Elevator Pitch

Our strategy is based around growth investing and dividend investing, which will generate high income for Hilary, who is young and therefore has higher risk tolerance. We identified stocks with high growth rates and strong dividends whilst tailoring the portfolio to Hilary’s passions and interests. We also focused on companies that sponsored the LA2028 Olympics and promoted women in high leadership positions. We invested internationally, particularly in South America to hedge against currency risk. 

Uniqueness

Focusing on our client’s personal preferences, we emphasized on investing in Olympic sponsors. This includes Nike, which sponsors US Women’s Gymnastics and has many women in leadership positions. We allocated the funds into short term and long term to reflect her goals and risk appetite. The team invested in international stocks to manage currency risk for Hilary’s South American property, as well as REITs given Hilary’s deep interest in real estate and its generational benefits.

Advisor Reflection

Advising this team has been an immensely rewarding experience. In a market environment transformed by AI's rise and the widespread impact of COVID-19, the students have adeptly navigated a variety of factors to construct their investment portfolio. Their ability to employ a mix of technical and fundamental analysis for evaluating investment options, coupled with their keen interest in current economic trends, has been a highlight. The students' dedication is likely to propel them significantly in the realms of business and finance. Their deep engagement with contemporary issues and an intellectual curiosity geared towards forecasting market trends will undoubtedly benefit their future professional journeys. This competition has not only been a platform for learning but also for applying real-world skills. I believe the precedent set by this team will also inspire future cohorts from Palos Verdes Peninsula High School.

Trading Note 1: “[Dollar Tree] has a lot of room for growth right now since it's at the low end of 52-week range. PE ratio is reasonably high, and historically, dollar stores tend to grow during periods of economic instability(right now with high inflation and later during the probable 2027 crash). It is not very volatile.”

Dollar Tree fits our investment strategy that prioritizes high growth and high returns for the long term. The stock performed strongly in recent weeks, outperforming the market and our names in the portfolio. We allocated more into the name as consumers becoming more price-sensitive would lead to stronger sales for Dollar Tree.

Trading Note 2: “Investing in the S&P 500 reduces non-systematic risk because it is a large ETF with diversified holdings across the market. Our portfolio has been struggling with stocks that were too volatile. The S&P 500 can help counterbalance that volatility and bring more steady income to our portfolio.”

The VOO ETF has an annual average earnings growth rate of 18.3% for the past five years with significant diversification. We allocated more funds to this ETF to lower the overall portfolio volatility. In the third quarter earnings seasons, our portfolio proved to be volatile. Given the ETF’s track record, it is good for capital growth and portfolio stability. 

WInS Portfolio and Recommended Portfolio(By Sector/Type of security):

The WInS Portfolio mirrors the Recommended Portfolio through rigorous stock analysis, considering various factors like business models, competition, finances, and client preferences—ensuring Hilary gets the optimal mix. Our considerations span macro and microeconomics, aligning with Hilary's risk tolerance. We balance growth potential with stability; high-growth stocks promise returns while dividend stocks ensure income and reliability, focusing on sustainable dividends and low payout ratios for future growth. 

Augmenting this blend, treasury bonds bolster stability and potential reinvestment during market declines. We earmarked $13,000 for US Treasury bonds, aiming for a 4.23% interest in five years, projecting a 23.01% return, and a 4.14% interest in ten years, anticipating a 50.02% return—solidifying a balanced, growth-oriented, and secure portfolio strategy for Hilary's future financial success.

Main Report

Our client, Ms. Hilary Ash, is a 32 year old woman who graduated from Wharton School and has a passion for sports. Having previously worked as a consultant for BCG, Ms. Ash is currently involved with the 2028 Olympics in Los Angeles. Working for the global sports event allows her to both use her talent and also pursue her passion in sports. She is married and has a strong interest in real estate and travel.

Ms. Ash hired us to help her meet her intermediate and long-term and financial goals. Her intermediate goal is to renovate her South American property within five years, immediately following the Olympic games. Ms. Ash’s long-term goal is to launch her own women-owned sports consulting-firm within fifteen years. Based on these goals, we tailored our investment strategy to generate the highest returns possible with minimal risk. We invested in growth sectors such as technology, healthcare and consumer discretionary for long-term capital appreciation. We invested in REITs, consumer staples, well-established communication companies and the energy sector for income and stability.

Technology

During the past 5 years, NVDA’s share price has increased 1000% and tripled since January of 2023. Although it might be risky to invest in such a high-growth stock, the team decided that it is a good long-term investment because of its prominent future as a top GPU center for AI technology. 

