Assignment Introduction

Present an analyst’s report on two competitors and the industry.

• Ininvestments(Finance4320and5320),twocompetitorstocks.
  • Each student will select a pair ofcompetitors.
  • After you have begun researching your stocks, you may want to change one of the competitors. This is fine.
• Inportfoliotheory(Finance4321and5321),bothstocksshouldbeviablecandidatesforadditiontoa portfolio.
  • Eachstudentwillselecttwocompetitorfirmsthataremid/smallcapstocks.
• Save your report as Lastname_Firstname_Ticker1_Ticker2. For example, my paper would be Macy_Anne_PEP_KO.
• You will submit your paper as a PDF to the Turnitinbox.

Did you choose the hardest pair/industry EVER?

• Yes, you have chosen the hardest pair and/or industry there is. Pretty much every student thinks that the pair/industry that he/she chooses is substantially more difficult to analyze then the pair chosen by every other student inclass.
  • What students do not realize is that every industry is unique. What you have to do in your analysis is discover and then explain what makes the industry and the stocks in it unique and how that impacts valuation.
  • Actually,havingamoretechnicalindustrytoanalyzemakesthepapereasierbecausethereismoreto discuss.
  • Once you find the uniqueness of the industry, you then find how the stocks fit into the industry. What niches is each firm satisfying? Have stock investors assessed the strengths and weaknesses of the firms correctly? Have investors valued the stockscorrectly?

General Tips on How to Pick Your industry

• I will use Pepsi & Coke as examples. You cannot choose thisoption.
• Look at the sample papers provided in the class. You cannot choose any of thosestocks.
• No industry is “better” than another industry. You can find good stocks in everyindustry.
• I am going to let you choose whichever stock pair you want (except Coke and Pepsi). However, you must remember that you will submit your paper to Turnitin. Turnitin will mark papers that are similar. If two of you choose Apple, your papers will be marked as similar, especially if you work together. Thus, you will want to choose stocks that no one elsechooses.
  • Do not think that fighting me about your Turnitin score will work. Whatever your score is, it will be deducted from your total points. I will check your Turnitin score for things such as references and not penalize you for that. However, I will not play your game of fighting over your Turnitin score – youchosethestocksandmustaccepttheconsequencesofthatchoice.
  • Forexample,yougetaTurnitinscoreof10%andIfindthat2%isbecauseofthingssuchasgraphs, references, common finance phrases, etc, I will deduct the remaining 8% or 20 points from your grade.
  • Thus, it is advantageous to choose stocks that are NOTcommon.
  • Choose stocks that have Value Lines. Otherwise, you are making the paper much harder todo.

Quick Valuation to Help You Narrow Down Stock Choices After You Have Picked Your Industry

• You do not have to pick your stocks right away. However, I know that students like to have an idea of which stocks they will examine. This is a quick but incomplete way to at least reduce/remove somestocks.
• Use the beta from ValueLine.
  • Plugintoequation:requiredreturn=risk-freerate+(beta*marketriskpremium)
  • Required return = 0.025 +(beta*0.07)

o    ForPepsi:requiredreturn=0.025+(0.75*0.07)=0.025+0.0525=0.0775or7.75%

• Use the average expected price from ValueLine.
  • Ignore dividends. Dividends are important for income stocks but for now, you can ignore unless youknowhowtosumthedividendsfortheholdingperiodreturncalculation.
  • ForPepsi:Averagetheexpectedfutureprices:Averageof$120and$145is$132.00
  • Current price for Pepsi is about $106 (when I typedthis)
• Expected annualreturn
  • Expectedholdingperiodreturn=(FuturePrice/CurrentPrice)1/3=(ExpectedTotalReturn)=

Expected annual return

• If expected annual return > required return, the stock has potential. If the expected annualreturn

< required return, the stock is overvalued and can be dismissed.

o    ForPepsi:($132/$106)1/3=(1.245)1/3=1.075865or7.586%

• 586%islessthan7.75%soPepsiisovervaluedandeitheraholdorasell.

