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Investment and PortfolioPart ANouf Alkhawaja – 201101329Maryam Alshehabi – 201100490Esra Alhaddad - 201100071V. Outlook and Research on General Economic ConditionsA. GDPApril 2014May 2014June 2014July 2014Forecast Value17,19417,19417,19417,38650% +/-5968768480% +/-133153171188The Gross Domestics Products (GDP) is forecasted to maintain the same value of 17,194 during April, May, and June. This means that the U.S economy will be stable and steady with no change during this period. However, in July, it is predicted that the value will witness a significant increase of $192 billion, which means that the economy is expected to move forward and blossom. Having a good GDP is very essential for countries as it is a measure for investors of the country’s ability to cover future payments and liabilities. The government’s Debt to GDP ratio is increasing each year reaching 104.8% last year in 2013. This fact helped triggering the recent rumor of the U.S. Government going bankrupt and the predictions of the dollar value decline. Past Trend Present Value & Future ProjectionBillion US Dollars. Annual Rate Seasonally Adjusted. B. Inflation (Consumer Price Index)April 2014May 2014June 2014July 2014Forecast Value1.51.61.71.850% +/-0.40.40.50.580% +/-0.80.91.11.2As the data presented above shows, the forecasted value of the inflation rate in the US is expected to grow by 0.1% each month from April till July. This means that the prices are rising each month, however, not sharply. It is true that it is only one point over each month, but if it continued in this pattern, it will reach 2.3 which is not a good inflation rate according to the Federal Reserves as their monitory goal is to keep it at or less than 2%. C. Housing startsApril 2014May 2014June 2014July 2014Forecast Value95092090093050% +/-6980899880% +/-155179200219Housing starts represents the amount of privately owned houses on the month of when the constructions begin in. A high number is a sign of a strong economy where people have a good purchasing power. It is projected that the value of Housing Starts will be 950 in April, then decrease by 30 and 20 thousands in May and June respectively. However, it will rise again in July to reach 930. The reason of these fluctuations and the decline in numbers might be caused by the 2008 crisis as the economy in the U.S is still recovering and that some people still are unemployed.Chart of Housing Starts with Current Projection / Annual rate (in thousands)D. Unemployment rateApril 2014May 2014June 2014July 2014Forecast Value6.66.56.56.450% +/-0.20.30.30.380% +/-0.50.60.70.8As shown, the unemployment rate is forecasted to drop by 0.1 every two months. This means that by the end of 2014, and if the predictions continue to follow the same pattern, the rate will be 6.2 by December. The New York Times said that the reason behind this drop is the government adding approximately 200,000 jobs every month. The Federal Open Market Committee is supporting the progress towards achieving the maximum employment along with price stability and implementing it as the highlight monetary policy. According to Justin Weidner and John C. Williams, after the financial crisis, the new natural rate of unemployment has risen from 5% to 6.7% which makes the US rate normal. The rate has reached its lowest level this January (6.6%) since the financial crisis of 2008E. Industrial Production IndexApril 2014May 2014June 2014July 2014Forecast Value101.1100.8100.299.750% +/-0.40.50.60.680% +/-1.01.11.31.4The (IPI) is a measurement of the real production output of the country’s businesses that are integrated in the industry sector such as manufacturing, mining, and utilities. On one hand, these sectors do not contribute significantly to the GDP, but on the other hand, IPI is a helpful tool for forecasting the future GDP and the conditions of the economy as it gets majorly effected by demand and interest rates.Even though the industrial production in the U.S. has improved by 2.9% in January, 2014, It is now forecasted to drop by an average of (0.3 to 0.6) over the four upcoming months as demonstrated in the table above. When looking at the data and rates projected which are declining by the month, many assumptions rise; such as this sector not well performance, where it might be caused by the incompetent allocation of resources by companies. F. S&P 500April 2014May 2014June 2014July 2014Forecast Value1,8501,8701,8501,87050% +/-4252606780% +/-95116134150The Standard and Poor’s 500, is a solid representative of the U.S. stock market, It consists of the market capitalizations of 500 large companies in this index. However, investment wise, it has several disadvantages such as having to buy 500 different stocks which carries a lack of flexibility. It also does not mean that the portfolio is diversified as some people think. (Rosenberger,2013). On the other hand, it is becoming a trend buying the S&P 500 stocks in the US as the people and investors can relate to the popular products in their home country.The table above illustrates the S&P 500 index forecast for April up until July 2014. It shows that the 50% +/- and the 80% +/- increase on a monthly basis even though the forecast value for the four months tend to fluctuate by 20 points rise and fall.G. US Retail Sales (numbers In $Millions)April 2014May 2014June 2014July 2014Forecast Value428,609431,967433,590431,00350% +/-9,11110,52011,76212,88480% +/-20,40823,56526,34628,861The Retail Sales report is the summative amount of goods sales in the retail sector over a certain period. Retail sales is a significant element in the GDP, thus, has an effect on it in case of a major drop-off causing recessions like in 2008 when it reached its lowest record of -11.50%. In the table, the value is estimated to grow in April and continue growing for the two months afterwards reaching 433,590 $M. However, will detect a decrease of almost 2.5 $M in July. As in for the the 50% +/- and 80% +/-, they will be escalating over the four months. This report is crucial to investors when making their portfolio especially those who invest directly into companies like autos and clothes.The holiday season is when the retail sales usually reaches its peak. According to the Washington Post, the federation predicts that it will climb by 4.1% this year which is higher compared to last year’s 3.7% growth. Due to this jump, the seasonal employment in stores will rise reaching at least 700,000 jobs, in which will help people who are unemployed notably.H. Index of leading indicatorsThe Conference Board publishes this index on a monthly basis and it helps predicting the economy’s direction and