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Chapter_14-SectorIndustry_Analysis - Sector/Industry...

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Sector/Industry Analysis Chapter 14 Charles P. Jones, Investments: Analysis and Management, Tenth Edition, John Wiley & Sons Prepared by G.D. Koppenhaver, Iowa State University 14-1
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Industry Analysis Second step in the fundamental analysis of common stocks ¾ Industries promising the most opportunity in the future should be considered Concepts of industry analysis related to valuation principles Continual analysis due to inconsistent industry performance over time 14-2
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Industry Performance Over Time Potential value of industry analysis seen by assessing the performance of different industries over time ¾ S&P’s monthly stock price index over a long tome period shows industries perform differently over time ¾ Stock performance affected by industry Industries in decline should be avoided 14-3
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Industry Performance Over Time Consistency of industry performance ¾ Maintaining positions in growth industries leads to better returns than otherwise Can industry performance be predicted reliably on the basis past success? ¾ Rankings inconsistent over time ¾ Industries with recent poor performance should not be ignored 14-4
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What is an Industry? Are industry classifications clear-cut? Are industry classifications clear cut? Industries cannot be casually identified and classified ¾ Diversified lines of business cause classification problems ¾ Industries continue to become more mixed in their activities and less identifiable with on product or service 14-5
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Classifying Industries Standard Industrial Classification (SIC) ¾ Based on census data and on the basis of what is produced ¾ SIC codes have 11 divisions, A through K ¾ Each division has several major industry groups designated by a two-digit code groups, designated by a two-digit code Larger the number of SIC digits, the more
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