Investment Analysis and Portfolio Management Project 2022

Running head: INVESTMENT ANALYSIS AND PORTFOLIO MANAGEMENT
Investment Analysis and Portfolio Management
Name of the Student:
Name of the University:
Author’s Note:

INVESTMENT ANALAYSIS AND PORTFOLIO MANAGEMENT2
Table of Contents
Introduction......................................................................................................................................3
Macro-Economic Variables and Industry Specific Factors.........................................................4
Fundamental Analysis.................................................................................................................4
Technical Analysis.......................................................................................................................8
DuPont Analysis........................................................................................................................17
Conclusion.....................................................................................................................................18
References......................................................................................................................................20

INVESTMENT ANALAYSIS AND PORTFOLIO MANAGEMENT3
Introduction
The goal of this project is to choose 9 companies out of the top 20 ASX companies as
viable investments. To do this we took a bottom up approach and investigated key ratios such as
return on equity, net profit margin and price/earnings ratios. It was vital that we compared these
ratios to the industry averages to develop an understanding of which companies were
outperforming their industries. After researching all 20 companies we decided to be mainly
growth investors with one value investment.
We chose companies whose earnings we expected to grow at an above average rate
compared to its industry. We attempted to diversify our portfolio as much as possible to reduce
unsystematic risk and have chosen companies from a variety of industries including:
telecommunications, mining, banking, food retail, insurance and packaging. The ratios that were
useful for our growth assessment were ROE and P/E ratios mainly, as these show a potential for
growth and effective use of earnings (DeFusco et al., 2015).
We decided to use the bottom up approach to decide which stocks to purchase. The
bottom up approach looks towards the companies themselves rather than the overarching
macroeconomic environment. This approach allowed us to determine which companies were
performing at a high growth level regardless of whether their industry was performing. The
stocks that has been followed for the purpose of investment has been done based on the growth
and value based investment for the investor. The investment goals is to create wealth for the
investor by investing into companies that are primarily large caps and have the potential to
deliver return equal to greater than industry average returns.
Growth Focus
AMC.AX
BHP.AX
WPL.AX
WOW.AX
TLS.AX
RIO.AX

INVESTMENT ANALAYSIS AND PORTFOLIO MANAGEMENT4
Macro-Economic Variables and Industry Specific Factors
The approach that is followed is a bottom down approach for the purpose of selecting the
stock whereby we would be following the bottom-up approach for the stock. However, it is
important to mention some of the important and industrial factors like the inflation rate has been
predominantly under control in the Australian Economy that has helped the corporates and
organization in reducing the associated cost of goods sold and the overall operational cost for the
companies. On the other hand, the prevailing interest rate in the economy has fallen
predominately fallen from 2.4% to current levels of 1.25%, the reduction in the interest rate has
helped the corporate investment in various sectors of the economy and reducing the overall cost
of borrowing for the companies.
In terms of industry specific factors it is important to note that the industrials and
resources sectors have contributed the most in the rise of the overall market returns. It is crucial
to note that in the yield till date the industrial sectors have provided a return of around 16.60%,
resources sectors providing 22.76% and at the same time the market is providing a return of
17.83%.
Fundamental Analysis
The fundamental analysis have been done for the purpose of selecting the stocks in the
portfolio construction that would be consistent with the growth value of investment. In order to
find out stocks and give appropriate weightage to the stocks it will be well important that the
financial analysis of the company be done on some quantitative aspects for, which we have
deployed ratio analysis as an quantitative assessment tool for the analysis of the company. The
selected stocks would be analyzed based on the profitability aspects, pricing or value of stocks
and the dividend yield provided by each of the stocks. In terms of banking stocks they would be
critically analyzed based on the operating efficiency, net interest margin and operating leverage
each company has in the financials.
1) Telstra Corporation Ltd (ASX: TLS): Although the ROE has fallen by just over 14% over
the last five years, the ROE of TLS is still much higher than the industry average. It is clear by
this that TLS (Tesltra) is a market leader in their industry of Integrated Telecommunication
Services. The dividend yield is also quite high when compared to the industry average, making it
an attractive stock for investors.