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I want to write a investment report for Juno.

https://www.junotherapeutics.com/

and yes, they just got acquired by Celgene company.

Please Follow the GUIDELINE I uploaded, use your own words. No Wiki as resource. please use the latestet data (2017)

If you find Juno is hard to analysis, welcome to discuss your ideal stock-pick with me.

I also upload a Reading for Fundamental & Technical Analysis if you need a direction.


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Unit 3 Fundamental and Technical Analysis This section covers basic approaches used to determine which stocks/industry/markets to buy, when to buy them, and when to sell them. It corresponds to the Implementation stage of the Portfolio Management. The approaches are often classified into fundamental, technical analysis or a combination of the two. At the conclusion of this unit, students should be able to: -Use fundamental analysis approaches to identify buy and sell signals -Utilize the CANSLIM approach to identify stocks to buy -Utilize stock screens to identify potential stocks to buy or sell/short sell This unit section is divided into several parts. • The first presents definitions and briefly discusses issues that are of interest to the typical participant in the stock market. • The second section includes a discussion of fundamental analysis, • The third concentrates on technical analysis. • The fourth section presents specific examples of approaches. • This is followed by a section on stock search and tools available to perform searches. I. Introduction and Definitions Fundamental and Technical Analysis are approaches to determine: (1) Which stocks to own and (2) When to buy and (3) When to sell these stocks It is important to underscore the necessity of making a decision on when to sell a stock prior to buying it. Many of the losses in the stock market are due to the fact that a stock is owned even when the conditions that formed the investor’s decision to buy have changed. Fundamental analysis is based on the premise that the price of a stock is the net present value of all future dividends. This value is estimated by an investor based on variables such as sales, growth rate, quality of management, expected growth of the industry and its potentials. Technical analysis is an approach based on the premise that certain market data such as price movements, volume, and open interest can help predict future trends (future, often short term, prices of a stock). Some argue that the efficient market hypothesis makes it futile to attempt to search for stocks regardless of the approach used (technical or fundamental). The efficient market hypothesis (EMH)1 is an idea partly developed in the 1960s by Eugene Fama, and it 1 Source: http://www.investopedia.com/university/concepts/concepts6.asp 1 states that it is impossible to beat the market because prices already incorporate and reflect all relevant information. As such, under the efficient market hypothesis, any time one buys and sells securities, one is engaging in a game of chance, not skill. If markets are efficient and current prices always reflect all information, then there is no way one will ever be able to buy a stock at a bargain price. This is a highly controversial and often disputed hypothesis, and is covered elsewhere in this course. While supporters of EMH believe it is pointless to search for undervalued stocks or try to predict trends in the market through any technique (fundamental or technical analysis), others believe that it is possible to outperform the market2. For example, value investors and technical analysts believe that it is possible to outperform the market, and many real life examples favor this belief. As such a new approach in finance, behavioral finance, evolved. The main argument used by the supporters of the new approach is that many investors base their expectations on past prices, past earnings, track records, and other indicators. Since stock prices are largely based on investor expectation, it only makes sense to believe that past prices do influence future prices. . The terms investors, traders, day-traders and swing-traders are not used in the first few paragraphs of this write-up on purpose. All four terms refer to people who attempt to make money in the stock market. Though there is no “agreed upon” definition, the terms often stand for the following: • • • Investors are individuals who use fundamental analysis, Traders are individuals who use technical analysis. Day-traders: Day trading refers to the practice of buying and selling financial instruments within the same trading day such that all positions are usually closed before the market close for the trading day. Traders that participate in day trading are called active traders or day traders. That is a typical day-trader buys at the beginning of the day and sells at the end of the day, thus ending each day with no money in the stock market. Finally, individuals who may leave their money in the market for few days are called swing-traders. This section is not concerned with the techniques and practices of day and swing traders. The terms investors and traders3 evolved to indicate different activities (fundamental versus technical analysts) and a legal differentiation has developed for tax considerations4. The differences are based on two dimensions: duration (length) of a stock ownership and number of transactions. Fundamental analysts determine which stocks to buy based on the difference between their evaluation of the stock value and the market value (i.e., price of a stock). This process often results in a long term ownership The term outperform the market is often used to mean outperform the SP 500. In other contexts the term traders is used to refer to individuals who work in security firms and stock exchanges. 