Selecting Stock Homework

Introduction

As the stock selection criteria are the first important step for selecting stock for investment, it is an interesting method to maximize the total return on stock investment with the requirement of specific holding period, limited risk, and an appropriate degree of portfolio diversification. Many investors around the world can benefit from the stock screening websites since they can search for stocks that meet their preferences and requirements, and financial criteria.

In this stock selection project, I will explore selection tools and criteria, and analyze the selected stocks by using sources from financial-based websites to create a briefly stock portfolio for the hypothetical investor. This project is designed to consult an investor who has $200,000 to invest in the stock market in order to meet her goal in the next 10 years.

Goal: Tiffany Smith would like to start her own company in the United States. Her company specializes in export and import several kinds of leather products. The products will sell all over the world, mostly in USA, UK, and Asian countries.

Time Horizon: Next 10 years

Investors’ risk preference: Medium

Rate of return required to meet goal: 20%

she needs to invest approximately $200,000 in the stock this year in order to achieve her goal.

Criteria

· Beta Coefficient: Tiffany Smith should choose the beta ranging from 0.5 to 1.5 because she needs to invest in the long term and medium level of risk preferences. Beta ranging from 0.5 to 1.5 will ensure the return and average risk. This beta range follows the market and takes risk in the medium level as investors’ risk requirement.

· P/E ratio: The measurement of the price paid for a share which relatives to the annual net income or profit earned by the firm per share. As Tiffany Smith prefers medium risk level, she should choose P/E ratio from 5 to 20 so that she can buy the stocks in the low price and sell it later.

· EPS Growth Rate: The percentage that indicates how much earning per share increases. In this case, Tiffany Smith wants to invest $200,000 in the stock in order to start her business in the next ten years. She also prefers medium risk level. Therefore, ESP Growth rate more than 15% can match with her preference.

· Stock Price: As Tiffany Smith prefers medium risk level, she should choose the stocks which have low to medium price. In this case, the share price from $5 to $50 can match her preference.

· Profit Margin: As Tiffany Smith prefers medium risk level, she should find the return on sales about 30% in order to achieve her goal.

Condition
Share Price	$5 to $50
Beta	0.5 to 1.5
Profit Margin	30%
P/E Ratio	5 to 20
The Growth Rate during 5 years	15%

Stock Screening

Five Selected Stocks

Symbol	Company	Retail Price	Beta	Profit Margin	P/E	5 yrs Growth
BOFI	BofI Holding, Inc.	15.85	0.99	33.90%	8.48	61.339%
BIP	Brookfield Infrastructure Partn	25.79	0.76	44.40%	6.74	54.303%
KEYN	Keynote Systems, Inc.	21.93	1.11	49.4%	7.54	67.315%
SBSI	Southside Bancshares, Inc.	20.58	0.91	30.9%	9.03	26.045%
EBIX	Ebix Inc	17.26	1.28	46.5%	9.89	56.119%

Analysis Five Selected Stocks

1. BofI Holding INC. (BOFI)

BofI Holding, Inc. is the holding company for BofI Federal Bank which provides numerous consumer and wholesale banking services primarily through the Internet in the United States. The company offers various deposit products, including demand deposit, savings, and certificates of deposit accounts. Its competitors are Mizuho Financial Group, Inc., Sumitomo Mitsui Financial Group Inc., and so on.

Analysis: Beta 0.99, % yr Growth 61.339%

· The Beta of BOFI is 0.99 which indicates that the stock is following the market.

· The risk of BOFI is low and related to the investor who prefers long term investment with the medium risk level.

· The profit margin 33.90% and the operating margin 62.17% can ensure an investor’s gain from the stock investment.

· According to the key statistics, the ROE of BOFI is 14.83% which is higher than the savings and loans industry (5.4%).

· From the Analyst opinion, most of the recommendations are strong buy.

· Therefore, BOFI is a good choice for stock investment with medium risk preference.

2. Brookfield Infrastructure Partners L.P. (BIP)

Brookfield Infrastructure Partners L.P. operates in utilities, transport and energy, and timber sectors. The company provides a port facility, which exports metallurgical and thermal coal mined to many countries such as Australia, Chile, and Canada. Also it distributes electricity and natural gas to New Zealand, the United Kingdom, and the United States. For energy industry, its competitors are BP, XOM, TOT, CVX and etc. And for utility industry, its competitors are EONGY.PK, RWEY.PK and so on.

Analysis: Beta 0.76, % yr Growth 54.303%

· The Beta of BIP is 0.76 which indicates that the risk of BIP is a little bit low and related to the investor who prefers long term investment with the medium risk level.

· As the Beta is lower than 1, this stock is following the market but is not too risky.

· The profit margin 44.44% and the operating margin 31.43% can ensure an investor’s gain from the stock investment.

