Module 2: Analysis and valuation of equity securities

Name________________________

FINA 405

Economic and Industry Analysis

Purpose

To assess your ability to develop processes and skills to make rational investment decisions.

Overview

This is an individual assignment.

In this exercise you are asked to complete the first two steps of a three-step, top-down valuation process for equity securities. Specifically, you are asked first to forecast the performance of the U.S. economy based on such macroeconomic variables as gross domestic product, inflation, and interest rates, over the next twelve months and its likely cyclical movement.

In the second stage you are asked to identify 5 industries that are likely to prosper relative to other industries in the projected economic environment. The third and final step is the subject of the subsequent assignment: Initial Stock Portfolio-Individual, in which you are asked to select undervalued firms in the 5 industries.

Action Items

1. Identify the industry classification system that you relied upon to classify your companies, e.g. --Yahoo!Finance’s http://biz.yahoo.com/ic/

--Hoovers http://www.hoovers.com/industry-analysis/industry-directory.html

--Standard and Poor’s http://www.standardandpoors.com/ratings/corporates/en/us/ --Mergent Online via the University Library Database which provides a classification search among the following industry classifications: Primary SIC, Primary NAICS, or MIC (Mergent Industry Code).

. (See http://www.naics.com/search.htm for lists of SIC and NAICS industry codes.)

2. Identify five (5) industries that you believe will most likely prosper in terms of sales and profits in the next 12 months based on your analysis of the economy, industry life-cycle stage, and economic and competitive structures. Explain the basis for your choice.

Industry	Basis

3. In a one-to-two page paper explain the basis for your choice of the ONE industry that you expect to prosper most in the next 12 months.