentations. They
provide us an opportunity to monitor the existing stocks in our portfolio. The company reports
have some specific information that the groups must collect, analyze, and report on for one of
your stocks that you are to follow. (I will let you know which stock you are to follow in detail).
You must prepare a written summary of your report that will be collected and graded. You must
include any calculations (spreadsheets) that you use for your analysis. Your written report
should focus on the descriptions and interpretation of your analysis. Do not assume that your
reader knows the methods that you use. Also, you should prepare a 5 minute presentation of
your findings to be presented in class. Additionally, I may ask each group if there is any
relevant information about their companies. Do not waste class time discussing trivial
information. However, I will be tracking the stocks and I will deduct points if you do not
mention all relevant information.

Company Report #1 (Due Friday, January 26): Basic Information (This should be done for all
stocks that you are to follow. All other detailed reports will focus only on one stock.)
       -- What does the company do?
       -- Where does it stand in its industry?
       -- How has it performed?
       -- Basic valuation ratios (P/E, P/B, P/S)
       -- What are the growth expectations for the company?

Company Report #2 (Due Friday, February 9): Financial Statement Analysis
     --Industry comparison of financial ratios
     -- Where is the company strong and where is it weak?
     -- Is the company a good company?

Company Report #3 (Due Friday, February 23): DCF Valuation
     -- Value company using FCFF valuation technique
     -- Discuss DCF Valuation Input Assumptions, make sure all assumptions are justified

Company Report #4 (Due Wednesday, April 11): Forecasting Financials
     -- Value company using financial statement forecasting
Guidelines for Market Update

Update the class on any major movements in the equity markets and on any important events in
the financial world during the past week. Paying attention to recent “Abreast of the Market” and
“Heard on the Street” columns from the Wall Street Journal will help you enormously in this.
Note, that just saying “the Dow was up 30 points last week” will get you an F for this part of the
course. Also, don’t just copy the headlines for the week. Be creative, what we need is your
analysis of the market. Try to emphasize any news from or that will affect our industries.
We need to know how market events will affect our investments. You will be required to
provide a brief write up of your update (see brief sample below, I expect you to have more
news) as well as a 5 to 10 minute summary to the class on your update.

                                Very Brief Sample Market Update

Dow:
       Down 94.60 to 8824.41 (-1.06%) for the week at the close on Friday.

Nasdaq:

       Down 43.96 to 1347.78 (-3.16%) for the week at the close on Friday.

Major news:

Consumer confidence fell to lowest levels in 9 months.
      -- Helped explain drop in market
      -- Offset positive economic news regarding durable goods orders
      -- Has big impact for retailing, but positive news regarding durable goods is a possible
      sign the economy is stabilizing

Technology stocks hit hardest
      -- Nortel Networks announced another round of layoffs. Impacts all of technology sector
      which, given the dot com bust, is particularly sensitive to bad news.

Merrill Lynch fined $7.7 million to couple who claimed firm mismanaged their account
        -- Importance of fiduciary responsibility to clients
        -- Could lead to further lawsuits, dragging down financial services sector?

Industry News:

       Retail sector experienced drop in sales for the month.
               -- Hits our retail stocks hard, may lead to cuts in profits

       Natural gas prices rising
              -- Benefits energy concerns like DGAS
              -- May affect consumers, could reduce discretionary spending (YCC could be
              affected)
New Stock Assignments

These assignments are designed to help you in the process of picking a new stock to present to
the class. Essentially, these assignments get you to look at your industry and begin to make
some judgments about the stocks in that industry well before you have to select a stock to
present. No presentations of the new stock assignments will be made but I may ask you
some questions.

Assignment #1 (Due Monday, January 22):

Provide me a spreadsheet listing of all stock within your industry based on the Yahoo industry
categories that you have been assigned. Email me the spreadsheet by the due date. I do not
want a hard copy!

