Student Managed Investment Fund Annual Report

Annual Report 2014 University of South Florida Muma College of Business

PROSPECTUS The Student Managed Investment Fund is a sub-portfolio of the overall portfolio of assets managed by the University of South Florida (USF) Foundation. The Fund is expected to perform in a manner consistent with the performance of a focused equities fund with a time horizon of 3-5 years. Diversification across all equity markets and/or asset classes is not an objective.

INVESTMENT STRATEGY AND GUIDELINES

Fund Characteristics (As of December 2014) 2014 Annual Return

17%

(Entire Portfolio)

2014 Annual Return (Active Portfolio)

28%

2014 Benchmark Return

11%

Value as of 12/31/2014

$397,510

The Fund will invest exclusively in US equities, ADRs, and near cash assets such as money market funds or securities.

Investments in US equities and ADRs should be consistent with an expected holding period of 3-5 years at the time an investment is made.

This is not to imply that any stocks purchased must be held for the complete term.

The Fund may invest in large-cap stocks ($10 billion + market cap), mid-cap stocks ($2-10 billion market cap), and/or small cap stocks ($300 million to $2 billion market cap).

Stocks may or may not pay dividends. Stocks may be in any industry group as defined in the Industry Classification Benchmark (ICB) system. Short-selling is prohibited.

Leverage will not be used to magnify returns. Derivatives will not be used.

Sharpe Ratio Performance SMIF Portfolio

2.96

Benchmark

1.92

Outperformance

54%

SMIF Holdings (Active)

The Fund’s assets may be invested in individual securities as defined above or in the Dreyfus S&P 500 Index Fund. Any cash that is not in the S&P 500 Index fund or invested in the stocks will be swept into the Foundation’s cash sweep vehicle, the Dreyfus Government Cash Management Fund.

Whirlpool Corp.

10.72%

Packaging Corp Of America

9.10%

Cerner Corp.

8.97%

The maximum investment in the equity of a single issuer is 10% of fund assets at the time of the investment. Shares held in the fund’s core equity index fund are not counted against this limit.

CSX Corp.

8.55%

eBay Inc.

8.32%

EMC2

8.23%

SPX Corporation

7.69%

Comerica

7.32%

Cummins Inc.

6.79%

Bank of New York Mellon

5.49%

Fluor Corp.

5.29%

Synaptics

5.29%

Precision Castparts

4.86%

Activision Blizzard

4.48%

The Hershey Company

4.19%

The maximum investment in the stocks of a single industry (one of the 10 defined in the Industry Classification Benchmark (ICB) System) is 25% of fund assets. This constraint is binding on individual stock purchases that would otherwise exceed the allowable maximum. Shares held in the fund’s core equity index fund are not counted against this limit.

Students present their best stock investment ideas to members of the Student Managed Investment Fund Advisory Board/Outside Advisors Group and selected faculty. Following the presentation, the floor is open for questions that the students are expected to answer in an accurate, thorough manner. Once the discussion is over, a vote determines whether the recommended stock will be purchased.

The decision to sell a holding is handled in a similar manner.

University of South Florida Muma College of Business

1

MARKETS AND ECONOMY The notable aspects of different asset class performance, shown in the performance table to the right, include the following: • • • •

P erforma nce S&P 500 S&P Midcap 400 Russell 2000 Russell 1000 NASDAQ Wilshire 5000 10 Yr Yield VIX Gold Oil

Under performance of domestic revenue focused Russell 2000 Relative out performance of Intermediate-term Government debt Bullish trend in Equity volatility Significant underperformance of commodities

We expect the relative underperformance in the Russell versus the S&P 500 to reverse, because multinationals make-up much of the S&P 500, we expect headwinds abroad, our outlook on the domestic consumer is more favorable, and money managers are currently more bearish on the Russell 2000, according to CFTC futures positioning.

Valuations, divergences from economic data, monetary policy direction, and uncertainty of monetary policy direction heighten risks in US equities and lower prospective returns in the intermediate-term. P/E ratios relative to economic growth and EPS growth are extended.

10 year compound annual GDP growth rates remain at low levels as experienced since the financial crisis, while P/E multiples reflect growth potential similar to when GDP growth was almost double in the 80s, 90s, and early 2000s.

55%

P/E and Economic Growth 4.0%

Real GDP 10 cagr

35% 30x 25%

25x

3.0%

Divergence

2.0% 1.5%

20x

15%

15x

5%

0.5%

5x

0.0% 1989 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2013

0x

-5% Dec-10

S&P 500 and Durable Goods Divergence S&P 500 lhs

Durable Goods Orders rhs

2,100

16

14

10x

1.0%

Oct-11

Aug-12

Jun-13

Apr-14

12

S&P 500 P/E ratio increased in 2014, while eps growth slowed Current 2015 EPS growth is lower at 4.2%, as estimates continue to decline, according to S&P Capital IQ S&P 500 margins compressed to lowest since 2012, but remain in historic high range

270 220

Thousands

320

1,600

Lower Equity Returns Followed the End of QE and Inflation Expectations Fell Significantly

1,100 170

2001

2003

2005

2007

2009

2011

2013

As the Federal Reserve ended its quantitative easing program of buying mortgage backed securities and intermediate to long-dated government bonds, equities peaked in rate of change terms. Then, In July, the US dollar began a strong ascent as tight monetary policy in the US, relative to BOJ policy and ECB policy expectations, persisted as developed economies abroad faced significantly slowing economic growth and greater disinflation. Spanish bond yields fell below US yields in July, the dollar strengthened, inflation expectations fell along with commodities, and a flight into long-term government bonds perpetuated lower rates and created a risk averse environment that accompanied higher equity volatility. As a greater producer of oil, since the shale revolution, the US bond market linked to shale oil production companies faces strain along with energy sector earnings, which represented 12.3% of total S&P 500 operating earnings in June, and now represent 7.7%. Based on this analysis, we argue that commodity deflation, the end of QE, and economic weakness abroad have negatively impacted US equities and will continue to have negative effects as valuations remain elevated relative to economic strength.

University of South Florida Muma College of Business

Russell 2000 lhs Federal Reserve Assets lhs S&P 500 lhs 5 Yr Breakeven Inflation Rate rhs

120

38%

2.0%

33% 28%

YoY Change

600 1999

S&P 500 EPS Growth lhs 18

S&P 500 PE

3.5%

2.5%

20

S&P 500 PE Ratio rhs

45%

recession

11% 8% 4% 11% 13% 10% -28% 40% -2% -46%

1.8%

23% 18%

1.5%

13% 8%

1.3%

3% -3% Jun-13 Sep-13 Nov-13 Jan-14 Apr-14 Jun-14 Aug-14 Oct-14

1.0%

2

SOVEREIGN BOND PERFORMANCE AND RATES OUTLOOK Consensus was bearish on long-term government bonds at the start of 2014; that call was very wrong. Rates fell from 3% to 2% by the year end. Asset managers were net short the 10 year treasury bond for the first half of the year, while bond yields continued to decline. As NGDP growth slowed and global growth and inflation expectations turned negative, yields fell. Yields continue to look low when merely compared to historic averages, but further analysis indicate potentially further downside in yields. When considering the low yields of developed sovereigns abroad, and the immediate-term inflation outlook, sub 2% yields on intermediate-term US bonds may persist well into 2015. For 2015, the Blue Chip consensus and congressional budget office prediction is for a 3% yield on the 10 year bond. Once again, consensus is likely too bullish on yields.

