Women in Investing conference 2011
Putting together a solid pitch
You have a hunch that you have a great lead on an undervalued stock. How do you go about building and presenting a persuasive case? Experienced investment analysts offered women MBA students who aspire to become investment managers the following tips during a panel discussion on “How to Initiate Coverage on a Company/How to Interview Management” at Women in Investing 2011:
Know a company’s background, but make your presentation succinct. “You’re not writing a book report,” said Ellen Hazen, equity research analyst at MFS Investment Management. “You have a view about owning a stock — your investment thesis. Reduce it down to two-to-four bullet points.” For example, focus on why revenue growth will accelerate and the basis for your projected rate of earnings growth, she advised. “Know the drivers of your investment thesis,” said Ruth Nagle, equity research analyst at Wellington Management. “Focus in on key drivers and filter out noise.” Karen Choi, fixed income investment analyst at Capital Research Company, recommended applying the KISS principle: “Identify two or three things that drive results,” she said. “Nitty-gritty stuff not as relevant as big-picture.”
Look at the industry, and the big issues facing that industry. “It’s very important to have comparables, to put a specific company in context,” said Nagle. What makes that company stand out? “SWOT analysis [strengths, weaknesses, opportunities, and threats] frames your thinking,” she said.
Construct a clear picture of a company’s cash flow. “To me, cash flow is more important than earnings,” said Choi. “Where does the cash go?” Zeljka Bosner, vice president and credit analyst at PIMCO, also emphasized this point: “We’re in a time of great market volatility. Be aware of where the cash is, and what a company needs to survive.” Nagle advised looking at historical cash flow as well as projecting future cash flow and earnings.
Model a company. “Modeling is really important,” said Hazen. “Use the model as a tool: play with the numbers, and ask ‘What if...?’ questions.”
Go the extra mile to get an edge. “After you put together all the public info that’s out there, listen to company calls and presentations, then meet with management teams, and figure out who are the key players in the industry and meet with them,” advised Choi. Noting that she had recently traveled to Washington, D.C., to meet with regulators for a specific industry, Choi also pointed out that sometimes meeting all the relevant players is as easy as going to the right conference.
Assess a company’s guidance – how trustworthy is it? “Check quarterly earnings: See what they said they’d do, then see what they did,” advised Bosner. “It really helps to get a feel for the management team.”
Analyze a company’s projections. “If a company says it’s going to grow 15 percent — is that realistic?” asked Nagle. “Can the market support it? What’s behind that forecast?”
How to interview managementWhen you get a chance to interview top management at a company you are considering investing in, first and foremost, prepare well, advised Ruth Nagle, equity research analyst at Wellington Management. “Know the investment drivers, and what their plans are to return capital,” she said.
Know who you’re interviewing, and tailor your questions accordingly. “You need to know who is attending the meeting, both from the company and internally,” said Nagle. “If you’re interviewing the CFO, get answers to your model questions.” Sometimes Nagle interviews management on her own; other times, portfolio managers and other colleagues attend.
Get the answer you seek. “When you interview, let them answer,” advised Nagle. “Don’t interrupt. But make sure they answer your questions. You may have to ask your question again, in different ways. Don’t let them run over you.”
Be polite. “This is not a one-up game, said Zeljka Bosner, vice president and credit analyst at PIMCO. “It’s a repeat game: You want them to answer your phone call six months from now.”
Be gracious. “One-on-one time with management is a real privilege,” said Nagle. “They’re taking their time to respond to your questions, and you need to respect that.”