Friday January 31 st 2014 Lafayette College Investment

Friday January 31 st, 2014 Lafayette College Investment Club

Meeting Agenda • 1) Market Update • 2) Portfolio Overview – Sector strength and how we are positioned • 3) Medical Marijuana – An in depth look into a fascinating new sector • 4) BUY/SELL – RSG and MFC, both less then 1% of our portfolio.

Goals for Last Semester • Review of Last Semesters Goals • 1) Our objective was to make the portfolio 100% equity. • 2) Allocate our cash to either make positions 2% or greater (Move the needle issue) • 3) Generate Solid Returns

Year of Year Performance • We grew the portfolio 82, 000 dollars, we currently have 482 k in the market, 18 k in cash. • - We beat the benchmark by 3. 5 percent during the semester. • - We successfully converted the portfolio into 100% equity. • - Every position in the portfolio is greater then 2% apart from the two I will present today. • All in all we met all of our goals

Goals Going Forward • 1) We want to step back and research our sectors heavily. • 2) We want to really understand how we are positioned relative to the obstacles that the markets face in 2014. • 3) Actively encourage newer students and members to participate and learn. • 4) Find our legacy for the 2014 -2015 Board

Market Update 1/31/14 By: Ryan Mc. Cormick

Improving Economy • Expect unemployment at 6. 5% by 2015 Chicago Fed President Evans sees 3% growth Sentiment based upon: – Uptick in consumer spending – Housing prices – Strengthening job market

Fed Watch • Janet Yellen confirmed as Fed chief • 1 st woman to led bank in 100 year history • Trimmed QE – Now $65 billion • Taper + Economy = change in investing strategy

International Headlines • China looks to cut down on Shadow Banking • Attempts to limit loans by non-formal banks • Increases risk to an already slowing economy • Many local governments are indebted • Threatens their financial viability

Europe • European growth continues to stagnate • ECB President Mario Draghi pledged “further decisive action” as necessary • Interest rates at. 25% • Avoid deflation, which hurts consumer spending, prices, and investment

Developing Countries • Investors traded emerging market currencies • Reflects pull-back from riskier assets – Includes to U. S. stock market – Monetary Policy driver of sentiment – Puts Central Banks in difficult situation

Business Spotlight • Google bought Nest Labs, Inc. for $3. 2 Billion • 2 nd largest acquisition by company • Nest produces “smart” thermostats, smoke alarms • Highlights Google’s continued expansion

Marijuana Industry By: Sean O’toole

Legalization boom • 2 states legal – Decriminalization – Medical Marijuana • Continuing legalization trend • Road blocks: – State infrastructure – Banks, legal, accounting, and payrolls firms

How big is this industry in US? • 10 -200 billion (i. e. we have no clue) – 1 million per day in CO – Majority: 45 billion – DEA puts it around 100 billion • Perspective: – Alcohol: 188 billion • 99 -Beer, 61 -spirits, 27 -wine per 2009 – Tobacco: 75 Billion • 71 -Cigarettes

Current Market outlook • Incredible amount of risk – Unlisted and unregulated pennystocks – “Pump and dump” boiler shops – Many companies are unprofessional and uneducated • Hippies • Company logos are grateful dead, joints, cannabis leaves • No formal education

Current Market Outlook (cont. ) • Incredible Amount of opportunity – Mainly venture capitalism – Incredibly risky stocks (ILLADVISED) • Medbox (MDBX) • GW Pharmaceuticals (GWP. L) • Canna. Vest Corp (CANV) – Researched Base stocks • Still not good – Vape holdings (PLPED) – Cannabis Sativa (CBDS)

Follow Brendan Kennedy • Started privateer holdings • Has been doing research into the industry for years • Business experience • Owns stake in 3 companies – Leafly: Yelp for weed – Lafitte Ventures: Growing Operation – Arbormain: Growroom leasing

How else can we capitalize on it • Research, keep on it and look for who will seize the market • Speculations – Look into tobacco companies – Pharmaceutical companies – It may be government run – Look for supporting industries • DON’T JUST GO OUT THERE AND BUY A PENNY STOCK

Sectors By: Angel Stoychev and Joe Arrieta

Overview Consumer; 7, 52% Financial; 8, 74% Technology; 20, 82% Services; 14, 26% Industrial; 13, 01% Healthcare; 17, 08% Materials; 12, 80%

