THE OUTLOOK INTELLIGENCE FOR THE INDIVIDUAL INVESTOR March 16, 2015 Volume 87 Number 10 Local Is Global Increased foreign sales for many “500” companies last year More S&P 500 companies increased than decreased foreign sales in 2014, according to initial calculations by Howard Silverblatt, senior index analyst for S&P Dow Jones Indices. The higher foreign sales reflect the improving global economy. “An initial look at full 2014 S&P 500 foreign sales shows 51.5% of the issues increased their percentage of foreign sales, with 43.6% decreasing,” Silverblatt says. The three biggest increasers, according to Silverblatt’s calculations, were Under Armour, Vertex Pharmaceuticals, and Ameriprise Financial. (See table.) In 2013, 46.29% of all sales for S&P 500 companies were produced and sold outside of the U.S., up from 31.7% in 2000. Also in 2013, Asia represented 7.71% of sales, while Europe represented 6.80%. That was the first year Asia outpaced Europe, in What’s Inside part due to the rise of the middle class in Asia and in part due to European economic woes. However, European officials are now taking steps to improve the economic outlook. At the European Central Bank's (ECB's) monetary policy meeting on March 5, President Mario Draghi stated that the previously announced €60 billion per month quantitative easing program would begin on March 9 with the purchase of both public- and private-sector securities. In addition, the ECB upped its growth outlook for 2015 to 1.5% from 1.0% and reduced inflation expectations to 0% in 2015 from 0.7%. —Beth Piskora Senior Content Director S&P Capital IQ BIGGEST FOREIGN SALES GAINERS Intelligencer 2 ETF Strategies 3 Sub-Industry Outlook 4 Focus Stock 5 Master List 6 Platinum Portfolio 7 Observatory 8 To subscribe, call 800-523-4534 Follow us on Twitter: @spmarketscope Please see page 8 for required research analyst certification disclosures. COMPANY NAME / SYMBOL Under Armour / UA Vertex Pharm. / VRTX Ameriprise Financial / AMP Franklin Resources / BEN Northrop Grumman / NOC General Dynamics / GD Eli Lilly / LLY Health Care REIT / HCN Quanta Services / PWR Weyerhaeuser / WY STARS CURRENT PRICE ($) 12-MONTH TARGET PRICE ($) 3 4 3 4 2 3 3 3 5 3 76.11 122.58 132.82 52.16 157.85 132.51 69.49 74.86 27.72 33.14 75 140 130 58 137 145 74 85 41 37 Source: S&P Capital IQ, S&P Dow Jones Indices. SECTOR Consumer Disc. Health Care Financials Financials Industrials Industrials Health Care Financials Industrials Financials 2013 (%) 2014 (%) 5.93 25.99 8.00 32.50 10.14 20.41 44.23 13.63 20.08 29.23 9.34 37.79 11.00 40.95 12.55 24.73 53.43 16.35 24.07 33.96 % CHG 57.43 45.39 37.61 25.99 23.80 21.14 20.80 19.96 19.86 16.18 2 S&P CAPITAL IQ THE OUTLOOK MARCH 16, 2015 www.spoutlook.com Intelligencer S&P Capital IQ’s The Outlook GLOBAL MARKETS INTELLIGENCE Content Director Beth Piskora Contributing Editors John Hackett, Robin Mordfin Headlines, Highlights, and What’s on our Minds RESEARCH & ANALYTICS Director, Global Equity Research Kenneth Leon Managing Director, U.S. Equity Strategy Sam Stovall PORTFOLIO CHANGES: NRG Energy (NRG 23.28 ) replaced Office Depot (ODP 9.31 ) in the Platinum portfolio effective March 9. In the High-Quality Capital Appreciation portfolio, International Business Machines (IBM 157.98 ) replaces Qualcomm (QCOM 69.37 ) effective March 16. BIG DIVIDENDS: Seven major financial services companies announced dividend increases on March 11, enabling the financial services sector to retake the lead as the No. 1 dividend-paying sector in the S&P 500, overtaking the information technology sector. The financial services sector now accounts for 15.13% of the dividends paid out by S&P 500 companies, while information technology accounts for 14.80%. (Previously, information technology had been 14.89%, while financial services was 14.64%.) The seven companies are: American Express (AXP 81.56 ), Citigroup (C 54.08 ), Goldman Sachs (GS 189.95 ), JPMorgan Chase (JPM 61.37 ), Morgan Stanley (MS 37.10 ), U.S. Bancorp (USB 44.47 ), and Wells Fargo (WFC 55.59 ). For customer service, please call 1-800-5234534 and choose option 1 and then option 2 between 9am and 4pm Eastern Time, Monday through Friday. The Outlook (USPS 415-780, ISSN 0030-7246) is published weekly except for one issue in January, April, July, and December by S&P Capital IQ, 55 Water St., New York, NY 10041. Annual subscription: $360. Periodicals postage paid at New York, NY, and additional mailing offices. POSTMASTER: Send address changes to The Outlook, S&P Capital IQ, 55 Water St., New York, NY 10041. Copyright ©2015. All rights reserved. “Standard & Poor’s,” “S&P,” “S&P 500,” “S&P MidCap 400,” and “S&P SmallCap 600” are registered trademarks of McGraw Hill Financial. Reproduction in whole or in part prohibited except by permission. All rights reserved. Officers of McGraw Hill Financial: Harold McGraw, III, Chairman; Douglas Peterson, President and Chief Executive Officer; Jack F. Callahan, Jr., Executive Vice President and Chief Financial Officer; Elizabeth O’Melia, Senior Vice President, Treasury Operations; Lucy Fato, Executive Vice President and General Counsel. Because of the possibility of human or mechanical error by S&P’s sources, S&P, or others, S&P does not guarantee the accuracy, adequacy, or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. GM PLANS $5 BILLION IN STOCK REPURCHASES: “We expect the plans by General Motors (GM 38.43 ) to repurchase $5 billion in stock through 2016 — along with steadily increasing cash dividends — to be funded by strong performance in the U.S. and China, as well as improvement in Europe,” says S&P Capital IQ Equity Analyst Efraim Levy. Though S&P Capital IQ notes challenges to the automobile company’s business in Russia, “we see upside potential to these repurchases on the backs of new products to be released this year in different regions, as well as acceleration of the product refresh cycle, a key factor in industry competitiveness,” says Levy. SMOOTH CFO TRANSITION SEEN FOR GOOGLE: S&P Capital IQ is maintaining its strong buy opinion on Google (GOOGL 561.17 ) following last week’s announcement that CFO Patrick Pichette plans to retire after nearly seven years at the firm. “Mr. Pichette is a strong member of the Google executive team, and we note his financial spending discipline, along with a willingness to take risks,” says S&P Capital IQ Equity Analyst Scott Kessler. “However, we do not see any issues with Google finding a suitable replacement, and we anticipate a smooth transition.” Google says it expects the search to take about six months, and Mr. Pichette is seen assisting in the process. “We believe the shares are attractive and maintain our 12-month target price at $635,” says Kessler. INTEL A ‘BUY’ DESPITE LOWER REVENUE FORECAST: Intel (INTC 30.80 ) cut its first quarter revenue projection to approximately $12.8 billion, down from its prior outlook of $13.7 billion. The company attributed the lower forecast to weaker PC demand related to softer business in desktop sales. “We note, though, that Intel’s outlook for the data center business remains unchanged, as does its 60% gross margin view,” says S&P Capital IQ Equity Analyst Angelo Zino. “Despite the lower guidance, we think the PC supply chain will be better positioned and leaner exiting the quarter, and we see a more stable landscape as the year progresses,” he adds. S&P CAPITAL IQ EVALUATION SYMBOLS STARS Rankings Our evaluation of the 12-month potential of stocks is indicated by STARS: Strong Buy—Total return is expected to outperform the total return of a relevant benchmark by a wide margin over the coming 12 months, with shares rising in price on an absolute basis. Buy—Total return is expected to outperform the total return of a relevant benchmark over the coming 12 months, with