Long-Term Perspective: US Yields High by Comparison

Yields Track and Foretell Changes in Growth NGDP lhs 10-Year Yield rhs 10-Year Breakeven Inflation Rate rhs

5.5%

3.1%

4.5%

2.6%

3.5%

2.1%

2.5%

Q4 2013

Q1 2014

Q2 2014

Q3 2014

1.6%

Q4 2014

18%

Disinflation Despite QE

15% 13%

Federal Reserve Balance Sheet lhs

10%

JPY/USD lhs

EURO/USD lhs

CPI rhs 4.0%

38%

8%

US Canada France 0% 1978 1981 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013

While we see persistent downward pressure on yields, we continue to monitor breakeven inflation rates, USD cross rates, rate of change in global and domestic inflation and growth, net positioning in the 10 year bond futures market, and yields of foreign developed government bonds. The correlations and changes in these factors informs our perspective on the future of rates.

3.0% 18% YoY Change

3%

3.5%

28%

5%

2.5% 8%

2.0%

-3%

1.5%

-13%

1.0%

-23% Jan-10

Aug-10

Mar-11

Oct-11

May-12

Dec-12

Jul-13

Feb-14

0.5%

Sep-14

GROWTH AND INFLATION Our “Disinflation Despite QE” chart to the right reveals the greater importance of global growth, inflation, and currency movements for the domestic economy. The prior two QE episodes accompanied greater inflation and a weakening dollar relative to the Yen and Euro, but the latest installment was associated with falling inflation rates because of the weakening of the Yen and Euro. Weakening economies and the desire to generate inflation in developed economies abroad is strengthening the US dollar, negatively impacting nominal growth, and pressuring Federal Reserve policy makers to turn more dovish.

The result is an inflation rate well below the Fed’s 2% target. We compile numerous measurements of inflation and market based inflation expectations, and each of these measures fell into the end of the year and indicate a greater probability of policy makers further delaying raising the fed funds rate beyond mid 2015 guidance. The US maintains a policy rate below GDP growth, but a strengthening currency and disinflation threatens the ease of the transition from a crisis brought about by excessive debt.

Lower inflation will ease the cost of living burden on the average consumer, and potentially drive greater growth in 2015. However, consumers increased savings in Q4 as lower costs of things like Gasoline failed to generate greater consumption growth. In addition, domestic demand weakened in Q4. While economic weakness from our trading partners abroad continues to pressure the US economy, growth is likely to strengthen by the end of 2015 compared to the weak end to 2014.

Final Sales to Domestic Purchasers: Aggregate Demand Q1 2014 Q2 2014 Q3 2014 Q4 2014 17,777 18,022 18,132 FSDP Bln 17,542 Y/Y % Ch. 3.27% 3.96% 4.34% 3.91% Difference bps -29 69 39 -44

University of South Florida Muma College of Business

Short of the Target PCE Deflator 5Yr Breakeven PCE Core

Core CPI 10Yr Breakeven Fed Target

2.5% 2.0% 1.5% 1.0% 0.5% 0.0%

Jan-14

Apr-14

Jul-14

Oct-14

Decelerating Consumption as Consumers Save Gas Savings

5.0%

Savings Rate Gas Prices rhs

PCE Y/Y % Ch. $3.5

4.5%

$3.3

4.0%

$3.0 $2.8

3.5%

$2.5

3.0% 2.5%

$3.8

$2.3 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14

$2.0

3

LABOR AND CONCLUSION

Bottoming Initial Claims Business Cycle Exhaustion 4-Week Moving Average of Initial Claims, 1000s, SA

Employment is strong as the unemployment rate is below 6% and initial claims have fallen to historic lows. While strong employment is a positive for economic growth, it is also a characteristic of an economy near the end of an economic cycle. This is clearly represented in the history of initial unemployment claims, which have fallen to levels historically followed by a recession within a year or two. Continued strong employment data further increases the probability of weak employment data to come, as historically initial claims do not remain below 300 thousand for extended periods.

Although unemployment and the labor market broadly continues to improve, labor force participation continues to be a problem. The US economy faces a structural issue of the aging of the baby boomer generation, but participation among those 55 and older has not significantly declined yet, while those under 55 continue to drop out of the labor force. Lower labor force participation by the younger generations combined with record student loan indebtedness creates headwinds to household formation and healthy spending and growth habits.

550

450

350

Labor Force Participation Civilian Labor Force Participation % lhs

40.0 39.5 39.0

103.0

Combining analysis of these various factors in the labor market, the labor outlook continues to be mixed between slow steady improvement and an impending cyclical turning point within 12-24 months.

101.0

University of South Florida Muma College of Business

40.5

65.0

Our “Productivity and Growth� chart illustrates that GDP growth since 2012 was driven by greater hours worked, while productivity, or output per hour of all persons, remains stagnant. This lack of productivity growth is reflected in the weak earnings growth among non supervisory and manufacturing workers.

In the midst of economic uncertainty, we continue to pursue winning investments based on finding great companies at attractive valuations.

As model-based security analysts focused on business fundamentals, we expect to continue to outperform our benchmark in all economic environments.

55 and Over Participation % rhs 41.0

66.0

64.0

A slowing growth trend in 2014 increases the probability of an acceleration in 2015 as data compares against 2014 numbers. We expect low inflation and a relatively strong labor market to catalyze domestic consumption growth in 2015. We also see downward pressure on total growth emanating from European weakness and the weak global economy broadly. Our late-cycle labor market indicators also signal a greater probability of weakening. Combining these negative factors with the possibility of a fed funds rate hike is problematic for growth prospects in 2015. In this context, the US equity market looks less bad than equity alternatives in weak economies abroad and relative to bonds at historically low yields.

250

1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013

While job growth continues, the US still lacks broad based improvements in labor markets. Lower paying jobs grew more than higher paying jobs in 2014. Also, earnings growth has been tilted in favor of supervisory workers. Lacking earnings growth among lower earners subdues spending growth because this segment has a higher propensity to consume. Also, eventual upward pressure on wages in low wage jobs will have a weak effect on spending growth as many people in this segment receive means tested government assistance, which roll-off as earnings increase.

Conclusion

650

38.5 38.0 37.5

63.0

37.0 36.5

62.0 Jan-05 Feb-06 Mar-07 Apr-08 May-09 Jun-10

Jul-11 Aug-12 Sep-13 Oct-14

36.0

Wage Indexes > $ 22/hr Jobs

< $19/hr Jobs

102.5 102.0 101.5

100.5 100.0

2013

2014

2014

2014

2014(p)

2014(p)

Dec.

Aug.

Sept.

Oct.

Nov.

Dec.

Productivity and Growth 115

Output Per Hour of All Pers., Priv. Bu, SA, Index GDP, SAAR, Index Aggregate Weekly Hrs, Private, Index

110

105

100

95 Apr-09

Jan-10

Oct-10

Jul-11

Apr-12

Jan-13

Oct-13

Jul-14

4

SECTOR AND INDUSTRY EXPOSURE Sector Breakdown As of 2014 our active portfolio holds a double digit exposure to three sectors: Industrials (13.%), Technology (10%) and Consumer Cyclical (10%). CSX and SPX Corp as a whole represent approximately 48% of our portfolioâ&#x20AC;&#x2122;s current exposure to the Industrials sector. Within the technology sector EMC comprises 35% and Cerner 32% of the exposure. The consumer cyclical sector is mostly comprised of Whirlpool (36%) and Packaging Corporation of America (33%).

Industry Breakdown Since 2013, we have maintained a much more diversified portfolio.

Throughout the year we exited our portfolioâ&#x20AC;&#x2122;s exposure to the Oil & Gas Industry and minimized our exposure to the Asset Management industry, our two largest exposures in 2013.

The fund holds more cash & cash equivalents (4.8%) than any other industry in the portfolio. This is to have the ability to purchase new positions for the next round of stock pitches that take place in the Spring of 2015.

The SMIF portfolio does not have multiple holdings in any industry this year.

