America Movil _AMX_ by yaohongm


									     The David E. Bjorklund Fund
            Week Ending October 31st, 2008

Bringing Wall Street to Loudonville

    Siena College School of Business - 515 Loudon Road - Loudonville, NY, 12211
                                        Table of Contents
          Company              Ticker           Sector             Analyst        Page
 TeleCommunication Systems     TSYS                            James Ferguson      3
 Verizon Communications Inc.    VZ                             Steven Padovani     4
       Dollar Tree Inc.        DLTR           Consumer          Tim Fontaine       6
          Guess? Inc.           GES          Discretionary       Jared Brown       7
 Chicago Bridge and Iron Co.    CBI           Industrials       Stefan Putyera     9
         Ashland Inc.          ASH             Materials        Richard Watts      10
    Activision Blizzard Inc.   ATVI                            Robert Brenner      12
     Hewlett-Packard Co        HPQ                             Daniel DeMilio      13
   Energizer Holdings Inc.     ENR         Consumer Staples     John Shahda        14
    Buckeye Partners, L.P       BPL                            Jason DeFilippo     16
          BP PLC                BP                              Bryan Biagioli     17
       Sempra Energy            SRE            Utilities        Bryan Ashline      18
  Coventry Health Care, Inc.   CVH                              Will Hassett       20
      Biogen IDEC Inc          BIIB                            Daniel Pearsall     21
PNC Financial Services Group   PNC                             Katie Kroslowitz    22
   SunTrust Banks, Inc.        STI                               Ben Tasse         24

TeleCommunication Systems (TSYS) Economic Analysis as of October 31st, 2008:
James Ferguson – Telecommunications

                                                        TeleCommunication Systems, Inc. engages in the
                                                        development and application of wireless data
                                                        communications technology in both the United States
                                                        and in foreign countries. Its primary focus is on text
                                                        messaging and location-based services. The company
                                                        operates specifically through commercial and
                                                        government sections. Commercial segments offer
                                                        carrier software system products that enable wireless
                                                        carriers to deliver short text messages, location
                                                        information, Internet content, and other enhanced
                                                        communication services to and from wireless phones.
                                                        The Government segment provides communication
                                                        systems integration, information technology services,
and software solutions to the U.S. Department of Defense and other government customers. It also owns
and operates satellite teleport facilities; resells access to satellite airtime and designs, furnishes, installs, and
operates wireless and data network communication systems.
       Statistically, TeleCommunications Systems has a 254.40 market cap. The current enterprise value is at
238.53 million the trialing P/E currently stands at 11.75 while its forward P/E sits at 9.88 creating an
opportunity for growth. Its quarterly revenue growth is 24.30% and while it took a minor hit in September,
the company was able to sustain and increase stock value throughout October, quite impressive for any
stock in the market, let alone in the telecom industry. TeleCommunication Systems, Inc. announced that
for the fiscal year, it expects to meet or exceed earnings outlook. According to Reuters Estimates, analysts
were expecting the company to report net profit of $21 million and EPS of $0.45 for the same period. The
company traditionally has had large percent changes in the later parts of the year. The stock history has
traditionally risen in the month of November and while its current price is at $5.64, I would expect the
stock to rise above $8.50. Some key developments occurred in the last several months most importantly in
August as the U.S. Army's awarded a contract with an initial order and options for up to $246 million of
deployable Satcom System-related deliverables through November 2011, raising the company's total
backlog to a record $450 million. Most recently, on October 8th when TeleCom issued a patent for
prepared short messaging. On October 10th, TeleCom won a 1.1 million dollar contract to provide U.S.
Marine Corps with Professional Services for Wireless Point to Point Link, and most recently on October
20th, announced the launch of its SwiftLink DVM-45 portable communications X-Band terminal. The TCS
SwiftLink DVM-45 is designed for deployed tactical units to support access to classified channels for
voice, video, and data transfer a compact, easily assembled satellite device.
       The estimates for the one year are stated below relating to significant estimates within the next year.
As you can see, revenue is expected to increase all three years and almost double in the third year.
Profitability is also expected to grow nearly seven points from 28.86 to 34.60
Revenue FY1:               189.45      Revenue FY2:               242.99      Revenue FY3:               270.10
EBITDA FY1:                28.86       EBITDA FY2:                29.22       EBITDA FY3:                34.60
EBIT FY1:                  16.78       EBIT FY2:                  16.73       EBIT FY3:                  20.90
CFPS FY1:                  --          CFPS FY2:                  --          CFPS FY3:                  --
DPS FY1:                   --          DPS FY2:                   --          DPS FY3:                   --

         In conclusion, I suggest a buy on TSYS. It is a cheap enough to buy a large amount of shares while
not emptying your wallets while still establishing some diversity in the Telecommunications’ sector. Over
the past year, TSYS has had a higher P/E ratio and have had a larger substantial amount of revenue
growth from quarter to quarter compared to competitors such as Computer Sciences (CSC) and
Openwave Communications (OPWV). TeleCom is also currently pursuing future homeland security
investments. They were recently invited and in attendance for to the third annual Homeland Security
Investor Conference which occurred in the middle of last week. They are the leading provider of mission-
critical wireless communications, and are beginning to make further advancements that will make this
stock a valuable addition to anyone’s portfolio.

Verizon Communications Inc. (VZ): Economic Analysis as of October 30th, 2008:
Steven Padovani – Telecommunications

                                               Established in 2000 via Bell Atlantic’s acquisition of rival
                                               GTE (two former “baby bells”), Basking Ridge, New
                                               Jersey based Verizon Communications is currently the
                                               second largest telecom company in the United States by
                                               market cap (AT&T is the current leader). Through a
                                               partnership with Vodafone plc, Verizon partially owns
                                               and maintains the United States’ second largest wireless
                                               network in terms of customers. Verizon also operates
                                               landline operations in several states, mostly in New
                                               England and the Mid-Atlantic (with the exception of
                                               Connecticut, see figure A). In an attempt to broaden their
product offerings and compete directly with the growing cable companies, Verizon also partners with
DirecTV to offer television services and has begun to roll out its own television service, called Verizon
FiOS, in select areas. Earlier this week, Verizon released third-quarter earnings that were better than
analysts expected. The stock has surged more than 4 percent this week.

From its humble beginnings as a “baby bell” broken off from “Ma Bell” AT&T in 1983, much of
Verizon’s profits have been a product of their traditional landline operations (see figure B). This trend has
been solidly declining since the late 1990s, however. As more and more landline subsribers choose to
ditch the cord in favor of their cell phones or other types of communication, Verizon has been attempting
to prevent the loss of millions of customers from the division (over one million customers were lost in the
third-quarter alone).

Like its rivals Sprint Nextel and AT&T, Verizon is relying heavily on its wireless division to sustain growth
and profits at the company. Analysts have widely viewed Verizon as the best U.S. wireless performer in
recent years, but it now faces robust competition from AT&T Inc., which said last week it added two
million customers in the third quarter after promoting a $200 version of Apple Inc.'s iPhone. AT&T and
Verizon ended the third quarter with 74.9 million and 70.8 million customers, respectively. Verizon, who
is in the process of acquiring rural carrier Alltel Wireless, received approval this week from the
Department of Justice to merge, pending the moderate divestures required by the DoJ. After the
acquisition, Verizon is expected to supplant AT&T Mobility in terms of customers to become the largest
wireless carrier in the US with more than 80 million customers.

Fundamental data for Verizon is indiciating a stong period of upcoming growth for the company. Over
the next two years, EBITDA is expected to rise nearly 12 percent to $35 billion from its current $32
billion. In turn, earnings per share is also expected to rise substantially to $2.74 per share, up from $2.39
in 2007. Verizon also pays an attractive dividend; the dividend yield is almost 6 percent.

CEO Ivan Seidenberg recently noted the difficulties balancing the deteriorating legacy business (landlines)
with new growth areas like the company's investment in fiber-optic based TV and Internet services
through its FiOS network. It is my opinion that the future success of Verizon will be directly linked to this
balance. If Verizon is unable to control the bleeding in their legacy divisions, they may be forced to spin
off the assets (as Sprint Nextel did with Embarq), but the ongoing credit crisis makes a future sale unlikely.
Fundamentals for Verizon are strong in my opinion and I beleve buying into the stock now would be
beneficial for the Bjorklund Fund. A target price of approximatly $37 per share is expected.