shares rising in price on an absolute basis. Hold—Total return is expected to closely approximate the total return of a relevant benchmark over the coming 12 months, with shares generally rising in price on an absolute basis. Sell—Total return is expected to underperform the total return of a relevant benchmark over the coming 12 months, and the share price is not anticipated to show a gain. Strong Sell—Total return is expected to underperform the total return of a relevant benchmark by a wide margin over the coming 12 months, with shares falling in price on an absolute basis. NR Not ranked. Quality & Fair Value Rankings Our appraisals of the growth and stability of earnings and dividends over the past 10 years for STARS and other companies are indicated by Quality Rankings: For important legal disclosures, go to www.capitaliq.com/home/legal-disclaimers/sp-capital-iq-research-reports. A+ A A- Highest High Above Avg. B+ Average B Below Avg. B- Lower C Lowest D In reorganization NR Not Ranked Quality Rankings are not intended to predict stock price movements. S&P Fair Value Rank: Using S&P’s exclusive proprietary quantitative model, stocks are ranked in one of ﬁve groups, ranging from Group 5, listing the most undervalued stocks, to Group 1, the most overvalued issues. Group 5 stocks are expected to generally outperform all others. The Fair Value rankings imply the following: 5-Stock is signiﬁcantly undervalued; 4-Stock is moderately undervalued; 3-Stock is fairly valued; 2-Stock is modestly overvalued; 1-Stock is signiﬁcantly overvalued. As an input to the S&P Mutual Fund Ranking, S&P evaluates the weighted average Fair Value Rank of the underlying holdings of the mutual fund compared with its category. www.spoutlook.com S&P CAPITAL IQ THE OUTLOOK MARCH 16, 2015 3 ETF STRATEGIES Todd Rosenbluth S&P Capital IQ Director of ETF Research Fast Starters Among Young ETFs Recently launched funds are best dividend performers thus far in 2015 In the last three years, ETF providers have launched 20 U.S. dividend ETFs, doubling the number of offerings. Considering the expectation that the Federal Reserve will raise interest rates during 2015, limiting the appeal of these “bond proxies,” it is easy to say investors don’t need these newer alternatives. However, when we look at which dividend ETFs have performed the best to start 2015, these “young” ETFs top the list. The strongest performing U.S. dividend ETF this year, up 3.1%, has been Deep Value ETF, a fund that few investors have likely heard of. The ETF, which launched only last September, has $224 million in assets and is ranked by S&P Capital IQ. The 0.80% expense ratio, which is high for an ETF, contributes negatively to our ranking. Meanwhile, though, positive S&P Capital IQ STARS and Technical inputs are favorable. The average expense ratio for an equity income mutual fund is 1.3%. The Deep Value ETF is composed of 20 dividend paying stocks within the S&P 500 Index that the ETF provider TWM believes have solid balance sheets, positive earnings, and strong free cash flow. The companies within the Index are weighted based on a rules-based assessment of their valuations so that the stocks that are deemed most attractively valued receive a higher weight. Those holdings include Computer Sciences (CSC 67 ), Frontier Communications (FTR 7 ), and Hewlett-Packard (HPQ 32 ). From a sector perspective, consumer discretionary (26% of assets) and telecom services (23%) make up half of the portfolio. There is no exposure to financials and materials and only minimal exposure to consumer staples companies. Another strong performing U.S. dividend ETF is Cambria Shareholder Yield. The ETF launched in May 2013 and has $222 million in assets. Cambria is an actively managed ETF that employs a quantitative approach to select U.S. listed companies that show strong characteristics in returning free cash flow to