4 Source: http://www.nysscpa.org/cpajournal/old/14903863.htm 2 3 2 since it may take the market a long time to reach the same evaluation that an investor has. As such investors have both a long term dimension and a limited number of transactions, while traders often mean short term and a large number of transactions. Fundamentalists often discuss trading in a disapproving tone insinuating negative connotations. This section assumes no such notions. Other terms are often found in investment literature. These include Bear market and Bull market and their derivatives Bearish and Bullish. A Bear market is used to state that the market is declining while a Bull Market is an advancing market. Long and Short; Long (or long position) means owning a stock, and Short (or short position) means selling a stock (i.e., opposite of long) that you do not own. No discussion of investments maybe complete without the study of how psychology play are role in investment decisions. Investors are people that share all the positive and negative attributes of human decision making. Investors often develop what is described in psychological terms as Cognitive Dissonance5. A psychological phenomenon that refers to the discomfort felt at a discrepancy between what you already know or believe, and new information or interpretation. Cognitive dissonance manifests itself when an investor decides on acquiring a stock with the expectation that it will go up, and then the stock starts to go down. The investor often insists that this slide in the stock price is due to circumstances that do not contradict the analysis, and refuse to sell the stock and in some cases continue to acquire additional shares. In order to avoid many of the shortfalls of human decision making, it highly recommended that an investor must decide on when to sell the stock prior to buying any shares of the stock. 5 A complete discussion of the subject is available online from (the Third Edition of A First Look at Communication Theory by Em Griffin, 1997, McGraw-Hill, Inc. 3 II. Fundamental Approach Definition and Introduction The fundamental approach is based on the academic hypothesis that the price of a stock is the net present value of all future dividends. This value, often called intrinsic value, is estimated by the investor based on the company’s fundamentals, i.e., variables such as sales, growth rate, management, industry and potentials. The intrinsic value is compared to the current share price. Companies that are undervalued should be acquired, and those that are overvalued should be sold. Fundamental analysts study everything from the overall economy and industry conditions, to the financial condition and management of companies6. The method uses revenues, earnings, future growth, return on equity, profit margins, and other data to determine a company's underlying value and potential for future growth. A good source of information on the fundamentals approach is at http://www.investopedia.com/university/fundamentalanalysis/ Two common approaches in fundamental analysis are: Value and growth. Value investing identifies undervalued stocks. Warren Buffett is one of the legendary names that use this approach. The Growth approach identifies companies that are on the verge of growing at a rate that exceeds that of others. Peter Lynch is another legendary name that is associated with growth. Value Investing is used by Warren Buffet and his followers, it is a disciplined approach to investing. The objective is to identify companies that are selling below their intrinsic value, are run by “good” managers, and have “good products”. Investors should choose stocks of companies that have value. Questions to answer when assessing a company’s value: ➢ Is this a good business run by smart people? ➢ What is the company worth? ➢ How attractive is the price for this company, and what should I pay for it? ➢ How realistic is the most effective catalyst? ➢ What is my margin of safety at my purchase price? The Growth approach is very similar to value investing and it advocated by Peter Lynch. You have to choose carefully the companies where you are going to invest. You should develop the story of the company: ➢ What is the size of the company? ➢ What stage of growth is the company at? ➢ Is it a simple business? ➢ Is it engaged into the production of something solid and relatively safe? ➢ Is it a spin-off? ➢ Institutions don’t own it and analysts don’t follow it. 4 ➢ ➢ ➢ ➢ ➢ It’s got a niche It has no major competition Its product is something people will keep buying forever like razors Insiders are buyers The company is buying backs shares The remainder of this section outlines a fundamental analysis approach. However, an excellent source of information for fundamental analysis is “Guide to stock picking strategies”7 found at the investopedia web site. Approaches and Examples Fundamental analysis is the study of the company health and well being. Several financial ratios allow us to achieve this objective. A few of the financial ratios that are often considered are: • P/E ratio • P/E/ relative ratio • Projected EPS (Earnings per share) • EPS growth over 3 years • Return on Equity • Company Growth ratio • Debt/Equity Ratio • Insider Trading • Cash Flow Growth over 3 years Each of the ratios (or measures) on the list may assume one of three categories; Good, Neutral and Bad. Good means that the company is exceeding expectations (as represent by industry average or market average). P/E (Price/Earnings ratio) is a good example. P/E ratio is the price a stock over its earnings. A typical ratio for an S&P 500 stock is between 10 and 23. However, specific industries may have lower or higher P/E ratios (these numbers change over time). Internet companies at one point exhibited a much higher P/E ratio (90 and even more). P/E ratio in new industries (e.g., gene related companies) is very different than P/E ratio in well established industries (e.g., utilities companies). Some suggest that a good ratio should be slightly better than that of the industry, but not exceedingly high. For example a good P/E ratio in the automobile industry may be 14, but a P/E ratio of 50 may mean that the share price does not have a great deal of room to increase. At the same time a low P/E ratio (e.g., 4) may signal that investors believe that the company is performing poorly. In addition to the various ratios, there are other fundamentals that must be considered. These include the changes in Wall Street profit estimates for the company. Zacks report studies the estimates and compares them to last quarter, to last fiscal year and to the next 5 years. Estimate should show an increase that is better than the industry and with an annual growth of 20% or more. CANSLIM (discussed later) suggests 25% increase. In 7 Source: http://www.investopedia.com/ 5 addition to the Zacks, the Market Guide reports past performance. It includes ratios such as Return of Equity, Growth rates, Revenue Growth, and EPS Growth. Value Line Investment Survey is another example of a source that relies on fundamental analysis to rank stocks of about 1,700 companies and about 93 industries. In most cases sophisticated fundamental analysts rely on complicated econometric models to help them in ranking stocks and industries. Many sites including Yahoo Finance and MSN8 show these ratios and assist investors in assessing the companies. This is often carried out through the use of filters (software tools that search stocks and list those that meet specific criteria). In addition to these free sites, there are paid sites (e.g., QUICKEN and Morningstar, a company known for their evaluation of mutual funds but has an extensive web site), and dedicated software packages. 