Final Project.docx - Mary Jo Barbato


Dec 3, 2012 (4 years and 9 months ago)



Fundamentals of Investing

Final Project

Mary Jo Barbato


As we begin this quarter I am unsure of what to expect. My experience with the stock
market is very little and I’m certain I won’t know where to begin. When I began the OTIS
simulation I immediately was relaxed by the fact that we could choose whatever stocks we
wanted for the first assignment and see what happened. There really was no risk, unlike the
market. This is going to be well worth the effort. I wonder how well my
choices will fair.

Stocks, Part One

Shoe Carnival (SCV

Shoe Carnival is a brick and mortar shoe store. I love shoes. When I searched for stocks
with the word ‘shoe’ in the name, Shoe Carnival popped up. I looked into it a little bit and
discovered th
at they did not sell shoes online. Since online shopping is so prevalent, I
thought it would be a great time to pick up some shares in a company that hasn’t gone online
I purchased 100 shares of Shoe Carnival (SCV
) at $20.

per share, for a total
.00 including commission. It is my hope that Shoe Carnival stock will increase with
the advent of online merchandising.

Endo Pharmaceuticals (ENDP)

Endo Pharmac
uticals is a name that I became familiar with while working in the medical
device ma
nufacturing industry recently. The company I worked for specialized in the
management of men’s urinary tract health. While attending a convention I was introduced to

people from Endo who were looking to see our product. They announced that they were als
looking at expanding their drug management focus to the world of urology. Based on
personal interest I purchased 100 shares of Endo Pharmac
uticals (ENDP) at $23.

share, for a total of $2,
.00 including commission.


DSW is another shoe ret
ailer and I am a frequent consumer of their products. This was
one of the first ticker symbols I searched for after registering on OTIS. I held off buying
shares while I searched for the symbol for SOBE. When I discovered that SOBE wasn’t
directly trade
d publicly (they are a subsidiary of PepsiCo) I decided to stick with my first
impulse and buy DSW. I purchased 100 shares, at $2

per share for a total of $2,7
including commission.

Stocks, Part Two

Southwest Airlines


Southwest Airlines was one of my article based purchases.

Southwest is a customer
service driven airline with a history of fare and marketing strategies. They are a no
airline focused on profits and customer loyalty.

I read an article from July 28, 2010 entitled,
“Do High Air Fares Equal Profits?” by Douglas A. McIntyre on the website: In the article the author states that air fares are at their second highest
level since 2001. It is suggested tha
t the stock market places a good deal of merit in the
correlation between fare prices and an airline

s financial health. The article quoted share
price increases for Ame
, Delta and Continental. None of these carriers interested me,

however. I have
done some
marketing research on Southwest Airlines and soon
discovered that their condition was similar to the three airlines mentioned in the article. On the website: an article by Hugh Collins from
July 29, 2010
confirmed my curiosity. “Southwest Posts Earnings of 15 Cents Per Share”
said that Southwest’s fares have increased 19% in the second quarter of 2010. This
confirmed the point of the McIntyre article that carrier financial stability or health can be
ked by fare prices.

I purchased 150 shares of Southwest Airlines (LUV) at $12.15 per
share, for a total of $1,832.50 including commission.

Research in Motion (RIMM)

The first indication that I might be interested in Research in Motion stock was when I
read an article in a news brief on emerging markets on I recognized the
company name and noted that they had recently been granted permission to sell the popular
BlackBerry smart phone in China. Research in Motion is a designer, manufactu
rer and
marketer of wireless smart phones. The company produces the phones as well as the
necessary network and operating systems. Further research indicated that Research in
Motion has had a 35% increase in profits in 2010. In another article on wikiin,
“Mobile Phone Usage in China”, by Cassidy Chao, the upcoming licensing of the 3G
network need to support the BlackBerry is seen as an investment opportunity. I purchased
100 share of Research in Motion (RIMM) at $55.69 per share for a total, inc
commissions of $5,579.00. After a few days to consider, I decided to increase the investment
and purchased another 200 shares @ $57.00 per share for a total, including commission of
$11,410.00. Total for 300 shares is $16,989.00.