• Ifyouwanttoadddividends,sumthedividendsthatthestockisexpectedtopayoverthenextthree years.
  • Pepsiisexpectedtopayabout$9.50individendsoverthenextthreeyears.
  • Ilookedatthedividendlineandtook2017expectedvalueplustheaveragevaluefor2019-21plus a number in between those three numbers and roundeddown.
    • $3.08 + $3.18 + $3.28 = $9.54 – roundeddown
  • Expectedholdingperiodreturn=(FuturePrice+Dividends/CurrentPrice)1/3=(ExpectedTotal Return) = Expected annualreturn
  • If expected annual return > required return, the stock has potential. If the expected annualreturn

< required return, the stock is overvalued and can be dismissed.

o    ForPepsi:(($132.00+$9.50)/$106)1/3=($141.50)/$106)1/3=(1.3349)1/3=1.10106or10.11%

• 11%isgreaterthan7.75%soPepsihaspotentialbecauseofthegoodincomeitpays.

Discussion of Writing Style

• The audience for your newsletter is the brokers and clients your company serves. They have some knowledgeoffinancebutyoustillhavetoexplainallnumbersandcharts.
• Remember this is an analyst’s report – not a salespitch!
• You want the correct tone –informative.
• Make sure the writing is clear and concise. If you can say it in two sentences instead of a paragraph, shorten the information to asentence.
• You must weigh conciseness with completeness. You want to provide the reader with the information. A common error is to just state facts but not provide any analysis or synthesis. This is the most common reason why a student loses points on asection.

• Descriptive statements say what is. Analytical statements say what it means. You want both for every concept.
  • Forexample,assumethatPepsihasanNPMof15%andCokehasaNPMof18%.
  • Many students will show a chart and then say, “Coke has a higher net profit margin than Pepsi.” Duh – anyonewhowenttofirstgradeknowsthat18%islargerthan15%.
  • Thestudentshouldwrite,“Coke’shighernetprofitmargin(seechart#2)meansthatithaslowercosts than Pepsi. This is positive for Coke because firms with higher net profit margins are better able to survive economic downturns. Upon a closer examination of Coke’s financial statements, Coke’s higher net profit margin originates from its lower cost of goods sold. Thus, an investor would want to watch these costs when evaluating Coke’s future performance. The main cost of goods sold items for Coke are sugar andaluminum.”
  • Withthesecondstatement,youhaveprovidedinformation(NPM),explainedtheinformation(higher NPM is better), why it matters (better able to survive economic downturn), and what the investor needs to consider in the future (prices of cost of goods sold primarily sugar and aluminum). You also provided a graphic or referenced a chart for thereader.

• You need to provide analysis and synthesis not just description. For each topic/idea, you should address why it matters for the reader. An easy way to do this is to either begin or end each paragraph with a sentence relating the importance of theinformation.

Writing Style Specifics

• You need to use correct style for businesscommunication.
• A paragraph covers only one topic. A paragraph is typically three to five sentences long. Usually one statestheconclusionfirst,andtheremainingsentencessupportthefirststatement.
• Each successive paragraph further develops the topic. The order to paragraphs is either chronological or based on importance. Present the most significant factsfirst.
• Positive versus normativestatements
  • A positive statement is a statement of fact and it can be true or false. A normative statement is a statement ofopinion.
• Descriptive versus analyticalstatements
  • A descriptive statement is a statement of fact. It attaches no emotion oropinion.
  • An analytical statement is a statement of evaluation. It explains how the reader can use the information or why it isimportant.
  • FirmABC’semployeesarenotunionized,whichpositivelyaffectscashflowsandprofitabilitybecause costs are more easilycontrolled.

• Absolutely NO OPINION. A stock is not a buy because you think it is. It is a buy (or a sell) based on the analysis that you justpresented.
  • There should be no “I” or “we” in the entirepaper.