Figure A: Geographic representation of Regional Bell Operating Companies

Figure B: Percentage of revenues by segment; 2004-2007

Dollar Tree Inc. (DLTR): Economic Analysis as of October 31, 2008:
Tim Fontaine – Consumer Discretionary

                                                             Dollar Tree Inc. owns and operates discount
                                                     stores that sell products for $1 or less. The company was
                                                     founded in 1986 and headquartered in Chesapeake,
                                                     Virginia. Their current CEO is Bob Sasser. Their store
                                                     names include Dollar Tree, Deal$, and Dollar Bills.
                                                     Specifically, the type of products that they offer include
                                                     candy, health and beauty care, household consumables,
                                                     durable house wares, toys, party goods, apparel, and
                                                     seasonal products along with many others. Also, just
                                                     recently, they expanded into the grocery business that
                                                     include products such as milk, pizza, ice cream, pre-made
baked goods, and frozen dinners. The company operated approximately 3,500 stores in 48 states. Their
closest competitors are 99 Cent Only Stores (NDN) and Family Dollar (FDO).
         Discount stores such as Dollar Tree tend to perform exceptionally well when the economy is bad.
The consumer is making significant cuts in discretionary spending and move towards cheaper alternatives.
This is the exact reason why this company thrives during these times. Dollar Tree performed marginally
better in the first two quarters of 2008 as compared to closest competitor Family Dollar. In Q1, their sales
increased 7.8% as compared to Family Dollar’s 5.9% decrease. In Q2, increases in sales for Dollar Tree
and Family Dollar were 12.5% and 2.9%, respectively. While Family Dollar outperformed Dollar Tree in
the recession in 2000-2002, it looks as though roles are reversed. During these hard times, retailers are
faced with spiked food and fuel costs which cut into profits. Competitor 99 Cents Only Stores say they
expect to raise their price for the first time in their 26-year history.
         In a highly competitive industry, like Dollar Tree Inc is, companies must do something extra to
differentiate their shopping experience and gain a competitive advantage over their competitors. Dollar
Tree is doing exactly that by expanding their consumable offers and adding coolers to their stores. While
offering lower-margin food items will put pressure on profitability, store traffic is expected to increase
which should benefit sales. On average, stores experience a 7% increase in store sales after a cooler is
installed. Also, because of their size and scale compared to their peers, they automatically gain a
competitive advantage in some areas. They have the ability to leverage their marketing efforts and
distribution infrastructure as well as increased clout with manufacturers. They can benefit from their
relationships with their suppliers to develop products in customized sizes and quantities in order to ensure

items can be sold profitably for $1. They also have suburban locations which will give them more
exposure to middle-class consumers as opposed to rivals Family Dollar and Dollar General who mainly
operate in rural and urban areas. Overall, it looks as though there are many things that contribute to the
wide economic moat of Dollar Tree.
         An examination of Dollar Tree’s fundamentals will help reinforce the fact that they are an
attractive investment. Please refer to the table below to compare key statistics of their company as
compared to their competitors:
                     Forward               Forward       Profit Margin    ROA        ROE      Long Term
            EPS                   P/E
                        EPS                   P/E             (%)          (%)        (%)    Growth (%)
DLTR        2.45        2.69      16.66      14.27            4.77        11.71      19.35       15.25
NDN         0.19        0.34        -        33.75           -0.13        -0.80      -0.30        8.00
FDO         1.69        1.82      16.29      14.53            3.34         8.64      9.19        12.75
         As you can see from the table, their fundamentals are strong. Not only is their profit margin is
better than both their competitors, but their returns on assets and equity both trump their competitors.
These profitability ratios show their strength to produce profits even when sales might suffer due to this
economic slowdown. Their P/E is the highest out of their peer group, but is not significantly higher than
the industry average of 16.42. One thing that is nice regarding their P/E is their forward P/E. Not only
does it decrease, but it decreases marginally better than competitor Family Dollar (FDO). Another
fundamental that looks attractive is their long term growth % that is almost twice as large as 99 Cent
Stores’ (NDN).
         Overall, I believe that Dollar Tree is an attractive investment. Not only do they have built in
growth opportunities due to their highly discounted prices during this time of an economic downturn, but
are making the correct moves to create more growth. Their size is an advantage to grow their market
share, leverage marketing and distribution, and build strong supplier relationships. Management is
implementing significant changes that will increase sales and profitability, as evident by their past two
quarter performance results. I believe they have wide economic moat and are well positioned to create
more value to their shareholders than their competitors. Therefore, I believe that Dollar Tree Inc (DLTR)
is a BUY AND HOLD with an entry price of $34 and an exit price of $40 which equates to a return on
investment of approximately 17.5%

Guess? Inc. (GES): Economic Analysis as of October 31st, 2008:
Jared Brown – Consumer Discretionary

                                             Guess? Inc. is an American name brand clothing
                                             company that designs, markets, distributes, and licenses
                                             lifestyle collection of apparel and accessories for men,
                                             women, and children. Guess? Inc.’s product line consists
                                             of denim and cotton clothing, including jeans, pants,
                                             overalls, skirts, dresses, shorts, blouses, shirts, jackets, and
                                             knitwear. It also grants licenses to manufacture and
                                             distribute a range of products, which include eyewear,
                                             watches, handbags, footwear, kids’ and infants’ apparel,
                                             leather apparel, swimwear, fragrance, jewelry, and other
                                             fashion accessories. Its apparel is marketed under
trademarks, including GUESS, GUESS?, GUESS U.S.A., GUESS Jeans, GUESS? and Triangle Design,
Question Mark and Triangle Design, a stylized G, GUESS Kids, Baby GUESS, YES, G by GUESS,
GUESS by MARCIANO and MARCIANO. As of February 2, 2008, Guess? Inc. operated a total of 373

stores in the United States and Canada, 40 stores in Europe, 76 stores in Asia and 7 stores in Mexico. The
company has both domestic and international wholesale distribution channels and through these channels
the company’s products can be found throughout Africa, Asia, Australia, the Middle East, Mexico, the
Caribbean, and South America.
        The following chart shows a breakdown of their revenues by product and region:

        They are increasing their global presence which is a good sign since the U.S. is currently on the
brink of a recession.
        Other apparel companies competing with Guess? include The Gap Inc., Abercrombie & Fitch Co.,
and Polo Ralph Lauren Corporation. The following table shows some fundamental estimates of Guess?
and their main competitors:

                                          52Wk                        T       LTG      CurQ        #      FY1        #      FY0    FY1
       Company         RIC Price                       Recom.
                                          Low                        Price    %        EPS        Est     EPS       Est     P/E    P/E
Guess?, Inc.          GES 21.62     50.4817.51   BUY (1.33)        53.00     20.00   0.64     6         2.54    6         8.51    7.33
The Gap Inc.          GPS 12.58     22.0211.01   OUTPERFORM (2.50) 17.13     12.00   0.32     20        1.33    22        11.23   9.45
Abercrombie & Fitch Co. ANF 27.06   84.5423.75   HOLD (2.89)       36.93     15.73   0.75     25        4.04    25        5.24    6.70
Polo Ralph Lauren
                      RL    44.29   82.0238.45   HOLD (2.67)       68.33     14.60   1.26     11        4.08    12        10.96   10.87
         It appears that Guess? Inc. is projected to outperform its competitors in many areas. Reuters
analysts estimate that the one-year target price will be $53.00, which is a significant increase in their current
stock price of 21.62. In fact, if this target is hit it would represent a 145% increase in share price which is
greater than any of its competitors. Their long term growth rate is 20%, also considerably higher than that
of its rivals. Their current EPS is 0.64 and it is estimated to increase to 2.54 in one year which signals that
analysts believe the company will become more profitable in the future. Also, strengthening this position
are the P/E ratios presented in the chart. Their current P/E, according to Reuters, is 8.51 and their
forward P/E is 7.33 which show that the company is currently undervalued and that future growth is
likely. Growth is often correlated with increasing share price and thus increasing the value of the
shareholders investment.
         Furthermore, Guess has showed that they are capable of generating profit. Their trailing-twelve
month ROE is 33.91% and their TTM ROA is 19.12%. This shows that Guess is extremely good at
generating profits from the money that shareholders invest; and that their management is efficient at using
its assets to generate earnings. Compared to the industry’s ROE and ROA, Guess is fairing drastically
better. The industry posts a 2.47% ROE and a 1.52% ROA. Guess’ net profit margin over the last twelve
months is 10.92% which is significantly better than the industry’s 0.86% profit margin.             Net income
continues to grow year after year which supports the strength of the company’s success and as an
attractive investment option. At the end of 2005 net income was $58.813 million and so far in 2008 net
income is $186.5 million. Their latest year over year quarterly revenue growth is 32.70% which shows that

the company is still growing even through this economic downturn. Also, Guess pays a dividend yield of
1.90% which is important because it provides another source of income for investors in these tough
economic times.
        Guess is currently trading at over $21 and their 52-week range has been between $17.51 and
$50.48. They are obviously trading at the lower end of the spectrum and I expect share price to increase as
the market recoups. The company is currently trading under their 50-day and 200-day moving averages,
which are $30.68 and $35.85, respectively. This may further interpret that the company is currently
undervalued. This is a fundamentally and financially strong company that can handle the current
economic slowdown because it has operations in multiple regions throughout the world. They have
proved that they can generate profits through invested shareholder money, their assets and their products.
I believe Guess? Inc. is a strong BUY at this price.

