Stock Pitch Competition: Crafting a Winning Investment Thesis
Stock Pitch Competition
Investment Thesis & Qualitative
Analysis
6
th
February 2023
Introduction
The Competition
•
Over the next 5-6 weeks, you will create a stock
pitch either individually or as a team.
•
We will provide weekly sessions unpacking a
different section to the stock pitch.
•
But ultimately, these sessions
are dictated by
you
, so let us know what you want to learn about.
•
This is a great opportunity for you to add
something unique to your CV.
•
Competition is
Monday 6
th
March.
Today’s Learning Objectives
•
Understand what constitutes a good Investment
Thesis.
•
Recognize the role of Catalysts in an Investment
Thesis.
•
Understand the difference between top-down and
bottom-up analysis.
•
Identify the key sources of qualitative research on
a company.
Stock Pitch – Investment Thesis & Qualitative Analysis
2
Overview of the Structure
Typical Structure:
I.
Introduction
II.
Industry Overview
III.
Company Overview
IV.
Investment Thesis
V.
Catalysts & Risks
VI.
Valuation
VII.
ESG Analysis
An Investment Thesis
A differentiated insight, based in logical reasoning, as to why a stock is
currently mispriced by the market.
•
Differentiated
from the
market view/consensus
on the stock
•
Differentiated
from
competitors’ narratives
How will these two factors above drive a
differentiated valuation
•
What does the company do? (understand the business model)
•
Why should you buy that stock specifically (in relation to competitors)
•
Why should you buy the stock
now
?
What
are the
catalysts
?
When
&
why
may these catalysts come to fruition?
•
There can be many premises in your investment thesis!
Stock Pitch Investment Thesis & Qualitative Analysis
3
Investment Thesis
Two broad ways to attack the Investment
Thesis (not mutually exclusive!):
Bottom-up
–
analysing how company-
specific, microeconomic factors will impact
performance or alter the way in which it benefits
from macroeconomic factors
Top-down
–
analysing how macroeconomic
factors will feed back down to impact your stocks
performance
Important to articulate your thesis as an
interesting
, albeit logical,
story
.
Example Investment Thesis – Top-down
Stock Pitch Introduction
4
Copper will be a key commodity in the Push to net zero in the coming decades.
•
Crucial material in Solar Farms, electric vehicles, and Wind Turbines for
instance (& much better electrical conductivity than alternatives).
Teck Resources is a Canadian
diversified mining company, producing
Copper, Metallurgical Coal and Zinc.
-
2021 Cash flows from Operations =
$4.7bn (CAD)
-
Adjusted EBITDA margin in 2021 –
49%
-
Produced 1.78 million tonnes of
Copper in 2021 (1.1% of global
supply).
Global demand for copper predicted to rise to 31.1 Million tonnes by 2030, up
from 25 Mt in 2021.
With a shortage of new Copper mines coming online in the coming years,
Demand is expected to outstrip supply
When Demand outstrips Supply = Copper Price Increases
(ceteris paribus)
Teck Resources is major global player in copper production, with 26% of its
total revenue coming from Copper mining.
When Demand outstrips Supply = Copper Price Increases
(ceteris paribus)
Teck has a
new mine coming online
in 2023, expected to double its current
copper production, and it is re-shaping its business model towards Copper.
What is a ‘Catalyst’?
A
catalyst
is essentially what you perceive will be an
inflection
point
for a stock – an event, announcement, legislation that will
significantly change the short/long-term prospect for the business
•
Understand
why
the catalyst is not yet priced in (the catalyst may
already by underway?)
•
Catalysts in some sectors may be much
more uncertain than
others
– for instance the likelihood of a drug passing a clinical
trial is often much harder to predict tan the likelihood of a certain
bill being passed through a legislature.
•
Earnings releases
•
Product releases
•
Court decision
•
Regulatory changes/decision
Example:
-
Canopy Growth Corporation – medicinal cannabis
manufacturer.
-
In June 2018 the Canadian Senate voted for a Bill
that would legalise and strictly regulated the
production, distribution, sale and possession of
cannabis for adults of legal age.
-
By October 2018 this bill had been passed through.
-
Stock rose from below $8 (CAD) in June 2018 to
$67 (CAD) in September 2018.
•
Hard catalysts:
specific and distinct
events.
