Basic Materials Sector Outlook and Recommendations
•Download as PPTX, PDF•
0 likes•180 views
Recommended
Recommended
More Related Content
What's hot
What's hot (17)
Viewers also liked
Viewers also liked (12)
Similar to Basic Materials Sector Outlook and Recommendations
Similar to Basic Materials Sector Outlook and Recommendations (20)
Recently uploaded
Recently uploaded (20)
Basic Materials Sector Outlook and Recommendations
- 1. BASIC MATERIALS Ryan Shelley Bill McCarran Thao Truong
- 2. AGENDA Current Holding Sub-Industries Sector Leaders Materials Outlook Deere & Co (DE) Alcoa (AA) SPDR Gold Trust (GLD) Recommendations Q&A
- 3. Current Holdings Alcoa (AA) Purchase:XXX Purchased 9/14/11 8/31/11:XXX 283 shares @ $11.73 YTD: XXX Deere & co (DE) Purchase: Purchased Feb 25th 20118/31/11:XXX 25 Shares @ $90.49 YTD: XXX S&P Basic Materials Weighting: 3.7% Atkins Basic Materials Weighting: 5.3%
- 4. Sub Industries Chemicals The Chemicals Industry in the Materials Sector includes producers of commodity, diversified, fertilizers, agricultural, and specialty chemicals. It also includes manufacturers of industrial gases Construction Materials () The Construction Materials Industry in the Materials Sector includes manufacturers of construction materials including sand, clay, gypsum, lime, aggregates, cement, concrete, and bricks. Other finished or semi-finished building materials are classified in the Building Products industry Containers & Packaging The Containers and Packaging Industry in the Materials Sector includes manufacturers of metal, glass, or plastic containers (including corks and caps), and manufacturers of paper and cardboard containers and packaging Metals & Mining The Metals and Mining Industry in the Materials Sector includes producers of aluminum and related products; companies engaged in diversified metals and mining production or extraction of gold, precious metals, minerals and related products; and producers of iron, steel and related products Paper & Forest Products The Paper and Forest Products Industry in the Materials Sector includes manufacturers of timber, related wood products, and all grades of paper. It includes manufacturers of lumber for the building industry, and excludes
- 5. Sector Leaders Du Pont 10.71% Monsanto 10.18% FreePort-McMoran 8.82% Praxiar 7.96% Newmont Mining 7.88% Dow Chemicals 4.82% Air Prods & Chem 4.49% Mosaic Co 4.24% PPG Ind Inc 3.50% EcoLab 3.32%
- 6. Macro Overview GDP Obama Job Proposal Retail +7.9% QE3 New home sales + 5.7% Auto Sales Trade Deficit Shrinking ISM manufacturing : 51.6 % Baltic Dry Index: +30% ISM manufacturing : 50.6 % Baltic Dry Index Non Manufacturing: 53.3% Steep YC Durable Goods: +1.7% Corporate Balance Sheets Brazil and China Free Trade Agreement South Korea, Columbia, & Panama China Q3 GDP 9.1% Europe’s Debt Agreement Yen Intervention
- 7. JOHN DEERE
- 8. DE Overview Headquarters (Founded) Moline, IL. (1837) Market Cap $34.8 billion Industry Farm and construction machinery Operation Profit by Segment Revenue by Geography 16% Agriculture & Turf 8% 9% Construction & 22% US & Canada Forestry Outside Financial 75% Other Services 70%
- 9. Agriculture 2012 Outlook Monthly U.S. agricultural exports $ billion 14 • Excess Supply, crop 12 10 2008 2009 2010 8 price 2012 are projected 6 4 2011 2012 to decrease OCT JAN APR JUL Fiscal years • Farm Profits and $ billion Monthly U.S. agricultural imports 12 exports are forecast at 10 2008 2009 8 2010 all times high and 6 4 2011 2012 continue to grow OCT JAN APR JUL Fiscal years • Global food cost 2011 down 11% while US farm income up 28% • Forecast: Farm corn field up 2.6%, wheat
