Transcript Information Technology Finance 724/824 SIM Class Christopher Moran Suresh Ramasubramanian Sean Ramsey Agenda • • • • • • Agenda Sector Overview Business Analysis Economic Analysis Financial Evaluation Valuation Recommendation.

Information Technology
Finance 724/824
SIM Class
Christopher Moran
Suresh Ramasubramanian
Sean Ramsey
Agenda
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Agenda
Sector Overview
Business Analysis
Economic Analysis
Financial Evaluation
Valuation
Recommendation
SIM Portfolio Composition
SIM Portfolio Composition
S&P 500
SIM
Consumer Discretionary
Consumer Staples
Energy
Financials
Health Care
Industrials
Information Technology
Materials
Telecommunication Services
Utilities
Cash
Weight
9.52%
Weight
7.93%
12.04%
13.06%
12.51%
12.19%
11.31%
13.83%
17.74%
10.44%
9.44%
18.40%
19.92%
3.37%
3.88%
3.71%
2.40%
3.98%
2.50%
0.00%
3.69%
8.14%
SIM Weighting Relative S&P
SIM Weightings Relative S&P 500
IT Historical Weighting
SIM Weightings Relative S&P 500
IT Summary
Price Change YTD
Dividend YLD
Price to Earnings
Market Capitalization
15.10%
1.10%
14
82.1 Billion
Institutional Ownership
74%
% LT Debt to Cap
17%
Key Ratios & Measures
5 - Year Range
Current
P/E
9 - 39
14
Price to Book
2-5
3.1
6.9 - 17.9
9.9
1.1 - 3
1.65
18.7% - 22.5%
21.70%
$
% Change
4.4
-23.0%
19.12
1.0%
Revenues (Per Share)
$
% Change
Latest Quarter (Dec 08)
38.95
-8.0%
Latest 12 Months
161.5
4.0%
%
% Change
3.07
1.10%
Price to Cash Flow
Price to Sales
Return on Equity
Earnings
Latest Quarter (Dec 08)
Latest 12 Months
Dividends
Indicated Rate & Yield
Historical Earnings
SIM IT Holdings
Industry
Weight in Sector
Computers
30.29%
Software
21.15%
Telecommunications
17.08%
Semiconductors
13.71%
Internet
11.44%
Commercial Services
3.91%
Electronics
1.86%
Office/Business Equip
0.40%
Electrical Compo & Equip
0.16%
Quantity
Security
Market Value
Top Ten Sector Holdings
Security
Industry
% In Sector
Microsoft Corp
Software
11.02%
International Business Machines Corp Computers
10.00%
Cisco Systems Inc
Telecommunications
8.17%
Apple Inc
Computers
8.07%
Google Inc
Internet
6.72%
Intel Corp
Semiconductors
6.26%
Hewlett-Packard Co
Computers
6.23%
Oracle Corp
Software
5.28%
QUALCOMM Inc
Telecommunications
5.01%
EMC Corp/Massachusetts
Computers
1.78%
Unrealized Gain/(Loss)
Percent of
Portfolio
YTD Return
17,803
Hewlett Packard
Co.
$640,551.94
($199,735)
4.45%
-4.44%
27,900
Intel Corp.
$440,262.00
($175,535)
3.06%
4.30%
36,700
Microsoft Corp.
$743,542.00
($275,216)
5.17%
0.10%
40,300
NCR Corp.
$409,045.00
($660,691)
2.84%
-21.92%
38,420
Oracle Corp
$743,042.80
$78,691
5.16%
3.33%
Business Analysis
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Diverse sector with a focus on computer technology.
Innovation is a key driver for success within the sector.
High R&D costs are required to generate future growth.
Industry is very cyclical. Often seen to lead the economy
out of down cycles.
Business Analysis (cont.)
• High Barriers to Entry.
• Corporate spending may have slowed in the face of
current economic conditions. As the economy picks up
we feel corporate IT spending will follow.
• Substitution is not an issue, continued growth in IT will
depend on innovation and new market penetration.
