Transcript Sectors - Bellevue College

Module 6
Sectors and Industries
1
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.
2
Other services, except
government
2%
Arts, entertainment,
recreation,
accommodation, and
food services
4%
Agriculture, forestry,
fishing, and hunting
1%
Mining
2%
Utilities
2%
GDP by Industry
2006
Government
11%
Educational services,
health care, and social
assistance
7%
Construction
5%
Manufacturing
20%
Professional and
business services
10%
Finance, insurance,
real estate, rental, and
leasing
18%
Wholesale trade
5%
Retail trade
5%
Transportation
Information and warehousing
5%
3%
3
S&P 500 by Industry 2001
Telecomm
unications
Services
7%
Utilities
3%
Materials
2%
Energy
6%
Industrials
10%
Information
Technology
23%
Financials
17%
Telecomm
unications
Utilities
Services
4%
4%
Consumer
Discretion
ary
12%
Energy
14%
Informatio
n
Technolog
y
16%
Industrials
11%
Financials
13%
Consumer
Staples
7%
Health
Care
13%
Materials
3%
Health
Care
14%
Consumer
Staples
13%
S&P 500 by Industry Dec 2008
Consumer
Discretion
ary
8%
4
Which sectors are the largest?
Can you give reasons why?
Energy
25%
Materials
Percent of S&P500
20%
Industrials
Consumer
Discretionary
15%
Consumer Staples
Health Care
10%
Financials
Information
Technology
5%
Telecommunications
Services
Utilities
0%
2000
2001
2002
2003
2004
Nov-05
Year
5
Here’s some history
6
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
7
Source: Wilshire early 2001
Utilities
25
Transportation
30
Technology
Materials & Services
Finance
Energy
Consumer NonDurables
Consumer Durables
Capital Goods
Percent of Total
Sector Choices
U.S. Stocks by Sector
35
% of 6700 Companies
% of $12.6 T Total Market
Value
20
15
10
5
0
8
Evaluate Industry Risk And Return
(2001 data)
Industry Risk/Return
(May 1996 to May 2001)
Industry Index Average Monthly Return
5%
4%
3%
Auto
2%
Aerospace
Banks
1%
Basic Materials
Technology
Consumer Durables
0%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
Healthcare
20%
Energy
-1%
Financial Services
Food Processing
-2%
Construction
Metals
-3%
Real Estate
Industry Index Risk (Standard Deviation)
Retail
9
Evaluating Sector Return and Risk
(2004 data)
Sector Risk Return as of mid 2004
1.80%
1.60%
Real Estate*
Biotech
1.40%
Consumer
Discretionary*
1.20%
1.00%
Natural Resources*
Energy
0.80%
0.60%
Materials
Financial
Industrial
Semiconductor*
0.40%
Health
0.20%
0.00%
0.00%
-0.20%
Consumer
Staples
Utilities
Internet*
Software*
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
18.00%
* Less than 60 months of data
10
Evaluating Industry Cycle
11
12
Source: www.fidelity.com
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
13
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)
14
Evaluating Industry Dynamics
15
16
Evaluating Fundamentals
Price to Earnings Ratio by Sector
(First Quarter 2001)
Utilities
Transportation
Technology
Services
Healthcare
Financial
Energy
Consumer NonCyclical
Consumer Cyclical
Conglomerates
Capital Goods
Basic Materials
0
5
Source: www.multex.com, early 2001
10
15
20
25
30
35
Stock Price Divided by Earnings Per Share
40
45
17
Sectors Relative
Price
Movement
Annual Return by Sector
(S&P 500)
Utilities
T eleco mmunicatio ns Services
Info rmatio n T echno lo gy
F inancials
H ealth C are
C o nsumer Staples
2001
2002
2003
C o nsumer D iscretio nary
Industrials
M aterials
Energy
S&P 500
-50.00%
-40.00%
-30.00%
-20.00%
-10.00%
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
18
Evaluating Relative Price
• Go to www.smartmoney.com and find the Map of the
Market.
• Set controls to see price performance in the past six
months.
• Compare to the chart in the previous slide.
• Which industries are cycling up?
• Which are cycling down?
19