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Creating a 3 Stock Portfolio

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Suppose you are given an imaginary $894,000. how you should invest this $894,000?

Pick three stocks you want to invest in.

Which investments did you chose? Which philosophy or strategy did you use in making your choices?
What are the number of shares of the stocks you chose to buy? What is the total amount you spent to make this purchase? Why did you chose this portfolio of stocks?

Include the following in your report together with other information that you think is necessary to answer the questions:
- Total debt/equity ratios of the companies that you choose (keep in mind that higher the debt ratio, higher the risk).
- Ratios such as P/E (Price Earning Ratio), profit margin, return on equity, return on assets, EPS (earning per share), book value per share...etc.
- The betas of all companies that you choose (e.g., keep in mind that the higher the beta, the higher the risk).
- Explanation on the riskiness of all the companies that you choose in brief (e.g., the higher the beta, the higher the risk).
- Current ratio, quick ratio, and book value per share of all the companies that you choose.

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Solution Preview

Choosing from the S&P 500 under the following criteria:

Performance VS industry greater than 10%;
Performance VS S&P 500 greater than 10%;
Current ratio (MRQ) is 3 to 4;
Quick Ratio (MRQ) is 2 to 3;
Price to Book (MRQ) is greater than 3;

These choices produce a result of the following three stocks:

ABBV (pharmaceuticals - AbbVie) Current ratio: 2.65 Quick Ratio: 2.49 Price to Book: 22.83 Debt to Equity: 3.11 Price/Earnings: 28.86
Profit Margin: 21.97% return on equity: 90.29% return on assets: ...

Solution Summary

The author creates a portfolio of 3 stocks and explains what criteria he used and why. He gives his thoughts on investing in the current market.

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Similar Posting

Finance: Evalulate Jane's Three Possible Investments in Stock

Jane is considering investing in three different stocks or creating three distinct two-stock portfolios. Jane considers herself to be a rather conservative investor. She is able to obtain forecasted returns for the three securities for the years 2010 through 2016. The data are as follows:

Earning before depreciation, interest and tax.

Year A B C
2010 10% 10% 10%
2011 13 10 14
202 15 8 10
2013 14 12 11
2014 16 12 9
20145 14 15 9
2016 12 15 10

In any of the possible two- stock portfolios, the weight of each stock in the portfolio will be 50%. The three possible portfolio combinations are AB, AC, and BC.

To Do
Create a spreadsheet similar to Tables 5.7 and 5.8 ( which can be viewed at www.prenhall.com/gitman) to answer the following:

a. Calculate the expected return for each individual stock.
b. Calculate the standard deviation for each individual stock.
c. Calculate the expected returns for portfolio AB, AC, and BC.
d. Calculate the standard deviations for portfolios AB, AC, and BC.
e. Would you recommend that Jane invest in the single stock A or the portfolio consisting of stocks A and B? Explain your answer from a risk return viewpoint. f. Would you recommend that Jane invest in the single stock B or the portfolio consisting of stocks B and C? Explain your answer from a risk return viewpoint.

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