WH's Interview Stock Pitch Checklist

WhiteHat's picture
Rank: King Kong | 1,001

This was originally posted on 10/26/12

For many positions, the stock pitch is the biggest part of the interview. It gives the interviewee the opportunity to explain his or her thought process and the way they evaluate an investment opportunity. It can separate the fakers from the legitimate candidates. In many cases it can be the difference between being asked back and being sent home.

But there's no class you can take that teaches you to properly pitch a stock or provide you with a stock pitch template. And there's plenty of people on this forum who are better resources than I am, and hopefully they'll chime in, but I've pitched the same 5 companies dozens of times and seeing the pitches that succeed and the ones that fail, I'd like to share my experience as to how you should go about pitching a stock in an interview.

Getting right to it, here's my checklist of things you should be sure to include when pitching a stock in an interview.

1. Industry Overview

Rather than starting with the company itself, outline the industry it is apart of and begin making your case for why it's an attractive place to be investing. Consider the following questions: What makes this industry economically viable? What makes the barriers to entry high enough to keep competition from destroying these economics? What is pricing power like and why do consumers accept it? For the consultant-types among you, think Porter's Five Forces. But I hate those.

2. Company-Specific Overview

Now explain where the company you're pitching fits in with the overall industry. Is it a market-leader, does it dominate a specific niche within the sector, or what makes it attractive compared to its competition? We'll get to valuation later, but if the reason you're pitching this company rather than another is simply that it's underpriced relative to competitors, be sure to highlight why your company is no different than the others in the industry then. Know the major profitability metrics for the business compared to competitors, such as gross and operating margins, EPS growth, and anything specifically relevant to the industry.

3. Where the Market Is Wrong

It wouldn't be a great opportunity unless the market was missing something, so this is where you want to point out why the security might be underpriced, what the catalyst(s) will be that changes this, and why you think that catalyst will happen. There's no specific information I can give you here since I think this is what separates a good analyst from a great analyst... just having the "edge" (I hate that word) to see right away that there's questions to be asked and possibly something Wall Street isn't seeing. Normally it's going to be something like the market not understanding a specific growth opportunity, an expense-related advantage, or a one-off event that people perceive as a fundamental shift in the business.

4. Valuation

This one's tough since you don't have 6 hours to explain every facet of a model or something ridiculous like that. What's important to know is the multiples for your company, the industry, and why there is a difference or why there should be a difference. This will usually relate to whatever it is the street is missing. Be sure to know the basics of your company's capital structure and what valuation metrics are important. This is a good opportunity to demonstrate that you're not retarded and know when to use EV/EBITDA over P/E or something else. Also important is some notion of a price target post-catalyst, and some estimation of what you think would happen to the stock price if the catalyst worked against you. This gives the interviewer a chance to see that you understand what risk/reward is. Bravo!

And remember, don't spend too much time on any one part of your stock pitch. The pitch shouldn't take much more than 5-10 minutes and leave plenty of time for the interviewer to start up a conversation and ask some questions. Being succinct is as important as being right.

Free Hedge Fund Pitch Template

See if you're ready for the real deal. Video solution + modeling file included so you can get realistic practice. Just enter your email in the field below.

Comments (180)

Oct 25, 2012

Great post! Is there a particular sector you like to focus on?

Oct 25, 2012

Nice post WH. +1
Number 3 seems to be the hardest part, figuring out why it is worth it. Where the risk advantage lies.

Oct 25, 2012

Nice post WH +1.

I am interested to know how you go about choosing the actual stock you pitch in the interview.

Must you stay within the sector you are interviewing?
Do you choose a well-known stock the interviewer is surely to know more about or a lesser known one to minimize in-depth questions?

Basically, I'm asking what choices you make to ensure you do not put your foot in your mouth during the pitch?

Oct 25, 2012
Simple As...:

Nice post WH +1.

I am interested to know how you go about choosing the actual stock you pitch in the interview.

Must you stay within the sector you are interviewing?
Do you choose a well-known stock the interviewer is surely to know more about or a lesser known one to minimize in-depth questions?

Basically, I'm asking what choices you make to ensure you do not put your foot in your mouth during the pitch?

Somewhere inbetween. Never pitch AAPL or something so ubiquitously known and unoriginal that the guy's going to think you came up with the pitch in the hallway, but don't pitch an obscure 100M market cap Chinese gaming company that has no revenue and is completely unknown to any normal investor. I like pitching mid-caps in some form of industrial or service type industry, usually something the guy will know and yes, if it's a sector job then you want to probably have something within the sector. Be careful not to go overboard though because you could be walking into a death trap if you pitch something that is the firm's #1 holding and you start stretching facts or something. You want the analyst to know the stock but probably not to know it like the back of his hand. And if he does, that's a good thing if you do too, but if you don't I'd be careful.

    • 3
Oct 25, 2012
WhiteHat:
Simple As...:

Nice post WH +1.

I am interested to know how you go about choosing the actual stock you pitch in the interview.

Must you stay within the sector you are interviewing?
Do you choose a well-known stock the interviewer is surely to know more about or a lesser known one to minimize in-depth questions?

Basically, I'm asking what choices you make to ensure you do not put your foot in your mouth during the pitch?

Somewhere inbetween. Never pitch AAPL or something so ubiquitously known and unoriginal that the guy's going to think you came up with the pitch in the hallway, but don't pitch an obscure 100M market cap Chinese gaming company that has no revenue and is completely unknown to any normal investor. I like pitching mid-caps in some form of industrial or service type industry, usually something the guy will know and yes, if it's a sector job then you want to probably have something within the sector. Be careful not to go overboard though because you could be walking into a death trap if you pitch something that is the firm's #1 holding and you start stretching facts or something. You want the analyst to know the stock but probably not to know it like the back of his hand. And if he does, that's a good thing if you do too, but if you don't I'd be careful.

Thanks. Great thoughts.

