Investment Analysis

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Chandigarh University *

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152

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Finance

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Nov 24, 2024

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docx

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1 Investment Analysis and Portfolio Management Student’s Name Institutional Affiliation Course Professor’s Name Date
2 Investment Analysis and Portfolio Management Question 1. Consider three investors. 1. Bryant is a 25-year-old young professional working in a large city in the Northeast. since joining Three years ago, he put as much money as he could into his retirement account, which was invested in a variety of index funds. A big fan of Benjamin Graham's "The Intelligent Investor," he decided to consider some individual stocks of stable companies with good long-term prospects and great management. 2. Nicole is 52 years old and retired from her high-paying job a few months ago after saving aggressively and investing prudently for most of her life. While she can go back to work if necessary, she prefers her financial independence. To maintain a steady cash flow, her portfolio is heavily geared toward high-yielding stocks, allowing her and her family to live off dividends most of the time. Aware of GE's downturn and their dividend cuts, she focused on companies that she expected to see solid dividend growth. 3. Peter is in his thirties. He hadn't started a high-paying job until two years ago, and as a result, he didn't have enough retirement savings. To make up for lost time, he is making contributions to an individual retirement account (IRA) invested in market ETFs. In addition, he will set aside $10,000 per year for the next ten years in high-risk, high-growth investments.
3 Follow up our in-class group exercise to discuss whether shares of Amazon (AMZN), Target (TGT), General Motors (GM) and Tesla (TSLA) are good investments for these three investors. Explain why you can or why you can't. Solution 1 Amazon (AMZN) is an attractive investment for long-term/high-growth prospects since it has established a set of fast-growing and highly profitable products. Additionally, the e- commerce company is proficient in providing unique experiences to its customers hence creating loyalty. However, Amazon does not pay dividends to its stockholders. Target (TGT) is a favorable value stock to invest in following its strong financial base. Additionally, it has secure quarterly dividends, which have constantly increased over the years. However, I cannot buy Target stock now since it would be considered expensive – it is trading at a higher price-to-earnings ratio compared to the industry’s ratio (Yahoo Finance, 2023). General Motors (GM) is not a good choice following its underperformance in growth in the previous years. It has delivered solid revenues but its annual dividends yield has remained below the industry's average yield. Tesla's (TSLA) management and commitment to launching new innovative products in the future make the stock a favorable choice for long-term investment. It is a high-growth investment since it is expected that the stock will be bullish in the better part of 2023 to compensate for the bearish pattern in 2022. However, Tesla does not offer dividends to its stockholders.
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4 Nicole should consider investing in Target due to constant dividend. Bryant and Peter should invest in Amazon and Tesla, respectively. Question 2. Next week, we'll start a stock market game. You'll get $100,000 in equity, and you can borrow up to an additional $100,000 in security deposit. Write a report (400-500 words) describing your investment philosophy. Discuss how you want to allocate your money among asset classes (bonds, stocks, and countries) and the reasons behind your allocation. If you intend to invest in specific companies, please describe how you selected your securities. The report should describe your investment objectives and the strategies you have adopted to achieve them. To do this, be sure to detail the following points: · Divide investments into growth vs. value stocks or small vs. large companies. Explain your risk management, for example, how your portfolio is hedged against the market Economic downturn? Solution 2 The portfolio allocation in this simulation was based on the investor's observation and experience about the companies that offer these investment assets and the relevant beliefs about future performance. However, the set of assets selected have different weights to ensure that when the assets are combined, they provide a tradeoff between the associated risk and expected return on investment (Galankashi et al., 2020). Consequently, the investment objective of
5 achieving maximum return on investment and minimizing the involved risk will be achieved. The available equity was allocated based on the criteria below; a. Growth Stocks Growth stocks were allocated 40 percent of the equity, which is $40,000. They include; Amazon.com Inc. (AMZN) – Amazon is an attractive investment for long-term prospects. This is evident from the recent growth rate where Amazon has increased its 3-year net income by 80 percent and annual revenue by 21.7 percent in 2021 (Macrotrends, 2023). Tesla (TSLA) – In the long term, Tesla is a favorable bet following its commitment to the plan to launch new products like the Roadster, Semi, and Cybertruck in 2023. In addition, Tesla will release a robotaxi, which does not need any human involvement in 2024 (Ebiefung, 2023). b. Value Stocks Value stocks are majorly associated with cheap valuations, where investors consider them undervalued relative to their earnings and potential long-term growth. Most often these stocks are from established and mature companies that have steady growth rates but not as fast as growth stocks. The value stocks were allocated 60 percent of the equity and include; Qualcomm Incorporated (QCOM) – The stock is trading below its 52-week high although it trended downwards in the larger part of 2022. However, Merill (2022) states that Qualcomm's price-to-earnings-growth ratio stands at 0.93x, which is significantly lower than the median of the semiconductor equipment industry at 1.51x meaning that it is undervalued. Walt Disney Company (DIS) – Disney is fairly valued with a price-to-earnings-growth ratio of 1.56x and a price-to-earnings ratio of 58.23x (Merrill, 2022). However, it is safe since it
6 is among the best stocks in the entertainment industry, which means that it deserves a higher valuation. Ford Motor Company (F) – Ford, a leading automobile manufacturer is undervalued and is trading at an attractive valuation point for investors. Its price-to-earnings ratio is at 4.35x, which is below the automobile industry median of 8.76x (Merrill, 2022). Risk Management The growth stocks are highly volatile, associated with significant risks, and hence received a lower equity allocation of $40,000. Conversely, value stocks are safe and hence received a higher equity allocation of 60 percent. The risk was managed aversely where only 2.5 percent of each stock allocation was risked, which means that each stock would carry a loss of $2,500 in case of an economic downturn.
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7 References Galankashi, M., Mokhatab Rafiei, F., & Ghezelbash, M. (2020). Portfolio selection: a fuzzy-ANP approach. Financial Innovation , 6 (1). https://doi.org/10.1186/s40854-020-00175-4 Macrotrends. (2023). Amazon Revenue 20010-2022 | AMZN . Macrotrends.net. https://www.macrotrends.net/stocks/charts/AMZN/amazon/revenue Merrill, T. (2022, November 30). 10 Best Value Stocks to Buy In December 2022 . FortuneBuilders. https://www.fortunebuilders.com/best-value-stocks/ Yahoo Finance. (2023, January 5). Should You Think About Buying Target Corporation (NYSE: TGT) Now? Finance.yahoo.com. https://finance.yahoo.com/news/think-buying-target- corporation-nyse-120029042.html Ebiefung, W. (2023, January 12). 3 Reasons to Buy the Dip on Tesla Stock in 2023 . The Motley Fool. https://www.fool.com/investing/2023/01/12/3-reasons-to-buy-the-dip-on-tesla- stock-in-2023/