You have spent a lot of time researching a company(Adidas). Would you invest in that company? (assume you can afford it). Why or why not? Is another company covered by a classmate preferable?
Answer the question ,then reply example 1 and example 2. reply can be 2-3 sentence.
According to the news article, Microsoft’s shares was drifted sideway from 2000-2013 with disappointing of Microsoft MSFT, -1.92%. Although the company made slowly moving over the years, the future looks Microsoft is headed for change. Firstly, it upgraded its product. “The improvement for Microsoft Office 365, Windows Azure, and CRM online, and commercial cloud revenue securing annual revenue for $5.5 billion. Moreover, in 2015 the commercial revenue grew 114% up to $1.3billion. Though the windows’ revenue has dropped for 13%. The release of Window 10 can bring a change to the company. Beta users are currently us Windows 10 on their personal computers. This new program will bring new exciting features but not making consumer feel tolerant. It takes more focus on consumer satisfaction. The major competitor of Microsoft will be the Apple Inc. Although the Apple Inc. (AAPL -1.14%) has met few tough situations, the company still leads the smart phone business in the world. I’m looking forward the new iPhone 6s which will come out in this fall. New Iphone, in general, always keeps competitive market place and catch investors’ eyes. By comparing two company, as an invest, I will choose Apple Inc, rather than the Microsoft.
The company I’ve written about the most this term was Bristol Myer’s Squibb (BMY). Let’s look at some of the reasons why I would not invest in this company.
From the macro-perspective, I feel that the healthcare industry as a whole is over-valued. The major contributor to this is Obamacare. Investors feel secure in having the government back a private balance sheet; however, remember the mortgage-backed security? They were “government-backed” as well. The WSJ released a study conducted by McKinsey & Co. on the effects of Obamacare on insurers, and it was found that health insurers lost about $2.5 billion, or $163 per healthcare.gov enrollee, in 2014. This is consistent with my DOL calculation of -1.32 for the company, which indicates that its operating expenses were greater than its sales. When insurers feel pressure, those pressures get passed on to the rest of the industry as well. Another consideration is the presidential elections. If a Republican gets in office, we may see Obamacare defunded. For these reasons, I would not invest in the healthcare industry.
From a relative valuation perspective, there are better companies on the market to consider. For one, BMY is a cash cow that pays a steady 2.29% dividend, not a growth company. There is a 74% institutional ownership of the company, which should indicate a low volatility. This is consistent with its low DFL of 0.73. Typically, those who invest in cash cows are looking for stable dividend-paying companies since there is very low risk for the company. However, I feel that as BMY is currently over-valued on the market, there is a much larger systemic risk for that paltry 2.29% return.
One last consideration to make is one of the risks the company cited. “We depend on several key products for revenues, cash flows, and earnings.” This tells me that the company does not have a good product mix, and if something were to happen to their product, the company would lose a huge share of the market. This scenario is quite feasible considering the government has the right to expire drug patents early if it feels as though the drug is essential.
Here is a link to the WSJ article citing McKinsey & Co. http://www.wsj.com/articles/health-laws-strains-show-1446423498