Monday, December 26, 2016

20 Marquette AIM students had the opporunity of a lifetime to visit with Warren Buffett in Omaha

On Friday, November 18, 2016,
Mr. Warren Buffett Offered Sage Advice to Marquette AIM Students

Warren Buffett, the CEO of Berkshire Hathaway, is a philanthropist and one of the world’s greatest investors. Referred to as the “Oracle of Omaha,” he is known for his plain talking manner; realistic approach to investing which favors simplicity over complexity; priceless wisdom and personal frugality.

Warren Buffett with Marquette students in November 2016
Several times each year, twenty college students from a few handpicked universities are invited to travel to Omaha, Nebraska to lunch with Mr. Buffett. A favorite part of the event is the question-and-answer session, where Mr. Buffett answers student questions for over 150 minutes.

Warren Buffett KU Visit.jpg
Mr. Warren Buffett
The advice offered to the students by Mr. Buffett is considered by some to be “life changing.”  In the aftermath of the Great Recession when many college graduates have faced uncertain futures, Buffett has consistently offered an upbeat and optimistic message.

His advice to students attending the event is that, “Investing in yourself is the one of the very best things they can do and that they should seek to constantly improve their own talents.” He advised the students that their most important job in life will be as parents and that, “Investing in your children is, in some ways, even more important than investing in yourself.”
Anthony's Steakhouse in Omaha


Speaking with Marquette students at Anthony’s Steakhouse in Omaha, Mr. Buffett didn’t give out stock tips or talk about specific companies (like Berkshire Hathaway’s recent airline stock acquisitions), but he did offer plenty of wise advice including the following: “Unconditional love is more valuable than any amount of wealth.”  He urged the students to surround themselves with people who love them, and to give love in return.

Steak and Coke at Anthony's
with Mr. Buffett!
The Marquette AIM students were joined by students from other schools (Columbia, Yale, Grinnell, Boston University, Concordia, Maryland and St. Louis). Each school was able to ask questions during Mr. Buffett’s session with them prior to the lunch. Here is a link to the bog created by Maryland's students about their visit.

Mr. Buffett told students that finding a career that stokes their passion was extremely important. He said they should “Find what turns them on…. do what you would do if you were not getting paid and you’ll have more fun and be more successful.”

Marquette students at Nebraska Furniture Market,
a Berkshire Hathaway holding
Talking about how much he still enjoys working at 86 years old he said, “I enjoy what I do, I enjoy going to work every day. I work with people I admire, doing what I love. I spend much of my time reading and thinking about the future, not the past. The future is exciting and to focus on the negative is a mistake.”

On a more general note, Buffett counseled the students about looking at the traits of other people (including fellow students) that they respect and to work at developing those same traits by establishing daily habits that enforce those qualities. He also said to identify characteristics of those individuals who they don’t respect – and to avoid them.

Dr. Krause and David Martin
As a follow up to this advice, the AIM students created lists of traits they admire in their fellow students and these were sent to Mr. Buffett the following week. Dr. David Krause, AIM program director said, “This was a worthwhile exercise for the students – I believe that they took the assignment seriously and created a meaningful list of key traits of success. If they can built healthy habits into their daily routine to emphasize those positive characteristics, they likely will achieve greater success in life.”

Dr. Krause continued, “The positive character traits most listed by the AIM students included: a positive attitude; humility, intellectual curiosity; passion; work ethic; and trustworthiness.”  

When offering students life and career advice, Buffett stressed the importance of being patient, reading, thinking and working smarter in order to reach their full potential.

David Martin and Marquette students at the luncheon
Mr. Buffet also encouraged the students to use all their intellectual horsepower. “How big is your motor and how efficiently do you put it to work?” He suggested that many people have “400 horsepower engines, but only gets 150 horsepower of output.” 

According to Mr. Buffet, the person who gets full output from a 200 horsepower motor is a lot better off than an underachiever.” He followed that up by stating that, “You don’t have to have a 150 IQ to be successful, just work to the fullest of your ability.”
The Marquette students were joined at lunch by Mr. Buffett


Dr. Krause stated, “Our special thanks go to David Martin, who was again responsible for arranging this opportunity. We are thankful for his continued involvement with the AIM program at Marquette. 

David Martin and Warren Buffett have developed a true friendship over the past several years and it was great to hear David and Marquette receive a special shout out from Mr. Buffett." 