8 see Markman, J. “Online Investing” for searches available on MSN. 6 III. Technical Analysis Definition and Introduction Fundamental analysis is an attractive approach for those who believe in economic rationality, however, research suggests that economic rationality is not always a human trait. An investment approach that does not share the same theoretical foundation of fundamental analysis is technical analysis. Technical analysts believe that future performance can be studied based on the statistical analysis of historical performance of stocks and markets. That is a stock price is the result of the behavior of the investors. Investors in a specific stock (company or in an industry) often behave is similar manner, and as such a specific stock is expected to behave in a specific pattern. Technical analysts often study charts and graphs that represent the historical performance of the stock, which explains why they are often called chartists, and why fundamental analysts relate to them in the same manner that astronomers view astrologists. Approach and Examples Technical analysts study stock charts. Charts show several stock characteristics including stock prices and volume of sales. For example figure 1 shows IBM stock prices for the year 2006. Along with the price line, the chart shows the volume (number of shares that were sold each day) at the bottom as a vertical line. Technical analysis uses indicators that identify potential movement of the stock, i.e., buy and sell signals. For example, figure 2 shows IBM with its price line and 50 day moving average (the average stock price for the previous 50 days). Whenever the stock price crosses the moving average line in upward direction, it is a buy signal and whenever the line crosses the 50 moving average while going down, it is a sell signal. INTL BUSINESS MACH (NYSE) 7 Figure 1: IBM Stock chart for 2006 Figure 2: IBM stock chart with 50 day moving average shown in red Many of these indicators use statistical analysis and variables such as moving averages, variance and standard deviation. They are, as such, implementation of statistical tools in predicting price movements. Indicators are often based on mathematical formulae using the price and volume movement of the stock. Examples of such indicators are MACD and Stochastic. MACD (Moving Average Convergence Divergence) is calculated by subtracting a 26-day moving average from 12-day moving average. The result oscillates 8 around 0. A positive number is a bullish signal, while a negative number is a bearish signal. Stochastic9 compares a security closing price relative to its price range over a period of time. It is calculated using the following formula = Today' s _ Close  Lowest _ Low _ In _ Time _ Period Highest _ High _ In _ Time _ Period  Lowest _ Low _ In _ Time _ Period Stochastic, for any time period, varies from 0 to 100. When the value crosses 75% in an downward direction, it is a sell signal. While when it crosses 25% in an upward direction, it is a buy signal. Figure 3 shows IBM with Moving Average, MACD and Stochastic as well as buy and sell signals shown as green and red vertical arrows. Figure 3 IBM Stock with Moving Average, MACD, Stochastic and Buy/Sell signals Indicators are classified into leading and lagging indicators. Leading indicators attempt to predict future price movements, while lagging indicators help identify trends. They may also be classified into lines (MACD or 50 day moving average) or bands (such as stochastic). Crossing a line (in either direction) represents an action signal (i.e., buy or sell). For example, in figure 3, the MACD line is crossed in a downward direction during 9 Definition is based on Achelis, S. “Technical Analysis from A to Z”, McGraw-Hill, 1995 9 the month of Feb. This is a sell signal and is identified using a red arrow on the chart. Similarly, during the month of March the MACD line is crossed in an upward direction. This is a buy signal and is identified using the green arrow. The same is true with the bands as shown in the stochastic portion of the graph. In addition to stock indicators, there are industry and market indicators that predict the movement of an industry or the overall market. For example table 1 shows the movement of money into or out of industries10 for a 12-week period. Red squares indicates that investors are moving money out of the industry (selling the stocks), a green square means that investors are moving money into the industry, while an orange square means that there are no major movements in either direction. Market indicators are grouped in three categories; monetary, sentiment and momentum11. Monetary indicators are similar to interest rates and money supply. Sentiment indicators include put/call ratio and other option related measures. Finally, momentum indicators study the current performance of the stock. Examples include the number of stocks that made new highs and new lows. In addition to indicators, technical analysts utilize price charts. Support, resistance, head and shoulder, and cup and handle are common names used to describe specific meaningful patterns. Support level is a minimum price that a stock may reach before bouncing back. Stocks that cross below the support level are expected to decline to the next support level. A resistance level is a price where a stock often has difficulty crossing in an upward direction. If a stock crosses a resistance level it is expected to continue to a new resistance level. The old resistance level is often considered the new support. • Cup and Handle - This is a pattern on a bar chart that can be as short as 7 weeks and as long as 65 weeks. The cup is in the shape of a U. The handle has a slight downward drift. The right hand side of the pattern has low trading volume. As the stock comes up to test the old highs, the stock will incur selling pressure by the people who bought at or near the old high. This selling pressure will make the stock price trade sideways with a tendency towards a downtrend for 4 days to 4 weeks, then it takes off. It looks like a pot with handle. Traders have made a lot of money using this pattern, which is one of the easier to detect. Industry groups and symbols used in this table are not universally accepted, some financial entities may use other symbols or groups 11 Source: Achelis, S. “Technical Analysis From A to Z” 10 10 Click Here for another example of a cup and handle chart. • Head and Shoulders - A chart formation that