Assignment #2 (Due Monday, February 12)

Based on Peter Lynch’s criteria for selecting a stock, identify the 10 companies within your
industries that you believe Peter Lynch would deem as potentially good investments. For each
company categorize the stock based on Peter Lynch’s types of stocks and list the good (and bad)
“Peter Lynch” characteristics that you have observed. Provide me with a written summary of the
above information.

Assignment #3 (Due Wednesday, February 21)

List your top ten companies within your industries. These do not have to be the same as the 10
best Peter Lynch companies. Basically I want you to give me what you think would be the 10
best stock picks within your industries. For each of your picks, explain why you think the
company is a good company and why you think that the company may be undervalued.
Guidelines for New Stock Evaluation:

Your report should be structured as follows:

1. Cover page and executive summary:

       -- Following the cover page, you should have a one-page executive summary of parts 2-5
       below as well as a discussion as to why the company would fit the fund’s “value”
       strategy

2. Company and industry analysis

       -- What does the company do? (not too much history, just the main points, don’t copy
       stuff from websites, etc. without citation)
       -- What industry is the company in and who are the main competitors?
       -- What challenges do the company and the industry face?
       -- What major events have taken place in the company over the last couple of years and
       how do they impact the value of the company?
       -- Who owns the company and how does that impact value?
       -- Any other things we need to know about this company or industry? This is the section
       where you demonstrate your knowledge of the company and its industry.

3. Ratio analysis

       -- A thorough ratio analysis should be done covering all categories of ratios
       -- You should spend a significant amount of time on this discussion. Make sure to
       interpret the ratios. What do they mean? Where is the company strong and where is it
       weak?
       -- Ultimately, we need to know if this is a good company?

4. Expectations

       -- Based on your industry and company analysis and your ratio analysis, what do you
       expect from your company?
       -- Is it fast growing, slow growing, etc.?
       -- What does the future hold?
       -- Where will increases in value come from?
       -- Why is the company undervalued?
       -- These expectations will for the basis for the assumptions you make in your valuations
       -- Expectations should come from what the company has done and will do in the
       future
5. Valuation

       -- List all assumptions that you will be using and justify the assumptions (if you have
       done a good job in parts 3 and 4, this should be easy)
       -- Discuss the valuation methods used. Don’t assume that the reader knows the details of
       each method.
       -- Use all the valuation approaches discussed in class. Hopefully, you will converge at an
       answer.
       -- Sensitivity analysis should be done. How do your valuations change when your
       assumptions change?
       -- Come up with your target price and recommendation (strong buy, moderate buy, weak
       buy, don’t buy)
       -- All computations (spreadsheets) should be included and make sense
       -- You will be required to provide your computations to the class one class period
       before your presentation.
       -- You are also required to provide me with a final version of your spreadsheets.

6. In-Class Presentation

       -- You should prepare a 15 minute presentation that summarizes your findings and
       delivers your recommendation. The rest of the groups should be familiar with the stock
       and the methods used, so just get to the results. We will leave 10 minutes for discussion,
       so be prepared to answer questions.
Guidelines for supplemental stock analysis:

For each stock presented, your group must have a supplemental analysis (10 in total for the
semester). The supplemental stock analyses are designed to make sure that your group is
familiar with the stocks that are being presented. You can’t make an informed decision if you
are not well informed. The supplemental analysis should consist of two parts:

        1. A one page executive summary that covers your general perceptions of what the
       company does, if this company is a good company, and if it is undervalued.

       2. A summary of your impression regarding the valuation of the company, including (but
       not limited to):

              -- An idea of a reasonable growth rate for the company
              -- An understand of any issues that may affect valuation (negative earnings, etc.)
              -- An understanding of their basic valuation ratios (P/E, P/B, P/S) and if these
              seem high/low
              -- You should value the company using one of the techniques described in class
              -- Give your impression about the value of the stock (over or under valued)

I will ask for a quick summary of your groups’ impression of the stock during the new stock
presentation. Also, I will ask for questions from the audience, so be prepared! We need to pick
good investments.