When Tulane University finance professor Peter Ricchiuti was the Chief Investment Officer for the state of Louisiana, people often asked him where they could get information about investing in small local companies. As much as Ricchiuti wanted to help drum up interest in these often ignored and usually underestimated publicly traded companies based in rural southern locations – what Ricchiuti calls “stocks under rocks” – there was virtually no resource that provided analysis on them. That’s when Ricchiuti came up with the idea for the Burkenroad Reports program at Tulane University Business School.
“We found a niche here,” Ricchiuti explains. “These are little companies that need coverage. Sometimes they’re called orphan stocks.” So in 1996, Ricchiuti gathered about 200 students, split them up into teams of four, and assigned each team a company located in Louisiana, Texas, Alabama, Georgia, Mississippi, or Florida to analyze.
In order to qualify for Burkenroad coverage, a company must be followed by no more than two analysts nationwide and have an equity market capitalization (the total dollar value of all outstanding shares) of less that $1 billion. In addition, says Ricchiuti, the companies must be only “a cheap Southwest flight away from New Orleans.”
The Burkenroad Reports, named for a Louisiana family that serves as the program’s benefactor, has been going strong ever since. Each year, the 50 student groups, headed by a paid second-year MBA student team leader, take a trip to visit their assigned companies, where they tour the facilities and meet with executives, just as a Wall Street firm would with a larger company.
At the end of the semester, each group writes a 20- to 30-page report, setting a target stock price, reviewing the history and background of the firm as well as the factors that will likely determine its future success and discussing its peer, or competitor, companies. Then students meet with professor Pamela Shaw, who helps them develop pro-forma financials to predict how the company will do in the next year.
Tulane claims it is the only school that offers such a program. “We’re the only ones out there actually visiting the companies, kicking the tires,” Ricchiuti says. And the students’ diligence has paid off: Mississippi’s Hancock Bank was so impressed with the program that in 2001 it created the Hancock Horizon Burkenroad Mutual Fund with holdings selected based on the students’ reports. The fund trades under the ticker symbol HYBUX, and since its inception has grown by more than 66%, far outperforming both the S&P 500, the general stock market index, as well as the Russell 2000, an index that follows smaller companies.
Each year, Tulane hosts a Burkenroad conference in the spring, where all the managers from the companies come to make presentations on the outlook for their industry. About 600 to 700 investors come to hear the presentations. In addition, the program sends out 24,000 reports to investors annually.
More than 400 Burkenroad students have gone on to score jobs in the investment field, and the students say the experience gave them a great advantage during the application process. They are able to show employers their analysis reports as examples of their writing ability, analytical ability and proficiency in the field.
Ross Levin, a graduating senior at Tulane’s business school, says he will be working for a hedge fund, which is allowed to use aggressive strategies that are unavailable to mutual funds,after graduation.
“I will not be spending the two-year stretch at an investment bank, which is almost standard,” he says, noting that his Burkenroad experience assured his employer that he could get the job done. “The Burkenroad program provided me a look at how the sell-side analyst interacts with firms and produces its research. This perspective will be important as I evaluate the sell-side research that is directed at my firm.”
Rob Tatum, an MBA student who served as a team leader, says he thinks the program has been so successful both at predicting stock performance and at preparing students for investment jobs in part because the company’s executives have been eager to help out. Bigger companies probably wouldn’t have the time or motivation to meet with students, but the Burkenroad companies are grateful for the exposure.
Ricchiuti notes that even though the student reports aren’t infallible, they’re nearly guaranteed to be honest. To avoid conflicts of interest, Tulane bans its Burkenroad students from investing in the stocks until after they graduate.
The Tulane staff is similarly restricted while employed by the program. However, students and staff are welcome to invest in the HYBUX fund, and perhaps no one is more enthusiastic about this fund than Ricchiuti himself. He’s invested his two kids’ college money in the fund, and he jokes that some day they’ll both either be very wealthy or “sharing a drink in the French Quarter, wondering what was dad thinking with that Burkenroad fund.”
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