• You can use a stock’s ticker symbol as aname.
  • For example, you could say: (1) Pepsi’s cost of good sold has increased in recent years because of the product switch to more food. (2) PEP’s cost of good sold has increased in recent years because of the product switch to more food. Both arecorrect.
  • The ticker is a singular noun for the firm and thestock.
  • Try to avoid at all cost saying “the firm.” Instead, use the name, the ticker, or it as the subject when referring to the company or thestock.

Use “Formal” Grammar

• Many of you initially will write your paper in Word and then copy and paste it into Publisher. For those using a Mac, you will probably type directly into the newsletter in Mac’s Word. You may not be aware but Word will check for both grammar and spelling. Most, if not all of you, check for spelling.  However, you can also check for grammar. In options, you can check for passive sentences, split infinitives, etc. For me, I check the box for “formal” writing style instead of “standard.” Sometimes, I think Word underlines everything in green! I also use the Grammarly website to check mywork.
• Some students do not understand why they are required to write using “formal” style and not “standard” style. While standard style is accepted, formal style is better. While you text, your wealthy 70-year client may not. You are making an impression on your client. You want to make the best impression possible. The average reader now accepts ending sentences with a preposition. However, your 70-year old client would not agree that ending a sentence with a preposition is acceptable and would view the writer as lazy oruneducated.

Newsletter Format

• YoushoulddothenewsletterinMicrosoftPublisherifyouareusingaPCorintheNewsletterFormatin Publishing Layout View of Word if you are using aMac.
  • Many of the Mac formats for newsletters are ugly. You can be marked down for this. Thus, youwillwanttospendtimeimprovingtheformattomimicPublisherortojustusePublisher.
• The HELC has Publisher on itscomputers.
• There is absolutely no reason that you have to buy Publisher or anything like it. There are free templates on the web for newsletters if you do not have MS Publisher if you are on a PC. If you use a Mac, you automatically have the newsletter template in Word. There is also a newsletter option in some versions of Pages.  You just have to adjust it to make itwork.
• Part of your grade is onappearance.
• Youwillwanttopresentcharts,tables,andgraphstoshowyourreaderwhatyouaredoingandtomake the newsletter eye-catching andunderstandable.
• You need to explain the main idea for each illustration within the body of the newsletter. Do not just put inachartandexpectthereadertoknowwhyitisthereandwhatheissupposedtolearnfromlookingat thechart.

• While everyone’s MS Publishers is different, I access the newsletter by opening Publisher and under “publication types”; I select “newsletters.” In the main box, there are new designs such as “arrows,” “bounce,” and “brocade.” Farther down in the box, there are classic designs such as “accent box,” “accessory bar,” and “arcs.” You chose the one that is attractive toyou.
  • In the toolbar on the right, I have the option of changing the color scheme and the page size. Please change the color scheme to a scheme that you like. For the size, it is easier to use the two-page layout.
  • I then “create” the newsletter, which has usually four pages. You should insert more pages to get to the ten to twelve pages (use “insert” tab at the top toolbar). I think it is easier to do it at thestart.
  • Afteryouhavecreatedthenewsletterformat,youwillnoticethatPublisherhasseteacharticlespace for you. All you need to do is copy and paste from your Word document into Publisher. Some students prefer to type directly in Publisher – it is your choice. Each article space tells you how many words will fit. Additionally, it gives you a place forpictures.
  • Thevariousformatsalsohavespotsforquotesorpicturestocatchthereader’sattention.
  • You can move and delete the word boxes and the picture boxes. Thus, you can change the size of the box to fit yourimage.

• For Mac users, the Word program includes a newsletter. I access it by clicking on “publishing layout view” in the bottom left corner. In the “gallery,” there is a tab for “newsletters” and you can select one ofthem.
  • Most newsletters open with four pages. You will want to increase it to ten pages or more. It is easier to delete pages than it is to addpages.
  • Some of the newsletters have very little space for writing. You will need to increase the space in order to address fully eachtopic.
  • If you choose a newsletter style that has a default of one column, you will want to switch it to two or three. A one-column newsletter is NOT business professional, and thus, not acceptable for thispaper.