The team’s decision was proven with great success over the past few months. On November 13th, Nvidia’s introduction of its H200 computing platform for training artificial intelligence models drove the stock up 0.6%. This was predicted in our team’s midterm report, as the main reason why the team invested in NVDA is that it was technology and as the leading GPU center in AI technology, backed with Microsoft’s ChatGPT. 

As demand for artificial intelligence technology will continue to increase, the team predicts that NVDA will stand strong in the long term, allowing them to benefit from the demands of companies using AI intelligence to boost their productivity and drive innovation. Moreover, on November 29th, the CEO of Nvidia told the audience that AI will rival human capabilities in as few as the next 5 years, which will greatly escalate the stock price.

To balance the risks of investing in a volatile stock such as NVDA with a 1.73 beta score, the team’s second investment was Visa inc, with beta of 0.95. Visa supports roughly 40% of worldwide cashless payments and has had a steady average price per earnings ratio of 32.58 over the past years. Both companies are innovative and committed to staying at the forefront of technological advancements, as well as leaders of their respective industry subsectors, making them solid choices for long-term investment.

Healthcare

The healthcare sector is relatively stable and developing rapidly alongside technology. It thrives off of the growing population’s desire for longer and healthier lives. Companies like Illumina, United Health, and Pfizer lead this growth.

Illumina is a company that focuses on sequencing the human genome. Despite recent challenges in Q3 of 2023, which involved a change in leadership and a forced divestiture of their recent acquisition GRAIL, their business model remains sound . Their technology is years ahead of its competitors and will provide steady earnings. Similarly, Pfizer faced headwinds, as the world’s demand for the Covid vaccine declined. However, the demand for non-Covid products has improved (Q3 financial statement) and will steadily increase in the near future. 

UnitedHealth is the leader in HMO and healthcare products. They are yielding steady and high returns, with 14% growth in both revenue and operations (Q3 Financial statements) and since people will always need healthcare to ensure they can stay healthy during difficult times, UNH will provide consistent income for as long as our client needs it to. This growth and stability will help fund Hilary’s goal of renovating her property and set her up for her primarily-woman consulting firm.

Given Q3 earnings and each respective company’s financial statements, these companies have sound business models and high projected growth.

Consumer Discretionary

An investment we made in the consumer discretionary sector is Nike, which is a steady stock with an average annual return above the S&P 500, and is considered to be undervalued by many Wall Street experts. It has revenues higher than many competitors such as Skechers and Lululemon, and dominates the market share of the sports apparel industry at around 33% relative to competitors. Its high P/E ratio of 35.44 may signal a high market price, but it is justified by Nike’s performance relative to competitors as well as its financial health, and Nike’s annual sustained growth shows that it is a worthwhile investment. The dividend yield is at 1.28%, with a payout ratio of 45.68%, and it has a consistent track record of increasing its dividend annually, which means it will be extremely profitable for long term investment. It is also a sportswear company and a major sponsor of the LA 2028, which caters to Ms. Ash’s love of sports as well as her heavy involvement with the event.

Another investment that balances Ms. Ash’s goals with her deep interests is Marriott International, a hotel company that caters to her love of real estate and travel. With properties across 139 different countries and territories, it is uniquely positioned for her interest in various cultures, and its affiliation with various sports teams also helped influence the team’s decision to invest. Beyond that, the stock is a high performer, increasing by 28.33% in the past year alone, compared to major competitor Hilton’s 23.48%, and bounced back from Covid with higher percentages than competitors Hilton, IHG, and Wyndham. With higher cash flow and an overall positive outlook for the company in the future, as well as its sustainable dividend at a payout ratio of 22.03%, the stock is likely to bring in big returns for our client’s portfolio.

With other known brands such as Tesla and Carnival Cruise Line, all dominant in their respective industries and stocks with high returns and dividends, the consumer discretionary sector of Ms. Ash’s portfolio is well primed to see returns that will not only meet her financial goals but exceed it.

Real Estate (REITs)

Given Ms. Ash’s interest in real estate, specifically with renovating her South American property, we chose to invest in this sector. The real estate market has continued to recover since 2020, with property appreciating and urban sprawl driving prices up in the US and abroad. We considered business models, prior share history, and recent acquisitions to determine a shorter or longer investment horizon for each stock.

Digital Realty Trust (DLR), an online solutions provider, has a P/E of 95.3x and was recently chosen by the European Union to oversee Oracle’s Sovereign Cloud, which will provide business cloud solutions throughout the EU and address the Union’s evolving regulatory digital landscape. The products DLR offers directly support the tech industry, allowing major growth of the company and profitability for investors. Pertaining to Ms. Ash’s financial goals, DLR is a great short-term investment which could be part of her $15,000 return over the next five years.