"This was our second visit to Omaha and we are especially thankful for this opportunity to hear from Mr. Buffett. For many of the students, this was a once-in-a-lifetime opportunity.”




Saturday, December 24, 2016

Marquette AIM Students Will Again Participate in the CFA Society of Pittsburgh's Annual Collegiate Personal Financial Planning Competition

The CFA Society of Pittsburgh Announces the 3rd Collegiate Personal Financial Planning Competition

The CFA Society of Pittsburgh has again announced the Society’s third annual (2016-17 school year), Collegiate Personal Financial Planning CompetitionStudents currently enrolled at a two or four year academic institution are eligible to compete, and their institutions must formally register with the Pittsburgh CFA Society. The deadline for entries is Monday March 20, 2017.

Conor Connelly
Conor Connelly
Last year was first time that Marquette's AIM students participated in the competition.  Conor Connelly placed 4th (out of 138 entries) in the CFA Society of Pittsburgh's Personal Finance Plan Competition. Seven Marquette AIM students from the Class of 2016 entered the competiion last year. They were: Conor Connelly, Ryan Johnston, Joel Kretz, Mark Lakowske, Patrick Sanchez, Patrick Schulz, and Ryan Woo.

A financial plan is a road map to help students plan for and achieve their financial goals. It is through this program that the CFA Society of Pittsburgh hopes to help students take ownership of their financial future. 


To accomplish this objective, the CFA Society hopes to expand the number of colleges that have incorporated The Missing Semester, and who are applying the ideas within the book to their students own financial future.  While recommended, The Missing Semester is not a required reading to enter the competition.

Dr. David Krause, AIM program director said, "We found last year's experience to be positive for our students. While the AIM students are well equipped to take the CFA Level I exam following graduation, few are ready to take on the chore of managing their own personal finances. The financial plan competition is clearly a step in the right direction for our graduating seniors. We are pleased to again be included in the competition."




Marquette's AIM Program will offer more content on 'Behavioral Finance' beginning in 2017

Behavioral Finance and the AIM Program

According to traditional finance theory, investors and consumers are, for the most part, rational "wealth maximizers." We, however, have observed many instances where emotions and investor psychology adversely influence decision-making, causing investors to behave in erratic and irrational ways.

Behavioral finance is a relatively new field (it was suggested that the AIM students read Michael Lewis’ The Undoing Project) over the winter break. His new book seeks to combine behavioral and cognitive psychological theory with conventional economics and finance to provide explanations for why investors make irrational decisions. This is quite a departure from recent Lewis books.

In the AIM program we are beginning to add more behavioral finance – especially as it applies to the decision-making of individual investors, analysts and portfolio managers. Academic research is showing that the manner in which investors think and feel affects the way they behave when making investment decisions.

These influences can be referred to as 'behavioral biases' and it is through an understanding of how investors and markets behave, that investors can adapt their own behavior in order to improve economic outcomes and enhance the overall risk-return performance of their investment portfolios.

For students going into the industry as financial advisors, analysts and institutional consultants, the challenge becomes explaining ‘irrational behavior’ in a meaningful way to downstream investors and colleagues.  

Dr. David Krause, AIM director said, "Providing our students with fundamental tools and an understanding of behavioral finance can help them overcome the possibility of making poor financial decisions.  For institutional managers and investors, understanding the exposure of their portfolios to the various types of behavioral risk scenarios in today’s environment becomes vital. The CFA Institute is also updating their behavioral finance curriculum, so it makes sense for the AIM program to stay ahead of the curve."


Prediction: ESG in 2017 and beyond will become a more important factor for active managers to consider

Marquette's AIM Program Adds More ESG Content to Curriculum


During the fall semester, students in Dr. David Krause's Applied Investment Management course (FINA 4320) had an assignment that requires the evaluation of a current AIM equity holding's environmental, social and governance (ESG) rating.
Image result for esg investing cfa

Investors are increasingly recognizing the need to consider environmental, social and governance (ESG) factors as part of their investment process.  While there has been some research that has produced evidence that ESG factors favorable impact companies’ market values, most of these studies have been aimed at the largest capitalization U.S. firms.  

Image result for esg investing cfaThe AIM assignment attempted to look at the ESG evaluation of some of the small cap firms pitched by the students during the fall semester. Dr. Krause indicated that this will continue in the spring semester and that the students' equity pitches will include ESG factors in their analysis.  