their shareholders. Specifically, Cambria invests in 100 stocks with market caps greater than $200 million that rank among the highest in paying cash dividends, that also engage in net share repurchases, and that pay down debt on their balance sheets. Those holdings include Lowe’s (LOW 74 ), Southwest Airlines (LUV 45 ), and Western Digital (WDC 96 ). From a sector perspective, the ETF is more diversified than Deep Value. However, financials (22% of assets), consumer discretionary (17%), and information technology (16%) companies are the most represented. Cambria has a more modest 0.59% expense ratio relative to Deep Value’s 0.80%, but still much higher than most dividend ETFs. However, the 2.3% return year to date has been stronger than other more popular ETFs, suggesting that it might be equally worthy of investor consideration. Other dividend ETFs that have less than three years of history but have started 2015 on a high note include First Trust NASDAQ Rising Dividend Achiever, FlexShares Quality Dividend, and WisdomTree US Dividend Growth. All three have outperformed the S&P 500 Index this year. Of course, past performance is not necessarily indicative of future results, and S&P Capital IQ cautions investors against making investment decisions solely based on an ETF’s record. QUICK OFF MARK IN 2015 TOTAL RETURN (%) FUND NAME / SYMBOL RANK CURRENT PRICE ($) YIELD (%) 1-YEAR 3-YEAR* 5-YEAR* EXPENSE RATIO (%) ASSETS ($ MLNS) Deep Value ETF / DVP Cambria Shareholder Yield / SYLD First Trust NASDAQ Rising Div. Achiever / RDVY FlexShares Quality Dividend / QDF WisdomTree US Div. Growth / DGRW MW MW OW MW OW 25.70 31.58 21.97 36.37 31.00 NA 1.70 1.84 2.62 1.77 NA 9.52 10.63 11.24 13.92 NA NA NA NA NA NA NA NA NA NA 0.80 0.59 0.50 0.39 0.28 224 222 7 707 417 Source: S&P Capital IQ. OW-Overweight. MW-Marketweight. *Average annualized. 4 S&P CAPITAL IQ THE OUTLOOK MARCH 16, 2015 www.spoutlook.com SUBINDUSTRY OUTLOOK Ken Leon S&P Capital IQ Equity Analyst Communications Equipment Outlook: Positive S&P Capital IQ’s fundamental outlook for the communications equipment sub-industry for 2015 is positive. The continued rapid consumption of network capacity, buoyed by the proliferation of tablets and smartphones, is a solid long-term growth driver for the industry, and we see an improving operating outlook in 2015. We think the domestic macroeconomic situation is improving and that the European economy is beginning to recover. We believe telecom equipment purchases will begin to pick up in 2015 as carriers and enterprises shift from legacy networks to modern architectures. While near-term industry spending may be choppy with industry consolidation, we see strong positive secular demand trends toward cloud computing, wireless, visualization, and data center transformation. In the service provider segment, near-term equipment sales, particularly for optical components, are beginning to improve. While carriers have been cautious over the past several years due to the economy, we think spending will increase in 2015 as new technologies such as Long Term Evolution (LTE) in the wireless space, DOCSIS3.0 in the cable space, and 40G and 100G in the optical space gain commercial traction. We expect accelerated wireless equipment funding related to the emerging demand for wireless connectivity to devices in both enterprise and household applications. We see strong positive secular demand trends toward cloud computing, wireless, visualization, and data center transformation. In 2015, we also believe spending priorities are shifting to the early stages of the fifth generation for wireless applications coming from a rapid rise in mobile broadband and increased use of smartphones and tablets. In 2015, the enterprise segment should gain widespread acceptance with data center consolidation, server virtu- alization, and cloud computing. The industry is undergoing a