Investment Portfolio Over the Last Research Proposal

  • Length: 15 pages
  • Sources: 15
  • Subject: Economics
  • Type: Research Proposal
  • Paper: #10086177

Excerpt from Research Proposal :

However, it will depend upon the impact that rising prices will have on consumer spending and corporate balance sheets.

Geopolitical tensions could have an impact upon the price of commodities most notably: oil and gold. As various uncertainties around the globe, could have an impact upon the availability of oil supplies, which will cause prices to increase. A good example of this can be seen with the different protests that are occurring in: the various Middle Eastern and North African countries. As the numerous acts of civil disobedience have caused a number of countries that are large exporters of crude oil (such as: Libya) to suspend production. The reason why, is because they are: having to wrestle with their own internal security situation. As a result, oil prices rose to above $100 per barrel, on concerns about available supplies. This would have an impact on gold prices, because many investors will often seek out these assets during times of: political or economic uncertainty. This is problematic, because it is showing how the various geopolitical concerns, can often have an impact on: commodities prices and possibly inflation. At which point, this has the possibility of derailing any kind of tepid recovery that this taking place. ("Gunfire at Saudi Arabian Protests")

Therefore, the strategy that we will be using will be purchasing areas that can benefit from: increases in commodities prices over the long-term. While at the same time, it will be positioned in those areas that can take advantage of the stronger than expected economic growth in the future. As a result, our strategy will focus on a number of different industries / sectors that can achieve this objective.

Asset Allocations and Industry Selection

Like what stated previously, the majority of the assets from the portfolio will be invested in equity securities. Therefore, we will take an approach that will provide: consistently strong growth and balance to the account. The best way to do this is to invest in a variety of areas that can take advantage of these specific scenarios. At the same time, the underlying amounts of risk could be reduced through: the use of sell stops (at key points) in select securities. This will help to provide the portfolio with moderate amounts of: risk and it will increase the overall returns.

As a result, there are a number of different industries the strategy will be focused on. The most notable include: precious metals, oil / gas, ADRs, consumer staples, industrials, select technology and cash. The below chart illustrates the overall asset allocation that was selected for this strategy at the current time.

Total Portfolio Allocation by Industry

The current asset allocation that was selected for the portfolio includes: 10% in precious metals, 10% in industrial related stocks, 20% in oil / gas, 10% in consumer staples, 20% in ADRs, 20% in technology and 10% in cash. Precious metals were selected because it will give the portfolio stability during times of: political uncertainty and inflation. The investments in oil / gas were chosen for similar reasons as precious metals, due to the fact that the sector will benefit from higher prices (contributing to greater profit margins). A heavier asset allocation was selected, as this could provide the account with: enough leverage to benefit from rising prices. Consumer staples were chosen, because they can ensure that the portfolio is able to invest in companies. That will see, increasing demand for their products regardless of what is happening with economic conditions. ADRs or American Depository Receipts can be used to purchase some of the largest foreign-based corporations in U.S. dollars. In this case, the idea of purchasing in this area is that: the overall risks can be reduced and there is greater transparency. This is because these companies are subject to some of the stringent U.S. listing standards. Therefore, they will have greater amounts of transparency. In this case, we are going to be selecting ADRs from some the fastest growing emerging economies. We have allocated a larger percentage in this area, because the developing economies have been providing superior economic growth during the recession and recovery. Technology was selected, because of the tremendous advancements that are taking place. This can provide the portfolio with above average growth by: purchasing those companies that are investing in areas that will be in demand in the future. As these shifts in technology will create changes in how everyone is living their daily lives. The 10% in cash will be placed in various money market funds that can be liquidated for purchases in the future. At the same time, it will serve as a vehicle for: various dividends and trading capital. Once the strategy has been implemented this will provide the portfolio with: above average growth and balance.

Individual Stock Selection

The selection of stock in the portfolio; means, that we must find specific companies that can fit in line with the different sectors that were mentioned earlier. Based upon the research that has been conducted there are a number of companies that should be purchased. The most notable to include: Newmont Mining (NEM), Caterpillar (CAT), Valero (VLO), Molson Coors (TAP), (BIDU), and (AMZN). The below chart illustrates the overall allocation in the account.

Total Stock Allocation

These different companies were chosen, because they can provide the portfolio with: balance and above average growth.

However, there are some stocks that are volatile, which could increase the overall amounts of risks. To address this issue, we will be using sell stops on select securities. Simply put, this is a sell order that is placed in advance, to limit the overall downside. For example, if company's stock declines to the sell stop price, it will become a market order and is sold. The basic concept behind this strategy is: to place these orders on volatile stocks. (Perunia) This will reduce the possibility of: buying / holding equity securities at all time highs and it will help to maximize the returns in the portfolio.

Newmont Mining

Newmont Mining is gold and silver producer that has been seeing consistently increasing earnings per share (EPS) over the last several quarters. as, the EPS for the company increased from: $.83 cents to $1.16 (on a quarterly basis). The net income is $2.03 billion and it has a book value of $27.08. The current price earnings ratio is 10.77 and the current price to book ratio is 1.86. The company is paying a dividend of $.60 cents or 1.10%. The 52-week high is $65.50, while the 52-week low is: $48.20. The total amounts of stockholders equity are: 22.20%. The beta on the stock is .40 (below the market average of 1.00). In comparison to the industry, Newmont Mining is considerably stronger. Evidence of this can be seen within the industry itself, as it has a PEG ratio of 1.84 versus 15.00 for Newmont Mining. When you look at the industry in correlation with the company, it is clear that Newmont Mining has greater amounts of increasing profit potential and lower risks. This is significant, because it meant that the company is an ideal candidate that can benefit from the increases in gold prices. While at the same time, they have taken the steps necessary to: lower their underlying costs and increase their profit margins. Over the next ten years, these two factors will help to provide consistently increasing returns and stability from a host of situations. ("Newmont Mining")


Caterpillar is a heavy industrial manufacturer of construction equipment. The purchase of this security over the next ten years will help to provide above average growth. The reason why, is because they are rapidly expanding into many developing regions (such as: Brazil). As a result, they have a number of different strengths. The most notable include: net income of $2.07 billion, quarterly EPS between $.36 to $1.47, a book value per share of 16.94, a current PE ratio of 12.94, a current price to book of 5.93, an annual dividend of $1.76 / 1.70%, a 52-week high of $105.86, a 52-week low of $54.89, stockholders equity of 26.74%, a total market capitalization of $65.88 billion and a beta of 1.88. When you compare this to the industry, Caterpillar is a much stronger company. Evidence of this can be seen by looking no further than contrasting the PEG ratio and the quarterly year over year growth. In the case of Cat, they have a PEG ratio of .84 and quarterly year over year growth of 62.20%. While the industry currently does not have a PEG ratio and the year over year growth is currently at zero. This is important, because it shows how Caterpillar was selected, due to increasing amounts growth that it can provide over the next ten years. As they can use the upward earnings momentum, to be able to dramatically increase their overall returns. ("Caterpillar")

General Motors

General Motors was selected, because it can provide a way of seeing substantial appreciation in a turnaround (since the company…

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