Dr. Krause stated, "The CFA has updated the 2017 curriculum to include a revised focus on ESG factors. I predict that in 2017 and beyond that we will see an increase in the amount of actively managed equity and fixed income funds that will be including ESG analysis in their evaluation of management and firm risk exposure."


"CFA Institute and ESG Issues in Investing

We believe that every investment analyst should know about the risks and opportunities of environmental, social, and governance (ESG) issues. We help investment professionals better understand ESG issues in investing through our educational programs and learning opportunities for continuing professional development.
CFA InstituteThe ESG investing ethos embodies our efforts to promote a fiduciary culture and a more sustainable form of capitalism through our Future of Finance initiative. This is a global effort to shape a more trustworthy, forward-thinking financial industry that better serves society.
ESG content in the CFA® Program curriculum
The CFA Program curriculum discusses important ESG and socially responsible investing (SRI) issues across Levels I, II and III, such as: ESG risk exposure analysis, corporate governance valuation implications, and positive and negative SRI screen impact on portfolio style characteristics.
We regularly analyze the practice of investment management our global membership to develop and enhance the CFA Program curriculum to meet the needs of employers in the industry. We continue to evaluate the volume and emphasis of ESG issues in the CFA Program curriculum."






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Friday, December 23, 2016

Oh my, how the times have changed. Jim Bianco shows how securities trading has changed since 2008 (check out the pictures)!

Jim Bianco of Bianco Research recently suggested that UBS' former trading floor be turned into an Arena football field.  What are some other ideas - roller derby, WNBA, Big East Lacrosse, beach volleyball, storage area for the Macy's Day balloons, etc.? Check out the pictures below...


  • The Wall Street Journal – World’s Largest Trading Floor Put on the Block
    Firm is hired to sell mortgage of former UBS office complex in Connecticut; sale expected at cut rateFor sale cheap: the world’s largest trading floor.  The property was part of a lavish development in Stamford, Conn., in the 1990s designed to lure what was then Swiss Bank Corp. and thousands of workers away from New York.  Soaring 40 feet high, the trading floor was bigger than a football field, unimpeded by columns and soon filled with hundreds of stock, bond and currency traders.  Now the office complex and its once-iconic trading floor are both mostly empty and up for grabs.  CW Capital Asset Management, the servicer that controls the $149.4 million mortgage on the 712,000-square-foot complex near the Stamford train station, has hired Mission Capital Advisors to put the debt on the block, according to people familiar with the matter.



UBS Trading Floor in Stamford, CT (2008)


Former UBS Trading Floor (2016)










Marquette AIM Fixed Income Returns Exceed Benchmark Over Short- and Long-Term Holding Periods


AIM Students' Strategy of Short Duration Pays Off!


The shorter than benchmark duration strategy has finally paid off for the AIM Fixed Income Fund. For the past year the students who manage the AIM Fixed Income Fund have been short duration to the Bloomberg Barclays Aggregate Bond Index and recently this strategy has paid off - with short term and long term performance exceeding the benchmark (see table below).

The AIM students employ a top-down approach to managing the $500,000+ of Marquette endowment funds. Since interest rates have begun to rise, the AIM portfolio has generated strong performance. Additionally, even though employing ETFs to execute their strategy - the AIM students have exceeded the benchmark since inception in January 2006.






Thursday, December 22, 2016

Portfolio Characteristics of the AIM International Equity Fund

Key Portfolio Characteristics of the AIM International Equity Fund as of 11/30/2016

(Benchmark: Russell Global Ex-US Index)

Click on any image to enlarge

Comment: Balanced style with tilt toward lower capitalization 




Comment: sector neutral



Comment: underweight Asia, but balanced emerging markets








Individual Holdings by Sector








Wednesday, December 21, 2016

Portfolio Characteristics of the AIM Small Cap Equity Fund



Key Portfolio Characteristics of the AIM Small Cap Equity Fund as of 11/30/2016


(Benchmark: Russell 2000 Index)

Click on any image to enlarge

Comment: Slight tilt toward growth and smaller capitalization 




Comment: AIM Fund remains sector neutral




Individual Holdings by Sector


Interesting chart on the difference in spending by Millennials (from Wells Fargo Economics Group)


The following paragraph and chart are from the Wells Fargo Economics Group, who provides domestic and international economic commentary. The AIM program has found the Wells Fargo analysis to be useful in understanding macro-economic trends across the US and globe. This report on Millennials was especially interesting and insightful in understand a significant secular shift in spending behavior. (Click on the chart for a larger view).
 