• I always work off two copies – one that I am working on and one that I have saved. If I do something that doesnotlookrightandtheundobuttondoesnotwork,Icanjustcloseoutthenewsletterandstartagain on the other version. It is always good to keep acopy.

• If you plan on working on different computers, your newsletter may appear different on different computers. Wait and do the final margin adjustment and fixing-up when you are on the computer on which you will save and upload the newsletter. There is no need to waste time adjusting things on a computerwhenyoumustdotheadjustmentsagainwhenyoumovetoyournormalcomputer.

Citations

• You will need to cite your workcorrectly.
• Within the newsletter, you should use endnotes. An example of an endnote is this (Morningstar, 2016). Endnotes show the source of theinformation.
  • Generally, you should not use direct quotes unless it is for a very specific reason, such as a quote from the CEO on the topic you are presenting. You might use a direct quote in a sidebar in the newsletter to add interest for thereader.
  • Instead, you will put the ideas in your ownwords.
  • It is best to use several sources for eachidea.
  • Do not cite the notes or lectures. You should put these concepts in your ownwords.
  • You should place endnotes at the end of sentences or paragraphs and within the period. It will look lessclutteredifyouplacealltheendnotesatonceattheendoftheparagraphsuchaslikethis

(Morningstar, 2017; Value Line, 2017; Merrill Lynch, 2017). The reader knows that you used all three sources for the information for the paragraph.

• At the end of the newsletter, you will place a list of references. The reference list gives complete informationtothereaderonhowtofindtheoriginalsourcesyoureferredtointheendnotes.
• ReferenceshouldbepreparedingeneralaccordancewiththeAPA(AmericanPsychologicalAssociation).
• A common question by students is, “how do you define plagiarism?” Another professor gave me this example. He said, “If I go to Bob’s house, steal Bob’s car and then park it in front of my house, whose car is it?” Bob’s car, right? “But what if I change the tires on the car. It is my car now, right.” That is the idea of plagiarism. If you can tell where it came from, it is plagiarism (unless it is in quotes andcited).
• Thus,youcanuseotherwriters’ideasandcitewithendnotesbutonlyifyouhavemadethemyourown words.

• • The Turnitin plagiarism percent should be less than5%.
  • IsetTurnitintoignoresmallrepeatssuchas“stockvaluationmodel.”
  • I look at each Turnitin report so you do not need to ask me to look at it. For items that Turnitin catches butyouhavecitedcorrectly,Iwillsubtractthatpercentfromyourtotal.
  • Turnitin will occasionally miss quotation marks. I will subtract the percent of corrected quoted material from your totalpercent.
  • You may submit to Turnitin to see your initial plagiarism percent and highlighted areas. You may then workonyourpapermore,correcttheareas,andlastly,resubmitafinalversion.

Good communication versus successful communication

• Ask yourself if you are successful in yourgoal.
• Aneffectivecommunicationhasthreepurposes:togetaction,tobuildgoodwillortofurnishinformation.
• Does your newsletter satisfy these three purposes? Will clients invest their money based on your communication?
• Again – this is an analyst’s newsletter not a sales pitch. Clients respond to honesty so do not paint a rosy picture if it is notrosy.
• It is easier to influence if you take the reader’s point of view. Why is it advantageous to him/her to take the action or attitude yourecommended?
  • Sincerity and truthfulness are imperative. A reader will ignore quickly an insincere or false communication.
• Adapt the appropriatetone.
  • The communication should sound like you. Read the letter aloud. Does it flow? Does it sound like you are speaking to thereader?
  • The language should be appropriate to both the reader and writer. Trying to sound impressive or folksy will notwork.
  • The language should exhibit clarity. Clear writing is simple and specific. Vague language conceals the meaningandeitherfrustratesthereaderorcausesthereadertostopreading.
  • The language should be vivid so that the reader remembers the communication. Vivid writing is both forceful and fresh. The writing should be compelling to keep the reader’sinterest.

