Pitch me a stock - Suggestions?

While I understand how to prepare for this quesiton, I was wondering what kind of stocks I should focus on when interviewing for a SA position? Is something like AMZN too blue-chip? You guys have any suggestions? Everything I've been following lately is red due to the general state of the economy...

 

"Bank of America. Paulson bought it and he's smarter than you."

"The Ultra-short financial ETF. What? You mean we're not going bankrupt if Europe goes under?"

In all seriousness, this is a stock pitch you should have ready and should really come up with on my own. Being an engineer, I was obsessed with oil companies and their fundamental metrics so it was fairly straightforward for me. We'll be able to tell if someone else gave you the idea.

Find something where economic cause and effect should have made a stock price go up but it went down instead because the guy on the other side of the transaction is selling for a dumb reason. As I was watching natural gas pipeline MLPs (which have the fundamentals of a very boring regulated utility) plummet faster than the market in early 2009 as the hedge funds cashed out, I would always joke with my friends on the floor, "FLIGHT FROM SAFETY! I'm terrified of losing money so I'll sell this safe, boring utility and buy a bank!"

 

So you would only pitch a stock that's already doing well? With a one year horizon, your logic is buy high...sell...higher? How about buying on macro related weakness when intra-index correlation is high and the company's fundamentals are strong? I don't think you really "understand".

Under my tutelage, you will grow from boys to men. From men into gladiators. And from gladiators into SWANSONS.
 

Whatever you choose, just make sure you're prepared to explain your logic and reasoning when they try to cross-examine you. Anticipate that they'll ask about some other metric that may not reflect so positively on it. The point is not necessarily to be right, but to show that you know how to evaluate an investment.

Metal. Music. Life. www.headofmetal.com
 

Thanks for your advice In The Flesh.

I'm not claiming to be the next Buffett guys.. if I were I wouldn't be here asking. And the portion of my question that remains unanswered is what size market cap should I be looking at? Thinking of looking into Canadian oil producers and I'm wondering what size players I should investigate on.

 

Do they even ask for stock pitches anymore? I dont see how as an undergrad you can ever answer this question intelligently without doing a full valution on the firm...At the end of the day you wanna pitch something that undervalued, not necessarily a growth company.

if you do want a growth..techs are pretty easy...CRN is one

 

Flake, the goal is not to buy high, sell higher. It is to trade against sentiment; to be on the other side of an irrational trade. Find a stupid reason for a stock to go down. Mine was UPS reporting bad earnings off of energy costs sending Burlington Northern down 5% in a single day back in 2006. Anyone who understands how a railroad works- having an engine using 5x the gasoline as a truck pull the equivalent of 50 semis- knows that they use less energy than UPS's aircraft and trucks and in fact benefit from MORE business when trucks start charging more. Interviewers loved that pick.

Figure out where the most irrational investors are selling their stock, ideally in an industry that you understand the fundamentals of. Maybe it is in Europe. Then pick the cheapest company that's well-managed and has a healthy balance sheet.

 
IlliniProgrammer:
Flake, the goal is not to buy high, sell higher. It is to trade against sentiment; to be on the other side of an irrational trade. Find a stupid reason for a stock to go down. Mine was UPS reporting bad earnings off of energy costs sending Burlington Northern down 5% in a single day back in 2006. Anyone who understands how a railroad works- having an engine using 5x the gasoline as a truck pull the equivalent of 50 semis- knows that they use less energy than UPS's aircraft and trucks and in fact benefit from MORE business when trucks start charging more. Interviewers loved that pick.

Figure out where the most irrational investors are selling their stock, ideally in an industry that you understand the fundamentals of. Maybe it is in Europe. Then pick the cheapest company that's well-managed and has a healthy balance sheet.

That's not what I was saying lol.

Under my tutelage, you will grow from boys to men. From men into gladiators. And from gladiators into SWANSONS.
 

I would talk about a stock that I follow or a stock that I could pitch.

The whole point of the question is to make sure you follow the markets and are able to reason why you think a stock is worth buying. There's no one specific answer.

 

I have been through a ton of SA interviews and basically what worked for me has been talking about Market Cap, Revenue, P/E ratios, EPS and a GREAT story behind the stock. These numbers I found on Yahoo! Finance or WSJ.com Nothing too crazy but it seems to work for ME.

+++Don't let the numbers make the story, use the numbers/data as a supporting factor :) Good luck bro!

