FIN 340 Module 7 Project Two Example

Stock Analysis and Portfolio Recommendations for Two Clients

[Student Name]

Southern New Hampshire University

FIN 340: Fundamentals of Investments

Project Two

[Instructor Name]

[Date]

The organization, setting and figures below are a composite written as a model document. No real employer, client, colleague or patient is described.

Stock Analysis and Portfolio Recommendations for Two Clients

Introduction

Project One produced investment policy statements for two composite clients of a fee-only practice in Keene, New Hampshire: Tessa Lindqvist, a 29-year-old growth investor with a short-term condo goal, and Gordon and Renee Abernathy, 57 and 55, income investors with a growth component who plan to retire in eight years. This project analyzes two stocks the clients asked about, then recommends a portfolio for each client with specific holdings, account placement and a monitoring plan. Brinson et al. (1986) found that allocation across asset classes drives most of the variation in portfolio returns, so the allocations come first and individual stocks play a small role.

Stock Analysis: Procter and Gamble

Procter and Gamble makes household staples such as Tide, Pampers and Gillette. Its sales depend little on the economy, and it has raised its dividend every year for more than six decades. In mid-2025 it traded near $158, paid an annual dividend of about $4.23 and had a beta of roughly 0.45.

Required return. The model of Sharpe (1964) starts from a Treasury yield near 4.3 percent and adds beta times an equity premium assumed at 5.5 points, so this stock needs 4.3 + 0.45 x 5.5, about 6.8 percent. Investors accept a low required return because the stock's earnings rise and fall less than the market's.

Value. Gordon and Shapiro (1956) showed that when a dividend grows at a steady rate, a share is worth the coming year's payout divided by a spread: what holders demand each year, less the pace at which the payout climbs. With dividends growing 4 percent, next year's dividend is $4.40 and the value is $4.40 / (0.068 minus 0.040) = $157, almost exactly the market price. At 5 percent growth, the value jumps to $247. The model is useful for a steady dividend payer like this one, but a single point of growth assumption changes the answer by more than half, so it supports a judgment of "fairly priced" rather than a bargain.

Stock Analysis: Microsoft

Microsoft earned about $13.64 a share in its 2025 fiscal year, on revenue of roughly $282 billion, and traded near $500 in mid-2025, a price to earnings ratio of about 37, compared with roughly 22 for the S&P 500 on expected earnings. Its dividend of $3.32 a year is a yield under 1 percent, so a dividend model would badly understate its value; most of its return must come from growth. With a beta near 1.0, its CAPM required return is about 9.8 percent. The high multiple means investors expect earnings to keep growing at double-digit rates, driven by cloud computing and artificial intelligence services. If that growth slowed to the market's pace, the ratio could fall toward the market average, which implies a large price decline. Microsoft is a high-quality business, but at this price it carries more valuation risk than its stable profits suggest, and it already makes up about 7 percent of the S&P 500, so any index fund owner holds it.

Stock analysis summary (approximate, mid-2025)

Portfolio for Tessa Lindqvist

Tessa's policy separates three pools: an emergency fund, a condo fund and retirement savings. Her retirement money can take high risk; the other two cannot.

Tessa's recommended portfolio

Taken together, nine of every ten retirement dollars sit in stocks, the mix shown in Module Four to fit her horizon. She owns no individual stocks: she is anxious about losses, and a single holding's swings could push her to sell. A Roth IRA suits her because her 22 percent tax bracket is likely the lowest she will face in her career. She should first pay off her 5.9 percent car loan with part of the monthly amount before opening the Roth IRA.

Portfolio for the Abernathys

The couple's policy calls for a balanced portfolio that gradually becomes more conservative and reduces Gordon's concentrated stocks.

Gordon and Renee Abernathy's recommended portfolio ($860,000)

Stocks total 60 percent and bonds and cash 40 percent, the mix with the best reward per unit of risk in Module Four. Gordon's three engineering stocks, now about 14 percent of savings, will be sold in stages over three tax years, cutting the position to 7 percent now and lower later. A small Procter and Gamble position adds stable dividends in the taxable account, where qualified dividends are taxed at 15 percent. Bonds sit in tax-deferred accounts because their interest is taxed as ordinary income. The Treasury ladder grows as retirement nears so that five years of withdrawals are scheduled by the time Gordon stops working.

Monitoring and Rebalancing

Both portfolios will be reviewed once a year and after any major life change, such as Tessa's condo purchase or a change in the Abernathys' retirement date. Any asset class that strays five or more points away from its target weight gets pulled back. For the Abernathys, the stock share will step down by about 2 points a year, reaching about 45 percent at retirement. Gordon's stock account will be compared with a broad index every year, and money will move back to index funds if it trails for three years.

Conclusion

The stock analysis shows that even well-known companies can be fairly priced or richly priced, and that valuation models depend heavily on their inputs. For both clients, the decisions that matter most are allocation, cost and discipline: a growth portfolio and safe short-term funds for Tessa, and a balanced, gradually safer portfolio with a less concentrated core for the Abernathys.

References

Brinson, G. P., Hood, L. R., & Beebower, G. L. (1986). Determinants of portfolio performance. Financial Analysts Journal, 42(4), 39-44. https://doi.org/10.2469/faj.v42.n4.39

Gordon, M. J., & Shapiro, E. (1956). Capital equipment analysis: The required rate of profit. Management Science, 3(1), 102-110. https://doi.org/10.1287/mnsc.3.1.102

Sharpe, W. F. (1964). Capital asset prices: A theory of market equilibrium under conditions of risk. The Journal of Finance, 19(3), 425-442. https://doi.org/10.1111/j.1540-6261.1964.tb02865.x