Question

The goal of this second stage in our equity analyst project is to select one industry out of this list of 24 whose performance prospects you determine are best over the next year. Here are some factors to consider when comparing industry groups:[1]

Degree of Competition in the Industry

Supply/Demand Dynamics for the Industry’s Products

Industry Cost Structure

Degree of Government Regulation-Favorable or Not

Exposure to the Business Cycle

Relative Financial Norms and Standards

Your team is asked to write a 5-10 page paper providing your analysis of the issues involved in your selection of the industry group that you conclude is most likely to prosper in the coming months and your justification of your choice of that industry.

Team Analysis of Select Industry Groups

This analysis is a team assignment that requires your team to analyze a select group of alternative industries to determine which is most likely to perform best in terms of growth and earnings over the next 12 months. Your instructor will create your teams, ideally based on similar views about the near-term prospects for the U.S. economy expressed in the Individual Asset Allocation Exercise.

To guide this second stage analysis, you are asked to rely on the North American Industry Groups database available at Yahoo! Finance. The system is comprised of 9 macroeconomic sectors, 31 business segments and 215 industry groups. This database is readily accessible via Yahoo! Finance at

http://biz.yahoo.com/ic/ind_index.html

To simplify the exercise the 215 industry groups within the database have been reduced to a more analytically manageable 24 industry groups (each with public firms listed at Yahoo! Finance totaling no less than 5 and no more than 15 companies) in 7 macroeconomic sectors as follows:

Basic Materials

Aluminum

Major Integrated Oil &Gas

Nonmetallic Mineral Mining

Consumer Goods

Appliances

Confectioners

Office Supplies

Financial

REIT-Healthcare Facilities

REIT-Hotel/Motel

REIT-Industrial

Healthcare

Drugs-Generic

Home Health Care

Hospitals

Industrial Goods

Manufactured Housing

Pollution & Treatment Controls

Services

Advertising Agencies

Air Delivery & Freight Services

Drug Stores

Electronic Stores

Home Improvement Stores

Jewelry Stores

Technology

Computer Based Systems

Long Distance Carriers

Personal Computers  

Utilities

Water Utilities

To access more details on these groups go to http://biz.yahoo.com/ic/ind_index.html and click on any of the names of the 24 groups to go to each industry’s “Industry Center” page. Additional useful information is available via the link to “Industry Browser” on the left. Also, on each industry’s summary page click on “Company Index” and then on “Public” on the subsequent page next to “View:” to get the list of public companies in this industry. Our focus is on publicly listed companies in which we might ultimately invest. The list of public companies is provided alphabetically. Following each name is the company’s ticker symbol in brackets. See http://www.investopedia.com/terms/s/stocksymbol.asp or http://www.investorwords.com/4968/ticker_symbol.html for brief definitions of stock/ticker symbols.

Please note that on occasion the ticker symbol may also be followed by other letters, such as PK or OB (see http://www.investopedia.com/ask/answers/04/022004.asp or http://www.investopedia.com/ask/answers/120.asp for explanations). It is recommended that we ignore stocks so designated in these exercises.

Answer 1

Let us consider Aluminium industry for our analysis for investment here.

Aluminium is considered as one of the major source of the metal that is being used in the infrastructure nowadays apart from other materials because of various factors of its benefits like rust proof, Aluminium if made hard and used for infrastructures it is very useful because it is rust proof, less cost, low maintenance, less weight etc.

In US after a lot of studies it is found out that aluminium which was not so much of talk in previous days is now of very high importance.

It is being used in so many places like houses, automobiles, factories etc. Its speciality in automobiles is that recently a study showed that every 10% reduction in the weight of the car will increase 10% of the energy efficiency in the cars. This has made the automobile industry to use more of aluminium in the car parts which has increased the demand for aluminium in the industry. The content of aluminium has increased from 3% to 70’s to around 9% in 2009-10.

The aluminium industry also identify a huge surge in the usage of aluminium year-on-year increase in demand of 8/10^th % to 25.5 billion pounds, a rise of shipments to the transportation sector of 9.7% to 9.2 billion pounds, an increase in the construction market of 1.9% to 3.1 billion pounds, and an increase of the same % in the container and packaging sector, topping out at 4.7 billion pounds.

These statistics shows the amount of importance of aluminium in the market for various products.

There is Aluminium is recyclable. Once produced, it can be recycled without any problem in properties, all the while maintaining significant economic value. For those reasons, aluminium used in durable products has maintained recycling rates exceeding 95 percent for many years. The average life of an automobile exceeds 11 years. In other words, it will take an average of more than 11 years for aluminium used in vehicle production today to re-enter the supply stream as secondary aluminium.

In the recent new government in USA there are lot of new infrastructure projects announced, this has boosted up over lot of metal such as copper, steel, aluminium etc. Thus the government projects on infrastructure has a great impact on the aluminium industry which has boosted up the demand and more over the cost of the product from aluminium is very low compared to other metals and also has low maintenance verses other metals.

All these factors which has made aluminium industry very strong in coming future, it is estimated that by 2025 almost all the vehicles will be using aluminium parts in most of the parts of the automobiles. This will have impact on the international commodity market of the Aluminium and aluminium producing companies in US.

There are certain companies like Century Aluminium, Kaiser Aluminium etc. which will bring good market to the companies as there is going to be increase in the demand for aluminium for various products and projects in North America. I suggest investing in these companies will take the investments to next level of earnings in future.