hey guys, how do you go about pitching a stock? Do you convince the other person on fundamentals, technicals, or valuations? All 3? Thanks,
Valuation should be a function of fundamentals. IMO a good stock pitch is a story. It should open with how the company will grow its revenues, margins, and cash flows. Then from there you can talk about how you should value the company based on growth in those three areas…If it is a resource related company you are looking as then how the company will grow its production and reserves are probably more important than how they will grow their revenue or margins. If it is a company that will be largely impacted by macro trends then those should be discussed as well but the fundamentals of the specific company should be the focus of your pitch.
Disclaimer: I don’t deal w/ pitching stocks so what I say can be considered complete crap. I think it depends on who you’re pitching to…analyst to a PM or a broker to a client. As a broker pitching to a client you can focus on explaining why the business will make money (fundamentals)- getting a client to understand a business, see opportunities for its growth, and “believe” in the company is key. An analyst pitching to a PM, valuation is more important.
I’m curious about this answer as well. (from experienced people) It’s a pretty common question in research interviews…
Thanks for the input guys. I am preparing to deliver a pitch to a VP in equity research. RAwannabeCFA, your points are well taken. I’ll definitely try to drill down on the fundamentals and develop the “story” from that focal point.
I would try to move a step past fundamental facts and make a compelling argument for what will drive margins or revenues are anything else that is NOT already built into the stock price. Be forward looking in your analysis in regards to macro and industry specific drivers.
(1) why is it cheap, what is the market missing, etc. (2) what will make it expensive (3) what are the risks, downside, etc.
I use the Peter Lynch method. Most of my pitches are done in about 45 seconds. When your pitching a stocks don’t mention the risks to the other person, you are trying to get them to buy right? Make sure you know the risks, but don’t make that part of the “pitch” itself. There only needs to be 1-2 things that go right for a stock to work, and lots of times something out of left fields impacts the investment. Pinpoint what is going to make your stock work. This company is selling at x valuation because of xyz, I think margins are going higher than concensus has priced in because of xyz and that sales are tracking above the companies plan because of xyz. The balance sheet is strong, FCF is about to explode, and management is top notch. I expected next quarters earings to be a catalyst for multiple expansion and positive estimate revisions. We should buy a 1% position across all accounts. Done. Of course you need to really know the company because any PM worth their salt will try and pick each of those points apart. So that’s the pitch, but you still have to sell suring the discussion. Again, don’t talk about the risks until your asked.