investment essay example

Macroeconomics Investment Project

Steven Amadio

ECON 101C FZZ

Professor Edward P. Doherty

24 June 2015

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There is certainly a lot to consider when investing money. Whether you decide to open a

savings account, an IRA, purchase bonds, or buy stock, it is important that you research the pros

and cons before you start. Although today’s young people tend to be avoiding stock as a choice

for investing their money, they may be missing a great opportunity. With a long-term goal of

savings, stock has historically offered the most growth out of all other investment choices. Since

1926, when tracking of stock market performance began, stocks have averaged a 10% return on

investment, while bonds are at 5.3%, and short-term investments are at 3.5%. There are ups and

downs in the market. As long as you have a long-term goal and can ride out these fluctuations,

investing in stock makes cents ("Three Reasons to Invest in Stocks - Fidelity.").

With thousands of companies offering stock for sale through the New York Stock

Exchange (NYSE) and the National Association of Securities Dealers Automated Quotations

(NASDAQ), how do you make a choice? On May 22, each member of this Macroeconomics

course was given $125,000 in hypothetical cash and tasked with buying stock from at least five

different companies. On that same day in May on the NYSE, 831,307,857 shares of stock were

traded for a total value of $33,494,088,793 ("NYSEData.com Factbook: Daily NYSE Group

Volume in NYSE Listed."). Investment advisors recommend that you research your choices and

determine the following: what the company actually does, is it profitable, what is its earnings

history, check their price to earnings and price to sales figures, check out their competitors, take

a look at their balance sheet for too much debt, read company reports, look for red flags, and

determine if their competitive position is sustainable (Schurr). Admittedly, I did none of that.

REASON FOR SELECTING THESE STOCKS

The task of selecting this stock portfolio was a bit overwhelming having had no previous

stock market experience. Basically three companies were selected because of their familiarity –

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Krispy Kreme doughnuts because they have an almost cult-like following, The Walt Disney

Company because the entertainment industry is very interesting, and Expedia because travel and

tourism is another area that is enjoyable. Novartis, a pharmaceutical company was selected

because my father and uncle work in that industry and I hear a lot about the successes of new

drugs. Oracle, a software-based company was selected because there is a lot of growth in that

sector and my cousin worked there. This provided a fairly diversified portfolio so the eggs were

not all in one basket. The industries these stocks belong to are the restaurant industry, the

entertainment industry, the lodging industry, the drug manufacturing industry, and the

application software industry. I purchased $124,908.41 worth of stock. A stock portfolio

consisting of these five companies was assembled as follows:

Company Name

Stock Price

on 5/22/15

# of Shares

$ Invested

Krispy Kreme Doughnuts $17.22 1451 $24,986.22

The Walt Disney Company $110.26 227 $25,029.02

Expedia, Inc. $113.00 221 $24,973.00

Novartis AG $103.85 240 $24,924.00

Oracle Corporation $43.93 569 $24,996.17

$124,908.41

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Stock by Dollars Invested

Stock by Number of Shares Purchased

DESCRIPTION OF COMPANIES

Company Name Ticker Symbol Sector Industry

Krispy Kreme Doughnuts, Inc. KKD Services Restaurants

Krispy Kreme Doughnuts

The Walt Disney Co.

Expedia, Inc.

Novartis AG

Oracle Corporation

Krispy Kreme Doughnuts

The Walt Disney Co.

Expedia, Inc.

Novartis AG

Oracle Corporation

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Vernon Rudolph opened Krispy Kreme Doughnuts, on July 13, 1937 in Winston-Salem,

North Carolina. Using a secret recipe, he began making yeast-raised doughnuts and selling them

through grocery stores. From that one store baking one type of doughnut 78 years ago, Krispy

Kreme has expanded both its global presence and its product line. Today it sells three special

coffee blends, available by the pound as well as in K-cups, and over 50 varieties of doughnuts.

Its iconic “Hot Doughnuts Now” sign is also available in a new app for smartphones. Today

Krispy Kreme doughnuts can be found in 23 countries around the world in over 1,000 shops

("Krispy Kreme Doughnuts." ).

