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					                 Cougar Investment Fund


             Spring 2008 Semi-Annual Report
          October 2007 – March 2008 Performance




Prepared by:

Drew A. Boston, Portfolio Manager
Taylor A. Hall, Portfolio Manager
Cougar Investment Fund
Spring 2008 Semi-Annual Report
Table of Contents


Letter of Acknowledgement ............................................................................................................1

Executive Summary .........................................................................................................................2

Fund Objective .................................................................................................................................3

CIF Background & Investment Process.........................................................................................4

Equity Market Review ....................................................................................................................5

Stock Allocation and Portfolio Characteristics...............................................................................9

Portfolio Holdings as of 3/31/2008 ................................................................................................11

Fund Performance Report ...............................................................................................................12
      Fund Performance by Individual Security
      Top Five Performers
      Bottom Five Performers

Forward Outlook ..............................................................................................................................15

Appendix ...........................................................................................................................................16
     Investment Team
     Glossary
     Example Analyst Report



For further information regarding the Cougar Investment Fund, contact:

Richard W. Sias, Ph.D.
Gary P. Brinson Chair of Investment Management
Department of Finance, Insurance, and Real Estate
P.O. Box 644746
Pullman, WA 99164-4746
Tel: (509) 335-2347
Fax: (509) 335-3857
Email: sias@wsu.edu

www.cb.wsu.edu/~cougfund
Letter of Acknowledgement
We, the students of the Cougar Investment Fund (CIF), extend our gratitude and appreciation to the
Washington State University Foundation, the Board of Regents, President Elson Floyd, and the
University Administration. We would also like to thank those who make this program possible:
thank you to Karen Kellerman, Senior Investment Officer, for monitoring and handling the
administration of our portfolio; Mike Olin for assisting in the execution of our orders; and Dr.
Richard Sias for his dedication to, and efforts on behalf of, the CIF program. The CIF program
provides students with a unique experience. While challenging and rigorous, this opport unity
continues to offer students exceptional real world understanding and education.

Currently in its seventh year, the CIF program continues to be an outstanding success. We are
honored to serve as equity advisors to the Washington State University Foundation. While the CIF
program strives to outperform the S&P 500 (our benchmark), the most important aspect of this
class is the experience gained through managing an equity portfolio. The CIF course is one of the
most sought-after business courses offered at Washington State University, and it continually
attracts some of the brightest minds at the University to the area of investments. Currently, the
course consists of 35 students, and truly maximizes the benefits of a close student-professor
relationship. This course is a prime example of the University’s philosophy of ―World Class, Face to
Face,‖ emphasizing high-quality interaction between students and world-class faculty.

The students in the CIF program are faced with the same challenges and dilemmas that professional
money managers encounter daily. This includes understanding and adapting to volatile markets and
economic turbulence. Portfolio managers continually monitor and report on market and economic
conditions in our weekly investment meetings. Following this update, students present five to seven
security recommendations and sector analysts provide weekly input on current holdings. Each
security recommendation is extensively researched by the student analysts. These reports give our
investment team the necessary information to position our portfolio to outperform our benchmark.

Over the fourth quarter of 2007 and the first quarter of 2008, the CIF had a total return of -11.35
percent outperforming the S&P 500’s -12.46 percent return by 111 basis points. The CIF had a
value of $957,245.10 in October of 2001 (our first full month of management) and has since
returned 47.84 percent with the fund ending the first quarter of 2008 at $1,415,214.42.1 Since
inception, the CIF has outperformed the total return of the S&P 500 by 5.06 percent. Moreover, the
portfolio has consistently met the risk minimization guidelines and requirements set forth by the
University.



Drew Boston                                                                           Taylor Hall


Portfolio Manager                                                                     Portfolio Manager


1 The CIF value at the end of March 2008 reflects the value of Philip Morris Intern ational that w as listed as an unsettled
trade (spin-off from Altria) in our March E-Trade statement (and therefore does not reflect the March 2008 portfolio
value reported by E-trade).


                                                                                                                               1
Executive Summary
Largely driven by the credit and mortgage crisis, U.S. markets exhibited weak performance over the
fourth quarter of 2007 and the first quarter of 2008. The S&P 500 had a total return (including
reinvested dividends) of -12.46 percent over the evaluation period. The Cougar Investment Fund
outperformed the benchmark by about 111 basis points returning -11.35 percent over the same
period.

October proved to be the only month with positive returns for both the S&P 500 (1.59 percent) and
the Cougar Investment Fund (2.41 percent). Before the holiday season most analysts forecasted a
severe decline in holiday spending. This drove many of the consumer service stocks down, especially
retailers, as investors expected lower profits. Given the low expectations, a number of retailers beat
expectations. Wal-Mart, a CIF holding, for example, significantly beat analyst expectations and, as a
result, Wal-Mart’s stock rewarded investors with a strong return over the period.

