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General Meeting 1

September 11, 2012

Meeting Agenda
Introduction of the Board Overview of USIT Investing from Scratch Name that Blue Chip Market/Portfolio Update Stock Pitch Announcements

What Sets USIT Apart?

Cash Portfolio McCombs Most Outstanding Unrivaled Performance 1-on-1 Mentorship

Joining USIT Is Easy!

Get on Our Mailing List Fill Out an Application Pay Your Dues

Leadership Positions
Logistics Chair Membership Chair Treasurer Technology Chair SCG Analyst

Investing From Scratch

What Are Your Goals?

Goals Determine:
Time Horizon Risk Tolerance Portfolio Allocation

Opening A Brokerage Account

Choose An Online Broker Apply for An Account Transfer Funds into Account

Where to Put Your Money


Most Common
Equities (Stocks) Debt (Bonds) Mutual Funds

Less Common
REITs Options Foreign Exchange Market (Forex)

Sample Retirement Portfolio

What Goes into An Investment?


Investment Thesis
Main Premise of Investment Decision

Company Assessment Financial Analysis


Trends in Key Metrics Models Ratios

What Goes into An Investment?


Industry Analysis
Who are the major players? What drives growth? Where is this industry headed?

Competitive Advantage Risks and Mitigants Technical Analysis

Name That Blue Chip

Name That Blue Chip


Company A 5 pts.
United States-based bank $2.3 trillion in assets Founded in 1799 Former employer of the London Whale

Name That Blue Chip

Company B 5 pts.
Sector: Pharmaceuticals Currently issuing $2.5 billion in debt Largest Products: Singulair, Gardasil, Propecia 86,000 employees globally

Name That Blue Chip


Company C 5 pts.
Products used in aircraft, automobiles, commercial transportation, packaging, building and construction, oil and gas, defense, consumer electronics, and industrial applications Enterprise Value: $24.3 billion Third largest producer of aluminum globally

Name That Blue Chip


Company D 5 pts.
Sector: Commodity Chemicals Ticker: DD Segments: Agriculture, Electronics & Communications, Industrial Biosciences, Nutrition & Health, Performance Chemicals, Performance Coatings, Performance Materials, Safety & Protection, and Pharmaceuticals

Name That Blue Chip


JP Morgan Chase
United States-based bank $2.3 trillion in assets Founded in 1799 Former employer of the London Whale

Name That Blue Chip

Merck & Co., Inc.


Sector: Pharmaceuticals Currently issuing $2.5 billion in debt Largest Products: Singulair, Gardasil, Propecia 86,000 employees globally

Name That Blue Chip


Alcoa, Inc.
Products used in aircraft, automobiles, commercial transportation, packaging, building and construction, oil and gas, defense, consumer electronics, and industrial applications Enterprise Value: $24.3 billion Third largest producer of aluminum globally

Name That Blue Chip


E I Du Pont De Nemours and Co.
Sector: Commodity Chemicals Ticker: DD Segments: Agriculture, Electronics & Communications, Industrial Biosciences, Nutrition & Health, Performance Chemicals, Performance Coatings, Performance Materials, Safety & Protection, and Pharmaceuticals

Name That Blue Chip


List as many companies as you can on the list of the largest 20 companies by market capitalization
Youll get 1 point for each name on the list Youll lose half a point for any names not on the list

You have 2 minutesGO!

Name That Blue Chip


Rank
1 2 3 4

Company
Apple Exxon Mobil Microsoft Wal-Mart AAPL XOM MSFT WMT

Ticker

Market Cap
621.26 413.03 257.54 247.10

5
6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

IBM
Google General Electric Chevron AT&T Berkshire Hathaway Procter & Gamble Johnson & Johnson Wells Fargo Pfizer Coca-Cola Oracle Philip Morris International JPMorgan Chase Merck

IBM
GOOG GE CVX T BRK-A PG JNJ WFC PFE KO ORCL PM JPM MRK VZ

229.64
229.17 226.80 223.61 215.88 214.65 188.70 187.98 182.71 180.01 169.54 157.75 149.39 147.24 134.80 125.52

Verizon Communications

Summer Headlines

Summer Headlines
2012 Olympics
Local economy boost

All recent Olympic hosts have outperformed the MSCI World index in the 12 months following the Olympics.