Mobile Millennials

The two fastest growing categories of consumer spending among Millennials (Ages 18-34) are food away from home and entertainment, underscoring the current nonmaterial nature of Millennial spending. There are some early signs however that this trend may be reversing as home ownership and transportation spending have begun to recover. It is difficult to say for certain how much of the overall trends in consumer spending by category is driven by pure demographic change and those driven by cyclical factors. That said, there is clear evidence of increased diversity of the Millennial generation relative to prior age demographics, which suggests, based on prior evidence, a structural change in the tastes and preferences of the population. 







A Current AIM Equity Holding: Farmer Brothers (FARM) by Patrick Wade. "Wake Up to Farmer Brothers"


Farmer Brothers (FARM, $34.25): “Brewing Up Something Good”
By: Patrick Wade, AIM Student at Marquette University


Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.

Summary

Farmer Brothers (NASDAQ:FARM) is a national coffee roaster, wholesaler, and distributor of coffee, culinary products, tea, and other products. One hundred percent of their revenue is generated in the United States. Their primary customers are restaurants, grocery retailers, drugstore chains, convenience stores, and independent coffee houses.   

• Richard Farmer, a member of the founding family member, sent a letter to management, which outlined his support for the Company’s Board of Directors 

• All Three proxy advisory firms ISS, Glass Lewis, and Egan-Jones recommend that stockholders vote for the Farmer Brothers director nominees.

• Save Farmer Brothers delivered a letter to shareholders regarding a discrepancy in the qualifications of Christopher Mottern, the Director and Audit Committee Chair.

Key points: Richard Farmer sent Farmer Brothers a letter describing where he stands in regards to Farmer Brothers and the Save Famer Bros. Group. Being a member of the founding family, one would think he would support the Save Farmer Bros Group., however, he states in the letter that Save Farmer Bros. “does not represent all members of the Farmer family, nor does this group represent the views of most of the trusts for which Carol claims to speak.” 

Obviously, there is a strong misunderstanding in regards to the how many people actually support the Save Farmer Bros. Group. Richard then goes on to say how he fully supports the decisions made by Michael Keown and the entire management team. Richard Farmer currently owns approximately 16.77% of the shares outstanding.  

In addition to Richard Farmer’s support of the recommended director nominees, all three proxy advisory firms agreed with Farmer Brothers’ decision. Institutional Shareholder Services (ISS), Glass Lewis & Co., and Egan-Jones Proxy Services have suggested that stockholders vote for nominees on the GOLD proxy card. In all three of the statements, Michael Keown was mentioned directly as being the main driver behind the turnaround and the subsequent appreciation of the company’s stock. 

Since he’s been in office, the company’s stock has appreciated from $11.83 in 2012 to $34.10 in 2016. Concerning the Save Farmer Bros’ nominees, there was an overwhelming opinion that they lack relevant experience and their interests aren’t aligned with the majority of shareholder’s.

One interesting occurrence Save Farmer Bros. has going in their favor is a discrepancy found in the qualifications of Christopher Mottern, the Director and Audit Committee Chair. Mottern had that he is a certified public accountant listed in his qualifications, and after further review, Save Farmer Bros. found it to be untrue. 

They described the occurrence as being “deeply disturbing”, which seems to be incredibly dramatic seeing as though he’s had previous experience as a CEO, had leadership experience in the food service industry, and held his CPA designation for a period of time.  

What has the stock done lately?
Since the beginning of the year, the price of the stock has risen slowly by 5.42%. Farmer Brothers reported their Q1 2017 results on November 7, 2016, and they missed analyst estimates. The average estimate for EPS was 25 cents, and adjusted EPS came in at 21 cents per share. Additionally, revenue was expected to be $136.3 M, but it ended up being $130.5M. Because these weren’t material differences, there wasn’t a large market reaction.   

Past Year Performance: FARM has seen an increase of about 15.5% in the past year. Regardless of the aggressive price appreciation, FARM still has an upside of approximately 32.5%. Additionally, FARM had the largest amount of capital expenditures they’ve ever seen in the past year due to their headquarter relocation program. It’s expected to save FARM a lot in terms of expenses and increase their overall margins.   

Source: FactSet


My Takeaway

Although FARM missed their EPS and revenue expectations, I believe they will see a great amount of price appreciation in the coming periods. The fact that all three proxy firms supported the candidates on the Gold card means there will be a better chance of having an experienced management team. Additionally, there hasn’t been any changes in the drivers since FARM was originally pitched in October. 

