1 module 6 sectors and industries. 2 module 6 - learning objectives define industry and sector....
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2
Module 6 - Learning Objectives
• Define industry and sector.• Differentiate between sectors.• Evaluate an industry on the basis of
size, valuation, relationship to the business cycle, regulations, industry dynamics, and relative performance.
• Categorize investments by industry and evaluate the impact of industry allocations.
5
Which sectors are the largest?Can you give reasons why?
0%
5%
10%
15%
20%
25%
2000 2001 2002 2003 2004 Nov-05
Year
Per
cen
t o
f S
&P
500
Energy
Materials
Industrials
ConsumerDiscretionary
Consumer Staples
Health Care
Financials
InformationTechnology
TelecommunicationsServices
Utilities
7
Here are some well-known companies. What industry and
sector are they in? • Citigroup• Lockheed Martin• Duke Energy• Starbucks• Cisco• Chevron• Nortel• Weyerhauser• Boise Cascade• Aetna• Allstate• Humana
8
Sector Choices
U.S. Stocks by Sector
0
5
10
15
20
25
30
35C
ap
ita
l Go
od
s
Co
ns
um
er
Du
rab
les
Co
ns
um
er
No
n-
Du
rab
les
En
erg
y
Fin
an
ce
Ma
teri
als
& S
erv
ice
s
Te
ch
no
log
y
Tra
ns
po
rta
tio
n
Uti
litie
s
Pe
rce
nt
of
To
tal
% of 6700 Companies
% of $12.6 T Total MarketValue
Source: Wilshire early 2001
9
Evaluate Industry Risk And Return
(2001 data)Industry Risk/Return
(May 1996 to May 2001)
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20%
Industry Index Risk (Standard Deviation)
Ind
ust
ry In
dex
Ave
rag
e M
on
thly
Ret
urn
Auto
Aerospace
Banks
Basic Materials
Technology
Consumer Durables
Healthcare
Energy
Financial Services
Food Processing
Construction
Metals
Real Estate
Retail
10
Evaluating Sector Return and Risk
(2004 data)
-0.20%
0.00%
0.20%
0.40%
0.60%
0.80%
1.00%
1.20%
1.40%
1.60%
1.80%
0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 12.00% 14.00% 16.00% 18.00%
Sector Risk Return as of mid 2004
Biotech
Internet*
Semiconductor*
Software*
Real Estate*
Natural Resources*
Utilities
Materials
Energy
Financial
Industrial
Health
Consumer Discretionary*
Consumer Staples
* Less than 60 months of data
13
Not all industries are affected by recessions. Look over the following list of industries and identify those that might not be hit as badly by
recessions (also known as defensive industries). Give your reasons why.
• Food processing• Personal care• Tobacco• Hotels• Advertising
14
Evaluating Industry Regulation
• Which industries are affected and how? – Food and Drug Administration (FDA)– Federal Communications Commission (FCC)– Federal Aviation Agency (FAA)– Medicare – Environmental Protection Service– U.S. Patent Office – Federal Trade Commission (FTC)
17
Evaluating FundamentalsPrice to Earnings Ratio by Sector
(First Quarter 2001)
0 5 10 15 20 25 30 35 40 45
Basic Materials
Capital Goods
Conglomerates
Consumer Cyclical
Consumer NonCyclical
Energy
Financial
Healthcare
Services
Technology
Transportation
Utilities
Stock Price Divided by Earnings Per ShareSource: www.multex.com, early 2001
18
Sectors Relative Price Movement
-50.00% -40.00% -30.00% -20.00% -10.00% 0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00%
S&P 500
Energy
Materials
Industrials
Consumer Discretionary
Consumer Staples
Health Care
Financials
Information Technology
Telecommunications Services
Utilities
2001
2002
2003
Annual Return by Sector(S&P 500)