movement in the upcoming months. It is vital for investors’ judgments for better decision making on the business cycles and the near future. It consists of 10 economic components that tend to effect the whole economy. It also has little impact on bond prices, stock prices, and interest rates.According to Bloomberg, Leading indicators index in the U.S has increased with 0.3% in January 2014, to 99.5 (2004=100) following the no change in December and a 0.9 increase in November 2013. Five of the Indicators contributed to this enhancement in the index as reports showed. They included a lift up in factory orders, a reduction in jobless claims. The forecasts of the upcoming months indicate fluctuations to continue monthly, but the 6 month average growth rate is expected to be stable as it is. “This implies that the economic conditions will remain resilient in the first half of 2014 and expected to improve” said Ataman Ozyldirim. The 10 Components of LEI:Average weekly hours, manufacturingAverage weekly initial claims for unemployment insuranceManufacturers’ new orders, consumer goods and materialsISM Index of New Orders Manufacturers' new orders, nondefense capital goods excluding aircraft ordersBuilding permits, new private housing unitsStock prices, 500 common stocksLeading Credit Index?Interest rate spread, 10-year Treasury bonds less federal fundsAverage consumer expectations for business conditionsI. Index of coincident indicatorsThe Conference Board also issues the index of coincident indicators. It is a measurement of the current economical situation which helps economists determining the phase of the business cycle that is going on. It contains four cyclical economic data sets:the number of employees on non-agricultural payrolls (released by the Bureau of Labor Statistics)the Index of Industrial Production the level of manufacturing and trade salesthe aggregate amount of personal income excluding transfer paymentsThe CEI has increased by 0.1 in January to 108.1 (2004=100), the same rise of 0.1 occurred in December, and a 0.4 increase in November. J. Index of lagging indicatorsAn index published by the Conference Board every month, It is used to confirm the economy’s movement direction in the past months. It consists of seven components which change only after changes occur in the overall economy. An increase of 0.3 has occurred in the gauge of lagging indicators this January. Its seven components include:The value of outstanding commercial and industry loansThe change in the consumer price index for services from the previous monthThe change in labor cost per unit of labor outputThe ratio of manufacturing and trade inventories to sales madeThe ratio of consumer credit outstanding to personal incomeThe average prime rate charged by banksThe inverted average length of employmentK. Sentiment indexThe sentiment index assists in discovering the people’s and customers’ feelings about the market and business environment. Investors most often have a neutral sentiment and by viewing this index, they get a general overview of if people feel optimistic or pessimistic about the market condition, which helps investors make their decisions. According to Thomson Reuters/University of Michigan’s preliminary, The average of the sentiment index after the 2008 crisis has averages 71.0 and the lowest record it had was 55.3 in 2008. The reading of the index decreased to 79.9 This March while it was 81.4 in February. This decline was caused by the Expectations index which has dropped by 5 points this month. While the sentiment and expectations index are dropping, the present situation index has reached its highest level since the crisis which suggests that there is a belief of improvement in the economy by consumers. For example, people who claim jobs are (plentiful) have increased while those who claim jobs are (Hard to get) decreased.L. Possibility of Federal Reserve interest rate changeThe Wall Street Journal has published the latest expectations of FED officials on the interest rate change. Twelve policymakers project rates to increase in 2015 and three expect it to first rise in 2016. The FED meeting highlighted the central bank’s plan to keep the interest rates low after it draws its bond-buying program gradually towards an end. Ten of seventeen officials expect rates to stay below 0.75% until Dec 2015 and below 2% through the end of 2016.There is a positive relation with debt and interest rates which means that the government should observe its debt closely to prohibit sharp increases in the interest rates. The Congressional Budget Office mentioned that rates will increase because the government’s spending is rising over the budget. They project a ratio of 3.1 in 2023, and 6.4 in 2050.M. Global market conditionthe economic conditions for a country or a region is changed over time in respond with the economic and business cycle as it can be increasing or decreasing. the economic condition can be classified negative or positive depending on the economy condition whether if its growing or decreasing. Many macro and micro factors influence the economical state in a country.The world bank says that the Global economy is at a turnover point where it is forecasted to strengthen powerfully this year. The global GDP growth of 2.4 percent in 2013 is expected to be 3.2 this year, 3.4 in 2015 and 3.5 in 2016. In the developing countries, the growth will rise from 4.8% in 2013 to 5.3% this year. As in for high-income countries, the economic growth will rise from 1.3 in 2013 to 2.2 this year and is expected to stabilize at 2.4 in both 2015 and 2016. The U.S economy is considered the most advance in the growth amongst all after the 2008 crisis. It is projected to grow by 2.8% this year from 1.8% last year. In the Euro Area, and after two years of the growth rate dropping, it is expected to rise again to reach 1.1 in 2014 and 1.5 in 2016.Overall, the report emphasizes on the point that even though the main risks after the crisis have shrunk, the underlying challenges still exist. For instance, the scope of actions like deploying monetary and fiscal stimuli has dropped as many current government budgets and balances are in the red.N. Global political conditionPolicymakers all around the world influence the financial market severely with their decisions. For instance, China’s GDP is growing drastically as it depends on its exports to do so. In case of a drop down in the exports, their debts will be higher causing inefficiency to their economy. In the Euro area, the European Central bank will support the euro zone margin in order for it to develop as it was in contraction in the past couple of years. Some policy issues are rising in