This document discusses how to analyze industries and find the story that situates a company within its industry context. It explains that an industry consists of competitors producing substitutable goods or services. Industry trends impact stocks and should be evaluated by considering factors like competition, barriers to entry, and technological changes. Competitors can be identified by assessing substitution and size. The 4 Ps of marketing - product, price, place, promotion - should be analyzed at the industry and company level. Both macroeconomic data and a company's positioning relative to industry trends should be part of telling the industry story for a stock.

1. Industry Analysis: Finding and
Evaluating the Story

2. February 16, 2006 Industry Analysis 2
Overview
^ What defines an Industry
^ Why we look at them
^ Where we find Industry
information
^ How to find the story

3. February 16, 2006 Industry Analysis 3
Industry
^ A specific branch of
manufacture and/or trade
^ Consists mainly of company
competitors
^ Producers of perfect
substitutes

4. February 16, 2006 Industry Analysis 4
Stock Analysis Relies on Industry Outlook
^ Industry Trends affect:
^ Future Revenues
^ Market Sizing
^ Threat of Competitors
^ Relative Cheapness of
Company Stock
^ Short-term Stock Price
Pressure

5. February 16, 2006 Industry Analysis 5
Evaluating Industry: Competition Analysis
^ Industry Shaping Factors:
^ Product Differentiation
^ Existence of Monopolies
^ Patents Held by Other
Companies
^ Technological/Procedural
Advancements
^ Barriers to Entry
^ Foreign Trade Policy

6. February 16, 2006 Industry Analysis 6
Comparative Valuation: Competitors
^ Identifying Competitors
^ Perfect Substitution – Obvious
competitors
^ Imperfect Substitution –
Goods serve same basic
purpose
^ Size and Scope of Business
Competitors put
fundamental analysis in
perspective

7. February 16, 2006 Industry Analysis 7
Industry/Product/Market Analysis
^ Consider 4 P’s:
^ Product
^ Quality
^ Brand Name
^ Place
^ Market Location
^ Distribution Methods
^ Promotion
^ Advertising
^ Sales Force
^ Price
^ Product demand
^ Costs

8. February 16, 2006 Industry Analysis 8
Macro vs. Micro Economic Analysis
^ World Economics
^ U.S. Economics
^ Look at Economic and
Monetary Indicators
^ Unemployment Rate
^ Industrial Production
^ Durable Orders
^ Corporate Profits
^ Retail Sales
^ Housing Activity
^ No one Indicator is Most
Important
^ Look at Composite of 11
Leading Indicators
Global Economy
U.S. Economy
Sector
Industry
Company

9. February 16, 2006 Industry Analysis 9
Story: Where the Company Fits
^ Company:
^ Takes advantage of industry
trends
^ Positioned to capture/create
market share
^ Demonstrated effective
management decisions
^ New products in pipeline and
news releases

10. February 16, 2006 Industry Analysis 10
Resources
^ Economic Data:
^ Economic Statistic Briefing Room:
www.whitehouse.gov/fsbr/esbr.html
^ Industry Data:
^ www.morningstar.com
^ Competitors:
^ www.investors.com – Stock Checkup
^ http://finance.yahoo.com
^ www.morningstar.com
^ www.wsj.com

11. February 16, 2006 Industry Analysis 11
Sample Data from Briefing Room

12. February 16, 2006 Industry Analysis 12
SFCC: Research Services
^ Questions to Ask:
^ Who are its competitors?
^ What makes a good drug
tester? (Apply 4 P’s)
^ How is the Industry expected
to perform?
^ What are positive/negative
impacts on industry?
Use the these impacts to
hypothesize positive and
negative scenarios

13. February 16, 2006 Industry Analysis 13
SFCC
^ Look to Morningstar.com for
Competitors
^ Factors for Success in
Research Services Industry:
^ Cost
^ Timeliness
^ Methods ±
^ Industry expected to
perform well (see article)
+ -
R&D
Spending
Negative
Publicity
Medical
Testing
Deaths
Out-
sourcing