- 10. Holding Rationale Need for Agricultural output Increase Globally Long-term macroeconomic tailwind in BRIC- countries Low used-inventory, machinery has high resell value Geographically diversified Operations and manufacturing efficiency Corn-based ethanol as an alternative form of fuel in the U.S. Repurchase activity
- 11. Recent News 2/7/2012 USDA To Release New Long-Term Agricultural Projections 2/7/2012 Farmers Plan Biggest U.S. Crop Boost Since 1984, Led by Corn: Commodities 2/2/2012 Blackrock Favors Seed, Machinery Makers Over Food as Investment 2/2/2012 John Deere Sponsors National Ag Day to Celebrate American Agriculture 1/26/2012 John Deer Marks the Company’s 175th Anniversary 11/15/2011 U.S. Farm Exports Reach Record $137.4 Billion on China Buys 11/10/2011 Deere & Company Announces Additional Investments in Russia
- 12. Performance Q4 results and initial 2012 over-expectations
- 13. Financial Performance Trailing-12-Month Revenue $32.0 billion Return on Equity 42.81% Cash/Debt $3.7 billion / $26.7 billion Dividend Yield 1.9% Next Earnings Date: Feb 15, 2012 Estimated growth FY 2012: +17.30 Est. Q4 2011: 1.44 2011 EPS: 6.44 Actual: 1.62 2012e EPS: 7.84 Surprise: 12.4% 2013e EPS: 8.38 Favorable currency-translation impact of about 3 percent
- 14. Cont’ GROWTH RATES % COMPANY INDUSTRY S&P 500 Sales (Qtr vs yr ago qtr) 19.6 24.3 11.7 Net Income (Qtr vs yr ago qtr) 46.5 42.1 14.4 Sales (5-Year Annual Avg.) 7.65 6.34 7.75 Net Income (5-Year Annual Avg.) 14.01 8.99 7.64 Dividends (5-Year Annual Avg.) 14.27 7.3 5.09 Yahoo Target Price $93 Morningstar Target $113.40
- 15. Competitors Market Q Rv Gross 5 yr Stock Cap Growth Margin EPS P/E PEG P/S Beta ROE DE 35.72B 0.196 0.2916 6.63 13.33 0.84 1.1 1.63 0.428 AGCO 5.14B 0.267 0.1972 3.92 13.5 0.84 0.59 2 0.448 CAT 73.73B 0.346 0.2616 7.4 15.4 0.44 1.19 2 0.403 CNH 10.44B 0.243 0.2376 3.91 11.13 0.8 0.52 2.89 0.121 Industry 1.79B 0.195 0.2916 4.32 10.6 0.84 0.72 0.204
- 16. Potential Risks Highly leveraged Weaken economic sentiments EU credits issues China residential construction risks USDA pointed to higher-than-expected inventory levels for most crops
- 17. Alcoa
- 19. SPDR Gold Trust GLD: $167.33 Beta: .11 NAV: $167.07 Inst own: 42% Mkt Cap: 71.46 B 1 GLD= 1/10 an ounce
- 20. Who Holds gold 1. U.S. - $418 billion 4. Italy $ 126.12 billion 2. Germany $174.7 5. France $125.28 billion billion 6. SPDR Gold ETF 3. IMF $144.76 billion $64.53 billion World Gold Holdings CBs 12% 20% Jewlery 18% Investments 50% Industrial
- 21. Gold as an investment 1. Inflation 2. Economic uncertainty 3. Political uncertainty 4. Portfolio diversification Supply vs Demand of Gold Global growth of MS vs Gold Break down to diff countries and why MS growing Politics in US, EU, and Iran As a Portfolio diversification
- 24. Gold Supply Supply
- 25. Gold Demand Global Demand up 6% Central Banks purchase 430 tone China and India Demand up 7.5%
- 26. Global MS vs Gold
- 32. Economy, Stocks, general fear Inflation Economi c Political Portfolio
- 33. US gov, Eu gov, Iran Inflation Economic Political Portfolio
- 36. Risks
- 37. Highlights Physical Demand > supply Global MS outpacing gold prices More Global QEs likely General uncertainty on agreements Political issues still present Provides portfolio hedge
- 38. Pitch home base, side column Supply and demand Inflation: do it by countries (US, europe china, jap, brazil) low int rate slides, with debt &= printing money QE and weak currencies, safe haven in ? Times Political worries: US gov, Europe agr, and Iran Europe: germany interbank is overlooked Bank trickle effect from default, CDS defaults, hedge funds win
- 39. Scenarios
- 40. Recommendations Option 1: sdg Option 2: asa Option 3:
- 41. Q&A
Editor's Notes
- Bought 131 shares more over break @
