Friday January 31st, 2014

Lafayette College Investment Club

Meeting Agenda

• 1) Market Update

• 2) Portfolio Overview – Sector strength and how we are positioned

• 3) Medical Marijuana – An in depth look into a fascinating new sector

• 4) BUY/SELL – RSG and MFC, both less then 1% of our portfolio.

Goals for Last Semester

• Review of Last Semesters Goals

• 1) Our objective was to make the portfolio 100% equity.

• 2) Allocate our cash to either make positions 2% or greater (Move the needle issue)

• 3) Generate Solid Returns

Year of Year Performance

• We grew the portfolio 82,000 dollars, we currently have 482k in the market, 18k in cash.

• - We beat the benchmark by 3.5 percent during the semester.

• - We successfully converted the portfolio into 100% equity.

• - Every position in the portfolio is greater then 2% apart from the two I will present today.

• All in all we met all of our goals

Goals Going Forward

• 1) We want to step back and research our sectors heavily.

• 2) We want to really understand how we are positioned relative to the obstacles that the markets face in 2014.

• 3) Actively encourage newer students and members to participate and learn.

• 4) Find our legacy for the 2014-2015 Board

Market Update1/31/14

By: Ryan McCormick

Improving Economy

• Expect unemployment at 6.5% by 2015

Chicago Fed President Evans sees 3% growth

Sentiment based upon:– Uptick in consumer spending

– Housing prices

– Strengthening job market

Fed Watch

• Janet Yellen confirmed as Fed chief

• 1st woman to led bank in 100 year history

• Trimmed QE – Now $65 billion

• Taper + Economy = change in investing strategy

International Headlines

• China looks to cut down on Shadow Banking

• Attempts to limit loans by non-formal banks

• Increases risk to an already slowing economy

• Many local governments are indebted

• Threatens their financial viability

Europe

• European growth continues to stagnate

• ECB President Mario Draghi pledged “further decisive action” as necessary

• Interest rates at .25%

• Avoid deflation, which hurts consumer spending, prices, and investment

Developing Countries

• Investors traded emerging market currencies

• Reflects pull-back from riskier assets– Includes to U.S. stock market

–Monetary Policy driver of sentiment

– Puts Central Banks in difficult situation

Business Spotlight

• Google bought Nest Labs, Inc. for $3.2 Billion

• 2nd largest acquisition by company

• Nest produces “smart” thermostats, smoke alarms

• Highlights Google’s continued expansion

Marijuana Industry

By: Sean O’toole

Legalization boom

• 2 states legal– Decriminalization

– Medical Marijuana

• Continuing legalization trend

• Road blocks:– State infrastructure

– Banks, legal, accounting, and payrolls firms

How big is this industry in US?

• 10-200 billion (i.e. we have no clue)– 1 million per day in CO–Majority: 45 billion– DEA puts it around 100 billion

• Perspective:– Alcohol: 188 billion • 99-Beer, 61-spirits, 27-wine per 2009

– Tobacco: 75 Billion• 71-Cigarettes

Current Market outlook

• Incredible amount of risk– Unlisted and unregulated pennystocks

– “Pump and dump” boiler shops

–Many companies are unprofessional and uneducated• Hippies

• Company logos are grateful dead, joints, cannabis leaves

• No formal education

Current Market Outlook (cont.)

• Incredible Amount of opportunity–Mainly venture capitalism– Incredibly risky stocks (ILLADVISED)• Medbox (MDBX)• GW Pharmaceuticals (GWP.L)• CannaVest Corp (CANV)

– Researched Base stocks• Still not good

– Vape holdings (PLPED)– Cannabis Sativa (CBDS)

Follow Brendan Kennedy

• Started privateer holdings

• Has been doing research into the industry for years

• Business experience

• Owns stake in 3 companies– Leafly: Yelp for weed

– Lafitte Ventures: Growing Operation

– Arbormain: Growroom leasing

How else can we capitalize on it

• Research, keep on it and look for who will seize the market

• Speculations– Look into tobacco companies– Pharmaceutical companies– It may be government run– Look for supporting industries

• DON’T JUST GO OUT THERE AND BUY A PENNY STOCK

Sectors

By: Angel Stoychev and Joe Arrieta

Overview

Technology – 20.82%

• Major companies: IBM (4.75%), Akamai Technologies (2.56%), Microsoft (2.37%)