The largest holding is in Durable Household Products (3.8%) represented

by Whirlpool Corporation. Data Storage and Packaging & Containers each represent 3.6% of the portfolio. These industries are represented in the SMIF by EMC and PKG respectively.

University of South Florida Muma College of Business

5

NEW POSITIONS Date Bought

Price Bought

Year-End Price

Yield

Gain/ Loss

Capital Gain

Total Return

Activision Blizzard

4/28/2014

$19.47

$20.35

.92%

$1.06

$252

4.2%

Cerner Corp

3/3/2014

$60.81

$65.10

-

$4.29

$837

6.9%

Comerica

3/3/2014

$47.55

$46.60

1.80%

($0.11)

($61)

(.5%)

EBAY

2/5/2014

$52.67

$57.10

-

$4.43

$998

8.2%

EMC

3/3/2014

$26.23

$30.69

1.66%

$4.96

$2,232

18.5%

HSY

4/17/2014

$100.13

$106.28

1.95%

$8.22

$471

7.8%

PKG

4/17/2014

$67.07

$78.90

2.11%

$13.49

$2,254

18.6%

SPW

11/12/2014

$92.65

$86.64

1.69%

($4.54)

($802)

(6.6%)

SYNA

4/28/2014

$61.80

$69.57

-

$7.77

$764

12.3%

WHR

4/28/2014

$154.99

$191.50

1.43%

$39.24

$3,141

25.8%

Company

NEW POSITIONS For the period ending December 2014, ten new positions were added to the portfolio. Our analysts and advisory board vetted these positions before selected for purchase. Growth at a reasonable price, deep value, and mega trends were themes used to guide our search for these stocks.

DENIED POSITIONS (2014) Date Pitched

Price

Year-End Price

Yield

Gain/ Loss

Total Return

Lifepoint (LPNT)

10/7/14

$69.83

$71.91

-

$2.08

2.98%

Kaiser (KALU)

10/7/14

$73.38

$71.02

2%

$2.36

3.22%

Tangoe (TNGO)

10/7/14

$13.78

$13.03

-

$.75

5.44%

Core Laboratories (CLB)

11/6/14

$136.44

$119.70

2%

$16.01

11.8%

NCR (NCR)

11/6/14

$28.12

$29.14

-

$1.02

3.63%

Company

DENIED POSITIONS The denied positions are stocks that have been rejected by the advisory board. Keeping track of the denied positions is essential to making sure the correct decision was made and the SMIF did not miss out on positive alpha positions. The denied positions are stocks pitched by two different analyst groups.

During the year of 2014 there were five positions that were denied. Of the companies that the student analysts pitched in the spring of 2014, the advisory board voted a buy on every stock pitched!

All but one of the stocks that were pitched in the fall of 2014 were rejected by the advisory board. Many factors influenced the rejections, including the inability to portray the investment thesis, mitigation of risks associated with the company, and lack of conviction in presenting the stocks.

University of South Florida Muma College of Business

6

BIGGEST MOVERS

BIGGEST MOVERS

Three of the funds top performing stocks were added during the fiscal year of 2014, Whirlpool (WHR), Packaging Corporation of America (PKG) and EMC Corporation. The top four highest returns for the fund have been in the portfolio since at least 2013. Precision Castparts Corporation (PCP) and Bank of New York Mellon (BK) were added in the Spring of 2013. Two of the highest returning stocks have been held since 2012. CSX Corporation is the top performer overall and an annual return of 21%. Cummins (CMI) has also been held since 2012 and was lagging the overall portfolio until this year.

CMI has an annual return of 10% in the SMIF portfolio.

Total Return

Company CSX Corp (CSX)

77%

Bank NY Mellon (BK)

56%

Cummins (CMI)

34%

Precision Castparts (PCP)

31%

Whirlpool Corp (WHR)

25%

Packaging Corp (PKG)

18%

EMC Corp (EMC)

18%

SOLD POSITIONS by Last Years Analysts Date Sold

Price Sold

Date Purchased

Price Bought

Yield

Gain/ Loss

Total Return

Corning (GLW)

3/3/2014

$19.07

4/9/2012

$13.37

1.9%

$5.70

42.6%

Intel (INTC)

4/17/2014

$26.97

11/17/2010

$21.02

3.4%

$5.95

28.3%

Encore Capital Group (ECPG)

3/3/2014

$48.57

2/21/2013

$32.10

-

$16.47

51.3%

Gentex (GNTX)

4/17/2014

$29.42

2/21/2013

$19.06

2.0%

$10.36

54.4%

Global Payments (GPN)

3/3/2014

$70.27

4/9/2013

$46.02

0.1%

$24.25

52.7%

National-Oilwell Varco (NOV)

4/17/2014

$81.73

3/18/2013

$69.14

1.3%

$12.59

18.2%

Silver Wheaton (SLW)

3/3/2014

$25.86

3/6/2012

$35.03

1.3%

$9.17

26.2%

Syngenta AG (SYT)

3/3/2014

$74.42

3/6/2012

$62.19

2.9%

$12.23

19.7%

Tiffany & Co. (TIF)

4/17/2014

$86.56

5/2/2012

$68.57

1.6%

$17.99

26.2%

Company

SOLD POSITIONS Nine positions were sold since the beginning of 2014. Some positions were sold after reaching their target price while others were sold based on the investment thesis not playing out and having material risks come to fruition. Several stocks underperformed the benchmark in the trailing twelve months which led them to be considered for selling. Some such as Intel experienced increased competition and compressing margins. Others such as Tiffany & Co. performed well in the prior year but started experiencing increased volatility from uncertainty in China.

University of South Florida Muma College of Business

7

SOLD POSITIONS by Current SMIF Analysts Date Sold

Price Sold

Date Purchased

Price Bought

Dividend

Gain/ Loss

Total Return

Synaptics (SYNA)

6/18/14

$83.76

4/28/14

$61.83

n/a

$2,163

35%

Hi-Crush LP (HCLP)

7/25/14

$68.29

2/5/14

$34.80

n/a

$5,591

93%

Conversant (CNVR)

9/12/14

$34.80

4/9/14

$20.99

n/a

$7,920

65%

L. Brands (LB)

10/28/14

$69.87

4/17/14

$54.27

2.7%

$1,856

31%

Las Vegas Sands (LVS)

10/28/14

$60.10

2/9/12

$47.78

2%

$2,866

46%

Visa Inc. (V)

11/17/14

$249.94

4/9/13

$165.62

.6%

$6.081

52%

Company

SOLD POSITIONS The Fund has put a bigger emphasis of selling our winning stocks or ones that the students do not believe will outperform the market in the next 3 - 5 years. Below is a brief description on why the above stocks were sold.

Synaptics (SYNA) - The fund exited half of its position in Synaptics over the summer. This was because the stock saw a significant run up. On a relative valuation analysis the stock was overvalued at a price of $83. Therefore, the fund exited half of its position to gain a significant alpha and a return of 35%.

High - Crush LP (HCLP) - The SMIF received its highest return from HCLP. This was a pure play on the fracking process. High - Crush makes the highest quality sand needed in the complex process. In 4 months the stock had a 93% return, the analysts saw this as a sell opportunity.

Conversant (CNVR) - Another big winner for the fund was CNVR. Conversant (formerly Value Click) provides online advertising campaigns and programs for advertisers trying to reach consumers globally. The firm was bought out on 9/12/14 and the company paid a premium for the public advertising firm. This resulted in the SMIF receiving a 65% return over the investment period.