The only changes have been a decrease in risk due to the Save Farmer Bros. group being shot down whenever they try to make an argument. In addition, the new facility will expand margins considerably leading to greater EPS. I believe all of these factors will lead Farmer Brothers into continued success for the coming periods.    

Tuesday, December 20, 2016

Follow the Link for the Marquette AIM Program 2016 Year-End Update

Happy New Year!

2016 was another successful year for Marquette's AIM program. The end-of-the-year newsletter is shown below. (If you want to view a pdf version, click here).








A current AIM International Fund holding: HSBC Holdings plc (HSBC, $41.94) by Nick Christman. "HSBC is the best European bulge-bracket bank play"


HSBC Holdings plc (HSBC, $41.94): “Own HSBC for a Steady Dividend and Global Banking Presence”
By: Nicholas Christman, AIM Student at Marquette University

Image result for hsbc logo
Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.

 Summary
HSBC Holdings plc (NYSE:HSBC) is the holding company for the HSBC Group. HSBC is an international financial services conglomerate, providing their services across 6,000 locations and 70 different countries. Their largest business line is their retail banking and wealth management (RBWM) division, which accounted for 43% of total revenue in 2015.

• Underlying business trends remain strong on an adj. basis with PBT up 7% in Q3 16’ YoY.
• Loss of $1.7B on sale of HSBC Brazil as CEO continues to exit unprofitable countries.
• Accounting change in recording stake of Bank of Communication, located in China, caused a $121B in RWAs and $5.6B reduction in capital improving their CET1 ratio 104bps.  
• HSBC is positioned to benefit from an increase in interest rates with their advances to deposits ratio at 68%. A 25bps parallel shift down in rates globally would cause a $2B loss in net interest income, thus highlighting the importance of rising rates.

Key points: HSBC like the other global investment banks has struggled to find consistent returns as the uncertain regulatory and political environment has taken away the historical advantage of economies of scale within banking. However, HSBC has protected capital much better than their European counterparts as their strong US and Asian franchises earned 54% of their total revenue in 2015.

HSBC has continued to take opportunistic and aggressive steps to bring their RWAs down to manageable levels under the Basel III capital adequacy framework. While unloading these assets have led to losses, HSBC has made progress much faster than their peer G-SIBs. As of the end of Q3 16’, HSBC had reduced RWAs $229B since the reductions began in Dec 14’, which is 82% of their total goal. Their CET1 ratio of 13.92% leads the peer average of 12.55% and gives HSBC significant opportunity to return capital to shareholders. As of Q3 16’, 59% of HSBC’s $2.5B buyback has been completed.

HSBC has been making significant improvements in their operating costs through multiple initiatives. One such cost cutting program has been cutting redundant branches (271 in Q3 16’) and enhancing digital capabilities through self-service banking. Another focus has been cutting unnecessary employees meanwhile improving IT infrastructure and re-engineering operations to make the company more efficient. 9M16 operating expenses fell $.8B to 22.3B vs. $23.1B 9M15 operating expenses.  

HSBC still must settle multiple outstanding lawsuits including the RMBS suit with the DoJ. The market will have more clarity on the expected penalty when other major European banks finally come to a settlement with the DoJ on their respective cases. HSBC’s underlying ROE for 9M16 has exceeded 8% thus showing their leading profitability from a competitive standpoint out of Europe. If HSBC can wind down one time charges and benefit from a better interest margin environment, the company should be able to drive strong returns into the foreseeable future.

What has the stock done lately?
HSBC has returned 4.71% in the last month outperforming the European financials ETF (EUFN) by 151bps. The stock jumped 4% on the day it reported earnings, as underlying adjusted PBT was 10% higher than expectations. The overall improvement in rates and steepening yield curve has brought the entire banking sector higher. HSBC trades at a lower P/TBV multiple than its US competitors at .89x vs. 1.31x US peer average, and could see potential upside if Asia and EM exposure drive additional revenues.

Past Year Performance: HSBC stock has risen 9.59% over the past year, rebounding nicely from the lows following the Brexit induced selloff. HSBC has a 6.14% dividend yield, and this can be expected to be paid out going forward based off the company’s strong capital ratios and underlying profitability trends. The stock has performed better than European peers because HSBC is much more geographically diversified. This will protect the stock from any one macroeconomic change within a given region.


