Information Technology Jason Kotzur, Matthew Leightman, Mitch Maher, Dimitris Siafarikas

Green bar on the right side, overweight SIM Overview Green bar on the right side, overweight Green bar on the left side, underweight Companies in this sector and their weight according to market capitalization.

Companies listed under the IT sector. Information Technology Overview IT Sector Market Data Companies listed under the IT sector.

Information Technology Life-Cycle Analysis

Typically the most robust time for growth Information Technology Life-Cycle Analysis Typically the most robust time for growth Since 1962, the broader stock market produced approximately 20% total return during this phase, with an average length of 1 year Tech stocks are growing marginally, mainly due to renewed interest in both consumer and corporate spending

Information Technology Life-Cycle Analysis Information technology is the best performer of all the sectors during this phase Software and hardware companies typically pick up momentum as these companies gain more confidence and start spending money on capital expenditures

Information Technology Life-Cycle Analysis Information technology typically suffers during this time due to inflationary pressures that put a strain on margins and profits Consumers tend to move to more economically inelastic segments, such as Energy

Typically shortest in the life-cycle, normally last about a year Information Technology Life-Cycle Analysis Typically shortest in the life-cycle, normally last about a year Interest rate and economically sensitive sectors typically do not outperform the broader market

One sign means a mixed or less consistent signal Information Technology Life-Cycle Analysis White portions suggest no clear pattern of performance vs broader market. Double signs indicate sector is showing consistency between all three metrics One sign means a mixed or less consistent signal

Intensity of Rivalry Buyer Power Supplier Power Threat of Substitutes Information Technology Porter’s 5-Forces Intensity of Rivalry Buyer Power Supplier Power Threat of Substitutes Barriers to Entry

High Medium Price Consumer often are price conscious (-) Cost Information Technology Porter’s 5-Forces Price Consumer often are price conscious (-) Cost Low customer switching cost (-) Quantity Many products provide same basic functions (-) Buyer Power High Supplier Power Price Previously established relationships (+) Cost Inputs relatively standard (-) Quantity Industry standard for non-exclusivity (-) Medium

Low High Price Cost Quantity Information Technology Porter’s 5-Forces Price Cost Quantity At a macro-industry level, there is not a lot of substitutes. Threat of Substitutes Low Barriers to Entry Price High growth potential (-) Cost Higher than average margins (-), start-up cost (+/-) Quantity Finding the niche (-) High

Overall Attractiveness Information Technology Porter’s 5-Forces Intensity of Rivalry Price Cost Quantity Economies of scale (+), established customer base (+), market share uneven (+/-) Moderate We acknowledge that there are high growth and profit potentials in the technology sector and that’s why there are always new entrants; however, due to cost advantages that already established companies have and the cost of capital to get product to market, we feel that the overall industry is unattractive Overall Attractiveness Unattractive

Catalyst Inhibitors Increased consumer confidence Global Recession Information Technology Sector Analysis Catalyst Increased consumer confidence Low interest rates Innovation Governmental spending Irrational Exuberance Inhibitors Global Recession Uncertainty in the Market (Brexit: Hard/Soft Exit) Credit tightening High inventories (Low Revenue) Interest rate hikes

Geography 23 Developed Markets 25 Emerging markets Information Technology Sector Analysis Geography 23 Developed Markets 25 Emerging markets Huge potential in EM

Users United States > 15.5% population over 65 Information Technology Sector Analysis Users United States > 15.5% population over 65 Canada > 16.5% population over over 65 Is there a way that technology companies can target the aging population?

Shift towards Cloud Computing (Growth) Information Technology Sector Analysis Shift towards Cloud Computing (Growth)

Shift from PCs (Mature) to Smartphones and Tablets (Growth) Information Technology Sector Economic Analysis Shift from PCs (Mature) to Smartphones and Tablets (Growth)

Information Technology Economic Analysis Is a Bubble Developing? October 2008 – President Bush signs $700B bailout August 2011- Standard and Poor’s downgrade US credit rating October 2008 August 2011 ^VIX vs VITAX (Vanguard IT Mutual Fund)

Information Technology Economic Analysis Biggest wedge between the returns of the Information Technology sector vs the S&P 500, since 2008. Is the United States market in a life cycle that would typically be conducive to information technology growth?

