Market Update 10/4/13

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Market Update10/4/13
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Government Shutdown

• Congress could not agree on increasing the
  borrowing limit to fund government operations
• Controversy surrounding Affordable Care Act
  Republicans using fiscal policy as a bargaining
  chip for the defunding of Obamacare
• More than 800,000 government employees furloughed

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Economic Ramifications

• Morgan Stanley economists estimate .15 decrease
  in quarterly GDP
• Inability to get federal loans
• No jobs report on Friday
• Could make Feds decision more difficult

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Financial Markets
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U.S. Dollar

• Dollar fell to 8 month low against Euro
• 19 month low compared with Swiss franc
• Fears that country could plunge into another
  financial crises if debt ceiling is not raised
• Peter Gora, head of FX Research at BNP Paribas
  The debt ceiling is creeping into the psyche of
  investors, and thats why the dollar is weaker.

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Goldman Sachs

• Goldman landed the lead role on Twitters IPO
• Pulling ahead of Morgan Stanley for lead in
  internet IPO deals
• Rewarded Goldmans effort to rev up internet IPO
  franchise
• Important because of prestige Facebook, Pandora

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Looking Ahead

• Despite volatile conditions, most investors
  expect improvement
• Too much at stake not to find resolution
• Keep an eye on new from Congress in coming weeks
• October 17th potential debt ceiling impasse

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Stock Valuation

• Understanding How Stocks Are Compared And Valued

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Types of Valuation

• Fundamental Analysis A method of evaluating a
  security that entails attempting to measure its
  intrinsic value by examining related economic,
  financial and other qualitative and quantitative
  factors. Investopedia
• In other words you have to look at the big
  picture when fundamentally looking at a company.
• You have to consider things like Industry
  (Competitors, Market), Earnings, Income, Cash
  Flow etc.
• Essentially you need to find out the Companies
  DNA.

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How do we do this?

• Balance Sheet - A statement of the assets,
  liabilities, and capital of a business or other
  organization at a particular point in time.
  (Loans/ Short term/long term Debt)
• Income Statement - a financial statement that
  gives operating results for a specific period.
  (expenses/ COGs)
• Cash Flow - The total amount of money being
  transferred into and out of a business, esp. as
  affecting liquidity. (solvency, the cash health)
• All three things can publicly be viewed online,
  these statements are released Quarterly, and
  Annually.

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What's Next?

• Once you have considered The Big Picture, you
  have an understanding of the companies fiscal
  figures, the next question I always ask myself,
  is where the hell is this stock going and how
  does it compare to its market and competitors?
• A great tool to use are ratios that you can use
  to valuate these companies and see how they match
  up.
• Most of these ratios point out if the stock is
  cheap or expensive or undervalued or
  overvalued.
• Once you understand where the company stands in
  comparison to the market, you can see if these
  are the right levels to get in.

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Ratios

• Here are some of the Ratios used to valuate
  companies.
• P/E Price Earnings
• PEG Price Earnings Growth
• EBITDA - Earnings before interest, taxes,
  depreciation, and amortization
• EV/EBITDA Enterprise Value to EBITDA

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Price/Earnings

• This valuation ratio compares the company's
  current share price to its per-share earnings.
• This can be a valuable tool in evaluating
  companies within the same industry.
• P/E is often used as a multiple when noting how
  much an investor/trader is willing to pay per
  dollar of earnings.
• You will often hear analysts or traders say, Its
  trading 10 times earnings or At a multiple of
  14 the stock seems cheap.
• Formula Market Value per Share / Earnings per
  Share (EPS)

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PEG (Price Earnings Growth) Ratio

• A huge valuation tool for estimating potential
  earnings growth.
• A company with a low PEG ratio closer to 0 is
  most likely undervalued.
• However, just like P/E it has its limits.
• These are projected numbers, so of course are
  subject to change.
• This is still a great tool to see how it compares
  to industry leaders, also a huge tool used by
  Growth Investors.
• Formula Price/Earnings / Annual EPS growth

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EBITDA

• A measurement of a company's operating
  profitability. It is equal to earnings before
  interest, tax, depreciation and amortization
  (EBITDA) divided by total revenue.
• In essence you have a look at the companys total
  profitability outlook.

