Thursday, March 31, 2022
The Eighth Set of Spring 2022 Marquette AIM Program Student Equity Pitches/Q&A for Friday, April 1st
AIM Class of 2023 Student Equity Presentations Friday, April 1st
The eighth set of spring AIM
equity presentations for the Class of 2023 will be on Friday, April 1st.
April 1st Write-ups
The 8-minute student presentations can be viewed
every Thursday afternoon on YouTube. Then join us live in person on
Friday at 1:00 pm CST in the AIM Room or stream live via the AIM YouTube
channel for the presenter’s Q&A.
If you are unable to attend, you can always view
them via YouTube HERE.
Wednesday, March 30, 2022
Thursday, March 24, 2022
Wednesday, March 16, 2022
A Small Cap Equity holding: First Internet Bancorp (INBK, $45.03): “Climbing With the Rate Hikes” By: August Peterson, AIM Student at Marquette University
First Internet Bancorp (INBK,
$45.03): “Climbing With the Rate Hikes”
By: August Peterson, AIM Student at
Marquette University
Disclosure: The AIM Small-Cap
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
- First Internet Bancorp
(INBK) is an online
regional bank holding company offering commercial and retail banking
products and services to individuals primarily in the Midwest. As of Q4
2021, the company has $4.2 billion in total assets and approximately $3.0
billion in total loans.
- Management has weathered the risk of interest rate
sensitivity to Net Interest Income by adjusting its deposit composition to
favor Non-Maturing Deposits over CDs & Brokered Deposits and MMDA
& Savings accounts.
- Future Net Interest Margin expansion is anticipated due
to CD repricing in the next twelve months, a higher yield on assets from
the First Century merger, and deployment of FCB’s excess liquidity to
retire the Bank’s high-cost deposits.
- Despite management’s risk-parity approach to minimizing
deposit betas and their strong capital allocation strategy, the market
continues to price INBK at a ~40% discount, as evidenced by an
unreasonably low P/TBV multiple.
Key points: With escalating geopolitical
tensions, rising inflation, and a Federal Reserve expected to raise rates seven
times in 2022 according to the CME as of March 10th, a flattened
yield curve poses a material threat to regional banks. Since the difference
between the 10-year and 2-year treasury yield is only ~25bps, the interest paid
by banks to customers has nearly converged to the interest generated from
investments. According to INBK’s Q3 interest rate sensitivity analysis, an interest
rate increase of 100bps reduces the company’s net interest income by 65bps over
a twelve-month period. Despite this, INBK has positioned itself to undermine the
risk of interest rate hikes in Q1 2022.
Non-Maturity Deposits (NMDs) have no stated
maturities and allow for customers to withdraw funds at any point in time (i.e.,
retail savings, interest and non-interest-bearing checking accounts, money
market accounts, etc.). Due to their short-term maturity and repricing nature, NMDs
are characterized by their low sensitivity to interest rate risk, or deposit
beta. In anticipation of the Fed’s expected rate hikes this year, INBK has
improved its deposit composition by holding a larger percentage of NMDs (2.8%
increase since 3Q21) and a smaller percentage of MMDA & Savings accounts (0.84%
decrease) and CDs & Brokered Deposits (7.1% decrease).
INBK saw a favorable fourth quarter as net income
and diluted EPS ended the fiscal year up 63% and 61%, respectively, over 2020
results. Net Interest Margin (NIM) increased 30 bps to 2.30% from 2.00% in the
third quarter, driven by a 22bp increase in the company’s yield on loans and a
6bp decline in the cost of interest-bearing deposits. NIM growth is expected to
continue as $712.8 million CDs with a weighted average cost of 1.02% will mature
in the next twelve months, and replacement costs are currently in the range of
~0.55%. Simply put, the company’s yields on assets are increasing while deposit
costs are decreasing. CD repricing coupled with a deposit composition favoring
NMDs, which provides a cheaper source of funding for the Banks’ assets than
other means, will catalyze future NIM expansion.