resembles an "M" in which a stock's price: - rises to a peak and then declines, then - rises above the former peak and again declines, and then - rises again but not to the second peak and again declines. The first and third peaks are shoulders, and the second peak forms the head. This pattern is considered a very bearish indicator. Click Here for another example of the head and shoulder pattern. • Double Bottom - Occurs when a stock price drops to a similar price level twice within a few weeks or months, the double-bottom pattern resembles a “W". You should buy when the price passes the highest point in the handle. In a perfect double bottom, the second decline should normally go slightly lower than the first decline to create a shakeout of jittery investors. The middle point of the “W” should not go into new high ground. This is a very bullish indicator. The belief is that after two drops in the stock price the jittery investors are out and long-term investors are still holding on. 11 Many of the current financial markets sayings (e.g., trend is your friend) and hypotheses are based on technical analysis. The Dow Theory is such an example of a technical analysis based hypothesis. It states that the market is in an upward trend if one of its averages (industrial or transportation) advances above a previous important high and is accompanied or followed by a similar advance in the other average. The theory also says that when both averages dip below previous important lows (support levels), it's regarded as an indicator of a downward trend. A more complete study of technical analysis and indicators maybe found in Achelis, S “Technical Analysis From A to Z”, which is available as a book and online. Other sources include Inevstopedia.com. 12 2004 Name Symbol Computer/computer services Building/roofing-wallboard Finance Finance/leasing Leisure/casinos-gaming Textiles/synthetic fibers Basic/mining/coal Building/plumbing Telecommunications/foreign Transport/shipping-shipbuilding Basic/metal Basic/steel-iron Vehicles/auto rental-service Beverages Building/homebuilding Beverages/wines and liquors Broadcasting/equipment Transport/cargo-charter Machinery/construction Machinery/flow control filtration Utilities/water Computer/computer systems Finance/pawnshops Tobacco/leaf/snuff Building/contract-eng-constr Home/hotels-motels-inns Conglomerate/diversified Energy/Oil-gas Finance/receivables Food/serving/fast foods Home/furnishings Finance/real estate-land develop. Electronics .DSE .BRW .FIN .FLE .LCG .TSF .MCL .BPL .TFO .SHI .MET .STE .ARS .BEV .BHO .BWL .BEQ .ACC .MCM .MFC .UWA .DCS .FPA .TLS .BCE .HOT .CDI .OIL .FRE .FFF .HOM .LAN .ELE # 17 405 99 3 97 23 96 4 96 32 96 2 96 11 95 2 95 27 95 29 95 6 94 12 94 5 94 20 93 28 93 13 84 13 84 5 84 13 83 10 83 15 83 95 82 3 82 4 80 24 79 26 79 26 78 103 78 6 78 19 78 7 78 65 77 104 76 Dec 10 3 99 99 97 96 96 94 93 85 92 92 96 96 92 92 83 93 38 44 96 93 81 84 78 96 91 93 79 67 65 39 83 82 95 92 95 96 77 78 83 84 78 70 83 79 82 84 52 46 50 96 82 73 78 72 71 73 53 78 66 53 66 77 67 52 72 72 Table 1 Money movement in/out of industries 13 26 99 96 84 79 92 96 96 84 36 96 93 96 93 53 51 82 82 95 76 82 73 73 82 43 49 57 74 83 48 46 82 56 55 Nov 19 12 99 99 96 96 86 86 59 29 93 93 96 69 85 84 58 27 49 36 96 96 93 95 96 96 94 95 49 42 67 55 82 80 93 78 96 96 82 73 85 83 66 80 73 63 83 85 47 32 32 30 75 80 74 75 80 75 13 8 49 57 47 55 65 64 55 57 5 87 99 89 34 90 23 82 20 43 99 82 99 90 64 48 82 17 99 70 83 72 48 81 33 49 71 71 77 31 41 45 70 15 29 88 93 80 44 88 40 76 13 38 93 54 92 92 66 61 76 12 99 35 71 64 42 52 37 18 70 67 72 61 37 16 68 14 22 74 99 76 49 76 19 79 2 38 99 68 80 99 69 34 76 10 99 33 75 56 64 81 37 23 70 68 81 69 37 10 68 11 Oct 15 8 77 25 77 79 89 84 80 82 80 81 30 9 72 82 16 6 27 30 91 93 64 85 89 89 99 99 70 76 32 53 72 71 13 9 93 99 33 53 55 76 38 40 47 37 80 80 39 63 16 31 78 82 62 72 82 90 54 61 54 45 3 67 78 80 12 10 1 17 73 86 84 78 6 86 30 22 91 90 87 99 73 77 71 6 99 62 62 34 33 41 71 38 80 70 92 70 59 59 80 8 IV. Other Approaches CANSLIM12 CANSLIM is a set of rules that maybe used in selecting stocks to buy. It was developed by William O’Neil, the publisher of Investors Business Daily (IBD), a daily investment publication. The approaches combine both technical and fundamental analysis, and identifies stocks of small but successful public companies, that are leaders in their fields, that is innovative in one or more ways, with a history of increasing earnings, trading some thousands of shares- per day- on a major stock exchange, has an innovative product, has been noticed by institutional investors, is currently being bought in quantity, and is owned in part by its management. CANSLIM is one of many methods. For example Peter Lynch advocated a similar method in his book. Other methods are discussed in a variety of books and websites. One reason for presenting CANSLIM in this section is that it is a comprehensive method and that IBD has performed research that supports the method. The CANSLIM method advocates timing the buying of these quality companies as they emerge from "consolidation periods" before the price runs up dramatically. The method is based upon past histories of companies that have done just that. Investors Business Daily web site (www.investors.com) discuss the approach and outlines tools available to implement it. C = Current Quarterly Earnings per Share Growth over the same quarter of the previous year- Investors Business Daily web site (www.investors.com) recommends that current quarterly earnings must be up 25%. A = Annual Earnings Growth - Studies by Investor's Business Daily (IBD) show that winning stocks over the last 50 years had annual earning per share growth of at least 2025% in the last 3 to five years, an annual return on equity (ROE) of 17% or more. Stocks must demonstrate this ROE in each of the last three years. It is suggested that the higher the annual growth, the better the stock as a candidate. N = New Products, Superior Management, and New Highs – The company should offer new products/services, with superior management and/or industry innovations. A pivotal technical consideration of this point is to buy only stocks that are emerging from basing chart patterns13 and that have put in a new stock-price high out of the base or consolidation. Some recommend looking for companies with these characteristics that don’t have a high institutional investments (i.e., not owned by large institutions – see the 12 Source: This section is heavily dependent on www.investors.com and on an article on the Invesopedia web site 13 A basing pattern is a technical term that identifies a new base (or support level) for the stock. That