Interviewing for soph summer and part of process is to short/hold/long a stock they give u and write up memo and model. Haven’t done this before, but can I rate a hold?
stock can’t be shorted responsibly here but not bullish also.
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You’re probably not doing through enough research. Holds are lame. Don’t pitch a hold. Keep researching and come up with something better.
thanks for pushing me, will dig deeper. Unfortuantely I’m not very bullish into next couple quarters but this def isn’t a safe short given current valuation. Thoughts here? Maybe pitch a 4Y long or something?
in other words, I wouldn’t want to hold this in the next year but wouldn’t want to short either.
Just pitch it as a short and say risk is valuation. Holds are lame. Am sure can make something up to make the valuation look richer than it is
You can show LT valuation as well as catalysts that will affect valuation in the short term and then long term.
So you can pick it as a ST short play and LT long play. You gotta be creative, holds are the lamest pitches.
Out of curiosity, for the HF analyst on this forum, how often do you come up with a hold/non recommandation when you are asked to look at a stock?
People like to say that most stocks are priced reasonably correctly but at the same time, your PM will be pissed off if you can’t pick a side.
If you're covering 50-100 names, most of them are holds... Holds themselves are quite useful. For OP just clarify the catalyst and path of monetization when you suggest a hold. E.g. "This is a next q story" or something along those lines. Where would it be attractive and what is a potential event that would create that opportunity?
Either pitch it as a buy/sell and say XYZ are reasons for being less convicted (and valuation can be a strong one) and next steps if you had more time would be XYZ.. but at the end of the day I'd imagine that as a college sophomore you're not expected to know what to look for/ask for if you're given a few days to a week to do a full case. They're likely just looking to see if you know the basics and can layout a proper pitch with quality of biz, valuation, catalyst and risks, etc. and can model decently if they're asking for one at this stage..
How much conviction do you have to have for a long/sell rating? I thoughts a cautious long would be a hold?
obv my main experience w/ pitching is through pitch competitions where u can pick anything, and should have strong conviction if ur picking from your own coverage.
Disagree with most of the above. A hold is fine in my opinion, as long as you reason it (just like a buy or a sell rec).
Better to be honest with yourself than to embarrass yourself pitching an indefensible side just for the sake of "picking a side".
As a PM, I like my analysts to show prudence and good judgement, and not to pound the table on every name I ask them to work on.
If the hold recommendation is primarily due to valuation then include the price you would be a buyer or seller. I have done this with success in HF case studies. I.e., stock currently trades at $50 and I am a buyer at $40. Just don't be like, well the stock is at $50 but a decline to $48/$47 I'd start buying. Those are the same prices for all intents and purposes.
Yes, create a risk reward table and you can say that at 2x r/r you are buyer/seller as it’s your hurdle for this kind of idea…
Neutral stance are fine. Most of the time there isn't a mispricing in absolute terms. The market is fkn smart... Often, smarter then you. Ways to get around a boring neutral stance from a case study perspective is to either frame it as a pair (relative, assuming it's within the funds mandate/strategy remit) or would be Long/Short assuming certain fundamental factors and price levels where the IRR/TSR/Return would be adequate enough for it to be a position in the book (say ERP+, or 10-15% IRR at the minimum in abs terms).
Go beyond this and outline catalyst path for potential mispricing where the stock could enter the book, and what has historically been driving beats/misses fundamentally + how the stock has behaved after (e.g. T+1/5/10 day follow through abs and rel market).
Needless to say, given hit rates of ~52-54% on average, a smart potential employer wouldn't gauge if you're "right" on the stock, but your process for arriving at a conclusion and what metrics you analyse to gain conviction / or lack thereof.
I've pitched neutrals successfully. But I've also had the unfortunate case studies where just bc I didn't agree with the single managers existing thesis, they didn't believe my research was correct. It did end up being a losing position for them in the end :)
We're not operating in certainty, we're dealing in probabilities. Entry price levels matter. Outline your fundamental bets and exit valuation with probabilities to avoid binary decision making and knowing what to look for as it relates to changing views and stance from neutral, bullish or bearish.
yeah idk this is sort of a special situation where its hard to explain. lack of clarity of info and you have to trust management 100% and can't backcheck what they say.
MMPM and Pm Rel-Val have good points as always. I would just add as someone who just went through semi-experienced hire level recruiting process successfully, it’s much more about your knowledge of the company fundamentally than it is having a fat pitch. Being able to articulate why a company should or shouldn’t beat consensus estimates with strong supporting points and data is most important. You can say something like “this company is going to smoke consensus estimates but is quite expensive and will decelerate next year, so while the fundamental profile looks good in the near-term, I would hesitate to own the stock” or something to that approach.
Please pitch MCD as a hold. E.Coli ain’t that bad, right?
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