The document provides an agenda and overview for a presentation on basic materials. It discusses current holdings in Alcoa and Deere & Co, sub-industries in the materials sector, sector leaders, and the macroeconomic outlook. It then provides more detailed analyses of Deere & Co and Alcoa, including financial performance, recent news, investment rationales, and recommendations to sell Alcoa. It concludes with an overview of the SPDR Gold Trust ETF and the case for gold as an investment.
4. Sub Industries
Chemicals
The Chemicals Industry in the Materials Sector includes producers of
commodity, diversified, fertilizers, agricultural, and specialty chemicals. It also
includes manufacturers of industrial gases
Construction Materials ()
The Construction Materials Industry in the Materials Sector includes
manufacturers of construction materials including
sand, clay, gypsum, lime, aggregates, cement, concrete, and bricks. Other
finished or semi-finished building materials are classified in the Building Products
industry
Containers & Packaging
The Containers and Packaging Industry in the Materials Sector includes
manufacturers of metal, glass, or plastic containers (including corks and
caps), and manufacturers of paper and cardboard containers and packaging
Metals & Mining
The Metals and Mining Industry in the Materials Sector includes producers of
aluminum and related products; companies engaged in diversified metals and
mining production or extraction of gold, precious metals, minerals and related
products; and producers of iron, steel and related products
Paper & Forest Products
The Paper and Forest Products Industry in the Materials Sector includes
manufacturers of timber, related wood products, and all grades of paper. It
includes manufacturers of lumber for the building industry, and excludes
5. Sector Leaders
Du Pont 10.71%
Monsanto 10.18%
FreePort-McMoran 8.82%
Praxiar 7.96%
Newmont Mining 7.88%
Dow Chemicals 4.82%
Air Prods & Chem 4.49%
Mosaic Co 4.24%
PPG Ind Inc 3.50%
EcoLab 3.32%
6. Macro Overview
GDP Q4 2.8%
ISM manufacturing :
54.1
Durable Goods: +1.7%
China Q4 GDP 9.2%
PMI 50.5
Baltic Dry Index
Eyes on Europe’s
QE3?
Trade Deficit
widening
8. DE Overview
Headquarters (Founded) Moline, IL. (1837)
Market Cap $34.8 billion
Industry Farm and construction machinery
Operation Profit by
Segment Revenue by
Geography
16%
Agriculture & Turf 8%
9%
Construction & 22% US & Canada
Forestry Outside
Financial
75% Other
Services 70%
9. Agriculture 2012 Outlook
Monthly U.S. agricultural exports
$ billion
14
• Excess Supply, crop
2008
12
2009
10
2010
8
price 2012 are projected 6
4
2011
2012
OCT JAN APR JUL
to decrease Fiscal years
Monthly U.S. agricultural imports
• Farm Profits and $ billion
12
2008
exports are forecast at 10
8
2009
2010
all times high and 6
4
2011
2012
continue to grow OCT JAN APR JUL
Fiscal years
• Global food cost 2011
down 11% while US
farm income up 28%
• Forecast: Farm corn
10. Holding Rationale
Need for Agricultural output Increase Globally
Long-term macroeconomic tailwind in BRIC-
countries
Low used-inventory, machinery has high resell
value
Geographically diversified
Operations and manufacturing efficiency
Corn-based ethanol as an alternative form of
fuel in the U.S.