is a price movement that suggests a bottom has been reached and that it is expected that the price will go up. 14 “I” below). This often means that when the company is discovered by large institutions, the stock price will move up. However, this is easier said than done since it is often difficult to stay ahead of large institutional investors with their research capabilities. It is however, possible when investors limit themselves to industries that they are familiar with, a basic recommendation of Peter Lynch. A recent article in the Wall street Journal stated that there is evidence that investors can outperform the market when they concentrate on few industries. S = Supply and demand in share volume/shares that float – The question of when to buy a stock is an important one. CANSLIM uses technical analysis to determine entry points. The supply part (shares available for purchase or shares outstanding) is of less importance here than demand. The company should demonstrate increasing volume as price moves out of a basing chart pattern such as a cup and handle, saucer bottom, or head and shoulders bottom. Other patterns such as flags or pennants and bullish wedges also represent excellent buying opportunities when the breakouts are accompanied by greater-than-average volumes. Other major factors are the total number of shares that the public can buy, and this is known as the float. A small number of shares in the float means that fewer shares have to be bought to push up the stock price. L = Leader (or Laggard)? - Buy market, sector and industry leaders. Sell laggards. Own the industry leaders and sell them when they no longer lead. This also applies to the sectors and groups in which they reside. I = Institutional sponsorship - Look for stocks with a good degree of institutional (i.e., professional) participation. This includes those with a higher degree of corporate executive ownership. M = Market direction - As much as 70% of a stock's price movement is determined by the direction of the overall market. Even a winner will be fighting a strong current to get to higher prices in a market that is tanking. It is best to be long winners in a bull market (and short losers in a bear market). The Contrarian Approach The contrarian approach was developed because of the belief that investors (as human decision makers) do not follow a rational actor paradigm. And in their decision they reach extreme swings (either go up or down more than they should). One such recent example occurred on Friday Dec 17th, 2004. Pfizer, the pharmaceutical company, announced that one of its drugs, Celebrex, causes an increase risk of heart attack. Immediately after the announcement the company shares dropped from $29.00 (the previous day close) to around $25.00 then decline to $22 and end the day at $26.00. In other words the immediate reaction of investors was to sell (over 20%, which is a large drop) then to stabilize to 10.34% (see figure 4). 15 Figure 4 Pfizer Stock Performance The contrarian approach uses sentiment indicators and adopts a strategy of buying stocks that are out of favor (either as a company or as an industry). A more complete study of the approach is available online at http://www.contrarianinvesting.com/topics.php The Dogs of the Dow This investment strategy advocates buying the 10 DJIA stocks with the highest dividend yield at the beginning of the year. It is assumed that members of the Dow are good companies and that the worst performers may be going through a difficult time, but because of their size and history they will turn around and perform better that the remaining companies. Go to http://www.dogsofthedow.com/ for an evaluation of the performance of this approach. V. Stock Search Approaches Stock selection methods may take one of two approaches; top down or bottom up. Both approaches utilize the same four steps, each in opposite direction (e.g., the top down approach follows step 1 through 4 while the bottom up approach follows steps from 4 to 1). Step one of the top down approach evaluates the short and long term market trends to determine the short and long term direction of the market. This first step helps us in determining what position we should assume (short or long positions). The second step is to investigate an industry. We search for an industry trend that meets our market forecast. The third step is to determine an appropriate company within the selected industry. The last step assists us in determining whether now is the appropriate time to execute a transaction (e.g., buy the stock). The following few paragraphs explain each one of these steps. 16 Step 1: Market Trend Evaluation: One method of market trend evaluation uses volatility indices. Volatility is defined on the Chicago Board of Exchange (CBOE) web site as a measure of the fluctuation in the market price of the underlying security. Mathematically, volatility is the annualized standard deviation of returns. Volatility indices were developed by the CBOE for many of the major indices and are used to forecast future direction of them. The charts below show VXN (NASDAQ volatility index) and the NASDAQ index for the same period.. The charts reflects that the two measures move in opposite directions, which has resulted in the saying “when the VXN is low, it is time to go, and when the VXN is high it is time to buy14. As such future moves of the market are determined through the study of the volatility indices. Charts showing VXN and NASDAQ index daily moves 14 CNBC University Investment seminar, Los Angeles 2003. 17 Step 2: Industry Investigation: The industry investigation studies two main issues; the flow of money (large investors) into or out of industries, and the direction of the industry index. The flow of money is published by financial organization including CNBC and other similar news outlets. There are subscription based sites, such as CNBC University, that include charts showing the flow of money in a color coded format (see technical analysis section in this write up) that makes reading the chart easier and less time consuming. Many organizations have established indices that are used to track markets and industries. Dow Jones average, S&P 100, S&P 500, Russell 2000 are few of the commonly known market indices. In addition to market indices there are industry based indices that follow the performance of stocks in specific industries (the table below shows one such list). These indices are created by many institutions, and as such may be found in more than one source. In addition to industry indices, some financial institutions have created ETFs (discussed elsewhere in this course) that follow stocks in an industry. All