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CHAPTER 6

Analyzing Company Strategy and Identifying Catalysts

This chapter covers the analysis of a firm's competitive and strategic positioning within its industry and the identification of catalysts with the potential to move the stock price. We will begin with an overview of key concepts, and then consider two specific analytical frameworks: a Porter's Five Forces model and a strengths-weaknesses-opportunities-threats analysis, usually abbreviated SWOT. The learning objectives for this chapter are:

1. Identify quality sources of information for analyzing a company's strategic and competitive positioning.

2. Identify and explain the factors that make a company's competitive advantage sustainable.

3. Evaluate a company's strategic and competitive positioning by implementing a SWOT analysis and a Porter's Five Forces analysis.

4. Identify situations where a company expresses the intention to execute a strategic plan but fails to follow through.

5. Distinguish strategic and competitive initiatives that may enhance customers' value chains but are unlikely to lead to genuine shareholder value creation.

6. Identify unpriced “catalysts”—important company information that appears to be less than fully reflected in the current stock price.

This topic represents a significant shift in our focus, which has been mainly quantitative up to this point. Now that we have a clear understanding of background economic forces (Chapter 2) and how to model stocks' financial health and valuation ...