Investment Analysis Paper

Investment Analyst Report
You just got off the phone with Buffalo Investment Advisors. Mr. Engler, the CFO, informed you that you
made it past the first round of interviews. For the second round, you are to choose two stocks and
write a financial investment report for Buffalo Investment Advisors’ clients.
Mr. Engler gave you the following information about the report.
• Your investment report will be scored out of 250 points.
• Additionally, it will be presented via a web page using Adobe Spark Page (the free version) or
another design program of your choice such as Canva.
• Your investment report has 3 required sections that are noted in the outline. Mr. Engler is letting
you choose the remaining 4 sections. He warns you to choose the 4 sections that highlight the
investment thesis of the stocks and your knowledge, so you can impress the team.
• The mandatory total word count for your investment report is 4,000 words. The video, if you
choose to do the video, counts as part of the 4,000 words. The 4,000 words is a AACSB
requirement. You can go over the word count but not less.
• Even though it is a not a stated section, remember to use citations and references or else points will
be deducted.
• Remember to use professional business grammar and writing style.
Section 1: Executive Summary and Synthesis – Required Section Check
Present a summary of the investment report:
This section is written LAST! You write it after you have written the rest of the paper. It is
the summary and your recommendation (based on the analysis and not a sales pitch). The
summary includes the key facts and conclusions of every section that an investor needs to
decide whether to buy both, neither or one of the stocks and at what price(s).
• Yes – remember that the reader should be able to read only your executive
summary and make an informed decision.
• Yes – you provide the conclusions at the start, so the reader does not have to read
any further.
Include your key findings and the recommendation. An executive summary is the conclusion
but provided first for the reader who will only read the summary. It provides the synthesis
of all the material in the investment report
Goal: 700 – 800 words for executive summary – max points available: 50 points
Things to consider for scoring highly on this section
The summary should include a short overview of the industry to which the stocks belong
along with an overview of the two firms. If everyone knows your companies, there is not
much needed for this section. The more your firms are unknown, the more you need to
The readers should be able to read the executive summary and learn all the main ideas,
concepts, mathematical results, conclusions, and recommendation without reading the rest
of the paper
The summary should be forward-looking in its analysis – what is likely to happen to the firm.
The summary contains the conclusions from each section of the investment report.
What is your recommendation? Your recommendation is on facts and not opinion.
• Discuss whether your reader should buy, hold, or sell the stock. Why? What factors
make it a buy/sell/hold?
A higher scoring paper will present the range of prices at which each stock is a buy and a
• For example, Pepsi might be a buy, if the investor can purchase it at a price less than
$58. At prices between $58 and $72, Pepsi is a hold. At prices above $72, Pepsi is a
• Your investment report is written to support your recommendation and conclusions
What likely factors could alter your recommendation? Does it make you more positive or
more negative on the stock and why?
• For example, with Pepsi, a recommendation to buy could be changed if the input
costs such as sugar rose dramatically enough to reduce the net profit margin.
The summary needs to catch the reader’s attention and make him want to read the entire
investment report.
• The summary provides information on the areas of the paper, so the reader does
not have to read any more to know what is in the paper and what are the
The executive summary is a good place to put a chart/table to summarize some of the
You will want to use lots of headings to help the reader keep track of the conclusions and
ideas from the report.
Section 2: Macroeconomic Analysis – Required Section Check
What is the main macroeconomic variable/influence on the valuation of the stocks and
• Choose either a demand or a supply variable. Note – you do not have to do both a
demand and a supply variable. Pick the one that has the greatest impact on the firms’
sales, profits, and cash flow.
• How is the variable expected to change in the next few years? What does this mean for
each stock’s price and investor’s return?
• Present and explain a graph or a chart showing the relationship between your stocks’
prices/returns with the main variable.
Goal: 700 – 800 words for macroeconomic analysis – max points available: 50 points
Things to consider for scoring highly on this section
If you are struggling with this section, remember that you are looking to find a major
variable that the firm has NO control over (because it is a macro variable) that alters the
environment in which the firms operate.