Business Cycle Analysis
Barrowed from Merrill Lynch
Why is it still “Growth” time?
Why is it still “Growth” time?
Why is it still “Growth” time?
Economic Analysis
• Lagging Indicators
• Leading Indicators
Economic Analysis
Lagging Indicators
• Exports: Computers
• GDP
• Durable Goods Orders
Export: Computers vs. IT
Export: Computers vs. IT
Tech Sector vs. Export Computers
TECHNOLOGY
500
450
400
350
300
250
200
150
400
600
800
1,000
1,200
1,400
1,600
EXPORT: COMPUTERS
R^2
.6
T-Stat
10.39
GDP & Durable Goods vs. IT
Economic Analysis
Lagging Indicators
Leading Indicators
• Exports: Computers
• GDP
• Durable Goods Orders
• Velocity of Money Supply
• Disposable Income
Velocity of Money vs. IT
What is the Velocity of Money?
The velocity of money is the average frequency with
which a unit of money is spent in a specific period of
time. Velocity associates the amount of economic
activity associated with a give money supply.
Where:
VT = the velocity of money for all
transactions
nT = the nominal value of aggregate
transactions
M = the total amount of money in
circulation (Money Supply)
Disposable Income vs. IT
Price/ Earnings - Forward
Absolute
High
24.6
Low
12.1
Median
20.4
Current
16.8
Relative to S&P 500
High
1.4
Low
.98
Median
1.3
Current
1.1
Price/ Earnings - Trailing
Absolute
High
31.5
Low
11.1
Median
22.5
Current
14.0
RELATIVE
TO S&P
Relative
to S&P
500500
High
1.6
Low
.91
Median
1.3
Current
1.0
Price / Book
Absolute
High
4.8
Low
2.3
Median
4.0
Current
3.1
RELATIVE
TO S&P
Relative
to S&P
500500
High
1.7
Low
1.2
Median
1.4
Current
1.5
Price / Sales
Absolute
High
3.1
Low
1.3
Median
2.6
Current
1.7
RELATIVE
TO S&P
Relative
to S&P
500500
High
2.0
Low
1.5
Median
1.7
Current
1.9
Price / Cash Flow
Absolute
High
17.7
Low
8.0
Median
14.7
Current
9.9
RELATIVE
TO S&P
Relative
to S&P
500500
High
1.6
Low
1.1
Median
1.4
Current
1.3
Net Profit Margin
Absolute
High
12.2
Low
11.0
Median
11.3
Current
11.8
RELATIVE
TO S&P
Relative
to S&P
500500
High
1.8
Low
1.2
Median
1.3
Current
1.8
Return on Equity
Absolute
High
22.5
Low
16.7
Median
19.5
Current
21.7
RELATIVE
TO S&P
Relative
to S&P
500500
High
1.5
Low
0.9
Median
1.1
Current
1.5
Valuation Analysis Summary
5- Year
High
Low
Median
Current
P/E Forward
24.6
12.1
20.4
16.8
P/E Trailing
31.5
11.1
22.5
14.0
P/B
4.8
2.3
4.0
3.1
P/S
3.1
1.3
2.6
1.7
P/CF
17.1
8.0
14.7
9.9
Net Prft Mrg
12.2
11.0
11.3
11.8
ROE
22.5
16.7
19.5
21.7
Reason to Invest in Info Tech
• Of the 13 industries with Rising Relative strength in S&P 500, 6
are in the Info Tech Sector. On March 24, S&P Equity Strategy
upgraded the technology sector to overweight from market
weight.
• Above average balance sheet strength and potential to continue
outgrowing the overall economy.
• Industry leaders in this Sector trade predominantly in the U.S
Stock market.
• Sector is less cyclical than it was earlier this decade. Many tech
companies’ offerings are essential to operate and grow
businesses, and they can often help firms save money and be
more efficient.
Recommendation
• We recommend maintaining the current SIM IT weight
within the portfolio.
• Although industries within the sector can be dependent
on consumer spending patterns, this should not be
enough to negatively impact the entire sector.
• There is potential upside from funds designated to IT
spending from US stimulus plan.