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Enterprise Value/ EBITDA

• First Enterprise Value is not to be mistaken with
  market cap.
• Market Cap only deals with is limited to common
  equity.
• Enterprise Value sums up everything and gives you
  the market value of the whole business.
• EV/EBITDA is important because it can compare any
  company to another.
• It ignores tax structures of other countries, and
  it also can be a great tool for potential
  takeover targets.
• A company with a low ev/ebitda multiple is
  considered by some as undervalued.

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DCF Discounted Cash Flow

• This a great method for evaluating what your
  investment may be down the road.
• In essence, DCF is the money you would receive
  from an investment and adjusts for the time value
  of money.

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DLTR vs. FDOJosh Silver and Brad Marshall
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Business model

• Dollar Tree (everything 1)
• 4763 stores 48 states
• Family Dollar cheap goods at low price
• 7100 stores 45 states

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Competitors

• Sector is being hit, but good future
• Dollar General
• Walmart
• Target
• Big Lots
• Dollar Tree
• Family Dollar

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Family Dollar
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Dollar Tree
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Key Statistics
DLTR FDO
P/E 23.5 19.5
Estimated P/E 20.8 19.1
EPS 2.5 3.7
Estimated EPS 2.8 3.8
PEG 1.3 1.7
Market Cap 13.15 Billion 8.35 Billion
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Stock buy-back

• Seen as a positive thing among the investors
• Management thinks its stock is undervalued, so
  they are going to use their assets to buy cheap
  and sell high later on
• Now, each stock will be more valuable (supply and
  demand)

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Proposition

• Add to position
• DLTR
• Sell position
• FDO

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Catalysts

• Micro Dollar Tree
• Bad business plan
• inflation -- they are stuck with 1
• Macro Economy
• What happens when economy gets better?

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Southern Copper CorporationNYSE SCCOMac Ahsler
and Sean OToole
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Company Overview

• One of the largest integrated copper producers in
  the world.
• Mining, smelting, refining in Mexico and Peru
• Also produce and sell zinc, silver, molybdenum
• Exploration into Chile, Argentina, and Ecuador

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Overview continued

• Worlds largest copper miner by reserves (168
  billion pounds of proven and probable reserves as
  of year-end 2012)
• Among the largest by annual output (1.4 billion
  pounds in 2012),
• Very low cost open-pit mines

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Location
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Business Model

• Copper industry is largely impacted by demand and
  price for the commodity.
• Much of this is out of their control
• Management focus on cost control, product
  enhancement, and exploration to stay profitable.

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Equity Overview

• Price (at close yesterday) - 26.95
• Market Cap- 22.73B
• Volume/ 30-day Average 1.77M/ 1.59M
• Shares 842.13 M
• Beta 1.46
• EPS- 1.91

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Price to Earnings Ratio (P/E)

• SCCO Current P/E - 14.2
• Industry Average P/E - 13.2
• SCCO 5 YR. Average P/E - 18.9

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P/E Definition

• Market Value per Share/ Earnings per Share (EPS)
• Compares share price to per share earnings.
• High P/E generally means investors expect high
  earnings growth in the future.
• Compare P/E to the market or other companies in
  the industry.
• AKA price multiple or earnings multiple

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Price to Book Ratio (P/B)

• SCCO Current P/B - 4.4
• Industry Average P/B 2.3
• SCCO 5 YR. Average P/B 7.0

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P/B Definition

• Stock Price/ (Total Assets Intangible Assets
  and Liabilities
• Measures stock value compared to accounting value
  of company
• Generally, a lower P/B ratio could mean stock is
  undervalued.
• Compare P/B to other companies in the industry.
• AKA price- equity ratio