• Here are some ideas if you choose a variable affecting demand for the product/service.
o Remember that demand is both the willingness to buy and the ability to buy.
Choose a variable that affects willingness and/or ability.
o To what do the buyers respond or what variable has the greatest effect on buyer
o What changes the buyers’ decisions to purchase the product/service?
o What will cause them to buy more? What will cause them to buy less?
o What will cause them to buy from a different firm?
o Examples include interest rates (think buying on credit), consumption patterns,
demographic characteristics, GDP, exchange rates, etc.
• Here are some ideas if you choose a variable affecting supply of capital, input cost,
ability to hire scientists, research & development, or another supply-side variable.
o Remember that supply is influenced by both the costs and availability of inputs
along with the costs of substitutes and compliments in the production process.
o What will cause the firm to produce more? What will cause the firm to produce
o What will cause the firm to sell to different buyers?
o Examples include commodity prices, interest rates, exchange rates, oil prices, etc.
No matter if you choose a demand or a supply variable, discuss how that variable affects the
firms’ valuation.
• Demand variable changes Buyers purchase more/less Firms’ sales
increase/decrease Firms’ profits increase/decrease Firms’ cash flow
• Supply variable changes Firms produce more/less Firms’ sales increase/decrease
Firms’ profits increase/decrease Firms’ cash flow increases/decreases
• Top sources for information are IBIS, Business Source Complete SWOT analyses, the St.
Louis Fed’s FRED database, S&P Net Advantage, and the Mergent databases.
Section 3: Fundamental Analysis – Required Section Check
Using WRDS, access the stock prices for the twelve months, calculate beta, and discuss. How
do the betas from WRDS differ from the Value Line betas? What do the numbers mean and
how do they affect your recommendation? You are welcome to use my Excel.
Using WRDS, access the information on financial ratios. Choose 5 ratios that are important
for your stocks and present the information. Use the last three years of data. Compare the
information to the industry, if available. What do the numbers mean and how do they affect
your recommendation?
Calculate, present, and explain the required return. What does the number mean and how
does it affect your recommendation?
Calculate, present, and explain the Expected Holding Period Return – Annualized for each
stock. What is the expected alpha for each stock? What does the number mean and how
does it affect your recommendation?
Calculate, present, and explain the sensitivity analysis for each stock? How sensitive is each
stock to your assumptions on P/E and EPS? What does the number mean and how does it
affect your recommendation?
What are the expected future prices of the stocks?
• Under what conditions would the stocks be buys?
Present an overview of the fundamental valuation. What can you conclude about each
Goal: 700 – 800 words for fundamental analysis – max points available: 50 points
Things to consider for scoring highly on this section
• You can find all this information on Value Line, Morningstar, and WRDS.
• You are welcome to use the stock valuation model from class to assist with the
For your final sections, you can choose 4 of the following.
You want your total possible points to be 250. Extra sections will not add to the possible points.
Choose from the following options.
Each option should be 500-600 words.
Max Points
• Embed a 1-to-2-minute video of yourself presenting your investment report.
• While you are not reading the executive summary, you are presenting the
ideas from your analysis much like what the executive summary does with
• The video can be longer than 2 minutes, but you do not get extra points for
going longer.
• The video counts as 600 words of your required 4,000 words
• It is important that you do have a transcript. Transcripts of professional videos
are expected and required, in many circumstances.
25 points
Analyze the Short Selling information on the two stocks
• Using the information at Yahoo! Finance, discuss the short information on your
two stocks. What does this information mean for investors? 25 points
Analyze and value the Dividend Policy of the two firms.
• Calculate, present, and explain the role of dividends in the valuation of your
stocks. Do dividends matter? How important are they for the value of the
• What do Constant Growth Model/Gordon’s Model and the Dividend Growth
Model say about your stocks?
25 points
Discuss the current state of the industry. Include the following:
• What is the main threat to the industry and to the stocks’ prices and financial
• What is the main opportunity for the industry and to the stocks’ prices and
financial performances?
• Analyze the role of international markets on the industry and stocks.