· According to the key statistics, the ROE of BIP is 19.87% which is higher than the Electric Utilities industry (7.10%).

· From the Analyst opinion, most of the recommendations are to buy.

· Therefore, BIP is a good choice for long-term stock investment with medium risk preference.

3. Keynote Systems Inc. (KEYN)

Keynote Systems, Inc. was founded in 1995 and the headquarters is in San Mateo, California. The company offers Internet and mobile cloud monitoring solutions worldwide. Its competitors are Yahoo! Inc., MSN, AOL, Inc., Disney online, Move, Inc., Match.com, LLC, Sina Corp., and Daum Communications Corp.

Analysis: Beta 1.11, % yr Growth 67.315%

· The Beta of KEYN is 1.11 which indicates that the risk of the KEYN is over the market and low taking risk from this stock.

· KEYN is suitable for the investor who prefers the low to medium risk investment.

· The profit margin 49.40% and the operating margin 14.60% can ensure an investor’s gain from the stock investment.

· Investor can make decision by analyzing from the 5 years growth rate 67.315%.

· According to the key statistics, the ROE of KEYN is 26.94% which is higher than the Internet Software and Services industry (6.30%).

· From the Analyst opinion, most of the recommendations are to buy.

· Therefore, KEYN is a good choice for long-term stock investment with medium risk preference.

4. Southside Bancshares Inc. (SBSI)

Southside Bancshares, Inc. is the holding company for Southside Bank which offers financial products and services to individuals, businesses, municipal entities, and non-profit organizations. Southside Bancshares, Inc provides savings, money market, interest and noninterest bearing checking accounts, and certificates of deposit. Its competitors are Citigroup, Inc., Sumitomo Mitsui Financial Group Inc., HSBC Holdings plc, and so on.

Analysis: Beta 0.91, % yr Growth 26.045%

· The Beta of SBSI is 0.91 which indicates that the risk of the SBSI follows the market and a little bit low.

· From this point, SBSI is a good stock for the investor who prefers the medium risk in stock investment.

· SBSI stock seems to be stable and attractive to investor since the profit margin 30.93% and the operating margin 41.86%.

· Investor can also make decision by analyzing from the 5 years growth rate 26.045%.

· According to the key statistics, the ROE of SBSI is 15.96%. From the Analyst opinion, most of the recommendations are to hold.

· Therefore, SBSI is a good choice for stock investment with medium risk preference.

5. Ebix Inc. (EBIX)

Ebix, Inc. was founded in 1976, and its headquarters is in Atlanta, Georgia. The company operates as on-demand software and e-commerce solutions to the insurance industry primarily in North America, Australia, New Zealand, India, and Singapore. The company operates data exchanges between consumers, agents, carriers, and third party providers.

Analysis: Beta 1.28, % yr Growth 56.119%

· The Beta of EBIX is 1.28 which indicates that the risk of the EBIX is over the market and low. From this point, EBIX is suitable for the investor who prefers the medium risk in stock investment.

· EBIX seems to be stable and attractive to investor since the profit margin 46.50% and the operating margin 39.40%.

· Investor can also make decision by analyzing from the 5 years growth rate 56.119%.

· According to the key statistics, the ROE of EBIX is 26.41% which is higher than the Business Software and Services industry (11.40%).

· From the Analyst opinion, most of the recommendations are strong buy.

· Therefore, EBIX is a good choice for stock investment with medium risk preference.

Conclusion

Mrs. Tiffany Smith is a 42-year-old marketing senior manager of a marketing company in Massachusetts. In her position, she earns $60,000 per year. However, she plans to run her own export-import business in the next 10 years. She needs to invest approximately $200,000 in the stock this year so that she can reach the goal. In order to achieve the spectacular requirement of her investment, she should invest in five stocks which consist of BofI Holding, Inc. (BOFI), Brookfield Infrastructure Partners L.P. (BIP), Keynote Systems Inc. (KEYN), Southside Bancshares Inc. (SBSI), Ebix Inc. (EBIX).

Since these five stocks have low risk, medium to high profit margin, and reasonable price of stock, she can be ensured that these five stocks are related to her preference of long-term stock investment with medium risk level.

Appendix 1

Appendix 2

Symbol	Company	Retail Price	Beta	Profit Margin	P/E	5 yrs Growth
BOFI	BofI Holding, Inc.	15.85	0.99	33.90%	8.48	61.339%
BIP	Brookfield Infrastructure Partn	25.79	0.76	44.40%	6.74	54.303%
KEYN	Keynote Systems, Inc.	21.93	1.11	49.4%	7.54	67.315%
SBSI	Southside Bancshares, Inc.	20.58	0.91	30.9%	9.03	26.045%
EBIX	Ebix Inc	17.26	1.28	46.5%	9.89	56.119%

References

http://finance.yahoo.com

http://screen.yahoo.com/stocks.html

http://quote.morningstar.com