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Industrials has been under-performing the S&P 500 since mid-summer. We feel this slowdown is temporary and expect a positive long-term trend by Q2 2012. Until recently, the Purchasing Manager’s Index (PMI), a measure of the health of the manufacturing industry, has been trending downwards below 50, however there was news yesterday that PMI increased an entire point and construction spending was 1.4% higher in August.
We have identified that there is a large need to diversify and increase our holdings in the sector so that more large cap industrials are part of our portfolio.
Given our research, we feel that the best course of action is to stay neutral with the S&P 500 weighting.
Access the full report here: Fall 2011 Industrials Sector Report
We have identified that there are many opportunities outside our current holdings but because spending in this sector depends on the global economy we feel this is not the right time to invest in further companies. Once we feel growth is imminent, we will look at companies like GOOG, which SMIF had previously owned but was sold off during the summer due to concerns about volatility.
SMIF is currently neutral with the S&P 500 but looks to change this position in the near future.
Access the full report here: Fall 2011 Information Technology Sector Report
BMY and CELG are both outperforming the S&P 500, yet TEVA is struggling. Healthcare consumption has been rising every quarter in the past few years, however we see political risk present in several lawsuits that are challenging President Obama’s Healthcare bill. The supreme court decision on the three cases (Florida v. Department of Health and Human Services, No. 11-400; National Federation of Independent Business v. Sebelius, No. 11-393; Department of Health and Human Services v. Florida, No. 11-398) is expected in June 2012. Until March, when the Supreme Court will start to hear arguments, we believe the sector is safe.
Overall, we judge this sector to be risk averse, low volatility, and high yield. We have identified that due to the complex capital structures of many companies in healthcare, SMIF must perform more analysis than previously thought to assess company dividend yields.
The current SMIF recommendation is to overweight the S&P 500 by 100 to 150 basis points.
Read the full presentation here: Fall 2011 Healthcare Sector Report
Today in Class:
Michael Sena briefed the classroom on a new technology the class could use to speed up votes, rather than using pens and paper. Clickers are provided by the Bucknell University Library and display voting results instantly on the in-class projector.
The econ committee reported on the current US consumption, investment, governmental spending, net exports, and GDP numbers. We expect consumption to rise by 2%; residential investment to remain stagnant and non-residential to improve modestly; government spending to contract this year and then increase at a slower rate over the next five years; net exports to increase by around 4% due to a weak American Dollar, and for GDP to grow by around 1.3% over the next year. We are bearish overall.
- Energy – Oil is down and energy as a whole is not forcasted to grow.
- Financials – These should continue to remain depressed for the foreseeable future, and special attention should be payed to Europe.
- Utilities and Consumer Staples – These will ride out the market, the class plans to overweight.
- Materials – Investment decisions will depend on the strength of the U.S. Dollar.
- Consumer Discretionary – As the economy grows slowly or not at all, we should expect to underweight consumer discretionary stocks.
The class discussed the possibility of a double dip recession and decided that over 2% GDP growth is necessary for sustainable job growth. Housing should be monitored as it will most likely lead us out of the current period of depressed growth.
- TEVA (Monica Wu): Recommendation is to hold. The class noted that margins are down so growth will be hard, there have been no recent brand-name drug approvals, and that sales are down. However, market data showed that out of 28 analysts, 22 said TEVA was a strong buy, so despite general consensus to sell, the class ultimately decided to hold in hopes of being able to sell TEVA at a higher price.
Access the complete minutes here: 09-22
In Class Today:
The weekly econ report was presented and various administrative functions were discussed. Due to time constraints, no Buy/Hold/Sells were presented and these will be pushed back to the following meeting.