Performing stock transactions using stocktrack
Our assignment involved identification of investment strategy, execution of the strategy, company analysis, measure of portfolio and a report on our experience at the course of the project. The companies we chose to invest in are : Apple, Alibaba, Costco, Clovis Oncology, Cocacola and Walt Disney. Our choice was based on CAPM valuation and price earnings ratio. Between 22nd August and 15th October 2019, we traded on the shares as much as we could. Investment strategy used for this project is capital asset management pricing model (CAPM). 5 4 ER = Rf+(Rm-Rf) 4. 11 The expected rate of return for Walt Disney is 11. Therefore the stock is undervalued. Clovis Oncology Low High Beta 1. 03 R(m) 5 5. 77 The expected rate of return for Apple is 13. Therefore the stock is undervalued.
Alibaba Low High Beta 1. 35 R(m) 5 5. 5 R(f) 3. 76 R(m) 5 5. 5 R(f) 3. 5 4 ER = Rf+(Rm-Rf) 4. 14 The expected rate of return for Costo is 9. Therefore the stock is undervalued. Most films get more gross revenue internationally than locally. The Internet enhances faster delivery of content by film studios more affordably. Media and entertainment companies should optimize content delivery systems to meet the consumers’ demands. Availing content on multiple platforms at any given point is a necessity. However, in this industry; protection of copyrights and intellectual property is difficult and therefore for media and entertainment companies to increase their revenues, navigation of the internet efficiently and content-protection from piracy is required. 15% b) Cocacola company Industry analysis Growing population provides a fillip to the food and beverage sector, which in turn propels the soft drink market.
Moreover, the availability and affordability of soft drinks benefits the growth of the soft drinks market. With increased focus on health; many consumers increasingly becoming health conscious, and are willing to drink healthier drinks as opposed to traditional soft drinks. Healthy drinks are gaining popularity. Another challenge in this industry is the presence of low-quality. Cocacola will continue to maintain the competitive advantage for long since it is well distributed globally and they have patented and copyrighted products. I learned that the beverage industry despite having set foot in the market faces challenges from increased awareness of health and wellness. I also discovered that despite Cocacola having huge revenues, it can run at losses. DuPont analysis This model breaks down the return on equity ratio so as to explain how companies can increase their return for investors.
It is computed as profit margin (net income/net sales) * total assets turnover (net sales/average total assets) * financial leverage (total assets/total liabilities ROE = (103/4288) * (4288/2761) * ((3073+2449)0. Tesla has the competitive advantage of being able to produce high-quality electric cars that are affordable. The other competitive advantage is their business model that integrates direct sales, service and supercharger network. It will continue maintaining its competitive advantage due to the speed at which they incorporate latest technology on their cars and customer care. Despite having good products, Tesla is a loss-making company. This is due to high initial operating costs as far as automobile production is concerned. Company analysis Clovis oncology Company has current assets that exceed current liabilities; an indicator that it can cover its short term liabilities.
Clovis oncology is currently making losses. There is an increase in inventory turnover and asset turnover, an indicator of increased asset efficiency and good inventory management policy. The return on equity is at negative value, an indicator that shareholders are losing value. The return on assets is negative indicating inefficient use of assets. However, the companies should be keen not to open stores next to each other as this leads to sales cannibalization. The companies can also take advantage of recession by developing stores. Current technology involves e-commerce. Most consumers shop online. This increases competition since customers have many options and choose lowest prices. It also enjoys high economies of scale since it purchases goods from suppliers in large quantities. Costco will maintain the competitive advantage due to loyal clientele.
It is notable that Costco sell high-quality products and uses single-step distribution strategy where they can sell inventory before paying suppliers. The industry is rapidly evolving technologywise. DuPont analysis This model breaks down the return on equity ratio so as to explain how companies can increase their return for investors. The company has low debt to equity ratio, an indicator that most funding is from equity not debt. The company has a sustainable gross profit margin of 45%. Alibaba has the following competitive advantages: it is located in China, a country with largest internet users, economies of scale due to its size, economies of scope (offering wide range of products) and large network globally. I learnt that Alibaba has two retail stores and a low debt to equity ratio.
It also has high profit margins. Companies in this industry have to be quick to adapt new technology then create solutions using it. Company analysis The company is a going concern for the next foreseeable future. Its short term assets exceeds both current and long-term liabilities, therefore it is able to meet its obligations. It shows an increase in asset turnover and decrease in inventory turnover from previous year an indicator of increased efficient use of assets and poor inventory management practice. Apple has built a durable competitive advantage. It gave us good experience with stock trade. We learnt various ways to identify stock to trade in, how to buy, sell or cover stock and trends. The stock trade is dynamic since prices of stock trade change every few seconds based on economic factors.
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