Market Update:
- Stocks were higher at midway as investors were waiting for the release of Federal Open Market Committee’s minute from March
- The minutes reduced the concerns that the central bank would move to raise interest rates sooner than expected
- Earning reports from Alcoa helped get first quarter earning season into positive start
- IMF cut its 2014 outlook by 0.1% as it expects the economic expansion to be 3.6% for this year. It further reports that developed markets will have more strength than emerging markets.
- Some historical data on earnings shows which stocks have more stability. Utilities and financial stocks tend to move the least while tech and consumer discretionary were the biggest movers.
- Here is the link to the Fed minute:http://live.wsj.com/#!FA796F53-BB95-46BA-A152-4EE658472D75
Stock Pitch
A) Name of Stock: Aetna Inc. (AET)
- Current Price: $72.86 (April 8th)
- Sector:Healthcare
Aetna has provision of diverdified health care plans and provides health care management service to employers and individuals.
Aetna Value Proposition:
- Improve Healthcare system transparency
- Help people get healthy
- Foster a more accountable Healthcare system
- Add value to government program
Why?
There is growing demand for controlling healthcare expenditure. Additionally, it has experienced tremendous growth in 2013 and is most likely to continue doing so in future. Moreover the stock is at a modest price. Aetna has a diversified revenue and good profit base.
It has competitive advantage because of its flexible and consumer oriented products. It also has membership in MA geographic expansion and proper network strategy.
Furthermore, it has the right strategy and positioning to continue generating peer leading shareholder returns and is the 3rd largest National Managed Care Organizations.
Valuation Ratios
- P/E ratio: 13.93
- Revenue Growth Rate: 34.3%
- EPS Growth Rate%: 3.90%
Decision: Aetna would be a good buy for its solid past performance. The risk on profit margin and revenue comes from uncertainity about Obamacare.
B) Name of Stock: Delta Airlines and Spirit Airlines (Complementary Stock)
Sector:Airlines
Jet fuel is one of the major input cost which affects the profitability of Airlines sector. However, the sector has been growing because of passenger demands despite increase in fuel prices. Additonally, hydraulic fracturing in the U.S. can prevent the price of oil from getting high. No wonder, it has been top performing among 200 industries.
Why?
Delta (DAL): It is a major airline company and is the largest in the world by fleet numbers.
- Market Cap:28.29B
- P/E:2.73
- Profit Margin:27.9%
Spirit (SAVE):It is a low fare airline company which has been possible due to reduced services. Additionally, it has low fuel per seat model.
- Market Cap: 4.11B
- P/E 23.4
- Profit Margin 10.69%
Decision: By buying these stocks, we are trying to capture seasonality of Airlines sector. Delta is currently a cheap blue chip company while Spirit is low fare airlines company.