of these instruments may be used to study the performance of an industry in a manner very similar to technical/fundamental analysis of a regular stock. Symbol .BAN .BSB .BSL Description Banks Banks/savings banks Banks/savings & loan Symbol .JSW .OFU .OFS 18 Description Home/jewelry-silverware-watches-china Home/office/equipment Home/office/furniture .ALU .MET .MOF .MIN .MCL .MCP .MGO .MSA .MSI .MEX .MJG .PAP .STE .SMI .SOI .SST .SOS .SOP .SSP .SMN .MUR .BEV .BBA .BBO .BDI .BSD .BWL .BRO .BCA .BEQ .BPE .BRA .BTV .BUI .BBC .BCC .BCE Basic/aluminum Basic/metal Basic/metal/other fabricating Basic/mining Basic/mining/coal Basic/mining/copper Basic/mining/gold Basic/mining/south african gold Basic/mining/silver Basic/mining/exploration-development Basic/mining/junior gold Basic/paper-products Basic/steel-iron Basic/steel-iron/major integrated Basic/steel-iron/other integrated Basic/steel-iron/stainless Basic/steel-iron/other specialties Basic/steel-iron/ore producer Basic/steel-iron/converter/processor Basic/steel-iron/minimill Basic/uranium Beverages Beverages/beer & ale Beverages/bottlers Beverages/distillers Beverages/soft drink syrup Beverages/wines and liquors Broadcasting Broadcasting/catv Broadcasting/equipment Broadcasting/programming Broadcasting/radio Broadcasting/television Building Building/brick-cement Building/climate controls Building/contract-eng-constr .PET .INT .LEI .LGA .LBO .LBB .LCG .FIL .FTH .FST .LMI .LMU .LPF .LRT .LRH .LSC .LSO .LTR .LTG .MAC .MAG .ARM .MCG .MBE .CNT .AAA .CPA .CPL .MCM .MFC .GLA .MID .MMT .MSP .MAN .MCN .MIU 19 Home/pet & supplies Internet Leisure/amusement Leisure/amusement & gaming equip. Leisure/boating Leisure/bowling-billiards Leisure/casinos-gaming Leisure/film/entertainment Leisure/film/theaters Leisure/film/services-equipment Leisure/misc Leisure/musical instruments Leisure/photo Leisure/race tracks Leisure/records-home video Leisure/sports collectibles Leisure/sports-outdoor equip Leisure/tourism-resorts Leisure/toys-games Machinery Machinery/agriculture Machinery/arms & ammunition Machinery/components Machinery/bearings Machinery/containers UNKNOWN Machinery/containers/paper Machinery/containers/plastic Machinery/construction Machinery/flow control filtration Machinery/glass products Machinery/industrial Machinery/machine tools Machinery/specialties Machinery/manufacturing/distrib Machinery/manufacturing/Consumer Machinery/manufacturing/industrial .BFP .BHH .BHO .BPL .BRW .CHE .CAG .COA .CIG .PLA .RUB .RFB .DAT .DCO .DCS .DSE .DLD .DPE .DSO .CON .CDI .DBI .DRU .DET .DRE .DDW .ELE .ECC .EEE .EDE .EIL .EHA .EIC .EMO .OFF .ERT .ESE Building/forest products Building/hardware-handtools Building/homebuilding Building/plumbing Building/roofing-wallboard Chemicals Chemicals/agricultural Chemicals/coatings-paint-varnishes Chemicals/industrial gases Chemicals/plastics/products Chemicals/rubber Chemicals/rubber fabricating Computer Computer/components Computer/computer systems Computer/computer services Computer/leasing/distributor Computer/peripherals Computer/software Conglomerate Conglomerate/diversified Drugs/biotechnology Drugs/generic and OTC Drugs/ethical Drugs/research Drugs/wholesalers Electronics Electronics/component-control Electronics/electronic equipment Electronics/defense Electronics/industry leaders Electronics/household appliances Electronics/info-comm services Electronics/motors Electronics/office equipment Electronics/radios-tv-tape Electronics/semiconductors .MED .MLR .POL .MUT .PUB .PBO .PEL .GRA .GPR .GSE .PNE .PPE .PTE .COT .COD .RME .RET .RAP .RCF .RDE .RDI .RDR .RFA .RFU .RFS .RMC .RSC .RSP .RWC .SER .ADV .EDU .HEA .HHC .TEL .TES .TFO 20 Machinery/medical equipment/suppl Machinery/medical equipment/res Machinery/pollution control Mutual funds Publishing Publishing/books Publishing/electronic Publishing/graphics Publishing/graphics/printing Publishing/graphics/supplies Publishing/newspapers Publishing/perodicals Publishing/textbooks Retail/cosmetics & toiletries Retail/cosmetics-drugs-toiletries Retail/merchandising Retail/stores Retail/stores/apparel Retail/stores/convenience foods Retail/stores/department Retail/stores/discount Retail/stores/drugs Retail/stores/fabric Retail/stores/furniture Retail/stores/food supermarkets Retail/stores/mail order-catalogs Retail/stores/showrooms-catalogs Retail/stores/specialty Retail/stores/warehouse clubs Services Services/advertising Services/education Services/health care/centers Services/health care/services Telecommunications Telecommunications/equipment-service Telecommunications/foreign .SPE .OIL .OCA .OCP .ODO .OFO .OIN .ORF .ORE .OWD .FIN .FAE .FCL .FDM .INS .ILH .IBA .IPC .IMU .INV .FLE .FMB .FPA .FRE .LAN .REA .SEC .FSE .FSB .FOO .FBM .FCG .FCR .FDP .FDS .FFR .FMP Electronics/specialty instrumnts Energy/Oil-gas Energy/Oil-gas/Canadian Energy/Oil-gas/crude producer Energy/Oil-gas/domestic Energy/Oil-gas/foreign Energy/Oil-gas/international Energy/Oil-gas/refiner Energy/Oil-gas/retailer Energy/Oil-gas/wells Finance Finance/agency Finance/consumer loan Finance/diversified misc Finance/insurance Finance/insurance/life-health Finance/insurance/broker-agency Finance/insurance/property-casualty Finance/insurance/multiline Finance/investment Finance/leasing Finance/mortgage banking-brokers Finance/pawnshops Finance/receivables Finance/real estate-land develop. Finance/REITs Finance/securities Finance/services Finance/S.B.I.C. Food Food/bakery-mill-sugar Food/candy-gum Food/corn refiners Food/dairy products Food/distributors Food/frozen Food/meat-poultry .TLO .TLD .TMC .TSA .TEX .TAM .LEA .LSP .LSM .LLE .TPR .TSF .TOB .TCI .TLS .TRA .AER .AMC .ASC .ARD .ATR .AIR .ASV .TBU .ACC .TFF .REQ .RCL .RPA .RAI .SHI .TRU .UDI .UEL .UOP .UHO .UGA 21 Telecommunications/local Telecommunications/long distance Telecommunications/mobile-cellular Telecommunications/satellite Textiles Textiles/apparel manufacturer Textiles/leather shoes Textiles/leather shoes/producer Textiles/leather shoes/mfr.