Oct 25, 2012

You don't include options/hedging strategy? Where I work they often ask for a market neutral position.

Oct 25, 2012

Good post. I also think management and managerial strategy is a great point to touch on, especially in context of your industry. If you can talk about why a company's executive team (make sure to drop names) has the perfect vision for the company, it can be a key point of inflection for your company's competitive advantage. Not to mention it demonstrates an intimate knowledge of the firm's strategy

Best Response
Oct 25, 2012
CaR:

Good post. I also think management and managerial strategy is a great point to touch on, especially in context of your industry. If you can talk about why a company's executive team (make sure to drop names) has the perfect vision for the company, it can be a key point of inflection for your company's competitive advantage. Not to mention it demonstrates an intimate knowledge of the firm's strategy

Absolutely. I totally forgot to mention this and had planned to put it in the valuation part but totally forgot, so thanks for mentioning this.

Know the CEO, maybe the CFO, and if you're really good also know the head of IR if it's a company the firm owns or the analyst is intimately familiar with. Pay special attention to things like management's focus on shareholders and what their typical cash management strategy is. Do they reinvest earnings at a reasonable rate of return, or do they return cash to the shareholders? Do they do it by buybacks or dividends? What's the ROE and the ROIC look like?

By the way, unrelated to this post but if an interviewer asks you the "if you could have just one piece of information about a company to tell if it's a good business or not, what would it be?" ...the answer is Return on Invested Capital. Your welcome.

    • 7
Oct 26, 2012
WhiteHat:
CaR:

Good post. I also think management and managerial strategy is a great point to touch on, especially in context of your industry. If you can talk about why a company's executive team (make sure to drop names) has the perfect vision for the company, it can be a key point of inflection for your company's competitive advantage. Not to mention it demonstrates an intimate knowledge of the firm's strategy

Absolutely. I totally forgot to mention this and had planned to put it in the valuation part but totally forgot, so thanks for mentioning this.

Know the CEO, maybe the CFO, and if you're really good also know the head of IR if it's a company the firm owns or the analyst is intimately familiar with. Pay special attention to things like management's focus on shareholders and what their typical cash management strategy is. Do they reinvest earnings at a reasonable rate of return, or do they return cash to the shareholders? Do they do it by buybacks or dividends? What's the ROE and the ROIC look like?

By the way, unrelated to this post but if an interviewer asks you the "if you could have just one piece of information about a company to tell if it's a good business or not, what would it be?" ...the answer is Return on Invested Capital. Your welcome.

Thats well explained man.

If you ain't gettin money dat mean you done somethin wrong.

" If you have built castles in the
air , your work need not be lost;
that is where they should be .
Now put the foundations under
them." - Henry David Thoreau

Oct 25, 2012

nice, i like this

Oct 26, 2012

Good one WH. +1

If you ain't gettin money dat mean you done somethin wrong.

" If you have built castles in the
air , your work need not be lost;
that is where they should be .
Now put the foundations under
them." - Henry David Thoreau

Oct 27, 2012

Nice post and very informative. Thanks for sharing.

Oct 29, 2012

I haven't posted hardly at all, but this is a great post and very informative. Just wanted to say thanks!

Oct 29, 2012

Isn't 5-10 mins a bit too long? I've always heard to keep it sub 3 mins.

But +1 on the post nonetheless.

Mar 9, 2013

this was very useful. thanks

Nov 17, 2013

Bumping this up- solid post. well done.

Feb 1, 2015

Nice post. A lot of analysts will ask the thought process of pitching a stock? How would you tackle this question? I would start with a outperforming industry or at least inline with S&P Growth? Big thanks.

Feb 1, 2015

If you know who you are meeting with, I suggest pitching a stock that is in opposite industry as he or she covers. That protects from the possibility of getting grilled by someone who knows the company like the back of their hand. I would then pick three points on why good stock. Maybe trading comps compared to its peers, macro trends and how it will affect the company, and maybe products in the pipeline or something else related to the specific sector. I would also study up on its comps in case you get asked specifics about it.

Feb 1, 2015
KMM:

If you know who you are meeting with, I suggest pitching a stock that is in opposite industry as he or she covers. That protects from the possibility of getting grilled by someone who knows the company like the back of their hand. I would then pick three points on why good stock. Maybe trading comps compared to its peers, macro trends and how it will affect the company, and maybe products in the pipeline or something else related to the specific sector. I would also study up on its comps in case you get asked specifics about it.

Feb 1, 2015

I'd start it off as something like this:

"Well, a company that recently came to my attention was XYZ Corp. They're operate in the ______ industry and are based in ________ with a focus on the ______ region(s). Their stock currently trades at about $X.XX and they have a market cap of about $X million.

I think this is a long/short because of:
1)...
2)...
3)..."

You can even go on to talk about a certain risk that needs to be addressed.

Personally, I'd stick with a long idea based on undervalued fundamentals. Given the current rally, I am sure you can find something that has lagged a bit and argue that its trading much cheaper than its peers. I'd also pick something on the smaller side (<$500M market cap).

I agree with the above poster, stay far away from anything even close to what the dude covers. If you're unsure, pick something a bit obscure.

Feb 1, 2015

yea recommend to buy GS. everyone knows its da shiznit. doesn't even matter where you're interviewing, most likely the interviewer will agree. also goog is hot too.

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Feb 1, 2015

More interesting to be a contrarian. Recommend something people seem to hate, or recommend shorting something everyone thinks will go higher. and if you can, avoid picking Apple. It seems as if all novice stock pickers choose Apple (all my friends have a Mac and an iPhone. Everyone downloads apps. Steve Jobs walks on water...).

Your pitch should go something like this:
I'd buy/short , a . I'd buy/short it for the following reasons:
1. Quantitative reason #1 (e.g. trading at a meaningful discount to its growth rate)
2. Quantitative reason #2 (trading at an unjustified discount to its peer group)
3. Qualitative reason #1 (e.g. federal government is pouring billions into Clean Energy. This company is a key provider of a crucial part that all of these companies being funded by the gov't and VCs need)

It doesn't sound like you have a lot of experience analyzing stocks. This is a pretty simple framework to use. For ER they will care a lot about how you communicate. Can you make a compelling case for an idea? Can you defend it when asked questions?