Markets were most severely impacted by the worsening liquidity/credit crisis. In an unprecedented
move, the Federal Reserve stepped in (to the tune of $30 billion) to help JP Morgan rescue Bear
Sterns—a company that lost 99 percent of its value between January 2007 and March 2008
(dropping from $170/share to $2/share). Timoth Geithner, president of the New York Fed later
justified the Fed intervention to avoid, ―a greater probability of widespread insolvencies, severe and
protracted damage to the financial system and, ultimately, to the economy as a whole.‖

In an attempt to mitigate the economic slowdown, the Federal Reserve lowered the Federal Funds
rate five times over the evaluation period—from 4.75 percent at the beginning of October 2007 to
2.25 percent by the end of March 2008. Thus, despite rising energy costs, a weakening dollar, and
the potential for stagflation, the Fed acted very aggressively to stimulate the economy—with mixed
results.

The following graph depicts the returns of the CIF and the S&P 500 over the evaluation period
(October 2007-March 2008).

                                  Cumulative Return CIF vs. S&P 500
                4%

                2%

                0%

               -2%

               -4%
                                                                                 S&P 500
               -6%                                                               CIF

               -8%

              -10%

              -12%

              -14%
                       Oct      Nov      Dec       Jan       Feb      Mar
                                                                                                    2
Cougar Investment Fund Objective
Primary

The Cougar Investment Fund provides students with knowledge and practical real-world experience
in an academic environment. The program provides an assortment of challenges for students,
teaching them skills that include time management, public speaking, and diligence. In addition to
financial analysis, participants expand on their critical thinking, teamwork, and communication
techniques that will ensure their success as they venture into the world beyond Washington State
University.

Secondary

As one of the large cap domestic equity managers for the Washington State University endowment,
the CIF program seeks to produce a return greater than the S&P 500 while maintaining comparable
risk. Investment teams have similar responsibilities as professional money managers continually
seeking maximum returns for their stakeholders while conducting activities in accordance with high
ethical standards and the risk management framework.

The College of Business receives positive publicity through this unique opportunity available to
students at Washington State University. The Financial Markets Laboratory, located in the east wing
on the fourth floor of the College of Business in Todd Hall, provides a visual image of the
possibilities available to current and future WSU students. The Financial Markets Laboratory offers
first class technology to students involved with the program. Benefits include their own personalized
space that is equipped with high speed internet access, individual computers, a stock ticker that
displays current market prices and television sets programmed to CNBC and CNN that provide up-
to-date market conditions. The Financial Markets Laboratory serves as a meeting pla ce for students
to discuss current events, research, and evaluate the CIF portfolio.




                                                                                                   3
Cougar Investment Fund Background & Investment Process
In June 2001, the Washington State University Board of Regents approved the establishment of the
Cougar Investment Fund with an initial $1 million portfolio. The proposal, authored by Dr. Richard Sias
(Gary P. Brinson Chair of Investment Management), was also reviewed and approved by the WSU
Regents/Foundation Investment Committee.

The CIF acts as one of the University’s large-capitalization domestic equity managers. Its performance is
benchmarked against the S&P 500 index and is compared to a peer group of other domestic large-
capitalization managers. The portfolio is managed by Dr. Sias’ Cougar Investment Fund I (Finance 437)
course in fall semesters, and the Cougar Investment Fund II (Finance 438) course in spring semesters.
Two portfolio managers guide the overall management of the fund while the remaining students serve as
analysts assigned to one of ten Dow Jones Total Market Index sectors.

The CIF is managed according to specific investment guidelines to minimize risk relative to a passive
investment in the S&P 500. These include:

          Investments limited to NYSE, AMEX, and NASDAQ securities.
          $5 billion minimum equity capitalization (large-cap stocks only).
          Five percent maximum position in any one security, excluding ETFs.
          Sector weights within five percent of Dow Jones Total Market Index sector weights.
          Excess funds invested in sector ETFs.
          No margin trading, short positions, or derivatives.
          University’s Senior Investment Manager may veto any investment recommendations.
          University’s Senior Investment Manager has the option to liquidate any position.

The class holds weekly investment meetings during which the portfolio managers provide a
comprehensive review of the portfolio that incorporates individual holding period returns, current sector
and industry weights, and a discussion of prevailing market conditions. Sector analysts then have an
opportunity to make sell, target and stop–loss price recommendations for current holdings. Five to seven
students then present security reports. At the conclusion of the presentations, the entire investment team
votes on each recommendation. A majority vote is required to initiate any order.

Each security recommendation includes an extensive analyst report. The report includes an outline of the
firm’s operations, competitors, strategy, and valuations. A fundamental valuation is estimated using the
Edwards-Bell-Ohlson (EBO) model, and securities are also valued relative to industry competitors based
on forward Price to Earnings (P/E) and PEG (P/E adjusted for growth) indicators as well as historic
Price to Book (P/B), Price to Sales (P/S) and Value (P/B adjusted for RO E) ratios. Other evaluation
tools include examination of historic earnings surprises, revisions in future earnings estimates, forward
growth estimates, analysts’ recommendations and revisions, changes in institutional ownership, and
evaluation of changes in the firm’s financial health using the Piotroski model. Historic technical analyses,
employing Bollinger bands, stochastics, regression, momentum, and periodic moving averages are also
assessed. (See Appendix for a glossary of terms and sample analyst report.)