On May 22, 2015, 1451 shares of Krispy Kreme Doughnuts, Inc. (KKD) were purchased

for $17.22 per share for a total investment of $24,986.22. Those shares were then sold on June

19, 2015 for $19.94 per share. The price of this stock increased $2.72 per share for a total gain of

$3,946.72. The Price/Earnings Ratio over the trailing twelve months is 43.78, while for the

industry it is 36.90 ("Industry Browser - Company List."). This P/E Ratio is high compared to

the overall stock market which has an average P/E Ratio of about 15 and compared to the

industry average of 36.90. This could mean that people expect earnings to rise in the future or

that the stock is overvalued (Mankiw 263). The earnings per share (EPS) over the trailing twelve

months is 0.4593. This is down from last year, but higher than the years before ("Industry

Browser - Company List."). When investing in stock, a high EPS or a rising EPS is a positive

indicator of a good stock. By looking at these statistics, KKD may not have been good choice,

but it did make money over the past four weeks for this portfolio.

Krispy Kreme Doughnuts, Inc. stock price rise could be due to the fact that the

corporation had improved revenues in the month of May that beat analysts’ expectations. Chief

Executive Anthony Thompson stated that “Guests continued to respond favorably to…” their

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special limited time only doughnuts. Domestic store sales were up while international store sales

were down (Stynes).

The following chart shows the stock prices for Krispy Kreme Doughnuts, Inc. during the

four week period this stock was held.

"KKD Historical Prices | Krispy Kreme Doughnuts Commo Stock - Yahoo! Finance."

Company Name Ticker Symbol Sector Industry

The Walt Disney Company DIS Services Entertainment-Diversified

The Walt Disney Company (DIS) recognizes October 16, 1923 as its official start date. It

began as a cartoon studio and has grown over the past 92 years into one of the most well-known

global family entertainment corporations. This company made its first stock offering in 1940 for

$25 per share. From cartoons to full-length feature films, its own TV channel, book publishing,

electronic games, cruise ships, resorts, as well as their famous theme parks, The Walt Disney

Company provides entertainment for every age group. The company is divided into five business

15.50 16.00 16.50 17.00 17.50 18.00 18.50 19.00 19.50 20.00 20.50

KKD Stock Prices 5/22/15 to 6/19/15

KKD

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units: media networks, parks and resorts, studio entertainment, consumer products, and

interactive media ("Disney History | The Walt Disney Company.").

On May 22, 2015, 227 shares of The Walt Disney Company (DIS) stock were purchased

for $110.26 per share for a total investment of $25,029.02. Those shares were then sold on June

19, 2015 for $112.62 per share. The price of this stock increased $2.36 per share for a total gain

of $535.72. The Price/Earnings Ratio over the trailing twelve months is 24.25, while for the

industry it is 17.90 ("Industry Browser - Company List."). This P/E Ratio is high compared to

the overall stock market which has an average P/E Ratio of about 15 and compared to the

industry average of 17.90 ("Industry Browser - Company List."). This could mean that people

expect earnings to rise in the future or that the stock is overvalued (Mankiw 263). The earnings

per share (EPS) over the trailing twelve months is 4.705. This is up from previous years

("Industry Browser - Company List."). When investing in stock, a high EPS or a rising EPS is a

positive indicator of a good stock. By looking at these statistics, DIS was a good choice, and it

did make money over the past four weeks for this portfolio.

The Walt Disney Company stock price rise could be due to the fact that a press release

announced that a number of innovative and exclusive merchandise would be unveiled at the D23

Expo in August (Barrier). Another reason for the increase in stock price may be due to an article

that detailed why The Disney Company is a great long-term stock to own (Meyers).

The following chart shows the stock prices for the Walt Disney Company during the four

week period this stock was held.

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"DIS Historical Prices | Walt Disney Company (The) Commo Stock - Yahoo! Finance."

Company Name Ticker Symbol Sector Industry

Expedia, Inc. EXPE Services Lodging

In 1996, Expedia, Inc. began as a division within Microsoft. The company features a

powerful search engine that enables consumers to research and buy travel services. This

technology had a big impact on travel agencies, allowing people to organize and book their own

trips. They had their IPO in 1999 and followed up with many acquisitions of similar travel

related search engine companies like Hotels.com, Travelocity, Hotwire, and Trivago to name a

few ("History - Expedia, Inc.").

On May 22, 2015, 221 shares of Expedia, Inc. (EXPE) stock were purchased for $113 per

share for a total investment of $24,973.00. Those shares were then sold on June 19, 2015 for

$108.68 per share. The price of this stock decreased $4.32 per share for a total loss of $954.72.

The Price/Earnings Ratio over the trailing twelve months is 31.49, while for the industry it is

106.00

107.00

108.00

109.00

110.00

111.00

112.00

113.00

114.00

DIS

DIS Stock Prices 5/22/15 to 6/19/15

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33.30 ("Industry Browser - Company List."). This P/E Ratio is high compared to the overall

stock market which has an average P/E Ratio of about 15 and slightly lower compared to the

industry average of 33.30 ("Industry Browser - Company List."). This means that the stock price

is slightly lower relative to its recent earnings (Mankiw 263). The earnings per share (EPS) over

the trailing twelve months is 3.478. This EPS is on the rise, indicating a good investment.