Here's a primer on valuation. I would expect to be asked different ways you can value a company, particulary DCF.
DCF Example: How to Value a Cow - http://bit.ly/cYKrU
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Feb 1, 2015

I want to thank everyone for their advice so far. I've begun researching two publicly listed canadian venture firms since reading the advice posted here.

I am starting to feel a bit intimidated by the knowledge which I might need to know. I am a life sciences grad who just passed his CFA L1 exam. I've gone through a very introductory financial modeling course by myself, and I'm trying to work my way through DamoDaran's valuation book at the moment.

How much do I actually need to know in order to land an associates job? I know that's a very broad question... but should i already know which figures in a 10-k are key, and where to find them? Should i be able to pick out key points hidden inside extensive 10-ks? should i be expected to know how to construct financial models?

i was hoping that i could walk in knowing a lot of theory (CFA, Damodaran, intro modeling course) and be taught more work-specific applications.

Feb 1, 2015

i guess what i'm trying to say is: going through financial statements and performing financial modeling is all new to me. How much of it do I need to know in an associate position?

Feb 1, 2015

I have the same question as buddhacris. I've read that you should know DCF, WACC and key financial ratios. You should obviously have a few stocks that you can talk about. What else is there?

Feb 1, 2015

on your very first day on the job in ER, you'll probably be handed some old models and be told to input historic data. like, ok new guy, take these old models we maintain and pull all the old Qs and input all the data.

you should absolutely understand how to read and decipher financial statements. accounting is an important skill. also, being familiar with a particular industry will help you read these statements. what is important in your industry? lots of times you'll be looking for certain metrics.

in some industries, it is profit margin. in others, it might be the cost to acquire new customers. in others, revenue growth. apple funds their R&D through accounts payable and deferred compensation - a handy fact that will help you understand how the company is being managed and what drives its earnings. you'll need to know what to look for.

saying all that, it is not like you will be building a ton of models from scratch.

being at home in excel is a quality skill. understanding how to drive a model, find obscure errors, and understanding key concepts regarding your valuation will be key.

Feb 1, 2015

3 day - a little late now but one could argue shorting big banks, due to all the regulation talk out there and negative sentiment from the public. (C, BA, MS, GS, JPM, CS)

3 month - This is probably the easiest argument to make time-wise because there is so much out there.
If one thinks rates are moving higher in the near term, you may pitch TBT. If you feel that the health care bill is dead, you may pitch UNH as a catalyst. Lots to choose from, interviewers don't care as much about the stock, it's the reasoning.

3 year - Commodities, if you want to get specific, nat. gas for a contrarian play, because it looks dead in the water and it's so cheap. Meanwhile, greenies love it, politicians love it, and it will play a bigger role in transportation moving forward as well. Also, the commodity play is a nice hedge against a long term slide against the dollar as well.

Feb 1, 2015

Just out of curiosity why apply to a job in an industry that you have very little interest in? What did you think a job in equity research would entail?

As far as a stock pitch is concerned ... describe a business, state your investment thesis, support your thesis, talk about valuation, and end with risks. A good pitch is something that is convincing.

Feb 1, 2015

Look at a published research report and notice how it's structured. Try and pick out reasons why you think it's a strong report, or why it might be weak. In my opinion, the stronger reports tend to be backed up with convincing models, and have a clear cut argument, while weaker ones are largely qualitative and tentative in their points. The same should go for your presentation, you need to be aware of the major market and sector trends, accounting practices and models and be prepared use them in your report.

Feb 1, 2015

You would do well with spreading comparisons, informal research and a catalyst.
Check out this post: http://equity-research.com/hedge-fund-interviews/

Feb 1, 2015

hi guys,

thx for your input to so far, i noted that cornell uni has a sales pitch comp

any one have any links to these sales pitch comps? i am damm noob at this stuff, i do valuation services at a big 4 firm and we dont really do sales pitches, more valuations,

so just trying to know what to do

cheers

aussie bob

Feb 1, 2015

Is this for a hf or ER?

The key thing is to understand the business, the drivers, and the performance indicators; have an idea of management's reputation and plans; be able to talk about comparable companies and why this is over/under-valued; what event is likely to lead to a realization of the underlying value; what down/upside risks there are to your thesis

If you really want to impress them, you could do market research on your own.

Feb 1, 2015

Man, I wish I had the contacts this guy does....

Break down the pitch into different sections:

1) Take a look at the sector, relevant industry info.
2) Indicate why you believe the sector is either a long/short
3) Name the risks against shorting the sector
4) Do a company description and valuation, using FCF multiples and comparables
5) List the pros and cons of your idea, why you believe the idea is good and finally, what are the risks you face if you invest in the idea.

Cheers

Feb 1, 2015

Any thoughts on how to position a stock in a currently challenged industry in which the fund focuses? (e.g. an insurance-focused fund -- extremely structurally challenged industry but does no good to pitch a retail stock that you think is well positioned.)

Feb 1, 2015

If you're pitching a long perhaps the best way to go about this is to pick a company that has strong fundamentals but has taken a beating by virtue of being a part of an underperforming industry. My personal preference is to pick stocks in the 200-500mm cap range since they have more limited analyst coverage and presumably higher potential of being mispriced.

Feb 1, 2015

How many pushups you can do

I eat success for breakfast...with skim milk

    • 1
Feb 1, 2015

so you talked with someone at wells and they asked you to make a stock pitch? seems like a weird thing to come up in an informational interview

Just follow the markets, maybe pick a few sectors or companies you are interested in and then determine whether any of them would be good investments (and why).

Feb 1, 2015

Well, I'm in an investment fund club in school, and it's on resume. That's the reason that person asked. But, what are some technical things to evaluate a stock?