After several we
eks this stock has been

steadily declining in value. I decided to try to sell 100 shares and try to recoup my initial
investment. I initiated a Sell Limit GTC for 100 shares at $57.00.

Sony (SNE)

Melly Alazraki’s article, “Sony Earnings Electronics Gia
nt Swing Back to Profits, Raises
Outlook”, on July 29, 2010 found on the website: indicated a positive shift
from an operating loss to profit over the course of the last year for Sony. Revenues overall
gained 3.8% while, remarkably, the g
ames and PCs division saw a revenue increase of over
30%. I purchased 200 share of Sony (SNE) @ $31.85 per share for a total, including
commission of $6,380.00

Analogics Corporation (ALOG)

Because of my interest in the urologic industry, I noticed an ar
ticle on the website: (Genetic Engineering & Biotechnology News). The article was produced
by Biowire and was
titled, “AMD Appoints BK Medical as Agent for Prostate Histo
Scanning in the UK”. It went on to say that AMD (Advanced Medical Di
agnostics) and BK
Medical were both privately owned companies. BK Medical is a distributor of medical
devices and equipment worldwide. Further reading lead to find that BK Medical is owned by
publicly held and U.S. based, Analogic Corporation. They spec
ialize in the development and
production of diagnostic ultrasound equipment. Analogics stock gives me an opportunity to
invest in opportunities on an international level with their connections and ownership of BK
Medical. I purchased 50 shares @ $45.10 p
er share for a total, including commissions of


Stocks, Part Three

Aventis (SNY)

While researching potential stocks for this section I ran across an article about recent
upgraded and downgraded stocks. Sanofi
Aventis was one of the upgrad
ed ones due to the
potential purchase of Genzyme, a drug manufacturer. After this tip I accessed

and looked further into Sanofi
Aventis’s profile. They are a
pharmaceutical company with a

global reach and are broadly diversified. One of their top
products is the drug, Plavix but they also sell generics, vaccines, and provide animal health
products. Headquartered in Paris, France, Sanofi give my portfolio another arm into the
l market.

Aventis holds a 24.24% profit margin which is in the middle of the pack of its
competitor’s. The industry standard profit margin is 21.83%. This higher percentage is a
positive as it shows the company is spending money wisely on the p
roduction of
The company’s price
book value is also favorable. Glaxo
the nearest competitor has a 7.07 P2B ratio while SNY is at 1.14. This indicates that SNY’s
stock may be undervalued while Glaxo appears over
valued. S
NY also has a higher Current
Ratio than Glaxo; 1.6 to 1.42 respectively. This shows that SNY is slightly more liquid than
Glaxo. Keeping the comparison going I found that SNY’s net working capital is slightly
more than Glaxo. SNY has approximately $9.4
22 million while Glaxo is at $8.804 million.
While this isn’t a huge difference, it does show that the firm makes investments to working
capital. The clincher was a statistic that showed SNY on the board of leaders in profit
margins while three of its com
petitors, Glaxo, Merck, and Phizer were all on the laggard
board for lower profit margins.


I purchased 100 shares of Sanofi
Aventis (SNY) for $29.01 per share for a total,
including commissions of $2,911.00.

mart (WMT)

Research on

also provided insight into Walmart’s offering as a stock
investment. Wal
mart is a discount retailer and operates individual public stores as well as
line and warehouse club membership stores on
a global basis. Based in Bentonville,
Arkansas, their trademark is industry leading low prices, philanthropy and employment

The industry of these types of stores is strong due to the current economic conditions.
With a downturned economy
people have less to spend so they are turning to discount
retailers. Wal
Mart’s PEG Ratio is 1.23. This is in
line with the industry standard and below
a major competitor, Costco. This ratio means that the stock is probably fully
valued, but in
on to the industry, Wal
Mart is the least over
valued. Their Net Profit Margin is
3.47% compared to 3.4, 2.9 and 2.2 for the industry, Target and Costco, respectively. Wal
Mart is doing a better job of gaining profit from sales than their competitors. T
he Return on
Equity ratio shows how well a company manages its stockholder’s equity, or how well their
dollar invested earns profits. Wal
Mart has a 22.53% ROE with Target, Costco and the
industry trailing at 18.23, 12.24 and 20.10, respectively. Finally

I looked at the Price/Equity
ratio which shows how expensive the stock is to purchase. While Wal
Mart’s ratio is 13.08,
indicating that it isn’t inexpensive, it is less than the industry at 13.4, less than Target at
14.03 and considerably more affordable

than Costco at 20.26.