•
Soft catalysts:
potential events
Example investment thesis – Top-down
2U, Inc. is an American educational technology company that
contracts with non-profit colleges and universities to build,
deliver and support online degree and non-degree programs.
Top Down Qualitative Analysis – industry overview
A lot of the knowledge of the industry and competitors will help your build
a story of how a certain company is
differentiated
from competitors.
Competitive landscape:
•
Map out the competitive landscape of the industry – who are the stock’s
key competitors and how are their business models differentiated?
•
What is the Geographical distribution of the industry? How are
competitors spread across the globe in terms of production, sales etc.
Drivers and Trends in the industry:
•
Could often be considered as catalysts in your thesis.
•
What are the macroeconomic drivers affecting the industry – i.e.
sensitivity to interest rates (e.g. Insurance industry) – to what extent can
the companies in the industry control and react these changes?
Key Sources:
-
Industry reports
– many can be
from consultancies and have great
detail within them
-
Industry groups
(e.g. regulatory
bodies)
-
Broker Reports
Top Down Qualitative Analysis – industry overview
Bottom-up Qualitative Analysis – company overview
Read carefully into the qualitative sources provided by the company to
understand how they will react to a certain catalyst or how they are uniquely
positioned to benefit from macro/micro trends
Business Leadership:
•
Who are the key leaders of the organisation.
•
What is their track record, and what is the markets’ view of them.
Product offering
:
•
What does the company actually sell?
•
What are the revenue shares of different products?
•
Where are these products sold, and what is the geographical spread of the
organisation.
Suppliers and customer base:
•
Who are their suppliers – you can gain insights from reading their own
reports.
Key Sources:
-
Key corporate news
-
Annual reports
-
Quarterly reports
-
*Earnings calls transcripts
-
Company updates / press
releases
-
Company website
-
Other Analysts’ reports
Summary
•
An Investment Thesis is a differentiated insight, based in logical reasoning, as to why a
stock is currently mispriced by the market.
•
To have a convincing thesis construct an interesting, convincing and logical narrative from
a bottom-up or top-down perspective.
•
A catalyst is something you believe will cause an inflection point in the stock – it may not
have occurred yet and should not yet be priced (although it can be a slow-burn or
overnight-bump)
•
Utilise qualitative sources to build up your thesis and develop a deep understanding of the
company. Quantitative data is necessary and complimentary in this process.
Closing Remarks and Q&A
EoD
Prepare for a stock pitch competition with the Exeter Student Investment Fund by understanding what makes a strong investment thesis, the importance of catalysts, and how to differentiate your insight for a mispriced stock. Learn the key components of a pitch, from industry and company overview to valuation and ESG analysis. Dive into creating an engaging story for your investment thesis with a blend of bottom-up and top-down analysis.
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Presentation Transcript
Stock Pitch Competition Investment Thesis & Qualitative Analysis 6th February 2023 Exeter Student Investment Fund Learn Network Invest.
Introduction The Competition Today s Learning Objectives Over the next 5-6 weeks, you will create a stock pitch either individually or as a team. Understand what constitutes a good Investment Thesis. We will provide weekly sessions unpacking a different section to the stock pitch. Recognize the role of Catalysts in an Investment Thesis. But ultimately, these sessions are dictated by you, so let us know what you want to learn about. Understand the difference between top-down and bottom-up analysis. This is a great opportunity for you to add something unique to your CV. Identify the key sources of qualitative research on a company. Competition is Monday 6th March. Stock Pitch Investment Thesis & Qualitative Analysis 2
Overview of the Structure Typical Structure: I. Introduction II. Industry Overview III. Company Overview IV. Investment Thesis V. Catalysts & Risks VI. Valuation VII. ESG Analysis
An Investment Thesis A differentiated insight, based in logical reasoning, as to why a stock is currently mispriced by the market. Differentiated from the market view/consensus on the stock Differentiated from competitors narratives How will these two factors above drive a differentiated valuation What does the company do? (understand the business model) Why should you buy that stock specifically (in relation to competitors) Why should you buy the stock now? What are the catalysts? When & why may these catalysts come to fruition? There can be many premises in your investment thesis! Stock Pitch Investment Thesis & Qualitative Analysis 3
Investment Thesis Two broad ways to attack the Investment Thesis (not mutually exclusive!): Bottom-up analysing how company- specific, microeconomic factors will impact performance or alter the way in which it benefits from macroeconomic factors Top-down analysing how macroeconomic factors will feed back down to impact your stocks performance Important to articulate your thesis as an interesting, albeit logical, story.
