Industry Analysis

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Industry Analysis

• By
• Ian, Steve, Conor, Jason and Nicholas

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Top 15
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Healthcare Distributors and Services

• Neutral to negative investment outlook by
  Business Week
• 18 price increase (ttm, Yahoo! Finance)
• Healthcare demand is always high
• Stable revenue streams and consistent gross
  margins
• Small growth at mature stage of business
• Chance of government intervention
• NovaMed Inc. (NOVA) and Quest Diagnostics (DGX)

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Biotechnology

• Positive investment outlook by Business Week
• 7.8 price increase (ttm, Yahoo! Finance)
• Potential for large return
• Numerous micro and small-cap companies
• Potential for large loss
• Many have no revenue and burn cash quickly
• OSI Pharmaceuticals (OSIP) and Cell Therapeutics
  (CTIC)

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Pharmaceuticals

• Investment outlook is neutral
• Index dropped 5.6 YTD
• Flood of patent expirations offers opportunities
  for generic manufacturers
• Improved earnings prospects in 2005, and
  historically low P/E multiples
• Weakness in drug stocks reflect political
  uncertainty
• Possible increased reimportation of drugs from
  Canada
• Merck (MRK) and Boston Scientific Corp (BSX)

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Consumer Finance

• Investment outlook is positive
• Consumer Finance Index gained 4.1 YTD
• Margins of credit card issuers to expand
• Higher long-term interest rates YoY should help
  drive greater loan growth
• Pricing pressures will remain intense though
• Balances and transaction volumes weaker than
  expected
• Bank of New York (BK) and Fifth Third Bancorp
  (FITB)

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Systems Software

• Investment outlook Neutral
• As of August 20th, Systems Software Index down
  6.2
• Long-term growth potential in the web
  technologies and web services areas
• Predicted lower double digit PC software sales
  growth over the next year
• Growth in software spending has slower than
  previous quarters
• Example Stocks Microsoft (MSFT), Adobe Systems
  Inc. (ADBE)

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Health Care Facilities

• Investment outlook Neutral
• As of July 30th, the Health Care Facilities Index
  declined 13.2
• Managed care providers will see continued
  earnings growth
• Estimated 10 revenue growth resulting in 10 to
  15 gains in EPS for the rest of the year
• Continued problems with bad debit expense
  throughout the industry
• Example Stocks Tenet Healthcare Group (THC),
  Healthsouth Corp. (HLSH)

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IT Consulting Services

• Negative Outlook by Business Week
• -19.4 YTD Decline
• Possible growth through acquisitions and
  partnerships
• Modest improvement in 2005
• Softness in IT spending
• Weak demand for consulting services
• Unisys (only SP 500 in industry) Hewitt
  Associates

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Electric Utilities

• Neutral Outlook by Business Week
• 4.6 YTD Growth
• Economic recovery will boost energy demand
• Look for companies with strong balance sheets and
  growing dividend
• High level of pension costs
• Many companies have high debt and liquidity
  problems
• Exelon Corp., National Grid Transco PLC

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THE END