I purchased 100 shares of Wal
Mart stock at $50.41 per share for a total, including
commissions of $5,051.00

Colgate (CL)

Colgate (CL) provides all types of personal care products throughout the world. These
include toothpaste, d
eodorants, and household cleaners. It also offers dog and cat food
products through its Science Diet arm and pet care products through Prescription Diet.

The personal care industry is widely diverse so comparisons to industry standards can be
a bit dec
eiving. With that in mind I chose to compare two closely related companies; Proctor
& Gamble (PG) and Clorox (CLX). Return on Equity was a staggering 84.33% for CL and
17.62% for PG. Colgate has learned how to manage the investments of its shareholders
derive a large percentage return on each of those dollars invested. Secondly I compared the
Return on Assets to see if they were as good at managing those as they were the equity
portion of the firm. CL posted a 22.32% ROA with PG and CLX coming in a
t 7.61 and
15.14, respectively. By looking at a firm’s Current Ratio you can determine their liquidity,
or ability to use current assets to pay current liabilities. A higher ratio indicates more
liquidity and Colgate won this category, too. PG and CLX e
ach had lower ratios, .77 and
.68, respectively to Colgate’s 1.29. Finally, I was interested to know CL Payout Ratio since I
had read an article about finding stocks that would have the potential to continue paying
dividends. The typical payout ratio ran
ges from 40
60% and generally show if the firm is
likely to have cash available to continue or increase dividend payments. Colgate has given
out annual dividends each year since their beginning and with a relatively low payout ratio of
44%, it looks as if

that trend will continue.


I put in a Buy/Limit order for 100 shares at $74.30. I am watching the stock to see if it
reverts to a price closer to its opening of $74.25 per share. When I finalize this purchase, I’ll
update this report.

The stock did dip to lower than $74.25 and I purchased the initial trade of
100 shares for a total, including commissions of $7,435.00
. T
purchased an additional
100 shares at $74.27 per share for a total of $7,437.00 including commissions for a g
total investment of $14,872.00.


Weyerhaeuser Corporate Bond (C10493)

Weyerhaeuser grows and harvests trees for building material and paper products. They
also build homes and develop property. With the construction industry at an all time low

felt it was a good time to get in on a company that is sure to rebound when the economy
gains strength.

I purchased five corporate bonds, C10493, for a total of $5,306.28, or $1,059.26 each
plus a $10.00 commission fee. The coupon rate is 8.5% and i
t matures in 2025. The bond is
callable and is offering a current yield of 9.666. It carries a BBB bond rating.

Mutual Funds

Fidelity Growth Strategy Fund (FDEGX)

I wanted a mutual fund that was invested similarly to my current portfolio so I chose

Fidelity Growth Strategy Fund (FDEGX). They invest in domestic and foreign stock mostly
and look for companies with the potential for accelerated growth.
The fund buys companies
in the tech, finance and health arenas. This is an open
end fund and h
as no load fees for

purchases. There is a back
end load when shares are sold. This was attractive since I intend
to hold the shares for a number of years and can avoid that charge until then.
I would
classify the fund as a value fund since they do seek
the accelerated growth pattern as well as
dividends and mainly medium sized companies.

I purchased $2,500.00 worth of shares in the fund (the minimum initial investment) for a
total of 143.84 shares at $17.38 each, plus a $10.00 commission fee.

is a .49%
management fee, a 1.5% redemption fee, and a .83% expense ratio fee.


When this class began I was very pessimistic about my ability to manage a portfolio.
With the simulation and project I have gained confidence and immeasurable
experience in
doing just that. While I am still a novice and it may be sometime before I dive into the real
market and take the real risks, I feel that I have gained enough knowledge to make educated
decisions about where my investment dollars go. I also

feel that I will be less intimidated by
financial planners and advisors when working to plan my investment strategy. With a new
found vocabulary and understanding I can finally contribute my ideas and strategies to my