Pitch Me A Stock
Was asked this question recently in an interview and it seems to be a popular interview question. I feel that I answered the question pretty well doing a good amount of research on the company a few months before. After the interview I started to think..what did I leave out?
Here are some of the things I included:
- Price
- Exchange
- Sector
- What drives their revenues
- outlook on their most profitable products (long term)
- how the market for their products look in the short term
- the stock's performance over the past year
What else should I have included?
Stock Pitch Interview
A stock pitch should be a short and clear thesis on a particular stock. The information should be presented in 3 to 5 minutes . Additionally, information should be presented in an original fashion.
Certified user @JackandDaniels" outlines what good stock pitch should contain.
- How the company makes money - they may have 3-4 segments but maybe only 1-2 matters. You want to be able to explain how company X makes money such that a third grader understands it.
- Company positioning / market outlook / quality of business - grow faster or slower than market? Barriers to entry?
- What is consensus expecting but more importantly need to understand how you are differentiated
- Your catalyst to realize the above point
- Key risks
- Company X valuation and comps valuation; should know what these both trades for on average historically. Maybe the entire sector has re-rated BC it's a staples company and investors are looking for dvd yield.
- Upside / downside scenarios and returns. You should have your 2-3 assumptions for each scenario to bridge how you got there ie sales up 10% and margins +150 bps gets to $X / share by 17e
That's the pitch. It should be 3-5 min. I don't care about price or what exchange it's on. People are going to care about the thesis and if its liquid. So if you're interviewing @ Greenlight, don't pitch a company that trades
Having an idea that is different from the consensus is important. Certified user @Rags to Hermes", an equity research analyst, points out why.Alpha is generated from having a different view from consensus and being right about it. If you spit out all the same drivers that you saw in an article from Zacks explaining why it is a strong buy, then you missed the boat.Example: Everyone know Starbucks has good fundamentals and that is growing. You need to explain why it will grow either less or more than consensus is predicting and why it is not reflected in the current price.
If you want a more detailed overview of how to put together a stock pitch - check out the WSO guide here.
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Your variant opinion of the Company vs. the market's.
Yeah, this. Without a doubt, the most important thing to convey with this question is that you are capable of thinking in a differentiated manner. How are you different from the Street? What is "priced in" to the stock? What have you done in your research that you'd consider proprietary, e.g. that you haven't seen covered in the various sellside reports? All of these are really critical to crafting a coherent investment thesis and it's really the thing I look for the most when I interview people (2nd being command of valuation).
when you say how is it different than the street, can you collaborate. Like performance? or overall sector?
I have to vent. I was applying for some buy-side equity analyst roles in the past year and sent in a sample idea with my resume. That stock is up 32.2% since its price on February 12th (when I dated the report), while the Dow is up 13.6%, S&P up 15.4%, and Nasdaq up 21.5%. I hope the assholes have regret.
you could've pitched yahoo and get the same return, but that doesn't necessarily make you smart
Yeah, and I am sure there are other stocks that have absolutely killed it. But it's a lot less risky when the company is fundamentally strong (very profitable for its market price, strong balance sheet, etc...).
Being smart and being right are two different things. Being right is why HF can charge 2-20. Being right pays
Alpha is generated from having a different view from consensus and being right about it. If you spit out all the same drivers that you saw in an article from Zacks explaining why it is a strong buy, then you missed the boat.
Example: Everyone know Starbucks has good fundamentals and that is growing. You need to explain why it will grow either less or more than consensus is predicting and why it is not reflected in the current price.
If it is a buyside job, then variant view from consensus is extra important. Buyside firms want someone who can source new ideas, not read sell research and follow consensus.
That's the pitch. It should be 3-5 min. I don't care about price or what exchange it's on. People are going to care about the thesis and if its liquid. So if you're interviewing @ Greenlight, don't pitch a company that trades
Do you have to build a model from scratch for a stock pitch? (Originally Posted: 10/10/2016)
I am planning to create a few stock pitches to apply for L/S HF roles.
For those who have created stock pitches before, would you say it is a must to create a model? It seems very tedious to create the 3 financial statements and projections from scratch. Could I do without the model? Thanks
If it already feels like it's tedious then you should reconsider what you are attempting to achieve...
I just dont have a lot of time and was wondering if it is essential
Not a HF guy, but from what I know you should have a fairly high level 3 statement model in your back pocket to refer to in case you need to make a point.
Should not be too time consuming to hit the broad headlines?
Get one from the sell-side. You can change the assumptions as you see fit.
Do I have to become an industry guru and a company expert to pitch a stock? (Originally Posted: 08/17/2017)
Hi everyone!
I want to do a stock pitch to apply for AM positions. I also want to do it because its fun :) I also want to solidify my CFA level 1 knowledge.
