Materials. sector analysis. Kevin Bush Dustin McCann Hanyang Wei. Fisher Fisher College College of of Business Student Investment Management

Transcription

1 Materials sector analysis Kevin Bush Dustin McCann Hanyang Wei Fisher Fisher College College of of Student Investment Management

2 BUY

3 S&P Sector Weights 3.66% 3.23% 2.98% 10.60% 10.42% 11.15% 18.07% 13.09% 15.47% Info Tech s Energy Health Care Industrials Consumer Discretionary Consumer Staples Materials Utilities Telecom 11.27% April Materials SIM Portfolio Weight: 3.09%

4 S&P Industry Weights 3.41% 58.14% 32.26% 2.83% 3.36% Chemicals Construction Materials Containers & Packaging Metals & Mining Paper & Forest Products

5 Largest Companies 300 Market Cap in Billions

6 Sector Performance 1 Week Return 1 Month Return

7 Sector Performance 3 Month Return YTD Return

8 Sector Performance 1 Year Return 5 Year Return

9 Materials Sector Life Cycle

10 Increasing Commodity Prices S&P Goldman Sachs Commodities Index Jan-2-70= S&P Goldman Sachs Non-Energy Commodities Index Jan-2-70= Source: Standard and Poor's

11 Manufacturing Growth Composite Manufacturing and Non-Manufacturing ISM Indices 50+=Expansion NFIB Small Optimism Index 1986= Growth in the following industries: Wood products Primary metals Fabricated Metal Products Paper Products Mineral Products Chemical Products Printing Source: ISM Sources: ISM/H, NFIB

12 Weak Construction Industry Housing Affordability Index Median Inc=Qualifying Inc= Home Builders Housing Market Index All Good = Sources: REALTOR, NAHB

13 Improving Job Market Employment Outlook Survey Net % Higher 25 Announced Job Cuts Number Sources: Manpower, Challenger, Gray & Christmas, Inc

14 Porter s 5 Forces Barriers to Entry High High start up costs in already mature industries Customer Power Medium Commodity inputs with little differentiation among outputs Supplier Power Medium Small window for prices, but companies still need raw material inputs Rivalry High High barriers to entry lead to a lot of rivalry within industries Substitutes Low Few opportunities where substitutes exist

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16 Real GDP vs. Materials

17 S&P 500 vs. Materials

18 Trade Weighted dollar vs. Materials

19 Uncertainty U.S. debt Downgraded Greek debt Downgraded Asia Market Share Loan Growth

20 More good signs Material companies are raising dividends CNBC Video (May 11) International Paper raised 50% to 3.65% Freeport-McMoRan raised 66% to 1.89% Air Products & Chemicals Inc raised 18% to 2.57% Decreased supply from Peru: Gold, Silver, Tin Due to political reason

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24 ROE and EBITDA

25 Profitability compared to S&P 500

26 Major Companies (million) Market Cap 2011 Q1 Sales Growth 2011 Q1 Net I ncome Growth DOW $45B % % EI DuPont $49B % % Freeport- McMoRan $45B % %

27 Absolute Basis High Low Median Current P/Trailing E P/Forward E P/B P/S P/CF Relative to SP500 High Low Median Current P/Trailing E P/Forward E P/B P/S P/CF

28 Sector Forward P/E

29 Forward P/E Relative

30 Diversified Metals and Mining

31 Diversified Chemicals

32 Aluminum

33 Paper Products

34 Paper Packaging

35 Ag Chemicals and Fertilizer

36 Relative Strength Monthly

37 Relative Strength Monthly

38 Relative Strength Monthly

39 Relative Strength Weekly

40 Relative Strength Weekly

41 Materials Monthly

42 Materials Weekly

43 Materials Daily

44 Sector Outlook Positives Global growth continues at a strong pace Cost cutting during recession will pay off in the next few years Higher prices are not destroying demand Sentiment has turned thus creating good VALUE Trading at a discount historically Continued affordability for new homes will stimulate sector Negatives Double dip would cause commodity prices to drop Possibility of high inflation Strengthening USD

45 Industry Outlook Overweight Chemicals Metals and Mining Paper Products Underweight Containers and Packaging Construction Materials

46 Recommendation: BUY Increase SIM to overweight S&P by 100 bps (4.66%) Raising Materials by 157 bps Adding another name to the portfolio