During interviews for summer intern and full-time analyst roles, would an interviewer ever ask the question or give the command to pitch a stock to them? It's much more of a sales & trading or private equity kind of question, but could it still pop up during investment banking interviews?
Pitch a Stock: investment banking interview
This question is much more common in sales and trading interviews However, if you have anything listed on your resume that deals with market transactions then you should be prepared to answer this question. However, this question should only call for about half an hour of preparation time. On the other hand, You should be focused on having a working knowledge of DCF, comps, comp transactions, the CAPM, and the WACC. In fact, these concepts are more important for your investment banking interview. Nonetheless, you'll want to prepare a stock pitch just in case it comes up in your interview.
How to Pitch a Stock
When you are pitching a stock for an interview you'll want to emphasize certain aspects of the company in question. If it helps you can think of the stock pitch as a sell side pitch. The pitch gives you an opportunity to show how much you know about the industry (if applying for a coverage group). Further, this will allow you to quickly tailor your response for each individual interview. Below are some key points that you should highlight in your answer. In the end, you should try and illustrate that you know what drives business.
Stock Pitch Structure for IB
- State why this is a good investment
- Key drivers of business (revenue and cost)
- potential opportunities
- Competitive advantage
Here's a brief iteration from the an interviewer's perspective.
I've done it in a few cases when interviewing intern candidates who had an school investment club on their resume and I didn't have too much else to dig into. It serves a purpose; they'll demonstrate how in depth their research went, which speaks to their interest in and understanding of finance.
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Stock Pitch Example
So what does a good stock pitch look like? Below is a good example submitted by one our users.
This was originally posted in 2011
Transocean: Before the spill, RIG was a leader in an industry with great long term prospects, and only traded at a X multiple. The rig it lost was fully insured. It also had insurance for XX dollars for personal claims, and the exxon valdez spill only amounted to a fraction of this. These claims were also paid out 18 years later, drastically reducing the PV. Since it is likely fully insured for damages, the only explanation for loss in market cap is reduction in earnings. Apart from temporary ban (can't go on forever), it only lost one rig, accounting for XX in earnings, so at a pre-spill multiple of X it should have reduced market cap by X. In actuality, it lost XX in market cap, overstating the damage by X times. Huge overreaction. Catalysts are a stopping of the ban and legal results, which are likely to play out favorably for the following reasons, etc. etc
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