Do I have to become a company expert to assemble the pitch though?.. The amount of work seems overwhelming! It seems to me that I have to create some sort of super-complex excel model with all the statements and all the company and industry nitty-gritties that will be the inputs that generate the Income statement results.
Am I going too far here? Because this sort of task seems to require serious excel financial modeling skills and very deep industry knowledge that I don't have.
How do I get to the simulated (my version of) financial results then?.. How long should the work on a pitch take? Because the way I want to do it I am looking like at 3 months the very least!
Also, is there some sort of step by step guide to do a pitch? All the stuff I've read about seems a bit superficial. It says what I have to do, but doesn't say how to do it.
Export won't do, but import and now we're talking
I am sorry what?...
Didn't mean to start something contentious, just trying to poke a little fun. In terms of pitching a stock, I've found that the best investments have a simple thesis that makes sense. Also, focus on the future, not the past. But still remember that parts of the past are very relevant for the future such as hedging and debt. But things like macro or sentiment can change and talk about how this affects the company and if they can survive until this catalysts comes. Some other catalysts are things like new distribution lines, partnerships, acquisitions, tech, drugs. I just prefer macro because of my background and it's easier to explain. Try to quantify the risk reward, this is important. I believe that all investments have a correct price that I'm willing to buy, no matter how shitty their balance sheet is. I talked about my investment in a coal coking company during the time that the commodity prices were at their lows last year and I tied in my economics background. I don't think they care about you finding the next homer in, they just wanna see if you can think. As for valuations, for stocks, I prefer comps to dcf. Not only less work, but also easier to defend your thesis (won't get grilled on x business line up y% on z assumption that is backed quantitatively by q observation that has a r correlation). If you're interviewing for fixed income, it would be impressive if you pitched a bond, but not necessary. Take my advice with a grain of salt. I recently got a job as a fixed income analyst, so I must've done something right. But I haven't been on the interviewing side yet.
Tldr: Have a thesis that makes sense and is very easy for you to defend.
Also, some advice for the future: Try not to add fire to the flame. Most fights are too petty to do anything more than chuckle. Good luck.
SomePleb, thank you for your reply!
First time I head about bond pitches, good one :) Will do some research on that.
Also, good to hear that the simple works. Most of info I have found so far seems to advocate that you have to be super-into the industry, and that you should have a pitch that could be used straight away for a real investment or very close. It takes people years to become experts, so it looks pretty intimidating to"become an expert" just like that in order to prepare for entry-level interviews. And good to hear that comps analysis is sufficient. That does simplify the workload quite a bit.
On your last point, you are right there is no point to get involved in these forum fights, it's just that this is like the second question I ever ask on this forum and this happens.. lol wasn't the best start.
Thank you for your input, you were very helpful!
Cheers!
Unrelated, but I just started entertaining the idea of writing up a stock pitch and this was helpful advice. I also have more of a background in economics and I started with a FI internship, so it's good to know I can rely on going with a slightly more macro approach. SBed!
Look at my reply history for more information.
Your instincts are great. Yes you are pitching a stock to people who live and breathe stocks. The best of those people will have at least a passing knowledge of most companies. But understand that we are human.
The greatest asset I could have is an analyst who I can trust. That means taking historical financials and getting me to a non-GAAP EPS. That also means, eventually, telling me how and why management can be trusted (or not).
The more that a young guy shows the better. The more that he can get me to an actionable idea the better. The step-by-step may matter to a few, but it doesn't matter to the people who really matter. It doesn't matter how you find us ideas, just find us ideas.
Stock Pitch - price target hit before interview (Originally Posted: 01/24/2015)
This may be a naïve question, but haven't done many stock pitches before (had an ER interview back in college that was about it), but you spend days and weeks crafting an investment thesis and coming up with a price target (in this case mine was ~25% above current stock price) only to find that in the week leading up to your interview the stock appreciates significantly (now your target is only ~8% above current price). Is it acceptable to still pitch a stock that now has much less upside (or mention the price at the time you had come up with your thesis) or do you come up with another stock to pitch/use any others you'd been preparing. Thanks for your help guys.
I'd continue on with the same thesis, but address the fact that you had a price target set for said equity far before it reached said target to interviewer/s
How much do stock pitches really matter in interviews for experienced hires? (Originally Posted: 03/31/2017)
Assuming you already have say 5-10 yrs of experience in a hedge fund, when interviewing for another fund, how much does the stock pitch actually matter? From my experience, not one previous fund ever hired because they really liked my pitch (or disliked it). They hired b/c they liked me as a person and found me to be a cultural fit. Whether you go into a detailed pitch or a succinct pitch seems to be just for show. Many times I don't even think they really listen to what you say, just to make sure you can say SOMETHING.