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Price to Sales Ratio

• SCCO Current Price/Sales - 3.7
• Industry Average Price/Sales 2.3
• SCCO 5 YR. Price/Sales Average 5.4

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Price/Sales Definition

• Share Price/ Revenue Per Share
• Compares stock to its own past performance
• A low ratio suggests a company may be undervalued
• Be careful. Price/Sales doesnt account for debt
  or expenses. Can be misleading

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Dividend Yield ()

• SCCO Current Yield - 12.2
• Industry Average Yield - 7.1
• SCCO 5 YR. Average Yield - 7.0

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Returns
assumes 100 dollars invested in 2007
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Risk Factors

• Dependent on price of copper
• Labor relations have been tense in recent years
• Success of expansion projects uncertain
• Majority steak (81.3 ownership) by Grupo Mexico

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Straight from the Annual Report
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Straight from the Annual Report
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Recommendation

• We believe this stock is fairly valued
• Appears that it can show sustainable growth in
  the future.
• Buy until it is 2 of portfolio

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Nuverra Environmental Solutions Inc. Chris and
Pete 4,500 shares _at_ Mkt price
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Company Overview

• Strategic focus on providing comprehensive
  environmental solutions in industrial and energy
  markets (exploration and production solutions)
• Services include delivery, collection, treatment,
  Recycling and disposal
• Asset base has become a significant aspect of
  company

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Segment Breakdown
Solutions Delivery Collection Treatment Recycling Disposal
- Fresh water to drilling sites for hydraulic fracturing -EP liquid waste from fracking - Used motor oil (UMO) into Reprocessed Fuel Oil (RFO) - Used oil filters - Liquid waste
- Drilling fluids - EP liquid waste from ongoing production - Oily waste water - Anti-freeze
- EP solid waste - EP flowback water
- Used oil filters
- Anti-freeze
Asset Delivery Collection Treatment Recycling Disposal
- Over 1,200 trucks - Appalachian Water Services, LLC plant - a wastewater treatment recycling facility specifically designed to treat and recycle water involved in the hydraulic fracturing process in the Marcellus Shale area - 46 liquid waste disposal wells
- Approximately 4,200 frac tanks and 1,900 upright and other tanks - 34 Thermo Fluids, Inc. treatment facilities - process UMO into RFO
- Over 200 rail cars
- 50 miles of freshwater deliver pipeline
- 50 miles of produced water collections pipeline
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Risks

• Indebtedness
• Specifically 400MM 2018 note that includes a
  150 payment in 2017
• It is a VRN, interest rate varies through time
• Real risk that NES will not be able to refinance
• Acquisition integration and rapid growth
• TFI and Power Fuels may not be able to created
  the anticipated synergies
• Government regulation and litigation
• Former China water bottling business, which was
  disposed of in 2011, law suit could materially
  adversely affect NES

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NES
Summary 2012 2011 2010
Profitability Profit Margin 1 -14.67 -97
EBITDA Margin 8 16 -74
Gross Margin 13 21 25

Liquidity Current Ratio 1.92 2.83 3.72
Working Capital 79,421.00 90,342.00 148,671.00
Working Capital Turnover 4.43 1.74 0.10
Operating Cash Flow Ratio 0.35 -0.28 -0.08
Cash Ratio 0.28 1.78 1.62

Solvency Total Debt to Total Assets 0.34 0.27 0.08
Solvency Ratio 0.08 -0.01 -0.35

Valuation Price to Earnings 116.50 -17.00 -1.25
Price to Book Ratio 0.69 1.24 1.70
Price to Book Tangible -1.00 1.40 2.13
Return on Equity 0.30 -6.73 -4.85
Forward PE 77.67
58.25
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Add to Position

• Sole provider focusing on surface-related
  environmental services.
• Key advantage is in the holistic logistical
  network based which provides competitive
  advantage
• Only really competition in Tervita, R360
  Environmental Services and Clean Harbors
• Growth company with strengthening fundamentals
• U.S. Rises to No. 1 Energy Producer
• Energy output has been surging (22 MM barrels per
  day)