chapter 17 investments macroeconomic and industry analysis slides by richard d. johnson copyright ©...
TRANSCRIPT
CHAPTER 17CHAPTER 17
InvestmentsInvestments
Macroeconomic Macroeconomic and Industry and Industry
AnalysisAnalysis
Slides bySlides by
Richard D. JohnsonRichard D. Johnson
Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reservedCopyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved McGraw-Hill/IrwinMcGraw-Hill/Irwin
Cover image
17- 17- 22
CoverCoverimageimage
Fundamental Analysis Approach to Fundamental Analysis:
– Domestic and global economic analysis
– Industry analysis
– Company analysis
Why use the top-down approach?
Framework of Analysis
17- 17- 33
CoverCoverimageimage
Performance in countries and regions is highly variable.
Political riskExchange rate risk
– Sales
– Profits
– Stock returns
Global Economic Considerations
17- 17- 44
CoverCoverimageimage
Table 17.1 Economic Performance in Selected Emerging Markets
17- 17- 55
CoverCoverimageimage
Figure 17.1 Change in Real Exchange Rate: Dollar versus Major Currencies, 1999 – 2005
17- 17- 66
CoverCoverimageimage
Gross domestic productUnemployment ratesInterest rates & inflationBudget deficitConsumer sentiment
Key Economic Variables
17- 17- 77
CoverCoverimageimage
Figure 17.2 S&P 500 Index versus Earnings Per Share Estimate
17- 17- 88
CoverCoverimageimage
Demand shock - an event that affects demand for goods and services in the economy.– Tax rate cut
– Increases in government spending
Demand Shocks
17- 17- 99
CoverCoverimageimage
Supply shock - an event that influences production capacity or production costs.– Commodity price changes
– Educational level of economic participants
Supply Shocks
17- 17- 1010
CoverCoverimageimage
Fiscal Policy - government spending and taxing actions.– Direct policy
– Slowly implemented
Federal Government Policy
17- 17- 1111
CoverCoverimageimage
Monetary Policy - manipulation of the money supply to influence economic activity.– Initial & feedback effects
– Tools of monetary policy• Open market operations
• Discount rate
• Reserve requirements
Supply Side Policies
Federal Government Policy (cont’d)
17- 17- 1212
CoverCoverimageimage
Leading Indicators - tend to rise and fall in advance of the economy.
Examples:– Avg. weekly hours of production workers
– Stock Prices
NBER Cyclical Indicators: Leading
17- 17- 1313
CoverCoverimageimage
Coincident Indicators - indicators that tend to change directly with the economy.
Examples:– Industrial production
– Manufacturing and trade sales
NBER Cyclical Indicators: Coincident
17- 17- 1414
CoverCoverimageimage
Lagging Indicators - indicators that tend to follow the lag economic performance.
Examples:– Ratio of trade inventories to sales
– Ratio of consumer installment credit outstanding to personal income
NBER Cyclical Indicators: Lagging
17- 17- 1515
CoverCoverimageimage
Figure 17.3 Cyclical Indicators
17- 17- 1616
CoverCoverimageimage
Table 17.2 Indexes of Economic Indicators
17- 17- 1717
CoverCoverimageimage
Figure 17.4 Indexes of Leading, Coincident, and Lagging Indicators
17- 17- 1818
CoverCoverimageimage
Table 17.3 Economic Calendar
17- 17- 1919
CoverCoverimageimage
Figure 17.5 Economic Calendar at Yahoo!
17- 17- 2020
CoverCoverimageimage
Table 17.4 Useful Economic Indicators
17- 17- 2121
CoverCoverimageimage
Sensitivity to business cyclesFactors affecting sensitivity of earnings to
business cycles:– Sensitivity of sales of the firm’s product to
the business cycles– Operating leverage– Financial leverage
Industry life cycles
Industry Analysis
17- 17- 2222
CoverCoverimageimage
Figure 17.6 Returns on Equity, 2005
17- 17- 2323
CoverCoverimageimage
Figure 17.7 Rate of Return, 2005
17- 17- 2424
CoverCoverimageimage
Figure 17.8 ROE of Money Center Banks
17- 17- 2525
CoverCoverimageimage
Table 17.5 Examples of NAICS Industry Codes
17- 17- 2626
CoverCoverimageimage
Figure 17.9 Industry Cyclicality
17- 17- 2727
CoverCoverimageimage
Table 17.6 Operating Leverage of Firms A and B Throughout the Business Cycle
17- 17- 2828
CoverCoverimageimage
Figure 17.10 A stylized Depiction of the Business Cycle
17- 17- 2929
CoverCoverimageimage
Stage Sales GrowthStart-up Rapid & Increasing
Consolidation Stable
Maturity Slowing
Relative Decline Minimal or Negative
Industry Life Cycles
17- 17- 3030
CoverCoverimageimage
Figure 17.11 The Industry Life Cycle
17- 17- 3131
CoverCoverimageimage
Sector Rotation
Portfolio is adjusted by selecting companies that should perform well for the stage of the business cycle– Peaks – natural resource extraction firms
– Contraction – defensive industries such as pharmaceuticals and food
– Trough – capital goods industries
– Expansion – cyclical industries such as consumer durables