CIF Sector Update Report (Spring 2015)

Transcription

1 CIF Sector Update Report (Spring 2015) Sector: Technology Analysts: Jake Riddell and Bryan Mickelson Presentation Date: April 17, 2015 Review Period: Start: January 9, 2015 End: April 13, 2015 Section (A) Sector Performance Review (A- 1) Sector Performance Relative to SP500 1

2 How did the sector perform relative to the broad market (SP500) during the review period? What might have caused the out- /under- performance of the sector in relation to the broad market? You should weigh in macro, sector/industry, and company- specific factors that might have contributed to sector s out- /under- performance The sector performed relatively in line with the broader S&P 500. There was a point in mid- February where the XLK ETF outperformed the S&P 500 for a period, outperforming the index by slightly over 2% at its peak. However, for this review period the sector ETF closed slightly below the S&P500 s performance. Both the S&P 500 and XLK took a downturn in late February, and made a moderate rebound in mid- March before declining again in April. I attribute this largely to speculation ahead of earnings season and due to poor March employment and manufacturing data. However, both the index and the sector ETF have taken an upturn in the last week as nervousness over earnings is alleviated. The stocks dropped after the March data came out and initially looked poor, however sentiment was restored with hopes that it is not indicative of a longer- term economic slowdown. What are some of the noteworthy news/events from the sector during the review period? These news/events can be either specific to the company or relevant to the industry/sector Likely the most newsworthy event within the technology sector was Apple being confirmed as the world s largest company. After their astounding 4 th quarter results, Apple surpassed $700B in market capitalization. This rise in market cap came after releasing the most profitable quarterly results ever. (A- 2) Big Sector Movers Largest Gainer First Solar Inc. (FSLR): % 2

3 Second Largest Gainer Altera Corp. (ALTR): % Largest Loser Hewlett- Packard Co. (HPQ): % Second Largest Loser Seagate Technology (STX): % What might have contributed to big price moves in the period examined (recent 3 month) of each of the named big gainers/losers? First Solar s stock made massive gains after they released 4 th quarter results. These results came in smashing analysts estimates for earnings and profits. Altera s stock surged a few weeks ago on an announcement that Intel was interested in acquiring the chipmaker. Hewlett- Packard struggled after Q1 earnings were hurt by currency movements. Likewise, Seagate declined after missing earnings and revenues. 3

4 (A- 3) Two Largest Stocks in the Sector Largest Company Apple (AAPL) Second Largest Company Microsoft (MSFT) Highlight noteworthy news, announcements, or events relevant to the two stocks that took place in recent 3 months. Earlier this year, Apple was crowned the biggest company in the world by market capitalization due to record breaking 4 th quarter results and its subsequent stock surge. On the flipside, Microsoft has struggled to stay relevant amidst loss market share in computers and cellphone to Apple and software and operating systems to Google. (A- 4) Technical Indicators of the Sector ETF Short- term moving average and relative strength index indicators 4

5 Long- term moving average and relative strength index indicators Any golden or death cross on either set of moving average chart? Any oversold or overbought signal from RSI? Do these technical indicators signal bullish or bearish sentiment on the sector? There was a golden cross in November of last year on the short- term chart, however there was a recent death cross at the beginning of April. On the long- term chart, there was a golden cross in mid that has not crossed back over into a death cross. Both charts indicate many periods of overbuying and overselling for the security. On both charts it would appear that the RSI is approaching the oversold level. (A- 5) Short- term (up to Three Months) Outlook of the Sector What is your short- term (up to three months) outlook of the sector? Provide arguments in support of your view. This sector has a tendency to be more volatile than the broader S&P 500. We did see the sector outperform for a portion of the review period when Q1 earnings were coming out and appearing favorable. The long- term moving average indicates that the short- term moving average has been trending higher than the long- term average, and it does not appear that this trend is slowing. However, the short- term moving average chart indicates that the ETF has been very volatile over the last year, with several golden and death crosses. The fact that the most recent cross was a death cross is off putting. However, the S&P 500 has also been volatile the last several months with currency headwinds and the massive decline in the price of oil, as well as poor employment and manufacturing data in March. We see the short- term future of this sector as very dependent on the moves of the Federal Reserve in tying down the strong dollar 5

6 while raising interest rates slowly enough as to not shock the market. Until further guidance from the Federal Reserve and an indication that March s poor economic data is indicative of further persistent economic cool down, we see no reason to adjust the investment strategy for this sector at this time. Section (B) Updates on Stocks recommended Stock #1: Visa (V) Date Recommended: 3/6/2015 Date Re- evaluated: 4/15/2015 (B- 1) Company Updates and Stock Performance Company Update Visa announced a 1-4 stock split that would affect people holding the stock on March 19. Their earnings and revenues beat estimates, and many analysts are very bullish about its outlook over the coming year. Relative Performance Visa underperformed the sector ETF by % and the S&P 500 by %. Visa underperformed for most of the review period, however their stock took a decline with the broader economy at the same time they issued a stock split. As a result, the stock has continued to underperform since the split. 3- Month Stock Price Chart 6