L. Brands (LB) - L. Brands operates as a specialty retailer of women’s lingerie and other apparel, personal care and beauty products. Its stores include Victoria’s Secret, Bath & Body Works and PINK. LB is one of the best companies in women’s apparel. The fund exited its position in LB after the stock saw a significant run up. On a P/E and EV/EBITDA Multiple valuation the stock was overvalued and would see a multiple contraction. Therefore, the fund sold its position in LB and saw a 31% return from the stock.

Las Vegas Sands (LVS) - LVS has been one of the longest held stocks by the SMIF. Purchased in 2012 as a pure play on gambling / casinos in China. With increased regulation and low GDP growth Sand’s high double digit growth was in jeopardy of falling. Furthermore, the stock was overvalued if it could not see 20% revenue growth year-over-year. This analysis led the fund to exit its position for a total return of 46% over the 2 year span.

Visa (V) - Visa is a payments technology company operates as a retail electronic payments network worldwide. The company facilitates commerce through the transfer of value and information among financial institutions, merchants, consumers, businesses and government entities. After the firm released earnings for the 3rd quarter the stock saw a significant run up. The student analysts saw this as an opportunity to seek a high alpha and reached the conclusion that at the current price Visa will not outperform the benchmark. The SMIF earned a total return of 52%.

University of South Florida Muma College of Business

8

Analyst Class Spring 2014

Glenn Gutierrez is a double major in accounting and finance. He is a member of the Student Finance Association and a tax intern at Quality Distribution Inc. Also fluent in Spanish, Gutierrez plans to earn the CFA designation and eventually an MBA. He aspires to be a portfolio manager and eventually start and manage his own fund.

A United States Air Force reservist, Eric McNew has five years of experience as a munitions systems craftsman. During his time in the military, he has gained valuable experience in leadership that enables him to work in team settings to accomplish the mission at hand. A finance major, McNew hopes to become a first-generation college graduate and establish a career in the finance industry.

Julio Novo is a junior majoring in finance. He has traveled widely, having studied in the capital of Slovakia and backpacked through eleven countries. During the summer of 2012 he interned at JPMorgan Chase as a business banking analyst, creating business profiles and assisting in company analyses. He is currently an intern at Ballast Point Ventures, a growth equity investment firm, where he sources investments and conducts initial company analysis and viability research.

Klenton Perry is pursuing a double major in finance and economics with a minor in mathematics. He has held positions as a public finance intern at Tindale-Oliver & Associates, an actuarial intern at Transamerica, and a compliance analyst for Busch Gardens. Perry possesses numerous technical skills, such as knowledge in the VBA, C, and Java programming languages, proficiency in statistical and financial modeling software, and advanced technical writing skills. Perry also is dedicated to improving his local community through participation in student organizations, such as the Student Finance Association and Economic Scholars Society, and volunteering activities.

Brian Rohl, a senior finance major, belongs to numerous academic honor societies including Beta Alpha Psi, Golden Key International, Phi Kappa Phi, and Delta Epsilon Iota. His desire to help others succeed has led him to pursue employment tutoring finance, accounting and economics courses at the USF Library. In addition, Rohl interned in the finance department of a LexisNexis subsidiary this past summer. He plans to pursue a position in investment banking after graduation.

University of South Florida Muma College of Business

9

Analyst Class Spring 2014 Continued

Michael Schopler is a senior double majoring in finance and accounting. Schopler has achieved a 4.0 GPA in his finance core courses while simultaneously working at internships with JPMorgan Chase, Scottrade, and Lambeth Co. CPA. Having made his first investment at the age of 12, Schopler passionately advocates the benefits of investing at an early age. After he graduates in the fall of 2014, Michael aims to pursue a career in the wealth management field and earn the CFA designation.

Finance major James Steger passed the June 2013 CFA Level I Exam and is a 2014 Level II candidate. He is currently interning at Morgan Stanley, where he reviews and sends equity and fixed income research and specific bond offerings to institutional clients. Before returning to school, Steger was a professional swim coach at various locations around the country assisting elite athletes in setting new world and American records and helping beginners increase their confidence in the water. He expects to graduate in May.

University of South Florida Muma College of Business

10

Analyst Class Fall 2014

Giovanni Burbano is a senior majoring in finance with a minor in economics. Burbano is a member of the Student Finance Association and is working on a leadership certification through the Certified Student Leadership program. Burbano is a first-generation college student with a passion for security analysis who is pursuing the CFA designation. Burbano grew up in Cali, Colombia, and speaks both English and Spanish.

Haomin Chen is a finance major at the USF. She is also pursuing a minor in accounting. A native of Yantai, China, Chen speaks three languages fluently – Chinese, English, and German. She is also learning French and Spanish. Before coming to the United States two years ago for college, Chen spent a year in Germany studying the German language and literature. Chen was a pianist in the University Orchestra at Beijing International Studies University, where she earned a bachelor’s degree in German language and literature.

Jonnathan De Jesus is a senior majoring in finance with a minor in entrepreneurship. A native of Bayamon, Puerto Rico, he is fluent in English and Spanish. De Jesus, who plays the French horn, enjoys learning how to play a variety of brass instruments. De Jesus placed second in the Investors and Traders Society’s 2013 competition. He aspires to work as a portfolio manager and eventually would like start his own fund.

A native of Denver, Colo., Daniel Dorman spent most of his childhood in Bradenton, Fla. Now a resident of St. Petersburg, Dorman is a senior at USF majoring in finance and management. Dorman is passionate about equity investment and has maintained a paper portfolio for more than two years. Prior to entering the Applied Securities Analysis program, Dorman spent a year as a department manager for Barnes & Noble College, the book retailer’s collegiate division.

University of South Florida Muma College of Business

11

Analyst Class Fall 2014 Continued

Matt Errico moved to Tampa from New Jersey to pursue a finance degree at USF because he wanted to study at a large metropolitan university. He earned an associate degree in business administration from Raritan Valley Community College in Branchburg, N.J., before transferring to USF. While pursuing that degree, Errico worked full-time as a construction supervisor at Hilpert Construction, a family-owned firm specializing in luxury remodels. He helped rebuild homes destroyed by Hurricane Sandy.

Julio Escalona is a finance major who is in his senior year at USF. Escalona is a native of Cuba, and lived there until his late 20s. Escalona lived in Spain for one year before relocating to the Tampa Bay area. Even though there are not financial markets in Cuba, Escalona has always been fascinated with the world of investments. Now a United States citizen and the first person in his family to attend college, Escalona will graduate in 2015. He plans to continue his education by pursuing a master’s degree and CFA certification. He hopes his educational pursuits might inspire his young daughter.

Gerardo Lopez is a finance major from Tampa. Lopez works as a cooperative education forecasting analyst for Seminole Electric Cooperative, a regional electric utility. He is passionate about financial markets and aspires to be an analyst in the industry. He has experience in quantitative modeling and SAS (statistical analysis systems) programming. He is also fluent in Spanish and plays the piano.

Aaron Mederos’ fascination with financial markets developed after he experienced the consequences of a reflexive credit and asset bubble cycle in 2008-09. Curiosity about the cause of such events inspired his intellectual development. Mederos started following markets after high school and opened a personal account in 2014. He views acceptance of uncertainty and the development of a continually adapting, unbiased process as keys to successful participation in capital markets. He is optimistic that a Darwinian process will lead to greater accountability and incentive shifts on Wall Street, create a healthier economy, and grow investors’ wealth. He is a finance major who aspires to be at the forefront of that evolutionary process of better investment management and greater accountability to the average investor. He expects to graduate by Fall 2015.

University of South Florida Muma College of Business

12

Analyst Class Fall 2014 Continued

Miguel Munoz is a senior pursuing a dual major in accounting and finance. He is a first-generation student who is an active participant in USF’s Corporate Mentor Program. Originally from Caracas, Venezuela, Munoz speaks three languages—Spanish, French, and Portuguese. He became passionate about the public market after competing in — and consistently winning —online fantasy stock portfolio tournaments.