Feb 1, 2015

Decline of western civilization due to lazy entitled fat American kids purchasing more Call of Duty games. BOOM!

Feb 1, 2015

Were you the kid asking for the Barclays roll out? That would have been smart to pitch their idea during your interview....

Feb 1, 2015

Diablo 3.

Feb 1, 2015

Not only are they huge in the US, they also have great exposure to EM consumer spending due to the popularity of their games in Asia, esp. Korea.

Feb 1, 2015

Higher unemployment -> more subscriptions to WoW.

Feb 1, 2015

Agreed with armistice.. DIABLO 3!

Feb 1, 2015

diablo 3, WoW, and a never-ending supply of pre-teen and teenage americans and asians.

Feb 1, 2015

Chinese with more acquisitive power + WoW and Starcraft 2 -=> Cashcow

Valor is of no service, chance rules all, and the bravest often fall by the hands of cowards. - Tacitus

Dr. Nick Riviera: Hey, don't worry. You don't have to make up stories here. Save that for court!

Feb 1, 2015

Analyst on CNBC just said he prefers it over EA (margins for Activision have been improving while for EA they are falling).

Feb 1, 2015

activision = microsoft of gaming

Feb 1, 2015

One day when I'm older, I'm going to quit all finance shit and become a "beta-tester" for blizzard. Play WoW and (by then) Diablo 5 all day and get paid.

Feb 1, 2015

Hahaha this is great

Feb 1, 2015

we should make a WSO clan when D3 comes out.. whos down?

Feb 1, 2015

I'm in

Feb 1, 2015

Count me in too.

Feb 1, 2015

You gotta be careful, Blizzard would be great if it was spun off, but there's a lot of mediocre divisions dragging results down.

Feb 1, 2015

aquire -> chop it up -> cash in

Feb 1, 2015
UFOinsider:

aquire -> chop it up -> cash in

Or in other words "pull a Bill Ackman"

Feb 1, 2015

I was asking for the Barclays report, never got one :(

Feb 1, 2015

ATVI is announcing earnings today, and I have shares.

What's up, doc?

Feb 1, 2015

Shares down 7% AH... Thanks WSO

Feb 1, 2015

Lost ~$200.

What's up, doc?

Feb 1, 2015

EA is pissing alot of people off with some of the moves they are making in the gaming industry while blizzard is going back to the cash cows. Diablo 3 is going to be a huge hit maybe more so than starcraft 2.

"Hold on to your butts"

See all my other WSO posts here

Feb 1, 2015

Sure ATVI is getting rid of its dogs, but the gaming industry as a whole doesn't look too hot.

Feb 1, 2015

Buying opportunity today for those of you that liked ATVI

Feb 1, 2015
Ben Shalom Bernanke:

Buying opportunity today for those of you that liked ATVI

I think you're right, but the time horizon is going to be very long. ATVI mentioned a few things:
- No more Guitar Hero
- No more DJ Hero
- No more Tony Hawk
- Revenue guidance down $250 mill
- No projected Blizzard releases in 2011
- CoD add-on packages becoming fairly lucrative
- Big numbers from CoD, WoW, and SCII

If I'm reading this correctly, the lower guidance on revenues shouldn't affect EBITDA because they're cutting huge expenses at the same time from products that had little growth opportunities going forward, so the market is overreacting on this news. The lack of a Blizzard release in 2011 is slightly concerning, but I think that will be offset by increased economies of scale from CoD and WoW. ATVI is able to sell add-on packages for both games very efficiently. The reason I think the time horizon is going to be long is because I don't think the market will realize that ATVI won't need to continue to pump out major hits every year when they can continually capitalize on their main cash cows. This opinion is affirmed by ATVI's growth in dividends, and in fact, ATVI is the first gaming company to introduce a dividend.

They will start to see growth when CoD and WoW hits China, which they're planning on doing some sort of promotion soon. Unfortunately, I don't see this coming for maybe another year, but I know there will be a lot of buzz when it happens. Hopefully, there will be a gaming craze in China just like there is in Korea.

Feb 1, 2015

I didn't touch it

Feb 1, 2015

This should be in the HF forum.

Seeking Alpha, Value Investors Club, Distressed Debt Investors Club, SumZero, etc.

Do a search. One guy had a post of pitch and the format he used. It's really not that hard.

--
"Those who say don't know, and those who know don't say."

Feb 1, 2015
nutsaboutWS:

This should be in the HF forum.

Seeking Alpha, Value Investors Club, Distressed Debt Investors Club, SumZero, etc.

Do a search. One guy had a post of pitch and the format he used. It's really not that hard.

I completely disagree.

It is hard and should be well thought out.

OP don't listen to this guy.

Feb 1, 2015

read sumzero
that should give you a good idea of what a well-formed pitch should look like

Feb 1, 2015

You have more than one stock to pitch so you could just pitch the others. If you have to use all your pitches, then just make it obvious you did the work yourself by throwing in some facts that aren't found in the article.

I wouldn't worry about it, to assume you stole an idea and memorized it as well as I assume you know the company already is pretty far-fetched.

Feb 1, 2015

Maybe approach it head on and say one of the stocks I've been looking into is Company X. While I've been analyzing it for a while now, I notice this weekend was written about by Seeking Alpha which kinda reaffirmed to me my theory. But in addition to what they wrote x,y,z.

    • 1
Feb 1, 2015

Every company is going to have articles about how great they are. You're overthinking it.

Feb 1, 2015

double post sorry

Feb 1, 2015

Most student managed portfolios i've been told about generally only allow their student analysts to invest in blue chips. My alma mater was the same way. Find out if there are any guidelines first.

I have come here to chew bubblegum and kick ass... and I'm all out of bubblegum.

Feb 1, 2015

Are traders the best people to ask about a stock pitch?

MON, MSI, TJX

Feb 1, 2015
BlackHat:

Are traders the best people to ask about a stock pitch?