- provides products and services primarily for agriculture and forestry worldwide. Its Agriculture and Turf segment manufactures and distributes a line of farm and turf equipment, and related service parts, which include large, medium, and utility tractors; loaders; combines, corn pickers, cotton and sugarcane harvesters, and related front-end equipment.World's leading manufacturer of agricultural and forestry equipmentDeere holds anearly 50% share of the North American farm equipmentmarket thanks to its machinery's high resale value andsolid support network. Elsewhere, Deere faces moresubstantial competition from CNH Global and AGCO, butnonetheless remains the largest global player. Leading position as it invested about 4% of its revenue in research anddevelopment annually during the past 10 years comparedwith 2% at AGCO and 3% at CNH.Intensive development by building up new facilities in India, China, Brazil, and Russia
- USDA higher-than-expected inventory levelsSoybean, Cotton: chinaCorn, Wheat: Japanhttp://www.ers.usda.gov/Data/FATUS/#monthly (0.4%: 75.3 million acres)
- Global food output must rise 70 percent by 2050 to feed a world population expected to grow to 9 billion from 7 billion and as increasingly wealthy consumers in developing economies eat more meat, according to the FAO. Increase expansion in BRIC where there are800 million people in the middle class. Large populations expanding consumption and demand food of higherquality and in greater quantities. To keep pace, farms in thesecountries will require more advanced forms ofagricultural equipment.Deere's finance arm has typically required a substantialdown payment on new equipment sales, and JohnDeere machinery generally holds its secondhand valuewell. As such, we don't expect Deere Credit to facemeaningful write-offs, even as the agriculturalequipment market has weakened.Consistent with dealer channel checks demand in the UK, Germany, and France which are the most important farm countries remains very strongOn CAPS, 96% of the 2,808 members who have rated Deere believe the stock will outperform the S&P 500 going forwardThe StockScouter measure of relative price change and consistency is very high. 4.3m lbs of corn to produce 944,000 barrel of ethanol a week. 2/5 of US corn production are shunted into ethanol. China demand of corn keep US stock supply in it peek low. Deere bought back 20.8 million shares (roughly 5%of the outstanding total) for $1.7 billion in 2011--an averageprice of about $82 per share
- http://www.businessweek.com/news/2011-11-15/u-s-farm-exports-reach-record-137-4-billion-on-china-buys.htmlGlobal food output must rise 70 percent by 2050 to feed a world population expected to grow to 9 billion from 7 billion and as increasingly wealthy consumers in developing economies eat more meat, according to the FAO. Russia holds 8% of the world's arable land, but only 25% of this acreage uses modern farming techniques as found in North America, creating a sizable growth opportunity for advanced equipment manufacturers such as Deere.www.themoscowtimes.com/mobile/article/452256.html
- The U.S. 2011 harvest suffered from low production yields, but also increased cropprices at a higher magnitude. As such, the companyenjoyed strong full-year 2011 (fiscal year ending October)sales growth, stemming from double-digit agriculturalequipment increases and even stronger constructionequipment gains.fourth-quarter results and an initial 2012 outlook thatboth topped our expectations. Led by strong 17.5%year-over-year top-line growth in its core agriculture andturf business (about 80% of total equipment revenue in thequarter)Deere guided to full-year earnings of $4.90 a share, below the consensus at the time of $5.23 a share.