Technology – 20. 82% • Major companies: IBM (4. 75%), Akamai Technologies (2. 56%), Microsoft (2. 37%) • Need exposure in: Multimedia and Graphics

Industrial – 13. 01% • Major companies: GE (4. 91%), CAT (3. 91), Boeing (2. 80%) • Need exposure in: Heavy Construction, Building Materials

Materials – 12. 80% • Major companies: Exxon (3. 49%), Southern Copper (3. 19%), KMI (2. 39%) • Need exposure in: Metals and Minerals, Chemicals

Healthcare – 17. 08% • Major companies: Gilead Sciences (5. 16%), United Health (3. 84%), Medtronic (3. 04%) • Well exposed

Services – 12. 52% • Major companies: Expedia (4. 23%), Union Pacific (2. 97%), Dollar Tree (2. 73%) • Need exposure in: Restaurants

Financial – 9. 49% • Major companies: Goldman Sachs (2. 83%), JP Morgan Chase (2. 39%), BNY Mellon (1. 29%) • Need exposure in: Property and Casualty Insurance

Consumer – 7. 52% • Companies: Jarden Corp (2. 77%), Clorox (2. 59%), Coca Cola (2. 16%) • Need exposure in: Automobile manufacturing, Tobacco

Sectors to add • Conglomerates • Utilities – Water, Gas

SELL RSG By: Tim Simon

RSG – Republic Services Inc • Sector - Industrials • Environmental & Facilities Services • This company became the second largest U. S. provider of solid waste services in North America when it acquired Allied Waste Industries in December 2008.

Fundamentals • • • 12 x EBITDA 16 x Earnings 1. 59 B FCF Highly Levered 22% Insider Held Huge Short Interest – Which could lead to squeeze if sent. Shifts from negative to positive. • Flirting with its 52 -week high. • Does not pay high yield relative to industry

Bull Case • Gross margins should exceed 39% in 2014, up from near 38% projected for 2013, reflecting higher pricing and a better mix of landfill volume. • 2% organic revenue growth in 2013, driven by higher core prices, while C&D (construction & demolition) roll-off volume benefits from the housing recovery. Further rebound in industrial special waste landfill volume into 2014, while recycling commodity prices stabilize at low levels. • Expecting core pricing to continue to drive top-line organic growth despite a still-competitive environment.

Bear Case • Slower-than-expected recovery in the housing market and economy, a decline in the customer retention rate due to competitive pricing, a rapid decline in commodity recycling prices, and sharply higher fuel and commodity costs. • Recovery slows could present challenging headwinds for RSG. • Stock is expensive relative to peers, and has been a laggard to comps.

SELL ALL

MFC – Manulife (BUY) By: Tim Simon

Manulife (MFC) • Manulife Financial Corporation, together with its subsidiaries, provides financial protection and wealth management products and services to individual, corporate, and business customers primarily in Asia, Canada, and the United States. • Its products and services include individual life insurance, group life and health insurance, longterm care services, pension products, annuities, mutual funds, and banking products.

Fundamentals • Trades in line as far as multiples are concerned relative to industry. • Industry Average PE: 12 x • MANULIFE: 12 x • EV/EBITDA: 6 x (Cheap Relative to Industry) • Not highly levered compared to industry • 24 B in cash

Bull Case • Strong brand distribution platform Globally and expanding market share in other parts of Asia and Japan. • They have gone through the process of derisking over the course of the past 18 months, by taking off interest-rate sensitive products. • Post sale of its reinsurance business they are poised to have a strong cap ratio.

Risk • Low interest rate environment is dangerous for Manulife • Cap Ratio requirements may result in some potential downside • One franchise ties a lot of their capital which can expose them to duration risk.

(Buy) • Fair value is above 18 a share, stock currently trades at a discount relative to peers on an EV/EBITDA multiple of 6. • We have cushion here to buy a cheap stock, that has plenty of growth targets. • RATES THESIS: Rates will sell off long term, making Manulife a safe investment in a higher interest rate environment.

Thank you • Please leave your suggestions at the front of the room, and board meetings are now open on Tuesdays from 12: 15 -1: 00 pm for those who are interested in running for positions in the last weeks of the spring.