Chicago Bridge and Iron Co. (CBI): Economic Analysis as of Oct 31st, 2008:
Stefan Putyera – Industrials

                                                          Chicago Bridge and Iron is a global engineering,
                                                  procurement and construction company that specializes in
                                                  projects that produce, process, store and distribute the
                                                  world’s natural resources. The company engages in the
                                                  engineering procurement, fabrication and commissioning
                                                  of projects which involve hydrocarbon processing plants,
                                                  liquefied natural gas terminals, pipelines and other steel
                                                  structures and facilities. North America accounted for
                                                  45% of CBI’s 2007 revenues, Europe, Africa, and the
                                                  Middle East account for 29%, Asia-Pacific for 10%,
                                                  Central and South America for 14% and the Lummus
acquisition accounted for 2% of revenues. Lummus is a provider of process technologies used in the oil &
gas and petrochemical industries. Awards grew by 40% for the company in 2007. The company expects
that about 35% of its revenues will continue to come from the US refinery market. Strategy for the
company has been to increase value by expanding market share in the high-growth energy infrastructure
market. The company also continues to seek growth through selective acquisitions that would expend or
compliment its portfolio of services. Growth for the construction and engineering industry is still expected
primarily by the oil and gas segment. The presidential election is likely to positively affect the industry as
both candidates are seeking energy independence. Therefore interest in coal-fired plants, oil and gas, and
nuclear energy are already increasing at astonishing levels.
         On October 28th, 2008 CBI announced its third quarter earnings. The company reported net
income of $8.6 million, or $0.09 per diluted share compared with third quarter net income of $58.7
million, or $0.61 per diluted share. The company previously announced that it is taking a pre-tax charge of
approximately $86 million, or $0.85 per share for forecasted cost overruns associated with two major
projected. Revenue for the quarter was $1.56 billion, a 33% increase over third quarter 2007 revenue of
$1.17 billion. New awards for the quarter were $703.7 million, bringing total backlog to $6.2 billion.
President and CEO Philip K. Asherman stated “We remain confident in our new award prospects in the
fourth quarter and into 2009 despite the current global financial crisis.” Asherman has also said that new
orders in nuclear, offshore, and core industry segments leads him to believe that the company can achieve
sustained earnings growth.
         The stock price has seen its value drop by over 80% the last few months. Although this was
partially due to the overall market downturn, the company reported negative earnings on July 29th, due to

the previously stated pre-tax charge. The stock on July 29th was trading at $31 dollars a share. Investors
panicked and sold off shares thus causing the price to plummet to below $10 dollars a share. The company
did not necessarily benefit from the rally in the price of oil over the summer. The past 5 years the company
has outgrown the industry and the sector. Although historical earnings aren’t necessary a mirror into a
company’s future, it is certain that this stock is worth over 10$ a share. Analysts expect earnings to
continue to increase at the previous rates. Investors should jump into this opportunity to take advantage of
a company that is truly undervalued. S&P gave it a fair value of 5, a score given to company’s which are
truly undervalued. Chicago Bridge and Iron is buy at $12.35. Investors should ask themselves one question
regarding CBI and that is whether or not the 80% decline was justified? I believe that answer is no.

                                                                         1 Year EPS Growth 5 Year EPS Growth
Market Comparison                 P/E         Forward P/E    PEG         Rate              Rate
CBI                               -           3.7x           -           44.10%            25.01%
Construction Services             14.9x       6.5x           1.0x        25.59%            11.63%
Capital Goods                     11.3x       7.9x           0.9x        27.80%            24.85%
S&P500                            14.3x       12.9x          2.0x        14.48%            22.72%

Ashland Inc. (ASH): Economic Analysis as of October 30th, 2008:
Rich Watts-Materials
                                                Ashland Inc is a diversified chemical company in the basic
                                                materials sector. It is a Fortune 500 company that has
                                                four divisions including Ashland Performance Materials,
                                                Ashland Distribution, Valvoline, and Ashland Water
                                                Technologies. Products include Valvoline motor oils,
                                                plastics, gel coatings, packaging materials, inks and labels,
                                                and water treatment chemicals.          They are a very
                                                diversified company that provides customers with a very
                                                large array of products. One of Ashland’s distribution
                                                centers is the second largest distributor of chemicals in
                                                North America. CEO James J. O’Brien has many years of
                                                experience in the chemicals business, as well as the head
of Ashland.
Ashland’s products are sold throughout the entire world. The largest revenue stream by far is from
Ashland’s Distribution, bringing in over 50% of revenue. The next two divisions, Ashland Performance
Materials, and Valvoline make up the next two most profitable segments, each bringing in just under 20%
of total revenue. The last notable segment where Ashland makes its money is Ashland Water Technology
which brings in 10.3% of total revenue for the firm. Clearly, distribution is by far the most important
aspect of the business, and it is an area where Ashland focuses a lot of its resources as, again it has the
second largest distribution center in North America.

The firm posts an increase in forward PE from 6.70 to 8.17 which can be seen as a negative sign because it
can mean there will be a decrease in earnings. The beta is high compared to other similar companies in the
sector which, with this volatile market makes the stock pretty unstable. Like many other companies in the
sector, it is trading near its 52 week low. EPS for next year is also projected to fall because of lower
forecasts for the coming year. For this particular stock I do not think it is a good thing.
                                      Price       52 Wk. Range   Beta      PE           F/PE           EPS          Next Year EPS
Ashland Inc                     ASH      $22.59   19.59 ‐ 58.19       1.48        6.7           8.17         3.28              2.69
Dow Chemical                    DOW      $26.68   19.12 ‐ 43.50       0.78       9.44           9.27         2.75               2.8
Air Products & Chemicals Inc.   APD      $58.13   46.33 ‐ 104.94      1.16      11.27           9.82         4.95              5.68
Rohm & Haas Co.                 ROH      $70.35   43.63 ‐ 75.63       0.29       21.9          19.74          3.2              3.55
This week, Ashland came out with earnings reports that were not good for the firm. They announced that
they had a preliminary loss from continuing operations of $1 million, or $0.01 per share. This loss is for
the quarter ended September 30th, which is the fourth quarter for Ashland’s fiscal year. There was also a
loss from discontinued operations of $9 million, or $0.14 per share. These losses from discontinued
operations come mostly from adjustments in asbestos related insurance. One positive note from these
reports was that Ashland Distribution added $10.6 million of operating income against the same quarter of
last year. Valvoline’s operating income fell 27% compared to the same quarter in the prior year. Water
Technologies reported an operating loss of $5.9 million. In total, operating income for the 2008 fiscal year
totaled $213 million compared to $216 million in the 2007 fiscal year.
CEO O’Brien blamed the recent economic woes for these numbers. He continued on to say that difficult
conditions in the North American construction and transportation markets, as well as a downturn in the
European market will continue to challenge the Performance Materials section of the business.
Distribution, the biggest portion of Ashland, is also projected to be negatively affected by the current
weakness in the industrial output within North America. This is extremely important to Ashland, because
this is the most profitable portion of the firm.
Based on the shaky numbers for Ashland, as well as a less than stellar outlook for the coming months I
recommend that you sell Ashland Inc. I would consider buying this stock around $33 or $34, but this
stock has a long way to climb to get to this point. Once economic situations improve, and the outlook
begins to turn, this can provide a solid, well diversified company that can bring value to a portfolio. This,
however, is not currently the situation with the firm. This stock is not going anywhere right now because

the loss incurred, coupled with a tough outlook for the future. It will remain in the low- mid $20 range
until it reports on positive news, whenever that may come.