                                                                                                       4
Equity Market Review

Overview

U.S. equity markets suffered some of their worse performance in years as the S&P 500 garnered a
total return of -12.46 percent over the six month evaluation period (October 2007-March 2008).
Similarly, the Dow Jones Industrial Average suffered an 11.75 percent loss falling from 13,896 at the
beginning of October to 12,263 by the end of March.

The S&P 500 suffered a 3.3 percent decline in the fourth quarter of 2007 primarily as a result of the
chaos in the credit and housing markets. Financial and consumer discretionary stocks suffered the
worst declines. Specifically, credit market distress and the subprime mortgage fallout weighed heavily
on financials, while discretionary stocks were hindered due to investor concerns that the housing
sector run over would affect the economy.2 Utility and energy stocks were strong performers over
the quarter due to declining interest rates and increasing commodity prices.

Large cap stocks outperformed small and mid cap stocks in the fourth quarter of 2007 by 1.8 and
0.3 percent, respectively. Even so, large cap stocks fell 3.2 percent for the quarter. Somewhat
surprisingly, given the economic slowdown, value stocks underperformed growth stocks by 5
percent in the fourth quarter of 2007.

Equity markets experienced even greater volatility in the first quarter of 2008. All equity indexes
finished in negative territory for the period with the S&P 500 down 9.5 percent and the Dow Jones
Industrial Average falling more than 1,000 points. All major equity indexes were down significantly
in January, down approximately two-to-four percent more in February, and then down another one-
to-two percent in March.3 The Fed had a very busy quarter, cutting the target Fed Funds Rate three
times—twice by 75 basis points and once by 50 basis points. As an indication of how aggressive
these cuts were, consider that the Fed has only cut rates by more than 50 basis points once before in
the past 18 years.

One of the most notable events of the quarter was the Fed and Treasury working with JP Morgan to
takeover Bear Stearns. JP Morgan had upped its bid from two dollars a share to ten dollars a share,
but that still comes at an extreme discount from the $80 share price in early March and the $170
price in January 2007.

Value stocks outperformed growth stocks in the slowing economic environment that characterized
the first quarter of 2008. Small cap and large cap stocks preformed relatively similar over the period.

The best performing sectors over the six-month evaluation period were Materials and Energy, which
were down 1.16 and 2.77 percent, respectively. Their returns can mainly be attributed to high
commodity prices and separation from the credit crunch and subprime mortgage crisis. In contrast,
the worst performing sectors over the period were telecommunications and financials, which were
down 31.71 and 27.04 percent, respectively.



2   http://www.opcap.com/Research/Pages/MarketView.aspx
3   http://www.allegiantassetmanagement.com


                                                                                                      5
Individual Sector Performance

                 U.S. Stock Market Returns By Sector Over Fourth Quarter 2007 and
                                        First Quarter 2008




           5%
           0%
           -5%
          -10%
          -15%
          -20%
          -25%
          -30%
          -35%



Interest Rates
                                       Treasury Yield Curve at 10/1/2007 and 4/1/2008
The first interest rate cut
                                 6%
during the fourth quarter
occurred on October 31,          5%
2007. The Federal Open 4%
Market Committee (FOMC) 3%
lowered its target for the       2%
federal funds rate by 25
                                 1%
basis points to 4.5 percent.
                                 0%
The committee claimed that
                                    0       50      100      150        200       250 300    350
although growth was strong
in the third quarter, they                                  Maturity in Months

foresaw a slowing pace of                                10/1/2007         4/1/2008
economic expansion in the
future.4 It was only a month
later when the Committee decided to cut rates once again. On December 11, 2007, the Fed lowered
the target rate for the federal funds rate by another 25 basis points to a new target rate of 4.25
percent. Data had shown that the economy was slowing, and the rate was cut to promote moderate
growth. 5 One of the two largest of the rate cuts over the two quarters came on January 22, 2008.
The FOMC cut rates by 75 basis points, resulting in a new target rate of 3.50 percent. The
committee saw a deepening of the housing contraction and felt that the rate cut was necessary. Two
more rate cuts came in the first quarter of 2008: a 50 basis point cut on January 30, 2008, and then
another 75 basis point cut on March 18, 2008 following the Bear Sterns bailout. By the end of the


4   http://www.federalreserve.gov/newsevents/press/monetary/20071031a.htm
5   http://www.federalreserve.gov/newsevents/press/monetary/20071211a.htm


                                                                                                  6
quarter the new federal funds rate was 2.25 percent; less than half of the rate at the beginning of the
fourth quarter of 2007.