MON, MSI, TJX

You've offended BH, now apologize. On a unrelated note I read the title as 'socks' and thought to myself that there is no fucking way this site has stooped that low. I kind of wish you had

Feb 1, 2015

I second the one post above, check to make sure what the guidelines are. Many are long only, which are boring as shit. Thats why you should just start your own and do whatever you want but anyway...

Pitch them an idea regarding corporate or agency spreads, and how you would manage a portfolio against a flattening yield curve. That'll throw them off, oh, and you'll stand out.

Feb 1, 2015

I just got some small money into cwei, although the sector is not doing very well I found the price nice. Notice im long it, so probably im just trying to pump the small guy ;).

Valor is of no service, chance rules all, and the bravest often fall by the hands of cowards. - Tacitus

Dr. Nick Riviera: Hey, don't worry. You don't have to make up stories here. Save that for court!

Feb 1, 2015

Zynga, Groupon, Facebook

Feb 1, 2015
Febreeze:

Zynga, Groupon, Facebook

Lol

Feb 1, 2015

XOM is one I've been watching lately.

-RR

Feb 1, 2015

To stand out - Apple.

The logic is - nobody is choosing Apple for a pitch, as they think that everyone else is going to.

So pitch Apple.

It's a bit like London traffic during the Olympics.

"Every man should lose a battle in his youth, so he does not lose a war when he is old"

Feb 1, 2015

Look at IRET, if you wanna know more about it PM me.

Feb 1, 2015

FARO, DIRV, KCG

Feb 1, 2015
Pancakes:

I have interviews coming up, including one for a portfolio management program at school

I'll tell you what I would love to see you do: pitch SPY. You could have tons of academic research backing you (efficient market hypothesis and the like) and could also conclude with something like, "We're just college kids doing this part-time, what possible edge could we have over all of the people who get paid tons of money to do this for a living?"

I would love to see the professor's reaction to that.

Feb 1, 2015
SirPoopsaLot:
Pancakes:

I have interviews coming up, including one for a portfolio management program at school

I'll tell you what I would love to see you do: pitch SPY. You could have tons of academic research backing you (efficient market hypothesis and the like) and could also conclude with something like, "We're just college kids doing this part-time, what possible edge could we have over all of the people who get paid tons of money to do this for a living?"

I would love to see the professor's reaction to that.

This made me laugh very hard

And thanks a lot for your input everyone, I'll definitely look into some of the more exotic picks you gave me

@Bramando
Surprisingly enough, I spoke with the professor today and he said it's pretty much a free-for-all in that you don't have to abide by any specific guidelines for your picks.. It's only a small fraction of the school's endowment anyway

Feb 1, 2015

Awesome man. Dive head first into it as this is incredible experience to gain pre-graduation.

I have come here to chew bubblegum and kick ass... and I'm all out of bubblegum.

Feb 1, 2015

RICK?

Feb 1, 2015

Wells Fargo & Lenovo

Wells Fargo is in a class of itself regarding big banks and Lenovo has been quietly gobbling up PC market share and has a far and ahead lead in LATAM.

Feb 1, 2015
Carl Richards:

Wells Fargo & Lenovo

Wells Fargo is in a class of itself regarding big banks and Lenovo has been quietly gobbling up PC market share and has a far and ahead lead in LATAM.

great call on lenovo

Feb 1, 2015

ZVZZT profits through the roof.

On a serious note; go for PG. Just for the dividend, but spin it by betting on Q3 earnings.

Feb 1, 2015
Working9-5:

ZVZZT profits through the roof.

On a serious note; go for PG. Just for the dividend, but spin it by betting on Q3 earnings.

lmao wait is that the nasdaq test stock that always shows up as one of the top gainers/losers? hahahahha

Feb 1, 2015

Why does Lenovo trade on the pink sheets? Is it just to save some $ or have less regulation?

Edit: Just looked and there are a lot more companies with huge market caps than I would have guessed.

Feb 1, 2015

HLF could be interesting; "scamming" old people + Einhorn called them out
WFM is an awesome growth story; I know for a fact that the upper class in China is dying for a store like this. Valuation always a concern though.
TUMI for being well-known; also for being a luxry retail brand that could take off in the Chinese market.
Any Chinese Online game stocks. My favorite being NCTY and CYOU. NCTY has more cash than market cap and has Planetside 2 license and Firefall (made by ex-WoW team lead) coming out end of 2012. CYOU has a solid pipeline trading at 4-5x PE and P/FCF. The entire sector looks uber cheap to me.

Just food for thought.

Feb 1, 2015

I don't think pitching something wild or overly complicated strategy should be your goal here, as it would only leave you exposed and start pounding you with in depth technical aspect of the company and industry. It would be better if you pitch something you know, the importance of pitching a company is whether or not are you capable to articulate an effective and meaning argument (dcf,comps, industry trends, recap...etc) to backup your investment thesis, thus the investment recommendation.

Feb 1, 2015

I would try not to look but if you have to only look at a couple of points. Don't read.

Feb 1, 2015

Please correct if wrong but here's the basic blueprint to pitching a stock (this assumes its more entry level).

1. Would go ahead and cut the notes, you can write a couple of bullets ie: key themes you want to make sure you touch on.
2. Choose a space that is related to the interview
3. If its a research job make sure you're pitching a stock in-line with their views better to be similar to their views than off the wall in their opinion (sure at higher levels you can go against them IE: neutral vs buy but at the low end its smarter to just show you've done your research)

Here is a decent pitch:

"I like XYZ stock, it has ___, ___, and ___ going for it. In an upside case I see the stock going up XX% and in a downside case I see the stock being flat/down XX%. Given this I see more positive than negatives working for the stock making it well positioned compared to peers because of XYZ. Finally, I think the balance sheet/cash flow/valuation is good because of XYZ metrics"

The interviewee has implied many things, one you understand that you could be wrong with downside cases. Two you understand companies are compared against one another "well positioned compared to peers". The last part while a bit vague, implies you at least understand the basics of finance and/or valuation.

