Speculative company
A company that invests in a business with an uncertain outcome e.g. oil exploration company
Speculative stock
A stock that has potential for a large return, as well as the potential for considerable losses.
Showing posts with label Industry Analysis. Show all posts
Showing posts with label Industry Analysis. Show all posts
Wednesday, November 26
Cyclical Company vs. Cyclical Stock
Cyclical company
A company whose earnings are affected relative to a business cycle.
Cyclical stock
A stock that will move with the market in relation to the business cycle.
A company whose earnings are affected relative to a business cycle.
Cyclical stock
A stock that will move with the market in relation to the business cycle.
Defensive Company vs. Defensive Stock
Defensive company
A company whose earnings are relatively unaffected in a business cycle downturn, e.g. food company
Defensive stock
A stock that will hold its value relatively well in a business cycle downturn.
A company whose earnings are relatively unaffected in a business cycle downturn, e.g. food company
Defensive stock
A stock that will hold its value relatively well in a business cycle downturn.
Growth company vs. growth stock
Growth company
A company that consistently select investment which earns higher returns than required by their risk.
Growth stock
A stock that earn higher rate of return than others with similar risk, ie. with price below intrinsic value.
Note:
· A company could be a growth company, but its stock could be a value stock if it is trading below its peers of similar risk.
A company that consistently select investment which earns higher returns than required by their risk.
Growth stock
A stock that earn higher rate of return than others with similar risk, ie. with price below intrinsic value.
Note:
· A company could be a growth company, but its stock could be a value stock if it is trading below its peers of similar risk.
Porter’s five competitive forces within an industry
· Rivalry among the existing competitors
· Threat of new entrants
· Threat of substitute products
· Bargaining power of buyers
· Bargaining power of suppliers
· Threat of new entrants
· Threat of substitute products
· Bargaining power of buyers
· Bargaining power of suppliers
Risk elements in global industry analysis
· Government Policies
· Market Competition
· Market risk factors
· Competition along the Value Chain
· Market Competition
· Market risk factors
· Competition along the Value Chain
Industry life cycle
1) Pioneering Phase
Characteristics: low demand for the industry’s product, large upstart costs.
2) Growth Phase
Characteristics: little competition and accelerated sales, survived the pioneering phase and are beginning to recognize sales growth.
3) Mature Growth Phase
Characteristics: above average growth, but no longer accelerating growth, face increasing competition, profit margins begin to erode.
4) Stabilization/Maturity Phase
Characteristics: average growth, face significant competition and the return on equity is now more normalized, typically longest phase an industry will go through.
5) Deceleration/Decline Phase
Characteristics: declining growth as demand shifts to other substitute (new) products
Example industries
· Consumer staples: ( neccessities- Pharma, food, etc.) outperform in recession.
· Consumer durables: (DVDs, cars) outperform as the economy is pulling out of recession.
· Capital goods: (Heavy goods, chemicals, etc.) outperform further on in recovery as business is more likely to renovate, modernize and purchase equipment.
· Financial stocks- near end of recession(bottom of trough), increase as anticipation of economy recovery)
· Basic industries: (Mining, oil, etc.) outperform best at the top of the GDP cycle.
Characteristics: low demand for the industry’s product, large upstart costs.
2) Growth Phase
Characteristics: little competition and accelerated sales, survived the pioneering phase and are beginning to recognize sales growth.
3) Mature Growth Phase
Characteristics: above average growth, but no longer accelerating growth, face increasing competition, profit margins begin to erode.
4) Stabilization/Maturity Phase
Characteristics: average growth, face significant competition and the return on equity is now more normalized, typically longest phase an industry will go through.
5) Deceleration/Decline Phase
Characteristics: declining growth as demand shifts to other substitute (new) products
Example industries
· Consumer staples: ( neccessities- Pharma, food, etc.) outperform in recession.
· Consumer durables: (DVDs, cars) outperform as the economy is pulling out of recession.
· Capital goods: (Heavy goods, chemicals, etc.) outperform further on in recovery as business is more likely to renovate, modernize and purchase equipment.
· Financial stocks- near end of recession(bottom of trough), increase as anticipation of economy recovery)
· Basic industries: (Mining, oil, etc.) outperform best at the top of the GDP cycle.
Key elements related to return expectations
Demand
Based on worldwide demand, include an analysis of substitutes for the company’s product.
Value Creation
Focus on the sources of value that can be extracted through the value chain, which consists of suppliers of raw materials, but also the delivery firms
Industry Life Cycle
Important to understand an industry’s growth prospects to determine an appropriate growth rate.
Competition
Much more complicated as the analysis is done with global industries and laws in mind.
Based on worldwide demand, include an analysis of substitutes for the company’s product.
Value Creation
Focus on the sources of value that can be extracted through the value chain, which consists of suppliers of raw materials, but also the delivery firms
Industry Life Cycle
Important to understand an industry’s growth prospects to determine an appropriate growth rate.
Competition
Much more complicated as the analysis is done with global industries and laws in mind.
Business Cycle
Phases of Business Cycle
· Recession
· Recovery
· Early Expansion
· Late Expansion
· Slowing into Recession
Recession
The bottom stage of the cycle, the stage ahead of recovery.
Attractive investment opportunities: commodities and stocks.
Recovery
The stage after recovery, start to “recover” after the recession
Attractive investment opportunities: cyclical investments and commodities
Early Expansion
A continuation of the recovery stage, where the recovery begins to gain momentum.
Attractive investment opportunities: overall stock market and real estate.
Late Expansion
After the early expansion stage, the expansion momentum continues and investor confidence is strong.
Attractive investment opportunities: bonds and interest sensitive investments.
Slowing into Recession
After the expansion phase, where the economy begins to show signs of slowing down and even turning negative.
Attractive investment opportunities: bonds and interest sensitive investments.
· Recession
· Recovery
· Early Expansion
· Late Expansion
· Slowing into Recession
Recession
The bottom stage of the cycle, the stage ahead of recovery.
Attractive investment opportunities: commodities and stocks.
Recovery
The stage after recovery, start to “recover” after the recession
Attractive investment opportunities: cyclical investments and commodities
Early Expansion
A continuation of the recovery stage, where the recovery begins to gain momentum.
Attractive investment opportunities: overall stock market and real estate.
Late Expansion
After the early expansion stage, the expansion momentum continues and investor confidence is strong.
Attractive investment opportunities: bonds and interest sensitive investments.
Slowing into Recession
After the expansion phase, where the economy begins to show signs of slowing down and even turning negative.
Attractive investment opportunities: bonds and interest sensitive investments.
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