INBK’s partnership with ApplePie and the acquisition
of First Century Bancorp (expected to close 1H22) are proving to be lucrative.
ApplePie Capital, a franchise loan marketplace that sold $100 million of its
core conventional loans to INBK in 4Q21, has given the company a strong
franchise pipeline with a growing SBA loan portfolio. Franchise loan balances
were up 218% to $81.4 million from 3Q21, and SBA loans have grown nearly 6%
over the same period. Since only ~7.8% of First Century’s total assets are
comprised of loans, INBK management has decided to use $150 million of its
excess liquidity to retire the company’s high-cost deposits and use another
$150 million to purchase securities at yields close to 1.5%. The merger will
effectively raise asset yields as INBK’s current excess cash earning an average
yield of only 0.33% will be reduced while securities earning ~1.5% will be
gained. NIM will further expand as higher-cost deposits will be retired.
What has the stock done
lately?
Since
being inducted into the AIM Small Cap Fund, INBK is up ~1.5%. The stock reached
an all-time high at $52.80 following its earnings release on January 19, 2022,
before a steady decline to today’s price. INBK followed the performance of the
Russell 2000 closely until it announced its merger with First Century Bancorp
on November 2, 2021, when the stock jumped over 25% in a single day.
Past Year Performance: Despite a negligible change in the stock’s
price since November, INBK still remains undervalued as the company’s P/TBV of
~1.2x falls short of a regional/tech-centric bank peer average of ~1.7x. With a
P/E of 9.8x and EPS growth anticipated to add another dollar from the merger of
First Century in 2022, it’s safe to say that Ben L’Empereur’s thesis remains
palatable.
My Takeaway
Management
has aptly positioned INBK to mitigate the risk of high deposit betas from the
Fed’s expected seven rate hikes in 2022. Several factors are expected to
catalyze expansion in the Bank’s NIM in the coming years; CD repricing in the
next twelve months (weighted average cost 1.02% compared to current replacement
cost ~0.55%), changing deposit composition favoring NMDs (cheaper source of funding
for Bank’s assets), and the deployment of excess capital from the First Century
merger. It’s evident that management understands how to weather interest rate
risk while being exceptional capital allocators. Despite this, The Street
continues to price First Internet Bancorp at a ~40% discount per relative valuations.
An International Equity holding: IonQ (IONQ, $11.77): “Quantum-Mania” By: Nasser Hyat-Khan, AIM Student at Marquette University
IonQ
(IONQ, $11.77): “Quantum-Mania”
By: Nasser
Hyat-Khan, AIM Student at Marquette University
Disclosure:
The AIM International 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
- IonQ,
Inc. (NYSE: IONQ) develops and manufactures quantum
computers. The firm specializes in quantum computing and quantum
information processing, bringing this new technology into commercial, industrial,
and academic applications.
- IonQ’s
quantum hardware is now available on all major clouds (AWS, Azure, Google
Cloud) and all major quantum software development kits (SDK’s). They have
partnered with top academic institutions such as Cambridge, MIT, Oxford,
Princeton, University of Chicago and more.
- The
revolutionary company has recently reported that they will publish FY21
financial results on March 28, 2022.
- They
have recently developed a new barium-based quantum computer which,
per-qubit, has reduced errors over 12x.
- IONQ
may be off its 52-week highs, but with the latest innovations, we could
see the stock push passed those figures.
Key
points: IonQ continues to outperform its
competitors in technological developments. On March 3rd, they
reported that its new Barium systems demonstrated industry leading qubit
readout performance. According to the article, per-qubit, IonQ has reduced
errors from
50 per 10,000 computations to 4 errors per 10,000 computations. This development
has brought IonQ from a 99.5% state detection fidelity, up to first place in
the industry with 99.96%.
One of
the many perks in this industry is that there are a lot of complicated acronyms
with words that make little sense to most readers, but fear not I am here to
help. In short, a regular computer operates step-by-step on “bits” (0’s and
1’s), a quantum computer uses “qubits” that can operate both 0’s and 1’s and
everything in between simultaneously. Something a regular computer would take
centuries to process; a quantum computer could accomplish in several minutes.