CNN Money published a feature article on him after he won two consecutive signature tournaments. Munoz aspires to work in equity research.

Originally from Jacksonville, Fla., Jason Reyes is a senior at USF. He is pursuing a bachelor’s degree in finance. Reyes served as an intern for two years at Scottrade. He is the president of Pi Delta Psi Fraternity and aspires to work as an equity research analyst after graduation in May 2015.

Bianca Rodriguez is passionate about the global financial markets. This passion led her to pursue a degree in finance. As a full-time student with a full-time job, Rodriguez has maintained a 4.0 GPA in her major while managing a dental practice that brings in more than $1 million each year. When Rodriguez isn’t analyzing the markets, she enjoys watching sports and traveling. As a native New Yorker, she aspires to earn the CFA designation and pursue a career in equity research for a firm on Wall Street.

University of South Florida Muma College of Business

13

STUDENTS’ TAKEAWAYS The Applied Securities & Analysis course is regarded as one of the toughest courses at the University. We all fill the role of a professional financial analyst and the quality of our work is expected to be nothing less than that of a professional Wall Street analyst. With many of us taking several additional courses, working a job or internship and participating in extracurricular activities, the intensity of the workload may become almost overwhelming. However, the offering of this course at the undergraduate level is a once in a lifetime opportunity that allows us to gain hands-on experience in the investment industry. It changes the way we look at the markets and the economy and transforms our minds from thinking like students into thinking like analysts.

A great investment idea is nothing if we cannot sell it and that is where our presentation skills come into play. Being able to present our idea effectively as well as answer difficult questions during the Q&A session only happens when we have done one thing: prepare. This course, more than any other course, has taught us about the importance of preparation. Being the most knowledgeable person about our investment idea is crucial. Being a part of the Student Managed Investment Fund has given us the necessary skills to succeed in the investment industry with a head start on the rest of the competition.

The following are some memorable statements made by this school year’s student analysts:

“It is important to understand everything there is to know about a given company” –Eric McNew “The Applied Securities Analysis course aided me in developing a comprehensive professional skillset and exceptional qualitative abilities” –Klenton Perry “The class taught me how to talk and think like a professional analyst” -Brian Rohl “Stop thinking like a student and start thinking like a professional” –Michael Schopler “The class teaches you hard work and dedication and gives you a great idea of the workload that will be required of you in the real world” –James Steger “The Applied Securities Analysis program is the most distinguished experience finance students can get among undergraduate classes.”

-- Haomin Chen “This program has taught me more about myself and this world than I could ever imagine.”

-- Jonathan De Jesus “This program teaches students how to sell stocks as well as how to walk, talk and act like a finance professional.”

-- Matt Errico “The program enables students to gain first hand knowledge on the process of accepting a stock into a portfolio and all the responsibilities that following a stock entails.”

-- Julio Escalona “Through ASA, we gain invaluable hands-on experience, not available through typical courses. This experiential learning gives us a substantial advantage over other finance grads and puts us in the running for jobs once reserved for Ivy graduates.”

-- Daniel Dorman

University of South Florida Muma College of Business

14

ACTIVISION BLIZZARD INC (ATVI) Activision Blizzard (ATVI) is a worldwide publisher of online, Personal computer (PC), console, handheld, mobile, and tablet games. The company develops and publishes software products and content, with a focus on developing and publishing video games on various consoles.

Since Purchase

Key Statistics (As of February 2015)

ATVI

S&P 500

20%

P/E (TTM)

24.6

Fwd P/E

13.4

P/S

3.7

P/B

2.2

Dividend Yield

0.92%

Performance Since Purchase

10%

(4/28/2014 – 02/03/2015) Activision Blizzard Inc (ATVI) 9.6% S&P 500

11%

0%

2014 Performance Activision Blizzard Inc (ATVI) 10.5%

-­‐10% Apr-­‐14

S&P 500 (Benchmark)

Jun-­‐14

Aug-­‐14

Oct-­‐14

12%

Dec-­‐14

ORIGINAL THESIS

RISK

Activision Blizzard is known in the gaming community from titles such as World of Warcraft, Call of Duty, and Diablo. The company is positioned as a leader in the gaming industry and will capitalize on the high industry growth and upcoming catalyst.

Issues in execution and launch schedules Decrease of subscribers from World of Warcraft Consumers preference of competing products

The recent buyout of Vivendi’s stake in ATVI allows the company more freedom in development of new and existing platforms

Economic downturn and decrease in consumer spending

The Blizzard segment of ATVI is positioned to capitalize on growth in the digital market and internationally ATVI has a strong portfolio of games that represent recurring revenue A strong pipeline of new titles and additional content

University of South Florida Muma College of Business

15

BANK OF NEW YORK MELLON CORP (BK) The Bank of New York Mellon Corporation is a global financial services company that provides various financial products and services worldwide. It operates through Investment Management, Investment Services, and Other segments.

Since Purchase

Key Statistics BK

(As of December 2014)

S&P

P/E (TTM) 15.14

75%

Fwd P/E 16.83 P/S 2.94 P/B 1.25

50%

Dividend Yield

1.85%

Performance Since Purchase (2/21/2013 – 12/31/2015)

25%

Bank of N.Y. Mellon (BK)

46%

S&P 500 36% 0%

2014 Performance Bank of N.Y. Mellon (BK) -­‐25% Feb-­‐13

17%

S&P 500 12% May-­‐13

Aug-­‐13

Nov-­‐13

Feb-­‐14

May-­‐14

Aug-­‐14

Nov-­‐14

ORIGINAL THESIS

RISK

BK’s stock has experienced difficulties. Weakness can be traced back to 2008 and 2009 when losses plagued their investment portfolio and provisions for loan losses rose. Revenues fell as lower market volatility reduced securities lending and Foreign Exchange revenues. The anticipation of persistent low-interest rates, concerns in Europe, and litigation have compounded the negativity reflected in the current stock price. Although we realize these are serious and legitimate concerns in the near-term, we feel that the market is overly pessimistic on BK’s medium to long-term potential. We think that the stock is undervalued today and that BK possesses important drivers of growth that should eventually peer through, via favorable market sentiment. Given our long-term outlook, we believe BK provides reasonable growth at a depressed price.

Risks to our thesis include economic conditions leading to a continued low interest rate environment, slower fee growth, depressed equity values and transaction volumes, a lack of volatility in foreign exchange, higher than expected expenses, harsh regulatory environments, litigation, as well as credit deterioration.

University of South Florida Muma College of Business

16

CERNER CORPORATION (CERN) Cerner is a supplier of health care information technology (HCIT). The company designs, develops, markets, installs, hosts, and supports HCIT, healthcare devices, hardware, and content solutions for healthcare organizations and consumers worldwide.

Key Statistics (As of February 2015) P/E (TTM) 53.5

Since Purchase

Fwd P/E 27.4

CERN

S&P 500

P/S

7.2

P/B

6.7

Dividend Yield

20%

-

Performance Since Purchase (3/03/2014 – 12/31/2014) Cerner (CERN)

8%

S&P 500 (Benchmark)

10%

0%

2014 Performance

-­‐20%

Mar-­‐14

Apr-­‐14

May-­‐14

Jun-­‐14

Jul-­‐14

Aug-­‐14

Sep-­‐14

Oct-­‐14

Nov-­‐14

ORIGINAL THESIS

RISK

Health care providers are viewing investment in healthcare information technology as a key strategy to keep up with regulatory requirements, shifting reimbursement structures, and to qualify for government incentives. The Center for Medicare and Medicaid Services estimates that the United States spent $2.9 trillion in the health care sector in 2013. With the passing of the American Recovery and Reinvestment Act (ARRA), a key act that incentives the health care industry to modernize its operations, the healthcare information technology industry has seen strong demand for its products. We expect the health care industry to become extremely technological in the future and Cerner is in a key position to capitalize on this trend.

