Fundamental Analysis Workshop Series Session Five – Picking the Right Stocks (Part I) - Top Down...
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Transcript of Fundamental Analysis Workshop Series Session Five – Picking the Right Stocks (Part I) - Top Down...
Fundamental Analysis Workshop Series
Session Five – Picking the Right Stocks (Part I) - Top Down Analysis
DISCLOSURES & DISCLAIMERSThis research material has been prepared by NUS Invest.
NUS Invest specifically prohibits the redistribution of this material in whole or in part without the
written permission of NUS Invest.
The research officer(s) primarily responsible for the content of this research material, in whole or
in part, certifies that their views are accurately expressed and they will not receive direct or
indirect compensation in exchange for expressing specific recommendations or views in this
research material.
DISCLOSURES & DISCLAIMERSNothing in this research material constitutes a representation that any investment strategy or
recommendation contained herein is suitable or appropriate to a recipient’s individual
circumstances or otherwise constitutes a personal recommendation. It is published solely for
information purposes, it does not constitute an advertisement and is not to be construed as a
solicitation or an offer to buy or sell any securities or related financial instruments.
No representation or warranty, either expressed or implied, is provided in relation to the
accuracy, completeness or reliability of the information contained herein. The research material
should not be regarded by recipients as a substitute for the exercise of their own judgement. Any
opinions expressed in this research material are subject to change without notice.
SYLLABUSSEMESTER 2
WK 2 • Introduction to Stock Investing
WK 4• Art of Reading Annual Reports
WK 5 • Dividend Investing
WK 6 • Picking the Right Stocks(Part I) – Top Down Analysis
RECESS WEEK
WK 7 • Picking the Right Stocks (Part II) – Bottom Up Analysis
WK 8 • Portfolio Management for the Retail Investor
WK 9 • Case Study 1
WK 10 • Case Study 2
WK 11 • Case Study 3
Agenda
• Knowing About the Company and Its Business
• Industry and Competitive Analysis• Thematic and Economic Outlook• What does it all mean to you
What’s There to Know?
• What does the company actually do to make
profits?
• What businesses the company actually
engages in?
Why so important?
• Important to know the revenue model of
the company (Sustainable or not)
• Indication of business risk profile (Under
diversification VS Over diversification)
• Understand drivers of the business
Revenue Model
• Stable or Cyclical Revenue?
• E.g, BreadTalk vs OSIM (Food and Beverage
vs consumer durables)
• Think about sustainability and growth for
the future
Breadth of the Business
• Related vs Unrelated lines of business
• Upstream and Downstream integration
• Gives an indication of the amount of
risk/opportunities the firm is exposed to
• Eg. SPH (Print business and Property Business)
Products and Services
• Shows the diversity and number of revenue
streams the firm has
• Tells us what kind of customers the firm
deals with
Example – SingTel
• Offers telecommunications service, cable TV
and broadband internet service
• Controls Optus from Australia
• Services customers from different regions
with different needs
Industry and Sector Outlook
• Need to analyse the overall trend of the
industry (Growing or Sunset industry)
• Eg. Renewable Energy vs Diesel Distribution
• Relates to Thematic Investing
Industry and Sector Outlook
• Understand important events pertaining to
the industry
• Eg. New patents (Pharmaceuticals), New
innovations (Film vs Digital), Regulations
(Finance Industry)
Why so important?
• Gives indication of future growth potential
of the industry
• Understand how sensitive the industry is to
macro factors
Competitors
• Market Structure of the industry
• Highly Competitive or Monopolistic
• Local, Regional or International Competition
• Tells us the stability of firm’s profits with respect to the
actions of competitors
• Eg. (Samsung vs Apple)
Geo Political Outlook
• Change in Policies/Policy Stance
• Change in Leadership
• Political and Military Antagonism
• Adds uncertainty to the profitability of firms in the
region in question
• Eg. China vs Japan, North Korea antagonism
An Example – SGX Acquisition
• SGX acquisition effort of ASX
• Australian regulators were reluctant to accept
SGX’s offer due to sensitive control issues
• SGX did not manage to buy over the large
revenue stream of ASX
Economic IndicatorsIndicators What it means
GDP • Broadest Economic Indicator• Overall Economic Performance of the
CountryJob Growth • Indicator of Consumer Confidence
• Infer that Consumer Spending will increase with Job Growth
PMI • Made up of 5 sub indicators• Tells us Investor’s Confidence in the economy• 50 is the magic number
Thematic Investing
• Investing by identifying global trends and
drivers of businesses
Global Economy Politics
Social and
Cultural Trends
Consider the Current Themes
• By no means exhaustive• China’s transition from investment driven growth to consumer
driven growth
• Clean and Sustainable Energy
• Quantitative Easing
• European Recovery
• The Big Picture
Priced In
• How do we know information is already
factored into the price
• Efficient market Hypothesis
• Determine by looking at charts (Any sharp
movements in prices?)
What does this all mean to an Investor
Macroeconomic News
Industry Specific
Company Specific
• No fixed investment philosophy
• Determine which kind of information is best for making your judgement