Repurchase activity
11. Recent News
2/7/2012 USDA To Release New Long-Term Agricultural
Projections
2/7/2012 Farmers Plan Biggest U.S. Crop Boost Since
1984, Led by Corn: Commodities
2/2/2012 Blackrock Favors Seed, Machinery Makers Over
Food as Investment
2/2/2012 John Deere Sponsors National Ag Day to Celebrate
American Agriculture
1/26/2012 John Deer Marks the Company’s 175th Anniversary
11/15/2011 U.S. Farm Exports Reach Record $137.4 Billion
on China Buys
11/10/2011 Deere & Company Announces Additional
Investments in Russia
12. Performance
Q4 results and initial 2012 over-expectations
14. Cont’
GROWTH RATES % COMPANY INDUSTRY S&P 500
Sales (Qtr vs yr ago qtr) 19.6 24.3 11.7
Net Income (Qtr vs yr ago qtr) 46.5 42.1 14.4
Sales (5-Year Annual Avg.) 7.65 6.34 7.75
Net Income (5-Year Annual Avg.) 14.01 8.99 7.64
Dividends (5-Year Annual Avg.) 14.27 7.3 5.09
Yahoo Target Price $93
Morningstar Target $113.40
16. Potential Risks
Highly leveraged
Weaken economic sentiments
EU credits issues
China residential construction risks
USDA pointed to higher-than-expected
inventory levels for most crops
19. Business Overview
Worlds leading alumina & aluminum
producer
Operating in 31 countries
Revenue by Segment
Vertically integrated
Other Revenue by Region
7%
Engineered Alumina
Products 20% Asia
17% 16%
US
50%
Flat Rolled
25% Aluminum
Europe
38%
27%
21. Recent News
Alcoa Attended the Superbowl
Australia Aluminum Smelter
European and China Uncertainty
22. Original Investment Rationale
Exposure to Aluminum
Potential
global growth driving up prices
Alum continues to replace other metals
Alcoa
Market leader
Trending down the cost curve
Healthy balance sheet
23. Sell Rationale
Time horizon too long
We’ve made our money back
Macroeconomy
China and Europe uncertainty
Smelter restarts and new entrants
Competitive expansion for Alumina
Aluminum Supply
24. As a Future Investment
Why Aluminum
S&D driving up prices-China
Demand from emerging markets
Substitution factor
Why Alcoa
Largest global provider for a pure play-Rio
Globally diverse w/ growing pos in China
Exposed to up and downstream
Stronger margins
Strong balance Sheet
25. Alcoa Summary
Solid fundamentals and production processes
undermined (pun intended) by Economic
uncertainty and Aluminum Prices
Dead money
Get out while we’ve got most of our money back
No growth in our investment horizon
Still consider as a future investment
Consider buy around $12
31. Central Banks
Central Banks purchases were up 200%
Signaling
concerns about weak currency
WGC predicts purchases to continue for 2012
Negative Real rates: continue to diversify to
Metals
Gold as % of foreign reserves Brazil .5%
Developed nations: 70% Russi 8.2%
China: moving from Treasuries to a
Gold. +30% YoY India 8.5%
China 1.6%
Japan 3%
32. Today’s World
Global debt crisis
Devalue vs Default Debt/GD 10yr
P bond
1. Devalue:
Greece 140% 25.11%
Target Int rates
Italy 119% 7.26%
Increase MS
Weak currency Ireland 96% 7.88%
2. Default: US 93% 1.95%
Ugly Spain 60% 5.77%
Portug 180% 15.22%
al
33. Global MS vs Gold
Loose Global Monetary Policies
QE programs: US, JAPAN, UK
ECB LTRO to inject liquidity
35. United States
US Debt at 100% GDP Graph: Monetary policy &
Fed promises low int rates and possible stocks
QE3 •Rates low to mid 2013
•Operation Twist
Operation twist •US $ iquidity
Stocks P/B: 2.05 •ECB LTRO
•China stimulus
•Rates low to mid 2014
37. US Real Interest Rates
Gold inverse
relationship with real
int rates
10 yr yield: 2%
Real int rate: -.2%
Fed promise to keep
rates low
Limited downside risk
39. Europe Crisis
Gold coin: “Heads I win, Tails you lose”
Bond Purchases Currency break No Resolution
up
Est $2.5 Trillions Faith
Greece returns disappears
Italy+France+Greece to Drachma
$5 Trillion Debt
outstanding Capital controls
3,4 times Feds QE Gold as
currency?
40. Japan
Debt-GDP: 220%
10yr yield .98%
60% debt to roll over in next 5 yrs
More borrowing
April: $566 bill to fund budget
2011 first trade deficit
Sustainable?
What’s the Trigger
S&P warn of a downgrade
Europe default: Greece, Portugal?
44. Risks
Stronger economy no QE3
Strong Dollar
India demand
CME Margin Hikes
Further correction
45. Highlights
Physical Demand > supply
China and India
Miners quit hedges
Global MS outpacing gold prices
Monetizing Debt
More to liquidity to come
Falling Real interest rates
Political stand still: EU, US
Diversification benefits
46. ETF VS MINING
Cutting out the middle man
Geographical & Political risks
Africa
High Energy Cost
Hurting Margins
Top 4 Miners coming up empty handed
More $ chasing less Gold
Graph??????? Vs mining
47. Recommendations
Option 1:
HOLD DEERE
SELL ALCOA
BUY SPDR GLD
Option 2:
HOLD DE & AA