Activision Blizzard Inc. (ATVI): Economic Analysis as of October 30th
Rob Brenner—Technology

                                                  Activision Blizzard Inc. is headquartered in Santa Monica,
                                                  California and operates as an online and console game
                                                  publisher. On December 2, 2007 Activision and Blizzard
                                                  merged, combining some of the top video game
                                                  franchises in the industry. Its products include several
                                                  well known, interactive games. These products include
                                                  Guitar Hero, Call of Duty, Tony Hawk, Spider-Man, X-
                                                  Men, Shrek, James Bond, and Transformers. Activision
                                                  Blizzard also owns various franchises including Crash
                                                  Bandicoot, Spyro, StarCraft, Diablo, Warcraft, and World
                                                  of Warcraft.
        Activision Blizzard distributes its products on a world wide scale. It has operations in the United
States, Canada, the United Kingdom, France, Germany, Ireland, Italy, Sweden, Spain, Norway, Denmark,
the Netherlands, Romania, Australia, Chile, India, Japan, China, Taiwan, and South Korea. Activision
Blizzard operates as a subsidiary of Vivendi. It operates both in the markets of product publishing and
product distribution. The majority of Activision Blizzard’s profits come from its publishing division. Over
the past several years, Activision Blizzard’s revenues came nearly equally from both North America and
Europe. However, in the past year, 73.2% of revenues came from North American endeavors.

        Activision Blizzard has been in the news recently for the release of a new product. Guitar Hero
World Tour was released on October 26, 2008, in an effort by Activision Blizzard to capitalize off the
well-known game title. Another sequel to a popular series will be released in the coming days; World of
Warcraft: Wrath of the Lich King. This strategy of new product releases will ultimately prove to be quite
profitable as we approach the holiday season. Of late, consumer spending on the video game industry
seems to be unharmed, and will most likely continue to remain this way through the holiday season. Given
the uniqueness of Activision Blizzard’s product releases, they will remain virtually unaffected by
competition within the marketplace.

        Fundamentally, Activision Blizzard Inc. appears to be quite strong. Activision Blizzard currently
has a Price/Earnings ratio of 20.3. The forward P/E ratio is projected to be 16.4. This decrease in the P/E
ratio suggests that Activision Blizzard will undergo a growth in earnings. In addition, Activision Blizzard is
a secure investment, as compared to the market, given its relatively low beta of 0.89. In addition,
Activision Blizzard has more attractive profitability ratios than the technology sector as a whole. Activision
Blizzard’s Return on Equity is 20.53%, while the sector Return on Equity is only 17.3%. Activision
Blizzard has also nearly doubled its revenues in the past year, increasing from a level of $1,513,012,000 to
$2,898,136,000. Given its strong product offerings, Activision Blizzard is projected to increase its revenues
into the future. The chart below details projected growth estimates:

 Activision Blizzard Inc. Estimates
 Revenue FY1:          2,670.79    Revenue FY2:               5,345.40      Revenue FY3:           5,762.43
 EBITDA FY1:           472.54      EBITDA FY2:                1,463.58      EBITDA FY3:            1,639.60
 EBIT FY1:             441.51      EBIT FY2:                  1,428.97      EBIT FY3:              1,580.13
 CFPS FY1:             0.79        CFPS FY2:                  --            CFPS FY3:              --
 DPS FY1:              0.00        DPS FY2:                   0.00          DPS FY3:               --

        Given its strong fundamental strength, and unique product offering Activision Blizzard Inc. would
make a great addition to any, well diversified portfolio. Currently very near its 52 week low of $9.40,
Activision Blizzard Inc. would be an excellent buy at a current price of $11.59 per share. Activision
Blizzard Inc. has had a trading range of $9.40 to $19.28 in the trailing 52 weeks. Activision Blizzard Inc.
has recently been upgraded, as a BUY by both UBS and Deutsche Bank will target prices of $17 and $18,
respectively. For these reasons, Activision Blizzard Inc. is a BUY and HOLD with a Reuter’s aggregate
target price of $18.82 per share.

Hewlett Packard Co. (HPQ): Economic Analysis as of October 31st
Daniel DeMilio – Officer Technology/Consumer Staples

                                                  Hewlett Packard Company is based out of Palo Alto,
                                                  California and was founded in 1939 and is currently the
                                                  world’s largest technology company that provides printing
                                                  and personal computing products and IT services to its
                                                  customers.       HP currently employs over 300,000
                                                  employees worldwide and has operations on six
                                                  continents and 170 countries. The client base that HP
                                                  reaches is approximately 1 Billion customers, which
                                                  represents approximately 1/6 of the entire population of
                                                  the earth. HP not only has an incredibly large market
                                                  share on the technology industry, but their revenue
                                                  growth rates continue to outperform the industry at

HP has been in the news recently with the announcement of a $13.9 Billion acquisition of Electronic Data
Systems Corp (EDS) which specializes in outsourcing services and provides outsourcing to health care
companies, governments etc. This acquisition has been said to be a great opportunity for HP to broaden

its IT portfolio, and will allow HP to take more advantage of the opportunities in this area. Also, HP has
outperformed analyst expectations with positive earnings numbers for Q3 compared to negative outlooks
by many analysts. Expected EPS for October was expected to be at -3.17% compared to the actual
earnings of +1.85%. HP clearly was estimated far below its actual numbers and due to that its stock price
has suffered from the negative outlook. The release of great earnings has created a strong buy opinion of
analysts and HP’s share this week did well alongside the DOW and other technology stocks.

HP’s competitors include Canon (CAJ), Dell, and IBM. HP has outperformed the competitors in many
different components of their businesses. As seen below, HP has a more positive outlook on forward
P/E compared to IBM which points towards a possible heavier overpricing of HP compared to IBM. The
current quarter EPS numbers that were just released also point toward HP outperforming analyst
expectations for Q3 that is also factored into the lower P/E.
                                            Peer Analysis
                                 52Wk                          T       LTG   CurQ     #    FY1     #    FY0     FY1
   Company      RIC Price                     Recom.
                                  Low                         Price     %    EPS     Est   EPS    Est   P/E     P/E
                  HPQ 37.69 53.48 30.03 OUTPERFORM (1.81) 52.49 13.63         1.01   26    3.62   27    10.41   9.21
Business Machines IBM 90.69 130.93 78.82 OUTPERFORM (2.09) 115.41 11.16       3.06   17    8.74   21    12.72   10.38
                                              Ratios and Statistics
           Curr Mkt Cap (m):                 92,306.72                    P/E Excl. Extra Items:                14.08
           Curr EV, LFY (m):                 87,678.72                  Curr P/E Normalized, LFY:               13.91
       Curr EV/EBITDA (LFY):                    7.69                    Gross Profit % Margin, LFY:             24.36
      Curr EV/Tot Revenue (LFY):                0.84                  Income Aft Tax % Margin, LFY:              6.97
        ROE Comm Eqty, LFY:                    18.95                      ROC Tot LT Cap, LFY:                  15.20

Hewlett-Packard Company has many strong fundamentals that set it aside from its competitors and was
heavily damaged by the recent financial melt-down in our markets. It is however, going to be successful in
the future and has already proved it by its better than expected earnings and superior profit margins over
the industry. I recommend a BUY right now at its price of $38.28, and give HPQ a 1-year expected price
to be $57.50.