("Industry Browser - Company List."). By looking at these statistics, EXPE was a good choice,

even though it lost money over the past four week period for this portfolio.

The EXPE may have gone down in price for this time period due to continuing economic

issues with the working poor. This large segment of the population may not have the disposable

income to travel. Another reason for the loss in price per share may be due to continued terrorism

and political unrest that has seriously affected the entire travel and tourism business (McGuire).

The following chart shows the stock prices for Expedia, Inc. during the four week period

this stock was held.

"EXPE Historical Prices | Expedia, Inc. Commo Stock - Yahoo! Finance."

100.00

102.00

104.00

106.00

108.00

110.00

112.00

114.00

EXPE Stock Prices 5/22/15 to 6/19/15

EXPE

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Company Name Ticker Symbol Sector Industry

Novartis, AG NVS Healthcare Drug Manufacturers

In 1996 Ciba-Geigy and Sandoz merged to form a new company – Novartis AG. The

original companies began by making synthetic fabric dyes in the 1700’s and eventually

transitioned into chemicals and pharmaceuticals. Novartis strives to meet the needs of patients

worldwide through ongoing advances in science and health. It is based in Switzerland and

focusses on pharmaceuticals, eye care, and generics. In their pharmaceutical division, Novartis

has over 50 key drugs that treat issues from cancer to ADHD. Their eye care is marketed under

the name of Alcan. Their generics are marketed under the name of Sandoz and there are over

1,000 available ("Who We Are.").

On May 22, 2015, 240 shares of Novartis AG (NVS) stock were purchased for $103.85

per share for a total investment of $24,924.00. Those shares were then sold on June 19, 2015 for

$100.19 per share. The price of this stock decreased $3.66 per share for a total loss of $878.40.

The Price/Earnings Ratio over the trailing twelve months is 12.10, while for the industry it is

21.50 ("Industry Browser - Company List."). This P/E Ratio is low compared to the overall stock

market which has an average P/E Ratio of about 15 and significantly lower compared to the

industry average of 21.50 ("Industry Browser - Company List."). This means that the stock price

is significantly lower relative to its recent earnings (Mankiw 263). The earnings per share (EPS)

over the trailing twelve months is 4.28. This EPS is on the rise, indicating a good investment.

("Industry Browser - Company List."). By looking at these statistics, NVS was a good choice,

even though it lost money over the past four week period for this portfolio.

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One of the reasons NVS may have lost money over the past four weeks is that its Sandoz

division is involved in an ongoing patent issue with another company for the rights to produce

the generic form of a multiple sclerosis drug (Chen). Another reason for the decline may be due

to another generic manufacturer attempting to make a generic version of Novartis’ prescription

drug Focalin XR (House). Sandoz will make a lot of money if it can get approval to make its

generic drug, but Novartis will lose a lot of money if the other company gets the approval to

make a generic version of its drug.

The following chart shows the stock prices for Novartis AG during the four week period

this stock was held.

"NVS Historical Prices | Novartis AG Commo Stock - Yahoo! Finance."

Company Name Ticker Symbol Sector Industry

Oracle Corporation ORCL Technology Application Software

98.00

99.00

100.00

101.00

102.00

103.00

104.00

105.00

NVS Stock Prices 5/22/15 to 6/19/15

NVS

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Oracle Corporation has been the leader in relational database software for over 35 years.

It has also expanded into applications and hardware with offerings in servers, storage,

middleware, applications, and the cloud. Oracle provides its customers with an entire IT stack to

serve their unique needs. This company is helping more than 400,000 customers across 145

countries to simplify their IT needs ("Oracle's History: Innovation, Leadership, Results.").

On May 22, 2015, 569 shares of Oracle Corporation (ORCL) stock were purchased for

$43.93 per share for a total investment of $24,996.17. Those shares were then sold on June 19,

2015 for $41.59 per share. The price of this stock decreased $2.34 per share for a total loss of

$1,331.46. The Price/Earnings Ratio over the trailing twelve months is 18.73, while for the

industry it is 56.20 ("Industry Browser - Company List."). This P/E Ratio is extremely low

compared to the overall stock market which has an average P/E Ratio of about 15 and

significantly lower compared to the industry average of 56.20 ("Industry Browser - Company

List."). This means that the stock price is significantly lower relative to its recent earnings

(Mankiw 263). The earnings per share (EPS) over the trailing twelve months is 2.286. This EPS

is on the rise in general but has gone down since last year indicating a good investment.