Summer Headlines
Chinas economic slowdown
How has this affected the US market?

The US market has held up well on hopes of more easing from Federal Reserve and important economic indicators.

Summer Headlines
Knight Capital Group Apple vs. Samsung Presidential Race Euro Crisis

Portfolio Update

Portfolio Update

Verizon (VX US)


John Connell Parker Kim Billy Xu Daniel Amin

Presentation Overview
Introduction & Investment Rationale Company Overview Industry & Competitive Landscape Technicals & Financial Analysis

Risks & Mitigants


Q&A

Investment Rationale
Key Takeaways Chinas Real Estate Bubble Defensive play
Wide economic moat Limited headline risk Strong fundamentals

Crisis, instability, and inflationary risk: where should USIT allocate its capital in equities?

European Crisis/Instability

Student Loan Bubble

Company Overview
Verizon is a provider of mobile phones, accessories, and the voice and data services necessary for their utilization
Verizon Business 14% Other 0% Voice and Global Services 32%

Verizon Telecom 23%

Data Services 21%

Other Wireless Businesses 3%

Equipment 7%

Provides television, internet, and phone services for the at-home consumer Offers varying levels of bundling solutions to customers based on need Tied with AT&T as largest wireless company (by subscribers)

Financial Highlights
Revenue
120 110 100 90 80

Free Cash Flow

Key Takeaways 16
Solid cash generation 8 Consistent dividend 4 growth 0 2007 2008 2009 2010 2011 2007 2008 2009 2010 Strong top-line generation despite Operating Cash Flows Dividends Per Share recession 2.1
2 1.9 1.8 1.7 1.6 1.5 2007 2008 2009 2010 2011 2007 2008 2009 2010 2011 12

20

2011

40 30 20 10 0

Industry Analysis
1

Power of Suppliers

Phone spectrum is auctioned off by the government with no input on who can or cannot buy
2

The big 4 offer the same catalog of phones and devices with few exclusives, as well as similar pricing plans
3

Threat of Substitutes

Barriers to Entry

High capital requirements and auctioning rather than direct sales of wireless spectrum limit the possibility of new entrants entering the market
4

Power is concentrated in the hands of 4 major players: ATT, Verizon, T-Mobile, and Sprint with a collection of small carriers
5

Intensity of Rivalry

Power of Buyers

Contracts keep movements between carriers in the short term at a minimum

Competitive Advantage

More 4G LTE coverage than all other carriers combined


Provides access to highly populated and trafficheavy areas Entrenched in core areas, expanding to periphery

Large cash reserves, strong FCF generation, dividend


Steady FCF generation despite economic downturn Recent increase in dividend by 3% marks sixth consecutive increase

Advanced technology and cutting-edge products


Provides services to the latest phones, both Apple and Android products 4G LTE program is top-ofthe-line, expanding all across US by 2013

Technical Analysis

Technical Analysis (contd)

Technical Analysis (contd)