Now if you want to go more deep into the stock you have to draw in themes and "deep dive" aspects such as:

"I like XYZ stock because I believe the investment community has XXX and XXX incorrect about the stock. The reason why i believe this is because of reason 1, reason 2, reason 3. While the bears will point to XXX and XXX I'm more bullish on the name because of reason 1 and reason 2. Finally, from a valuation perspective I believe the stock is undervalued due to XXX metrics"

To further clarify here's an example that everyone could relate to (certainly choose a different stock to be more differentiated).

"I am pitching Apple at these levels because I believe the investment community is undervaluing the release of a possible iWatch, iTV and even an iPhone Mini. Every three years the company tends to release a new major product line (iPad 3 years ago, iPhone 6 years ago) so I would not be surprised to see a new major line up act as a kicker to the stock in CY13. The bears are certainly going to point to the recent disappointing guide and softer than expected Dec-qtr results, however with three possible products coming out and a ~$300 price point ex-cash the company can buy back all of its shares with 6 years of flat free cash flow. With that said i'd be long the stock at these levels"

Again nothing in here is perfect but it should serve as a good guideline.

Also no go on the bringing in charts, that's a bit much, simply jot down the few key points/metrics you want to hit on and you should know the rest of the "story" so to speak.

Feb 1, 2015

I think you'd be hard pressed to pitch TSLA long on fundamentals. If anything it might be a good short idea IMO.

"My dear, descended from the apes! Let us hope it is not true, but if it is, let us pray that it will not become generally known."

Feb 1, 2015

It would be a great short pitch since fundamentals suck but with the short squeeze and other non-fundamental factors, the stock keeps rising and with a 1-3 year horizon the company will most likely have viable cars/distribution channels and the increase in technology would justify not only their current price but a much higher one.

How about PNRA ?

Feb 1, 2015

If you are asking what stocks to pitch for a Long, you are doing it wrong. You need to figure it out yourself so the conviction is your own.

Feb 1, 2015
peinvestor2012:

If you are asking what stocks to pitch for a Long, you are doing it wrong. You need to figure it out yourself so the conviction is your own.

Really I think PNRA and ATVI are good LONG options. Was mainly asking if TSLA was to risky/controversial for a LONG choice and if anyone had any major objections (things I might have overlooked) regarding ATVI or PNRA.

Feb 1, 2015
hockey1316:
peinvestor2012:

If you are asking what stocks to pitch for a Long, you are doing it wrong. You need to figure it out yourself so the conviction is your own.

Really I think PNRA and ATVI are good LONG options. Was mainly asking if TSLA was to risky/controversial for a LONG choice and if anyone had any major objections (things I might have overlooked) regarding ATVI or PNRA.

Would agree with that sentiment, but just go with your gut and what you've discovered in your analysis. Also, test each against the market and what your perception is going forward for the next 6 mo -1 yr given the volatility.

Feb 1, 2015

Why do you think ATVI is a good investment?

"My dear, descended from the apes! Let us hope it is not true, but if it is, let us pray that it will not become generally known."

Feb 1, 2015
Illuminate:

Why do you think ATVI is a good investment?

Number of factors...working on full pitch now....also think PNRA is good investment as well

Feb 1, 2015

Ideally have two

Feb 1, 2015
futurectdoc:

Ideally have two

Ok thanks and do they need to be 1 short/1 long or is 2 long ok ?

Feb 1, 2015

2 at least. They have always asked me a second one after delving into 1 for a while. In my opinion 3 is optimal, optimally in different industries/sectors.

Feb 1, 2015
Beny23:

2 at least. They have always asked me a second one after delving into 1 for a while. In my opinion 3 is optimal, optimally in different industries/sectors.

Do they all have to be same length ? I can talk about 1 for a while but the other one (two if needed) would be less in depth

Feb 1, 2015

Look at the work Kerrisdale posts on their website. That's a good start.

Feb 1, 2015
Value Sleuth:

Look at the work Kerrisdale posts on their website. That's a good start.

Are there any other HFs that also disclose their full writeups?

Feb 1, 2015

Basic description of the company, management, key shareholders
Overview of reasoning behind thesis (i.e. why the market is wrong but you are right)
Catalyst for what will cause the price movement
Risks - both macro, market and company

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Feb 1, 2015

There are a few smaller ones that I've seen, but others present their theses at conferences, etc. You can find old Pershing Square/Kynikos Powerpoints, which are helpful. There are a lot of resources out there.

Feb 1, 2015

Also, check out SumZero or VIC.

Feb 1, 2015

1) Introduction - briefly explain the business, competitors, major industry metrics, etc.
2) General recommendation - are we looking at this as a short or a long, what's our time frame
3) Why Now - what makes it attractive now, why does the market love/hate the stock all the sudden
4) Commentary/Catalysts - is the market justified in its love/hate, what could happen to make stock rise/fall, what would the metrics look like if each catalyst happened
5) Explanation - why is the catalyst in favor of your recommendation most likely, why is the other unlikely, what research has gotten you to this conclusion
6) Valuation - briefly explain historic valuation, industry multiple, earnings growth potential, and what kind of return you think we can get (and over what time horizon), and the same for if downside catalyst happens

And use Value Investors Club for examples

Credit for the above goes to @WhiteHat who posted this a while back on a previous thread. I had it bookmarked so copied it over.

Feb 1, 2015

Guys, thanks a lot for all your responses!

What about comparing key ratios to those of comparable companies?