7 (B- 2) Valuations, Estimates and Recommendations Valuations Original Analysis (3/6/2015) Re- evaluation Analysis Comment on the Changes There has been only very small changed in the ratios for Visa, most notably, there is a slightly lower P/B and P/CF values, however the difference is minimal, the greatest changes are from the industry and sector. 7

8 Consensus Estimates Original Analysis (3/6/2015) 8

9 Re- Evaluation Analysis Comment on the changes There has been little change in consensus estimates, with the only notable change being the changes in the values for earnings per share, which directly reflect the stock split that occurred. Had the split not occurred, these values would be relatively unchanged from the previous report. 9

10 Estimate Revision Analysis Original Analysis (3/6/2015) 10

11 Re- Evaluation Analysis Comment on the changes From when the stock was first presented, there have been quite a few revisions, as is reflected in the last four weeks, and the current week as well. Much of this is speculation that revolved around their stock split last month, which lead to the stock performing better than expected. More current revisions could be a result of their upcoming earnings release 11

12 Analysts Recommendations Original Analysis (3/6/2015) Re- Evaluation Analysis Comment on the changes The only change since the stock was first presented is a single analyst changing their recommendation from outperform to hold, altering the mean rating 1.86 from

13 (B- 3) Technical Indicators (Module I4 from stock research report) Short- term technical indicators Long- term technical indicators Comment on the changes Both charts are relatively the same when compared to the original charts when the stock was first presented. The short- term contains many crosses, while the long- term contains none. 13

14 Stock #2: Facebook (FB) Date Recommended: 4/3/2015 Date Re- evaluated: 4/15/2015 Company Update As the stock was presented less than two weeks ago, there is not much new news about Facebook to report, aside from typical speculative news about the company s upcoming projects. Relative Performance Facebook outperformed the sector ETF by 4.64% and the S&P 500 by 4.45%. Facebook s stock took a climb after a positively received developers conference in March discussing Internet providing drones and the Oculus virtual reality headset. 3- Month Stock Price Chart 14

15 Valuations Original Analysis (4/3/2015) Re- evaluation Analysis Comment on the Changes As Facebook was first presented less than two weeks ago, there have been no large changes in any of the valuation ratios that are of particular interest. 15

16 Consensus Estimates Original Analysis (4/3/2015) Re- Evaluation Analysis Comment on the Changes There has been no notable changes on consensus estimates analysts since the stock was first presented. 16

17 Estimate Revision Analysis Original Analysis (4/3/2015) Re- Evaluation Analysis Comment on the Changes Since the stock first being presented there have been quite a few revisions. In the last four weeks, there were many up and down revisions for both revenue and earnings, however there were more up revisions than down. In the past week, there has been a mix of up and down revisions for both revenue and earnings. 17

18 Analysts Recommendations Original Analysis (4/3/2015) Re- Evaluation Analysis Comment on the Changes There have been no notable changes in analysts recommendations, with the only revision being one less analysts reporting their recommendation. This changed the mean rating from 1.73 to

19 Short- term technical indicators Long- term technical indicators Comment on the Changes Both the short- and long- term technical indicators are almost identical to those included in the original stock report. The short- term includes a variety of different crosses, while the long- term is relatively constant and unchanged as compared to the original chart. 19

20 Section (C) Update Stock Recommendations (C- 1) Update on Stock(s) CIF Did Not Buy Facebook was not bought when originally pitched, however we still are recommending a buy for Facebook. Very little has changed since it was first pitched, except that it has appreciated about 1.5%. The reasons the stock was first recommended have not changed, and the valuations, estimates, and recommendations are still largely in favor of purchasing Facebook for the Cougar Investment Fund. (C- 2) Update on Stock(s) CIF Bought but No Longer Holds CIF still holds all stocks it purchased in this review period. (C- 3) Update on Stock(s) CIF Currently Holds We recommend a slight adjustment to the stop- loss and target price of Visa. This adjustment is suggested at +/- 10% of purchase price. This revision is due to the consistent underperformance of Visa. We feel that the change should be made to grab a slightly smaller profit if the opportunity presents itself while minimizing the downside potential. Recommendation Company Name Ticker Symbol Date Recommended Date Re- evaluated Visa V 3/6/2015 4/13/201 5 As Is Adjust Target Price $ Adjust Stop- loss Price $ Adjust Limit Buy Price Sell/ Do Not Buy 20