("Industry Browser - Company List."). By looking at these statistics, ORCL was a good choice,

even though it lost money over the past four week period for this portfolio.

There were several reasons for Oracle Corporation’s stock to decline during the holding

period. The first reason is that technology is changing. The cloud is replacing the need for a lot

of the hardware that Oracle sold to its customers. The other reason has to do with the economy.

Businesses are not investing as much at the moment (Williams).

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The following chart shows the stock prices for Oracle Corporation during the four week

period this stock was held.

"ORCL Historical Prices | Oracle Corporation Commo Stock - Yahoo! Finance."

CONCLUSION

In total, this portfolio did turn a profit. Krispy Kreme Doughnuts was the clear money

maker. It made a profit of $3,946.72, an increase of 15.8%. Oracle Corporation was the highest

loss at -$1,331.46, a loss of 5.63%. When combined, these five stocks made a profit of $1,317.86

in a period of four weeks. That is a gain of 1.055% on the original investment. Although the

stock market is a risky place to invest money, I believe that if this stock portfolio was held over a

long term, it would have provided a fair return on the investment.

Stock Buy Sell Profit/Loss # Shares Total + or - % + or - KKD $17.22 $19.94 +$2.72 1451 +$3946.72 +15.8% DIS $110.26 $112.62 +$2.36 227 +$535.72 +2.14% EXPE $113.00 $108.68 -$4.32 221 -$954.72 -3.97% NVS $103.85 $100.19 -$3.66 240 -$878.40 -3.65% ORCL $43.93 $41.59 -$2.34 569 -$1331.46 -5.63%

Portfolio

Total:

+$1317.86

39.00

40.00

41.00

42.00

43.00

44.00

45.00

46.00

ORCL Stock Prices 5/22/15 to 6/19/15

ORCL

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Works Cited

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D23 EXPO 2015." MarketWatch. N.p., 18 June 2015. Web. 23 June 2015.

Chen, Angela. "Teva's Copaxone Patent Again Struck Down by U.S. Court -- 2nd

Update." Market Newswire. Dow Jones Newswires, 18 June 2015. Web. 24 June 2015.

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"History - Expedia, Inc." Expedia, Inc. N.p., n.d. Web. 23 June 2015.

House, Douglas W. "FDA Yanks Tentative Approval of Intellipharmaceutics's Generic Focalin

XR." - IntelliPharmaCeutics International Inc (NASDAQ:IPCI). Seeking Alpha, 18 June

2015. Web. 24 June 2015.

“Industry Browser - Company List." Industry Browser - Company List. Yahoo Finance, 23 June

2015. Web. 23 June 2015.

"KKD Historical Prices | Krispy Kreme Doughnuts Commo Stock - Yahoo! Finance." KKD

Historical Prices | Krispy Kreme Doughnuts Commo Stock - Yahoo! Finance. Yahoo

Finance, 23 June 2015. Web. 24 June 2015.

"Krispy Kreme Doughnuts Inc." KKD. MSN Money, 22 June 2015. Web. 22 June 2015.

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"Krispy Kreme Doughnuts." Krispy Kreme. Krispy Kreme Doughnuts, Inc., n.d. Web. 23 June

2015.

Mankiw, N. Gregory. Principles of Macroeconomics. Stamford: Cengage Learning, 2015. Print.

McGuire, Kelly. "Hospitality Net - Top 10 Global Trends That Will Impact Hospitality in 2015 |

By Kelly McGuire." Hospitality Net. HSyndicate, 13 Jan. 2015. Web. 23 June 2015.

Myers, Lawrence. "These Two Words Explain Why Disney (DIS) Is a Stock You Hold Forever."

TheStreet. The Street, 19 June 2015. Web. 23 June 2015.

"NVS Historical Prices | Novartis AG Commo Stock - Yahoo! Finance." NVS Historical Prices |

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June 2015.

"NYSEData.com Factbook: Daily NYSE Group Volume in NYSE Listed."NYSEData.com

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June 2015.

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"ORCL Historical Prices | Oracle Corporation Commo Stock - Yahoo! Finance." ORCL

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2015. Web. 23 June 2015.

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"Three Reasons to Invest in Stocks - Fidelity." Three Reasons to Invest in Stocks - Fidelity.

Fidelity, 27 May 2015. Web. 24 June 2015.

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Quarter." Benzinga. N.p., 18 June 2015. Web. 24 June 2015.

"Who We Are." Who We Are. Novartis, n.d. Web. 23 June 2015.