technology shift toward convergence, where customers require a platform to offer computing, networking, storage, and other applications all in one box. As a result of this trend, market segments have become more intertwined, with traditional data networking companies finding themselves in competition with server and computing players. We expect the need for integrated solutions to continue to push companies this year to aggressively partner or acquire missing technologies going forward. In 2014, the S&P communications equipment sub-industry index increased 10.4%, versus 17.2% for the information technology sector, 11.4% for the S&P 500, and 10.9% for the S&P 1500. We note that the sub-industry is heavily weighted to Cisco, with a $144 billion market cap, and Qualcomm (QCOM 68.67 ), with $114 billion. The table lists all of the stocks in this sub-industry that garner a 5- (strong buy) or 4-STARS (buy) ranking from S&P Capital IQ. RECOMMENDED STOCKS COMPANY NAME / SYMBOL Alcatel-Lucent / ALU Ciena / CIEN Cisco / CSCO F5 Networks / FFIV Juniper Networks / JNPR Plantronics / PLT STARS QUALITY RANKING CURRENT PRICE ($) 12-MONTH TARGET PRICE ($) STYLE P/E RATIO* YIELD (%) 4 4 4 4 4 4 NR B B+ B+ B B+ 3.87 20.36 27.73 111.97 23.31 53.33 4 25 34 145 25 56 Foreign Blend Growth Blend Blend Blend NM NM 17.6 25.9 NM 20.3 Nil Nil 2.9 Nil 1.7 1.1 Source: S&P Capital IQ. *Trailing 12 months. All data as of March 12. www.spoutlook.com S&P CAPITAL IQ THE OUTLOOK MARCH 16, 2015 5 FOCUS STOCK Ken Leon S&P Capital IQ Equity Analyst Lazard As more businesses seek advice, this investment bank stands to benefit The Focus Stock for the week ending March 15 is Lazard Ltd., which carries S&P Capital IQ’s highest investment ranking of 5-STARS, or Strong Buy. Lazard is a leading global investment banking firm with premier financial advisory and asset management capabilities. Lazard has what we view as an interesting mix of businesses, with financial advisory contributing 51% of operating revenue in 2014, asset management accounting for 48%, and corporate the remaining 1%. The company is well diversified by region, with a significant portion of its operating revenue generated outside North America. Like other financial service companies, Lazard depends on its ability to attract new employees and retain and motivate its current workforce. In our opinion, Lazard’s investment in its financial advisory business in recent years is paying off. We believe the company is likely to gain market share as demand by businesses for financial advice grows and world economies rebound. We caution, however, that realized revenue from its advisory business will likely remain volatile. The company has expanded its global footprint to cover emerging markets, particularly in Asia Pacific and including China. Like most mid-size investment banking firms, Lazard emphasizes the high level of attention it provides from senior personnel on corporate and sovereign financial advisory engagements. Following revenue growth of 15% in 2014, we forecast growth in the low teens this year, with continued strength in investment advisory services. In 2015, we see continuing positive CEO confidence as a key metric for sustaining growth in mergers and acquisitions (M&A). Other key drivers we see are high corporate cash levels, new funding of private equity firms, and an improving U.S. economy. Lazard has a growing pipeline of announced M&A deals, and last year was in the top 10 for M&A fees for global investment banks. For asset management, we see positive growth in 2015 coming from new institution engagements and low account turnover. Lazard had $197 billion of assets under management (AUM) at the end of 2014. Net flows in 2014 were $3.1 billion, driven by the strategy in its global equity platforms. Winning significant new mandates from institutions like public and private pensions or sovereign funds is a key