IonQ is
famous for its Quantum Volume, which is the overall metric that measures the
capabilities of a quantum computer, more volume means more circuits means more
computing power. With the latest information IonQ boasts a 4.2 million QV. Its
closest competitor Google is at 256 QV.
This is
an astounding number, but one of the drawbacks with new technologies is that
there are issues. One of problems in the industry are state preparation and
measurement (SPAM) errors. SPAM errors are key metrics for producing accurate
and reliable quantum computers, which were the computation errors mentioned
previously that have since been reduced significantly.
The
accuracy of computing results is key for the further adoption of quantum
computers in all industries from finance to agriculture. However, there are
three main types of errors that a QC’s experience: imperfect state preparation
at the beginning of a program, imperfect logic gates while running an
algorithm, and imperfect measurements. Essentially for the computer to do its
job these errors have to be terminated quicker than Lewis Hamilton can go
around an F1 track.
Fortunately, IONQ is doing that
better than anyone else with a technical lead over all commercial quantum
computing providers. Its ion-trapped computers have proven to yield more qubits
than any other architecture, and it seems as though barium computers will
surpass its predecessor.
What
has the stock done lately?
IonQ has fallen off its weekly
high of $16.57 by almost 30%. This may sound like a lot but given current
market conditions and how the rest of the tech industry has been treated over
the last few months this is not surprising. With earnings coming up, a better
picture should be shown of how the company is operating.
Past
Year Performance: Since its public
release, IonQ has seen lots of volatility. At one point the stock was up over
400% and has since come down from its $35.90 high by about 60%. The AIM
programs conservative price target of $18.34 was surpassed and shares remained
above for months, but global factors such as COVID and Russia have been
affecting the stock price ever since.
My
Takeaway
IonQ is a pure play quantum
computing company that has consistently developed outperforming computers that
are available to commercial, industry, and academic users through SaaS. The
stock price decline over the last several months indicates an interesting
long-term buy opportunity. The innovation at this company is unprecedented, and
the high of $35.90 demonstrated that not only could our long-term valuation be
beaten, but Wall Streets as well. The current share price of $11.77 depicts a
serious discount opportunity for investors with the potential for massive
upside in the future. Quantum computing is still in its early stages, but at
the rate that IonQ is developing its craft, we may see those highs become the
lows.
An International Equity holding: Hitachi (HTHIY, $91.91): “Ahead of the Curve” By: Margaret Diedrich, AIM Student at Marquette University
Hitachi
(HTHIY, $91.91): “Ahead of the Curve”
By: Margaret
Diedrich, AIM Student at Marquette University
Disclosure:
The AIM International 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
- Hitachi Ltd. (OTCMKTS: HTHIY) is
a Japanese conglomerate that offers a range of services to their customers
including energy facilities, water distribution, and information
technologies.
- HTHIY
is in a position to continue to grow. Their sales growth has transitioned
into their digital and green business.
- Management
has announced a new organizational structure. Their new structure will
revolve around renewable energy, digital systems, and connective industries.
The transition is meant to improve overall efficiency and help meet new client
demands.
Key
points:
Hitachi
Ltd. has a strategic focus on sustainable business practices. They are committed
to becoming a global leader in renewable energy technology. They will accomplish
this through focusing on environmental improvement, resilience, and security
and safety. These attributes are evident in Hitachi’s newfound focus on green
and technological business initiatives.
Hitachi’s
renewable energy business is an exciting position for growth. The Japanese
economic environment is primed for expansion in this area. The company sees
47.6% of revenue come from Japan. According to the International Trade
Administration, 36-38% of Japan’s energy will come from renewables by 230. This
provides an enormous growth opportunity for the company.
In
addition to the company positioning itself as a leader in green technology,
other segments will transition to focus more heavily on digital solutions. The
company announced the formation of Hitachi Automation, a new business segment
focused on robotic structures. It is this constant innovation that continues to
add value to shareholders.
What
has the stock done lately?