Example Investment Thesis Top-down Copper will be a key commodity in the Push to net zero in the coming decades. Crucial material in Solar Farms, electric vehicles, and Wind Turbines for instance (& much better electrical conductivity than alternatives). Global demand for copper predicted to rise to 31.1 Million tonnes by 2030, up from 25 Mt in 2021. Teck Resources is a Canadian diversified mining company, producing Copper, Metallurgical Coal and Zinc. With a shortage of new Copper mines coming online in the coming years, Demand is expected to outstrip supply - 2021 Cash flows from Operations = $4.7bn (CAD) Adjusted EBITDA margin in 2021 49% Produced 1.78 million tonnes of Copper in 2021 (1.1% of global supply). When Demand outstrips Supply = Copper Price Increases (ceteris paribus) - Teck Resources is major global player in copper production, with 26% of its total revenue coming from Copper mining. - When Demand outstrips Supply = Copper Price Increases (ceteris paribus) Teck has a new mine coming online in 2023, expected to double its current copper production, and it is re-shaping its business model towards Copper. Stock Pitch Introduction 4
What is a Catalyst? A catalyst is essentially what you perceive will be aninflection point for a stock an event, announcement, legislation that will significantly change the short/long-term prospect for the business Example: - Canopy Growth Corporation medicinal cannabis manufacturer. - In June 2018 the Canadian Senate voted for a Bill that would legalise and strictly regulated the production, distribution, sale and possession of cannabis for adults of legal age. - By October 2018 this bill had been passed through. - Stock rose from below $8 (CAD) in June 2018 to $67 (CAD) in September 2018. Understand why the catalyst is not yet priced in (the catalyst may already by underway?) Catalysts in some sectors may be much more uncertain than others for instance the likelihood of a drug passing a clinical trial is often much harder to predict tan the likelihood of a certain bill being passed through a legislature. Hard catalysts: specific and distinct events. Earnings releases Product releases Court decision Regulatory changes/decision Soft catalysts: potential events
Example investment thesis Top-down 2U, Inc. is an American educational technology company that contracts with non-profit colleges and universities to build, deliver and support online degree and non-degree programs.
Top Down Qualitative Analysis industry overview A lot of the knowledge of the industry and competitors will help your build a story of how a certain company is differentiated from competitors. Key Sources: Industry reports many can be from consultancies and have great detail within them - Competitive landscape: Map out the competitive landscape of the industry who are the stock s key competitors and how are their business models differentiated? What is the Geographical distribution of the industry? How are competitors spread across the globe in terms of production, sales etc. Industry groups (e.g. regulatory bodies) - Drivers and Trends in the industry: Could often be considered as catalysts in your thesis. What are the macroeconomic drivers affecting the industry i.e. sensitivity to interest rates (e.g. Insurance industry) to what extent can the companies in the industry control and react these changes? Broker Reports -
Bottom-up Qualitative Analysis company overview Read carefully into the qualitative sources provided by the company to understand how they will react to a certain catalyst or how they are uniquely positioned to benefit from macro/micro trends Key Sources: Key corporate news - Business Leadership: Who are the key leaders of the organisation. What is their track record, and what is the markets view of them. Annual reports - Quarterly reports - Product offering: What does the company actually sell? What are the revenue shares of different products? Where are these products sold, and what is the geographical spread of the organisation. *Earnings calls transcripts - Company updates / press releases - Suppliers and customer base: Who are their suppliers you can gain insights from reading their own reports. Company website - - Other Analysts reports
Summary An Investment Thesis is a differentiated insight, based in logical reasoning, as to why a stock is currently mispriced by the market. To have a convincing thesis construct an interesting, convincing and logical narrative from a bottom-up or top-down perspective. A catalyst is something you believe will cause an inflection point in the stock it may not have occurred yet and should not yet be priced (although it can be a slow-burn or overnight-bump) Utilise qualitative sources to build up your thesis and develop a deep understanding of the company. Quantitative data is necessary and complimentary in this process.
