General Body Meeting 9/22 1. Mutual Investment Club of Cornell Today’s agenda Investment ideas to...

General Body Meeting 9/22

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Mutual Investment Club of Cornell

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Today’s agenda

Investment ideas to add to conviction list Real Estate Consumer Goods Financials Macro

Review of Brinks


American Campus Communities: ACC Thesis: given uncertain economic outlook,

student housing REITs sustain strong demand and growth compared to “typical” REITs

One of the nation’s largest developer, owner and manager of high-quality student housing communities; regionally-diversified portfolio

Flipped a $5.3 million loss in 09 to a $937,000 YoY gain in 2Q 10


American Campus Communities: ACC Recent transactions:

$357.5 million equity raise (Aug 20) $200 million acquisition of joint Fidelity

Real Estate Group (Sep 8) Trading: Price (as of 9/21): $30.62 52wk range: $23.62 - $31.34


Digital Realty Trust: DLR

Owns, acquires, and manages technology related properties.

Leader in industry in terms of total space and diversification

Projected heavy annual increase in data usage Good for Dell, HP, IBM and such Also good for DLR for leasing the land


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Recently acquired rival 365 Main It has acquired 8 properties in the past

year Large stock price increase Revenue growth

Q2 increased 28% 95% occupancy rate Better debt levels than their

competitors


Archer Daniels Midland Company (ADM) One of the world’s largest providers of

agricultural commodities ADM processes crops and produces

food and biofuels Market Cap: $21 billion


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Investment Thesis

Rapidly increasing global demand for food and fuel caused by strong emerging markets growth

ADM has a strong diversified market position as a leader in wheat, corn, oilseed and cocoa production

Strong balance sheet and cash flow enable potential future acquisitions

Low valuations metrics point to cheap price P/E: 10.9, EV/EBITDA: 6.2


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Recent Catalysts

Russian wheat shortage pushing up agricultural commodity prices

Upcoming UN Food and Agriculture Organization meeting on 9/24 to discuss possibility of global food crisis

EPA considering raising ethanol blend rate


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Risks

Drop in commodity prices Widespread drought and other weather

events that cause crop supply shortages

Drop in demand for biofuels (fall in price of gas)

Government policy


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Agrium Inc. (AGU)

Major producer of phosphate, potash and nitrogen crop fertilizers

Also distributes directly to farmers through local farm centers


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Investment Thesis

AGU is a different play on the increasing global demand for food

Vertically integrated company that produces and distributes fertilizer as opposed to major competitors

Diverse geographic base especially in South America is vital to future growth

Strong cash flow allows for future acquisitions

Low P/E valuation of 19 vs. 30 for POT and MOS

Takeover target


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Recent Trends

Farmers in China and around the world are demanding more fertilizer to increase crop yields which pushes up price

Diminishing arable land is causing a push for fertilizer use

Rising world population and increasing demand for crops and biofuels is positive for the fertilizer industry


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Risks

Possible government litigation concerning health issues related to fertilizer use

Trend towards organic food Currency risk Fall in commodity prices Increase in ammonia and sulfur prices

(ingredients)


Macro-economy

No big movements in markets No double dip or V-shaped recovery

Due to sustained high unemployment Take time to de-leverage (households, firms,

nations) Credit markets aren’t at pre-crash levels

Play this in 2 ways


Macro-economy

Buy High Dividend Stocks Get the yield from dividend Also, tend to be safer (offer some

downside protection) Examples:

Eli Lily (pharmaceuticals) Pengrowth Energy Trust (Canadian oil and

natural gas) Proctor and Gamble, J & J (Consumers)


Macro-economy

Long defensive stocks and short cyclical stocks Margins aren’t that big and get killed on

downswing Earn solid gains with steady or decreasing

market Lose potential big gains on market upswings

Example: Long: Pepsi, J & J, Wal-Mart Short: FedEx, Alcoa, Ford, Morgan Stanley


Macro-economy

FedEx


Macro-economy

Ford


Macro-economy

Morgan Stanley


Macro-economy

Long the RMB US accused the Chinese government of

artificially devaluing Keeps Chinese exports cheap relative to

USD Created massive trade deficit between US

and China

China will capitulate and gradually allow RMB to appreciate Potential trade war?


Macro-economy

Artificial devaluing


Macro-economy

Did we miss it? Some appreciation but general response

to weaker USD and not due to specific pressure


Brinks Update

Original Thesis: A series of unfortunate events, caused in part by Brink’s sale of its home security division, created an undervalued company.

Long term opportunity Sale of home security division in 2008

Changes margins, revenue, operating income

Also, economic turmoil has contributed to mispricing

What happened? In short the slumping economy continued

to hurt Brinks


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Quick Overview

Armored Car (Secure Transportation) Cash in transit services ATM servicing

Global Services Long-range transportation of valuables

Cash Logistics Airport security Supply chain management Secure data solutions


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What went wrong?

Continued political and monetary instability in Venezuela

Slumping worldwide economy 80% of operating income is international

Time horizon was 12 – 18 months


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General Body Meeting 9/22 1. Mutual Investment Club of Cornell Today’s agenda Investment ideas to...

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