Energizer Holdings Inc. (ENR): Economic Analysis as of October 31st, 2008:
John Shahda – Consumer Staples

                                                  Energizer Holdings Inc. manufactures batteries,
                                                  flashlights, and men’s and women’s wet-shave products.
                                                  It offers a line of lithium, alkaline, and carbon zinc
                                                  batteries, miniature batteries for hearing aids, watches,
                                                  specialty photo and camera batteries, and rechargeable
                                                  batteries.    Energizer also manufactures wet shave
                                                  products like razors, disposable shaving products for men
                                                  and women, lotions, and shaving creams. Energizer
                                                  markets its products through certain retail stores like mass
                                                  merchandisers and warehouse clubs, specialty stores,
                                                  department stores, and drug and convenient stores.
                                                           Energizer is the second largest battery maker
nationally, with a 37% market share of the US retail market. However, Energizer is constantly on the
lookout to expand its product line and grow. To gain a further edge in the shaving industry, Energizer
bought Schick-Wilkinson Sword in 2003. Schick is the world’s number 2 shaving brand behind Gillette.
Back in the summer of 2007, Energizer bough Playtex Products for $1.9 billion dollars to expand its
personal care products. Playtex has several strong brands that add value and diversifies Energizer’s
products; from the number two market share in tampons to a 70% market share in the hand and face
wipes category. In regards to their main product, batteries, Energizer is an innovative maker. They have
an array of lithium and rechargeable products and have broadened its strategy to focus on delivering
portable power solutions. These acquisitions in the past five years have further diversified Energizer’s
product line and strengthened the company as a whole.
         The biggest concern for Energizer looking forward has been retailers who are running tighter
inventories and consumers who have decreased their spending as a result of the economy. Around 20% of
Energizer’s products are sold through Wal-Mart, which seems to be fairly high despite their broad product
mix. Wal-Mart has recently announced that they will be decreasing the number of new stores in the future
due to the financial crisis, which will hurt Energizer’s growth for the future. Probably the biggest concern
for Energizer is their smaller products, like razors and skin care, go up against well-established companies
like Gillette and Proctor & Gamble. Therefore, it’s hard to tap into these markets and be successful.

        The top chart above helps show the diversity of Energizer with its broad product line. Almost
70% of revenue comes from razor blades, but that’s split between North American sales and International
sales. Also, nearly a third of revenue comes from razors and other shaving products. The bottom chart
shows the geographic allocation of Energizer, as it’s almost a 50/50 split between domestic and
international sales.

Revenue FY1:                4,161.23  Revenue FY2:             4,350.87 Revenue FY3:               4,274.00
EBITDA FY1:                 802.53    EBITDA FY2:              867.57   EBITDA FY3:                863.00
EBIT FY1:                   655.42    EBIT FY2:                713.28   EBIT FY3:                  725.00
CFPS FY1:                   7.90      CFPS FY2:                8.95     CFPS FY3:                  9.36
DPS FY1:                    0.00      DPS FY2:                 0.00     DPS FY3:
         The following numbers above are a glimpse into Energizer’s fundamentals, which are fairly strong.
I believe this to be a more short-term investment, and Energizer’s revenues are expected to increase by
almost $200 million in the next two years. Earnings will also increase slightly, but unfortunately Energizer
does not offer a dividend. Dividends are extremely important during times of financial distress because
it’s guaranteed income, but Energizer can use the money it retains to reinvest back into the company.
Energizer has a fairly high beta of 0.96, which is almost equal to the market. The market has been very
volatile lately, so we can expect the same from Energizer. Energizer currently has a P/E of 9.78 compared
to the industry of 19.5, and the forward P/E is expected to decrease significantly to 6.7.
         The EPS has increase steadily since 2005 from 3.21 to 5.51 in 2007. However, the trailing twelve
months EPS is lower at 5.11 than in 2007. With the upcoming holiday season approaching, I believe this
number will change as Energizer has been the leader in developing innovative portable power solutions
that fuel today’s games and high-tech devices. As parents and families buy toys and gadgets for the
holiday, batteries will be a necessity. With Energizer being the leading of this industry, sales should
increase for the next quarter. I believe Energizer is a BUY at $50, which it currently stands.

Buckeye Partners, L.P (BPL) : Economic Analysis as of October 31, 2008
Jason DeFilippo- Energy
                                                  Buckeye Partners is a Pennsylvania based company in the
                                                  energy sector that was founded in 1986. This company is
                                                  slightly different from the major players in the oil and gas
                                                  industry in the fact that it transports and stores petroleum
                                                  products for those major companies. Buckeye Partners
                                                  transports refined petroleum products including: gasoline
                                                  heating oil, diesel fuel and natural gas. It also provides
                                                  pipeline maintenance and construction for other major oil
                                                  and gas companies. Pipeline Operations proves to be their
                                                  most valuable segment, producing 73% of the company’s
                                                  revenue. They are also a domestic company, doing all of
their business in the United States. This allows them to focus on one domestic economy, as well as limit
their political risk to one government. As of the beginning of the year, they owned 2,700 miles of pipeline
under agreements with major oil companies in the United States.
         Recently, the private holder of Buckeye Holdings announced an offer to buy 38% of the company
that it doesn’t already own for $17 a unit. This is a 19% premium on the current value of the shares, which
should be a good sign to its shareholders. This leads many to believe the stock to be substantially
undervalued at its current price. In recent years, most of this company’s growth has come from deals with
major oil companies in the industry. In 2004, they bought pipeline assets from Dutch Shell and did the
same with Exxon Mobil in 2005. They have been purchasing smaller pipeline terminals over the past two
years. These acquisitions have served as a continuation of many of their current pipelines, leading to a
better final product. This industry is generally not affected by lower crude prices. There is a regulated price
structure in the pipeline industry that locks in annual prices, based on the producer price index. Therefore
their beta is 1.03, infering they are equally as risky as the market. With growth in the pipeline industry

difficult, Buckeye has shifted its attention to its storage business. This could become a major aspect of
their business in the future of this company. The company’s recent acquisition of Lodi Gas Storage, which
is a natural gas storage facility in California, has been seen as a stray from the focus of the company.
         Buckeye is a financially sound company with better than average fundamentals. It has a forward
earnings yield of 9.17% compared to the industry average of 4.1%. This ratio is the annual return the
company would generate if its profits remained fixed and it paid out all of its earnings as dividends.
Buckeye also has a forward P/E ratio of 10.9, compared to the industry average of 24.4. This displays a
relatively cheap stock at its current price. Another strong fundamental of this company is its dividend
yield. Buckeye has a dividend yield of 9.3%, which is 5% more than the industry average. Especially in a
volatile equity market, a strong dividend yield makes this company extremely attractive to many investors.
         I recommend this stock as a buy based on strong fundamentals, strong growth, and a solid third
quarter in an underperforming market. The recent premium paid to acquire a percentage of the company is
a positive sign to investors. Their growth into the storage industry will be instrumental in their cash flow
growth in the next few years. Their stable business offers little risk going forward; however they have
become more leverage in the past few years. Their high leverage offers some risk, especially in a tough
credit market. Included is a graph to show the company’s revenues by segment.

BP PLC: Economic Analysis as of October 30, 2008
Bryan Biagioli – Energy
                                                Formed in 1998 with the merger of British Petroleum and
                                                Amoco, BP is one of the largest international oil
                                                companies on the planet. It operates in two segments,
                                                Exploration and Production, and Refining and Marketing.
                                                Headquartered in London, BP boasts proven resources of
                                                17.8 billion of oil equivalent and produced 3.8 million
                                                barrels per day in 2007. They have a refining capacity of
                                                2.8 million barrels per day, operates petrochemical plants
                                                and sells petroleum through 24,100 service stations
                                                around the globe.
                                                BP announced strong earnings Wednesday on high oil
                                                and gas prices and higher refining and marketing margins.
                                                Net income was $10 billion, up from $4 billion, or 148%,

from the third quarter of last year. Earnings doubled to $12.7 billion from $6.3 billion a year ago due to
higher crude-oil and natural gas prices in the quarter. Production remained unchanged for the quarter as
production gains from the startup of major fields from last year were offset by hurricane-caused
production disruptions in the Gulf of Mexico. The good news is the firm expects higher production in the
fourth quarter resulting from a seasonal boost, new projects, and a return to pre-hurricane production in
the Gulf of Mexico.
In May 2007, Tony Hayward became group chief executive of BP taking over for John Browne. Hayward
was previously chief executive officer of BP’s Exploration and Production segement and has been with the
company since 1982. Going forward, BP seems to be a sound investment. Hefty investment in liquefied
natural gas and deep-water oil and gas projects should pay off very well in the near future. Compared to
its peers, Exxon Mobil and Royal Dutch Shell, exploration and production makes up a larger chunk of
BP’s business at 5.6% of revenues in 2007.
BP is defined by Morningstar as a large value stock which are typically less volatile then growth stocks. BP
is a good buy and hold, especially with the recent volatility in the equity markets. BP’s trailing 5 year
earnings are about average for the industry, however; its forward earnings yield in 16.13% - double the
industry average of 8.06%. The stock’s forward earnings yield is the annual return it would generate if its
profits remain fixed and it paid out all of its earnings as dividends. For BP to generate decent returns for
investors, it will probably only have to realize moderate growth in earnings. It has a very attractive
dividend yield at 6.3% and has a very low relative price to book of 1.6 as compared to the industry’s 17.4 –
which is usually a good indication of an undervalued stock. I consider BP a strong buy at its current price
of $49.20. Reuters has it pegged as an “outperform” with a target price of $65.25.

