fisher college of business – student investment management materials irene lipin ryan mayes mike...

Fisher College of Business – Student Investment Management

Materials

Irene Lipin Ryan Mayes Mike Longo

sector analysis


Overview

• Sector & Business Analysis• Economic Analysis• Financial Analysis• Recommendations

• Q&A

Fisher College of Business – Student Investment ManagementSector & Business Analysis

Economic Analysis

Financial Analysis

Recommendation

Financial Analysis

Sector & Business Analysis


Economic Analysis

Financial Analysis

Recommendation

Sector Composition

•Containers and Packaging• Metal, Plastic,

Cardboard, and Glass Containers

• Paper Packaging

•Forestry and Paper Products

• Timber, Related Wood Products

• All Grades of Paper

•Construction Materials• Sand• Clay• Gypsum• Aggregates

•Chemicals•Commodity Chemicals•Diversified Chemicals•Specialty Chemicals•Industrial Gasses•Fertilizers

•Metals and Mining•Manufacturing of Aluminum•Mining/Extracting of Gold & Silver•Steel •Other Precious Metals and Materials


Economic Analysis

Financial Analysis

Recommendation

S&P500 & SIM Sector Weightsas of 1/31/2010SECTO R

S&P 500 WEIGHT

SIM WEIGHT +/-

Consumer Discretionary 9.67% 6.99% -2.68%

Consumer Staples 11.65% 11.96% 0.31%

Energy 11.38% 11.90% 0.51%

Financials 14.71% 11.37% -3.34%

Health Care 13.17% 14.30% 1.12%

Industrials 10.51% 12.36% 1.85%

Information Technology 18.80% 19.04% 0.24%

Materials 3.41% 3.46% 0.05%

Telecommunication Services 2.98% 3.27% 0.30%

Utilities 3.72% 2.94% -0.78%

Cash 0.00% 2.32% 2.32%

Dividend Receivables 0.00% 0.08% 0.08%


Economic Analysis

Financial Analysis

Recommendation

Major Companies

COMPANY TICKER INDUSTRYMARKET

CAP($Mil)

PRICE AS OF

2/7/2010BETA P/E

BHP Billiton Ltd. BHPDiv. Metals &

Mining 192,560 $69.20 1.47 32.96

BHP Billiton PLC BBLDiv. Metals &

Mining 162,790 $58.50 1.47 27.73

Vale VALEDiv. Metals &

Mining134,180 $25.74 1.70 45.32

Monsanto Co. MON Agri. Chem. 41,880 $76.74 .74 27.95

POSCO PKX Steel 34,860 $111.90 1.92 9.96

Potash Corp. of Saskatchewan Inc.

POT Agri. Chem. 30,630 $103.48 1.25 21.43

The Dow Chemical Co. DOW Chemicals 30,330 $26.52 2.35 120.56

Freeport-McMoRan Cooper & Gold, Inc.

FCXDiv. Metals &

Mining30,200 $70.23 1.88 12.32

El du Pont de Nemours & Co. “DuPont”

DD Chemicals 29,580 $32.73 1.39 17.02

Goldcorp, Inc. GG Gold 26,020 $13.35 2.21 92.55

Median: 1.585 27.84


Economic Analysis

Financial Analysis

Recommendation

Industry and Business Cycle• Mature Sector• Highly Cyclical

• Sensitive to Fluctuations in the Business Cycle• Relies on Strong Economy

• Sensitive to Supply / Demand Fluctuations• Prices of Raw Materials Largely Demand Driven

• Growth through Acquisition• Growth through R&D

• Exposed to Wide Array of Industries• High Barriers to Entry

• Threat of New Competition is Low• High Capital / Fixed Costs

• Increased Environmental Regulation

•No New Buyers•Repeat Purchase•Can get Boring•Fewer BIG players


Economic Analysis

Financial Analysis

Recommendation

Economic Analysis


Economic Analysis

Financial Analysis

Recommendation

Materials versus S&P 500 10 Yr Performance


Economic Analysis

Financial Analysis

Recommendation

Recent Key Economic Drivers

• Robust demand from emerging markets• Chinese economy

• Sustained demand from developed markets• United States, European Union• Spring-time homebuilding

• Weak Dollar• Upward price pressure on commodities / raw materials• Cheapens American exports


Economic Analysis

Financial Analysis

Recommendation

Now, however…

• Tightening Chinese monetary authority

• Unfolding European debt crisis

• Strengthening dollar/Weakening Euro• Downward price pressure on commodities / raw materials• Raises prices of American exports


Economic Analysis

Financial Analysis

Recommendation

Housing Starts vs. Sector Performance

Correlation Coefficient (R) = - .22


Economic Analysis

Financial Analysis

Recommendation

Commodities vs. Sector Performance

Correlation Coefficient (R) = .67


Economic Analysis

Financial Analysis

Recommendation

$ Value vs. Sector PerformanceCorrelation Coefficient (R)

= .79


Economic Analysis

Financial Analysis

Recommendation

Financial Analysis


Economic Analysis

Financial Analysis

Recommendation

Revenue Growth Materials vs. S&P

Materials

S&P 500

Average increase

1.7%

Average increase

3.4%


Economic Analysis

Financial Analysis

Recommendation

EBITDA Growth Materials vs. S&PMaterials

S&P 500

% of sales

% of sales


Economic Analysis

Financial Analysis

Recommendation

Absolute Valuation: Price / Forward Earnings

17.1X

16.7X


Economic Analysis

Financial Analysis

Recommendation

Relative Valuation: Forward P/E

1.2X

1.0X


Economic Analysis

Financial Analysis

Recommendation

Absolute Valuation: Price / Book

2.7X

2.5X


Economic Analysis

Financial Analysis

Recommendation

Relative Valuation: Dividend Yield

0.9X

< 2.0%

1.2X


Economic Analysis

Financial Analysis

Recommendation

Technical Valuation: Moving Avgs.


Economic Analysis

Financial Analysis

Recommendation

Recommendation


Economic Analysis

Financial Analysis

Recommendation

Long-term outlook: Bullish

• Materials Sector responds well to economic recovery

• Impending inflation will “re-devalue” the dollar

• High growth potential in emerging markets and chemical agriculture segments


Economic Analysis

Financial Analysis

Recommendation

Short-term outlook: Bearish

• Tightening Chinese monetary policy • Slower bank lending• Deutsche Bank mid-March rate hike

• Recent rally in the Dollar • EU crisis: may continue?• Tumbling commodities (fewer financial buyers)

• Weak confidence, modest industrial spending outlook

• Bottom line… 10-week horizon looks pretty bad


Economic Analysis

Financial Analysis

Recommendation

Recommendation

• Reduce SIM fund exposure to 150 bps underweight.


Q & A

We Thank You,

Materials Sector

fisher college of business – student investment management materials irene lipin ryan mayes mike...

Documents