 Source: FactSet


My Takeaway
Along with JPMorgan, HSBC has the highest CET1 capital buffer, which leaves solvency as one of the biggest strengths for the business. The ability to focus on profitable growth globally will put their business ahead of their competitors. HSBC could look to use their higher capital position to accumulate assets in Asia, which will be cheap as European peers scale back. This flexibility and growth potential makes  Therefore, it is recommended that the AIM International Equity Portfolio continue to hold HSBC despite the regulatory and political risks that the company faces. 



Source: FactSet

A previous AIM Fund holding: Insys Therapeutics (INSY) “by Joe Mungenast, graduating AIM student.

Insys Therapeutics (INSY, $9.09) “This stock was sold earlier in the year from the AIM Fund”
By: Joe Mungenast, AIM student at Marquette University

Image result for insys therapeutics

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.

Summary

Insys Therapeutics, Inc. (NASDAQ: INSY) is a commercial-stage specialty pharmaceutical company, which develops and commercializes supportive care products. It focuses on utilizing its proprietary formulation technologies to address the clinical shortcomings of existing commercial pharmaceutical products (Factset).

The company markets Subsys, a proprietary sublingual fentanyl spray for breakthrough pain in opioid-tolerant cancer patients; and Dronabinol Oral Solution, a proprietary orally administered liquid formulation of dronabinol. It offers its Subsys through its incentive-based commercial sales force (Factset).

A recent lawsuit involving former executives at the company has been the primary force driving this stock down in the fourth quarter.

Insys is currently trading at its 52-week low with seemingly few drivers to help drive this stock move upwards. Insys does have a drug in pre-registration and two more in Phase I and II testing respectively, but their primary source of income is generated by their main drug, Subsys. Subsys contributes nearly 100% of sales by product segment, and is the drug involved in the lawsuit.

Key Points: Insys has suffered from a gradual decline in its stock price over the past two quarters, with a brief uptick due to President-elect Trump. Most recently, however, the company has been embroiled in a significant ethical debate, aimed at former Insys executives.

According to a WSJ article,* former CEO Michael Babich and 5 other officers “were charged with conspiracy to commit racketeering, conspiracy to commit wire and mail fraud, and conspiracy to violate the anti-kickback law.”

Mr. Babich had been trying to defraud health insurers and bribe doctors to prescribe Insys’ Subsys, the sublingual fentanyl spray. Fentanyl, a Scheduled II drug in the United States, is a synthetic opioid that is 50 to 100 times stronger than morphine. As a result, this drug is far more addictive than the already very addictive morphine, and yet is still legal to be prescribed. While doctors would normally be hesitant to prescribe such a powerful drug, Mr. Babich used his influence as CEO of Insys to indirectly and unlawfully push his product onto unsuspecting patients.

What has this stock done lately?
After a brief rise to $14.53 under the announcement of a Trump presidency in November, Insys has since declined down to $9.09, primarily due to the antics of Mr. Babich and other former executives. There are currently few positive catalysts for this stock aside from their product in pre-registration.

Past-Year Performance: Insys has closed out the past three quarters at $15.99 for Q1, $12.94 for Q2, and $11.79 for Q3. While the stock has rallied twice in the past year (up 27% in the first week and a half of August ($15.20-19.38) and up 45% in the first two weeks of November ($10.02-$14.53)), INSY is down over 69% from the end of last year ($29.38-9.09).



My Takeaway
It is my personal belief that this stock should not have been held within the portfolio for two reasons. One, this stock has not given any quantitative reason for AIM to again hold it. Cash Flow from Operations is expected to decline 15.7% from last year. EPS is expected to be down to 0.35 from last year’s 1.38, and thusly Insys’ P/E is up to 26.2x for 2016 estimates from 20.7x in 2015. The relatively high P/E coupled with poor stock performance in 2016 leaves little room for interest from a value perspective.


Secondly, this company’s products succeed on the fact that they are potent and extremely addictive opioids. Fentanyl has been creeping into the limelight in the United States as more research shows the possibility of a fentanyl outbreak, especially in areas of high heroin use. (http://www.wsj.com/articles/former-insys-ceo-arrested-in-opioid-prescription-kickback-case-1481228056) To conclude, we would be holding a company who sells a highly addictive product. 

As the analyst for the healthcare sector I urge that we should not add this holding because of the addictive nature of their business and because of lagging financial performances!