Along with investing in high-growth companies, we invested in Extra Space Storage (EXR) and Public Storage (PSA), two storage companies with high dividends and whose proven business models date back to the 1970’s . Both stocks dipped following 2020, but as consumers ease back into spending, the demand for storage will increase, proving to be a profitable investment for Ms. Ash to hold over a longer period. Extra Space recently bought Life Storage, increasing their store count by 40% domestically. Similarly, Public Storage acquired Simply Safe Storage, gaining more than 100 stores across 18 states. The two companies are leaders in storage and will not be toppled by new entrants into the market due to their massive operations. Society has scarcely taken to minimalist culture, ensuring the demand for storage units will exist for the foreseeable future. By investing in the two leading storage companies, we look to diversify our portfolio and minimize losses, generating long-term profit to meet Ms. Ash’s long-term goals.

Physician’s Realty Trust (DOC) emerged as a profitable stock due to their merger with Healthpeak Properties announced late October. Physician’s Realty Trust invests in many types of healthcare properties, including stabilized medical offices, rehabilitation facilities, and long-term acute care hospitals. Since DOC invests in healthcare and has major growth opportunity, we felt confident the company could benefit Ms. Ash’s portfolio over a long-term horizon.

On our investments, we saw returns of 11.27% for DLR, 10.12% for EXR, 12.11% for DOC, and -3.36% for PSA, though we maintain our stance on PSA’s long-term profitability given the company’s historical success.

Consumer Staples

The consumer staples sector is one of incredible growth and stability given its importance in consumers’ daily lives. We have carefully selected a few companies that have shown high past returns or have the potential to see great gains in the future. Due to the sector’s nature of steady growth for long periods of time, we have decided to put its returns toward Hilary’s long term goal of starting her own sports consulting firm.

One company we identified with high past growth was Coca-Cola generating high returns and consistently outperforming its competitors. Its high dividend yield at 3.14% is above that of many comparables such as Pepsi and Dr. Pepper. Its P/E Ratio is 23.6, valued attractively compared to the industry’s P/E Ratio of 26.6. Despite current American pessimism towards the beverage industry, its P/E Ratio is bound to grow when public opinion changes. 

A company we believe has great growth potential is Hershey's, which has an average price target of 215.50 (16% upside) with some investors believing that it can be much higher. It has a history of consistent growth, dominant media presence, and an annualized 3-year dividend growth of 9.02% that has pushed its dividend yield to 2.57%. Its high institutional ownership percentage (56.47%) signals market trust in the company. Its return on equity and return on invested capital is higher than most of the industry, and the stock price is currently close to the 52-week low, meaning that it has a lot of potential to grow and generate returns.

Communication Services

Broadcom presents an appealing investment with its relatively low P/E ratio, indicating an attractive valuation. Additionally, Broadcom's EBITDA of 20.07 surpasses the industry average of 4.45, suggesting financial strength. The growing demand for domestic semiconductor production further positions Broadcom for potential expansion, making it an interesting consideration for investors.

Turning attention to Comcast, the stock is currently undervalued due to concerns about declining demand for cable services amidst the surge in popularity of streaming platforms. However, Comcast has a silver lining with its other broadband services experiencing substantial growth rates. This aspect of the business may not be fully reflected in its current undervalued status, offering potential opportunities for investors who recognize the broader spectrum of Comcast's services.

In the tech industry, Meta, formerly known as Facebook, stands out with its superb 40% operating profit, surpassing industry standards. Although Meta carries a relatively high P/E ratio of 28.10, this valuation is justified by its projected revenue growth. Industry experts predict a substantial 13% increase in revenue for the coming year, bolstering Meta's position as an investment consideration despite its higher valuation.

Shifting focus to Disney, the company appears to be a favorable buy at the moment. Disney's streaming service consistently gains subscribers, and the stock price is near its 52-week lows, providing an entry point for potential investors. With a market cap of 167.47B and a P/E Ratio of 71.13, Disney's market position remains robust. The company's 52-week performance range suggests a dynamic market presence and potential for future growth.

Energy

In the energy sector, several of the stocks invested are of the Latin American market, which can be used to directly fund Hilary’s investment property in South America. A strength in the energy sector is that it is recession proof; people will always need and buy energy.