Peer Analysis
                          52Wk    52Wk                         T        LTG     FY0    FY1    FY0      FY1
Company          Price    High    Low      Recommendation      Price    %       EPS    EPS    P/E      P/E
BP plc           49.2     79.77   37.57    OUTPERFORM          65.25    4.67    1.75   8.83   5.57     6.58

Exxon Mobil      75.05    96.12   56.51    OUTPERFORM          81.5     6.74    1.88   8.7    10.31    8.62

Hess Corp.       53.13    137     41.61    OUTPERFORM          80.45    7       1.4    9.1    8.9      5.84

Sempra Energy (SRE): Economic Analysis as of October 30, 2008
Bryan Ashline-Utilities

                                                Sempra Energy is one of the largest utility firms in the
                                                United States. The company was formed in 1998 as a
                                                result of a merger between Southern California Gas Co.
                                                and San Diego Gas & Electric. It is now a Fortune 500
                                                energy services firm based in San Diego, California with
                                                annual revenues of over $11 billion. With 13,500
                                                employees, the company develops energy infrastructure,
                                                operates two utilities, and provides related products to
                                                more than 29 million consumers worldwide.             Its
                                                California utility companies serve 20 million of these
                                                customers with electricity and natural gas. The company

operates in the North America, Asia, and Europe; however, 89% of its revenues in 2007 came from the
United States.

                                                In the past three years, the company’s operations have
                                                become more diversified. Its revenues from its SoCalGas
                                                utility have become less of its main source of revenue and
                                                it is more balanced with its San Diego Gas and Electric
                                                subsidiary and Sempra Commodity segments taking more
                                                of a percentage stake in revenues. This is better for the
                                                company because it has diversified its operations taking
                                                the pressure off the performance of a single segment.
                                                         The company has strong financial health. It has a
                                                low debt to equity ratio of .79 compared to the industry
                                                average 1.32 and sector 1.42. Its gross margin is 48.21%
compared to the industry margin of 23.11%. Its operating margin is 14.03% which is also much higher
than the industry average of 4.15%. This shows the strength of the management in controlling costs and
creating profitability. SRE’s revenue and net income is expected to increase year over year for the next
three fiscal years.
Revenue FY1:          10,777.34     Revenue FY2:          11,396.15     Revenue FY3:           13,552.14
EBITDA FY1:           2,251.86      EBITDA FY2:           2,580.60      EBITDA FY3:            2,986.67
EBIT FY1:             1,482.98      EBIT FY2:             1,733.36      EBIT FY3:              2,122.12
CFPS FY1:             6.39          CFPS FY2:             9.34          CFPS FY3:              --
DPS FY1:              1.38          DPS FY2:              1.52          DPS FY3:               1.63
        Sempra Energy has a Trailing P/E of 9.04 and a Forward P/E of 8.32. This is an indication of
future earnings growth. The industry has a P/E of 13.02; however the industry has a significantly lower
EPS of $2.08, where SRE has an EPS of $4.15. SRE has a lower dividend yield than the industry at only
3.80% compared to the industry 5.60%. This is because Sempra has reinvested its cash flow into other
investments that offer more opportunities for growth, however Sempra has continued to increase its
dividend each year since 2004.
        Sempra Energy is a much riskier stock than the typical utility stock that generates stable earnings
and high dividend yields. While this stock operates utilities, some of its other operations offer high growth
potential. Sempra Energy’s more risky operations include: energy trading, merchant generation, pipelines,
refined petroleum product import facilities and liquefied natural gas. The liquefied natural gas offers the
most earnings growth. The process converts natural gas to liquid form which is easier to transport. The
gas can then be transported to a facility where it is converted back to gas form and can be distributed to
customers. Sempra has partnered with Kinder Morgan to build a pipeline from the Rocky Mountains to
the Midwest. Because this is a developing market, Sempra is positioning itself to gain a large competitive
advantage over other gas companies. Sempra will have two facilities operational by 2009. This move will
give Sempra a steady supply of natural gas. The investment in this project will generate a return that is
higher than the costs of capital invested in the project.
        Sempra Energy has a beta of .97 which is higher than most utility companies, but this is because of
the risk of some of its operations. The operational risk could lead to high growth and a increasing stock
price. The stock is currently trading at $41.46 with a 52 week high of $64.21 and 52 week low of $34.29. I
consider this stock currently undervalued due to the market and a stock that also offers long term growth
potential. Sempra energy is “Buy” with an entry point of $41 and an exit price of $60.30.

Coventry Health Care, Inc. (CVH): Economic Analysis as of October 30, 2008
Will Hassett – Healthcare

                                              Coventry Health Care, Inc. is a managed healthcare
                                              company in the United States. The company currently
                                              serves more than 4.6 million members in all 50 states.
                                              CVH is broken down into three main divisions –
                                              Commercial, Individual Consumer & Government, and
                                              Specialty. Within these three divisions, a full range of
                                              products and services are provided, including group and
                                              individual health insurance, Medicare and Medicaid
                                              programs, and coverage for specialty services such as
                                              worker’s compensation. CVH was incorporated, from
                                              the previous Coventry Corporation, in November of 1986
and it became publicly traded in 1991. Coventry Health Care, Inc. is located in Bethesda, Maryland and
has approximately 15,000 full time employees.
Price (USD, Major)                Estimates
Close (10/29/08):     11.82       Revenue FY1:           11,957.46   Revenue FY2:   12,893.82   Revenue FY3:   13,566.78
Price - 52 Wk High:   63.89       EBITDA FY1:            792.51      EBITDA FY2:    806.4       EBITDA FY3:    895.45
Price - 52 Wk Low:    11.4        EBIT FY1:              655.95      EBIT FY2:      680.94      EBIT FY3:      768.16
Beta:                 2.14        CFPS FY1:              3.64        CFPS FY2:      3.6         CFPS FY3:      --
         One of the first things to notice about CVH is its extremely high beta of 2.14; this stock is
incredibly risky. However, this could also be a positive forbearer of things to come. Revenues, EBITDA
and EBIT are all expected to rise over the next three years. This essentially means the company is
expected to grow, make more sales, generate more revenue and therefore make more profit. What the
statistics in the table below tell you, in essence, is that Coventry Health Care, Inc. is on the path to growth,
which will lead to success and more wealth for shareholders.
         The price to earnings ratio of CVH is 3.3; this is compared to the industry average of 8.2 and the
S&P average of 13.6. This is an extremely good price to earnings ratio; Coventry Health Care outperforms
the industry and the market by a sizeable margin in this area. The forward price to earnings ratio for CVH
is 4.3, compared to the industry forward P/E average of 13.4 and the market forward P/E of 11.4. Even
though the P/E ratio of CVH is expected to go up (get worse) in the future, it is still expected to
outperform both the industry and the market. This is an extremely encouraging sign.
                                                          One important question to ask is: with all of the
                                                 positive statistics about Coventry Health Care, Inc., why is it
                                                 selling near its 52-week low of $11.40 (close on 10/29/08 at
                                                 $11.82)? A major reason for this is the recently released
                                                 third-quarter earnings on October 20, 2008. For the third-
                                                 quarter, earnings fell roughly 50%, costs rose 26% and the
                                                 company absorbed $36 million in its investment portfolio.
                                                 Revenue was up by 18%, but forecasted 2008 earnings fell by
                                                 31%. The stock has fallen 57% in one week, which is why it
                                                 is currently so low. This is not necessarily a bad thing now,
                                                 however. While previous stockholders have taken a hit,
                                                 investors could be looking at a new bargain. The stock is
trading at less than five times expected full-year earnings and at less than five-times annualized fourth
quarter earnings.

