An Introduction to Industry Analysis

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An Introduction to Industry Analysis

• Andrew Fraser
• SMD
• September 26, 2006

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What is an industry?

• Stocks can be placed into broad categories called
  sectors (tech.,energy, consumer cyclicals,
  financials, etc.)
• Within these sectors are more specific
  categories INDUSTRIES.
• The industry for a certain
• company is made up of that
• companys competitors.

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Why is industry analysis important?

• From CANSLIM Buy the leading stock in a leading
  industry.
• The strength of an industry directly affects all
  the companies within the industry.
• Price of oil drops ? ExxonMobil, BP, Chevron,
  etc. will underperform.
• Baby boomers retire and play more golf ? Aldila
  and Callaway will outperform.

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Stock Performance of TOL, DHI, CTX (since Jan.
2006)
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How can I evaluate an industry?

• Look at Competition
• Economic Indicators
• Unemployment
• Consumer/Producer Price Indexes
• Productivity
• Interest Rates
• Related Businesses

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Evaluating Competition

• Your potential company should be a leader among
  its industry and should have better fundamentals
  than its peers in a majority of categories.
• Comparable companies offer the same
  product/service, or a very close substitute. They
  will also have a similar market cap. For
  instance, BAC (Mkt. Cap - 240B) is not a direct
  competitor with United Bancshares (Mkt. Cap -
  60M)

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More About Competitors

• Places to find competitors
• Yahoo! Finance
• Annual Reports
• IBD
• WSJ

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Economic Indicators

• The general direction of
  the economy affects
  every industry.
• Some good websites
• www.bls.gov
• http//www.federalreserve.gov/
• http//www.whitehouse.gov/fsbr/esbr.html

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Related Businesses

• Any companies that help your company get its
  products/services to market need to have a
  healthy outlook as well.

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Story Stocks The IC Way

• A story stock is a stock that has something new
  and innovative that can potentially change how
  business is done. It could also
  be a leader, by a wide margin,
  in a niche industry. It is a
  stock that is relatively
  undiscovered, and hence has low
  institutional ownership and much room
  to grow.

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How Do I Find a Story Stock?

• There are never many in the market, and they can
  often be hard to find.
• Look within an industry, perhaps even one that is
  not doing great, and look for anomaly companies.
• If the fundamentals look good, read the business
  summary to see if the company does something new
  or innovative. Perhaps the company is filling a
  void.

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How Do I Find a Story Stock?

• The best place to learn about a stocks story is
  in the annual report.
• What does the company attribute its prosperity
  to?
• What are plans for the future?
• With a little bit of time, it is not hard to
  figure out why a company is doing well and should
  continue to in the future.

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Questions???