 
SoCalGiant:
I have been through a ton of SA interviews and basically what worked for me has been talking about Market Cap, Revenue, P/E ratios, EPS and a GREAT story behind the stock. These numbers I found on Yahoo! Finance or WSJ.com Nothing too crazy but it seems to work for ME.

+++Don't let the numbers make the story, use the numbers/data as a supporting factor :) Good luck bro!

Agreed. Spitting out number after number in an interview for an internship is asking to grilled. Unless you really do know a lot about the company and can field a technical question, focus on telling a good story and selling them on why the COMPANY will continue to expand, not how the P/E is at a 7 month low. Of course, throw in some numbers to back up your pitch.

Also might be good to look at who is buying (insiders, money managers with proven track record). Never hurts to piggy back on successful investors and for a young guy like yourself, it would show that you are looking to learn from those with more experience.

Also, if you are going to pitch an energy company I would familiarize myself with the current geo-political situation. Approx. how many b/d certain regions/countries are producing (particularly those in troubles regions) and where excess supply might come from.

 

I think the inclusion of some sort of simple and logical back-of-the-envelope valuation is what makes you stand out on a pitch. Anyone can read about a macro trend in the newspaper and realize which industries will do well- you want to pitch them a specific stock and show it's undervalued.

My go-to for a while was an oil@gas company. I would say "well it's trading at $20 per share and has $24 of proven reserves per share, which should be a floor, as you get their unproven reserves for free at that price. XX company bought a portion of these unproven reserves for $XX, valuing them at $XX per mcfe, which values the entire section of unproven reserves at $XX, or $15 per share. So I see $24 as the downside and $39 as the upside."

So keep it simple but include some sort of valuation.

 
makers mark:
I think the inclusion of some sort of simple and logical back-of-the-envelope valuation is what makes you stand out on a pitch. Anyone can read about a macro trend in the newspaper and realize which industries will do well- you want to pitch them a specific stock and show it's undervalued.

My go-to for a while was an oil@gas company. I would say "well it's trading at $20 per share and has $24 of proven reserves per share, which should be a floor, as you get their unproven reserves for free at that price. XX company bought a portion of these unproven reserves for $XX, valuing them at $XX per mcfe, which values the entire section of unproven reserves at $XX, or $15 per share. So I see $24 as the downside and $39 as the upside."

So keep it simple but include some sort of valuation.

If you can produce something like the example given by makers mark then that is probably the best thing to do for a fundamental stock pitch.

It hits the two key criteria: 1) Simple/Easy to explain 2) Shows you know something/done personal research

 

on a side note, i would not recommend using the guide if you're just trying to prepare for a 'do you follow a stock?' question during an ib interview

just stay up to date with recent stories and developments, recent stock price history, P/E & EPS, and you should be more than fine. it will never go deeper than that unless you're interviewing for a position in a HF

 

Thanks for all the thoughtful insight everyone. Unfortunately this site would not publish my post until now despite writing this weeks ago so I didn't get any of the advice for the interview.

I ended up making a value pitch, mentioned a few numbers but went mostly with a qualitative approach, the "good story" method. It was for a frosh/soph IBD internship so I doubt they were looking for anything too deep. Ended up nailing the interviews and just received an offer a few hours ago!

 
moneymogul:
Thanks for all the thoughtful insight everyone. Unfortunately this site would not publish my post until now despite writing this weeks ago so I didn't get any of the advice for the interview.

I ended up making a value pitch, mentioned a few numbers but went mostly with a qualitative approach, the "good story" method. It was for a frosh/soph IBD internship so I doubt they were looking for anything too deep. Ended up nailing the interviews and just received an offer a few hours ago!

congrats!
 

1) Pick a SMID cap so it's less likely the interviewer knows it well. 2) Choose a sector that you're generally knowledgeable about. This will limit the chance that you end up looking stupid. 3) Find a stock that has 75+% neutral or sell ratings from the sell side. Try to poke holes in the groupthink or sentiment that makes the stock so hated.

All of the above will show that you have original ideas, can think independently and aren't afraid to go against consensus. That's what interviewers want to see.

 
Dank Nugs:

1) Pick a SMID cap so it's less likely the interviewer knows it well.

If you can speak to the idea extremely intelligently and be able to answer every single question the interviewer throws at you, does it really matter? Not saying this gives you grounds to pitch AAPL, or FB, or some other name CNBC seems to be transfixed by every day. I'm just wondering whether it really matters whether you pick a small-cap or mega-cap as long as your thesis is solid.