- Deere also faces sizable exposure to the U.S.residential housing market through its constructionequipment segment and raw-material cost fluctuations. Arecent endeavor to expand the construction segment inChina also presents risk, as the housing bubbling market has come to saturation. Bubbles pop?USDA higher-than-expected inventory levels: prompting a sell-off in grain markets =>Credit Suisse and Goldman Sachs cut crop price forecasts this year
- Gold has done well, WHY? Contagion of gov and bank insolvencies, faltering economic growth, has caused a lot of fear. Golds become very popular as a preservation of wealth, and store as collatoral during these uncertain times. Europes inevitable default
- Listed on NYSEExpense .4%GLD is an ETF traded throughout the day on NYSE that tracks the price of an ounce of gold (chart). The ETF is and open end trust, which means that it is traded through our the day unlike a mutual fund. A trust means you are just trading with another market participant, they don’t take your money and go buy more gold. Creation/ redemption is the key to AP’s and the trustee. Gld has a NAV- the underlying value at the trust corresponding to the outstanding shares. If too many people want to BUY shares, it may rise above NAV. That’s when APs will mbe market makers and short you shares, while buyin actual gold. They sell u a share above NAV and buy real gold, then take the gold they bought to the trustee in exchange for shares. Since they now have new shares it closes out their short position they made when they sold to you. This keeps the price close to NAV take the gold they bought
- China 7th-54 bi reservesIndia 12thECB-13th 25.8Talk:qucik why CBs hold gold and point out US, Europe and ETF
- Overview of Why people invest in it, and its relationship/ correlation to other investments/factorsInflation: people store their wealth in gold as a safe haven against their currency become less valuable. When they believe that the MS is growing to quickly people/governments will buy gold. If MS grows to quick, currencies drop, harder to pay off foreign debt, or buy foreing goods. Kind of a bet on monetary policiesEconomic uncertainty: When economys are shaky, people are nervous where to park their wealth, buy gold since other investments like stocks arent very stable. Too mmuch Volatility, buy gold.Politicaluncertainty: USgov cant meet an agreement to pay off its debt and it worries people, send them ot the safe haven. Iran threatens to only accept gold. PortfolioDiversification: since it is not very correlated to many investments, people believe it earns a spot in every portfolio.China, india, USMS and int rate graph
- Dollar performanceOther currenciesInt ratesGold performanceS&P performance, add QE points
- Supply Side- used to come 80% from mining, now only 60% and rely on 40% from recycling gold since it is diminishing. China is lgst supply, 14%, Australia 10, US 9, Russia 8, Africa 8. New findings (Chart) have dropped significantly, while exploration spending has increased four times since 2000. The 4 main miners, Barrick,, newmont, anglogold, and gold fields- all recorded lower production levels, but overall production up 3.8% in 2011.
- Demand Side: Demand comes from Jewlery , investment, Industrial,Cbs.. Jewlelry makes up about 50% of demand and driven by China and INdia in Private markets. While US and EU used to hold 44% now only 14%, while China and Mid east now responsible for 66% of demand.Jewlery demand stats: total demand eased as gold prices were spiking, but should rebound as est china grew 16% and indiaCBs: bought 430 tonnes of gold , highest record, 5x as much, WGC expects them to buy 190 in the 1Hand gold to reserve ratios of BRIC should continue.China & India represent 52% of demand for gold. Through the first half of the year gold prices were up 25% and still china and India alone increased demand by 7.5%. Overall 2011 demand up 6%.
- Global Money supply rising sharply and predicted to continue its growth. We saw gold spike in sept and has since corrected itself.
- What countries are Qeing and what is the effect for goldUSEuropeChinaIndia
- chartAnd gold vs SPY vsXlb
- Why buy?Supply and demandLow int rates inflationIncrease MS, CBs QE and printing moneyCBs buy as reservesPolitical hedge: us gov, europe agreement…, iranA bet on fearand mktvolReiterate correlation studies- with mkt, higher debt, int rates, qe’s, currencies Portfolio allocation