Industrials Analyst Ian Lee’22 provided the club with an update on our current industrials holdings. Our industrials positions increased in value from $166,385 to $178,404 since Ian’s last sector update. These positions have also had a return of 7.22% in that time, outperforming the S&P 500 by 4.01%, and matching most Industrials ETFs. In some company-specific news; Carrier continues to produce large returns, Caterpillar was upgraded by analysts and beat earnings estimates for Q3, and Boeing shares jumped 13.7% this past Monday, due to the big vaccine news.
Ian also took a closer look at Kratos Defense and Security Solutions. Kratos gets the majority of its revenue from the US government, which allows it to avoid the effects of the pandemic. The future of warfare seems to be with unmanned weapons as opposed to troops on the ground, and this bodes well for Kratos’s future success. However, the company’s margins are very small (0.6%) and although revenue growth is projected, competitors’ revenues (L3 Harris, Lockheed Martin, Northrop Grumman, Raytheon Technology) are projected to grow at a higher rate while also paying out dividends. Another key holding that Ian discussed is Southern Copper. Investors have been flooding back into the stock since the company provided its outlook for the coming years. Southern Copper seems to be more optimistic about future copper prices compared to competitors, which has made their projected sales and earnings numbers look more attractive and led to an overvaluation. Despite this, copper prices have increased due to a recovery in demand in China and supply disruptions in Chile, but the company thinks the economy and demand for copper will really bounce back in 2021.
Ian finished his sector update with some questions and ideas that we should be keeping in mind for next semester. Is Kratos really the best option in the defense industry or are there better stocks out there? We should be keeping an eye on copper prices and the recovery of the overall economy. With infrastructure stimulus likely, it may also be helpful to look into more machinery manufacturers in order to further diversify our portfolio.
Healthcare Analyst Dylan Jainchill ’21 broke down our current healthcare holdings and the huge vaccine news. The club’s healthcare holdings include Pfizer, Medtronic, United Health, Gilead Sciences, and Thermo Fisher. Obviously, the biggest news from our healthcare holdings came from Pfizer. Pfizer announced last week that their Phase 3 COVID-19 vaccine had above 90% efficacy rate in patients diagnosed with COVID-19 compared to placebo seven days after 2nd dose. They expect to produce 50 million doses; 2020 and 1.3 billion doses; 2021
In other healthcare-related news, Thermo Fisher reported impressive Q3 Revenue, with a 36% increase, up to $8.52 billion. They also boasted $2.0 billion of COVID-19 related revenue in Q3 and Q3 GAAP diluted EPS increased 157% to $4.84. United Health Group saw their Q3 Revenue rise 8% to $65.1 billion, but their Q3 GAAP diluted EPS dropped to $3.30 from $3.67. Medtronic revenue was down 13.2% for the latest quarter and GAAP diluted EPS down to $0.36 from $0.64. Gilead Sciences who has been struggling in our portfolio as of late purchased Immunomedics for $21 billion and added Trodelvy for treatment of breast cancer. The portfolio currently has a healthcare weight of 11%, while the S&P 500 is 17.7%
To close out the meeting, Neloy Kundu ‘23 and Jon Davis ‘22 delivered a buy pitch for Domino’s Pizza Inc. Domino’s is the World’s Largest Pizza company by revenue with $3.76B in sales 2019 and over 17,000 locations worldwide. With $330 million in cash on the balance sheet and a Current Ratio of 1.96, DPZ is a liquid company and their readily available cash affords Domino’s security during recession and pandemic.
Jon and Neloy specifically highlighted Domino’s online ordering platform and growth through technology. 75% of Domino’s Sales in 2019 came from the firm’s online and digital ordering platforms This allows for improved business analytics and customer targeting, with platforms of 85 million users and 23 million Loyalty Program Subscribers from whom it can collect data. Dominos had also perfected contactless delivery and carryout before the pandemic, which allowed for a seamless transition into the world of COVID-19. Domino’s has performed incredibly well over the last decade and the firm has seen 38 consecutive quarters of sales growth. In Q3 2020 the firm once again beat sales estimates, but it underperformed on earnings, which led to a sizeable sell-off. Even still, their Q3 earnings improved 21.5% YoY. These lower earnings are attributed to short term costs associated with modifications for Covid-19, this one subpar quarter does not imply a trend. One of the key reasons for pitching Dominos is the fact that they have found a way to capitalize on the pandemic. In Q2 2020 they saw a 16.1% increase in sales YoY and a 28.5% increase in earnings. On the other hand, Pizza Hut saw a 28.9% decrease in YoY earnings, along with a flurry of franchisee bankruptcies
Jon and Neloy put a price projection of $448.50 on DPZ and believe that an investment in Dominos would generate a return of 14% over the next year, which would outperform projections for the market by 5%. After some questions from the club members, the club elected to buy. Congrats to Jon and Neloy on a successful pitch!