Q&A Hero

Q: When analyzing stocks, the major variable of interest to a majority of investors is: a. sales. b. profit margins. c. dividend yield. d. earnings per share.

Q: Which of the following is not one of the relative valuation multipliers used in fundamental analysis? a. P/E ratio b. P/S ratio c. P/M ratio d. P/B ratio

Q: The last step in top-down fundamental analysis is to analyze: a. individual industries b. individual companies c. individual securities d. perform technical analysis

Q: 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.

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

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

Q: Differentiate between defensive industries and countercyclical industries.

Q: When should companies in cyclical industries be bought?

Q: Give several examples of government effects on industries.

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

Q: What are four basic aspects of qualitative assessment of industries?

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

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

Q: 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.

Q: 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.

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

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

Q: Growth industries often perform well during economic setbacks.

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

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

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

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

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

Q: In the expansion stage, products become more standardized.

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

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

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

Q: The Value Line Investment Survey covers approximately 60 industries.

Q: 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.

Q: 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

Q: 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

Q: Which of the following industry categories is said to be "bought to be sold?" a. cyclical b. defensive c. growth d. countercyclical

Q: 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

Q: The food industry would be considered: a. growth industry. b. defensive industry. c. cyclical industry. d. countercyclical industry.

Q: 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.

Q: 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.

Q: 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

Q: 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.

Q: 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.

Q: The U.S. is moving from an ---------- society to an ----------- society. a. agricultural; industrial b. agricultural; information c. industrial; information d. industrial; international

Q: 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

Q: 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.

Q: 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

Q: Which of the following is not one of the stages of the industry life cycle? a. expansion b. destabilization c. declining d. pioneering

Q: 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.

Q: 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

Q: 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.

Q: 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.

Q: 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

Q: 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.

Q: Standard and Poor's new Global Industry Classification System already includes _______ companies. a. 10,000 + b. 25,000+ c. 50,000 + d. 75,000+

Q: Standard & Poor's new Global Industry Classification system divides everything into _________economic sectors. a. 10 b. 24 c. 68 d. 154

Q: The second step in the fundamental analysis of common stock, after the economy, is: a. company b. economy c. industry d. business cycle

Q: The earnings per share on a composite stock index this past year was $25. The earnings are expected to grow at a constant rate of 7 percent forever. The dividend payout ratio is expected to continue at its current rate of 35 percent and the dividend yield is expected to be 4 percent. Calculate the intrinsic value of the composite stock index.

Q: Value Line's estimated dividends on its Industrial Composite for 199X are $00 while estimated earnings are $4.30. The expected spread between k and g is .04. (a) What is the P/E ratio? (b) What is the estimated price for this Index?

Q: Assume that the dividends to be paid on a particular market index next period are $20. Investors require 15 percent to invest in stocks, and expect dividends to grow at 10 percent per year. What is the value of this index?

Q: What are the implications of the article "Overcoming the Bear Market Blues" for investors?

Q: How does the increased globalization of business and finance affect business cycles and the leading, lagging, and coincident economic indicators?

Q: According to Warren Buffett, the two critical economic variables are: _______________ and _________________.

Q: Approaches to assessing the stock market's likely direction include application of the ________________ model, also called the Fed model.

Q: Explain how dividend yield on the S&P 500 Index can be used to make market forecasts.

Q: Why is there an inverse relationship between P/Es and dividend yield?

Q: Use the constant-growth dividend discount model to explain why stock prices have an inverse relationship to interest rates.

Q: The financial news reports that the market is overvalued at a near record high based on the earnings multiplier. What does that mean to you?

Q: Is it useful to do a trend analysis of P/E ratios of the S&P 500 Composite Index over time and extrapolate it to project future expected P/Es?

Q: Why do stock investors pay attention to the bond market?

Q: Why is the stock market a leading indicator of the economy? Use the constant-growth dividend discount model in your explanation.

Q: During periods of restrictive Federal Reserve monetary policy, the stock market usually performs poorly.

Q: Over the past 30 years, the average P/E ratio for the S&P 500 has been 23.

Q: Stock prices have almost always risen as the business cycle is approaching a trough.

Q: According to available evidence, investors lose more by missing a bull market than by staying in a bear market.

Q: Assuming a constant P/E ratio, the growth in stock prices should equal the growth in earnings.

Q: When using the P/E valuation model, it is important to remember that the multiplier is more volatile than the earnings component.

Q: If the economy is prospering, investors expect corporate earnings to rise.

Q: If interest rates rise, the risk free rate of return declines.

Q: P/E ratios are generally low when interest rates and inflation are high.

Q: The Dow Jones Industrial Average provides the best representation of the performance of U.S. stocks.

Q: Most investors should keep a watch on the Federal Reserve because of the effect of the money supply on interest rates.

Q: The typical business cycle in the United States seems to lead the stock market's turning point by a few months.

Q: Most analysts today agree that using money as an indicator of future economic activity is accurate.