Feb 1, 2015

This is how I generally structure a pitch/report. My clients enjoy it as they feel like their reading a biography rather than a college textbook (like most equity research):
1) Intro: Brief comments and/or a story pertaining to an investment philosophy/wisdom. Brief info. about the company/industry. Brief story telling how the company arrived at its current situation or predicament.
2) Thesis: List reasons why the market values a stock the way it currently does. List my points that either a) counter the market's reasons, or b) highlight an aspect the market is overlooking.
3) Body: Address each point with arguments supported by facts and analytic detailing how the market's reasoning is flawed, while my reason is logical, valid, and sound. Address how an overlooked point should be weighted in the company's valuation supported by facts and analytic.
4) Valuation: "Because of my points listed above, the stock should be properly valued at: $, based on relevant peer multiples, book value, DCF, sum-of-the-parts etc"
5) Risk: So what happens if I'm wrong and the market is right, what will the stock price be then? Is the outcome binary or asymmetric? Can the balance sheet offer downside protection?
6) Catalysts: List events from near-term to long-term that will unlock value.
7) Conclusion: Recommendation based on information

My favorite valuation approach is comparable analysis. Use it only when you can justify why a company deserves to be trading at the industry median level. Normally, a company trades below peers due to a) leverage or b) the market anticipating earnings growth will lag the industry average. If you can explain why a company is over-leveraged in the first place (botched acquisitions are normally the culprit) and how they can de-leverage (divest, focus on growth/high margin segments, etc), leverage shouldn't affect long-term valuation. To debunk point b, explain why earnings will be higher than anticipated.

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Feb 1, 2015

For comps, check the 10k and the proxy statement. Check Damodaran's website for industry multiples. You don't have to use P/E, could use EV/EBITDA, EV/EBIT, P/B, etc. depending on the industry, company, situation, etc. Don't have to use a multiple, could talk about distance from 52-week high and low and what kind of upside and downside % you expect to see. Focus on the misperceptions in the market, i.e., why you will see upside.

For example, if you can't find comps, you could say the stock is trading 20% below 52-week high and 10% above 52-week low, sales have grown by 15% annually and the stock is down due to some earnings misses the past two quarters, even though the underlying fundamentals are strong and haven't changed, thus buy the stock and wait for 42% upside with 12% downside risk

Feb 1, 2015

Goblan, I'm sorry to put you out in particular, but your example is a terrible and very inaccurate way to value a company. I'd ding an applicant if they went anywhere near 52 week highs and lows. As value investors, you don't care what's happening quarter to quarter and whether misses are happening or not (well, maybe to time your entry point). You care about the intrinsic value of the business, where the company is trading relative to that, and what the catalysts are to close the gap.

Valuation is an art, not a science, and each situation could call for a different method.

When you value with multiples, the main thing to focus on is the business model. How does this company make its money? Who do they get cash from, at what terms, and where does their cash go to pay their COS? What are the risks of the business? Is there any reason why their margins would be sustainably higher or lower than their competitors?

Take the restaurant industry. Some companies own all their real estate, hire regional managers, who hire individual store managers, who hire workers to man the tills and the burger grill. Other companies own only their brand name and franchise it out to individual proprietors, who run the businesses and slap on the company's brand name. They pay the parent company x% of their revenue as a royalty.

Both these companies are in the restaurant industry, but they are very very different businesses. Franchisors take much less risk (they get paid x% of someone else's revenue, who takes all the risk of opening a restaurant), and thus trade at very high multiples. You need to understand fully what comprises revenue and the cash cycle of the business. Then go back and think about what companies can be comparable.

Picking the type of multiple also takes some thinking. Is this a high growth company that is sinking money into marketing, advertising, distribution, flying people around the world to get customers? If so, their recent earnings are likely much below what is sustainable. In this case, a revenue multiple might be the best choice.

Does this company have relatively predictable cash flows (e.g. a miner, an energy producer like a coal plant). If so - and I know this won't be popular here - a DCF might be in order (especially if there are no good comps). In these cases Management usually puts out production/revenue/cash flow estimates, which you can use to guide your analysis. Put a reasonable terminal growth rate/exit multiple on the end. But if you don't know how to build a model yet this is moot.

Does this company have different divisions that do very different things? If so, it's almost impossible that you'll find a company with exactly the same revenue mix so a SOTP analysis is in order. Try to break out the earnings (EBITDA, NI) as best you can, then value each piece separately. Don't forget to value the corporate expenses too (expense run rate * 7 or 8 times multiple) and take it out of the consolidated TEV.

I think in general high growth companies are not good for stock pitches. Even if all signs point upward, at the end of the day, who knows how fast this company will really grow. Plus, case in point, you have a difficult time coming up with a valuation that's defendable.

Find a micro/small cap name that people don't really know about. Maybe something that had a one-time expense/cost increase (e.g. drought last year sent corn prices through the roof) that caused the stock to sell off. You, from your extensive analysis, are expecting this expense (and earnings) to normalize next year and bring the valuation back in line with where it should be. Or a company hit with a lawsuit that, from your research, you decide is not as big a deal as everyone's making it out to be. Or a company that a new regulation will benefit immensely but people don't recognize it yet. Micro cap names are less likely to be familiar to the interviewer (a good thing) and more likely to be undervalued because of lack of coverage.

That was a lot longer than I meant it to be but yea, good luck.

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Feb 1, 2015

Good stuff but I disagree with regards to your 52 week low comment. Plenty of value investors, myself included, periodically fish in a pond full of recent 52 week lows taking into account traditional value oriented metrics. If I can point to a name that recently hit a 52 week low and convincingly convey in a pitch why the market is wrong and what the catalysts are that will return the stock to its IV then I am well on my way to a successful pitch. Also, most pitches that I have seen and completed include % off high/low just to level set and serve as a reference point.

Feb 1, 2015

Thank you for your comments. Bonobochimp, the company I am analyzing does have two segments: retail and credit financing of their retail products. The problem I am running into when I started a DCF for the whole company (I didn't think to do a SOTP) was that the A/R is very high (and understandably so, since it finances most of its consumers' purchases. I have a couple of questions: 1) how do you break down net working capital for the 2 business segments in a DCF? This would be very significant because the company has such high A/R, which will greatly affect Change in NWC depending on how that asset is allocated. 2) Do you model financial companies (and I would include this company's credit financing segment in that category) differently because of its high loans outstanding (and in this case high A/R)? If so, how do you model that, and can you specifically explain how you would go about modeling the credit financing segment of this company? Thank you.