25 points
Discuss the market structure of the industry.
• Is it monopolistically competitive or an oligopoly?
• Are the main products/services more commoditized, highly differentiated, or
• How does the market structure affect the ability of the firm to control the
prices it charges for its products and for the prices it pays for its inputs? (The
more a firm can control its prices, the more it can control the income
statement and EPS.)
25 points
Stocks vs the Index
Present and discuss at least one line chart for each stock
• What do the charts say about the historical prices and trend?
25 points
• What do the charts say about demand and supply for owning the stock?
• What do the charts of the simple moving average (SMA) of 50 days and 200
days say about when investors are buying/selling the stock?
• What is the event(s) that caused spikes in volume?
Corporate Social Responsibility
Discuss the firms’ actions regarding:
• Environmental issues
• Social issues
• Governance issues
• Things to help you start: What are the firms doing that is unique? Are they
lowering their carbon footprint? Are they using renewable energy? Are there
25 points
Things to consider for scoring highly on this section
• Make sure you use headings for each section.
• Make sure you analyze and not use opinion.
For every section of the paper, be sure to include (1) how the information affects the firms’
sales, profits, and cash flow, (2) how the variable expected to change in the next few years,
and (3) what it means for each stock’s price and investor’s return. Remember to include (4)
the concluding information for the investor to make better decisions.
References & Citations – Required
While not worth points, up to 100 points can be deducted for poor quality or non-existent
references and citations
Remember to cite your references using APA style throughout the investment report.
• Use endnotes (Smith, 2021) at the end of the sentence or paragraph.
• Have a list of references at the end.
Within the investment report, you should use endnotes. An example of an endnote is this
(Morningstar, 2021). Endnotes show the source of the information.
• Generally, you should not use direct quotes unless it is for a very specific reason, such as
a quote from the CEO on the topic you are presenting. You might use a direct quote in a
sidebar in the investment report to add interest for the reader.
• Instead, you will put the ideas in your own words.
• It is best to use several sources for each idea.
• Do not cite the notes or lectures. You should put these concepts in your own words.
• You should place endnotes at the end of sentences or paragraphs and within the period.
It will look less cluttered if you place all the endnotes at once at the end of the paragraph
such as like this (Morningstar, 2021; Value Line, 2021; Merrill Lynch, 2021). The reader
knows that you used all three sources for the information for the paragraph.
At the end of the investment report, place a list of the full citations.
• Remember to cite each table.
• You should have a minimum of 5 sources in addition to the traditional financial analysis
sources available at the library online
• These sources should be magazine articles, newspaper articles, trade magazine articles,
or anything else that is not from a press release or from a usual financial source.
This is a very common place for students to miss points. Find and use relevant articles about
your firms.
• Incorrect references or lack of references will severely lower your grade.
• Reference should be prepared in general accordance with the APA (American
Psychological Association).
• The Cornette Library has information on how to cite sources.
Things to consider for scoring highly on this section
• Do not use company information as a major source for your investment report.
Company information is more marketing than finance.
o Use news articles (and not press releases) about your stocks and industry.
o Read information about the industry from the national organization.
o Read about your stocks from the viewpoint of the competitors.
o Read trade journals. A good place to find these is the Business Source Ultimate
database. Search for trade publications in the left toolbar.
You should use these online databases from the library. The databases all have financial
information, but they each have different information on the industry, news articles, and
trends. They have a lot of the information you need but you must search the entirety of
each database.
• Value Line
• Morningstar
• IBIS World
• Mergent Online
• Business Source Ultimate
On the web, use the Wall Street Journal, Yahoo Finance, Google, Finance, MSN Money,
Wikinvest, Forbes, Fortune, MarketWatch, etc.
• Be care of blogs because it could just be some guy’s opinion. You are looking for facts
and analysis.
Remember, you are analyzing and not just describing so use sources that do the analyzing for
Final Ideas Before Submitting Check
Is your web page easy to read and attractive?
• Use lots of headings to make it easy for the reader to find the various sections.
• Use color to help the reader find the information.