driver in boosting AUM, in our LAZARD Ticker: LAZ S&P Ranking: Current Price: $48.88 12-Month Target Price: $60 Market Capitalization ($ Blns): $6.12 Price/Earnings Ratio: 14.17 Yield: 2.39% Source: S&P Capital IQ. view. We also like the diversification and stability that asset management provides to the company versus the highly cyclical nature of its investment banking unit. We see operating EPS of $3.45 in 2015, and $3.90 in 2016, versus $3.20 in 2014, amid an improving M&A market. We see compensation expense ratios in the mid-50% range this year, in line with the 55.8% in 2014. Lazard achieved 25.5% operating margins in 2014, and we again see mid-20% operating margins in 2015. Risks to our opinion and target price include further weakening in the capital markets, including M&A activity, downward moves in equity and fixed income markets, and fewer contract renewals from significant customers in the asset management business. U.S. and European regulatory regimes also pose high potential risk to Lazard’s role in the capital markets and investment banking. Our risk assessment also reflects our view of Lazard’s relatively small, albeit growing, size, widening business focus, and an expanding set of relationships. Our $60 target price is based on a forward P/E multiple of 17.4X our 2015 EPS estimate, near the high end of the historical range and near peers. We view positively prospects for Lazard’s investment banking franchise to win its fair share of M&A and restructuring client assignments as markets improve. We believe Lazard’s M&A pipeline will improve in 2015 with several large size wins announced. 6 S&P CAPITAL IQ THE OUTLOOK MARCH 16, 2015 www.spoutlook.com High-Quality Capital Appreciation Portfolio To enter the High-Quality Capital Appreciation Model Portfolio, a stock must have a Quality Ranking of A- or better, which indicates a 10-year history of above average earnings and dividend growth. Stocks must have a 4-STARS or 5-STARS ranking to enter this portfolio. S&P Capital IQ’s Senior Portfolio Group may replace any stock in the portfolio with another stock at any time for reasons that can include a downgrade in STARS or Quality Ranking of the constitu- ents or for other factors. This portfolio was launched on May 23, 2003. From inception through February 28, 2015, the portfolio rose at an average annualized rate of 7.48% excluding dividends, compared with 7.15% for the S&P 500. From December 31, 2014 to March 6, 2015, the portfolio increased by 0.50% excluding dividends, compared with 0.60% for the S&P 500. HIGH-QUALITY CAPITAL APPRECIATION PORTFOLIO ENTRY DATE ENTRY PRICE ($) CURRENT PRICE ($) 56.23 67.68 SYMBOL COMPANY NAME CNI Canadian Natl Railway 02/24/2014 CE Celanese 04/28/2014 59.72 CI Cigna 03/09/2015 122.04 12-MONTH TARGET PRICE ($) STARS QUALITY RANK 90 4 A+ 57.21 67 5 A- 122.75 134 5 A- COST Costco Wholesale 02/24/2014 113.94 149.44 164 4 A DIS Disney 11/14/2011 36.12 107.17 106 4 A+ EWBC East West Bancorp 11/10/2014 37.36 40.98 45 4 A- GE General Electric 02/24/2014 25.29 25.40 31 4 A- GOOGL Google 03/09/2015 574.30 561.17 635 5 A- JBHT Hunt Transport 07/21/2014 78.08 86.41 92 4 A- JNJ Johnson & Johnson 07/22/2013 92.28 99.83 120 4 A+ MCK McKesson 08/16/2010 60.85 225.08 266 4 A- NKE NIKE 10/13/2014 85.39 97.04 104 4 A+ QCOM QUALCOMM 05/28/2013 64.07 69.37 80 3 A- RJF Raymond James Finl 04/28/2014 49.08 59.65 65 4 A- SJI South Jersey Indus 11/10/2014 57.98 53.75 58 4 A- Source: S&P Capital IQ. All data are as of Thursday’s close. Performance calculations do not take into account reinvestment of dividends, capital gains taxes or brokerage commissions and fees. If the foregoing had been factored into the portfolio’s investment performance, it would have been lower. This performance calculation also does not take into account timing differences between the portfolio selections and purchases made based on those selection