Inflation

One of the primary goals of                      U.S. Inflation Rates (in percent)
the Federal Reserve is to 4.4
keep inflation rates at an
acceptable level.          The 4.3
problem with the recent rate
cuts is that they can lead to a     4.2
                                                                                         CPI-U: All
weak dollar and inflation.                                                               Items (1982-
Over the past two quarters,         4.1
                                                                                         84=100)
from October 1, 2007 to
                                      4
March 31, 2008, inflation
rates have ranged from              3.9
about 4.00 percent to just            Oct-07        Dec-07       Jan-08       Mar-08
over 4.30 percent.         The
rising price of gasoline is the biggest fear for U.S. consumers. Over the evaluation period, oil prices
ranged from $86 per barrel, at the beginning of October, to over $105 per barrel at the end of
March. Over the same period last year, October 2006 through March 2007, oil prices ranged from
about $60 to $66 per barrel. Most analysts expect gas to hit four dollars per gallon this summer and
project reduced travel as a result.

Gross Domestic Product

In the fourth quarter of 2007
Gross Domestic Product only
increased by 60 basis points
above the previous quarter
results. Analysts’ estimate of
the growth rate was spot on.
In addition, real exports of
goods and services increased
by 6.50 percent primarily as a
result of the weakening of the
U.S. dollar. For example, over
the evaluation period, the
Euro went from $1.42/Euro
to $1.58/Euro.6 Most expect
exports to continue to increase with the persistent weakening of the U.S. dollar.




6   www.finan ce.yahoo.com


                                                                                                      7
Volatility
                                                                  CBOE Market Volatility Index (VIX)
As the graph depicts, volatility
                                                        35
increased sharply over the last
year. Most of the increased                             30
volatility was related to increase                      25
economic uncertainty associated
                                                        20
with the sub-prime mortgage
crisis, its effect on the credit                        15                                                               VIX
markets, and the expected                               10
slowdown of the U.S. economy.                            5

                                                         0
                                                        1/2/2004             1/2/2005   1/2/2006   1/2/2007   1/2/2008




Labor Market

The unemployment rate rose from 4.7
percent in October of 2007 to 5.1 percent                     Unemployment Rate
in March of 2008, indicating that 5.20%
employment has been on a continued 5.10%
                                                    5.00%
downward trend. The number of
                                                    4.90%
unemployed individuals has increased from 4.80%
7.2 million in October of 2007 to 7.8 4.70%
million in March of 2008.7 The rising 4.60%
unemployment rate can mainly be 4.50%
attributed       to      the       manufacturing, 4.40%
employment services, and construction 4.30%Jan-06 Apr-06 Jul-06 Nov-06 Feb-07 May-07 Aug-07 Dec-07 Mar-08
sectors which have been dramatically
impacted over the past two quarters. On the other hand, health care, food services, and mining
sectors added jobs over the same period. Manufacturing employments fell by 213,000 over the past
                                                          two quarters, exhibiting the largest
             Unemployment by Sector                       unemployment of all sectors. This was
                                                          mainly associated with declines in motor
           Oct-07   Nov-07   Dec-07  Jan-08 Feb-08 Mar-08
                                                          vehicle    production,      specialty        trade
    40000
    30000
                                                          contractors, and durable/nondurable goods
    20000                                                 manufacturing jobs. The construction
    10000
        0                                                 sector was a close second with a decrease
   -10000
   -20000                                                 of 195,000 jobs. Health care and food
   -30000
   -40000
                                                          services continued to expand over the two
   -50000                                                 quarters with an increase of 163,000 and
   -60000
                                                          132,000 jobs, respectively.
          Manufacturuing   Construction   Health Care        Food Services



7   http://www.bls.gov/news.release/ archives


                                                                                                                          8
Stock Allocation and Portfolio Characteristics
Investment meetings are held once or twice a week in which five to seven analysts individually
present an investment report on a specific security. Analysts provide a five-minute oral presentation
covering several important aspects of the company’s structure and competition. Also included in
the presentations are brief summaries of several important indicators including fundamental
valuation, relative valuation, technical analysis, earnings analysis, analysts’ recommendations,
institutional ownership, and Piotroski score. Following the analyst’s investment thesis and their final
recommendation, the analyst answers any questions that fellow students have regarding the security.
Challenging audience questions allow the presenting analyst an opportunity to further convince the
investment team that their recommendation is well-researched and valid.

As of March 31, 2008, the CIF held 21 Portfolio Allocation as of Dollar Values Percentage
securities and ten of the sector ETFs, 3/31/08
compared to the 23 securities and nine                                  $ 488,479.29
                                            Individual Securities                       34.52%
sector ETFs that comprised the CIF at
                                            Sector ETFs                 $ 921,864.20    65.14%
the beginning of the evaluation period
(October 1, 2007). The decline in the
number of individual holdings was due Cash                              $4,870.93       0.34%
to securities hitting their price collars Total                         $1,415,214.42 100.00%
(stop-loss or target price) over the winter break. The ending position of the fund on March 31, 2008
was $1,415,214, a decrease of $181,206, or 11.35 percent, from the previous period’s ending value of
$1,596,420. The breakdown of the portfolio by dollar values (on September 30, 2007) was
$488,479.29 in individual securities, $921,864.20 in sector ETFs, and $4,870.93 in cash. By
percentage, the breakdown was 34.52 percent in individual securities, 65.14 percent in sector ETFs,
and 0.34 percent in cash. The size of individual security holdings ranged from $7,925 to $28,827,
with an average position of $23,261 and an average individual security weight of 1.58 percent.