While deciding which stocks to invest in, we split the companies between their short term potential and their long term potential. The short term stocks within the energy sector include companies that drill and sell energy.  The main weakness of oil and gas based stocks is that their trade has a big influence on worsening climate change. As a result, a large threat to the gas and oil companies are newer companies that specialize in renewable energy. This threat of substitution, which is one of Porter’s five forces, makes investing in drilling and processing energy companies riskier. However, this change is expected to happen by 2025, and profit could be generated before then. As a result, we invested in Chevron, Exxon Mobil, Petrobras, and Ultrapar. The latter two are South American companies. Since developing markets grow faster, they are in positions to  hedge against currency risk and take advantage of a rapidly growing market. Ultrapar is an example of a rapidly growing company, as it had a 25.83% gain in our profile and has a P/E ratio of 16.26, which we considered as an appealing investment.

On the other end, there are companies that specialize in the transportation and storage of energy. While the companies that we invested in mainly transported and stored  oil and gas, they can adapt to storing and transporting biofuels and other forms of renewable energy. Their threat of substitution is low, so these types of companies can be considered a long term investment. We invested in Kinder Morgan with a P/E ratio of 15.91, which is attractively priced compared to the energy sector P/E 20.2. According to our DCF analysis, KMI has an implied share price of 19.98, which is a 13.78% upside and makes it reasonable to invest since share price will increase.

In total, we bought 155 shares of energy stocks, spending $3924.80 and profiting $70.11 from our energy investments. This gives us a P/L% of  0.179% for the energy sector. While the energy sector certainly is profitable, it may not be at the same margin as other sectors.

Conclusion

Having analyzed our portfolio successes and drawbacks writing the mid-term report, we revised our strategy which still focuses on investing in growth companies and strong dividend stocks while also considering equities and fixed income ETFs to provide diversification and reduce the overall portfolio risk. From our mid-term submission to end of trading (roughly one month) our portfolio grew 4.2%, affirming our updated strategy. We are confident in our final portfolio proposal and hope to assist Ms. Ash in furthering her financial goals.

Works Cited:

- 01, D., Speights, K., & The Motley Fool Founded in 1993 in Alexandria. (2023, December 1). Nvidia CEO Jensen Huang says that AI will rival human capabilities in 5 years. here are 4 stocks to buy now if he’s right. Nasdaq. nasdaq.com/articles/nvidia-ceo-jensen-huang-says-that-ai-will-rival-human-capabilities-in-5-years.-here-are-4#:~:text=Nvidia%20(NASDAQ%3A%20NVDA)%20CEO,as%20few%20as%20five%20years 

- Gelles, D., Plumer, B., Tankersley, J., Ewing, J., Dominguez, L., & Popovich, N. (2023, August 13). The Clean Energy Future is arriving faster than you think. The New York Times. nytimes.com/interactive/2023/08/12/climate/clean-energy-us-fossil-fuels.html

- Digital Realty to provide seamless access to Oracle EU Sovereign Cloud. Digital Realty. (2023, September 18). digitalrealty.com/about/newsroom/press-releases/123212/digital-realty-to-provide-seamless-access-to-oracle-eu-sovereign-cloud 
Schwartz, S. (2023, November 9).

- Illumina Reports Financial Results for Third Quarter of Fiscal Year 2023. s24.q4cdn.com/526396163/files/doc_earnings/2023/q3/earnings-result/Earnings-Release-2023-Q3.pdf 

- UnitedHealth Group Reports Third Quarter Results. (2023, October 13). www.unitedhealthgroup.com. unitedhealthgroup.com/newsroom/2023/2023-10-13-uhg-reports-third-quarter-results.html‌

- Extra space and life storage stockholders approve merger. Extra Space Storage Inc. (2023, July 18). ir.extraspace.com/news-releases/news-release-details/extra-space-and-life-storage-stockholders-approve-merger 

- Public storage accelerates growth with simply self storage acquisition. Public Storage. (2023, July 24). investors.publicstorage.com/news-events/press-releases/news-details/2023/Public-Storage-Accelerates-Growth-with-Simply-Self-Storage-Acquisition/default.aspx 

- Physicians Realty Trust - Investors. docreit. (2023, October 30). investors.docreit.com/news-events-market-data/press-releases/news-details/2023/Healthpeak-Properties-and-Physicians-Realty-Trust-to-Combine-in-an-All-Stock-Merger-of-Equals-to-Create-the-Pre-Eminent-Owner-Operator-and-Developer-of-Real-Estate-for-Healthcare-Discovery-and-Delivery-An-Attractive-and-Growing-Market/default.aspx 

- Yahoo! (2023, December 10). Ultrapar Participações S.A. (UGPA3.SA) valuation measures & financial statistics. Yahoo! Finance. finance.yahoo.com/quote/UGPA3.SA/key-statistics?p=UGPA3.SA 

- How does the Consumer Price Index affect the stock market? (2023, December 8). MarketBeat. marketbeat.com/originals/how-does-the-consumer-price-index-affect-the-stock-market/