by actual investors. Over certain periods, the portfolio incurred losses and over time the portfolio is expected to continue to pose a risk of negative investment returns. Because the portfolio has a high turnover rate, it is best suited for tax-deferred accounts such as IRAs and is less suited for other accounts. Investors should seek financial advice before investing based on the portfolio. This portfolio does not address the specific investment objectives, financial situation, and particular needs of any person. Stocks in the portfolio will not be suitable for all investors. Past performance is no guarantee of future results. LEADERS NAME Disney LAGGARDS YTD GAIN / LOSS 10.22% NAME South Jersey Industries YTD GAIN / LOSS -11.17% McKesson 8.20% Johnson & Johnson -4.27% Costco Wholesale 5.50% Celanese -3.90% East West Bancorp 4.60% QUALCOMM -3.80% Raymond James Financial 2.60% Source: S&P Capital IQ. Current portfolio members only. Performance is based on the year to date through 3/6/2015, or, if the security was added after the start of the year, for the time it has been a portfolio member. www.spoutlook.com S&P CAPITAL IQ THE OUTLOOK MARCH 16, 2015 7 Platinum Portfolio The Platinum Model Portfolio combines the top ranked stocks from S&P Capital IQ’s Fair Value quantitative ranking system with those from the Stock Appreciation Ranking System (STARS), a qualitative stock selection methodology. For a stock to enter the Platinum model portfolio, it must carry both a STARS ranking of 5 and a Fair Value Ranking of 5. Stocks are held in the model portfolio for as long as they carry a 5 ranking in at least one system, and a ranking of at least 1 in the other system. Due to short-term data issues, a stock may temporarily lose its Fair Value ranking. To reduce turnover in the model portfolio, a stock must lose its Fair Value ranking for two consecutive weeks before it is dropped from the model portfolio. However, if a stock is dropped from STARS coverage, it is immediately dropped from the Platinum Model Portfolio. In both ranking systems, stocks are ranked in five tiers. A 5-STARS or “strong buy” ranking indicates the relevant S&P Capital IQ equity analyst expects the total return for this issue to outperform the total return of the S&P 500 Index by a wide margin over the coming 12 months, with shares rising in price on an absolute basis. Meanwhile, a Fair Value ranking of 5 indicates the stock is significantly undervalued compared with the Fair Value universe. The Fair Value model calculates a stock’s weekly Fair Value — the price at which a stock should trade given current market levels — using data such as corporate earnings, price-to-book value, return on equity, and current yield relative to the S&P 500. The model portfolio was launched on July 28, 1995. From inception through February 28, 2015, the model portfolio posted an average annual return of 11.75% excluding dividends, PLATINUM PORTFOLIO SYMBOL COMPANY NAME CURRENT PRICE ($) STARS FAIR VALUE AET AFL BCOR CBT CCL CE CELG CBI CI CMI DAL DFS EMN EMC RE FDX FTI FOSL GM GILD GOOGL ING IBM JBLU JCI KFY LEA MTH MS NRG PCP QRVO QCOM PWR RS SAVE STLD SWFT SNX TSM TM TRV TGI X UAL URI WU XRX Aetna AFLAC Blucora Cabot Carnival Celanese Celgene Chicago Bridge & Iron Cigna Cummins Delta Air Lines Discover Financial Svcs Eastman Chemical EMC Everest Re Group FedEx FMC Technologies Fossil Group General Motors Gilead Sciences Google ING Groep ADS Intl. Business Machines JetBlue Airways Johnson Controls Korn/Ferry Lear Meritage Homes Morgan Stanley NRG Energy Precision Castparts Qorvo QUALCOMM Quanta Services Reliance Steel & Aluminum Spirit Airlines Steel Dynamics Swift Transportation Synnex Taiwan Semiconductor Toyota Motor Travelers Triumph Group U.S. Steel United Continental Holdings United Rentals Western Union Xerox 102.12 62.65 14.61 44.00 45.29 57.21 118.82 47.28 122.75 140.04 45.33 59.88 