CVH also has a beneficial revenue distribution. The company has been looking into becoming more
balanced between commercial and individual consumer revenue; the ratio has decreased from 72.8% to
24.4% in 2005, to 65.6% to 31.8% in 2006 to finally 53.3 to 41.4% in 2007. This balance is a good thing
because this means that CVH does not completely depend on either commercial or individual consumer
revenue completely; and a decrease in one is not a killer to the company. All of Coventry Health care’s
revenue is generated in the United States.
          Sometimes in the market, negative news for a company is positive news for investors. This may be
a case with Coventry Health Care, Inc. Even though it turned in abysmal third-quarter earnings for 2008,
it still is projected to grow in revenue, EBIT and sales in the next three years. It is also expected to
considerably outperform the market both now and in the near future. CVH’s current price is also so low
that it is trading well below than what its earnings would suggest it should be trading at. In addition,
Medicare enrollments are expected to increase steadily for many years since the baby boomers are aging.
Coventry’s small size also makes it a possible acquisition target, which will also benefit shareholders. With
all of the statistics, I feel that CVH is a victim of being over sold in the current volatile market. Even
though it has had some problems recently, so have a large majority of the companies in the S&P 500. I
think because of this, CVH looks likes a bargain currently. Therefore, I recommend Coventry Health
Care, Inc. as a long-term buy, with an entry price of anywhere between $11.75 and $12.25 per share.

Biogen Idec Inc. (BIIB): Economic Analysis as of October 31, 2008
Dan Pearsall – Healthcare

                                                 Biogen Idec was formed by the merger of IDEC
                                                 Pharmaceuticals and Biogen in November 2003. Biogen
                                                 Idec, Inc. engages in the development, manufacture, and
                                                 commercialization of novel therapies primarily in the areas
                                                 of oncology, neurology, immunology, and cardiology in
                                                 the United States and internationally. The firm develops
                                                 and manufactures biopharmaceutical products that treat
                                                 cancer and autoimmune diseases. Its primary products
                                                 include Avonex and Tysabri for multiple sclerosis and
                                                 Rituxan for cancer and rheumatoid arthritis. They produce
                                                 products that specifically treat multiple sclerosis, leukemia,
and rheumatoid arthritis.
        Biogen Idec develops their own products, as
well as through partnerships with other large
pharmaceutical companies. They have many products
in the late-stages of development that don't currently
carry the partnership burdens. As the new products
get passed, the company will not have to share these
profits with other pharmaceutical companies. Unlike
other large pharmaceutical companies that need
several big drugs to help spur growth, only one
successful product can help increase Biogen’s profits
substantially because they are smaller than their
competitors.      Biogen’s    immense     production
capabilities help them provide a strong incentive for
smaller development pharmaceutical companies and

established companies to partner with Biogen Idec in developing biologics.
        Biogen Idec Inc.'s third-quarter profit rose over 73 percent on higher sales of the multiple sclerosis
drugs Avonex and Tysabri. This beat Wall Street’s estimated and as a result forced the company to raise
their 2008 profit outlook for the end of the year. The biotechnology company hit a milestone during the
quarter, topping the $1 billion mark in revenue. This was a significant accomplishment because they
overall economy was suffering a financial crisis. Despite this tough period, Biogen increased earnings and
proved that they can survive in any economy. They are positioning themselves globally which accounts
for about a third of their revenues as you can see from the chart on the left. The company earned $206.8
million, or 70 cents per share, compared with profit of $119.4 million, or 41 cents per share, during the
same period a year ago. Revenue rose 38 percent to $1.09 billion from $789.2 million. Sales of the
company's multiple sclerosis drug Avonex, which was the main revenue driver, rose 26 percent to $573
million during the third quarter, while Tysabri sales reached $236 million worldwide.
        Fundamentally, BIIB is slightly undervalued. As you can see from the chart below their PE is
lower than the industry, but higher than the S&P 500. Biogen has been sold off by over fifty percent in the
past year along with the overall market.
                         Stock              Industry S&P 500           5 Year Average
Price/Earnings           15.4               62.5         13.9          N/A
Price/Book               2.0                4.0          3.1           2.3
Price/Sales              3.0                4.6          1.9           7.7
Price/Cash Flow          8.0                22.7         9.6           N/A
Dividend Yield %         N/A                N/A          3.5           N/A
Biogen’s forward PE is 10.72 which suggest that earnings for the next quarter will be higher than the
previous quarter’s results. This will drive the stock price higher.
        In conclusion, Biogen is continuing to focus them internationally, which currently accounts for
about thirty four percent of their business. Currently, their pipeline has more than a dozen products that
are in mid stages of development. This implied that they are not focused on one specific clinical program
so they are diversified for the future. I have a target price for them at $53 which is an appreciation of
about 20% from its current levels. Therefore I have a buy rating on Biogen.

PNC Financial Services Group (PNC): Economic Analysis as of October 30th, 2008:
Kaitlyn Kroslowitz – Financials
                                                  PNC Financial Services Group is a diversified financial
                                                  services company, operating in the United States. It
                                                  mainly offers retail banking, corporate and institutional
                                                  banking, asset management, and global fund processing
                                                  services. It’s retail banking services make up the highest
                                                  percentage of their revenues (58.5 percent.) The company
                                                  currently operates over 1,000 branches and 3,900 ATM
                                                  machines. It’s corporate and institutional banking segment
                                                  makes up 23.5 percent of their revenues. The company’s
                                                  asset management business stems from its 34 percent
                                                  ownership in BlackRock Corporation. However, their
revenues from BlackRock only make up 5.2 percent of their revenues. PNC’s global fund processing
segment makes up the remaining 12.8 percent of their revenues, currently holding 76 million shareholder
accounts with over $2.6 trillion in total fund assets serviced. The recent acquisitions of Albridge Solutions
Inc. and Coates Analytics Group, LP has contributed greatly to this segment. The company was founded
in 1922 and is headquartered in Pittsburgh, Pennsylvania.

Earnings were released on October 16th, 2008, reporting a third quarter net income of $248 million, or
$0.71 per share, a 39 percent decrease from the year earlier. This was nowhere near analyst estimates of
$1.02 earnings per share. Revenues also declined from $1.75 billion to $1.65 billion from the year prior.
Net charge-offs for the third quarter increased significantly from the second quarter from $112 million to
$122 million. Credit loss provisions also skyrocketed from $65 million to $190 million, weighing down on
their already depleted revenues. Third quarter profits were also affected by trading losses of $54 million, an
$82 million write-down on commercial mortgages, and $74 million in write-downs relating to preferred
stock in Freddie Mac and Fannie Fannie Mae. However, the PNC’s balance sheet remains strong through
the economic downturn with strong capital and liquidity positions. Despite write-downs, the company’s
credit quality remains manageable unlike other companies in the sector who have been suffering from
severe credit losses over the past year. The company continues to attract new customers; loans were 13
percent higher than in the same quarter a year earlier while deposits were up 8 percent from the prior year.

Fundamentally, the outlook on PNC Financial Services group remains positive. The company’s current PE
of 14.58 is greater than its forward PE of 13.25, indicating future growth. Earnings per share is also
expected to increase drastically, much more so than all of its competitors. PNC’s long term growth rate
also remains strong, higher than all competitors with the exception of Wells Fargo. Company comparison
is as follows:

                                                                      Long      Current
                                    52 Week               Target                           Forward     Trailing    Forward
       Company            Price                52 Week                Term      Quarter
                                     High                 Price                             EPS         P/E         P/E
                                                 Low                Growth %     EPS

PNC Financial Services      62.82      87.99      42.51     69.69        8.28       1.09       4.31        14.58        13.25

Wachovia Corporation         5.97      46.58       0.75      6.39        8.05      -0.03       -5.82        1.79   --

BB&T Corporation            33.96      45.31      18.71       31         6.53        0.6       2.64        10.71        12.86

Comerica Incorporated       27.18        54       19.31     29.24        4.46       0.47       1.93         6.18        14.09

Fifth Third Bancorp         10.77      31.52        7.8     13.79        6.24       0.09       0.49         4.81        21.98

KeyCorp                     12.15      28.78       5.75     12.34         5.2       0.11       -2.01        5.57   --

SunTrust Banks, Inc.        38.56       73.8       25.6     40.27         7.5       0.37       2.88          9.2        13.38

U.S. Bancorp                29.03      42.23      20.57     31.13        7.42        0.5          2        11.95        14.52

Regions Financial Corp.     11.36       27.5       6.41     12.02          6        0.15         1.2        5.03         9.48

Wells Fargo & Company       32.11      44.68      20.46     33.94        8.92       0.39       1.97        13.49        16.28

PNC has remained strong over the past year as the economic downturn swept the global markets. In fact,
this was the first quarter that the company reported a drop in profits this year compared to other financials
who have seen losses since the credit crisis hit the sector hard. They have avoided sub-prime mortgages
and extremely high-risk loans that have affected their major competitors. The company receives most of
its revenues from its banking services as a fee-based business instead of relying on the stability of interest
rates and credit cycles. PNC’s ownership in BlackRock that makes up their wealth management business
provides the company with revenues that are more or less fixed. Further growth of their banking services

and wealth management businesses will make the company much more profitable in the short term as well
as the long term. Key fundamentals in the above chart support this claim.