•

•

•

•

•

University of South Florida Muma College of Business

Cerner (CERN)

17%

S&P 500 (Benchmark)

12%

Dec-­‐14

Unforeseen regulatory changes The shifting regulatory environment continually calls for new standards in HCIT data base technologies.

Reduction in revenue backlog If Cerner were to lose contracts or fail to expand its customer base, its backlog and estimates of future revenue would decrease.

Pricing pressure from competitors The HCIT industry is extremely competitive. Both private and public companies might create pressure for Cerner.

Threat of new entrants Large companies such as GE and Microsoft have entered into the HCIT industry and this should not be overlook.

Over spending on software Cerner invests heavily in R&D to develop cutting edge solutions as well as meet industry standards. A significant change in regulatory standards for HCIT could hurt Cerner.

17

COMERICA, INC. (CMA) Comerica Incorporated, through its subsidiaries, provides financial, products and services primarily in three major US markets. The company operates in three major US markets. The company operates in three segments: Business Bank, Retail Bank, and Wealth Management.

Key Statistics (As of December 2014) P/E (TTM) 14.14 Fwd P/E 13.3 P/S 3.3

Since Purchase

P/B 1.1 CMA

S&P500

Dividend Yield

1.7%

15%

Performance Since Purchase (3/3/2014 – 12/31/2014) Comerica (CMA)

5.3%

S&P 500 (Benchmark)

9.3%

0%

2014 Performance Comerica (CMA)

.9%

S&P 500 (Benchmark)

12%

-­‐15%

Mar-­‐14

Apr-­‐14

May-­‐14

Jun-­‐14

Jul-­‐14

Aug-­‐14

Sep-­‐14

Oct-­‐14

ORIGINAL THESIS • • • •

CMA should see an improvement in total loan growth as the environment for small and medium sized businesses continues to improve (NFIB Small Business Optimism Index) CMA loan quality restrictions over the past few years have helped increase the quality of its balance sheet and sensitivity to changes in short-term rates The main districts that CMA operates in are seeing an increase in economic activity from businesses and loan demands as shown by the January Fed Beige Book CMA’s loan structure, 85% floating, allows them to take advantage of rising short-term rates, which the Fed could begin in 2015, as stated in the December FOMC minutes

University of South Florida Muma College of Business

Nov-­‐14

Dec-­‐14

RISKS •

•

Rates continue to stay low for a longer period of time from an economic downturn, thus keeping CMA’s net interest income lower than peers Exposure to the automotive and energy industry in an economic downturn could affect CMA’s credit quality

18

CUMMINS INCORPORATED (CMI) Cummins Inc. Was founded in 1919 and is based in Indiana. Cummins designs and manufactures engines and components for various commercial uses. The engines and supporting components are sold into various industries such as trucking, bus, rail, oil, construction and mining.

Since Purchase

Key Statistics (As of December 2014) CMI

P/E (TTM) 16.3

S&P 500

Fwd P/E 13.3

60%

P/S 1.39 P/B 3.3 Dividend Yield

2.2%

30%

Performance Since Purchase (3/19/2012 – 12/31/2014) 0%

Cummins (CMI)

21%

S&P 500 (Benchmark)

46%

2014 Performance

14

4

De c-­‐

t-­‐1

Oc

14 g-­‐

14

Au

4

n-­‐ Ju

14

r-­‐1

Ap

13

Fe b-­‐

3

De c-­‐

t-­‐1

13

Oc

g-­‐

13 n-­‐

Au

r-­‐1

3

Ju

13

Ap

12

Fe b-­‐

2

De c-­‐

t-­‐1

Oc

12 g-­‐

12

Au

n-­‐ Ju

Ap

r-­‐1

2

-­‐30%

Cummins (CMI)

4%

S&P 500 (Benchmark)

12%

ORIGINAL THESIS

RISK

Network effects provide repeat business for Cummins customers who utilize Cummins extensive network of dealers.

Research and development represents a significant expense to maintain competitiveness.

Fuel efficiency will drive demand for top quality engines only offered by Cummins.

Global growth slowdown especially in India and China could lead to lower than expected sales from those regions.

Innovation in engine manufacturing will lead to higher margin products and new revenue markets

$375 million of net income is derived from joint ventures and alliances where Cummins does not have unilateral control over management.

Replacement cycles in developed countries will drive growth above GDP

University of South Florida Muma College of Business

19

CSX CORP. (CSX) CSX Corporation, together with its subsidiaries, provides rail-based transportation services.

It offers traditional rail services and transports intermodal containers and trailers.

Since Purchase

Key Statistics CSX

(As of December 2014)

S&P 500

P/E (TTM) 18.0

100%

Fwd P/E 14.3 P/S 2.7

80%

P/B 3.0 Dividend Yield

1.9%

60%

Performance Since Purchase

40%

(4/9/2012 – 12/31/2014) CSX Corp (CSX)

64%

S&P 500 47%

20%

2014 Performance

0%

CSX Corp (CSX)

30%

S&P 500 12% 4 /1 10

14 7/

14 4/

14 1/

3 /1 10

13 7/

13 4/

13 1/

2 /1 10

12 7/

4/

12

-­‐20%

ORIGINAL THESIS

RISK

Continued expansion of fracking operations in the U.S. will drive demand for sand shipments

New regulations could affect the railroad industry’s ability to negotiate prices and could negatively affect earnings

Higher diesel prices will cause manufacturers and distributors to shift from trucking to railroads to transport goods

Failure to complete collective bargaining negotiations would result in strikes or work stoppages

An improving U.S. economy will drive demand for durable goods which will drive continued earnings growth

The transportation of hazardous materials could subject CSX to significant costs and claims

Strong cash flows will benefit shareholders in the form of stock buybacks and dividend increases

A severe recession would negatively affect railcar volumes and in turn earnings

University of South Florida Muma College of Business

20

EBAY (EBAY) eBay Inc. provides Online platforms, tools, and services to help individuals and merchants in Online and mobile commerce and payments. The firm operates in the U.S. and internationally through its three business segments: Marketplaces, Payments, and Enterprises.

Key Statistics (As of December 2014)

Since Purchase

P/E (TTM) 25.9 Fwd P/E 15.9 EBAY

S&P 500

P/S 3.7

15%

P/B 3.3 Dividend Yield

n/a

Performance Since Purchase (2/5/2014 – 12/31/2014) 0%

eBay (EBAY)

7%

S&P 500 (Benchmark)

11%

2014 Performance eBay (EBAY) S&P 500 (Benchmark) -­‐15% Feb-­‐14 Mar-­‐14

Apr-­‐14 May-­‐14

Jun-­‐14

Jul-­‐14

Aug-­‐14

Sep-­‐14

Oct-­‐14

Nov-­‐14

4% 12%

Dec-­‐14

ORIGINAL THESIS

RISK

Taking advantage of the secular shift to shopping anywhere, anytime, and from any device.

Potential for systems to be compromised Growth from competitors reduces market share and user growth

Delivering flexible and scalable solutions to improve the e Commerce experience of consumers and businesses

Global economy falls back into a recession

Providing trusted and secured payment solutions with PayPal, Bill Me Later, and Zong Helping businesses of all sizes bring their shopping experience to the Online customer

University of South Florida Muma College of Business

21

EMC CORPORATION (EMC) EMC Corporation, together with its subsidiaries, develops, delivers, and supports information infrastructure and virtual infrastructure technologies, solutions, and services.

