Stock analysis: Business & Marketing Essay

STOCK ANALYSIS
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PART ONE
Portfolio management is considered the selection, prioritization, and control of an organization's projects and programs, in line with its capacity to deliver strategic objectives. The primary goal is to balance the change initiatives' implementation and maintain business-as-usual while also optimizing investment return. On the other hand, a portfolio manager is a professional responsible for making investment decisions and conducting investment activities on behalf of organizations or vested individuals. However, governments' restrictions for mitigating the COVID-19 pandemic impact on public health and the economy had adverse effects on the stock markets, including the portfolio.
Impact on the Stock Market
The study conducted by Ashraf (2020) confirms the adverse effects of the increasing number of COVID-19 cases on stock returns within global markets. The study postulates that various government actions significantly contributed to these impacts. Such actions include social distancing measures, income support packages, in addition to containment and health response. The social distancing measures include the closure of workplaces, public transport, schools, parks, and other public places. The income support packages comprise the government's financial assistance to households in the form of debt relief or direct cash transfers, in addition to other payments for utilities (Tisdell, 2020, p. 18). Containment and health response is primarily concerned with the government campaigns of public awareness and the quarantining and testing policy.
Therefore, these government actions are postulated to, directly and indirectly, impact the stock market returns, particularly on the portfolio. For instance, for the direct impacts, the social distancing measures might have directly adversely impacted the stock market returns and the portfolio by negatively impacting economic activity (Zaremba, Aharon, Demir, Kizys & Zawadka, 2020, p. 101359). On the other hand, government health response and containment and income support packages are likely to lead to a positive market reaction, particularly improving investors' confidence and reducing the negative economic impacts to the portfolio as a result of the disease.
Additionally, such government actions' indirect effect is particularly manifested through the decrease in the intensity outbreaks of COVID-19. Strict and comprehensive government actions, including aggressive testing, generous income support programs by governments, strict social distancing measures, and quarantining policy, might significantly reduce the rate of new infections. Recent literature, including Ashraf (2020), reports that globally, various stock markets have responded to this COVID-19 pandemic outbreak with strong negative returns. Therefore, it is argued that if stringent government actions can be capable of reducing the intensity of COVID-19 local outbreaks, then they are likely weakening the adverse market reaction to the growth of the confirmed cases of this disease.
For instance, the Vietnam stock market performed in opposing ways both before and during the countrywide lockdown. Tisdell (2020) postulates that even though the pre-lockdown harmed the country's stock returns, the lockdown period had a crucial affirmative influence on the whole market's stock performance and various business sectors within Vietnam. It is crucial to understand that the global financial sector was hardest hit on several countries' stock markets during the outbreak of the COVID-19 pandemic. In particular, the government actions had an adverse negative impact on the organization's portfolio as the company faced significant challenges in delivering its programs and projects' strategic objectives.
The Monetary and Fiscal Policies
Monetary and fiscal policy decisions also significantly impacted the domestic and global stock markets during the COVID-19 outbreak. Both developing and developed countries are mostly utilizing these policies for cushioning the effect of lockdowns in addition to other measures that have resulted in businesses shutting down and leaving several people unemployed (Benmelech & Tzur, 2020, n. p). Therefore, various monetary policies have been enacted in markets such as the US to help counter the effects of COVID-19 on the stock markets. For instance, the monetary policy was enacted within the United States to provide liquidity to the US economy. COVID-19 resulted in a supply shock in addition to causing a severe demand shock that interrupted cash flows and upsetting the payment system.
Also, to contain the increases in unemployment and bankruptcies that are both unjustifiable and inefficient within a medium-term point of view, the US central bank has framed measures in such a manner that it helps in pushing the commercial banks in lending to firms and households, particularly because of the disrupted cash-flow process. Besides having the appropriate technical framing of various monetary measures, including the banks' interest rate incentives, the success of major credit support that is important for both medium and small-sized enterprises, requires instantaneous coordination with fiscal policy decisions as well as prudential measures (Martin, 2020, p. 72). COVID-19 also resulted in the US money stock surging at a pace that resulted in inflation. Therefore, the country recently announced the Federal Reserve policy known as the flexible average inflation targeting to help the country emerge from the pandemic with significant price stability instead of an uncontrolled rise in inflation.
For fiscal policy, governments, particularly the US government, has guaranteed a significant part for providing loan within its budget. This allows liquidity on the country's open market since the security prices are more troubled by a risk-off phase. This policy also allows the Central bank to purchase public and private bonds and require commercial paper in buying time and avoiding the global economy financial meltdown (Ahmad, Haroon & Hui, 2020, p. 73). The policy also proposes the need for G20 in promoting the development of a multilateral swap line that is focused on COVID-19-associated emergencies. This should be managed by the International Monetary Fund and easily accessed by the LDCs and EMEs, or even an equivalent financing arrangement. Generally, both the monetary and fiscal policies have the obligation of swapping their roles, with the latter becoming more trivial while the former must help without acting alone. In this case, central banks are coordinating with fiscal authorities and providing quantitative and fiscal support to finance their policies.