the US as well, the Republicans party which are against Obama, have ruled out his spending increases in the budget which caused a big dilemma and the government was nearly broke. These political problems within the congress may lead to lower growth even in such large economies like the US. As in for elections, many countries have fraud systems of where the rich people buy elections. This causes damage to the country, nevertheless, its economy. Voters should be independent and base the judgement on the benefit of their country, achieving this can be through more awareness and education in this manner. When this is established, less corruption and special interests will occur in governments.O. Opinion about the economyBased on the information above, It has become vivid that the overall economy is progressing and flourishing after the crisis of 2008. Growth is anticipated in all over the world in the near future for both developed and high-income countries. As in for the U.S economy, it is indeed recovering fast and strong with good employment rates, housing starts rates, good GDP. However, the current government dilemma may lead to many economic concerns in case it continues for a long period.Nike Reason for selecting the industryWe have chosen Textile "Apparel Footwear & Accessories" because it is a very competitive industry to invest in as there is a big demand to sport shopping. In 2010, a high demand for athletic apparels and footwear was seen due to the increased number of athletes and health awareness between US people. This trend resulted in increased sports activity such as running, football, biking, etc. "Moreover, this industry grew more than 7.5% and exceeded 244 billion US dollars in 2012 and is expecting to generate additional 55 Billion US dollars in new sales by 2017"(Euromonitor International). Description of the firmNIKE, Inc. is an apparel shop which sells and develops clothes, footwear, accessories and sport equipment. Nike is headquartered near Beaverton, Oregon, in the Portland metropolitan area in the United States and has more than 800 stores all over the world. The company was found by Bill Bowerman and Phil Knight and Established on 30th of May, 1971.The company has their products in seven different categories which are: Football, basketball, running, Nike sportswear, women's training, men's training and action sports Moreover, the company sells their product under its name and other names such as Nike pro, Nike+, Nike gold in addition to marketing their products with subsidiaries such as Converse. Nike is considered to be one of the most leading companies in supplying sport equipment, it revenue by the end of May in 2012 was approximately US$24.1?billion. Also, it had more than 44,000 employees worldwide for the year 2012 as its brand was valued at $10.7 billion. Nike main competitors are Foot Locker, Skechers, Adidas and Puma as the majority of the industry market revenue in 2010 was contributed by Nike and its competitors.Financial Ratios:Valuation ratios:NikeIndustry(Textile - Apparel Footwear & Accessories)Sector(Consumer Goods)S&P500P/E Ratio (TTM)26.7116.2917.6217.72Beta0.920.721.241.02Price to Sales (TTM)2.641.26296.5521.17Price to Book (MRQ)6.131.833.102.6Price to Cash Flow (TTM)21.3810.8711.0110.9Price to Free Cash Flow (TTM)60.5214.0529.5920.4Sales - 5 Yr. Growth Rate6.3311.8611.073.56Current Ratio (MRQ)3.531.601.470.25LT Debt to Equity (MRQ)10.598.1836.20-Total Debt to Equity (MRQ)12.2413.6273.770.47Interest Coverage-32.225.0018.89EBITD - 5 Yr. Avg15.1113.0114.4428.47Return on Assets - 5 Yr. Avg.14.0811.5910.683.79Return on Equity - 5 Yr. Avg.21.3820.7122.2715.07Asset Turnover (TTM)1.590.640.93-The table above shows Nike financial ratios compared to the industry, sector and s&p500.Nike has higher P/E ratio than the industry, sector and s&p500 which means that the company is expecting higher earnings in the future. A price to earnings ratio of 26.71 means the investors are willing to pay 26.71$ for 1$ of earnings.The beta for Nike is 0.92 which is more than the industry but less than the sector and s&p500. The beta is less than 1 which means that Nike stocks are less volatile than the market with a lower risk. If the risk is low, it means that the company is safe to invest in but investors should expect lower return.The price to sales ratio for Nike is higher than the industry but lower than the sector and s&p500. This means that the investors are willing to pay 2.64 for each 1$ in Nike sales. The lower the ratio the more investors are interested because they will pay less for every sales unit.Nike has a higher price to book ratio than the industry, sector and s&p500. This means that the company is earning high return on its assets. As long as the ratio is positive, this means that Nike stocks value are rising which is good for investors.In addition to that, the Price to cash flow ratio for Nike is higher than the industry, sector and s&p500 which signify that Nike is trading stocks at a high price. The price to free cash flow ratio for Nike is 60.52 which is higher than the industry, sector and s&p500. The higher the ratio the more expansive a company is described.Nike has lower sales growth than the industry and the sector, but higher than the s&p500. This indicates that the sales growth for the company is not good and that they need to increase their sales in order to move in the same direction as the industry.The current ratio for Nike is higher than the industry, sector and s&p500. A ratio of one means that the value of the firm's assets can cover the amount of the liabilities. Nike has a ratio of 3.53 which is more than one, this signifies that the company is performing well and can survive if any liquidity problems arise.Nike has higher long term debt to equity ratio than the industry but lower than the sector. The lower the ratio, the better it is and when comparing Nike's long term debt to equity ratio to the industry, it means that the company is at risk and that its highly leveraged.The Total debt to equity ratio for Nike is lower by 1.38% than the industry and by 61.53% than the sector while it is higher by 11.77 than the s&p500. The lower the ratio the better it is because the company is not financing their growth with debt. Nike do not have interest coverage ratio, generally a ratio lower than 1 signify that the firm is facing problems in paying their interest expenses.The earnings before interest, tax and depreciation for Nike is more than the industry and the sector by 2.1 and 0.67 respectively. On the other hand, it is lower by 13.36 than the s&p500. Having a high EBITD rate means that the company is not affected easily by bad economy conditions.Nike