Reference no: EM133547756

Using the portfolio analysis template data you compiled in Milestone One for one of the companies in your investment portfolio, address the following:

Question 1: How would you assess the company's market and industry performance based on its five-year revenues and earnings results?

Question 2: How does the company's five-year performance compare to its industry peers over the same time period?

Question 3: What portfolio recommendations or asset allocation strategies might you consider to improve investment performance?

Support your responses by referring to the company's annual report and recent stock performance on both an absolute and a relative (peers) basis. Be sure to highlight any industry trends that you considered in making your responses.

In responding to your classmates, share your knowledge of asset valuation models when valuing companies in your investment portfolio. Highlight key portfolio characteristics that measure risk/return. Comment on any similarities or differences between asset valuation models.

Alexis

I choose to focus on Northern Trust for this discussion.

How would you assess the company's market and industry performance based on its five-year revenues and earnings results?
Northern Trust, an American financial services firm, has had a steady increase in its revenues except for in 2020 when most companies experienced a decrease during the Covid performance in 2021. On average, revenues have ranged from $5.975B in 2018 to $6.749B in 2022. The same has occurred for its EPS fluctuating from a high of $7.14 in 2021 to a low of $5.46 in 2020. While this financial services firm is not one of the big name firms that the general public is familiar with, it does have a reputable history since it has been in continuous operation since 1889 ("Head of Threat Management," 20203.)

How does the company's five-year performance compare to its industry peers over the same time period?
Some of Northern Trust's competitors are Fidelity Investments, BlackRock, Vanguard, State Street, and Bank of New York Mellon. According to Tracxn, a research firm that provides information about numerous companies, Northern Trust ranks 22nd in its industry.(n.d., 2023). For example, BlackRock has $8.594T AUM or assets under management whereas Northern Trust has $1.1T AUM. BlackRock continues to grow and has had annual EPS that has increased over the past five years from $26.58 to $33.97 in 2022. Clearly, Northern Trust may be a company in which continued investment may be questioned especially as it is now creating alliances with BlackRock through the usage of Aladdin, a patented electronic platform that is capable investment management and operations designed by BlackRock. It should be also noted that Northern Trust just named a former BlackRock executive as its new president of asset management (Benjamin, 2023).

What portfolio recommendations or asset allocation strategies might you consider to improve investment performance?

For the sake of maximizing my investments, I would recommend dynamic asset allocation where with this strategy declining assets are sold and replaced with assets on the rise (Jain, 2022). Under this strategy, investors can also adjust their mix between equities and debt accordingly. With this in mind, I may consider selling my stock in Northern Trust and replacing it with BlackRock stocks.

Ashley

Good evening class,

I chose Apple for our company research, as I'm sure many of you did! In review of the last five years, Apple has had 4 positive years of growth, with only year of a loss in revenue. As of December 31, 2018, Apple reported $268 billion dollars (USD) in revenue which climbed to $394 billion as of December 31, 2022. Apple reported a loss of revenue in 2019, in which the reported revenue was $260 billion dollars. The rebound in revenue, along with consistent revenue growth indicate that Apple has a strong ability to meet or exceed shareholder expectations for market performance and maintain their position as a leader in the technology industry. Investors in Apple stock will use the earnings per share (EPS) to determine whether they should continue to invest in Apple. The EPS at the end of 2018 was $2.98 and it had grown to $6.15 by the end of 2022. This is a significant increase and further confirms the general profitability of Apple.

Examples of Apple's largest competitors are Microsoft, Amazon, and Alphabet (CSI Market, 2023). During the last 5 years, these competitors have been reducing the prices of their own products and reducing their margin to gain market share from Apple (Clark, 2023). While this strategy has caused Apple to lose revenue in 2023, compared to its competitors, the loss of market share has not caused a disruption to the market performance of Apple stock. Apple's competitors are presently expericing a gain in revenue, which is a direct result of the gain in market share from competitive pricing strategies.

Apple has a very large amount of its assets invested in cash (Ward, 2023). As of May 2023, Apple holds $57 billion (USD) in cash. Historically, cash yields and extremely low rate of return- 0.30%. As of 2023, interest rates are the highest that they have been in 22 years (Zahn, 2023). As a result, I would suggest that Apple invest approximately 50% of their cash assets in short-term securities (such as CDs or high interest savings accounts) to capitalize on the high fixed interest rate. Apple should continue to keep 10% of their assets in cash to help meet immediate liquidity needs or stock repurchases. The remaining 40% of their cash portfolio should be divided into 15% long-term fixed securities and the 25% equities.

Given the volatility of both the equity markets and bond markets, it would do Apple well to take advantage of the high interest rate offered on short-term fixed securities to offset the rise in inflation. This will also keep their assets relatively liquid to assist with any liquidity needs and allows Apple the flexibility to modify their asset allocation or investment strategy when the markets rebound.