Summer B
Group 45
John
Bill
Mary
Accounting
9th, November, 2013
Introduction:
Our company, XYZ Investments, is an asset management investment firm where we manage the portfolio of our clients on the basis of their differentiated preference for risk and return objectives. We, the three founders of this company, John, Bill and Mary have an extensive experience in investment industry and this report will target our client Mr.X for whom we are managing the portfolio of stock that include the following company:
- McDonalds
- Walt Disney
- South West
- Marriot International
Considering long term objectives for return of Mr.X and his low ability to take risk along with high preference for dividend income, we would be following a conservative investment strategy to manage his portfolio.
Companies and related rationale to invest:
i) Walt Disney:
The company is listed in NYSE under the ticker symbol of ‘DIS’. Walt Disney Corporation is an entertainment based company where its operations include broadcasting of television network, television production, television stations, entertainment resorts, hotels, magazines and a lot more. The company operates in five networks: Media Networks, Parks and Resorts, Studio Entertainment, Consumer Products and Interactives.
Current Market Position:
Disney shares are currently trading at $68.58 with a $1.43 rise in comparison to previous trading day. Operating with total market capitalization of $122.51 Billion, our rationale for investing in the stocks of Walt Disney was the dividend yield and expected stock performance.
During the previous financial year, the company announced dividend of $0.75/ share with the yield of 1.10%. Thus, considering Mr.X preference for long term portfolio holding without any trade, selecting a stock with good dividend yield to support capital appreciation was a necessary and rationale stock selection strategy.
Also, the stock is estimated to reach the price level of $74.33 and calculating intrinsic stock price from PE Ratio and EPS Multiple($68.57= 20.78*3.30), we find that the current stock price is fairly valued and thus stock will foresee growth only on the performance basis and not because of any arbitrage trading.
Stock Movement since the day of purchase:
We constructed Mr.X portfolio on September 26th, 2013 by investing $24993.50 in Walt Disney Stock and purchasing 386 shares at the price of $64.75. Stock experienced negative trend in first half of October but later picked up well and is now trading at $68.85.
ii) McDonalds Corporation:
McDonalds is a global fast food retail chain listed on NYSE under the ticker symbol of ‘MCD’. Company operates and franchisees its restaurants globally where each restaurant serves fast food under various prices to the customers.
Current Market Position:
McDonalds Corporation Stocks are currently trading at $97.01 with a marginal decrease of 0.20% in comparison to previous day closing price. The company operates with market capitalization of $96,527 Million and our firm’s decision to include the stock in Mr.X portfolio is the consistent increase in price level of company’s stock. Also high dividend yield of 3.34%, the best in the eateries industry is something which Mr.X would like to see in his portfolio.
Stock Movement since the day of purchase:
Citing positive market outlook and buy recommendation from analyst firms, we invested $25487.36, buying 262 shares of McDonalds at $97.28. The stock crumbled during the month of October and is now picking up with market sentiments. The company’s performance outperforms its peers and the industry benchmarks as disclosed in ROE and ROI Calculation and hence investing in McDonalds Stock will indeed be a rational for long term holding preference of Mr.X.
iii) Marriot International:
The company operates in Hospitality industry and operates and franchisees hotels under 15 brand names including Marriot in 73 countries around the globe. The company, apart from being licensor of hotels, also develops residential properties and provide services to home/condominium owner associations. Marriot International is listed on NYSE under the ticker symbol of ‘MAR’.
Current Market Position:
Marriot International stocks, currently trades at the price of $ 46.12 with an increase of 1.52% in comparison to previous day closing price. The reason for investing in the stock was a sustainable percentage of dividend yield of 1.50%, which is a high stock selection criteria for the client.
Stock Movement since the day of purchase:
On September 26th, we decided to invest only $24983 to the Marriot Stock because a little is expected from the stock performance over the years. Analyst expects the stock prices to increase marginally to $48. Thus, more weightage to this stock would not benefit the portfolio objectives. However, at the same time, Marriot Stock has been consistent in price rise thus directing a small proportion of investment to the stock will be a justifiable decision.
Stock Movement since the day of purchase:
Since the day of our purchase at $43/share, stock after experiencing a marginal negative trend has now picked up providing a good appreciation value. As of now, the stock has provided us a return of 6.62% since the day of our purchase which proves that our decision to invest in this company was a wise and rational decision.
iv) Southwest Airlines:
Southwest Airlines is a passenger Airline company operating in US. The company provides its services in 72 cities of 37 states of US. The Airline company is Listed on NYSE under the ticker symbol of ‘LUV’.
Current Market Position:
Southwest Airline currently trades at $17.69, with a marginal increase of 0.68% when compared to previous day trading price. Stock signals of Southwest Airlines are almost as same as of Mariott International and with dividend yield of 0.90% stock is indeed an attractive option to invest for.
Stock Movement since the day of purchase:
Citing market reports which do not expect much capital appreciation from the airline company, our weightage to this stock is as same as Marriott International. However, consistent price increase over few months was an important factor that made us invest $24531 in this stock.
Since the day of purchase, the stock has consistently increased which we expected on the basis of past trend analysis. We purchased the stock at $14.43/share which is now trading at $17.69/share, thus a 23.83% appreciation in a 41 day trading makes our investment strategy a successful one.
Summary:
We invested a total of $100502.36 in stocks of above companies and with specified weights. The portfolio was created on 23th September, we selected the above companies on the basis of market expectations and considering pur client’s risk and return objective.
Following a conservative strategy and without making any additional trade in our stock, we were able to provide a return of 8.83% to our client during 50 day period of investment while the portfolio value today stands at $108834.21
Works Cited
Reuters. McDonald's Corp (MCD.N). 8 November 2013. Web. 9 November 2013.
Yahoo Finance. The Walt Disney Company (DIS). 8 November 2013. Web. 9 November 2013..