• Need exposure in: Multimedia and Graphics

Industrial – 13.01%

• Major companies: GE (4.91%), CAT (3.91), Boeing (2.80%)

• Need exposure in: Heavy Construction, Building Materials

Materials – 12.80%

• Major companies: Exxon (3.49%), Southern Copper (3.19%), KMI (2.39%)

• Need exposure in: Metals and Minerals, Chemicals

Healthcare – 17.08%

• Major companies: Gilead Sciences (5.16%), United Health (3.84%), Medtronic (3.04%)

• Well exposed

Services – 12.52%

• Major companies: Expedia (4.23%), Union Pacific (2.97%), Dollar Tree (2.73%)

• Need exposure in: Restaurants

Financial – 9.49%

• Major companies: Goldman Sachs (2.83%), JP Morgan Chase (2.39%), BNY Mellon (1.29%)

• Need exposure in: Property and Casualty Insurance

Consumer – 7.52%

• Companies: Jarden Corp (2.77%), Clorox (2.59%), Coca Cola (2.16%)

• Need exposure in: Automobile manufacturing, Tobacco

Sectors to add

• Conglomerates• Utilities – Water, Gas

SELL RSG

By: Tim Simon

RSG – Republic Services Inc

• Sector - Industrials • Environmental &

Facilities Services• This company became

the second largest U.S. provider of solid waste services in North America when it acquired Allied Waste Industries in December 2008.

Fundamentals

• 12 x EBITDA• 16 x Earnings• 1.59 B FCF• Highly Levered • 22% Insider Held• Huge Short Interest– Which could lead to

squeeze if sent. Shifts from negative to positive.

• Flirting with its 52-week high.

• Does not pay high yield relative to industry

Bull Case

• Gross margins should exceed 39% in 2014, up from near 38% projected for 2013, reflecting higher pricing and a better mix of landfill volume.

• 2% organic revenue growth in 2013, driven by higher core prices, while C&D (construction & demolition) roll-off volume benefits from the housing recovery. Further rebound in industrial special waste landfill volume into 2014, while recycling commodity prices stabilize at low levels.

• Expecting core pricing to continue to drive top-line organic growth despite a still-competitive environment.

Bear Case

• Slower-than-expected recovery in the housing market and economy, a decline in the customer retention rate due to competitive pricing, a rapid decline in commodity recycling prices, and sharply higher fuel and commodity costs.

• Recovery slows could present challenging headwinds for RSG.

• Stock is expensive relative to peers, and has been a laggard to comps.

SELL ALL

MFC – Manulife (BUY)

By: Tim Simon

Manulife (MFC)

• Manulife Financial Corporation, together with its subsidiaries, provides financial protection and wealth management products and services to individual, corporate, and business customers primarily in Asia, Canada, and the United States.

• Its products and services include individual life insurance, group life and health insurance, long-term care services, pension products, annuities, mutual funds, and banking products.

Fundamentals

• Trades in line as far as multiples are concerned relative to industry.

• Industry Average PE: 12 x

• MANULIFE: 12x

• EV/EBITDA: 6x (Cheap Relative to Industry)

• Not highly levered compared to industry

• 24 B in cash

Bull Case

• Strong brand and distribution platform Globally and expanding market share in other parts of Asia and Japan.

• They have gone through the process of de-risking over the course of the past 18 months, by taking off interest-rate sensitive products.

• Post sale of its reinsurance business they are poised to have a strong cap ratio.

Risk

• Low interest rate environment is dangerous for Manulife

• Cap Ratio requirements may result in some potential downside

• One franchise ties a lot of their capital which can expose them to duration risk.

(Buy)

• Fair value is above 18 a share, stock currently trades at a discount relative to peers on an EV/EBITDA multiple of 6.

• We have cushion here to buy a cheap stock, that has plenty of growth targets.

• RATES THESIS: Rates will sell off long term, making Manulife a safe investment in a higher interest rate environment.

Thank you

• Please leave your suggestions at the front of the room, and board meetings are now open on Tuesdays from 12:15-1:00 pm for those who are interested in running for positions in the last weeks of the spring.