How to pitch a stock (equity research)

when you pitch a stock to your client to

your potential employer to your analyst

or portfolio manager or even another

investor the most important thing is to

communicate concisely I'm Henry Chen an

equity research analyst CFA Charter

holder and now online educator to

investors now I've pitched stock ideas

to hedge fund analysts financial

advisers fund managers so I can tell you

that the ability to communicate the

opportunity of a stock both demonstrates

your expertise and showcases your

knowledge of how to actually invest so

I'm going to show you how to pitch a

stock here and also share a free pdf of

stock pitch guidelines that you can

download that I'll email you with the

link in the description first thing is

you got to know your audience so for

example if I to start talking about eqt

Corporation it's a natural gas producer

and I'm going to start talking to you

about how I think it's a great Growth

Company because natural gas is being

used to power demand for AI and data

centers and they're going to export a

lot of uh natural gas right I'm going to

lose the attention of a hedge fund

analyst who's really just looking to

understand if I'm investing in AI stocks

how are the earnings estimates changing

and how do I position my portfolio

whereas if I pitch that company to a

long only investor who does want to

invest for 3 to five years and primarily

buy stocks for their earnings growth I'm

going to get their attention so the

thing is you have to understand that

every investor has a different strategy

and a different Focus so if you don't

know the Investor's strategy just ask

them right off the bat what's their

strategy what do they focus on are they

looking at financials are they looking

at Tech do they like value stocks like

growth stocks what's the time frame how

do they want to get paid in terms of

returns you want to ask those questions

ideally ahead of time if you can so that

you can start to position your idea in a

way that makes sense for that investor

now the second thing about a stock pitch

is that it's a recommendation you need

to tell an investor what to do now a lot

of new investors they make the mistake

of just giving out a ton of knowledge

now let me show you why that doesn't

work hey there's this cool company msci

they make indexes like the msci Emerging

Markets index a lot of funds subscribe

to it because they use these indexes to

Benchmark the return

exchange traded funds or etss or using

indexes to create the portfolio it came

from organ Stanley it's it the CEO is

the founder boring right you probably

zoned out after just a couple seconds

because no one actually cares what this

business does what investors care about

what you care about how is this going to

make you money as an investor you want

to start off with a recommendation then

a brief description of the business then

go straight into the thesis why they

should buy or sell the stock I recommend

you buy and hold msci stock for the next

3 to 5 years it's a 49 uh billion market

cap company Capital markets business

they make indexes that are used by fund

managers and ETFs now why because the

entire investment industry has been

shifting to use indexes now about 30 to

40% of all assets are about index based

I've seen investors use up to 50 to 80%

so there's a huge long-term growth

potential in this product every fund

manager needs to use indexes to create

portfolios whether they're index funds

ETFs or institutional investors so I

think you own msci because msci is one

of only three companies that sells and

makes indexes and it's a bit like a

Marketplace there's only three because

once everyone starts to use an index

very few people switch because all the

investing and trading is centered around

that index or that Benchmark they also

have the highest margins the best growth

because one they sell to institutional

investors who who pay fees to access and

use that data so they get more revenues

and then the it's also a quite lowcost

model for them to sell it's a digital

product and they're also at the

Forefront of creating indexes for new

investment strategies so that's powering

their growth so they're in a position

that I think they can grow earnings for

at least 13 to 15% every single year for

quite a long time and that's how you're

going to make money so that's more

interesting right like here's a tip that

I learned from working with Traders in

the industry you always State your

conclusion first then go into the reason

because that's the only way you can

communicate with Traders that have so

many things going on they have the

attention span of basically like

goldfish and that also applies to almost

everybody in the industry because the

one thing that everyone is short on in

the investment industry is time now

third thing like any good story you need

to get them excited but you need to do

it using the language of Finance this is

where you can Al really start to show

that you know what you're talking about

let's cut back to 2020 you remember

everything was shut down uh there was

this company amn Healthcare they do

nurse staffing and they did there

there's a lot of layoffs right because

people weren't going to hospitals

there's a lot less demand uh for nurse

labor right except for covid so earnings

were down the stock was down and there

was just because there's less demand for

Hospital services so that's a setup now

by the end of 2020 as the economy was

about to reopen I heard this pitch which

I thought was excellent this is back in

August 2020 so amn I think is a great

buy here right I think the stock can

easily double why because when the

economy reopens uh hospitals will start

to uh take in patients again people are

going to start getting procedures that's

going to drive demand for lur uh nursing

and that's going to help amn's business

uh Staffing business recover now the

stock is not pricing in much of a

recovery at all the estimates for EPS

for 2021 are about $36 so it's about the

same as 2019 but the thing is they made

a couple of Acquisitions so technically

that's it should be a lot higher just

from those Acquisitions alone and so

there's very very little recovery priced

into those estimates second thing is to

stop price to earnings multiple is 16

times now normally it's between 14 and

25 times so we're also at the low end uh

of that range so if Healthcare demand

rebounds which I think it will that

would imply at least 30 to 40% of growth

at least just to get back to normal

levels that I think can get to an EPS of

uh $410 maybe $420 and they're already

starting to see signs of stabilization

in their business from the last quarter

so the stock also or the business was

also growing 10 to 20% every year before

because they were expanding to manage uh

labor for both nurses as well as other

staff for hospitals Nationwide so when I

layer on that 20% growth say with the

business recovering and then you have

this normal growth trajectory I think we

can get to at least $5 in EPS uh for the

following year and if we get to a more

normal multiple of say about 20 times

like how the stock is historically

traded that implies a uh $100 stock by

the end of next year and so that's an

easy double for from the $50 that the

stock is currently trading at right now

see that's pretty interesting right now

I'm giving you a specific upside price

