Deck 14: Sectorindustry Analysis

Question 1

S&P's Global Industry Classification Standard includes approximately:

A) 10,000 companies.
B) 45,000 companies.
C) 60,000 companies.
D) 100,000 companies.

Answer 1

B

Question 2

At what stage of a company's life cycle does an investor typically stand to earn the highest return?

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

Answer 2

A

Question 3

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.

Answer 3

A

Question 4

Which of the following has 11 economic sectors, 24 industry groupings, 68 industries and 157 sub-industries?

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

Question 5

Which of the following is not a stage in the industry life cycle?

A) Expansion
B) Destabilization
C) Declining
D) Pioneering

Question 6

The U.S. is moving from an:

A) agricultural society to an industrial society.
B) agricultural society to an information society.
C) industrial society to an information society.
D) information society to an industrial society.

Question 7

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

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

Question 8

Which of the following would support high profit margins in an industry?

A) The industry has significant barriers to entry.
B) The industry produces a product that is commodity like.
C) The industry's sales are to a relatively few large customers.
D) The industry is supplied by a relatively few large suppliers.

Question 9

Which of the following industries/sectors has produced the worst performance for investors in the long term?

A) Consumer durables
B) Retail stores
C) Transportation
D) Utilities

Question 10

Which of the following industries/sectors has produced the best performance for investors in the long term?

A) Utilities
B) Automobiles
C) Mining and minerals
D) Food

Question 11

The Porter basic competitive forces 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.

Question 12

Profit margins are generally lower in industries characterized by:

A) rapid growth in sales.
B) many barriers to entry.
C) many exit barriers.
D) substantial economies of scale

Question 13

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 14

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

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

Question 15

Firms in an industry have a low profit margin and a very low price-to-book ratio. What industry life cycle is most consistent with these characteristics?

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

Question 16

Based on past evidence, if an industry has the number one ranking on price performance, which of the following statements is most accurate? The investor should:

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

Question 17

S&P's Global Industry Classification Standard divides firms into:

A) 11 economic sectors.
B) 24 economic sectors.
C) 68 economic sectors.
D) 154 economic sectors.

Question 18

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.

Question 19

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 20

Which of the following is not a component examined in industry analysis?

A) Sales growth
B) Earnings growth
C) Interest rates
D) Price performance

Question 21

Which of the following industries/sectors has the highest beta?

A) Food
B) Utilities
C) Automobiles
D) Drugs, soap, perfumes and tobacco

Question 22

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

Question 23

Which of the following industries would you have most liked to have been invested in over the past 25 years?

A) Steelworks
B) Consumer durables
C) Mining and minerals
D) Food

Question 24

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 25

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 26

Which of the following types of industries would be expected to perform the worst during an economic contraction?

A) Growth
B) Defensive
C) Cyclical
D) Value

Question 27

Assume two firms are comparable in all other respects except for their industry. Which would be the preferred investment? The firm that operates in the industry:

A) with more exit barriers.
B) with products that are more differentiated.
C) with a relatively few large customers.
D) with fewer barriers to entry.

Question 28

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 accurately into a specific phase.
C) The general framework may not apply to some industries.
D) The approach does not explicitly lead to a stock price determination.

Question 29

The food industry would be considered a:

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

Question 30

In the expansion stage, products become more standardized.

Question 31

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

A) economic conditions.
B) the level of interest rates.
C) the industry structure.
D) the industry beta.

Question 32

Regarding the qualitative aspects of industry analysis, passage of the Dodd-Frank Act in 2008 would be considered a:

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

Question 33

Which decade is commonly referred to as the "lost decade" due to the poor performance of U.S. stocks?

A) The 1970s
B) The 1980s
C) The 1990s
D) The 2000s

Question 34

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

A) Cyclical
B) Defensive
C) Growth
D) Countercyclical

Question 35

Which of the following sectors would be most sensitive to changes in economic conditions?

A) Healthcare
B) Technology
C) Transportation
D) Utilities

Question 36

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

A) Construction industry
B) Banking industry
C) Financial services industry
D) Tobacco industry

Question 37

The Value Line Investment Survey covers approximately 60 industries.

Question 38

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

Question 39

Carl forecasts that the economy will move into recession over the next twelve months. Which of the following sectors should he overweight in his portfolio?

A) Chemicals
B) Financials
C) Consumer durables
D) Healthcare

Question 40

Which industry was devastated by changes in EPA regulations since 2010?

A) Telecom
B) Coal
C) Chemicals
D) Oil

Question 41

Are government effects always a negative effect for firms in an industry?

Question 42

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

Question 43

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

Question 44

What industries do you think will be the future growth industries?

Question 45

What are the five competitive forces identified in the Porter model?

Question 46

Growth industries often perform relatively well during economic setbacks.

Question 47

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

Question 48

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

Question 49

Differentiate between defensive industries and countercyclical industries.

Question 50

When should companies in cyclical industries be bought?

Question 51

Give several examples of government effects on industries.

Question 52

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

Question 53

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

Question 54

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

Question 55

The NAICS was developed using a production-oriented approach.

Question 56

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

Question 57

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

Question 58

What are four basic aspects of qualitative assessment of industries?

Question 59

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

Question 60

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.