Key Takeaways
Buy: $41.00 $42.00 Resistance at $45.00 Re-evaluate in 12 months

Financial Metrics
P/E Ratio Profit Margin Operating Margin ROA ROE EPS

43.67

2.53%

17.97%

5.65%

12.72%

1.01

--

-11.09%

0.88%

-0.35%

-34.06

-1.28

49.96

3.48%

13.55%

4.01%

4.30%

0.75

Discounted Cash Flow


Conservative Projections:
Assumptions
Revenue Cost of Sales Gross Profit Gross Margin SG&A Expenses EBIT EBIT Margin NOPAT D&A Change in NWC CapEx FCF DCF Terminal Value Enterprise Value 2011 2012 $110,875.00 $113,092.50 $45,875.00 $46,792.50 $65,000.00 $66,300.00 59% 59% $52,120.00 $12,880.00 12% $54,210.01 $12,089.99 11% Projected 2013 2014 2015 2016 $114,223.43 $115,365.66 $116,519.32 $117,684.51 $47,728.35 $48,682.92 $49,656.58 $50,649.71 $66,495.08 $66,682.74 $66,862.74 $67,034.80 58% 58% 57% 57% $56,649.46 $9,845.61 9% $58,915.44 $7,767.30 7% $61,272.06 $5,590.68 5% $4,360.73 $19,481.74 ($225.00) $3,187.38 $20,880.09 $17,178.10 $63,784.21 $3,250.59 3% $2,535.46 $20,455.83 $150.00 $3,283.00 $19,558.29 $15,324.43 $ 130,385.31 $ 196,534.79

WACC Tax Rate Exit Multiple Share Price

5% 22% 5.5 44.06

$10,046.40 $9,430.19 $16,496.00 $17,320.80 ($300.00) $500.00 $16,244.00 $2,900.00 $10,598.40 $23,350.99 $22,239.04

$7,679.58 $6,058.49 $18,186.84 $18,732.45 ($450.00) $300.00 $3,001.50 $3,091.55 $23,314.92 $21,399.40 $21,147.32 $18,485.60

Calculations Enterprise Value $ 196,534.79 Less Net Debt $ 52,800.00 Equity Value $ 143,734.79 Shares Outstanding 2850 Value Per Share $ 50.43 Implied Discount 14.46%

Discounted Cash Flow


Aggressive Projections:
Assumptions
Revenue Cost of Sales Gross Profit Gross Margin SG&A Expenses EBIT EBIT Margin NOPAT D&A Change in NWC CapEx FCF DCF Terminal Value Enterprise Value Projected 2011 2012 2013 2014 2015 $110,875.0 $113,092.5 $114,223.4 $115,365.7 $116,519.3 $45,875.0 $46,792.5 $47,728.4 $48,682.9 $49,656.6 $65,000.0 $66,300.0 $66,495.1 $66,682.7 $66,862.7 58.6% 58.6% 58.2% 57.8% 57.4% $52,120.0 $54,210.01 $56,649.46 $58,915.44 $61,272.06 $12,880.0 $12,090.0 $9,845.6 $7,767.3 $5,590.7 11.6% 10.7% 8.6% 6.7% 4.8% $10,046.4 $9,430.2 $16,496.0 $17,320.8 ($300.0) $500.0 $16,244.0 $2,900.0 $10,598.4 $23,351.0 $22,239.0 $7,679.6 $18,186.8 ($450.0) $3,007.3 $23,309.1 $21,142.1 $6,058.5 $18,732.4 $300.0 $3,112.6 $21,378.4 $18,467.5 $4,360.7 $19,481.7 ($225.0) $3,205.9 $20,861.5 $17,162.8 2016 $117,684.5 $50,649.7 $67,034.8 57.0% $63,784.21 $3,250.6 2.8% $2,535.5 $20,455.8 $150.0 $3,305.3 $19,536.0 $15,306.9 $ 142,238.52 $ 205,765.94

WACC Tax Rate Exit Multiple Share Price

5% 22% 6 44.06

Calculations Enterprise Value $ 205,765.94 Less Net Debt $ 52,800.00 Equity Value $ 152,965.94 Shares Outstanding 2850 Value Per Share $ 53.67 Implied Discount 21.82%

Risks and Mitigants


Risks
Failure of new products or technologies Fluctuating demand for wireless capabilities General risk/exposure to Europe and economic uncertainty

Mitigants
Strong existing capacity can handle product uncertainty Entrenchment in core/high-traffic areas combats fluctuation Hedging risk because of long time horizon limited short-term risk

Q&A

Announcements
Intramural Sports Officer Application due Thurs @ 11:59 PM CST
Interviews are Sat/Sun for SCG, Sun for Officers

Workshop Thursday, 7 pm in SAC 2.120 USIT Trading Simulation Competition 10/4