Using E *Trade’s portfolio analysis tools, we evaluated our portfolio’s style. Classical growth stocks
comprised 37.16 percent of our portfolio, while 17.13 percent was cyclical stocks, 15.34 percent
aggressive growth, 15.11 percent hard assets, 8.02 percent slow growth, 5.18 percent was high yield
and 1.58 for speculative growth. Compared to the composition of the S&P 500, the CIF’s portfolio
was biased toward aggressive growth at the expense of classical growth.

Sector Allocation

The Cougar Investment Fund continues to maintain sector weights within 5 percent of the Dow
Jones Total Market Index (DJTMI) sector weights. When the class is unable to agree on enough
individual securities within a given sector, the excess funds are invested in Dow Jones U.S. sector
exchange traded funds (ETFs) to maintain appropriate sector weights.

In exercising portfolio transactions, a security that is presented must have a majority of class support
to be purchased. That purchase is funded by selling an equal dollar amount of the ETF from the
security’s corresponding sector. When the class votes to sell a security held in our portfolio, the
proceeds are then invested in the corresponding sector ETF. As a result, buying and selling
securities does not materially impact the sector weights and ensures our portfolio maintains the
proper risk exposure.


                                                                                                       9
A visual representation of how our sector allocations paralleled the Dow Jones Total Market Index
sector weights is provided below (as of March 31, 2008). The light bars represent the sector weights
of the Dow Jones Total Market Index, and the dark bars represent the sector weights of the CIF
portfolio. As shown on the graph, our sector weights are typically maintained within 1 percent of
the Dow Jones Total Market Index sector weights.


                                      Sector Allocation

         16%
         14%
         12%
         10%
          8%
          6%
                                                                                     CIF
          4%
          2%                                                                         DJ TMI
          0%




                                                                                                  10
     Portfolio Holdings as of 3/31/2008

Ticker               Company              Closing        Purchase      Number           Total           Percent
                      Name                 Price           Price       of Shares       Positions      of Portfolio

 MO      Altria Group Incorporated        $    22.20 $         20.65      357      $       7,925.40      0.56%
BUD      Anheuser Busch Companies Inc.    $    47.45 $         44.96      420      $      19,929.00      1.41%
BRKB     Berkshire Hathaway Inc CL-B      $ 4,472.90 $      4,675.99        6      $      26,837.40      1.90%
CELG     Celgene Corporation              $    61.29 $         55.30      450      $      27,580.50      1.95%
  CL     Colgate Palmolive Company        $    77.91 $         66.72      370      $      28,826.70      2.04%
COST     Costco Corporation               $    64.97 $         72.50      359      $      23,324.23      1.65%
FDX      FedEx Corporation                $    92.67 $         89.57      280      $      25,947.60      1.83%
FSLR     First Solar Incorporated         $ 231.14 $          208.46      120      $      27,736.80      1.96%
DNA      Genentech Incorporated           $    81.18 $         80.09      310      $      25,165.80      1.78%
INTC     Intel Corporation                $    21.18 $         19.96     1240      $      26,263.20      1.86%
 IYC     Dow Jones US Consumer Services   $    57.54           N/A       1,399     $      80,498.46      5.69%
 IDU     Dow Jones US Uitilites           $    91.95           N/A        524      $      48,181.80      3.40%
 IYZ     Dow Jones US Telecom             $    23.37           N/A       1,680     $      39,261.60      2.77%
 IYW     Dow Jones US Technology          $    52.50           N/A       2,485     $     130,462.50      9.22%
  IYJ    Dow Jones US Industrials         $    68.43           N/A       1,825     $     124,884.75      8.82%
 IYH     Dow Jones US Healthcare          $    62.62           N/A       1,385     $      86,728.70      6.13%
 IYF     Dow Jones US Financials          $    81.65           N/A       2,363     $     192,938.95     13.63%
 IYE     Dow Jones US Energy              $ 128.71             N/A       1402      $     180,451.42     12.75%
 IYK     Dow Jones US Consumer Goods      $    60.58           N/A         70      $       4,240.60      0.30%
 IYM     Dow Jones US Basic Materials     $    74.22           N/A        461      $      34,215.42      2.42%
   K     Kellogg Company                  $    52.56 $         55.73      300      $      15,768.00      1.11%
LMT      Lockheed Martin Incorporated     $    99.30 $        110.23      230      $      22,839.00      1.61%
WFR      MEMC Electronic Materials Inc.   $    70.90 $         79.11      320      $      22,688.00      1.60%
NKE      Nike Incorporated CL-B           $    68.00 $         44.05      356      $      24,208.00      1.71%
  PM     Philip Morris International      $    50.58 $         48.76      357      $      18,057.06      1.28%
  PX     Praxair Incorporated             $    84.23 $         82.30      310      $      26,111.30      1.85%
DGX      Quest Diagnostics Incorporated   $    45.27 $         53.22      470      $      21,276.90      1.50%
MMM      3M Company                       $    79.15 $         79.13      320      $      25,328.00      1.79%
 VFC     VF Corporation                   $    77.51 $         79.20      320      $      24,803.20      1.75%
WMT      Wal-Mart Stores Incorporated     $    52.68 $         50.01      400      $      21,072.00      1.49%
YUM      Yum Brands Incorporated          $    37.21 $         34.65      720      $      26,791.20      1.89%
         CASH                                                                      $       4,870.93      0.34%