The stock has experienced a substantial
dip since mid-November. The stock price fell from $128.57 to the current price
of $92.94. Despite this recent dip, Hitachi Ltd. is in a position to continue
to grow. Their transition to digital and renewable technology is an encouraging
signal to shareholders. The stock was pitched in the Spring of 2020 at a price
of $80.79.
Past
Year Performance: HTHIY has a 52-week range of $89.00 – 128.56.
Currently the stock is trading at $91.59.
My
Takeaway
Hitachi Ltd. provides services to
a multitude of industries worldwide. The company is known for being an innovative
leader in each industry they operate in. My takeaway is that Hitachi is an
established company that has potential to grow in their technology and green
businesses. I recommend we hold Hitachi. Their diversified businesses and new
innovative initiatives will prove to be a stable bet, especially in this time
of global political instability.
Thursday, March 10, 2022
An International Equity holding: Wheaton Precious Metals (WPM, $43.48): “Not So Precious Anymore” By: Alexander Mastalish, AIM Student at Marquette University
Wheaton Precious Metals (WPM, $43.48): “Not So Precious Anymore”
By: Alexander
Mastalish, AIM Student at Marquette University
Summary
Wheaton
Precious Metals, Corp. (NYSE:WPM) is a mining company which deals
with the sale of precious metals. They primarily sell three precious metals:
Gold, Silver and Palladium.
- Wheaton
currently has 24 operating mines with 12 development projects spread across
the Americas with some European exposure.
- 85% of current production comes from assets
that fall in the lowest half of the cost curve.
- WPM
currently one of the highest rated materials sector companies in regard to
ESG (AA Rating) and the WPM is a part of the UN Global Compact as well.
- Wheaton
current pays a high dividend which is increasing by 25% YoY to $0.15 per
share.
Key
points: Wheaton Precious Metals is a streaming metals company. When a
company is a streaming metals company, it makes an agreement with mining company
to purchase most of the mining company production at a set price in advance. The
streaming model offers WPM the advantage of buying below the cost curve often (85%
as of 2021 Q3), allowing WPM to lock in pricing in advance and better position
the company against price volatility. Streaming also allows for the precious
metal company to focus on selling the good to end user, and the miners on
mining. This reduces the cost of operations for Wheaton compared to if it had mining
operations of its own. WPM’s main partners include Capstone, Rio2 and Artemis.
The company has seen a decrease
in gold production, primarily due to a lower output from a major partner Vale
and their Salobo operation, alongside a decrease of production at the Sudbury
operation. These challenges in production helped contribute to the decrease in
adjusted net earnings for WPM. This has also caused the trend of WPM missing
earnings expectations for all of 2021, and missing revenue on 2 of the 3 quarters
so far announced in 2021. Most notably, Q3 2021 saw a 12.5% decrease in
revenue, while also seeing a 10% decrease in earnings.
To reverse this trend, management
is planning on continuing their development projects for increased growth. A
partnership with New Gold and Artemis Gold in Canada will further diversify
Wheaton’s existing portfolio, while strengthening the partnership with Artemis.
The project will start in 2021 Q4 and be complete in 2024. Management also just
increased the dividend to $0.15 in Q3 of 2021, a 25% YoY increase,
demonstrating their commitment to shareholders.
What
has the stock done lately?
The
company has seen steady growth in the last month, seeing share price increasing
7.84% over that time period. At its current share price, WPM is trading at 47.15%
upside from the original pitched price target of $29.50. The company in the
last 6 months is down 3.46%, while being down 19.02% from the all-time high share
price in July of 2020.
Past
Year Performance: Wheaton’s share price has seen great growth after rebounding
from a drastic sell off from its all-time high in July 2020. Share price for
the year has been up 21.86%, primarily from the elevated commodity prices in
the spring and summer of 2021. Going forward, Wheaton is poised to see growth,
albeit at a slower rate than the first 6 months of the past year.