-distrib Textiles/leather Textiles/producer Textiles/synthetic fibers Tobacco Tobacco/cigarettes Tobacco/leaf/snuff Transportation Transport/aerospace Transport/aerospace/contractors Transport/aerospace/components Transport/aerospace/R&D Transport/air Transport/aircraft manf/components Transport/aircraft manf/services Transport/bus Transport/cargo-charter Transport/freight forwarding Transport/rail equipment Transport/rail car leasing Transport/rail parts-accessories Transport/railroads Transport/shipping-shipbuilding Transport/trucking Utilities/diversified Utilities/electric Utilities/electric/operating Utilities/electric/holding Utilities/gas .FPS .FSA .FOS .FFS .FFF .FRS .HCF .HOM .HFU .HOT .HOU .HSW Food/packaged-snacks Food/seafood Food/serving Food/serving/servicing Food/serving/fast foods Food/serving/restaurants Home/carpets-floor cover Home/furnishings Home/furniture Home/hotels-motels-inns Home/household products Home/housewares .UDS .UIN .ULG .UPC .UPG .UWA .APT .ARS .AUT .MOB .AMH .ATT Utilities/gas/distributors Utilities/gas/integrated Utilities/gas/LP gas Utilities/gas/pipeline Utilities/gas/producer-gatherer Utilities/water Vehicles/auto parts-equipment Vehicles/auto rental-service Vehicles/manufacturers Vehicles/mobile-modular homes Vehicles/motor homes Vehicles/trucks-trailers One method to determine how attractive an industry is to study the flow of money into/out of the industry. Table 1 shows such a study. It shows the flow of money during the last 12 weeks into or out of all industries. The red square represents money flowing out of the industry while a green square represents money moving into an industry. Attractive industries may be studied further by studying their performance in the last few weeks using a chart similar to figure 6. The figure shows the performance of the banking industry for one year, and it appears that it is on the rebound. Further analysis may be carried out using additional technical indicators such as moving averages and trends. Figure 6 Banks/savings banks Widx (.BSB) Step 3: Company Investigation: 22 The next step is to study a specific company within an industry. Since one expects many companies to exist in an industry, one way to narrow the list down is through the use of services such as Value Line that gives a ranking on several factors for all the stocks that it follows. An investor may further investigate each company on the list using technical/fundamental analysis discussed in a previous section of the document. Step 4: Decision Time The next step once a company is found is to determine if “now” is a good time to buy. This phase uses technical analysis discussed in a previous section of the document. 23 VI. Software & Websites Introduction The process of identifying a potential candidate for investment can be overwhelming. In 2002, there were over 7000 companies listed on the NYSE, NASDAQ and AMEX (see figure 1). Fig 1: Number of Listed Companies* with NYSE, NASDAQ and AMEX Data through October 2002 Source: http://www.marketdata.nasdaq.com/asp/Sec1ComComp.asp There are many software packages and web sites that allow investors to locate potential stocks. These tools may be: • a specific program such as MetaStock (www.equis.com) , or TradeStation (www.tradestation.com). • A Web site such msn.com, quicken.com, yahoo.com, and others. • A subscription based sites such as CNBCU.com, Business Week, Value Line and others. 24 0 Recommendations All reports should include recommendations or at least suggestions. It is important to make sure that there is at least an indicator of what the Return on Investment would be. Make sure that your recommendations clearly follow whar is said in the conclusion, EACH student writes his/her best idea of a long-term investment, distressed/turnaround or short sale investment idea fitting the following description: UPDATED DATA TURNAROUNDS: FOCUS ON LEFT-FOR-DEAD SECTORS/STOCKS For example, an analyst covers a sector that is very out-of-favor and mentions that XYZ Inc. hit estimates and you realize it's the first time in many quarters that they didn't miss. You look at the chart and its very saucered out as the market has run out of sellers to depress it further. You ask the key turnaround GRID question: is there any quantitative evidence that the worst is behind XYZ (this means you are looking for some sign that the fundamental problems inflicting XYZ have abated or turned course). You then run XYZ through the rest of the GRID. TURNAROUND GRID: Left for dead, leading to deep undervaluation given healing process underway VALUATION: Deep discount (P/E, EntVal/Sales, EntVal/EBITDA) to group or historicals FUNDAMENTAL TRENDS: Quantitative signs that the worst is behind the company SENTIMENT: Negative or neutral (mostly hold ratings on sellside and buyside doesn't care) BALANCE SHEET: Non lethal (coverage of debt service by 2 to 1) TECHNICALS: Seems "bottomed out" on a chart MANAGEMENT: Either new (replaced) or improved (admitted they had problems and are fixing them) The wall street 1987: Corporate raider proxy fight . SHORTS: FOCUS ON BUY-RATED STOCKS (Streetwide - use ANR function- Analyst recommendations and consensus rating) with toppy charts (e.g. MACD W chart) and estimate trends (e.g. EE- earnings estimates chart). Typical tip offs are when an analyst keeps a buy rating on a stock but either a) slightly cuts estimates or b) hasn't raised estimates in a quarter or two.-- some quantitative evidence of deceleration at a company. SHORT GRID: The best is behind the stock given signs of deceleration VALUATION: Steep premium (multiple contractions will kill the stock): ✓ FUNDAMENTALS: quantitative evidence of deceleration (estimates not going up anymore or -frace if so, barely) j SENTIMENT: Positive/complacent (almost all buy ratings) v BALANCE SHEET: Preferably lethal: debt, receivable and/or inventory trends worrisome High Ligh CHART: Topping out: weekly chart forming a lid over stock ap MANAGEMENT: Arrogant and promotional fours in Enquiry 等等 Investment Report Guideline double spaces Your final report, limited to 8-10 pages plus references, tables, exhibits, and appendix, should include (Main body) the following parts: No Portor Ø5 forces 1. Summary The executive summary should include a summary of all of the key points, the idea is that an investor (most important) can read the summary and if it appears logical and in line with expectations the recommendations can be followed without the need to read further This is in fact the most important part of the report and should be written last. The summary should include a summary of all parts of the report including recommendations. 2. Contents The Contents of the report should be consistently laid out throughout the report and you should include both page numbers and title numbers. 3. Introduction The introduction should say why the report is being written. 4. Main Body The main part of your report will be the information you have found. With thorough research and analysis you will be able to come to effective conclusions and create recommendations. He skapning og 5. Conclusions The conclusions should summarize the main body section, do not include diagrams or graphs in this area. This area should be short, clearly follow the order of the findings and lead naturally into the recommendations.
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INVESTMENT REPORT: A CASE OF CELGENE THERAPEUTICS

