Industrials
By: Hahn, Wesley; Hartman, Michael;
Heschel, Andrew; Holzman, Joshua
1
Agenda
 Introduction
 Recommendation
 Overview
 Business Analysis
 Economic Analysis
 Financial Analysis
 Recap
2
Recommendation
Sector
3
S&P 500 Weight SIM Weight
+/-
Consumer Discretionary
10.65%
8.28%
-2.37%
Consumer Staples
11.68%
12.44%
0.76%
Energy
11.63%
11.97%
0.34%
Financials
13.59%
9.91%
-3.68%
Health Care
12.14%
12.47%
0.34%
Industrials
10.27%
8.66%
-1.61%
Information Technology
19.44%
21.51%
2.08%
Materials
3.36%
3.05%
-0.31%
Telecommunication Services
3.29%
4.48%
1.19%
Utilities
3.97%
2.84%
-1.13%
Cash
0.00%
4.29%
4.29%
Overview
4
Sector Size
 Market Cap ~$1.2 Trillion
Sector
Info Tech
Financials
Energy
Health Care
Cons Staples
Cons Disc
Industrials
Utilities
Materials
Telecom Svc
Total
5
Market Cap
($ Millions)
$ 2,204,646
$ 1,539,184
$ 1,374,198
$ 1,288,514
$ 1,253,739
$ 1,216,117
$ 1,176,028
$
416,750
$
392,756
$
336,679
$11,198,612
% of S&P500
19.7%
13.7%
12.3%
11.5%
11.2%
10.9%
10.5%
3.7%
3.5%
3.0%
100.0%
Sector Industries
Industry
Diversified Machinery
Aerospace & Defense Products & Services
Industrial Electrical Equipment
Farm & Construction Machinery
Industrial Equipment & Components
Waste Management
General Building Materials
Metal Fabrication
Aerospace & Defense - Major Diversified
Heavy Construction
Residential Construction
Machine Tools & Accessories
Small Tools & Accessories
Cement
General Contractors
Textile Industrial
Pollution & Treatment Controls
Lumber, Wood Production
Manufactured Housing
6
Market Cap ($)
364.11B
239.87B
137.63B
134.45B
73.42B
66.56B
51.15B
46.65B
44.95B
29.80B
25.59B
23.26B
16.44B
11.17B
10.57B
6.69B
5.82B
1.99B
460.02M
Largest Companies
Rank
1
2
3
4
5
6
7
8
7
Symbol
GE
CAT
BA
ABB
HON
EMR
DE
LMT
Company
General Electric Company
Caterpillar
The Boeing Company
ABB
Honeywell International
Emerson Electric
Deere & Company
Lockheed Martin
Market Cap (S)
172.02B
58.08B
47.04B
44.77B
39.68B
34.97B
30.69B
27.57B
2011 Performance
PRICE RETURNS BY
SECTOR
Energy
Materials
Industrials
Cons Disc
Cons Staples
Health Care
Financials
Info Tech
Telecom Svc
Utilities
8
Market Cap
(Million)
$1,405,071
$ 400,358
$1,184,509
$1,211,801
$1,264,953
$1,307,061
$1,569,230
$2,213,804
$ 340,337
$ 419,485
1 Day
MTD
QTD
YTD
2%
2%
1%
0%
1%
1%
2%
0%
1%
1%
17%
16%
12%
11%
5%
5%
12%
10%
1%
3%
17%
16%
12%
11%
5%
5%
12%
10%
1%
3%
2%
-11%
-6%
4%
6%
6%
-17%
3%
-5%
10%
Past Performance
9
Business Analysis
10
Industrial Classification
 What are industrial activities?
 The manufacture and distribution of capital goods, including aerospace &
defense, construction, engineering & building products, electrical
equipment and industrial machinery. The provision of commercial services
and supplies, including printing, employment, environmental and office
services. The provision of transportation services, including airlines,
couriers, marine, road & rail and transportation infrastructure, etc.
 Fidelity.com
 Some companies include:
 General Electric, United Technologies, Flowserve, UPS, and etc.