 

I am not a professional investor (very far from it), and given that, my method is likely very different (and in some ways probably objectively worse) than how a hedge fund professional goes about sourcing investment ideas. Having said that, I can still outline the general process I take:

  1. Initial Qualitative Screen - This step consists of using a variety of qualitative factors that will rule out a ton of stocks. These factors will vary from person to person, but some that matter for me are the company is in a geography that I understand (domestically headquartered companies only), I FULLY understand how companies in the space make money (eliminates mining& metals, maritime shipping, and to some extent banks), I have a good understanding of the industry dynamics (narrows me down to technology, healthcare, consumer/retail, and media companies).

  2. Basic Quantitative Screen - I then narrow the universe of companies based on a variety of factors related to valuation, profitability, and size of the company. For example, I might automatically reject all companies that are not profitable, eliminate all companies trading at more than 500% of the LTM P/E of their peer group, and eliminate all companies with a Market Cap of less than $500 million. It's not that companies that are bleeding cash, very small companies, or richly valued companies based on traditional methods are always poor investments, it is just that I personally am not as confident in my ability to analyze them very well. Invest in what you know.

  3. Initial Diligence - Based on the companies that remain, I will do a quick search of the news surrounding the company (management changes, potential M&A scenarios, big contracts up for renewal if the company is primarily B2B). Any news that I don't understand about a company or any news that scares me given my risk profile, I'll eliminate the company. Any company with interesting news or that concerns potential near-term catalysts, I'll pursue.

  4. Learn The Business (10-k) - Any companies that caught my eye positively in the step above moves to the top of my list. At this point I will pull up the most recent annual report of the company and read it front to back. In my own (maybe not totally qualified opinion), this step is the most important. If I am being truly diligent (which I am not always), then I will not invest in a company without reading the entire 10-k to understand EXACTLY what the company does, how it does it, and what its biggest threats and opportunities are, etc.

  5. Valuation - This is pretty free form, but if I like a company after reading the 10-k, I will run a DCF (if I have any degree of confidence in my projections) and look at trading comps for the peer group bearing in mind which ratios are most fitting and representative in the space. If my analysis shows that the security is underpriced (or even if it is priced fairly but I think investor sentiment / momentum could drive it up), I will continue to the last step.

  6. Look for short term catalysts. So I understand the company inside and out, I like it, and I think it is undervalued. The next question is "When will the price go up and why?". For this it is helpful to understand common catalysts in the space, which is why I focus on a limited number of sectors and company size. Is the company a hot target for activists or a strategic acquirer? When is the earnings report and do I have any reason to believe they will beat? etc., etc.

Again, this is not coming from the perspective of someone who invests in stocks professionally, but rather from someone who is looking to several years from now. My steps are probably less extensive than what you would see from people who do this professionally, but I would like to believe that I do a lot more work than your average guy who picks stocks and I also know that the system works for me.

 

I would say that I recommend no stocks at this time, stay in cash until the market crashes and then tell them what stock you would buy at that time.

 

This applies for equity research and trading only; IMO don't pick a popular domestic company, especially if the firm has coverage with the team you are interviewing with. Otherwise you are giving us permission to essentially grill you on something you might have only spent a few weeks learning about which we have been covering for months. If you do get this question the wrong answer is the one you don't defend.

 

Simple story e.g. for financials - Greenhill not JPM . 13fs. pressed for time? - read sell-side initiations and just rip thesis/key facts. long term holders usually - keep in mind. 2 minutes. have 3. Will ask investment philosophy - you probably dont have one. google "The T. Rowe Price Approach to Investing in Growth Stocks" - and copy find similar one if value. modeling test. annual. simple - bare minimum - no 9000 drivers. DCF easiest - multiples have to explain - can get complicated if you dont know what you are doing.

 

Be able to present your thesis with key points in a few sentences please. Be able to justify your thesis with whichever philosophy you choose. Also be able to talk about risks related to your thesis.

 

You don't have to be so elaborate as to have run your own DCF, but you should be able to back up your arguments with numbers. Have one buy and one sell recommendation ready, to be flexible. Also, your best bet would be to pick a company that's big in its industry, but isn't big enough that everyone knows a lot about it. So don't go for the Apples and Googles of the industries you're looking at, but talk about companies that are making significant innovations or contributions to their industries.

 

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