INVESTMENT REPORT: A CASE OF CELGENE THERAPEUTICS

Student name

Course title
Instructor’s name

University name

Date

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INVESTMENT REPORT: A CASE OF CELGENE THERAPEUTICS

EXECUTIVE SUMMARY
The strategic acquisition of Juno Therapeutic by Celgene in 2015 has provided an
opportunity for the business to grow and succeed in future. The books of the company show an
upward trend in its net income, earning per share, the company’s net worth, return on equity and
return on assets. The price-earnings ratio of the business currently stands at 24.7 which implies
that investors are willing to pay 24.7 for every dollar of the Celgene’s earnings. The current price
earnings ratio in comparison to the previous period shows some downward trend by almost half
thus making analysts project a decline in the price-earnings from 2017 to 2020. The current
enterprise value to earnings before interest, tax, depreciation and amortization in relation to the
market benchmark is 13.46 to 14.45 which means that the firm’s stock is undervalued in relation
to its competitors and therefore an opportune investment for investors to buy at this point and
hold it as a long-term investment in their portfolio.

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INVESTMENT REPORT: A CASE OF CELGENE THERAPEUTICS

TABLE OF CONTENTS
TITLE COVER……………………………………………………………………………………1
EXECUTIVE SUMMARY…………………………………………………………………….....2
TABLE OF CONTENTS…………………………………………………………………………3
INTRODUCTION………………………………………………………………………………..4
A. INVESTMENT ANALYSIS………………………………………………………….….4
I) Investment Analysis……………………………………………………………………4
a) Nature of the business…………………………………………………………….4
b) Mission and Values……………………………………………………………….5
II) Analysis of the Company………………………………………………………………5
a) Ratio analysis………………………………………………………………….5
i)

Profitability…………………………………………………………...5

ii)

Liquidity……………………………………………………………...6

iii)

Debt Ratio…………………………………………………………….7

iv)

Market Ratio…………………………………………………………..7

B) Value of the Company Stock……………………………………………………………..8
i)

Net worth………………………………………………………………………….8

ii)

Market Value and projected growth……………………………………�...


Anonymous
Excellent resource! Really helped me get the gist of things.

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