Selecting Stock Homework

STOCK SELECTION PROJECT

Objective: To explore stock selection tools and analyze stocks using sources in the internet so as to construct a portfolio of stocks for a hypothetical investor.

The investor has $500,000 to invest to meet some concrete, tangible goal(s) within a time horizon. You decide the tangible goal(s) and the time horizon. Do not say, “I want to maximize returns”. Example of goals would be: (a) buying a house after (say) 5 years, (b) starting a business after (say) 10 years, (c) sending a child to college (say) after 15 years, etc. You may or may not pursue multiple goals. But the portfolio should appear logical enough to be able to meet the goal(s). Your report should contain investor profile: goal(s) the investor wants to meet, required rate of return (in percentage) , time horizon, and the investor’s risk preference (high/medium/low).

Stock screening: The screening criteria should match the needs and preferences of the investor. You will find stock screening tools at the following sites (you may do Google search and type “Stock Screener” to find additional websites):

(a) screen.morningstar.com/StockSelector.html

(b) screen.yahoo.com/stocks.html

You don’t have to use more than one screening site.

After including enough screening criteria, you should come up with a list of 15-20 stocks (roughly speaking). Submit as Exhibit 1a printout of the stocks you get from screening.

Stock analysis: Then you use the following site to get some in-depth analysis on these stocks: http://finance.yahoo.com/ (This is a suggested site. You can use some other site which is at least as good).

In this site (yahoo), you type in the ticker symbol of a stock and choose “Basic” information on the stock. Then click the button “Get Quotes”. In the box where you have links to various types of information on the stock, click “Profile”.

The profile will tell you what the company does as well as a wealth of information and data/ratios. See if the company seems to possess any distinctive competitive advantage. See what might attract you. Take a good look at the chart. The chart shows a one-year history of price performance that might indicate how it might do in the future. You may want to infer something from that. You may want to view a longer-term price chart.

From the profile page, you may want to go to two more links: “Research” (for research summary and earnings growth rates), and “Ratio Comparisons” (Comparisons of different ratios and growth rates of company against the industry, sector and the S&P500. “Research” link is towards the top of the profile page. “Ratio Comparisons” link is towards the middle of the page (on the left side).

You will select five stocks for the portfolio. Present as Exhibit 2, the list of 5 stocks, date of purchase, number of shares purchased, stock price, value of shares (# of shares times price), and at the end, total value of the portfolio.

For each of the five stocks, include a one-page analysis justifying your selection (your own analysis from secondary sources – not copying and pasting from different sources). For each stock, you should include 5-year price chart, historical data, and ratios that are relevant to your selection decision.

The whole write-up would be about 8-10 pages. In addition, you may include at the end any # of pages as appendixes. But printing and including analysis from various sources is not required.

In selecting stocks, please remember you may not want to put all your eggs in one basket.

Sections of the write-up: The write-up should include the following section headings (please don’t forget the section headings):

1. Introduction (what is the project about)

2. Investor profile (investor background, goal(s) desired, time horizon, rate of return required to meet goal(s), risk tolerance, etc.)

3. Criteria (used for screening); (a) explain each criterion, (b) give rationale for selecting the criterion (why did you select a criterion out of so many), (c) give acceptable range for the criterion, e.g., beta should be from 0.95 to 1.2, roe should be greater than 20%, etc.). Under each criterion I want to see these three points discussed. The list of criteria should match the needs and references of the investor

4. Analysis of five selected stocks: one page per stock, including the 5-year stock price chart. The price chart should cover a small part of the page. Use bullets as much as possible in your analysis of each stock. Do not copy and paste materials

5. Conclusion

6. References

Do not forget to include the two required appendixes (Exhibits 1 and 2) after this.

Please provide a cover page with:

(a) Title of the project

(b) Course #

(c) Prepared by (your name)

(d) Prepared for (instructor’s name in this case).

These are some information that a typical cover page of a report should include.

Please contact me if you require further clarification.