October 6, 2008

To help us on valuing companies, Professor Shenoy went over a handout on important “Numbers to Consider for Cases/Presentations.” The handout stressed the importance of margins including gross margin, operating margin, etc. Professor Shenoy emphasized that our valuation metrics like P/E and TEV/EBITDA need to come from our pro-forma income statements and should be based on our forward estimates.

Our speaker this week was Craig B. Novorr who works at Paragon Capital Management. Paragon is a bottom-up asset management firm that has over $300 million under management. Craig used to work at the Scout Fund at UMB bank. He initially left the bank to start his own business, but ended up being talked into working at Paragon Capital Management.

Craig showed us the way Paragon Capital values companies using Valero Energy Corporation as an example. He believes that when presenting an investment idea that you need to identify three positive catalysts along with three ongoing risks for the company. As long as the risks stay the same and the catalysts are still there, Paragon will continue to hold the stocks for the long term. His comprehensive valuation recognized that Valero is quite undervalued.

Our cases for the week were on Valero and most groups in the class had a buy recommendation on the company. Moreover, the class also asked him what he thought of current portfolio holding, Garmin, since Paragon Capital owns the stock. He said he is still a long-term believer of the stock. He also said that the drop in margins was to be expected as the average sales prices have fallen since introduction. Further, he said that their technology is still in the top of the industry. Although cell phones have GPS, he noted, he highlighted that people are unwilling to look at a small screen vs. having a screen on the windshield.

During the week, the class voted on buying Valero Energy, we ended up buying 500 shares at $21.19.