1
2
3
4
5
6
7
8
Barriers to Entry
High
• Large capital requirements
• Generally requires acquisition of land rich
in minable resources
Supplier Power
Low
• Existence of suppliers is limited
• Most inputs are mined/cultivated by sector
Buyer Power
High
• Commodity products (low differentiation)
• Low switching costs
• High degree of pricing competition
Threat of
Substitutes
Low
• Very few substitutes for raw materials
Intensity of
Rivalry
Very High
• Commodity product with low differentiation
• Pricing competition very high
9
10
Material Sectors vs Dollar Index Spot
11
Material Sectors vs US GDP
12
Material Sectors vs Commodities Price Index
13
Material Sectors vs Consumer Price Index
14
Material Sectors vs Purchasing Power Index
15
Return with S&P 500
Consistent with the market
Returns higher than the market
Material
S&P 500
16
Estimated
about
in
2015
17
Earnings per Share
Consistent
trend with
sales growth
18
Return on Equity
15% ROE
on
average
Estimate
to be 19%
at 2015
19
Cash per Share
Patterns:
Peak at end
of year;
lowest at
the end of
Q1
Generates
positive on
average at
2%
20
Materials
S&P 500
21
Materials
S&P 500
22
Price / Earnings
P/E is
estimated to
drop to 12.9.
If earnings
did not grow
fast enough,
stock price
would tank.
Similar trend
23
R&D
sharply to
4.12%
24
Absolute Valuation
P/S
P/E
P/B
P/EBITDA
Current High Avg Low Current High Avg Low Current High Avg Low Current High Avg Low
S5MATR 1.54 1.57 1.15 0.57 19.28 34.88 16.89 7.51 3.13 3.19 2.68 1.32 8.64 8.97 7.07 3.50
Relative Valuation to S&P 500
P/S
P/E
P/B
P/EBITDA
Current High Avg Low Current High Avg Low Current High Avg Low Current High Avg Low
S5MATR 0.90 1.07 0.86 0.55 1.08 1.49 1.04 0.62 1.16 1.34 1.11 0.84 0.95 1.33 1.02 0.84
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• Current position
• Sector weight in S&P 500: 3.28%
• Sector weight in SIM Portfolio: 2.91%
• SIM portfolio underweight by 0.37%
• Advise continued underweight in sector
• General consensus of market correction
• Low margin industry
• Small likelihood of growth
27