Stock Market Assignment
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Stock Market Assignment
Any investor expecting to make returns from his or her investment in the stock market must make calculated risks by choosing the right stocks that offer potential for returns and those that help them diversify risks associated with such investments. For the purposes of this assignment the following stocks were selected; Apple Inc. (AAPL), Nike (NKE), Walmart (WMT), Chevron Corp (CVX), and Coca-cola (KO). In the portfolio there are no mutual funds given that various empirical studies have shown that stocks have outperformed all other forms of investment. The following is a discussion on why each of the stocks was selected in the portfolio.
Apple Inc. is in the information communication technology (ICT) industry and relatively new compared to other companies in the same segment. Given its continued innovations that have wide market appeal and its large market share in phones and personal computers, the company can therefore be regarded as a growth stock given its ability to make higher returns than its peers (Reilly and Brown, 2010, 175). This stock provides the investor with the potential for capital gain as well as returns from dividends. The stock is also a defensive stock as it has withered the challenge when the company founder (Steve Jobs) died in 2011. The company has a large number of ordinary shares and therefore very liquid with about 30 million shares being traded on daily basis. The only down side is that the stock price is high, trading at $ 605.2 by Friday, 13, 2012.
Nike (NKE) is in the consumables industry category for footwear and was selected due to the global dominance of its sports products. According to Forbes (2012), the stock has a high Gross profit margin of about 45.6%, current ratio of 3.2 and a high P/E ratio (22.8). The stock was therefore selected as a value stock due to its ability to pay high dividends and stock gains.
Walmart (WMT) is in the FMCG, retail and convenient stores and was selected due to its dominance in the retail markets in US and its Franchise worldwide. The company is old enough and has sizeable market share offering a sense o security to the investor. The stock selected because its undervalued, has ability to pay high dividends and has a high P/E ratio and can therefore be said to be a value stock (NYSE, 2012).
Chevron Corporation is in the energy sector and was selected because of its relative affordability (price about $ 100 per share), high liquidity given the large number of stocks. The company has been consistently paying dividends (Cordes, O’toole and Steiny, 2004, 8).
Coca-cola is in the beverages industry and is a giant in the global soft drinks market with subsidiaries in all the continents. It was chosen due to its relative affordability as it lowly priced and therefore an investor can benefit of law of large volumes. Its fundamentals are good given its high profit margins that provide potential for high dividend payouts (Schabacker, 2005, 4).
Conard (1959, 3) defined saving as portion of disposable income already earned but not consumed today though it is available for spending. Brandes (2004, 3) define investing as purchasing a stock or security at a low price and selling at high price or reap from capital gain. Stocks are certificates or securities representing ownership of a company that is bought as an investment by individuals, firms or government (Fontanills, Gentile, Cawood, 2001, 2). A bond is a fixed income security with financial obligation to pay the buyer a specified sum of money at set dates in future (Fabozzi, 2010, 234). It’s important to diversify one’s portfolio so as to spread and minimize the risks associated with individual securities. Mutual funds are investment assets measured against a given benchmark and closely follow the performance of a financial market. Mutual funds have not been chosen because of their inability to protect portfolios from descending markets and the fact that studies shows that they cannot outperform stocks in the long run (Stefanini, 2006, 1).
References
Brandes, Charles. Value investing today, 3rd ed. New York: Mc-Graw-Hill Companies, 2004
Conard, Joseph. Introduction to theory of interest. Berkeley: University of California Press, 1959
Cordes, R., O’Toole, B., and Stein, Richard. The art of investing and portfolio management: A proven 6-step process to meet your financial goals. New York: McGraw-Hill Publishers, 2004
Fabozzi, Frank. Equity and fixed income: Features of debt securities, CFA Level 1 vol 5. New York: Custom Publishing, 2010
Fontanills, G., Gentile, T., and Cawood, Richard. The stock market course. New York: John Wiley and Sons, Inc
Forbes. Nike Inc (NYSE) ratios and returns, retrieved from HYPERLINK “http://www.finappls.forbes.com/finapps/jsp/finance/compinfo/Ratios.jsp?tkr=NKE” www.finappls.forbes.com/finapps/jsp/finance/compinfo/Ratios.jsp?tkr=NKE on April, 17, 2012
NYSE. 100 NYSE leaders: Wal-mart stores inc. (WMT) common stock valuation ratios (Price multiples). Retrieved from HYPERLINK “http://www.stock-analysis-on.net/NYSE/Company/Wal-Mart-Stores-Inc/Valuation/Ratios on April 17” www.stock-analysis-on.net/NYSE/Company/Wal-Mart-Stores-Inc/Valuation/Ratios on April 17, 2012
Reilly, Frank and Brown, Keith. Equity and fixed income: Company analysis and stock valuation, CFA Level 1 vol 5. New York: Custom Publishing, 2010
Schabacker, Richard. Technical analysis and stock market profits: The real bible of technical analysis. Hampshire: Harriman House Ltd, 2005
Stefanini, Filippo. Investment strategies of hedge funds. West Sussex: John Wiley and Sons Ltd