         TOTAL                                                                     $   1,415,214.42     100.00%




                                                                                                         11
Fund Performance by Individual Security
          Company Name             Number      Date Purchased          Price as of           Position at 10/1     Date Sold If    price at 3/31        Position At Sale        Gain/Loss
                                   of Shares     If not held        10/1 or purchase          or Purchase        Not Still Held     or at sell           or on 3/31
                                                    at 10/1

BlackRock, Inc.                       165                       $               173.41   $           28,612.65     28-Dec-07      $       219.45   $           36,209.25        $7,596.60
Transocean Inc.                       220                       $               113.05   $           24,871.00     27-Nov-07      $       135.75   $           29,865.00        $4,994.00
Wal-Mart Stores                       400                       $                43.65   $           17,460.00                    $        52.68   $           21,072.00        $3,612.00
Berkshire Hathaway                     8                        $             3,952.00   $           31,616.00     21-Dec-07      $     4,389.00   $           35,112.00        $3,496.00
Nike Inc.                             356                       $                58.66   $           20,882.96                    $        68.00   $           24,208.00        $3,325.04
GlobalSantaFe                         310         2-Nov-07      $                77.58   $           24,049.80     26-Nov-07      $        86.83   $           26,917.30        $2,867.50
First Solar Inc                       120         11-Mar-08     $               208.46   $           25,015.04                    $       231.14   $           27,736.80        $2,721.76
Celgene Corp.                         450         21-Feb-08     $                55.30   $           24,884.60                    $        61.29   $           27,580.50        $2,695.91
Noble Energy Inc.                     340         30-Oct-07     $                73.55   $           25,007.00     27-Dec-07      $        81.16   $           27,595.08        $2,588.08
Apple Inc.                            165          2-Oct-07     $               153.90   $           25,393.50     14-Nov-07      $       169.12   $           27,904.80        $2,511.30
Devon Energy Corporation              285         11-Feb-08     $                86.26   $           24,583.82     26-Mar-08      $        95.02   $           27,080.70        $2,496.89
Colgate-Polmolive Co.                 370                       $                71.32   $           26,388.40                    $        77.91   $           28,826.70        $2,438.30
Transocean Inc.                       300         27-Nov-07     $               129.39   $           38,817.00     27-Dec-07      $       137.29   $           41,187.00        $2,370.00
Yum Brands Inc.                       720         26-Feb-08     $                34.65   $           24,947.71                    $        37.21   $           26,791.20        $1,843.49
Intel Corp.                          1240         11-Feb-08     $                19.96   $           24,748.54                    $        21.18   $           26,263.20        $1,514.66
FedEx Corp.                           280         11-Feb-08     $                89.57   $           25,079.01                    $        92.67   $           25,947.60         $868.59
Philip Morris International           357         31-Mar-08     $                48.76   $           17,407.32                    $        50.58   $           18,057.06         $649.74
Praxair Inc                           310         26-Feb-08     $                82.30   $           25,511.45                    $        84.23   $           26,111.30         $599.85
Google Inc.                           40          23-Oct-07     $               633.63   $           25,345.20     10-Jan-08      $       648.45   $           25,938.00         $592.80
Altria Group Inc.                     357                       $                20.65   $            7,372.05                    $        22.20   $            7,925.40         $553.35
Genentech Inc.                        310         11-Mar-08     $                80.09   $           24,827.09                    $        81.18   $           25,165.80         $338.71
PepsiCo Ainc.                         395                       $                73.26   $           28,937.70     22-Jan-08      $        73.70   $           29,111.50         $173.80
3M Company                            320         26-Feb-08     $                79.13   $           25,322.78                    $        79.51   $           25,443.20         $120.42
Deere Co.                             170         2-Oct-07      $                73.66   $           12,521.35     25-Jan-08      $        72.75   $           12,367.50        ($153.85)
NYSE Euronext                         350         11-Feb-08     $                69.00   $           24,148.25     22-Feb-08      $        67.51   $           23,628.50        ($519.75)
VF Corp.                              320         21-Feb-08     $                79.20   $           25,345.38                    $        77.51   $           24,803.20        ($542.18)
Qualcomm Inc.                         575                       $                42.26   $           24,299.50     23-Oct-07      $        41.16   $           23,664.13        ($635.38)
Constellation Energy Group            260         26-Feb-08     $                95.54   $           24,839.10     3-Mar-08       $        92.00   $           23,920.00        ($919.10)
Kellogg Co.                           300         2-Oct-07      $                55.73   $           16,718.82                    $        52.56   $           15,768.00        ($950.82)