Key Statistics (As of December 2014) P/E (TTM) 23.2

Since Purchase

Fwd P/E 12.2 S&P 500

P/S 2.1

EMC

P/B 2.4

20%

Dividend Yield

1.8%

Performance Since Purchase (3/3/2014 – 12/31/2014)

10%

13%

S&P 500 (Benchmark)

9%

2014 Performance

0%

-­‐10%

EMC Corporation (EMC)

March-­‐14

April-­‐14

May-­‐14

June-­‐14

July-­‐14

EMC Corporation (EMC)

19%

S&P 500 (Benchmark)

12%

August-­‐14 September-­‐14 October-­‐14 November-­‐14 December-­‐14

ORIGINAL THESIS

RISK

As companies harness more data, EMC’s ability to offer value added and scalable products make EMC a key player in the secular change to cloud computing and Big Data management.

Soft expenditures that are experienced in enterprise information technologies due to macroeconomic and industry specific events.

Fifty-fold growth in data from 2010 to 2020 to 40 zettabytes will drive growth for EMC Prolific inorganic acquisitions funded by $5.5 billion in FCF allow EMC to efficiently expand and capitalize on new technologies.

University of South Florida Muma College of Business

Cybersecurity breaches that may lead to adverse litigation and unforeseen costs.

Product obsoleteness that may cause both increasing costs and decreasing revenues.

22

FLUOR CORP. (FLR) Fluor Corporation, through its subsidiaries, provides engineering, procurement, construction, maintenance, and project management services worldwide. The company operates in five segments: Oil & Gas, Industrial & Infrastructure, Government, Global Services, and Power.

Since Purchase

Key Statistics P/E (TTM) 25.3 Fwd P/E 17.3 P/S 0.4 P/B 3.3 FLR

Dividend Yield

S&P 500

0.8%

60%

Performance Since Purchase (4/9/2012 – 12/31/2014)

40%

20%

2.9%

S&P 500 (SPY):

31%

2014 Performance

0%

S&P 500 (SPY):

12%

2 De c-­‐ 12 Fe b-­‐ 13 Ap r-­‐1 3 Ju n-­‐ 13 Au g-­‐ 13 Oc t-­‐1 3 De c-­‐ 13 Fe b-­‐ 14 Ap r-­‐1 4 Ju n-­‐ 14 Au g-­‐ 14 Oc t-­‐1 4 De c-­‐ 14

23%

t-­‐1

12

Fluor (FLR):

Oc

12

g-­‐

Au

n-­‐

Ju

r-­‐1

2

-­‐20% Ap

Fluor (FLR):

ORIGINAL THESIS

RISK

Over the next 25 years world economies will spend over $40 trillion on infrastructure projects

Contract costs may increase above estimates, resulting in reduced margins

Current backlog has exceeded $39 billion, substantially higher than most of its competitors

Revenues and earnings are highly dependent on awarded contracts; the firm does not directly control new awards

Continuing to increase exposure in emerging economies

Increased competition in the engineering and construction segment could reduce market share

Fluor has minimal exposure to government sponsored projects Demand for Fluor’s services and products is cyclical The firm has a strong balance sheet with excessive cash and equivalents, and low debt relative to its competitors

University of South Florida Muma College of Business

23

HERSHEY (HSY) The Hershey Company manufactures, markets, distributes, and sells chocolate and sugar confectionery products, pantry items, gum, and mint refreshment products.

Key Statistics

Since Purchase

(As of December 2014) P/E (TTM) 27.57

15% HSY

Fwd P/E 25.92

S&P 500

P/S 3.149

10%

P/B 15.11 Dividend Yield

1.96%

5%

Performance Since Purchase (04/25/2014 – 12/31/2014)

0%

Hershey -­‐5%

7%

S&P 500

9%

2014 Performance

-­‐10%

Hershey

S&P 500 -­‐15% Apr-­‐14

May-­‐14

Jun-­‐14

Jul-­‐14

Aug-­‐14

Sep-­‐14

Oct-­‐14

Nov-­‐14

9% 12%

Dec-­‐14

ORIGINAL THESIS

RISK

According to Euromonitor, the global retail market for confectionery products is worth approximately $196 billion. The Hershey Company (HSY) has shown the most consistent growth amongst large cap food companies in the U.S. in recent years, a trend that is likely to continue over our investment holding period. Emerging countries are the top drivers of growth in chocolate sales and HSY is capitalizing on the tremendous growth opportunities in this area as evidenced by the successful penetration of its products. Also, domestically HSY is adding value through acquisitions and new product innovations.

Weaker sales of confectionery products would lead to a lower growth rate than the one assumed in our analysis.

Given its current price and our valuation, we consider HSY to be undervalued and an attractive investment opportunity to add positive alpha to the SMIF.

University of South Florida Muma College of Business

The Hershey Trust Company is the controlling shareholder with approximately 80% of the voting power.

Unsuccessful company innovations would hinder growth and place downward pressure on sales.

The main raw materials that are a direct input cost in HSY’s products are sugar, cocoa and corn sweeteners. Volatility in these commodities would negatively impact margins.

24

PRECISION CASTPARTS CORPORATION (PCP) Precision Castparts (PCP) is a world leader in structural investment castings, forged components, and airfoil castings for aircraft engines and industrial gas turbines. Airbus, Boeing, GE, RollsRoyce, and many other leading manufacturers depend on PCP for critical airframe, engine, power generation and general industrial components.

Key Statistics

Since Purchase

(As of December 2014) P/E (TTM) 18.5 PCP

Fwd P/E 14.7

S&P 500

P/S 2.9

50%

P/B 2.5 Dividend Yield

.1%

Performance Since Purchase (4/9/2013 – 12/31/2014)

25%

28%

S&P 500 (Benchmark)

29%

2014 Performance Oc t-­‐1 3 No v-­‐ 13

De c-­‐ 13

Ja n-­‐ 14

Fe b-­‐ 14

M ar -­‐1 4 Ap r-­‐1 4 M ay -­‐1 4 Ju n-­‐ 14

Ju l-­‐1 4 Au g-­‐ 14

Se p-­‐ 14

Oc t-­‐1 4 No v-­‐ 14

De c-­‐ 14

13

Se p-­‐

3

13 g-­‐

Au

l-­‐1

Ju

3

13 n-­‐

Ju

-­‐1 ay

M

r-­‐1

3

0%

Ap

Precision Castparts (PCP)

Precision Castparts (PCP)

11%

S&P 500 (Benchmark)

12%

ORIGINAL THESIS

RISK

PCP mitigates risks of certain airline companies outperforming the industry by offering low costs for all jet craft engines.

Strong competitive moat by being one of the few large metal casting producers as well as producing components that demand a high level of expertise in addition to high manufacturing capacity.

Transparent growth with backlogged work orders that will drive revenue.

Improved profit margins on next generation aircrafts, which are set to start being manufactured in 2016 by Boeing and Airbus Management’s acquisition’s of Aerospace Dynamic International can expand their reach to next-gen aircrafts Acquisitions of Permaswage and Airdome strengthened the companies permanent and separable fittings segment.

Strong cash and financial position provides liquidity for organic growth and the ability to acquire other firms to increase manufacturing capacity

U.S. economy’s growth becomes stagnate, and consumer spending decreases

University of South Florida Muma College of Business

Heavy reliance on a few customers, Boeing, Airbus and GE Price fluctuations in raw materials Seasonal markets of aerospace and power generation markets Emerging markets demand for small sized aircrafts decrease

25

PACKAGING CORP OF AMERICA (PKG) Packaging Corporation of America manufactures and sells container board and corrugated packaging products globally.

