Sector Sector Presentation Presentation

Sector: Materials Sector: Materials

Brian MandelBrian Mandel

Minh LeMinh Le

Ellis KrienikEllis Krienik

INTRODUCTIONINTRODUCTION&&

BUSINESS ANALYSISBUSINESS ANALYSIS

S&P 500 Index TableS&P 500 Index TableDesc GICS® NC MKTCAP Level Daily MTD QTD YTD

S&P 500 500 9,124,167 1036.19 -2.81% -1.98% -1.98% 14.72%

TR 1700.66 -2.81% -1.86% -1.86% 17.05%

Net TR 1605.28 -2.81% -1.89% -1.89% 16.34%

Energy 10 40 1,127,143 422.21 -3.49% 3.15% 3.15% 9.28%

Materials 15 30 309,561 176.96 -3.82% -5.33% -5.33% 28.62%

Industrials 20 59 920,442 221.11 -2.99% -4.66% -4.66% 6.71%

Consumer Discretionary 25 78 830,996 211.1 -2.70% -2.48% -2.48% 24.61%

Consumer Staples 30 41 1,089,057 265.93 -1.75% 1.04% 1.04% 7.82%

Health Care 35 53 1,153,936 326.05 -1.49% -2.31% -2.31% 5.38%

Financials 40 79 1,337,608 189.03 -4.76% -6.04% -6.04% 11.99%

Information Technology 45 76 1,737,657 334.36 -2.41% -0.38% -0.38% 44.24%

Telecommunications Services 50 9 281,594 103.04 -2.06% -4.84% -4.84% -7.75%

Utilities 55 35 336,174 144.14 -1.92% -3.22% -3.22% -2.56%

Air Products & Chemicals IncAirgas IncAK Steel Hldg CorpAlcoa IncAllegheny Technologies IncBall CorpBemis Co IncCF Industries HoldingsDow ChemicalDuPont E.I. de NemoursEastman Chemical CoEcolab IncFMC CorpFreeport McMoRan Copper & GoldIntl Flavors & FragrancesIntl Paper CoMeadWestvaco CorpMonsanto Co.Newmont Mining CorpNucor CorpOwens-Illinois IncPactiv CorporationPPG Industries IncPraxair IncSealed Air CorpSigma-Aldrich CorpTitanium Metals CorpUnited States Steel CorpVulcan Materials CoWeyerhaeuser Co

Materials Materials CompanieCompanies in the s in the S&P 500S&P 500 ChemicalChemical Metal & MiningMetal & Mining PaperPaper Construction Construction

MaterialMaterial

SIM PortfolioSIM Portfolio

Sector S&P 500 Weight SIM Weight +/-

Consumer Discretionary 9.11% 7.51% -1.60%

Consumer Staples 11.94% 12.23% 0.29%

Energy 12.35% 12.80% 0.45%

Financials 14.66% 6.59% -8.07%

Health Care 12.65% 13.13% 0.48%

Industrials 10.09% 11.97% 1.88%

Information Technology 19.04% 21.97% 2.92%

Materials 3.39% 4.52% 1.13%

Telecommunication Services 3.09% 3.51% 0.43%

Utilities 3.68% 3.19% -0.49%

Cash 0.00% 2.51% 2.51%

Dividend Receivables 0.00% 0.08% 0.08%

Phase of Life CyclePhase of Life Cycle

Mature – Chemical, PlasticsMature – Chemical, Plastics Declining – Glass, MetalsDeclining – Glass, Metals

– Plastic increasingly used as substitute for glassPlastic increasingly used as substitute for glass– Increase in demand for metals being met by Increase in demand for metals being met by

importersimporters

End Market - End Market - ConstructionConstruction

Sept. 2008 to Sept. 2009: -16.7% GrowthSept. 2008 to Sept. 2009: -16.7% Growth Construction consumes synthetic materialsConstruction consumes synthetic materials Stimulates demand for appliances, paint, Stimulates demand for appliances, paint,

carpet, windowscarpet, windows

End Market – Motor End Market – Motor VehicleVehicle

Sept. 2008 to Sept. 2009: -11.5% GrowthSept. 2008 to Sept. 2009: -11.5% Growth Production for 1Production for 1stst half of 2009 50% lower than half of 2009 50% lower than

