Assignment #1 Investment Game
Doing the research and applying the course material.
Detail and depth in the quality of the submission.
Format and quality of the submission.
Meeting the deadline.
Format your written submission as follows
The suggested length is a maximum of three pages – plus the cover and reference pages. The cover page needs to have the title of the assignment, your name, the professor’s name, the course title, and the date. The submission must be typed, including headings and subheadings (to identify main topics and subtopics). References must be included with the appropriate information that enables the reader to locate the original source. Include tables and/or graphs with data within the Word document.
You can research the companies on any public internet site, from stock exchanges or news releases.
The goal is to understand why CFOs consider the valuation of their companies (stock price) important, learn to trade (buy/sell/short), how the economy and other macroeconomic variables impact the market, and how different company valuations react to external factors.
1. Portfolio selection – growth versus value stocks
2. Asset Allocation
3. Benchmark being used – record the benchmark to compare for the final assignment.
Selections specifically made for long-term growth potential:
Apple (AAPL): Apple’s competitive advantage through an exuberantly sizeable global customer base and its ability to deploy software and launch new products successfully (year after year, consistently) has demonstrated the long-term value the company has (Divine, 2022). Furthermore, while some of the iconic hardware products (e.g., iPhone) sales have declined, the services segment that Apple is building and growing is generating substantial revenue and excitement within the investor community (reference, 2022).
Tesla (TSLA): Tesla is considered a strategically undervalued company because the electric vehicle (EV) market is expected to grow much bigger within one or two decades, and at the moment, Tesla is leading the industry (i.e., their stock should be valued much higher) (DeBoard, 2022). Other players will eventually enter the industry entirely, and if Tesla continues its stance on the leading edge, its full value will be demonstrated through prosperous performance (reference, 2022).
Selections made particularly as value stocks (i.e., stocks with a wide economic moat, growth potential, and priced under their intrinsic value):
Anheuser-Busch InBev (BUD): This stock has a 0.72 price-to-fair value ratio (i.e., it is undervalued) and has a wide economic moat (reference, 2022). Anheuser-Busch InBev controls one-third of the global beer market and is the top company in the industry (reference, 2022).
Cheniere Energy (LNG): This stock has a 0.81 price-to-fair value ratio (i.e., it is somewhat undervalued) and has a wide economic moat (reference, 2022). Cheniere Energy pioneered (and is currently the largest player in the United States of America (USA)) liquified natural gas (LNG) exports, exports presently 18 million tons of LNG yearly, and it plans to double this figure within the next decade (reference, 2022).
Pfizer (PFE): This stock has a 0.85 price-to-fair value ratio (i.e., it is somewhat undervalued) and has a wide economic moat (reference, 2022). Pfizer is a company in transition, and its future should not be evaluated according to its past results (reference, 2022). The company is revitalizing its product pipeline by acquiring biotechnology firms to develop and market new successful drugs (reference, 2022).
Intel (INTC): This stock has a 0.92 price-to-fair value ratio (i.e., it is slightly undervalued) and has a wide economic moat (reference, 2022). Intel has faced intense competition, a decline in computer chip demands, and a tremendously higher market preference for portable devices (e.g., smartphones and tablets), which have affected its recent performance (reference, 2022). However, under the direction of Bob Swan (it’s Chief Executive Officer), Intel will focus on pursuing 30% of the total semiconductor market instead of 90% of the central computing unit (CPU) market (Seitz, 2022). This change in course is expected to help Intel reclaim its glory and compete better in a dynamic marketplace (reference, 2022).
I allocated the available assets (i.e., $100,000.00) in the following manner:
Approximately 25% of the assets (i.e., $25,000.00) were split (almost equally) between the AAPL and TSLA stocks with the expectation that these stocks will yield long-term benefits.
Approximately 75% of the assets (i.e., $75,000.00) were distributed relatively equally among the stocks identified as value stocks. (Reference, 2022).
For this simulation, I decided to use the Standard & Poor’s 500 (S&P 500) index because it represents about three-quarters of the stock market, and the index is capitalization-weighted (i.e., larger companies have a higher influence in the index) (reference, 2022). Since my stock picks comprise various sectors (e.g., consumer, energy, financial services, industrial, and technology) and companies of distinct capitalizations (i.e., sizes), the S&P 500 index is an adequate benchmark to gauge the performance of my portfolio (reference, 2022).
Assignment #1 Investment Game