Materials Sector Analysis
July 28th, 2009
Yerim Kim
Fisher College of Business – Student Investment Management
Agenda
•
•
•
•
•
•
Sector Overview
Business/Economic Analysis
Sector Performance
Relative Valuation
Recommendations
Questions
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Sector Composition
Chemicals
• Agricultural
• Specialty
• Commodity
• Diversified
– Metals and Mining
• Specialty
• Precious
• Steel
• Aluminum
– Plastic, and Glass Containers
– Paper Packaging
• Paper Products
• Construction Materials
Industry Market Cap (in Billion)
–
600
500
400
300
200
100
0
Chemicals
(30%)
Metals and
Mining (50%)
Plastic, and
Glass
Containers
(8%)
Paper
Packaging
(12%)
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S&P500 Sector Weighting as of 7/21/2009
All Other Sectors
Materials
Materials,
3.59%
All Other
Sectors,
96.41%
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Business Analysis
Porter’s Five Forces
Suppliers
Customers
Competition
New Entry
Substitutes
High
Mid to High
High
Low
Low
• Highly cyclical
• High economic exposure
• High international exposure
• Mature Stage
• Growth through acquisition
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S&P 500 vs. SPBMS Index over 10 years
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Sector Performance Against Benchmarks
Average Price Change (%) as of 7/21/2009
Sector or Benchmark
1 Month
3 Months
YTD
1 Year
3 Year
1 aYear
Materials
5.36%
15.46%
21.91%
-33.97%
-10.83%
4.52%
NASDAQ
4.86%
16.57%
23.57%
-15.94%
-5.16%
2.23%
Russell 3000
3.67%
12.49%
8.61%
-24.51%
-22.38%
-10.11%
S&P 500
3.62%
12.29%
7.18%
-24.24%
-23.04%
-12.73%
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Industry Performance Against S&P500
Average Price Change (%) as of 7/21/2009
Industries
1 Month
3 Months
YTD
1 Year
S&P 500
3.62%
12.29%
7.18%
-24.24%
Materials
5.36%
15.46%
21.91%
-33.97%
5.43%
10.51%
22.53%
GREAT YTD RETURNS
SO FAR
-29.44%
Chemicals
Construction Materials
-2.39%
-13.40%
-38.79%
-30.08%
Containers & Packaging
11.98%
35.61%
14.07%
1.54%
1.86%
21.23%
27.57%
-46.28%
18.64%
30.17%
30.86%
-29.90%
Metals & Mining
Paper & Forest Products
Fisher College of Business – Student Investment Management
Materials Sector Valuation: P/S
Absolute Price to Sales Ratio
Price to Sales Relative to S&P500
Fisher College of Business – Student Investment Management
Materials Sector Valuation: P/CF
Absolute Price to Cash Flows Ratio
Price to Cash Flows Relative to S&P500
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Materials Sector Valuation: P/BV
Absolute Price to Book Value Ratio
Price
to Book Value Relative
to S&P500
RELATIVELY
CHEAP:
VALUE
STOCKS
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Materials vs. Commodity Prices
* Materials sector is
72% correlated with the
Commodity Index over
past 10 years.
•Materials sector is 82%
correlated with Export
trends over past 10
years.
*Materials sector is
55% correlated with
S&P 500 Price Index
over past 10 years.
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Materials vs. Export Trends
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Baltic Dry Index
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S&P 500 and SIM Sector Weights (as of 7/14/2009)
Consumer Discretionary
Consumer Staples
Energy
Financials
Health Care
Industrials
Information Technology
Materials
Telecommunication Services
Utilities
Cash
Total
S&P 500 Weight SIM Weight
8.97%
7.50%
+/-1.46%
12.32%
12.36%
0.04%
12.05%
10.68%
-1.37%
13.70%
9.33%
-4.37%
14.06%
13.58%
-0.49%
9.79%
11.57%
1.78%
18.43%
20.19%
1.76%
3.20%
4.12%
0.92%
3.39%
3.28%
-0.11%
4.10%
3.87%
-0.23%
0.00%
3.53%
3.53%
100.00%
100.00%
0.00%
Fisher College of Business – Student Investment Management
Current SIM Holdings in Materials Sector
Company
Dow Chemicals
Alcoa
Materials Sector
Ticker
DOW
AA
SPBMS
Beta
1.05
1.67
Purchase Price
$8.26
$11.47
Shares
25,555
27,100
52,655
$211,084.30
$310,742.15
$521,826.45
Current Price
$15.38
$9.59
Market Value
$393,035.90
$259,889.00
$652,924.90
% Gain/(Loss)
86%
(16%)
25%
$181,952
($50,853)
$131,098.45
Total Cost
Unrealized Gain/(Loss)
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Portfolio Return Analysis
ALCOA vs. DOW vs. S&500
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Summary
•
•
•
•
Positive Factors
Expected continued fall in
the dollar
Recent stimulus by the
Chinese government,
indicating aggressive
growth.
Low steel inventories
coupled with rising Baltic
Dry Index
Higher pricing in certain
areas
Negative Factors
• Unsustainable demand
growth in China
• High correlation with auto
and house sales
• Higher aluminum
production in China
Fisher College of Business – Student Investment Management
Recommendation
Current SIM Weight
Current S&P weight
4.12%
3.20%
• Short-term: Remain 92 basis points overweight
– Increase weight next quarter (near future) when economy shows
definite signs of improvement
• Long-term: Increase weight even more
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Questions?
But really, don’t feel obligated…
Fisher College of Business – Student Investment Management