CONSUMER DISCRETIONARY

Transcription

1 CONSUMER DISCRETIONARY A REPORT BY: ADAM ASHBROOK & ROBERT AURAND Sector Analysis

2 Consumer Discretionary Encompasses industries that are most sensitive to economic cycles Broken into two main segments Manufacturing Automotive, household durable goods, textiles & apparel, and leisure equipment Service Hotels, restaurants & leisure activities, media production and services, and consumer retailing and services

3 Sector Performance Source: Fidelity.com

4 Sector Weights S&P vs. SIM S&P Weight 2.73% 3.73% 3.57% 14.11% 19.60% 10.87% 11.92% 10.95% 11.69% 10.83% Financials Consumer Staples Energy Consumer Discretionary Health Care Industrials Information Technology Materials Telecommunication Services Utilities 3.53% 3.40% 21.22% 9.78% SIM Weight 3.34% 7.46% 13.19% 11.98% 11.13% 7.46%

5 Sector Comparisons

6 External Analysis Supply Conditions Excess supply Predictive, not responsive Mature life cycle High input costs Rising commodity prices Sector Rotation Across Economic Cycles Demand Conditions Highly cyclical Sales driven by disposable income Growth opportunities available in emerging markets Period of economic expansion Decreasing unemployment Source: us.ishares.com

7 External Analysis Porter s 5 Forces Force Analysis Reasoning Buyer Power Supplier Power Substitutes Competition Barriers to Entry High Varies High High High Discretionary goods for consumers Supply levels pegged to forecasts Dependent on industry, but typically multiple vendors with low pricing power High raw material costs passed to manufacturers Diverse product offerings with many substitutes available Price sensitive customers Sales often driven by differentiation Intense among established players Few opportunities for new customers except emerging markets Hard to capture market share Economies of scale provide significant advantages Many established brands control market

8 Confidence: Expected Conditions

9 Confidence: Expected Conditions Lead

10 Consumer Confidence

11 Disposable Income

12 Nominal GDP

13 Nominal GDP - Lead

14 Consumer Spending

15 Employment

16 ISM Employment Index

17 ISM Employment Index - Lead

18 Net Profit Margin - Absolute

19 ROE - Absolute

20 Net Profit Margin Relative (S&P 500)

21 ROE Relative (S&P 500)

22 Sector Performance

23 Net Profit Margin Industry 16.0% 14.0% 14.1% 12.0% 10.7% 10.0% 9.2% 8.0% 8.0% 6.0% 5.7% 6.2% 4.0% 2.8% 4.2% 2.0% 0.0% Auto Manufacturers Cable & Satellite Casino & Gaming Department Stores Movies & Entertainment Restaurants Retail - Apparel Retail - Internet

24 ROE Industry 45.0% 40.0% 38.4% 35.0% 33.7% 30.0% 25.0% 23.2% 20.0% 15.0% 16.7% 20.6% 14.6% 11.8% 10.0% 7.2% 5.0% 0.0% Auto Manufacturers Cable & Satellite Casino & Gaming Department Stores Movies & Entertainment Restaurants Retail - Apparel Retail - Internet

25 Sector Valuation 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

26 Automobile Manufactures Industry Ticker P/E Trailing P/E Forward P/B P/S P/CF Automobile Manufacturers (Relative to Sector) Select Companies (Relative to Industry) General Motors GM Ford F

27 Cable & Satellite Industry Ticker P/E Trailing P/E Forward P/B P/S P/CF Cable and Satellite (Relative to Sector) Select Companies (Relative to Industry) Comcast CMCSA Cablevision CVC n/a.4.5

28 Casino & Gaming Industry Ticker P/E Trailing P/E Forward P/B P/S P/CF Casino & Gaming (Relative to Sector) Select Companies (Relative to Industry) International Game IGT Technologies Wynn Resorts WYNN

29 Department Stores Industry Ticker P/E Trailing P/E Forward P/B P/S P/CF Department Stores (Relative to Sector) Select Companies (Relative to Industry) Macys M Nordstroms JWN

30 Movies & Entertainment Industry Ticker P/E Trailing P/E Forward P/B P/S P/CF Movies & Ent (Relative to Sector) Select Companies (Relative to Industry) Disney DIS Viacom VIAB

31 Restaurants Industry Ticker P/E Trailing P/E Forward P/B P/S P/CF Restaurants (Relative to Sector) Select Companies (Relative to Industry) McDonalds MCD Darden Restaurants DRI

32 Retail - Apparel Industry Ticker P/E Trailing P/E Forward P/B P/S P/CF Retail Apparel (Relative to Sector) Select Companies (Relative to Industry) Abercrombie & ANF Fitch Urban Outfitters URBN

33 Retail - Internet Industry Ticker P/E Trailing P/E Forward P/B P/S P/CF Retail Internet (Relative to Sector) Select Companies (Relative to Industry) Netflix NFLX.63 n/a Amazon.com AMZN

34 Recommendations Sector is currently underweight relative to S&P 500 We place BUY rating on Consumer Discretionary sector and recommend moving portfolio holdings in line to overweight

35 Recommendations Positives Risk Factors Improving economic data Uncertainty in economy Jobs, income High gas prices Undervalued sector European debt crisis Persisting high unemployment Source: WSJ

36 Recommendations Overweight Auto Manufacturers Cable and Satellite Restaurants Retail - Internet Underweight Casino Gambling Department Stores Movies & Entertainment

37 Questions?