Key Statistics

Since Purchase

(As of December 2014) 25%

PKG

P/E (TTM) 19.56

S&P 500

Fwd P/E 16.71

20%

P/S 1.296 P/B 4.948

15%

Dividend Yield

2.05%

10%

Performance Since Purchase

5%

(04/25/2014 – 12/31/2014)

0%

Packaging Corp of America

16%

S&P 500

9%

-­‐5%

2014 Performance

-­‐10%

-­‐15% Apr-­‐14

May-­‐14

Jun-­‐14

Jul-­‐14

Aug-­‐14

Sep-­‐14

Oct-­‐14

Nov-­‐14

Packaging Corp of America

26%

S&P 500

12%

Dec-­‐14

ORIGINAL THESIS

RISK

Packaging Corporation of America (PCA) has propelled itself into the fourth spot for container board manufacturing in the U.S. with the acquisition of Boise Inc. From the new position, the company also is a leader in the production of white papers in the U.S. PCA operates 8 mills and 98 corrugated products manufacturing plants that provide a wide variety of packaging solutions. The container board industry is highly correlated with the economy and therefore creates the basis for this investment as we see the macro economic environment recovering although at steady rates. The demand for corrugated packaging will grow from this trend and companies such as PCA will experience growth and ultimately lead to positive alpha for the SMIF.

A macroeconomic downturn would create oversupply and reduction in prices in the industry.

University of South Florida Muma College of Business

High competition in the market for container board products may crimp profits.

Increased usage of substitute products within the white paper and packaging industries.

26

SPX CORPORATION (SPW) SPX Corporation is a global supplier of specialized engineered solutions to power, energy, and food and beverage firms. The company is based in Charlotte, North Carolina, and generates $4.7 billion in revenue. Its key products include processing systems and components for the food and beverage industry, pumps, valves and filtration equipment used in oil and gas processing, power transformers used by utility companies, and cooling systems for power generation plants and HVAC applications.

Key Statistics (As of December 2014)

Since Purchase

P/E (TTM) 7.5 Fwd P/E 14.5 P/S .75 P/B 1.75 Dividend Yield

1.8%

Performance Since Purchase (11/12/2014 – 12/31/2014) SPX Corporation (SPX)

5.7%

S&P 500 (Benchmark)

.94%

2014 Performance SPX Corporation (SPX)

12%

S&P 500 (Benchmark)

12%

ORIGINAL THESIS

RISK

There is an announced spin off of SPX Corporation. In the fiscal year 2015 the company will be split into Flow Company and SPX Corporation. Flow Company will become a pure play on flow technology serving multiple industries. SPX will retain the industrial products and thermal equipment segments, which are seeing strong growth from industrial production and a strong U.S. economy.

Oil Exposure, the stock has recently been punished for its exposure to the energy market. 25% of the firm’s revenue stems from the oil and gas industry. Once the spin off occurs, only the future Flow company will have exposure to the oil markets. In the long term the spin off will enable both companies to focus more on their operations and enter into new growth markets. Flow Company will continue to increase its food and beverage segment and after-market sales and lower its direct exposure to the energy market.

The continued improvement in the U.S. economy will drive domestic revenue for the firm.

After-market sales will be a key component in all segments of the firm. SPX enters into contracts with major corporations for 25 years.

These contracts will provide billions of dollars of revenue for the firm over the investment horizon.

Global Exposure, Currently half of the firm’s revenue is overseas. This brings foreign currency risk from a stronger dollar as well as geopolitical tensions that adversely affect the areas that SPX conducts business in.

The firm mainly operates in EMEA and Asia - Pacific.

SPX Infrastructure segment has major backlog orders, which will provide a solid revenue stream in the next two years.

University of South Florida Muma College of Business

27

SYNAPTICS (SYNA)

Synaptics develops and supplies human-interface solutions to electronic device manufacturers. SYNA makes computer chips that control touchscreens, touchpads, and fingerprint sensors. It developed the first “touchpad” for laptops. Its customers include: Samsung, Apple, HTC, Lenovo, Microsoft, and Huawei.

Key Statistics (As of December 2014) P/E (TTM) 77 Fwd P/E 12 P/S 3

Since Purchase

P/B 4

S&P 500

50%

SYNA

Dividend Yield

N/A

Performance Since Purchase (4/28/2014 – 12/31/2014)

30%

SYNA

12%

S&P 500 10%

2014 Performance

10%

SYNA

37%

S&P 500 12%

14 cDe

4 No v1

4 ct -1 O

14 pSe

4 -1 Au g

4 l-1 Ju

14 nJu

4 ay -1 M

Ap r-1

4

-10%

ORIGINAL THESIS

RISK

Expected compund annual growth rate of more than 13% for mobile device sales. This along with the technological evolution to greater ease of use of computing technology will drive demand for SYNA’s products. By generating more of its revenue from mobile device sales, SYNA is well positioned to capitalize on trends in favor of mobile computing while holding leading market share in the laptop touchpad market.

Commodization: • The commodization of touchscreen computer chip offerings remains a risk to SYNA’s business model, but the firm mitigates this risk as it holds hundreds of patents.

Slower than expected economic growth: • Growth domestically and abroad disappointed in 2014; however, SYNA’s operating performance remains strong, the majority of its business is driven by less expensive devices by Samsung, and consensus expectations are notoriously too optimistic.

Slower Mobile Growth: • SYNA’s mobile segment disappointed in Q1 2015 as mobile growth surprised to the downside; however, sales were boosted by greater than expected PC growth and Q2 mobile growth rebounded nicely.

Vertical Integration from OEMs: • SYNA’s retains its key customers contracts, while vertical integration remains a potential threat.

• •

Increase in touchscreen technology Biometric scanning used to facilitate secure mobile commerce

University of South Florida Muma College of Business

28

WHIRLPOOL CORPORATION (WHR) Whirlpool Corporation manufactures and markets home appliances and related products worldwide. The company’s principal products include laundry appliances, refrigerators and freezers, cooking appliances, dishwashers, mixers and other portable household appliances.

With about 40% and 45% of market share in North America and Latin America, respectively, Whirlpool has the number one market share in those two regions. Its strong portfolio products include six brands: Whirlpool, Maytag, KitchenAid, Brastemp, Consul and Embraco.

The company operates in four segments: laundry, appliances, refrigerators and freezers, cooking appliances and other.

Key Statistics (As of December 2014) P/E (TTM) 21.33 Fwd P/E 13.97

Since Purchase

P/S 0.83 WHR

P/B 3.02

S&P 500

Dividend Yield

30%

1.5%

Performance Since Purchase (04/25/2014 – 12/31/2014)

20%

Whirlpool

S&P 500

31% 9%

10%

2014 Performance Whirlpool 0%

-­‐10% May-­‐14

Jun-­‐14

Jul-­‐14

Aug-­‐14

Sep-­‐14

Oct-­‐14

Nov-­‐14

24%

S&P 500

12%

Dec-­‐14

ORIGINAL THESIS

RISK

The success in the stock lies in the housing market recovery since the financial crisis, low unemployment rate, and the recent temporary oil prices. The company still has the potential to further penetration foreign markets.

Interest Rates- Rapidly increasing interest rates, domestically and/or internationally

Replacement cycle for WHR appliances will drive a solid revenue stream over the investment horizon.

Foreign Exchange- Strength relative to the U.S. dollar affects sales and cost of goods sold. Operations would improve if the dollar weakened compared to foreign currencies Possible stagnation in the U.S. housing market

Analysts not accounting for positive trends and developments; Aging appliances leading to an increase in replacement sales; Recovery in new and existing U.S. home sales.

University of South Florida Muma College of Business

Civil unrest in important emerging markets

29

Prepared by: 2015 Analyst Group For more information please visit: http://www.usf.edu/ business/departments/finance/smif/ Disclosures:

University of South Florida Muma College of Business