Identifying An Adequate Portfolio Through Technical And Fundamental Analysis

• Discuss your investment goals and strategies in stock selection [Hints: value investor, growth investor or combination of two; top down analysis or bottom up] If it is top down analysis, you will need to justify the choice of industries by discussing macro-economic variables and/or industry specific qualitative factors]
• Explain the reason of your investment in the industry that you consider for creating your portfolio [Hint: use macro-economic variables and/or industry specific qualitative factors]. 
• In addition, using company specific qualitative factors, the data you collected on financial ratios (that are provided in Eikon, at least 5 ratios in the last 5 years). Consider qualitative factors of individual companies. Under fundamental analysis explain your decision of stock selection (9 companies are required) for Active Portfolio 1. 
• DuPont Analysis: calculation and interpretation. For the chosen stocks, do students undertake the 3-step DuPont analysis for each stock? This must include both calculation and interpretation. 
• Technical analysis to support stock selection decision (moving averge lines and volume). For the chosen stocks, do students undertake technical analysis for each stock? Students need to analyse moving average lines and volume. 
• References and professional presentation. (At least 5 external references to justify your choice of stocks. This is a professional business report. Please make sure that it is presented in a professional manner. Is there a reference list? Does the reference list format follows format the Harvard referencing style. Is there clear in text-citation? Format: Time new roman, 12 points, table of content,… Table and figure: Are all the tables and figure labelled, numbered and referenced?) 
• Conclusion to summarise your report. (Does the conclusion provide a succinct summary of the report?). 

Stock Evaluation

            The assessment aims in identifying an adequate portfolio which contains a combination of stocks that have the components of value investing and growth investing. Adequate calculation of Technical Analysis and fundamental analysis are conducted in the assessment to identify stocks which have growth probability. With the calculation of DuPont Adequate growth and return of equity from the organization can be detected. These relevant calculations eventually help in identifying the adequate weights in which the stocks will be invested to form the portfolio. The segregation of 9 stocks from the 20 ASX listed companies is conducted on the basis of economic and industry trend.

Stock Evaluation:

            The stock selection process was mainly conducted on the basis of industry and economic growth, where industries such as materials, industrials, energy, telecommunication service, and consumer staple are considered for the investment purpose. The above-mentioned industries are relatively gaining more income in comparison to other organization, where the government regulations have allowed the industries to improve the current operation. On the other hand, other industries such as banking have been under pressure due to the change in political and regulatory views regarding the interest rates.

The Global demand of oil, energy and mining products has been increasing immensely providing adequate growth probability for the materials industry. Hence, the stock selected from the industries portrays adequate growth and return. In this context, Hong and Wu (2014) stated that stocks can be segregated in two different investing measures, such as value and growth, which allows investor to maximize the return from their exposures. On the contrary, Edwards, Magee and Bassetti (2018) argued that without the adequate calculation the created portfolio might increase losses from investment and hinder the investment capital.

Figure 1: Depicting the Peer Analysis of the selected 9 stocks

(Source: Apac1.apps.cp.thomsonreuters.com 2018)

The above figure depicts the fundamental analysis of 9 stock selected for the portfolio, which are analyzed on seven different fundamental factors. The major factors that are used for analyzing the current capability of the selected stocks are dividend yield, return on equity, PB ratio, P/E ratio, net profit margin, total debt to total equity, and long term growth.  The above mentioned factors would eventually help in detecting the current financial position of the selected stocks. The fundamental analysis directly indicate that selected or organization have an adequate positive train which would eventually improve the level of returns from investment.

Value Investing

 From the further evaluation it would be detected that only origin Energy Limited does not pay dividends while other organization adequately provides the dividend to the investors. The factors used for the fundamental analysis directly indicate that the selected stocks have a positive fundamental approach, which would eventually January higher returns from investment. Avramov, Kaplanski and Levy (2016) mentioned that fundamental analysis is used for detecting the financial position and how an organization could create value and deliver growth in long term. Bartram and Grinblatt (2018) criticizes that due to the nature of investment, fundamental analysis mainly losses the gains in long run, as inflation erodes the capital gains obtained by the investor.

Table 1: Recommendations for the selected stocks

(Source: Apac1.apps.cp.thomsonreuters.com 2018)

            The Thomson Reuters Eikon online directly provides the fundamental facts, the adequate recommendation for a particular stock is depicted. This recommendation is mainly based on the fundamental analysis conducted by the Eikon Online. The above table represents the level of recommendation for the selected 9 stocks.

Technical Analysis:

The above figures directly indicate the level of Technical Analysis which has been conducted to identify the investment opportunities in the selected stocks. The technical analysis value of 50 day moving average and 200 day moving average has been used for the calculation purpose, which helps in detecting whether the investment in the stocks is a viable option. from the evaluation of the above because it could also be indicated that he stocks selected for investment adequately has  a higher 50 day moving average in comparison to the 200 day moving average.