Anheuser Busch Companies Inc          420                       $                49.99   $           20,995.80                    $        47.45   $           19,929.00       ($1,066.80)
Berkshire Hathaway.B                   6          4-Mar-08      $             4,675.99   $           28,055.94                    $     4,472.90   $           26,837.40       ($1,218.54)
Coach                                 356                       $                51.02   $           18,163.12      2-Oct-07      $        47.29   $           16,835.42       ($1,327.70)
Precision Cast Parts Corp.            150         12-Dec-07     $               149.96   $           22,494.12     20-Dec-07      $       140.00   $           21,000.00       ($1,494.12)
Public Services Enterprise Group      280         23-Oct-07     $                45.07   $           12,618.20     26-Mar-08      $        39.55   $           11,074.00       ($1,544.20)
NYSE Euronext                         370         29-Feb-08     $                68.16   $           25,218.46      7-Mar-08      $        63.50   $           23,495.00       ($1,723.46)
Cisco Systems Inc                     840         20-Nov-07     $                29.20   $           24,528.00     30-Nov-07      $        26.97   $           22,654.80       ($1,873.20)
Vulcan Materials Co.                  265         11-Oct-07     $                95.28   $           25,249.20     23-Oct-07      $        87.99   $           23,317.35       ($1,931.85)
Rohm & Haas Co.                       457                       $                55.67   $           25,441.19      2-Nov-07      $        51.29   $           23,440.58       ($2,000.61)
Adobe Systems Inc.                    710          4-Mar-08     $                35.29   $           25,054.84     10-Mar-08      $        32.04   $           22,748.47       ($2,306.36)
Microsoft Corp.                       760         7-Dec-07      $                32.98   $           25,064.80      8-Feb-08      $        29.88   $           22,708.80       ($2,356.00)
Lockhead Martin Corp.                 230         5-Dec-07      $               110.23   $           25,352.90                    $        99.30   $           22,839.00       ($2,513.90)
MEMC Electronic Materials             320          4-Mar-08     $                79.11   $           25,315.20                    $        70.90   $           22,688.00       ($2,627.20)
Costco Wholesale                      359         12-Dec-07     $                72.50   $           26,026.64                    $        64.97   $           23,324.23       ($2,702.41)
General Electric Co.                  790                       $                41.40   $           32,706.00     21-Nov-07      $        37.93   $           29,964.70       ($2,741.30)
Walgreen Co.                          450                       $                47.24   $           21,258.00      4-Oct-07      $        41.09   $           18,490.50       ($2,767.50)
DaVita, Inc.                          465                       $                63.18   $           29,378.70     17-Dec-07      $        57.00   $           26,505.00       ($2,873.70)
Fortune Brands Incorporated           256                       $                81.49   $           20,861.44      10-Jan-08     $        70.00   $           17,920.00       ($2,941.44)
Walt Disney Company                   730                       $                34.39   $           25,104.70      14-Jan-08     $        29.99   $           21,892.70       ($3,212.00)
Amazon.Com Inc                        310         30-Nov-07     $                83.87   $           25,999.39      25-Jan-08     $        73.01   $           22,633.10       ($3,366.29)
Wells Fargo and Co.                   702                       $                35.62   $           25,005.24     14-Nov-07      $        30.62   $           21,495.24       ($3,510.00)
AT&T Inc.                             635         20-Nov-07     $                39.58   $           25,130.13     25-Feb-08      $        33.30   $           21,145.50       ($3,984.63)
MBIA Inc                              400         18-Oct-07     $                65.36   $           26,144.00     29-Oct-07      $        55.28   $           22,112.00       ($4,032.00)
Nucor Corp.                           430          7-Dec-07     $                58.23   $           25,038.47      25-Jan-08     $        48.55   $           20,876.50       ($4,161.97)
United Health Group Inc.              520                       $                48.43   $           25,183.60     14-Mar-08      $        40.42   $           21,018.40       ($4,165.20)
Valero Corp.                          490                       $                67.18   $           32,918.20      18-Jan-08     $        58.03   $           28,434.70       ($4,483.50)
Annaly Capital Management Inc        1230         21-Feb-08     $                20.18   $           24,821.40     11-Mar-08      $        16.45   $           20,233.50       ($4,587.90)
Medco Health Solutions                490         26-Feb-08     $                51.09   $           25,033.37     14-Mar-08      $        41.00   $           20,090.00       ($4,943.37)
MGM Mirage                            270         5-Nov-07      $                91.29   $           24,648.30      10-Jan-08     $        71.62   $           19,337.40       ($5,310.90)
Quest Diagnostics                     470                       $                57.77   $           27,151.90                    $        45.27   $           21,276.90       ($5,875.00)
Cognizant Technology Solutions        820         3-Dec-07      $                32.27   $           26,459.76     25-Jan-08      $        24.25   $           19,885.00       ($6,574.76)
Carnival Corporation                  616                       $                48.43   $           29,832.88     20-Mar-08      $        36.67   $           22,588.72       ($7,244.16)
Countrywide Financial Corp.          2400         12-Dec-07     $                11.69   $           28,056.00      9-Jan-08      $         7.90   $           18,960.00       ($9,096.00)




