Mystery Project: Equity Instruments Class

This project is a group project. Please turn in one project report per group. The project is due on April 18 by 5 pm.

Project Description: Attached is an excel spreadsheet containing fundamental information on the 96 largest market cap non-financial service companies listed in the United States.  You have two tasks:

1.      Passive investment portfolio: On a relative valuation basis, please identify the 5 most undervalued and the 5 most overvalued firms in this sample. In making this analysis:

q       You can pick any multiple you want to make this judgment. This multiple can either be an existing multiple (like PE or EV/EBITDA), a modified version of an existing multiple (like PEGY) or a multiple that you invent. (Just make sure that you put it through the consistency test)

q       You have to show a scatter plot of that multiple against the key variable that you believe drives that multiple (For example, if you pick PE ratios, the key variable will be expected growth rates)

q       You have to control for differences in risk, growth and cashflow potential.  A multiple regression is one way to do this but there are other approaches as well.

2.      Assume that you are an activist investor (Blackstone and KKRÕs competitor) and are interested in pursuing a buyout of one of the firms on the undervalued list. Which one would you pick and why?

Final Format: Keep your write-up short and descriptive. Include your statistical output and explain how you used it.

Grading: The grading for the project will be subjective – 8 of the 10 points will be for doing all of the above competently and the other 2 points will be for creative analysis. 

Data Restrictions: For your own sake, I am going to restrict you from going outside the data provided on the spreadsheet, since that may create a data warÉ. So, no visiting Bloomberg, Yahoo! Finance or any other sitesÉHave fun!

 

P.S: You can use Microsoft Excel for your statistical analysis but your options will be much greater if you use a statistics package. My favorite is SPSS but MINITAB will also do the trick.