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INDUSTRIALS

INDUSTRIALS. Will Amerine Piyush Dubey Inanc Gencer Matthew Hankey. INDUSTRIALS. CURRENT SIM HOLDINGS. S&P 500 Sector Allocation. INDUSTRIALS. Industries included in Industrials Sector Price Change % of industrials 3MO YTD 2006 5-Year

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INDUSTRIALS

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  1. INDUSTRIALS Will Amerine Piyush Dubey Inanc Gencer Matthew Hankey

  2. INDUSTRIALS CURRENT SIM HOLDINGS S&P 500 Sector Allocation

  3. INDUSTRIALS • Industries included in Industrials Sector Price Change % of industrials 3MO YTD 2006 5-Year Aerospace and Defense 22.63% 3.6 7.7 23.1 10.5 Air Freight and Logistics 8.04% (2.6) (4.7) 1.6 3.3 Airlines .78% (5.0) (6.3) (6.8) (11.4) Building Products 1.40% (4.2) 2.8 4.7 5.4 Commercial Printing .60% 8.4 13.1 3.9 4.7 Construction and Engineering .58% 15.8 17.1 5.7 14.1 Construction and Farm Mach. 7.59% 17.7 22.3 20.6 22.5 Diversified Commercial Serv .69% (6.6) (3.9) 2.4 2.1 Electrical Components and Eqp. 3.89% 3.6 5.1 17.3 14.1 Environmental and Facility Serv 1.61% (0.7) 2.7 23.2 6.2 Human Resource and Empl Serv .76% (16.6) (10.1) 5.1 9.2 Industrial Conglomerates 35.61% 3.4 1.0 5.7 4.7 Industrial Machinery 7.04% 4.1 10.1 12.7 11.1 Office Services and Supplies 1.12% (3.2) (0.8) 14.3 1.4 Railroads 7.05% 11.3 18.4 13.5 19.8 Trading Companies .41% 6.4 18.1 (1.6) 7.9 Trucking .22% (3.5) 3.1 N/A N/A INDUSTRIALS 4.0 5.3 11.0 7.5

  4. INDUSTRIALS • LARGEST COMPANIES • General Electric 19.08% • United Parcel Service 5.40% • Boeing 5.20% • United Technologies 4.77% • Tyco International 4.57% • 3M 4.08% • Caterpillar 3.27% • Honeywell International 2.76% • Lockheed Martin 2.59% • Emerson Electric 2.58%

  5. INDUSTRIALS • S&P 500 Sector Performance SectorMTDQTDYTD S&P 500 1.57% 5.97% 6.16% Energy 1.99% 7.30% 9.14% Materials 1.78% 3.75% 12.44% Industrials 1.68% 6.48% 7.09% Consumer Discretionary 1.20% 3.73% 2.70% Consumer Staples 0.02% 3.19% 4.83% Health Care 1.57% 8.77% 9.45% Financials 1.60% 5.64% 2.01% Information Technology 1.94% 7.45% 6.26% Telecommunications 3.41% 3.49% 10.07% Service Utilities 1.43% 5.62% 14.53%

  6. INDUSTRIALS • Business Cycle

  7. INDUSTRIALS • Product Life Cycle MATURE AND STEADY INDUSTRY PROFIT MARGINS LOWERED SALES FOLLOW ECONOMIC GROWTH FIGHT TO KEEP MARKET SHARE

  8. INDUSTRIALS SUPPLIER POWERS LOW DUE TO HIGH COMPETITION ENTRANTS LOW RISK OF NEW ENTRANTS, ESTABLISHED BRAND NAMES SUBSTITUTES LOW NO ISSUE RIVALRY HIGHLY COMPETITIVE INDUSTRY COMPETITION DRIVES PRICES DOWN CUSTOMER POWERS LOW/MODERATE PROFITABILITY AND PRICING

  9. INDUSTRIALS • Economic Analysis Cyclical Sector correlated with GDP, Unemployment and Fed Rates

  10. INDUSTRIALS • Industrials Price Snapshot

  11. INDUSTRIALS • Performance Relative to S&P500

  12. INDUSTRIALS • Financial Analysis – Sales and EPS Current Revenues and EPS trend is positive

  13. INDUSTRIALS • Financial Analysis - Income Statement Ratios Current Net Profit Margin and ROE trend is positive

  14. Valuation over 10 Years INDUSTRIALS

  15. INDUSTRIALS • Valuation vs. S&P 500 10 Year

  16. INDUSTRIALS • Valuation Analysis 10 Years • Trend shows cheap sector • Distinguishing trends in Price to Share/Book/EBITDA • Cyclical Sector and Measurements of Valuation

  17. Valuation vs. S&P 500 5 Years INDUSTRIALS

  18. INDUSTRIALS • Positive Trends -- Valuations are on a downward slope = more undervalue -- Low points of P/EBITDA, P/Sales and P/Book -- Valuation Expansion and need for more weight in portfolio

  19. INDUSTRIALS • Recommendations • Currently .43% Underweight • Increase Investment by 50 Basis Point • This brings us in line with S&P500 • Equal Weight • Switch Weights within Portfolio • Aerospace and Defense/Railroads/Machinery

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