Ch 13 - Industry Classification Flashcards

1
Q

Ways to categorise shares:

A

Market cap

Marketability

P/E ratio

Size

Dividend yield

Level of gearing

Exposure to overseas earnings

Cyclical vs defensive shares (exposure to economic cycle)

Country

Stock exchange

ESG ratings

Industry

Features are closely related

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2
Q

Reasons for categorisation by industry:

A

Practical for analysts to specialise in one area

Correlation of investment performance

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3
Q

It is practical for analysts to specialise in one industry because:

A

Fuck PECS

Factors affecting one company are likely to be relevant to others in the same industry

Assists in portfolio classification and management

No one can expect to be an expert in all areas

Info will come from common source and presented in a similar way

Grouping of equities gives structure to the decision-making process

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4
Q

Share prices are correlated because:

A

a SMR

Similar financial structures and so are similarly affected by changes in interest rates

Supply to the same markets so are similarly affected by changes in demand

Same resources so have similar input costs

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5
Q

Difficulties of catergorisation by industry:

A

Conglomerate companies (several sectors)
Multinationals (several marketplaces)
Differences between companies within the same sector - e.g. due to size or operate within niches of the market

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6
Q

FTSE industry classification system

A

FT MUG IS HOT

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7
Q

Oil and gas

A

Large global companies

Commodity price dependent (and priced in dollars) - Risky

Independent of the rest of the stock market

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8
Q

Basic Materials

A

Mainly produce “intermediate”” goods -Chemical, mining, industrial metals, and forestry & paper

May be significantly affected by the state of the economy and commodity prices

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9
Q

Industrials

A

GOV GIMP + cyclical

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10
Q

Consumer Goods

A

Consumer Goods = IBM

Manufacture durables and non-durables
Less cyclical for non-durable consumer good companies

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11
Q

Healthcare

A

Covers healthcare providers, medical equipment and supplies, as well as pharmaceuticals

Non-cyclical

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12
Q

Consumer Services

A

Food and drug retailers, general retailers, media and travel & leisure companies

Impact of economic cycle will be greater on the cyclical companies

Labour-intensive

More defensive companies in the group may have high gearing

Domestic market is the most important

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13
Q

Telecommunications

A

Fixed line telecommunications and mobile telecommunications

Type of utility - But less regulated and hence more volatile

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14
Q

Utilities

A

GG Cell C, Mtn R Da best

Usually government owned

Non-cyclical

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15
Q

Financials

A

Banks, insurance and financial services

Tend to be capital intensive

Domestic market is most important

Generally the labour costs are important for many companies in the group

+ know features of banks, general insurers and life insurers (i.e. their gearing and profits)

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16
Q

Technology

A

Companies involved in software & computer services, and technology hardware & equipment

Dividend yields are low - Few are yet to make profits while demand from investors has been high (therefore high price)

Assets can be largely intangible