My
Takeaway
Wheaton
Precious Metals, while being an industry leader and have demonstrated their capabilities
to diversify and expand their current portfolio, have already seen much of the
growth attached to these strengths. Therefore, WPM has underperformed earnings
and revenue expectations in 2021. This has raised concern over the firm’s
long-term performance and it is for that reason that I recommend WPM should be
sold from the AIM International Portfolio, recognizing 98.15% upside from the
original purchase.
A Small Cap Equity holding: Paycom Software, Inc. (PAYC, $324.45): “Paycom Is Paying Off” By: Richard Zaro, AIM Student at Marquette University
Paycom Software, Inc. (PAYC, $324.45): “Paycom Is Paying Off”
By: Richard
Zaro, AIM Student at Marquette University
Summary
- Paycom
Software, Inc. (NYSE: PAYC) Paycom Software, Inc. provides
comprehensive, cloud-based human capital management (HCM) software solutions. The
Software-as-a-Service platform provides functionality and data analytics that
businesses need to manage the complete employment life cycle from recruitment
to retirement.
- Its solutions require virtually no customization and is based on a core system of record maintained in a single database for all HCM functions, including talent acquisition, time and labor management, payroll, talent management and human resources management applications.
- PAYC recently reported earnings in which they outpaced their own guidance for fiscal ’21.
- For each of the years ended December 31, 2021, 2020, and 2019, PAYC’s gross margin was approximately 85%. Management has detailed that it expects its gross margin to remain relatively consistent in future periods.
Key
points
Paycom Software, Inc. has shown
exceptional growth over the past year. Revenue growing over 25% to $1.04 Billion
year over year. With an increasing market presence and growth of the companies it
serves, PAYC should see continued revenue growth and continued demand for its human
capital management software.
Management indicates that it
plans to continue to grow PAYC by growing its client base to include larger companies.
Paycom believes larger employers represent a substantial opportunity to
increase the number of potential clients and to increase our revenues per
client, with limited incremental costs.
Paycom Software, Inc. expects to have
its 2022-year end revenue be about $1.3 billion, an approximate 25% growth for
the year. This substantial growth rate has been partially due to increasing market
share and an overall growth in the industry and the need for human capital management
software.
Paycom Software, Inc. also has
been continuing to repurchase its shares. During the year ended December 31, 2021,
Paycom repurchased an aggregate of 163,849 shares of common stock at an average
cost of $400.24 per share. Paycom will continue to repurchase its shares until
their stock repurchase plan expires on May 13, 2023.
What
has the stock done lately?
Over the past month, PAYC has dropped
about 3.22% while the Russell 2000 Index has dropped about 2.22%. The stock’s
value has ranged from $300.98 to $364.94. The stock price has seen a decline since
2/17 after its earnings were released. The current price is hovering around $320.00
which is about ~13% off its month high.
Past
Year Performance: SPSC has decreased 15.05% in value over the past
year, trading at a high of about $558.97 in November 2021 and currently trading
around $320.00. In the past year, the stock has had a bull run that was put to
an end in November, and it has been beginning to stabilize just these past few
weeks.
My
Takeaway
Since being added to the AIM fund,
PAYC has exceeded its expectations. The increased demand for human capital management
software, the growth of the companies that PAYC serves, and an overall need for
solutions all benefit PAYC’s business. Management placing an emphasis on
growing the company and seeing revenue estimates continue to rise make PAYC a
strong investment. Although recent drops in share price make Paycom a daunting
investment, strong fundamentals show that it is an extremely strong company doing
better than ever. It is recommended that the AIM fund continues to hold their PAYC
position.
An International Equity holding: Vestas Wind Systems (VWDRY, $8.35): “A Blow Over” By: Hannah Cehaic, AIM Student at Marquette University
Vestas
Wind Systems (VWDRY, $8.35): “A Blow Over”
By:
Hannah Cehaic, AIM Student at Marquette University
Summary:
- Vestas Wind Systems, AS ADR.
(OTCMKTS:)VWDRY is the market leader of renewable energy
which install, manufacture, and service onshore and offshore wind
turbines.
- Vestas
2021 outlook has decreased again for the second time this year, making
their shares decrease as much as 14%.