Return on assets ratio is higher when comparing it to the industry, sector and s&p500. This means that the firm is converting their money to investments in an effective way.Return on equity ratio is higher than the industry by 0.67 and the s&p500 by 6.31. When comparing Nike to the sector, we can see that it has lower ratio by 0.89. This ratio tells us that Nike is generating profit of 21.38 for every 1$ of shareholders equity.Nike has a higher asset turnover ratio than the industry and the sector which means that Nike is using their assets effectively to get revenue.Brokerage RecommendationsToday1 Week Ago1 Month Ago2 Months Ago3 Months AgoStrong Buy99999Buy11111Hold1111111110Sell00000Strong Sell00000ABR2.072.072.072.072.03The table illustrates broker recommendation whether to buy or sell Nike stocks. The brokers had a strong stable opinion of buying stocks in the current month, last month, two months ago and three months ago. They advice to hold the stocks and not to sell them which could mean that the stock prices are expected to rise.Recommendations and EstimatesCompanyIndustrySP500Average Recommendation (1=Buy, 5=Sell)2.071.769.99Current Quarter Estimate0.730.9228.00Year Ago Quarter Estimate0.730.5323.15Next Quarter Estimate0.821.3128.22Next Year Estimate3.501.2425.77 The table shows the broker recommendations and estimates for Nike, industry and s&p500. As an average, the brokers suggest buying Nike and industry stocks while a 9.99 rate suggest selling stocks in the s&p500. It is recommended to strongly buy Nike stocks in the current and next year quarter then sell them in the next year. As for the industry, all the rates illustrate to buy stocks which is exactly the opposite to the s&p500 as all the rates are much higher than 5 which suggest to sell stocks.Earnings forecasts:?# of EstimatesMeanHighLow1 YearAgoEarnings (per share)Quarter Ending?May-14260.810.880.730.85Quarter Ending?Aug-14150.941.010.800.89Year Ending?May-14282.993.102.863.01Year Ending?May-15283.493.653.213.41LT Growth Rate (%)512.3215.008.0010.37This table shows Nike earnings forecasts for the end of May2014, end of Augest2014, end of 2014 and the end of 2015. The Earnings per Share forecasts show that the stock price is increasing from 0.81 in May 2014 to reach 2.99 at the end of 2014. This trend is expected to keep increasing to reach 3.49 in the end of 2015 which means that the growth rate is increased from the end of 2014 to 2014 by 1.95%. In addition to that, when comparing the long term growth rate one year ago, This year has a higher LT growth rate of 12.32% compared to 10.37% which means that they got more earnings. Your reason for selecting the firmThe main reason for selecting Nike is that the company is one of the big leaders /competitors in the footwear industry. It has innovative marketing techniques that made the company on the top of the market with a revenue of US$24.1?billion by the ending of May,2012. It is predicted that Nike's market share will grow from 4.9% in 2012 to 6.5% in 2019 due to its rapid sales growth and the launching of new innovative products. (forbes)Reason for choosing the industry "business software and services"The industry is described as a very fast growing and competitive industry because more technologies and softwares are appearing. "The global software as a service (SaaS) market is predicted to have a growth of 41% per year between 2008-2015 to exceed 4.3$ billion up from 390$ million in 2008 (Technavio)". According to Technavio, the world enterprise social software industry is expecting to witness a growth of 18% from 2010-2014 while the world product lifecycle management software (PLM) market is estimated to exceed 44 billion dollars by 2017. All of this data provided makes the industry very attractive to pany descriptionMicrosoft Corporation is a company that develops and produces computer software and consumer electronics. It is located in Redmond, Washington, United States and was created by Bill Gates and Paul Allen . Softwares were created to improve the people work and make it easier and more efficient. Microsoft software include Microsoft windows, Microsoft office and internet explorer browser which are operating systems. Also, they provide some online services such as selling computers, laptops and tabs which are sold in more than 50 countries. Dell, HP are considered to be the main competitors, however, Microsoft is still considered to be in a high position as it has 75% share in the operating system market, 95% market share in the productivity software market and approximately 75% share in the server software market. (Forbes)MicrosoftFinancial ratiosValuation ratios:MicrosoftIndustry(business software and services) Sector(Technology)S&P500P/E Ratio (TTM)13.9232.2515.2417.72Beta0.920.860.961.02Price to Sales (TTM)3.759.037.7921.17Price to Book (MRQ)3.685.452.612.6Price to Cash Flow (TTM)11.5621.7418.3310.9Price to Free Cash Flow (TTM)21.7223.9618.2520.4Sales - 5 Yr. Growth Rate5.206.0212.373.56Current Ratio (MRQ)3.173.842.430.25LT Debt to Equity (MRQ)24.306.955.23-Total Debt to Equity (MRQ)27.009.3614.510.47Interest Coverage-21.8716.1818.89EBITD - 5 Yr. Avg41.1526.4322.1928.47Return on Assets - 5 Yr. Avg.19.0010.1812.643.79Return on Equity - 5 Yr. Avg.35.7315.5217.4915.07Asset Turnover (TTM)0.590.631.05-Microsoft price to earnings ratio is lower than the industry, sector and s&p500. This means that investors are willing to pay 13.92 per 1$ of returns. Also, this means that the company is expecting lower growth in the future. The beta for Microsoft is 0.92 which is lower than the s&p500 and the sector but higher than industry. The beta is less than 1 which means that Microsoft stocks are less volatile than the market with a lower risk. On the one hand, lower risk will result in lower return, on the other hand, it is safer to invest if the beta is less than 1.The price to sales ratio for Microsoft is 3.75 and it's less than the industry, sector and s&p500. This means that the investors are willing to pay 3.75 for each 1$ in sales. A lower ratio is better for investors as they will pay less for every unit the company sells.The price to book ratio for Microsoft is 3.68. This ratio is lower than the industry which has 5.45 but higher than the sector and s&p500 which has a ratio of 2.6. Comparing Microsoft to the sector and s&p500, it means that Microsoft is earning higher return on its assets than them.The price to cash flow ratio is 11.56 which is lower than the industry and the sector but slightly higher than the sector. Generally, the lower the ratio the better.The price to free cash ratio for Microsoft is 21.72 which is lower than the industry and higher than the sector and