S&P Information Technology Sector

Transcription

1 S&P Information Technology Sector Alex Rickels l Douglas Burke July 8 th, 2015

2 Market Cap Weightings S&P 500 Energy, 7.86% Telecommunication Utilities, Services, 2.24% Materials, 2.84% 3.19% Information Technology, 20.00% SIM Energy, 7.65% Utilities, 2.91% Materials, 2.66% Telecommunicati on Services, Cash, 1.61% Information Technology, 20.55% Consumer Staples, 9.27% Dividend Receivable s, 0.00% Consumer Staples, 8.86% Dividend Receivable s, 0.06% Industrials, 10.27% Consumer Discretiona ry, 12.59% Source: Bloomberg Health Care, 15.10% Financials, 16.62% Industrials, 7.97% Consumer Discretiona ry, 8.47% Health Care, 14.88% Financials, 19.45% Source: SIM April 2015 Monthly Appraisal

3 Industry Classification Information Technology Software & Services Technology Hardware & Equipment Semiconductors & Semiconductor Equipment Internet Software & Services Communications Equipment IT Services Technology Hardware, Storage, & Peripherals Software Electronic Equipment, Instruments, & Components

4 Representative Companies Internet Software & Services Google, ebay, Facebook, Equinox, VeriSign IT Services Vantiv, IBM, MasterCard, Accenture, Automatic Data Processing Software Activision, Microsoft, Oracle, Salesforce.com, Adobe Systems Communications Equipment Qualcomm, Cisco, Motorola Solutions Technology Hardware, Storage, & Peripherals Apple, EMC, HP, Western Digital, Seagate, SanDisk Electronic Equipment, Instruments, & Components Corning, TE Connectivity, Amphenol, FLIR System Semiconductors & Semiconductor Equipment Intel, Texas Instruments, Broadcom

5 Correlation Between Industry Groups Software & Services Software & Services Technology Hardware & Equipment Semiconductors & Semiconductor Equipment Technology Hardware & Equipment 0.96 Semiconductors & Semiconductor Equipment

6 Top Companies within the IT Sector Name Market Cap % Market Cap Apple Inc $730.2B 17% Google Inc $369.6B 9% Microsoft Corp $366.1B 9% Facebook Inc $247.2B 6% Oracle Corp $177.7B 5% Other 53% S&P IT Sector $3,914.3B 100% Sub-Sector Market Cap % Market Cap Software & Services $2,201.3B 56% IT Hardware $1,259.6B 32% Semiconductors $453.4B 12% S&P IT Sector $3,914.3B 100%

7 S&P 500 versus S&P IT Sector The S&P Information Technology Sector grew 29% more than the broader S&P 500 over the last 10 years.

8 Best/Worst Stocks since 2010

9 Best/Worst Stocks This Past Year

10 Business Analysis

11 Demand Future Demand Global expansion (emerging markets, etc.) Cloud Computing Internet of Things M&A Activity Moderately cyclical Business: Capital expenditures affected by downturns Personal: Info Tech treated as discretionary items

12 Lifecycle

13 Profitability Outlook: Porter s Five Forces Network Effects (e.g. MS Windows, Facebook) Capital Investment (e.g. Broadcom) Strong Brands (e.g. Apple) Government Regulation Barriers to Entry Buyers Low switching costs (relative to late 1990s / early 2000s) Powerful large buyers Disruptive innovations Desktops Laptops Netbooks Tablets Substitutes Rivals Suppliers Threat to vertically integrate (e.g. Google servers) Brand name (e.g. Intel)

14 Porter s Five Forces Analysis (Cont d) Industry Barriers to entry Threat of Substitutes Buyer Power Supplier Power Rivalry Internet Software & Services IT Hardware & Equipment Semiconductor & Semiconductor Equipment Varies High Medium Low High Medium High High Medium High High Medium High Low Medium

15 Economic Analysis

16 Information Technology VS U.S. GDP

17 Information Technology VS Total IT Spending

18 Information Technology VS Personal Consumption of IT

19 Future Tech Spending Index

20 CPI for Technology

21 Tech Pulse Index

22 Financial Analysis

23 IT Sector Performance

24 IT Sector: Gross Margins 70% 65% 60% 55% 50% 45% 40% 35% 30% '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 S&P IT Sector S&P 500 Internet Software & Services IT Hardware Semiconductors

25 IT Sector: Operating Margins 30% 25% 20% 15% 10% 5% 0% '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 S&P INFT S&P 500 Internet Software & Services IT Hardware Semiconductors

26 IT Sector: Profit Margins 25% 20% 15% 10% 5% 0% '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 S&P INFT S&P 500 Internet Software & Services IT Hardware Semiconductors

27 IT Sector: ROE 35% 30% 25% 20% 15% 10% 5% 0% '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15E '16E '17E S&P INFT S&P 500 Internet Software & Services IT Hardware Semiconductors

28 Valuation Analysis

29

30 IT Sector: P/E '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15E '16E '17E S&P IT Sector S&P 500 Internet Software & Services IT Hardware Semiconductors

31 IT Sector: P/S '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15E '16E '17E S&P INFT S&P 500 Internet Software & Services IT Hardware Semiconductors

32 IT Sector: P/B '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15E '16E '17E S&P INFT S&P 500 Internet Software & Services IT Hardware Semiconductors

33 IT Sector: Dividend Yields 4% 3% 3% 2% 2% 1% 1% 0% '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15E '16E '17E S&P INFT S&P 500 Internet Software & Services IT Hardware Semiconductors

34 10-Year Absolute and Relative Metrics for IT Sector Absolute Basis High Low Average Current P/E P/B P/S EV/EBITDA Relative to S&P 500 High Low Average Current P/E P/B P/S EV/EBITDA

35 Recommendation

36 Recommendation Even-weight 1. Currently 20.55%, Recommend 20.00% 2. Purchase Company in Semiconductor Space Lower correlation with other IT sub-sectors No exposure Big decline in the area recently

37 Benefits of the Sector Innovation Growth Potential Big Trends 1. Cloud Computing 2. Internet of Things 3. Security 4. Big Data

38 Concerns in the Sector Business lifecycle is unfavorable for IT Sector Overall economy slowing in the near-term Q1 and Q2 results have yielded below consensus estimates P/E near historical average Many of portfolio stocks are reaching fair value

39 Questions?