Materials Sector November 24, 2009 Ellis Krienik, Minh Le, Brian Mandel
Materials Sector Recommendation Sell 50 bps: Trim 150 bps of DOW Buy 100 bps of MON
Market Performance Index NameMarket Cap MTDQTDYTD S&P 5009,617B5.33%3.24%20.83% Info Tech1,826B5.06%4.66%51.54% Materials344B11.01%5.09%42.78% Cons Disc911B6.90%4.25%33.21% Financials1,389B3.79%-2.48%16.24% Industrials996B8.24%3.19%15.50% Health Care1,226B7.87%5.38%13.68% Cons Staples1,136B4.34%5.42%12.49% Energy1,154B2.21%5.43%11.70% Utilities344B2.32%-0.97%-0.30% Telecom291B3.47%-1.54%-4.55%
SIM Portfolio Structure as of 10/31/09 SectorS&P 500 WeightSIM Weight+/- Consumer Discretionary9.11%7.51%-1.60% Consumer Staples11.94%12.23%0.29% Energy12.35%12.80%0.45% Financials14.66%6.59%-8.07% Health Care12.65%13.13%0.48% Industrials10.09%11.97%1.88% Information Technology19.04%21.97%2.92% Materials3.39%4.52%1.13% Telecommunication Services3.09%3.51%0.43% Utilities3.68%3.19%-0.49% Cash0.00%2.51%
Materials Sector Valuation Multiples Absolute Basis HighLowMedianCurrent P/Trailing E P/Forward E P/B P/S P/CF
Current Materials Holdings in SIM Portfolio $ Unit Cost Market Price % Gain/ (Loss) % of Portfolio Dow Chemicals (DOW) $8.26$ %2.58% Monsanto (MON)$82.10$80.13(2.4%)1.94%
Current Materials Holdings in SIM Portfolio
Dow Chemicals
Dow Multiples Analysis Relative to Industry HighLowMedianCurrent P/Trailing E P/Forward E P/B P/S P/CF
Dow Multiples Analysis Absolute Valuation HighLowMedianCurrent #Your Target Multiple *Your Target E, S, B, etc/Share Your Target Price (F x G) P/Forward E P/S P/B P/EBITDA P/CF The ‘average price’ for the stock from the 5 target prices above is 26.20
Dow Chemicals DCF
Dow Sensitivity Analysis 3.0%3.5%4.0%4.5% 10.5% % % %
Benefits/Risks of Selling Dow Benefits Capture some capital gains ~ 250%, since we bought at around $8 per share. End markets do not appear so attractive: automobile and construction, both of which have been slumping. Dow is already trading within 10% of target. Risks Optimists believe the target being > $40. Dow is a golden egg, very well managed. Buffet is still in there, should we? Beta is 2.5, so once economy recovers, Dow will strongly rebound.
Monsanto
Monsanto Multiples Valuation Absolute Valuation HighLowMedianCurrent #Your Target Multiple *Your Target E, S, B, etc/Shar e Your Target Price (F x G) P/Forward E P/S P/B P/EBITDA P/CF The ‘average price’ for the stock from the 5 target prices above is 90.86
Monsanto Multiples Valuation Relative to Industry HighLowMedianCurrent P/Trailing E P/Forward E P/B P/S P/CF
Monsanto DCF
Monsanto Sensitivity Analysis 3.5%4.0%4.5%5.0% 10.0% % % %
Benefits/Risks of Buying Monsanto Benefits 20% Upside Market leader Increasing demand Risks Aggressive profit outlook Intense competition in herbicide business Regulatory risks
Recommendation Recap Sell 50 bps: Trim 150 bps of DOW Buy 100 bps of MON