s&p500. When comparing the ratio to the industry, it is shown that the company is less expansive.The sales 5 year growth rate for Microsoft is 5.20, Industry is 6.02, sector is 12.37 and s&p500 is 3.56. The sector and the industry are performing better than Microsoft. Thus, Microsoft needs to implement new strategies to increase their sales. When comparing Microsoft current ratio to the industry, sector and s&p500, Microsoft has a higher ratio than the sector and s&p500 by 0.74 and 2.92 respectively. This means that the company can pay its debt in a more efficient way than the sector and s&p500. Microsoft has a high long term debt to equity ratio of 24.30 compared to the industry and sector. The company will face a high risk because it has long term debt compared to its equity.Moreover, Microsoft total debt to equity ratio is the highest when comparing it to the industry, sector and s&p500. This means that the company is at risk because they are depending on debts to grow. In other cases, high total debts to equity ratio do not always indicate that the company is at risk, because it can use the debt to have more earnings.We could not find interest coverage ratio for Microsoft. The industry ratio is 21.87, the sector has a ratio of 16.18 and s&p500 has 18.89 which mean that they are able to pay their expenses.Microsoft has the highest EBITD by 14.72, 18.96 and 12.68 among the industry, sector and s&p500 respectively. This means that the company cannot be affected easily by bad economy conditions.Return on assets ratio analyzes how well the company is getting profit by using their assets. When contrasting Microsoft to the industry, sector and s&p500, it is shown that Microsoft has the highest ratio of 19 which is good (The higher the ratio the better).Return on equity ratio represents how the company is investing the shareholders money in their product/service. Microsoft has the highest ratio of 35.73 which means that are getting profit of 35.73 for every 1$ of shareholders equity. In other words, we can describe the company as a high growing one.Microsoft has the lowest asset turnover ratio which is 0.59 while the industry and sector have a ratio of 0.63, 1.05 respectively. Generally the higher the ratio the better it was, and in this case Microsoft is the worse in generating sales/revenues per 1$ of assets.Brokers recommendation:CompanyIndustrySP500Average Recommendation (1=Buy, 5=Sell)2.211.909.99Current Quarter Estimate0.6212.6828.00Year Ago Quarter Estimate0.7212.8023.15Next Quarter Estimate0.6711.2928.22Next Year Estimate2.899.8325.77The table represent the broker's recommendation whether to buy or sell Microsoft stocks. For s&p500, it is shown that it is strongly recommended to sell stocks as all the rates are much higher than 5. As for Microsoft, a rate of 0.62 and 0.67 of the current quarter and next quarter respectively suggests to buy stocks and sell them at the next year.Earnings forecasts:?# of EstimatesMeanHighLow1 YearAgoEarnings (per share)Quarter Ending?May-14270.630.710.590.74Quarter Ending?Aug-14250.670.770.560.85Year Ending?May-14272.702.812.603.14Year Ending?May-15262.903.222.693.43LT Growth Rate (%)67.4510.002.009.07The table above shows the earnings per share forecasts for Microsoft. The estimated earnings per share for ending quarter of March 2014 is 0.63 which will increase to be 0.67 in the next quarter (ending June 2014). The same trend is expected to occur as for the year ending June 2014 the rate is 2.7 which will increase to be 2.9 in the next year ending of June 2015.however, when comparing the estimated rates with 1 year ago, the rates are indicating that the company need to improve it earnings as the performance for last year is better as the growth year one year ago was 9.07 while the estimated growth rate is 7.45. Reason for choosing the firmMicrosoft is a big leading company in the software industry as it helped people to do their work in an easier way. It was in the third place as the best start-up company due to its market capital, revenue and growth. According to (Clare Hudson ,2011), this company purchased one of the most successful programs in May 2011 for 8.5 billion which is Skype. Moreover, it is one of the leading companies in the technology sector as it as it has 75% share in the operating system market, 95% market share in the productivity software market and approximately 75% share in the server software market. (Forbes)Apple: Apple (AAPL. Inc) is an American multinational company that manufactures designs and develops consumer electronics, personal computers and software. It was founded by Steve Jobs, Ronald Wayne and Steve Wozniak in 1976, today Apple is one of the most profitable corporations in the consumer electronics sector and it is headquarter in California. Apple Inc is well known by the successful Mac line of hardware products, the iPhone Smartphone, iPad tablet and Mac computer. Moreover, it has been developing many successful and creative software that includes the iOS, OS X, iTunes, iWork and Safari. Apple comes second as the largest technology company by revenue after Samsung; as their annual revenue is estimated to be 173.99 billion dollars as of December 2013 (DailyFinance, 2014). In addition to its very high revenue, the company has the potential to grow in sales by an average of 35% which is double the percentage when compared to its rivals. Apple’s market value is 468.04 billion dollars which is in fact worth more that the entire Singapore economy (Brown, 2012). The company was also recognized by FOTUNE as the 3rd fastest tech company in the USA (CNN, 2013). Apple Ratio Analysis: Valuation ratios:AAPL. IncIndustrySectorS&P 500 P/E Ratio (TTM)13.0118.0915.2417.72Beta1.011.080.961.02Price to Sales (TTM)2.691.257.7921.17Price to Book (MRQ)3.612.352.612.6Price to Cash Flow (TTM)10.5510.1818.3310.9Price to Free Cash Flow (TTM)14.0110.7518.2520.4%Sales - 5 Yr. Growth Rate35.4512.4912.373.56%Current Ratio (MRQ)1.491.792.430.25LT Debt to Equity (MRQ)13.0814.015.23-Total Debt to Equity (MRQ)13.0832.1314.510.47Interest Coverage (TTM)229.1027.0116.1818.89EBITD - 5 Yr. Avg.33.3913.4513.4528.47%Net Profit Margin – 5 Yr. Avg.23.347.6211.859%Return on Assets – 5 Yr. Avg.23.658.5912.643.79 %Return on Equity – 5 Yr. Avg.36.5616.2417.4915.07Asset Turnover (TTM)0.831.291.05-The table shows a side by side comparison of Apple’s recent financial ratios with the industry, sector and S&P500 Index. First, Apple’s P/E ratio is lower than the industry, sector and index ratios; investors are paying less in exchange for $1 in earnings, which makes the Apple share very attractive. Moreover, ratio analysts suggest that the P/E ratio is acceptable when it ranges from 