The most important part of an equity analyst interview is the stock recommendation (also known as the stock pitch). For the pitch, be prepared with 3-4 bullet points on why your idea is a great long or short. Having only one to two points is probably too few to be compelling and anything beyond four is likely too much detail. For each of your bullet points have detailed back-up in your recommendation write-up. You should have a good command of these details so you can confidently speak to them in an interview without having to read from the write-up.
Stocks follow earnings, so the most important part of your pitch will be your EPS estimate. For the longs, your earnings estimates need to be meaningfully higher than the Wall Street consensus estimates. You will not capture anyone’s attention by telling someone to buy a stock because it is cheap and the company should beat 2013 EPS expectations by 5%. Similarly, your earning estimate for the short should be meaningfully below consensus expectations. Never pitch a stock as a short purely because it is too expensive. Expensive stocks can stay expensive for a long time or become even more expensive.
In addition to stating your earnings estimate, provide the interviewer with a target price. By the way, your pitch should not be solely based on the expectation of meaningful expansion or contraction of P/E. Earnings changes should be the core driver of the stock and the multiple will likely follow. You should also identify the catalyst event(s) that will cause other investors to see things your way. Many times earnings announcements are a catalyst, but they can be other events as well.
It will take time to pick a good stock, create a detailed earnings model and then develop a thoughtful and well prepared recommendation. The earlier you get started on this the better.
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