- Vestas’
business and manufacturing has not responded well to the current supply
and shipping constraints.
- There
is a pending management change of CFO’s.
- New
wind farm contract in Estonia.
Key
points:
Vestas Wind Systems has undergone
a lot of stress since mid 2021 up until now. With supply chain issues and lack
of resources, Vestas has been under attack. The stock price has taken a hit
since then and has yet to increase from their high price of $17.23.
Recently, current CFO of Vestas,
Marika Fredriksson has handed over the financial reigns to new upcoming CFO
Hans Martin Smith. Hans Martin has many years of experiences as CFO of Vestas
Northern & Central Europe. This change will be implemented on March 1st,
2022.
Even though new management seems
promising, Vestas is still under water in terms of the industry. Costs of steel
and other materials are skyrocketing. Additionally, supply chain issues and
COVID have still led to slow delivery scheduled which has delayed many
operations. This has halted the completion of wind farms which has resulted in
firms not wanted to purchase these wind turbines due to volatile pricing and
unreliable shipping.
Though there a few setbacks with
the company, Vestas has recently won an Estonia turbine contract. This allows
Vestas to contract and supply turbines for Enefit Green’s Purtse wind project
in Estonia. This will allow the creation of electricity in Purtse using
renewable turbines. The construction of these new wind farms in Estonia will
begin early next year.
Recent
Performance:
Vestas’s
stock has been decreasing since middle of last year after the rise of material
costs and supply chain issues. From January of 2022 to February of 2022, the
stock alone has plummeted a whopping -17.55%. Additionally, Vestas has had a
negative average one month return of -6.87%. The new Estonia contract and new
management are needed to help pick up the stock’s pace.
Past
Year Performance:
Vestas
has decreased -47.50% in value over the past year. Vesta’s YTD returns are
-18.68 compared to the benchmark of -8.57. It is evident that geopolitics have
impacted Vestas in a very negative way.
My
Takeaway:
The new
contract in Estonia shows very promising returns of creating more wind farms,
specifically green wind farms. However, the building contract does not start
until early next year which still leaves almost a full year of Vestas to keep
up with changing geopolitical risks such as supply chain issues and increase
material costs. Vestas will need to complete another contract this year to keep
up with lost revenue despite changing geopolitical risks.
The Sixth Set of Spring 2022 Marquette AIM Program Student Equity Pitches/Q&A for Friday, March 11th
AIM Class of 2023 Student
Equity Presentations
Friday, March 11th
Follow the link to access the student equity write-ups.
The 8-minute student
presentations can be viewed every Thursday afternoon on YouTube. Then join us live in person on Friday at 1:00
pm CST in the AIM Room or stream live via the AIM YouTube channel for the
presenter’s Q&A.
If you are unable to attend, you can always view
them via YouTube HERE.
Tuesday, March 8, 2022
Applied Investment Management Challenge: An anonymous donor from the Class of 1984 will donate $100,000 in support of the Applied Investment Management (AIM) Program when we secure 100 donors to the program.
Support the AIM Program on #GiveMUDay
Applied Investment Management Challenge: An anonymous donor from the Class of 1984 will donate $100,000 in support of the Applied Investment Management (AIM) Program when we secure 100 donors to the program.
Click here to support AIM today!
Other Opportunities
There is a range of opportunities to support the College of Business Administration today, with matches and challenges that can multiply the impact of your gift today!
Mark Schoenfelder, Bus Ad ’02, and Sarah Schoenfelder, Bus Ad ‘02, will match $2 for every $1 of gifts directed to the College of Business Administration up to $100,000.
Plus, if you make a gift today by 12:00 a.m. CT, you can choose your favorite pair of exclusive Marquette socks. Leave your footprint and give back here!
You can also participate today by helping us secure these challenges:
Applied Investment Management Challenge: An anonymous donor from the Class of 1984 will donate $100,000 in support of the Applied Investment Management (AIM) Program when we secure 100 donors to the program.
Click here to support AIM today!