12 to 15, which is another indicator of the high attractiveness of the Apple share. Apple has a Beta of 1.01, which indicates that the share moves in line with the market’s movements. In comparison with rivals from the same sector with 0.96 it is shown that Apple has a slightly riskier share; however, it also indicates that the expected return is higher. Moving on to the Price to Sales ratio, apple has a very low ratio when compared to the high ratios of the S&P500 and the sector. It is a good sign for potential Apple investors; as they will be paying less for each unit in sales. The Price to Book ratio compares the value of Apple in the market and its book value. The company’s ratio is a little higher than the industry and sector average; this may suggest potential overvaluation in the Apple’s share price, which is not likable by potential investors. The Price to Cash Flow ratio of 10.55 is somewhat equivalent to the S&P500 ratio and the industry’s ratio. Not only that, Apple shows better performance when comparing the P/CF to the sector as it is much lower. The Price to Free Cash Flow shows that Apple is more expensive for investors in the same industry, but when comparing with the S&P500 and the Consumer Electronics sector the share is considered to be undervalued. Apple has been doing exceptionally good in terms of sales growth in the past 5 years in comparison to rivals, sector and the S&P500; as the sales growth rate is much higher of 35.45% while competitors have a modest average growth rate of 12%. This makes apple share more appealing to investors. Apple proves good financial strength as it has a current ratio of 1.49 and this means that the company can easily meet their short term financial obligations. The ratio is also higher than the index but lower than both the industry and sector figures, Apple is suggested to shorten the operating cycle in order to enhance the ratio and compete with rivals. The LT Debt to Equity ratio of 13.08 is slightly lower than industry average 14.01 but higher than the sector’s ratio of only 5. It means that Apple’s share is more risky that other shares available in the sector as the amount of liabilities held by Apple is higher in relation to its equity. The Total Debt to Equity ratio show good financial health as the ratio is lower in Apple when compared to the industry and sector. This proves that Apple’s management works efficiently and does not depend heavily on debt in order to grow. Apple is performing very well when looking at the Interest Coverage ratio and comparing it with the industry, sector and S&P500. The ratio of 229.01 indicates that Apple can easily repay the interest expense on the existing company debt; investors are encouraged and reassured that the company will maintain good financial health. Looking at the Apple’s Net Profit Margin indicates good profitability as the ratio is much higher than the industry average, S&P500 and double the figure of the sector. This tells the investors that apple can keep earnings and good level of profit from their sales. The high EBITD 5 year average ratio is appreciated by Apple investors and it is higher than competitors; it indicates that Apple is able to keep a good level of earnings using an efficient process to reduce expenses. The Return On Assets ratio is very attractive when viewed by investors; as the ratio of almost 23% is much higher than the industry, sector and the S&P500 ratios that ranges between only 3% to 12%. This is good because this shows that Apple’s management are keeping the company profitable by using the assets efficiently and generating earnings. Over the past five years, Apple has maintained a very good Return on Equity ratio compared to all ratios above in the table. This makes the apple share a wise investment as shareholders are getting more by investing in Apple than other rivals in the market and that the Apple Corporation has been growing in profits dramatically. The Last ratio is the Assets Turn Over measures how effective the company is using the assets to make sales. Apple has a relatively low ratio when compared to the industry average which may discourage potential investors. However, this ratio itself is not conclusive of the company’s performance some other ratios were discussed in the above analysis that has many good indicators for Apple’s investors. Reasons for choosing the firm/industry: Apple is ranked as the number 6 fastest-growing stock, not only that the company manages grow and emerge in profitable markets such as china. Lately, it was confirmed that China will cooaperate with Apple and put its products in its market which is considered to be the biggest telecom market worldwide; as the iPhone will have access to almost 700 million subscribers in the china market itself. This only means that the technology giant is growing its market share and promises its shareholders more value creation (Revee, 2013). The analyst Jeff Revee also mentions that Apple has a very high potential of growing and that is a safe investment; as the company accumulated a stockpile of $146 billion dollars, whereas their debt is around only $3 billion dollars on the bonds debt. This represents a huge opportunity for the company to continue growing and remaining profitable. Investing in the electronic industry is to make the portfolio less volatile and risky towards market movement and use the principle of diversification to control the unsystematic risk. Not only that, the electronic industry is expected to grow by 7% between the years 2012 to 2015 which represents the chance to make decent profits when investing in this industry (RNCOS). The Consumer Electronic Association also reported a 10% growth rate in sales. Finally, Apple represents a solid investment as the company is a leading player in its growing industry and both the industry and the company have great potential of growing and generating profits. Broker Recommendation: CompanyIndustrySP500Average Recommendation (1=Buy, 5=Sell)1.671.739.99Current Quarter Estimate10.189.0928.00Year Ago Quarter Estimate10.099.5523.15Next Quarter Estimate8.727.7928.22Next Year Estimate46.896.9025.77The brokers’ recommendation is shown in the above table with estimates of Apple Inc. The average recommendation represents a moderate buy for the company share as it is a 1.67, however it is much lower than the S&P500 figure. The past year recommendation was to sell the stock which means that the market conditions are better now. Brokers also estimated that the Apple stock will be a strong sell next year as well as the S&P500; this might not be accurate as it is only based on forecasts. Earnings Estimation: Earnings (per share) MeanHighLow1 YearAgoQuarter