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• While the letter is asking for action/attitude, it is not a sales pitch. A sales pitch does not have the best interest of the reader at heart. Nor is the pitch truthful. The author of a sales pitch will lose all credibility on futurecommunications.

Some General Rules

• Correct use of commas and quotations is required. Commas arepauses.
• Do not end a sentence with apreposition.
• Avoid passive sentence structure. Active voice is a subject performing an action. Passive voice is an action performing on the subject. Passive voice requires extra clauses and weakens thesentence.
  • She threw the ball.(Active)
  • The ball was thrown by her.(Passive)
• Avoid split infinitives. The phrase “to work quickly” is superior to the phrase “to quicklywork.”
• Use power/action verbs and avoid the verb tobe.
• Donotoverusesuperlativessuchas“greatest,”“best,”“mostprofitable,”etc.
• Avoid qualifiers such as very, rather, little, pretty,etc.
• Whenyourefertoachartortable,makesuretoexplainwhatthereaderissupposedtogainfromthe chart ortable.
• Common misusedwords.
  • Good (adjective) and well(adverb)
  • Between(twoitemsorcomparingitemswithinagroup)andamong(morethantwoitemsor comparing items of differentgroups)
  • Because (the reason is) andthat
  • (not andetc.)
  • Affect (to influence) and effect (to bringabout)
  • Accept (to take) and except (to leaveout)
  • Fewer (modifies plural) and less (modifiessingular)
  • Bring andtake
  • Imply (to suggest something) and infer (tointerpret)
  • Like(beforeaprepositionalphrase)andas(isaconjunctionandintroducesaclause)
  • Which(referstothings),that(referstopersonsorthings)andwho(referstopersons)
  • That(referstopersonsorthings)andwhere(referstoaplace)

Avoid Passive Sentences

Passive sentences are weak writing. In a passive sentence, the subject is not performing the action. Instead, the action is performed on it.

A writer should avoid passive sentences. To many readers, passive sentences signal a lazy writer or a writer who is not willing to take the time to revise the sentences to active.

If you examine my writing, you will notice that I struggle with this. My teachers taught passive sentences to avoid using “he” and thus, to avoid gender-specific sentences. As a society, we are not as concerned with this today and thus, passive sentences are back on the do-not-use list.

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Passive sentences have a place if you are trying not to apportion blame or to reveal who was responsible. For example, the door was left open. If you say Susie left the door open, you have put the responsibility on Susie. The reader’s focus changes from the door to Susie.

You might also use passive sentences because the subject is unknown. On rewrite, you might find a stronger sentence.

Passive: Corn is grown in Iowa.

Active: Iowa farmers grow corn. This is active but the emphasis is on the farmers. Active: Iowa’s main crop is corn. The emphasis changes to Iowa.

The COB has a goal of continuous improvement in student writing skills. One part of improvement is recognizing what is preferred and what your weaknesses as a writer are, which is what the formal grammar check will tell you.

As a side note, passive sentences are one of my weaknesses. I have to continually revise my work and eliminate passive structure. If you find avoidance of passive structure difficult, you are not alone.

Make It Easy to Read and Attractive

• Use color to help the reader find theinformation.
• Use table and charts to help explain your analysis. Do not use valuable word space to describe data. Use tables and charts to convey a lot of informationquickly.
• Donotusemiscellaneousorrandomcliparttowaste/takeupspace.

Topic Areas: You must cover all of the following areas. Try to stay in the same order of the topics.