2008 12008 1stst half production half production Demand boosted by “Cash for Clunkers”Demand boosted by “Cash for Clunkers”

End Market – End Market – Consumer GoodsConsumer Goods

Sept. 2008 to Sept. 2009: -1.7% GrowthSept. 2008 to Sept. 2009: -1.7% Growth Important market for containers and Important market for containers and

chemicalschemicals

Key FactorsKey Factors

Raw Material PricesRaw Material Prices Electricity PricesElectricity Prices GlobalizationGlobalization ConsolidationConsolidation

Profitability & PricingProfitability & Pricing

Long-term sales contracts help Long-term sales contracts help maintain profit stabilitymaintain profit stability

Production and sale of value Production and sale of value added products give firms added products give firms competitive advantage and competitive advantage and premium pricingpremium pricing

Supply contracts for key inputsSupply contracts for key inputs

ECONOMIC ANALYSIS ECONOMIC ANALYSIS

Commodity prices and Commodity prices and SectorSector

Exchange Rate & Exchange Rate & SectorSector

CPI and Materials CPI and Materials SectorSector

GDP and Material GDP and Material SectorSector

FINANCIAL ANALYSIS FINANCIAL ANALYSIS

S&P 500 vs. SPBMS Index – S&P 500 vs. SPBMS Index – YTDYTD

S&P 500 vs. SPBMS Index – S&P 500 vs. SPBMS Index – ROEROE

• Currently below 10-yr average• ROE steadily declining with recent

market downturn.

Revenue Growth – Sector Revenue Growth – Sector PerformancePerformance

5 year Growth Rate: 7%

5 year Growth Rate: 6%

Materials

S&P 500

Revenue Growth – Industry Revenue Growth – Industry PerformancePerformance

Metal/Glass Containers

Diversified Chemicals

Agricultural Chemicals

5 year Growth Rate: 10%

5 year Growth Rate: 7%

5 year Growth Rate: 23%

Margins – Historically Margins – Historically lowerlower

EBITDA Margin

Net Profit Margin

Currently at the 10-YR average.

Profit margins falling.

Margins – CyclicalMargins – Cyclical

EBITDA Margin

• Currently below 10-yr average

Earnings Growth – Industry Earnings Growth – Industry PerformancePerformance

Metal/Glass Containers

Diversified Chemicals

Agricultural Chemicals

Materials Index

4 Quarter Moving Average

Growth RateGrowth Rate

5 YR 5 YR HistoricHistoric

LT LT FuturFutur

eeMaterialsMaterials 5%5% 10%10%Metal/glass Metal/glass containerscontainers 11%11% 8%8%

Diversified Diversified ChemicalsChemicals -3%-3% 7%7%

AgriculturaAgricultural l ChemicalsChemicals

59%59% 13%13%

VALUATION ANALYSIS VALUATION ANALYSIS

P/E RELATIVE TO S&P P/E RELATIVE TO S&P 500500

Aluminum Industry vs. Aluminum Industry vs. SectorSector

Gold Industry vs. Gold Industry vs. SectorSector

Chemical-Diverse Industry vs. Chemical-Diverse Industry vs. SectorSector

P/B ABSOLUTE P/B ABSOLUTE

P/B RELATIVE TO S&P P/B RELATIVE TO S&P 500500

RECOMMENDATIONSRECOMMENDATIONS

RecommendationRecommendation

Sector returnsSector returns– Positive for long termPositive for long term– Uncertain for short termUncertain for short term

Sector vs. S&PSector vs. S&P– Magnified gains/losses compared to S&PMagnified gains/losses compared to S&P

Positive forcesPositive forces– Weak dollarWeak dollar– Strong emerging marketsStrong emerging markets– Domestic economy starting to improveDomestic economy starting to improve

RisksRisks– UnemploymentUnemployment– Weak demand (lack of stimulus programs)Weak demand (lack of stimulus programs)

RecommendationRecommendation

Remain overweight in sectorRemain overweight in sector Underweight commodity Underweight commodity

companies, overweight specialty companies, overweight specialty companiescompanies

$400K in DOW – 15,444 shares$400K in DOW – 15,444 shares $300K in MON – 4,466 shares$300K in MON – 4,466 shares $200K in ATI – 6,481 shares$200K in ATI – 6,481 shares