Ending?Mar-1410.1210.669.7011.81Quarter Ending?Jun-148.6110.307.4411.12Year Ending?Sep-1442.8247.0439.5749.81Year Ending?Sep-1546.2653.4540.2355.47LT Growth Rate (%)21.2829.4015.0018.98The above table proves that Apple’s earning are slightly shrinking by only 0.01, however it is expected to grow in the long term by 21.28% where it was only 18.98% last year. this is a great opportunity to grow and make profits from the Apple Stock. Coca Cola:Coca Cola is an American multinational company that is headquartered in Atlanta, Georgia, it is the largest beverages producer worldwide. The company produces more than 500 sparkling beverages in addition to non carbonated beverages such as water, juices, coffee, tea and energy drinks. The most well-known products of the company are Coke, Light Coke, Fanta and Sprite. The Company’s segments include Eurasia and Africa, Europe, Latin America, North America, Pacific, Bottling Investments and Corporate.Coca Cola has the largest distribution systems in the globe, as it serves 200 countries and it segments incorporate Europe, North America, Pacific, Eurasia, Latin America, Corporates and Bottling Investments. The highest operating results were reported on the North America segment which is equivalent to 44%, followed by 16% from bottling investments (ZACKS, 2014). According to Coca Cola’s statistics it serves around 1.9 bottles per day worldwide (Cocacola, 2014). Coca Cola Ratio Analysis:Valuation ratios:KO. IncIndustrySectorS&P 500 P/E Ratio (TTM)20.0627.9636.1717.72Beta0.480.250.601.02Price to Sales (TTM)3.591.455.4821.17Price to Book (MRQ)5.072.2726.322.6Price to Cash Flow (TTM)15.869.3830.3910.9Price to Free Cash Flow (TTM)39.3724.4760.5820.4%Sales - 5 Yr. Growth Rate7.963.2814.033.56%Current Ratio (MRQ)1.131.071.140.25LT Debt to Equity (MRQ)57.7429.6910.53-Total Debt to Equity (MRQ)111.7752.9829.620.47Interest Coverage (TTM)25.7929.54259.6818.89EBITD - 5 Yr. Avg.27.824.8321.0128.47%Net Profit Margin – 5 Yr. Avg.21.742.0313.679%Return on Assets – 5 Yr. Avg.12.782.3228.323.79 %Return on Equity - 5 Yr. Avg.30.485.2364.4615.07Asset Turnover (TTM)0.530.571.73-The above table represents the financial ratios of Coca Cola. The company has a P/E ratio of 20.06 which means that the investors are willing to pay around $20 for every $1 of earnings, Coca cola’s beta is 0.48 which means that the company’s share is less volatile than the market, it is also a good indicator that the share is less risky when compared to the sector’s beta of 0.6. Looking at the Price to Sales Ratio, Coca cola’s investors pay $3.56 dollars for each $1 of sales which is relatively a low ratio and it is attractive for the investors in comparison with the Consumer Goods Sector of a 5.48; as the investors are paying less for every unit of sales. However, the industry’s ratio is lower with only 1.45; this might indicate an overvaluation if the share price kept appreciating with moderate sales growth. The next ratio is the Price to Book Ratio shows how much the investors are paying for each dollar in Coca Cola’s net assets which is $5.07. The ratio is lower than the sector average ratio but higher than the industry; generally the price to book ratio that is over one suggests that the market will pay more than the equity per share, which is good news for the investors and potential investors. The Price to Cash flow ratio is 15.86 which is higher than both the s&p500 index and the industry ratio, this illustrates great potential of Coca Cola’s growth in the market. Looking at the Price to Free Cash flow, it is also noticeable that the company’s ratio is higher than the s&p500 return and the industry average; both ratios have high attractiveness for potential investors because the ratios relatively low and indicate that the current share price may be undervalued and they could take an advantage in case of future appreciation. The sales growth rate of Coca Cola is 7.96 while the industry and S&P500 average is lower, which indicates that Coca Cola is doing better than rivals in the same industry and selling more. This is a good indicator for investors to reassure creating value and growing in the market. Coca Cola shows good financial health; the current ratio of 1.13 is higher than the industry average and the S&P500. The ratio is a bit lower in comparison with the sector, however, it is evident that Coca Cola can comfortably repay their short term obligations. Both ratios of LT Debt to Equity and Total Debt to Equity ratios proves that Coca Cola is financing its operation depending on debt which makes the share to be considered riskier than other shares in the same industry and sector. On one hand, Coca cola is taking an aggressive approach in taking debt, on the other hand the Interest Coverage ratio assures the investors that Coca Cola is capable of repaying all interest expense on their debt; as they have a ratio of 25.9. EBITD ratio of almost 28 is higher than other companies operating in the same industry and sector. It is an advantage for Coca Cola’s investors as the ratio means that the company is profitable and has a good level of earnings. The Net Profit margin measure how much Coca Cola can keep earnings from sales and convert it to profit that will increase the shareholders value. In Coca Cola’s case, their Net Profit Margin of 23% is a very good indicator of the company’s profitability and efficient management. The ratio is also more than the double of the industry, sector and index’s ratio. Although the Consumer Goods sector’s ROA ratio is higher than Coca Cola’s ratio, the company still keeps a decent ratio when compared to the industry and S&P500 Index. Coca Cola has a ROA of nearly 13% which tells the investors that the company’s management decisions are efficient in using the company’s assets and generate earnings. For further analysis, the Return on Equity ratio shows that Coca Cola have a better ratio of almost 30% return when investing the shareholders money and being able to generate a good percentage of return. It is also evident that Coca Cola’s ROE is less than the sector’s ratio but it is still fair to consider the company profitable. Finally, the Asset Turn Over ratio is slightly below the industry average but lower than the sector’s ratio which might make an area of concern for potential investors. Coca Cola are recommended to increase their efforts in using the assets to generate earnings. Reason for choosing the firm/industry: Coca Cola is considered to be a wise and a safe investment, as the company Is one of the largest companies operating in the beverages industry. Coca Cola has already established a strong brand name in the market and it has the advantage of its strong