Especially for experienced hires, everyone has an opinion about something and stock pitches are as useless as toilet paper. How would having a "great" pitch or "mediocre" pitch really matter? When I interview younger candidates I'm actually not even listening to their pitches half of the time lol.
Like to hear others' opinions on this. Lots of work seem to be on the quality of the stock pitch but I'm not sure if that even matters. You can do the best pitch in the world and if they don't like you as a person/cultural fit they will not accept you and just tell you the reason was because your stock pitch wasn't good or sumthing... You can do a very medicore pitch and still get hired if they like you. That's my 2 cents. What do others think?
Depends. My old firm basically the only mechanism for analyst hires was the stock pitch. We had candidates do a pitch in front of the PMs and then do Q&A / discussion. Then we would give feedback as a team on if we wanted to make a hire. Some fit stuff later but for experienced hires (3-5+ years) the first cull was definitely a pitch. I think you're right that it doesn't really matter WHAT you say or what your call is, it's more of a way to pick your brain especially if we don't know you very well (buy-side to buy-side hire where we didn't have any brokers to vet you, etc). Things PMs looked for in the Q&A weren't you're answer but how you handled the questioning and the discussion. For what it's worth we've had some experienced candidates come in and just do a terrible job in the pitch......
For what its worth, when I moved from long-only to LS they had me do a case study/pitch and I knew it was rather poor. The focus had mostly been fit and questions vetting my work ethic. I agree anyone can window dress a pitch in two weeks.
It matters a lot. This is, for better or worse, the only way people know to conduct interviews.
I personally think it makes sense to ask for examples of past work so you can see what these ppl do the job every day, but the stock pitch is still the standard/ staple for basically every fund I've heard of/ interviewed at.
It matters a ton. That's going to be your job. There are a ton of people with 5-10 years of experience, it helps differentiate between good thinkers and people with great CV's.
Can I pitch a micro cap stock for ER interview? (Originally Posted: 08/23/2017)
I have an interview coming up for a BB ER associate position and was wondering if if could pitch a US micro cap stock which has a market cap of 75$million. I am very familiar with this company and have even been to their factory before
I see no reason why not..., as long as you're not providing insider info.
Any analyst coverage on the stock now?
I mean i've read several ER reports on it. How important is the amount of coverage?
I would not. The whole purpose of a pitch is to express a different view than sell side consensus
You can pitch anything so long as you can articulate a solid thesis. I would also suggest pitching names that are known as it gives the interviewer to ask high level questions that you should be able to answer easily. Shows you are actively keeping up
Normally, I would encourage people to pitch a mid-cap stock (aka a stock that people have actually heard of, but isn't so big that people think they already know everything about it). However, if you're intimately familiar with this micro-cap and have even visited their factory, etc., that perspective is distinctive enough that the upside probably outweighs the downside. Seeing somebody do that much primary research at the undergraduate level would be quite impressive.
I think any fund manager might get thrown off a bit due to a 75M Market Cap, however if you can convey that the business model is solid, that they have a potential for future growth in earnings and that their business is innovative, you should be able to impress. I will say however that by choosing a micro cap you're not doing yourself any favors since you have less to go off of
Multiples When Pitching Stocks (Originally Posted: 01/15/2011)
What are the most common multiples to use when pitching a stock?
If someone could provide me with a frame work on how they pitch a stock from beginning to end i'd really appreciate this!
I generally:
In terms multiples, PE and EV/EBITDA are most common. If you can, definitely mention any industry specific multiples though-this is always impressive, just be ready for follow up questions.
I also try to include a little bit about technical analysis on it as well but be careful with that as some people HATE TA
I can't believe people in IBD actually care what the P/E ratio of a stock is. P/E ratio is absolutely useless when picking a stock to purchase.
RVBD - P/E of 267 CMG - P/E of 45 NFLX - P/E of 72 ARMH - P/E of 100 NVDA - P/E of 64 LULU - P/E of 54
All of these stocks have been up 40% or more recently. But man, the P/E is just such a good predictor of stock returns. Better stick to stocks with a P/E of less than 20. What a good value!
each to their own
@kobalt - You can't just throw P/E's of companies like those around without mentioning their huge earnings growth rates, which give some of them at least semi-reasonable PEGs. Take NVDA - 2011 forecasted earnings growth is in the 90% range, giving it a PEG less than 1. By that measure it's cheap. Even using its long-term forecasted earnings growth rate its probably not looking overly pricey (didn't have that data on hand).
Which is exactly my point... P/E ratios don't tell you much and can often be misleading. PEG ratios are far more useful as you just mentioned.
Touche. Didn't get from your prev post that PEG was the direction you were going with dismissing the value of P/E
Thanks hommies!
ER Interview - Does the stock pitch need to be in the industry I'm applying for? (Originally Posted: 04/26/2016)
Interviewing for a boutique financials ER position this week. Do I need to pitch a financial company?
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