PART TWO
A fundamental analysis approach was utilized in security selection since it was the easiest to select stocks for building the organizational portfolio. It is because fundamental analysis (FA) is a method used for measuring the intrinsic value of the security by examining the associated financial and economic factors (Yan & Zheng, 2017; p. 1833). FA also helped in studying and determining anything affecting the value of security from the macroeconomic factors. They are such as the economic state and industry conditions towards the microeconomic factors, like the management effectiveness of an organization. Using this approach helped arrive at a number that investors can easily compare with the current security price to determine whether the security is overvalued or undervalued.
However, the FA approach of stock analysis is perceived to be contrasting with technical analysis, responsible for forecasting prices' direction through historical market data analysis as volume and price. However, the former was utilized because of its effectiveness in stock analysis, particularly in security selection. Typically, this approach was used for determining whether the security was correctly valued within the broader US market by studying the economy's overall state. Additionally, FA also helped in studying the industry strength before concentrating on the organization's performance, which significantly helped arrive at a fair market value for the stock (Petrusheva & Jordanoski, 2016, p. 27). Importantly, fundamental analysis is mostly utilized for the stock, but it is also very useful to evaluate any security, from a wider economy to organizational details.
Industry analysis was undertaken for significantly selecting securities for the organizational portfolio. Industry analysis is considered a tool for facilitating an organizational understanding of its position relative to other organizations producing similar services or products. Besides, Paradi, Sherman, and Tam (2018) argue that it is important to understand the forces at work within the overall industry for effective securities selection and strategic planning. Industry analysis enabled the organization's portfolio in identifying the opportunities and threats facing the Company, thereby focusing its resources towards developing exceptional abilities that could result in a competitive advantage. Three major elements consisted of industry analysis, including the industry's overall attractiveness, the industry's underlying forces at work, and the crucial factors that help determine an organization's success within the industry.
Ratio analysis and comparisons were utilized as a significant way of comparing the organization's portfolio with all the participants' average within the industry. Ratios were calculated by dividing a single measurable business factor by another of which the data was obtained from the company's holdings (Satyanarayana & Kumar, 2019, n. p). Therefore, by comparing the ratio for the organization's portfolio with that of the entire industry, the company could select the appropriate securities as it helps the business learn more about where it stands than the average of the industry. Such a comparative analysis is a significant way of assessing how an organization compares with all other companies involved within the same industry. Besides, industry analysis played a significant role in identifying the opportunities and threats within the business environment and planning the company's future within the context of the industry's future.
Therefore, the company's holdings and competitors' data was utilized as a part of industry analysis to select the securities for the organization's portfolio. For instance, this was conducted with regards to the shares held by the company's holdings, including TSLA (2,888), MSFT (5,507 shares), AMZN (328 Shares), NIO (12,492 Shares), CI (2,924 shares), GILD (9,362 shares), TCEHY (940 shares), PDD (352 shares), and BYDDY (719 shares). From this data, it is apparent that this organization's portfolio holds a high controlling stock in addition to membership interests within other organizations (Paradi, Sherman &Tam, 2018, p. 188). As compared to other organizations within the industry, this company's portfolio determined that it had many operating companies than the competing firms within the same industry.
This data implies that this organization's portfolio can own 100% of the subsidiary or even own enough membership interests or stock for controlling the subsidiary. As observed by Satyanarayana and Kumar (2019), having control implies having enough stock for ensuring that owners' votes will go their way. It can sometimes be 51%, but it can also be a much lower percentage in the case of several owners. Competitors' sales trend was also factored in the industry analysis for selecting the portfolio securities. For instance, competitors' sales trends indicated a declining sales volume from the competitors' side and hence acted as an advantage to the portfolio.
PART 3
The Markowitz mean-variance model was an imperative and appropriate approach followed in the organization's portfolio. Harry M. Markowitz is honored for introducing new risk measurement concepts and their application to the portfolios' selection. Markowitz started with the notion of average investors' risk aversion and their desire to maximize the expected return with the least risk. Following the Markowitz model was very appropriate in analyzing the portfolio's return and risk alongside their inter-relationships. This model is more appropriate for using statistical analysis to measure risk and utilize mathematical programming for selecting assets efficiently within a portfolio (Franco, Nicolle & Pham, 2019, n. p). This can result in an efficient portfolio necessary for yielding the highest return for a particular risk level or even the lowest risk for a given return level.
The Markowitz model can also be appropriate since it helps select assets based on the lowest risk, as deliberated by its standard deviation, particularly from the expected returns' mean. A portfolio of assets generated through the Markowitz model is considered appropriate, especially if no other asset is offering a higher anticipated return with lower risk or the same higher expected return (Ismail & Pham, 2019, p. 175). Importantly, this model is more appropriate as it allows the diversification of securities to enable the organizational portfolio to secure its objectives. The company associated and unsystematic risk can significantly be reduced by diversifying into various assets and securities with offsetting and different variability or even negatively correlated. The Markowitz model's appropriateness can be observed because it can significantly help evaluate and manage ...