Research Help!
Hi everyone,
I'm a analyst in a small HF. Started off doing IT, and now assisting in research. There is little guidance at my firm, research are pretty much on your own, i.e. the PM asks me to try to find some interesting companies and simply leave me at that.
The PM is an extremely busy person, and I wouldn't want to keep troubling him asking all the minor details, yet I needed to find out how to do a proper research. There's no other senior analyst here I can ask..
I already know the basics - how to do a model, valuation, etc... but I needed some answer to the subtler points.. (i.e for projecting future rev, how do know how many years of accelerated growth rates a company would have, where are the industry trends heading.., which part of the cycle is the industry in now and how do you know that, what multiple do you use to value ).. Can anyone help? many thanks!
I noticed this forum is mainly about how to get in / compensation / what is it like, rather than specific questions on research/valuation. For my case, I am already in ER, and I just want to know how to be a good buy-side analyst. let me know what should I focus on next.. (btw, I'm doing tech research). Also is there any forum that focuses on such specific discussions...
It seems you are looking for directions in fundamental research in technology stocks and you seems to have some experience working in the IT sector.
My recommendation to you is to start with companies/industries that you have the most familiarity. Maybe you should start with the IT services (Accenture, IBM, Wibro, etc) or IT equipment group (Cisco, Juniper, Sonus, Broadcade). Maybe cellular phones (Nokia, Sony Ericsson, Apple, RIMM, HTC, ZTE, MOT, etc). Do a top down view of the industry and spot areas with growth potential (such as edge VOIP bridge/switch, FTTH, etc) and make your recommendation base on that.
Everyone's style of research will be very different. Your performance will judged by the return of your recommendations and ability to persuade your PM to buy into your pitch.
Personally I tend to hit a lot of the tech conferences and talk to people in the industry to get some edge. And knowing products that companies sell are very important too, IMO, and can give you a good edge against the letter & science grads.
Thank you vitaminc, that is helpful.
I was doing programming previously, so I guess I should start with software/Internet area.
One problem i had with some companies (i.e. content aggregators or web2.0) is the difficulty in building the model.. - how do you know how fast the company will grow and for how long... I mean, there's no track record to analyse, and no clear trend to guide you.
Is there something I have missed out? (I know some company give guidance on growth, but I have my doubts on that too)
Not all companies give guidance and if they do it only adds to volatility of the stock. Google, AFAIK, does not give out guidance for the next quarter or for the full year in their conference calls.
But you could extrapolate some of the seasonal trends by end markets (i.e., Amazon/eBay should have more than 40% of annual sales in 4Q) and use different end markets as benchmarks. (i.e., computer growth is expected to be 10% this year, and web 2.0 should be faster than that). Or you could use historic growth rate as a benchmark. Basically either comparable or time-series.
There's no set process or methodology in doing research. Let your imagination run wild. But just remember everything that you want to pitch will have be supported by evidences. And always call up your friends in the industry for some insights.
For example, the current gas prices pressures FedEx and UPS, but the derivative play would be Amazon.com as Amazon's margins will likely to be pressured from its free shipping over $35 and premium shipping subscription program for $75.
In terms of valuation, fuck DCF. Tech trends moves at the speed of light for DCF to be effective. Who could have predicted that the Adult Video DVD sales got wiped out by YouPorn in less than two years?
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