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Feb 1, 2015

In that case they should break out AR and Loans Receivable. When a loan is made, Loans Receivable goes up, AR goes down as the customer gets the cash and pays down the receivable that they owe. Am I getting that right?

In other words, AR shouldn't be 'blended'. There should be a clear differentiation between what the company is owed from its financing activities and what it's owed on the revenue it has booked.

You'll want to understand this dynamic very well. Read the Revenue Recognition, Liquidity and Capital Resources, and AR (if they have one) sections of the K. Many times they break out AR for you into its components.

By high AR I'm assuming you mean a high DSO number. You'll want to find out why this number is high. Is it normal in the industry to have your sales outstanding for a while? Are they slipping and not staying on top of collections? Or are they accruing revenue they haven't invoiced for yet (e.g. for a long project for which the customer pays a lump sum at the end but the company accounts for on a % of completion basis, the revenues will be booked throughout the project but the company isn't really owed the money yet. This is called an accrued receivable; the company hasn't invoiced the customer. Regular trade receivables have been invoiced). In that case, their DSO should drop considerably in the period that they expect to get paid. Also, watch how the DSO has trended over the past few quarters. Going up? Going down? Why?

The story behind their DSO numbers can be a good thing to ask Management about directly. Just email their IR contact and say you're a student doing a project or a private investor that has a few questions about the business. Having the balls to call and talk to management, especially as a student, would really impress whoever you're pitching this to.

I'm afraid I don't have too much experience with modeling out financials so take what comes next with a grain of salt, but I'd think it should be done on a price to TBV basis. Not sure how easy it is to break out the components of the BS directly attributable to the credit business, but the theory is you make a loan and book it; besides some loan provisions, there shouldn't be much reason that the market value of a healthy loan is different from its book value. So you take 1.0x or 1.2x the TBV of the credit business and you have its equity value.

This company seems pretty dicey. Sure you want to go with this one?

Feb 1, 2015

Just posted about this in a similar topic. It sounds like you are looking for something that can give you ballpark estimate for similar businesses in your area?

There are a few sites to consider, like Valusource for small business at
valusource(dot)com/Products/BusinessStakeholders.aspx

Their service isn't necessarily a legally binding valuation but it may be what you are looking for. A lot of the pros use their higher end stuff, but this is affordable and should work.

Feb 1, 2015

Focus your pitches more on path rather than destination. How you get there is where the real money is won and lost. Price targets are merely a barometer of conviction as holdings are exited and entered in a more fluid manner. Institutional money cannot enter and exit positions all in one trade in the same way retail money can. Positions are adjusted based upon upside/downside to conviction in relation to the entire portfolio.

I'd rather see a pitch which incorporates changes in sentiment in valuation rather than a pure DCF. Markets are comprised of people, not models. Sentiment operates in terms of levels. One good night with the ex who dumped you and you vowed to hate can drastically change your feelings, not much difference with stocks.

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Feb 1, 2015
tiger2012:

One good night with the ex who dumped you and you vowed to hate can drastically change your feelings, not much difference with stocks.

Where's your conviction?

Feb 1, 2015

Can you give some examples? Sentiment seems like it'd be hard to quantify.

Feb 1, 2015

Personally I think all that preparation is essential and will be useful, but do remember to keep an open mind and do up other small talks with the guy (such as soccer etc). Some people get turned off quickly if its solely related to the job.

And if things went ok, ask for other contacts that might be interested in talking to you.

The heights by great men reached and kept were not obtained by sudden flight. But they, while their companions slept, were toiling upward in the night. -Thomas S. Monson

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Feb 1, 2015

Thanks for the advice! I greatly appreciate it!

Feb 1, 2015

If you've been doing this for a year. You should have an intuitive understanding of what makes a good pitch. It should be easy to understand, straight to the point, and well communicated.

I would ask a colleague for honest feedback. Would it be possible for you to give us a taste of a pitch you've made earlier? It might help us identify your sticking point.

Feb 1, 2015

Always good to have a few stock pitches in hand. Will most likely get asked to pitch during an equity interview but never know.

Feb 1, 2015

Haven't you seen Wolf of Wall Street?

Feb 1, 2015

qualitative and quantitative means they don't want you to simply put together a spreadsheet and talk to some numbers. Talk about the business, what are the drivers, what are the industry trends that are helping or hurting the company, who do they compete with.

Feb 1, 2015

Not helpful, but just wanted to say REGN was my first pitch for my student investment club more than 2 1/2 years ago...got in at $110...times have been good since.

Feb 1, 2015

Oh, but in terms of the qualitative aspects of the pitch, I really like grounding it in Porter's 5 Forces: http://www.investopedia.com/terms/p/porter.asp

Feb 1, 2015
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Feb 1, 2015

a very helpful link, even the transcript is more than enough, post this link onto other threads ... in any case why is the video private?

Feb 1, 2015

Not helpful, but just wanted to say REGN was my first pitch for my student investment

____________________
Nawaz

Feb 1, 2015

if there's a way to find undervalued stocks before doing research then what do you think hf analysts do all day.

Feb 1, 2015

This is for a club, not for getting a FT offer. You don't have to do anything complicated. Go on Seeking Alpha or another finance oriented site, search up some stocks you are familiar with or are interested in, and read analysts' articles. Use stock screeners. As long as you come up with something that sounds reasonable and don't use Apple or Facebook, you should do fine.

Feb 1, 2015

I can help. Feel free to send it.

Feb 1, 2015

I can take a look as well.

Feb 1, 2015

At this pt in the cycle, pls do not pitch any E&P that is not a low-cost producer. That's a required statement in the exec sum.

Feb 1, 2015

Happy to take a look. Feel free to PM me.

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