so that's the potential for the stock my

estimates for the business and the

valuation I'm walking you through the

time frame of the thesis and I'm also

explaining the methodology of how I got

there and so then you also want to do

the same for the downside scenario exact

same thing except now you're thinking

about the risk of where you can go wrong

how it can lose money and amn you might

notice was a great idea because the

downside was already priced both in

terms of the estimates as well as the

valuation now fourth thing you may have

noticed you want to be able to express

your view and contrast it with Market

expectation so basically you want to

answer why is this stock mispriced how

is your view different from the market

and what kind of catalyst will

ultimately revalue the stock so this is

more advanced than it comes with the

experience and this is more of like a

hedge fund pitch because you know that

kind of differentiated view is really

how you find ideas for stocks that are

going to move differently from the

sector and the market so here's an

example I did a couple months ago it's

for pay laity it's a software company

they do like payroll and HR uh platform

for for small businesses so I

recommended uh buying the stock ahead of

the 1q earnings release so the stock uh

was at $170 I think it could get up to

200 bucks and so that's 15 to 20%

returns for the earnings release alone

and the reason why is because I think

estimates are already too low and I

expect the multiple to rate now why now

so the payroll industry could see

accelerated growth next year one of the

reasons why is because employment growth

which had been slowing and that's a key

driver for these businesses is now

stabilizing and it looks like it could

be picking up again second is growth was

really just slowed for a lot of these

companies because they were benefiting

from uh tax credits the prior year so

those expired and that's what suppressed

growth for a little bit so now that's

passed so now we have easier comparisons

so that's why I think it should be a a

year where uh growth will start to

accelerate now don't think people are

incorporating that into their numbers

the estimates for growth are basically

flat for pay lossi about 8% in the

earnings per share growth now paychecks

also just reported an acceleration in

their business on the revenue growth

side so I think this quarter is when

we're going to start to see the result

for pay lity as well now the stock is

already drisk you know they they put out

their guidance for the year it was kind

of at a low 8% rate uh the stocks

multiple is currently 27 that's also

lowest for the group but mind you this

April % growth rate is still one of the

fastest for the group so I think the

multiple is too low and management you

know over the past couple weeks has also

been saying that I think we can get to a

beat and raise Cadence meaning I think

they can raise their guidance so I think

the guidance estimates are too low I'm

estimating about

$714 uh in EPS for 2026 so the following

year that's a 3% upside versus current

Street estimates uh and that represents

about 11% EPS gross versus the 8% that's

uh the the Market's expecting they're

already growing their client employees

so that's sort of the core driver of the

business at 8% again that's the fastest

of the group so I expect it to rise from

to 11% from the better employment

environment the easier comparisons with

the passing of these tax credits

expiring um and the multiple I think

when when the when the market sees us

can rate to closer to that 28 30 times

multiple I think that's a fair multiple

if they're growing faster than these

companies and the Catalyst that I'm

looking for is in this current next

releasee I expect them to uh either uh

to to raise their guidance and that will

start to drive estimates up and that's

going to create the Catalyst for the

stock to rate that gets me to a $200

stock when I'm using that $714 with a 28

times multiple that's a 15 to 20% uh

increase in the stock from just the

earnings release alone now I get that

sales Trends are difficult to predict so

even if it stays at this 8% type of

level right that implies closer to $7 in

EPS if I'm using the the low multiple of

24 times right we're getting to about

170 stock so that's currently where the

stock is at so I think there's a lot

more upside versus downside ining the

quarter the Stock's already starting to

trade up since that paycheck speed so I

think a lot of investors are starting to

pick up interest and I don't think it's

priced in yet okay so if you're new to

this and and you and you want to do

something like this and you're pitching

to an employer don't worry about being

right because no one will assume you

will be because you have no experience

but you want to put in the work to be

able to articulate what you think the

market expectation is and what your view

is both in a quantifiable way so that

demonstrates that you can be an investor

and understand how expectations are

moving stocks and also if you're just

starting out and you're pitching to

clients and analysts and portfolio

managers the better you can start to

identify these expectations as well as

the key drivers and catalysts from

research and price different scenarios

and articulate a quantitative view the

better you're going to understand risk

and the better you're going to be able

to make money as an investor and Pitch

great ideas now it also helps just a

couple other tips to pick a good

industry avoid stocks that are too

volatile or too controversial you just

don't want to pitch a blowup make it

easy for yourself when you want to pitch

an idea okay so to wrap up putting

together a good concise pitch means

first you're going to do all the due

diligence do the research so you can

actually come up with a view now then do

a write up to organize your thoughts

keep it short and then just come up with

three good reasons to buy the stuff or

sell the stock be able to articulate

your reasons with the financial model so

understanding the numbers and then be

able to also explain the positives and

negatives of the business and your idea

be able to explain why your view is

different versus the consensus or Market

View and then just simplify it all down

so that you're able to talk about it

like you're talking to a friend uh with

numbers to back it up these guidelines

from this video will will help you

communicate that idea in in a way that

gets attention it really shows that you

know your stuff so the next video if you

want to help with the diligence part of

it I would suggest you check it out but

again there's a link uh to a PDF with

the stock pitch guidelines so that that

I can email to you below in the

description so you can use it to refer

to when you craft your next pitch plus

if you're interested in an education

program for investors there's also

information the in the description below

and also if you're a student we know

you're not making money yet but we want

to still help you get there so we're

also happy to offer discounts for uh

students in in your situation so let's

get you to finding some ideas pitch some

great ideas and I will see you in the

next video there's this trend called

outcome investing where in you know

you're using you're designing a

portfolio of assets to go around a

specific return of all