Information Technology Economic Analysis Information Technology is the 3rd most positively correlated sector in the S&P 500, this could be due to the market weight of the sector Information Technology, Intra-sector correlation is not as strong among other sectors

Information Technology Economic Analysis Sector Returns: 2007-2016

Industry Price / Earnings Multiple Information Technology Valuation Industry Price / Earnings Multiple How much are we paying for one dollar of profit? Industries Price / Sales Multiple The value placed on each dollar of a company's revenues

How much total profit can be divided to an individual share Information Technology Valuation Industry EPS How much total profit can be divided to an individual share Industry P/CF How much are we paying for one dollar of operating cash flow from the company?

Information Technology Valuation P/E Relative 2014: 1.25% 2015: 1.86% 2016: 3.59% 2017: 8.21% P/S Relative 2014: 83.43% 2015: 82.07% 2016: 84.26% 2017: 92.38% P/B Relative 2014: 44.33% 2015: 48.74% 2016: 48.81% 2017: 60.19% P/CF Relative 2014: 11.43% 2015: 17.61% 2016: 6.17% 2017: 10.2%

Support and Resistance Bands Information Technology Technical Analysis Support and Resistance Bands Support Resistance New S&R Resistance: when stock hits a peak and starts to descend Support: when a stock hits a bottom point and starts to ascend

Head and Shoulders Reversal Information Technology Technical Analysis Head and Shoulders Reversal Left Shoulder Head Right Shoulder Neck Line This could be interpreted as a signal to buy

This could be a signal to buy Information Technology Technical Analysis Double and Triple Bottoms This could be a signal to buy

Information Technology Financial Analysis Revenue Analysis

Information Technology Financial Analysis Gross Margin Analysis

Information Technology Financial Analysis Operating Margin Analysis

Information Technology Financial Analysis Profit Margin Analysis

Information Technology Financial Analysis Return on Common Equity Analysis

Short-term Recommendations* Short-term Risk* Information Technology Short-Term Recommendations and Risk Short-term Recommendations* SIM profile should be at market-weight with the S&P 500 Decrease (Sell) SIM weight to equal 22.48% United States market life-cycle is not conducive to sector growth Short-term Risk* One of the current holdings in the SIM portfolio outperforms analyst expectations We are wrong about the United States current market life-cycle (Mid-Late) Sector has a whole increases dividends and attracts investors * 2 Year Time Horizon

Long-term Recommendations* Information Technology Long-Term Recommendations and Risk Long-term Recommendations* The past 15 years, the IT sector overperformed the SP500. Investors start focusing in technology and they ways they will influence the world. Examples: Artificial Intelligence, Virtual Reality, Augmented Reality. * 7 year time-horizon * 10 Year Time Horizon

Information Technology Questions?

References Information Technology Annual S&P Sector Performance. (n.d.). Retrieved July 5, 2017, from https://novelinvestor.com/sector-performance/ Big Charts. (n.d.). Retrieved July 5, 2017, from http://bigcharts.marketwatch.com/advchart/frames/frames.asp?show=&insttype=Fund&symb=VGT&time=19&startdate=1%2F4%2F1999&enddate=7%2F4%2F2017&freq=1&compidx=aaaaa%3A0&comptemptext=&comp=none&ma=0&maval=9&uf=0&lf=1&lf2=0&lf3=0&type=2&style=320&size=2&x=57&y=6&timeFrameToggle=false&compareToToggle=false&indicatorsToggle=false&chartStyleToggle=false&state=8 Bloomberg Portal. (n.d.). Retrieved July 5, 2017. Information Technology. (n.d.). Retrieved July 5, 2017, from https://eresearch.fidelity.com/eresearch/markets_sectors/sectors/sectors_in_market.jhtml?tab=learn§or=45 Interactive Charts. (n.d.). Retrieved from http://www.nasdaq.com/quotes/interactive-charts.aspx Morningstar. (n.d.). Retrieved July 5, 2017, from http://beta.morningstar.com/stocks Murphy, J. (n.d.). John Murphy's "Charting Made Easy". Retrieved from http://stockcharts.com/school/doku.php?id=chart_school:john_murphy_s_charti Sallomi, P. (n.d.). 2017 Technology Industry Outlook. Retrieved July 5, 2017. TECHNOLOGY OVERVIEW. (n.d.). Retrieved July 5, 2017, from http://www.reuters.com/assets/curtainMainContentLoader?view=RSM-US-Curtain-MainContent-Sector-Technology The Business Cycle Approach to Equity Sector Investing. (2014, September). Retrieved from https://scs.fidelity.com/common/application/markets_sectors/business_cycle/Business_Cycle_Sector_Approach.pdf Yahoo Finance. (n.d.). Retrieved July 5, 2017, from https://finance.yahoo.com