This relatively indicates that the investments in the selected so is a viable option, where the technical analysis factors are supporting the formulated portfolio. From the above selected stop only Telstra Corporation Limited has been identified to have a higher 200 day moving average than 50 day moving average. This relatively contradicts the measures and constraints used by the technical analysis for identifying investment opportunities. Therefore, leaving Telstra Corporation Limited the technical analysis supports all the other eight stocks that have been selected for creating the portfolio. On the other hand, Reddy (2015) criticizes that technical analysis is only beneficial when the organization aims in using short term investment scope, which is considered to be the forte of the technique.

            The technical analysis has relatively provided an adequate short term trend of the stock, which could be used to identify the investment scope. The use of moving averages relatively allows the investors to detect the current Trajectory of the stock and adequately detect entry and exit system. This detection of the target price, entry system and stop loss system would eventually help the investors to maximize the level of returns from investment and minimize the risk projected from a particular stock. Thomsett (2017) stated that technical analysis is used by investors for minimizing risk and maximize returns from investment.

Growth Investing

Du Pont Analysis:

Table 2: DuPont Analysis

(Source: As created by the author)

Table 3: DuPont Analysis

(Source: As created by the author)

Table 4: DuPont Analysis

(Source: As created by the author)

Table 5: DuPont Analysis

(Source: As created by the author)

Table 6: DuPont Analysis

(Source: As created by the author)

Table 7: DuPont Analysis

(Source: As created by the author)

Table 8: DuPont Analysis

(Source: As created by the author)

Table 9: DuPont Analysis

(Source: As created by the author)

Table 10: DuPont Analysis

(Source: As created by the author)

            The above tables are relatively help in detecting the DuPont analysis of the selected stocks, where the return on equity of the companies is adequately calculated. From the relevant calculation it can also be detected that all the nine stocks selected for the portfolio has a positive return on equity for the fiscal year of 2018. The calculation also indicates that Investments in the selected company would eventually generate higher returns in future, as the return on equity is relatively positive. After evaluating the calculation of DuPont Amcor Limited is identified to have the highest return on equity from the relevant calculations.

This mainly indicates that the organization has been generating adequate returns on each fiscal year. Furthermore, other stock such as BHP Billiton and South32 Limited return on investment has been increasing over the fiscal year, which depicts the positive attribute of the organizations.

The evaluation of Woolworths and Wesfarmers Limited indicated stagnation in their return on investment over the fiscal years. However, the organizations depicted adequate returns during the fiscal year of 2018, which indicates the future prospect that is present within the stock. Paramati, Ummalla and Apergis (2016) mentioned that with the presence of the financial ratios the organizations past trend can be measured, which helps in detecting the future progress that can be made by the management.

Origin Energy Ltd and Brambles Ltd have positive Return on equity, as depicted in the above calculation, which indicates the high returns that can be generated from investment. The calculation of DuPont directly evaluates the net profit margin, asset turnover ratio and financial leverage to help understand the current returns, which can be generated from the stock on yearly basis.

Lastly, the calculation of Transurban Group and Telstra indicates the high return on equity, which the organization has been projecting over the fiscal years. The combined returns of the selected stocks would eventually help in improving the level returns, which can be generated from the investment. Akyol and Cicen (2017) stated that DuPont analysis helps investor to evaluate the current returns that can be generated from an investment by using the 3 Point analysis.

Table 1: Recommendations for the Selected Stocks

Summary and Comparison of the Portfolio:

Table 11: Recommended weight

(Source: As created by the author)

            The above table represents the overall weights for stocks, which can be conducted to form the portfolio. The calculations directly indicate that investment in seven stocks can be conducted on 10% of the total portfolio value, while the other two stocks will comprise of 15% portfolio value. This combination of the weights will eventually help in diversifying the portfolio and maximise the returns, which can be generated from investment. The investment in Amcor and BHP Billiton is at the level of 15% each, which is due to the rising demand of mining products in the world that might boost sales and increase returns of the organisation. Arthur (2018) mentioned that portfolio creation with diversified stock allows the investors to minimise the risk from investment and reduce the negative impact from the capital market.

Reference and Bibliography:

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Apac1.apps.cp.thomsonreuters.com. (2018). Sign In.

Arthur, W.B., 2018. Asset pricing under endogenous expectations in an artificial stock market. In The economy as an evolving complex system II (pp. 31-60). CRC Press.

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Au.finance.yahoo.com. (2018). Yahoo is now a part of Oath. 

Avramov, D., Kaplanski, G. and Levy, H., 2016. Talking numbers: Technical versus fundamental recommendations. Working Paper, The Hebrew University of Jerusalem, Bar-Ilan University, and Fordham University.

Bartram, S.M. and Grinblatt, M., 2018. Agnostic fundamental analysis works. Journal of Financial Economics, 128(1), pp.125-147.

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