70.62 26.17 178.61 173.58 36.64 80.43 38.43 99.93 561.17 14.37 157.98 18.10 49.13 31.63 108.16 43.78 37.09 23.28 209.95 73.42 69.37 28.14 57.21 76.61 18.32 28.69 73.82 23.53 137.53 107.83 59.57 22.63 67.74 88.20 19.58 12.67 5 3 5 5 4 5 5 5 5 5 5 4 5 5 5 5 5 4 5 5 5 5 4 5 5 5 5 5 5 5 5 5 3 5 5 5 5 5 5 5 5 5 5 5 5 5 5 4 4 5 5 4 5 5 5 5 5 5 5 5 5 5 4 4 5 5 5 5 4 5 5 5 4 4 5 4 4 5 5 5 5 5 5 5 5 5 5 5 4 5 5 3 5 5 5 5 Source: S&P Capital IQ. All data are as of Thursday’s close. compared with 6.96% for the S&P 500. For the period from December 31, 2014 to March 6, 2015, the model portfolio rose by 1.67% excluding dividends, compared with a 0.60% rise in the S&P 500. 8 S&P CAPITAL IQ THE OUTLOOK MARCH 16, 2015 www.spoutlook.com The Observatory Selected actions for March 9 to March 13 NEW STARS OLD STARS STARS RANKING DATE PRICE ($) Alcoa / AA 4 3 3/9/2015 13.72 Associated Banc-Corp / ASB 4 3 3/11/2015 Astoria Financial / AF 4 3 McDonald’s / MCD 2 3 National Fuel Gas / NFG 3 Neenah Paper / NP 12 MONTH TARGET PRICE ($) QUALITY RANK FAIR VALUE RANK 16 B- 2 18.89 20 B 3 3/10/2015 12.90 14 B- NR 3/10/2015 96.63 90 A 2 2 3/13/2015 59.21 62 B+ 2 2 3 3/12/2015 61.04 58 B 2 Papa John’s International / PZZA 1 3 3/10/2015 62.34 50 B+ 1 Qualcomm / QCOM 3 5 3/10/2015 69.48 80 A- 5 South Jersey Industries / SJI 4 5 3/10/2015 53.22 58 A- NR Superior Industries International / SUP 2 3 3/10/2015 18.68 17 B- NR Take-Two Interactive Software / TTWO 3 2 3/9/2015 24.74 26 C 3 Tech Data / TECD 3 2 3/12/2015 54.04 54 B+ 5 Urban Outfitters / URBN 4 3 3/10/2015 44.97 49 B+ 5 Vail Resorts / MTN 4 3 3/12/2015 95.60 100 B- 1 Wells Fargo / WFC 3 2 3/12/2015 55.48 55 A- 3 COMPANY NAME / SYMBOL Source: S&P Capital IQ. NR-Not ranked. For intraday STARS changes, subscribers can visit www.spoutlook.com and click on the STOCKS tab. The Observatory provides a selection of analytical actions — upgrades, downgrades, initiations — from S&P Capital IQ. Stocks featured in the Observatory are selected by The Outlook according to factors including, but not limited to, newsworthiness, capitalization, and inclusion in a portfolio published by The Outlook. Please note that all investments carry risks. Investors should seek ﬁnancial advice before investing. All of the views expressed in this research report accurately reﬂect the research analysts’ personal views regarding any and all of the subject securities or issuers. No part of the analysts’ compensation was, is, or will be, directly or indirectly, related to the speciﬁc recommendations or views expressed in this research report. IPOs and Activists Activist investors sure haven’t stayed quiet. A substantial number of initial public offerings (IPOs) priced in the past year possess significant ownership by activist investors. Of these 96 IPOs, 15 activists own 10% or more of their common shares. Property and casualty insurer James River Group Holdings (JRVR 23 NR), which has more than 39% of its shares activist-owned, leads the way. In this case, D.E. Shaw & Co. L.P. controls 33.8% of James River Group, making it the largest individual activist shareholder. The next largest activist stake is found in Nexvet Biopharma (NVET 10 NR), in which San Francisco-based investment manager Farallon Capital Management LLC controls 27.5%. And in third, Forward Pharma (FWP 24 NR) has 26.3% of its shares owned by activists. Boston-based hedge fund The Baupost Group LLC holds the Richard Peterson Global Markets Intelligence Director largest stake in the pharmaceutical company at 23.4%. The top 10 list is rounded out by Townsquare Media (TSQ 13 NR), where activists own 26.19%; Opus Bank (OPB 31 NR), 23.26%; Square 1 Financial (SQBK 27 NR), 21.26%; FCB Financial (FCB 27 NR), 20.71%; SunEdison (SEMI 24 NR), 19.21%; WL Ross Holding (WLRH 10 NR), 15.99%; and Fifth Street Asset Management (FSAM 12 NR), 15.65%.
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