11
Phase of Life Cycle
 Maturity Phase
 Room to grow
 Through M&A and
new technologies
12
Key Drivers
 Gross Domestic Product
 New Product Orders
 Capacity Utilization
 Foreign and Domestic Regulation
 Environment
 Economic Recovery
 Business Capital Spending
 Government Spending
13
Capacity Utilization:
Manufacturing capacity utilization measures the
availability of existing US manufacturing space. It
is calculated as the ratio of actual manufacturing
output to potential full capacity output. As the
rate rises, the availability of existing US
manufacturing space falls. As a result, demand for
industrial and manufacturing building
construction increases because manufacturers
need more space to expand production. This
driver is expected to increase during 2012.
-IBISWorld
User & Geography
 Domestic & Worldwide
 Company specific
 Emerging Markets
 BRIC
14
Five Forces
15
Other Business Factors
 Customers
 Oil and nuclear energy industries, common households. Professional, medical, industrial and
commercial consumers.
 Products
 Industrial: heavy machinery, pumps, valves, pipes, environmental, medical, life-sciences and
industrial technologies, sensors and controls Household: motors, appliances, tools
 Geography
 Widespread domestically and globally, worldwide manufacturing locations. Integration into
growing markets such as China, India, the UAE and Saudi Arabia.
 Locations in highly sensitive Middle East and Japan.
 Service
 Aerospace & defense, building products, construction & engineering, electrical equipment,
conglomerates, machinery, commercial services & supplies and transportation.
 Market Growth - Moderate (+/-)
 Sensitivity to unexpected external factors
 Steady growth, with occasional fluctuations due to global events and economic recession
 Continued need for R&D and global investment to maintain market growth
16
Economic Analysis
17
S&P 500
18
GDP – 10 Year
19
GDP – Inflation Adjusted
21
Capacity Utilization
22
New Orders
23
New Orders
24
New Orders
25
Business Capital Expenditures
26
Business Capital Expenditures Lag
27
Economy
28
Economy
29
Financial Analysis
30
Sector Valuation
(Sector)
P/Trailing E
P/Forward E
P/B
P/S
P/CF
Industry
P/Trailing E
P/Forward E
P/B
P/S
P/CF
31
Absolute
Relative
Median Current Median Current
18.2
14.3
1.1
1.1
16.6
12.5
1.0
1.0
3.1
2.4
1.1
1.2
1.4
1.1
1.0
0.9
11.1
9.5
1.1
1.1
Aero/Defense
Median Current
17.1
12.7
16.4
11.8
3.0
2.8
1.0
0.9
9.5
9.5
Conglomerates
Median Current
17.6
12.9
16.7
12.0
3.2
1.6
2.0
1.3
11.8
8.2
S&P
Median
15.5
14.4
2.3
1.2
9.6
S&P
Current
12.9
12.6
2.0
1.2
8.8
Railroads
Median Current
18.2
14.3
16.6
12.5
3.1
2.4
1.4
1.1
11.1
9.5
Machining
Median Current
17.9
13.5
16.1
11.2
2.9
1.9
1.4
1.2
11.6
9.4
Recommendation
 Currently: ~2% Underweight
 Recommend moving to even weight, increase 161 bp.
 Pros:
 Undervalued, Future Indicators, Economic Recovery
 Cons:
 Economic Volatility
32
Recommendation: Industries
Industry
Diversified Machinery
Aerospace & Defense Products & Services
Industrial Electrical Equipment
Farm & Construction Machinery
Industrial Equipment & Components
Waste Management
General Building Materials
Metal Fabrication
Aerospace & Defense - Major Diversified
Heavy Construction
Residential Construction
Machine Tools & Accessories
Small Tools & Accessories
Cement
General Contractors
Textile Industrial
Pollution & Treatment Controls
Lumber, Wood Production
Manufactured Housing
33
Market Cap ($)
364.11B
239.87B
137.63B
134.45B
73.42B
66.56B
51.15B
46.65B
44.95B
29.80B
25.59B
23.26B
16.44B
11.17B
10.57B
6.69B
5.82B
1.99B
460.02M
34