• Use table and charts to help explain your analysis. Do not use valuable word space to
describe data. Use tables and charts to convey a lot of information quickly.
• Do not use miscellaneous or random clip art to waste/take up space.
• Did you provide an analysis for each topic area?
• Did you explain each table and chart?
• You are NOT writing a sales pitch. It is perfectly acceptable to decide at the end that one
or both stocks are not good investments.
• There should be no “I” or “we” in the entire investment report.
• Did you cite your sources both within the investment report and provide references at
the end of the investment report?
• Do not cite the lecture notes or me.
• Did you give the reader a thorough understanding of the stocks?
• Did you provide the reasons for your decisions?
• Are you forward-looking in your analysis?
• Can the reader make an informed decision after reading your investment report?
• Do not use clip art unless it pertains to the firms. A quick way to lose points is to place a
large picture or clip art that is unrelated and merely uses valuable space.
Plagiarism Checker is Used
While you can choose whichever stock pair you want (except Coke and Pepsi), you must remember
that you will submit your paper to Turnitin. Turnitin will mark papers that are similar. If two of you
choose Apple, your papers will be marked as similar, especially if you work together. Thus, to ensure
a lower plagiarism score, you will want to not write or share your writing with others.
• Do not think that fighting me about your plagiarism score will work. Whatever your score is, it
will be deducted from your total points. I will check your plagiarism score for things such as
references and not penalize you for that. However, I will not play your game of fighting over your
score – you chose the stocks and knew the score when you submitted the paper and thus, must
accept the consequences of that choice.
• For example, you get a plagiarism score of 10% and I find that 2% is because of things such as
graphs, references, common finance phrases, etc., I will deduct the remaining 8% or 20 points
from your grade.
• Thus, it is advantageous to choose stocks that are NOT common or at least one of the two stocks
is not common.
• As long as you are before the due date, you can submit your paper to Turnitin and see what is
highlighted. You are free to change the marked sections and resubmit your paper. A high
plagiarism score is because of your work and not something that you can blame on others.
• At the end of the semester, the plagiarism checkers are slow because every student in the
country is submitting papers. Thus, I suggest that you submit as you write and then realize that
you might have a 48-hour wait on a score at the end of the semester. Keep this in mind as you
finish your final revisions.
• Your goal is for the plagiarism score to be as close to 0% as you can get it. Depending on several
factors, it might be hard to get it below 5%, but most quality papers are very close to 0%.
o I set the checker to ignore small and common matches such as “required rate of return.”
o I also ignore references and correctly cited material.
• What if you really, really want to do a “common” stock. That is still okay if you recognize that it is
important to do your own writing, correctly cite sources, and be ready to revise any section that
gets highlighted by the plagiarism checker.
• The plagiarism checker matters most for students who are late on the paper and “throwing it
together” or who are not strong writers and rely on copying and pasting.
• A common question by students is, “how do you define plagiarism?”
• Another professor gave me this example. He said, “If I go to Bob’s house, steal Bob’s car, and
then park it in front of my house, whose car is it?” Bob’s car, right? “But what if I change the tires
on the car. It is my car now, right.” Of course not, it is still Bob’s car.
• That is the idea of plagiarism. If you can tell where it came from, it is plagiarism (unless it is in
quotes and cited).
• Thus, you can use other writers’ ideas and cite with endnotes, but only if you have made them
your own words.
Did you choose the hardest pair/industry EVER?
Yes, you have chosen the hardest pair and/or industry there is. Pretty much every student think that
the pair/industry that he/she chooses is substantially more difficult to analyze then the pair chosen by
every other student in class.
• What students do not realize is that every industry is unique. What you must do in your analysis
is discover and then explain what makes the industry and the stocks in the industry unique and
how that impacts valuation.
• Having a more technical industry to analyze makes the paper easier because there is more to
• Once you find the uniqueness of the industry, you then find how the stocks fit into the industry.
What niches is each firm satisfying? Have stock investors assessed the strengths and weaknesses
of the firms correctly? Have investors valued the stocks correctly?

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