brand power and loyal customer’s base to generate a series of solid earning throughout the years. not only that, the company also focuses on innovation; as It keeps launching successful brand extensions beverages products including Tea and Fruits flavored beverages. The company is also putting effort to emerge in producing healthier products to target a wider range of customers around 200 countries. Coca Cola’s healthy products portfolio grew by 10% in the last two years. When looking at the company’s dividend yield which is 3.2% it is evident that the company has potential of growing and being more profitable. Moreover, Coca Cola have an online investment centre that investors can keep track of their investments, sell and buy online without having to pay interests to a broker. As for choosing the beverages industry to invest in, it is one of the largest industries around the world. According to a KPMG analyst, the beverage industry revenues are increasing dramatically, as it was 57% last year and rose to 84%, it is also believed when a study was conducted that the growth rate will continue to increase and this makes the industry a very profitable and safe investment. The beverage companies will drive this growth by focusing on innovation, just like the leading company Coca Cola, develop healthier packages and capture new sales channels in emerging markets such as India and china. To sum up, Coca Cola and the beverage industry is somewhat a profitable investment with high potential of growing. In addition to healthy financial ratio for both the company and the industry that reassures the investors. Broker Recommendation: CompanyIndustrySP500Average Recommendation (1=Buy, 5=Sell)1.882.109.99Current Quarter Estimate0.453.9428.00Year Ago Quarter Estimate0.463.5123.15Next Quarter Estimate0.645.9428.22Next Year Estimate2.275.8525.77The brokers are recommending moderate buy on average for the Coca Cola stock, the table also shows exceptionally good recommendations to a strong buy in the current quarter of 0.45 when compared to the industry and 28.00 of the S&P500 that suggests a strong sell. As for next year, the Coca cola stock is recommended to be held by brokers and sell other industry stocks and the S&P500 which makes the Coca Cola stock in a stronger position than other competitors and a more attractive investment. Earnings Estimates: Earnings (per share) # of EstimatesMeanHighLow1 YearAgoQuarter Ending?Mar-14170.450.470.420.48Quarter Ending?Jun-14170.630.650.620.70Year Ending?Dec-14242.092.232.002.33Year Ending?Dec-15232.242.332.072.53LT Growth Rate (%)36.439.004.708.95The Coca cola earning are estimated to grow by 6.43% which is lower than the past years growth rate. It is also evident that the mean earning is only 0.45 for the current quarter; this may be because of intense competition in the industry, however, with such a strong brand power Coca Cola is expected to grow in earnings and overcome any problems in the market. Royce European Smaller-Companies Invmt (RESNX)Bond: This bond has an alpha of 3.07 compared to the standard index of 5.14 and as long as the alpha is positive, the investors will be more attractive to it. Furthermore, this bond has beta of 1.02 compared to the category which has a beta of 1.03. A beta of one indicates that the price of the bond is moving with the market and as long as the beta is high, investors will have more risk and return. Moreover, the bond R-Squared is 86.61 compared to the index which is 90.12. According to Morningstar, a bond with r-squared of 85-100 has a close correlated performance to the index while a r-squared of 70 and less means that the bond is not performing like the index.REIT: The Omega Healthcare Real-estate investment trust have a beta of 1.23 which means that it is a medium risk investment and it will somewhat move in line with markets movements. However, it is also expected to get higher returns as the profit margin is around 40%. In comparison with a direct competitor Healthcare Realty Trust Incorporated that recorded a negative profit margin of -3.51% and a negative ROE of -1.32% while Omega healthcare Investors recorded a healthy ROE of 14.41%. Omega Healthcare REIT has a very good growth rate; as it is expected to grow in revenues by 18.6% each quarter. Moreover, Omega healthcare recorded a positive P/E ratio which assures the investors that the company is not recording losses compared to its peers in the industry. Further, this REIT is also considered as a safe investment as its current ratio of 1.92 demonstrates the capability of paying all short term obligations in ease. To sum up, the aforementioned analysis of the REIT encourages the investment and projects a growing market to make profit. Fund Allocation?NikeAppleMicrosoftCoca ColaRESNX bondOmega REIST?Closing Price78.98526.7438.0588.4210.132.94?#Shares921002051201002350?Total purchased7266.16526747800.2510610.410120.211529$100000Weighting per investment7.27%52.67%7.80%10.61%10.12%11.53%?ReferencesNA. (2014, 3 18).?United states government debt to gdp. Retrieved from (2014)NA. (2013, 7 26).?Us government will go bankrupt. Retrieved from (2013)NA. (2014, 3 18).?United states industrial production. Retrieved from (2014)Justin , W., & John, W. (2011, 2 14).?What is the new normal unemployment rate?. Retrieved from (Justin & John, 2011)Jeff, R. (2013, 7 3).?Why you shouldn’t just invest in the s&p 500. Retrieved from (Jeff, 2013)NA. (2013, 12 19).?Why are interest rates being kept at a low level?. Retrieved from (NA, 2013)NELSON, S. (2014, 2 7).?Payroll data shows a lag in wages, not just hiring. Retrieved from (NELSON, 2014)NA. (2014, 3 18).?United states retail sales yoy. Retrieved from (NA, 2014)Jayakumar, A. (n.d.).?Don’t expect 2014 to be much better for retail sales, trade group warns. Retrieved from (Jayakumar)NA. (2014, 2 20).?Global business cycle indicators. Retrieved from (NA, 2014)NA. (NA).?Composite index of coincident indicators. Retrieved from (2014, 18 3).?United states consumer sentiment. Retrieved from (NA, 2014)Morath, E., & Mitchell, J. (2013, 12 18).?Fed projections see no rate increase until 2015. Retrieved from (Morath & Mitchell, 2013)The World Bank. (2014, Jan). Global economy at turning point, says world bank. Retrieved from price earning. (n.d.). Retrieved October 2013, from : (n.d.). Retrieved october 2013, from : )(n.d.). Retrieved from : (n.d).retrieved from :(n.d).retrieved from:(n.d).retrieved from :(n.d).retrieved from:(n.d).retrieved from:(n.d).retrieved from:, C. [Web log message]. Retrieved from (n.d) retrieved from:(n.d) retrieved from:(n.d.). Retrieved from :(n.d) retrieved from: ................
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