October 4, 2011

Today in Class:

The layout of the Fall 2011 Newsletter was discussed and the publish date was set for November 1, 2011.

Sector Reports

  • Healthcare (Holdings: CELG, TEVA, BMY) – BMY and CELG are both out-performing the S&P 500, yet TEVA is struggling.  Healthcare consumption has been rising every quarter in the past few years, however we see possible political risk present in several lawsuits that are challenging President Obama’s Healthcare bill.  Overall, we judge this sector to be risk averse, not volatile, and presents opportunities for high dividend yields.  The class has decided to overweight this sector.  See full sector report here.
  • Industrial (Holdings: GE, FSTR, UPS) – Industrials has been under-performing the S&P 500 but due to a 1.4% increase in construction spending in August and a full point increase in the PMI, we feel that it is best to stay neutral with the S&P 500 sector weighting.  See full sector report here.
  • Information Technology (Holdings: EBAY, IBM) – IT is a sector SMIF is very interested in, but we are wary of negative returns in the short run.  As spending is tied to global demand, we feel increasing our weighting and holdings would be ill-advised.  As such, we feel it is best to stay neutral.  See full sector report here.
  • Telecoms (Holdings: VZ) – Telecoms have high dividend yields and we will investigate diversifying our holdings, but will remain neutral with S&P sector weighting.  See full sector report here.
  • Utilities (Holdings: ED) – While the sector’s performance has been exemplary, we feel that prices are inflated and increasing in our position in utilities would result in future losses.  We will remain neutral with the S&P 500 sector weighting.  See full sector report here.

 

Read the entire class minutes: 10-04-11 Minutes

Fall Telecoms Sector Update

Holdings: VZ

The major news in this sector is the possible AT&T merger with T-Mobile.  We do not feel that it will occur because the created company would possibly violate antitrust laws and reduce competition in the marketplace.

Other research on this sector shows that pre-paid plans are rising in popularity as many Americans become unable to pay for pricey contracts, especially now that both AT&T and Verizon Wireless have gotten rid of their intermediary one year-long contract options.  Verizon Wireless has also followed AT&T in discontinuing their unlimited data plan, a move that might indicate that customers of both companies are not subscribing to the more costly, higher minutes per month plans.  The introduction of tiered data pricing also demonstrates the growing wireless data usage of smartphones in the U.S.

This industry is generally defensive but has on the whole been slightly out-performing the S&P 500. With consistently high dividends in this sector, we feel it is best to keep our neutral weighting, but look to diversify our portfolio with foreign providers, internet operators, and infrastructure owners.  Potential holdings include Dish Network (DISH), DirectTV (DTV), TimeWarner (TWX), and China Telecom (CHA).

 

Acess the full report here: Fall 2011 Telecoms Sector Report