The company has maintained a moderate risk profile and has a diverse portfolio of loans including
mortgage, home equity, and real estate loans. However, they are currently in the process of acquiring
National City, adding a substantial amount of risk to the company even if the move opens up markets in
the mid-Atlantic, Midwest, and Florida. The acquisition will expand its lending business, which is not the
safest play during a credit crisis of this intensity. However, the company has a reputation of making
successful acquisitions; National City could prove to be extremely profitable for PNC.

I believe that PNC Financial Services Group stands out against its competitors and other major companies
within the financial sector. The company has a strong growth outlook both in the short term and the long
run. PNC is currently trading at 66.67 with a 52 week range 42-51 to 87.99. I recommend a “buy” with a
target price of $75.40.
SunTrust Banks, Inc. (STI): Economic Analysis as of September 31th, 2008:
Benjamin Tasse – Financials

                                                    SunTrust Banks, Inc. (STI) operates as the holding
                                                    company for SunTrust Bank, which provides various
                                                    financial services to consumer and corporate customers in
                                                    the United States. STI offers various deposit products
                                                    including “NOW” accounts, money market accounts,
                                                    savings accounts, brokered deposits, and foreign deposits.
                                                    SunTrust also offers a variety of loans; real estate 1-4
                                                    family loans, real estate construction loans, real estate
                                                    commercial loans, and real estate home equity lines. The
                                                    company also offers investment banking products and
                                                    services, including mergers and acquisitions services,
                                                    capital raising in debt and equity markets, financial risk
management, asset securitization and market making in cash securities and derivative instruments for
various sectors, such as consumer retail, financial services, technology, energy, healthcare and industrials.
In addition, SunTrust provides residential mortgage products, professional investment management, trust
services, administration and custody services, endowment and foundation services, and balance sheet risk
management. In a nut shell, with $175 billion in assets, SunTrust is one of the 10 largest banks in the U.S.
It operates more than 1,600 branches in the southeast U.S. More than 20% of SunTrust’s branches are
located within a retail outlet, including 102 inside Wal-Mart.
        As an analyst and a realist—risky mortgages and mortgage backed securities is one of the leading
causes of our current financial crisis. Given the current state of the economy, a business that has high
expose to real estate and mortgage backed securities is more likely to feel pressure.
When analyzing SunTrust, I am worried about the portion of revenue that comes from the mortgage
segment and real estate services. However, as the following chart shows, STI does not rely on mortgages
as their main source of revenue. Nearly half of SunTrust’s revenue (45%) comes directly from retail

banking                                                                                                 services.

        SunTrust recently announced it received initial approval from the government for 3.5 billion of
preferred equity through the Troubled Asset relief Program. It also announced it will cut its quarterly
dividend by 30%, to $0.54 per share. I believe these announcements have already been priced into the
current stock price of $38.98. However, as with all the banks that will receive a portion of the
governments bailout money, should this be a sign that this company needs help to survive, or that the
company is too important to let fail. I strongly believe these are two very different assumptions. The
reduction in the dividend was necessary because it is believed that SunTrust was not earning enough
income to cover its dividend through its core business.
        SunTrust, Inc. is similar to its peers and is valued at a large-cap orientation; however it has a much
more extreme value bias than its industry peers. Value stocks are often seen as less volatile than growth
issues, unless the stock shows value characteristics because it is facing serious business or financial
problems. STI has a total market cap of 13.85B, and has an enterprise value of 33.47B. Enterprise value is
often used to compare companies with varying levels of debt, because companies issue varying levels of
equity than others. As the following chart depicts, SunTrust is significantly smaller in terms of market cap
and enterprise value. However, further analysis must be done in order to properly value STI because
market cap and enterprise values are often misleading because different companies offere different
amounts of debt and equity-both of which are included in formulating the enterprise value of a company.

                                 STI        BAC               BBT             WB             Industry

Market Cap:                      13.42B     106.34B           19.28B          13.44B         17.53B

              Enterprise value     33.47B    424.64B            47.08B          175.73B

        This stock is in the super regional banks industry, which has generated market-like results over the
longer 10 year period, but has really suffered the past five. Over the last 5 years, STI has generated a
negative 7.7%, compared to the industry average of negative 8.2%. More importantly, YTD stock has
generated -36.6% compared to the industry average of negative 8.1%. A better indicator of future
performance is the company’s valuation ratios. SunTrust has a PE ratio of 12.11 and a forward PE of
16.71, indicating that this company is not expected to grow. SunTrust has a current earning yield of 6.67—
which is the annual return it would generate if its profits remained fixed and it paid out all of its earnings
as dividends. This is not a good sign seeing as how the dividend was just cut, which indicates this firm is
not as healthy as it may seem.
        A key indicator that SunTrust Banks, Inc. may be in distress is their Debt to total capital ratio of
54.4%. This ratio is a measure of the company’s financial leverage, including short and long term
obligations. Due to the nature of this industry, a company is expected to have relatively high debt, however
when compared to the industry average of 42.5%--this should raise concern. Although the industry
average is high as well, I believe this industry as a whole has too much debt which will result in problems

in the future. In fact, STI cutting their dividend and negotiating with the government in selling preferred
shares may be the first sign the company is feeling pressure because of the high leverage.
        The following chart compares key statistics of SunTrust, Wachovia Corp., and their Peers (regional
Banks). This chart is useful because it not only compares competitors but it compares results from the past
sixth months. Some areas that should be highlighted are market cap, 1 year total return, the adjusted beta,
employee growth, short and long term debt and cash flow from operations.

        SunTrust has generated a 1 year total return of -44.98%, which is better than Wachovia’s -86.44%,
but worst than the industry average of -38.94%. In addition, compared to six months ago STI’s 1 year total
return has decreased by more than 10%, which may be an indicator that return still has downward
momentum. In terms of revenue, Wachovia far exceeds SunTrust by $35 Billion—which is interesting
because STI and WB have very similar market caps. Similar market caps, and largely different revenues
would lead me to believe that STI is not operating as efficiently as Wachovia. However, when comparing
their cash flow from operations it appears that STI (operating cash flow of 6.06 B) is more efficient than
Wachovia (operating cash flow of 2.93 B). This may be attributed to the fact that STI has an operating
margin of 20.33% compared to WB’s operating margin of -118%. It is very important to note that cash
flow from operations has increased from -261.2 million to 6.06 billion today. This is an extraordinary
increase. One factor that has attributed to this increase in efficiency is the decrease of employees by nearly
4%. Operating cash flow is arguably a better measure of a business’ profits than earnings because a
company can show positive net earnings on their income statement and still not be able to pay its debt. In
terms of debt, STI has short and long term debt of 33.06B which is significantly lower than Wachovia’s
short and long term debt of 251.22 B.
        As the 1 year graph of price shows, SunTrust is very volatile. Despite the recent government aid, I
believe the regional bank industry as a whole is far too leveraged and will see increased pressure in the
future. STI has and EPS of 3.23, and an adjusted beta of 1.31--which indicates it is slightly more risky than
the market as a whole. STI has a 52 week range of $25.60-$73.34, and is currently trading at $39.32. I
believe no actions should be taken on this company. Due to the uncertainty of their exposure to mortgage
backed securities and other risky investment vehicles, coupled with the volatility of the financial sector—I
believe STI should be monitored and purchased only if it falls below $25.


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