Deck 14: Sector/ industry Analysis

Question 1

When conducting industry analysis, investors should consider the historical record of all the following except:

A) sales growth.
B) earnings growth.
C) interest rates.
D) price performance.

Answer 1

C

Question 2

A well-known and widely used system that classified industries for more than 60 years was the:

A) Commercial Industrial Classification system.
B) National Industrial Classification system.
C) Standard Industrial Classification system.
D) American Industrial Classification system.

Answer 2

C

Question 3

The basic competitive factors facing industries include all of the following except:

A) bargaining power of suppliers
B) threat of government regulation
C) rivalry between existing competitors
D) threat of substitute products

Answer 3

B

Question 4

Which of the following is a limitation of the life cycle approach to security analysis?

A) It focuses on sales rather than stock prices.
B) It focuses on the past more than the present.
C) It does not consider the risk in the different cycles.
D) It does not consider quantitative factors.

Question 5

If an industry is ranked number one, based on price performance of the S&P Industry Stock Indexes, an investor

A) cannot necessarily expect that same industry to be ranked number one again next year.
B) can usually depend on an industry to maintain its top ranking for five years or more.
C) can expect that industry to do well over the next 10 to 20 years.
D) can expect that industry to drop out of the top ten within five years.

Question 6

The most important point of Michael Porter's analysis is that industry profitability is a function of

A) economy.
B) interest-rate level.
C) industry structure.
D) industry beta.

Question 7

Which of the following is not one of the stages of the industry life cycle?

A) expansion
B) destabilization
C) declining
D) pioneering

Question 8

Which of the following statements about the industry life cycle is incorrect?

A) Companies may stay in one phase for a significant period of time .
B) All industries can be classified very accurately into a specific phase.
C) The general framework may not apply to some industries.
D) This approach does not explicitly lead to a stock price determination.

Question 9

Industry analysis is important because:

A) companies can only do as well as their industry.
B) industries often have an inverse relationship to the market.
C) industries perform very differently over time.
D) companies in declining industries lose money.

Question 10

The food industry would be considered:

A) growth industry.
B) defensive industry.
C) cyclical industry.
D) countercyclical industry.

Question 11

An investor at what stage of a company's life cycle typically stands to earn the highest return?

A) pioneering stage.
B) expansion stage.
C) stabilization stage.
D) maturity stage.

Question 12

Standard & Poor's new Global Industry Classification system divides everything into _________economic sectors.

A) 10
B) 24
C) 68
D) 154

Question 13

Which of the following is NOT among the qualitative factors that should be analyzed to assess an industry's future?

A) Historical performance
B) Competition
C) Growth rate of sales
D) Structural changes

Question 14

Which of the following has 10 economic sectors, 24 industry groupings, 64 industries and 139 sub-industries?

A) SIC
B) NAICS
C) GICS
D) Value Line Investment Survey

Question 15

At what stage in the industry life cycle do financial policies become firmly established?

A) Pioneering stage
B) Expansion stage
C) Stabilization stage
D) Declining stage

Question 16

The U.S. is moving from an ---------- society to an ----------- society.

A) agricultural; industrial
B) agricultural; information
C) industrial; information
D) industrial; international

Question 17

Standard and Poor's new Global Industry Classification System already includes _______ companies.

A) 10,000 +
B) 25,000+
C) 50,000 +
D) 75,000+

Question 18

Regarding the qualitative aspects of industry analysis, the breakup of AT&T in 1984 would be considered a:

A) structural change.
B) government effect.
C) competitive effect.
D) cyclical effect.

Question 19

Which life cycle stage generally sees industries improving their products, lowering prices, and start to attract considerable investment funds?

A) pioneering stage
B) expansion stage
C) stabilization stage
D) maturity stage

Question 20

The second step in the fundamental analysis of common stock, after the economy, is:

A) company
B) economy
C) industry
D) business cycle

Question 21

The NAICS puts companies into industries based on the activity in which they are primarily engaged.

Question 22

Growth industries often perform well during economic setbacks.

Question 23

The expansion stage of the industry life cycle is probably of most interest to investors, in which growth is rapid and risk is tolerable.

Question 24

In the expansion stage, products become more standardized.

Question 25

Which of the following industry categories is said to be "bought to be sold?"

A) cyclical
B) defensive
C) growth
D) countercyclical

Question 26

The Value Line Investment Survey covers approximately 60 industries.

Question 27

The food industry is a good example of a countercyclical industry.

Question 28

Which of the following sectors was adversely affected by the recent accounting changes requiring the expensing of stock options?

A) manufacturing
B) technology
C) energy
D) utilities

Question 29

Countercyclical and defensive are different terms for the same industry
type.

Question 30

Since performance is not always consistent, an industry's track record should not be of much concern to investors.

Question 31

The North American Industry Classification System (NAICS) was developed using a production-oriented approach, with the result companies are classified into industries based on the activity in which they are primarily engated.

Question 32

Which of the following types of industries is likely to be least affected in a recession?

A) Expansionary
B) Interest-rate sensitive
C) Defensive
D) Countercyclical

Question 33

A company's founders, friends and family are typically the main investors in the pioneering stage of any company.

Question 34

Which of the following is not considered an interest-rate sensitive industry?

A) building industry
B) banking industry
C) financial services industry
D) tobacco industry

Question 35

It is a relatively simple matter of finding industries that will perform well in the short run.

Question 36

Standard & Poor's industry analysis has been shown to be less accurate in predicting expected performance than the Value Line Investment Survey.

Question 37

Three industry analysis approaches are:

A) business cycle analysis, qualitative analysis of important factors affecting industries, sector rotation.
B) business cycle analysis, quantitative analysis of important factors affecting industries, market timing.
C) business cycle analysis, technical analysis of important factors affecting industries, fundamental sector analysis.
D) business cycle analysis, fundamental analysis of important factors affecting industries, technical sector analysis.

Question 38

One limitation of the life cycle approach is that all companies fall into a specific category.

Question 39

Mature industries typically have much higher P/E ratios than growth industries, which are riskier.

Question 40

The NAICS uses a five digit hierarchical coding system to classify all economic activity into 20 industry sectors, providing greater flexibility relative to SIC codes. A total of 15 of these sectors are devoted to services-producing sectors, compared to only 5 that are mainly goods-producing sectors. NAICS allows for identification of 1,170 industries. It includes 9 new service sectors and 250 new service industries.

Question 41

Would it be useful to the analyst to compare industry data to basic economic data such as the GDP or consumer spending?

Question 42

What are four basic aspects of qualitative assessment of industries?

Question 43

How can historical performance help the analyst assess the future prospects for an industry?

Question 44

In which stage of the industry life cycle is it easiest for the analyst to assess industry prospects and identify the leading companies?

Question 45

Portfolio diversification often focuses on cross-industry diversification to pick up correlation coefficients and risk-expected return characteristics that create the portfolio effect. Suggest a realignment of "industry" classifications to reflect fundamental relationships sought through the more casual traditional industries.

Question 46

When should companies in cyclical industries be bought?

Question 47

What are the five competitive factors identified in the Michael Porter model?

Question 48

What industries do you think will be the growth industries of the next
decade?

Question 49

Differentiate between defensive industries and countercyclical industries.

Question 50

Give several examples of government effects on industries.