Page 1

1. Executive Summary andSynthesis
   • Present a summary of thenewsletter.
   • Include your key findings and the recommendation. An executive summary is the conclusion but provided first for the reader who will only read thesummary.
     • Itprovidesthesynthesis
   • This section is written LAST! You write it after you have written the rest of the paper. It is merely the summaryandyourrecommendation(basedontheanalysisandnotasalespitch).
   • Thesummaryshouldincludeashortoverviewoftheindustrytowhichthestocksbelongalongwithan overview of the two firms. If everyone knows your companies, there is not much needed for this section. The more your firms are unknown, the more you need toinclude.
   • Thereadersshouldbeabletoreadtheexecutivesummaryandlearnallthemainideas,concepts, mathematicalresults,conclusions,andrecommendationwithoutreadingtherestofthepaper.
   • Thesummaryincludesthekeyfactsandconclusionsofeverysectionthatareneededtomakea decision.
     • Yes–rememberthatthereadershouldbeabletoreadonlyyourexecutivesummaryandmakean informed decision on theindustry.
     • Yes–youprovidetheconclusionsatthestartsothereaderdoesnothavetoreadanyfurther.
     • Be sure to include a Buy Price and a Sell Price. In other words, at what price does the analysis indicate the stock would be a “buy” and a“sell”?
   • Thesummaryshouldbeforward-lookinginitsanalysis–whatislikelytohappentothefirm.
   • Thesummarycontainstheconclusionsfromeachsection
   • What is your recommendation? Your recommendation is on facts and notopinion.
     • FIN 4320/5320: Discuss whether your reader should buy, hold, or sell thestock.
     • Fin 4321/5321: Discuss which stock your reader should buy and why? If you have decided that neitherstockisabuy,discusswhyyouhavemadethisdecision.
   • What likely factors could alter your recommendation? Does it make you more positive or more negative on the stock andwhy?
     • Forexample,withPepsi,arecommendationtobuycouldbechangediftheinputcostssuchas sugar rose dramatically enough to reduce the net profitmargin.
   • Thesummaryneedstocatchthereader’sattentionandmakehimwanttoreadtheentirenewsletter.
     • Thesummaryprovidesinformationontheareasofthepapersothereaderdoesnothavetoread anymoretoknowwhatisinthepaperandwhataretheconclusions.
   • Theexecutivesummaryisagoodplacetoputachart/tabletosummarizesomeofthefindings.
   • Youwillwanttouselotsofheadingstohelpthereaderkeeptrackoftheconclusionsandideasfrom thereport.

Page 2

2. MacroeconomicAnalysis
   • Whatisthemainmacroeconomicvariable/influenceonthevaluationofthestocksandindustry?
   • Choose either a demand or a supply variable. Note – you do not have to do both a demand and a supply variable. Pick the one that has the greatest impact on the firms’ sales, profits, and cashflow.
   • Presentandexplainagraphorachartshowingtherelationshipbetweenyourstocks’prices/returns with the mainvariable.
   • Many students struggle with this section. What you are looking to find a major variable that the firm has NO control over (because it is a macro variable) that alters the environment in which the firms operate.
   • Herearesomeideasifyouchooseavariableaffectingdemandfortheproduct/service.
     • Remember that demand is both the willingness to buy and the ability to buy. Choose a variable that affects willingness and/orability.
     • Towhatdothebuyersrespondorwhatvariablehasthegreatesteffectonbuyerdecision?
     • Whatchangesthebuyers’decisionstopurchasetheproduct/service?
     • What will cause them to buy more? What will cause them to buyless?
     • What will cause them to buy from a differentfirm?
     • Examplesincludeinterestrates(thinkbuyingoncredit),consumptionpatterns,demographic characteristics, GDP, exchange rates,etc.
   • Herearesomeideasifyouchooseavariableaffectingsupplyofcapital,inputcost,abilitytohire scientists,research&development,oranothersupply-sidevariable.
     • Rememberthatsupplyisinfluencedbyboththecostsandavailabilityofinputsalongwiththe costsofsubstitutesandcomplimentsintheproductionprocess.
     • What will cause the firm to produce more? What will cause the firm to produce less?
     • What will cause the firm to sell to differentbuyers?
     • Examplesincludecommodityprices,interestrates,exchangerates,oilprices,etc.
   • Nomatterifyouchooseademandorasupplyvariable,discusshowthatvariableaffectsthefirms’ valuation.
     • DemandvariablechangesèBuyerspurchasemore/lessèFirms’salesincrease/decreaseè

Firm’ profits increase/decrease èFirms’ cash flow  increases/decreases

• SupplyvariablechangesèFirmsproducemore/lessèFirms’salesincrease/decreaseèFirm’ profits increase/decrease èFirms’ cash  flowincreases/decreases

• LouisFed’sFREDdatabaseisagoodsourceformacroeconomicdata.

