Sector Presentation
Sector: Materials
Brian Mandel
Minh Le
Ellis Krienik
INTRODUCTION
&
BUSINESS ANALYSIS
S&P 500 Index Table
Desc
GICS®
S&P 500
NC
MKTCAP
500
9,124,167
Level
Daily
MTD
QTD
YTD
1036.19
-2.81%
-1.98%
-1.98%
14.72%
TR
1700.66
-2.81%
-1.86%
-1.86%
17.05%
Net TR
1605.28
-2.81%
-1.89%
-1.89%
16.34%
Energy
10
40
1,127,143
422.21
-3.49%
3.15%
3.15%
9.28%
Materials
15
30
309,561
176.96
-3.82%
-5.33%
-5.33%
28.62%
Industrials
20
59
920,442
221.11
-2.99%
-4.66%
-4.66%
6.71%
Consumer Discretionary
25
78
830,996
211.1
-2.70%
-2.48%
-2.48%
24.61%
Consumer Staples
30
41
1,089,057
265.93
-1.75%
1.04%
1.04%
7.82%
Health Care
35
53
1,153,936
326.05
-1.49%
-2.31%
-2.31%
5.38%
Financials
40
79
1,337,608
189.03
-4.76%
-6.04%
-6.04%
11.99%
Information Technology
45
76
1,737,657
334.36
-2.41%
-0.38%
-0.38%
44.24%
Telecommunications Services
50
9
281,594
103.04
-2.06%
-4.84%
-4.84%
-7.75%
Utilities
55
35
336,174
144.14
-1.92%
-3.22%
-3.22%
-2.56%
Materials
Companies
in the S&P
500




Chemical
Metal & Mining
Paper
Construction
Material
Air Products & Chemicals Inc
Airgas Inc
AK Steel Hldg Corp
Alcoa Inc
Allegheny Technologies Inc
Ball Corp
Bemis Co Inc
CF Industries Holdings
Dow Chemical
DuPont E.I. de Nemours
Eastman Chemical Co
Ecolab Inc
FMC Corp
Freeport McMoRan Copper & Gold
Intl Flavors & Fragrances
Intl Paper Co
MeadWestvaco Corp
Monsanto Co.
Newmont Mining Corp
Nucor Corp
Owens-Illinois Inc
Pactiv Corporation
PPG Industries Inc
Praxair Inc
Sealed Air Corp
Sigma-Aldrich Corp
Titanium Metals Corp
United States Steel Corp
Vulcan Materials Co
Weyerhaeuser Co
SIM Portfolio
Sector
Consumer Discretionary
Consumer Staples
Energy
Financials
Health Care
Industrials
Information Technology
Materials
Telecommunication Services
Utilities
Cash
Dividend Receivables
S&P 500 Weight
SIM Weight
+/-
9.11%
7.51%
-1.60%
11.94%
12.23%
0.29%
12.35%
12.80%
0.45%
14.66%
6.59%
-8.07%
12.65%
13.13%
0.48%
10.09%
11.97%
1.88%
19.04%
21.97%
2.92%
3.39%
4.52%
1.13%
3.09%
3.51%
0.43%
3.68%
3.19%
-0.49%
0.00%
2.51%
2.51%
0.00%
0.08%
0.08%
Phase of Life Cycle


Mature – Chemical, Plastics
Declining – Glass, Metals
– Plastic increasingly used as substitute for glass
– Increase in demand for metals being met by
importers
End Market - Construction



Sept. 2008 to Sept. 2009: -16.7% Growth
Construction consumes synthetic materials
Stimulates demand for appliances, paint, carpet,
windows
End Market – Motor
Vehicle



Sept. 2008 to Sept. 2009: -11.5% Growth
Production for 1st half of 2009 50% lower than 2008 1st
half production
Demand boosted by “Cash for Clunkers”
End Market – Consumer
Goods


Sept. 2008 to Sept. 2009: -1.7% Growth
Important market for containers and
chemicals
Key Factors




Raw Material Prices
Electricity Prices
Globalization
Consolidation
Profitability & Pricing



Long-term sales contracts help
maintain profit stability
Production and sale of value added
products give firms competitive
advantage and premium pricing
Supply contracts for key inputs
ECONOMIC ANALYSIS
Commodity prices and Sector
Exchange Rate & Sector
CPI and Materials Sector
GDP and Material Sector
FINANCIAL ANALYSIS
S&P 500 vs. SPBMS Index – YTD
S&P 500 vs. SPBMS Index –
ROE
• Currently below 10-yr average
• ROE steadily declining with recent market
downturn.
Revenue Growth – Sector
Performance
5 year Growth Rate: 6%
Materials
5 year Growth Rate: 7%
S&P 500
Revenue Growth – Industry
Performance
Metal/Glass Containers
5 year Growth Rate: 10%
Diversified Chemicals
5 year Growth Rate: 7%
Agricultural Chemicals
5 year Growth Rate: 23%
Margins – Historically lower
EBITDA Margin
Currently at
the 10-YR
average.
Net Profit Margin
Profit
margins
falling.
Margins – Cyclical
EBITDA Margin
• Currently below 10-yr average
Earnings Growth – Industry
Performance 4 Quarter Moving Average
Materials Index
Diversified Chemicals
Growth Rate
5 YR
LT
Historic Future
Agricultural Chemicals
Metal/Glass Containers
Materials
5%
10%
Metal/glass
containers
11%
8%
Diversified
Chemicals
-3%
7%
Agricultural
Chemicals
59%
13%
VALUATION ANALYSIS
P/E ABSOLUTE
P/E RELATIVE TO S&P 500
Aluminum Industry vs. Sector
Gold Industry vs. Sector
Chemical-Diverse Industry vs. Sector
P/B ABSOLUTE
P/B RELATIVE TO S&P 500
RECOMMENDATIONS
Recommendation

Sector returns

Sector vs. S&P

Positive forces

Risks
– Positive for long term
– Uncertain for short term
– Magnified gains/losses compared to S&P
– Weak dollar
– Strong emerging markets
– Domestic economy starting to improve
– Unemployment
– Weak demand (lack of stimulus programs)
Recommendation





Remain overweight in sector
Underweight commodity companies,
overweight specialty companies
$400K in DOW – 15,444 shares
$300K in MON – 4,466 shares
$200K in ATI – 6,481 shares