Basic, lesson 1 of 3
Choosing a stock to pitch
Most weak pitches fail at the choice. Pick a company you can know better than the interviewer expects, where your numbers can differ from the Street for a reason you can name.
8 min, 3 checks
1What makes a good pitch stock
- In a sector you follow, ideally the team's sector or next to it
- Mid cap or smaller large cap: covered, but not by forty analysts
- A business model you can explain in two sentences and a key metric you can forecast
- A debate: something the market disagrees about, with a date when it gets settled
- Your estimate differs from consensus by an amount that matters, for a stated reason
Worked example
Sizing the gap
- 1Consensus next year EPS: $3.00
- 2Your estimate: $3.30, because a new plant lifts gross margin by 150bp from the third quarter
- 3Gap: (3.30 - 3.00) / 3.00 = 10% above the Street
Ten percent with a dated driver is a pitch. One percent is noise, and fifty percent without a reason is a red flag.
Check 1
Consensus EPS is $4.00 and yours is $4.36. How far above consensus are you, in percent?
2What to avoid
The largest, most discussed companies are hard to pitch well: every argument has been made and the interviewer will have heard it. Very small companies with no coverage are hard to verify and may not be investable for the bank's clients. A stock you picked because it fell the most last month is a story about the price, not the business.
Check 2
Which pitch choice is strongest for a consumer team interview?
Check 3
Your estimate matches consensus on every line. What is the problem?
Terms in this lesson: Gross margin.
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