Page 3

3. IndustryAnalysis
   • Discuss the current state of theindustry.
     • Whatisthemainthreattotheindustryandtothestocks’pricesandfinancialperformances?
     • Analyzetheroleofinternationalmarkets
   • Discuss the market structure of theindustry.
     • Is it monopolistically competitive or anoligopoly?
     • Arethemainproducts/servicesmorecommoditized,highlydifferentiated,orblockbuster?
     • How does the market structure affect the ability of the firm to control the prices it charges for its products and for the prices it pays for its inputs? The more a firm can control its prices, the more it can control the income statement andEPS.
   • Calculate,present,andexplainthefive-yeartrendforeachstockofsales,earnings,netprofitmargin, return on total capital (Value Line’s version of ROA), long-term debt, P/E, dividend yield, and payout. You can get all of this information from Value Line. If you do not have five years, use whatever you have or whatever makessense.
   • Provideaconclusionontheoverallstateoftheindustryandyourtwofirms’placesintheindustry both currently and in thefuture.
     • Provide a conclusion on the overall financial soundness of eachcompany.
     • Does the firm have goodliquidity?
     • Does the firm have goodprofitability?
     • Does the firm have manageable debt levels andcost?
     • Is the firm using its assetswell?
     • Is the firm providing a large and growing dividend? If not, this might not be a bad thing if the firm is growingquickly.
     • Is the market’s valuation of the firm increasing? In other words, what is happening with the P/E ratio?
   • Value Line, Morningstar, Mergent Online, LexisNexis Academic, and S&P NetAdvantage will have some of this information. Additionally, you should use articles (not press releases) about the firms to gain insights into the industry and trends. Each industry has trade groups with websites and lots of industry information and analysis. Bigcharts has industry charts (look right about the chart for the link to Industry).

Page 4

4. FundamentalValuation
   • Calculate, present, and explain the required return. What does the number mean and how does it affect yourrecommendation?
   • Calculate, present, and explain the role of dividends in the valuation of your stocks. Do dividends matter? What do Gordon’s Model and the Dividend Growth model say about yourstocks?
     • Ifastockdoesnothavedividends,youmayskipthispartbutbesuretomentioninthenewsletter that the stock does not paydividends.
   • Calculate, present, and explain the Expected Holding Period Return – Annualized for each stock. What is the expected alpha for eachstock?
   • Calculate, present, and explain the sensitivity analysis for each stock? How sensitive is each stock to your assumptions on P/E andEPS?
   • What are the expected future prices of thestocks?
     • Under what conditions would the stocks bebuys?
   • Present an overview of the fundamental valuation. What can you conclude about eachstock?

Page 5 – top half

5. Corporate GovernanceConsiderations
   • Discusstherecentactionsofinsidersandinstitutionalinvestors.
     • Are the insiders mostly buying or selling? At whatprice?
     • Are the institutional investors mostly buying or selling? At whatprice?
     • Yahoo!FinanceandNasdaqwebsiteshaveinformationaboutinsiderandinstitutionalholdingsand their buy/sellactions.

Page 5 – bottom half – NOTE: Only do the part that pertains to your class Relative Valuation – For portfolio theory students only

• PresenttheP/E,P/SalesandP/BookValueandcompanionvariablesforyourtwostocksoverthelast five years. All of this information is from ValueLine.
• Which stock is relativelybetter?
• Is your stock value, growth, GARP,etc.?

OR

Next Product or Trend – For investments students only

• Discusshowthefirmsareadaptingtheproducts/servicesforthechangingcustomer.
• Which firm(s) in the industry is on the cuttingedge?

Page 6

6. TechnicalValuation
   • Presentanddiscussatleastonelinechartforeachstock(usemarketwatch.com).
     • Whatdothechartssayaboutthehistoricalpricesandtrend?
     • Whatdothechartssayaboutdemandandsupplyforowningthestock?
     • Whatdothechartsofthesimplemovingaverage(SMA)of50daysand200dayssayaboutwhen investors are buying/selling thestock?
     • What is the event(s) that caused spikes involume?
   • Forportfoliotheorystudentsonly–Presentanddiscussatleastonepointandfigurechartforeach stock (usecom).
     • Whatdothechartssayaboutthehistoricalpricesandtrend?
     • Whatdothechartssayaboutdemandandsupplyforowningthestock?
     • What do investors think are buy and sellprices?

Page 7

7. References
   • Remember to cite your references using APA style throughout the newsletter. Use endnotes (Smith, 2016) at the end of the sentence orparagraph.
   • Attheendofthenewsletter,placealistofthefullcitations.
     • Remember to cite eachtable.
     • You should have a minimum of 8 sources in addition tothe traditional financial analysis sources suchasValueLine,Morningstar,S&PNetAdvantage,IBIS,MergentOnline,LexisNexisAcademic, etc.
     • Theseeightsourcesshouldbemagazinearticles,newspaperarticles,trademagazinearticles,or anythingelsethatisnotfromapressreleaseorfromusualfinancialsource.
     • This is a very common place for students to miss points. Find and use relevant articles about your firms.
   • Do not use company information as a major source for your newsletter. Company information is more marketing thanfinance.
     • Usenewsarticles(andnotpressreleases)aboutyourstocksandindustry.
     • Read about your stocks from the viewpoint of thecompetitors.
     • Read trade journals. A good place to find these is the Business Source Complete Search for trade publications in the lefttoolbar.
   • Remember,youareanalyzingandnotjustdescribingsousesourcesthatdotheanalyzingforyou.
   • You should use these databases from the library. The databases all have financial information, but they each have different information on the industry, news articles, and trends. They have a lot of the informationyouneedbutyouhavetosearchtheentiretyofeachdatabase.
     • ValueLine
     • Morningstar
     • S&P NetAdvantage
     • IBISWorld
     • LexisNexisAcademic
     • MergentOnline
     • Business SourceComplete
   • Ontheweb,useYahoo,Google,MSNMoney,Wikinvest,Forbes,Fortune,Smartmoney,etc.
     • Be care of blogs because it could just be some guy’s opinion. You are looking for facts and analysis.

8.       FinalThoughts

• Is your newsletterattractive?
• Doyouprovideheadingsandotherwaystoorganizethenewsletterandmakeiteasytoread?
• Didyouprovideananalysisforeachtopicarea?
• Did you explain each table andchart?
• Didyouciteyoursourcesbothwithinthenewsletterandprovidereferencesattheendofthe newsletter?
• Do not cite the lecture notes orme.
• Did you give the reader a thorough understanding of thestocks?
• Didyouprovidethereasonsforyourdecisions?
• Are you forward-looking in youranalysis?
• Canthereadermakeaninformeddecisionafterreadingyournewsletter?
• Do not use clip art unless it pertains to the firms. A quick way to lose points is to place a large picture orclipartthatisunrelatedandmerelyusesvaluablespace.

• Pagelength:aminimumof6pageswrittenorapproximately1pagepertopicarea,exceptforpage5, which will have twotopics
  • Youshouldfeelfreetohaveapaperlongerthan6pagesbutpleasetrytokeepitlessthan10 pages.
  • Some students prefer to think in terms of word count. That does not always work well in this type of paper but I did look back through past papers and papers with over 5000 words were generally scored as As andBs.