                                                                                                                                                                          12
Top Five Performers
(Based on Total Monetary Gain)


                       Monetary Gain from
  Company                                                               Cause
                       9/30/2007 to 3/31/2008
Blackrock Inc.             $7,596.60        Blackrock continued to have increasing profits as
Sold: 12/28/07                              reported third quarter earnings surged. They collected
Eval. Period: 9/30 – 12/28                  $1.2 billion in management fees in the third quarter
                                            which was up from $274.5 million the previous year.

Transocean Inc.            $4,994.00         Transocean released their EPS for the third quarter of
Sold: 11/27/07                               2007 which was better than expected due, in large
Eval. Period: 9/30 – 11/27                   part, to continued good revenue efficiency and
                                             postponement of maintenance projects. Transocean
                                             also received clearance from the Department of
                                             Justice for the merger with Global Santa Fe, which
                                             pushed the stock price upward.


Wal-Mart Stores                  $3,612.00   The 2007 holiday season was expected by many
Sold: NA                                     analysts to be one of the slower holiday seasons. As
Eval. Period: 9/30 – 3/31                    result, investors and analysts set expectations low.
                                             Wal-Mart benefited, however, as consumers looked to
                                             save money during the holiday season. Analysts’
                                             expectations were beat leading to a substantial price
                                             increase.

Berkshire Hathaway               $3,496.00   Berkshire Hathaway had very strong third quarter
Sold: 12/21/07                               results. Revenues were up from $25.4 billion a year
Eval. Period: 9/30 – 3/31                    ago to $29.9 billion for the quarter. In addition, third
                                             quarter profits increased by 64% resulting in a large
                                             stock price gain.

Nike Inc.                        $3,325.04   Nike’s growth over the evaluation period had slowed,
Sold: NA                                     but still had a positive upward trend. On January 31,
Eval. Period: 9/30 – 3/31                    Nike announced that shareholders of Umbro
                                             approved the all cash acquisition of Umbro, which will
                                             expand Nike's global leadership in soccer, a key
                                             growth category for the company.




                                                                                                13
Bottom Five Performers
(Based on Total Monetary Gain)


                       Monetary Loss from
  Company                                                             Cause
                       9/30/2007 to 3/31/2008
Countrywide Financial -$9,096.00         Countrywide experienced a severe slowdown in
Sold: 1/9/08                             underwriting mortgages. In November the average daily
Eval. Period: 12/12 – 1/9                loan applications fell by 40%, and Countrywide was
                                         caught in the middle of the sub-prime lending meltdown.

Carnival Corporation      -$7,244.16     Carnival lowered its first quarter profit outlook due to
Sold: 3/20/08                            unexpected cruise interruptions. In March Carnival
Eval. Period: 9/30 – 3/20                lowered expectations once again due to significantly
                                         higher fuel prices. Both of these events drove the price
                                         of the stock down.

Cognizant Technology -$6,574.76          Cognizant Technology announced no significant negative
Solutions                                news over the holding period. The stock price was driven
Sold: 1/25/08                            down by the overall market and, more specifically, by the
Eval. Period: 12/3 – 1/25                technology sector.

Quest Diagnostics         -$5,875.00     In February, Quest Diagnostics issued EPS forecasts that
Sold: NA                                 were well below analyst expectations. In addition, they
Eval. Period: 9/30 – 3/31                continued to lower revenue forecasts over the evaluation
                                         period and the stock price was in a downward trend
                                         almost the entire quarter.

MGM Mirage                -$5,310.90     MGM Mirage did not fare well over the holding period
Sold: 1/10/08                            due to consumers tightening their restraints on
Eval. Period: 11/5 – 1/10                discretionary spending. As a result, holiday travel to Las
                                         Vegas was less than expected.




                                                                                               14
Forward Outlook

The Program

The Cougar Investment Fund, now in its 14th semester, continues to develop and expand. Assets
under management continue to grow as investment teams continue to post positive gains. The
program’s popularity is increasing with enrollment at its highest point since inception.
Opportunities for the students enrolled in the program are phenomenal, both intellectually and
experience-wise. During the summer break, Dr. Sias, Ms. Kellerman, and Mr. Olin will monitor the
portfolio. Securities hitting target or stop-loss prices will be liquidated with the proceeds reinvested
in the appropriate sector ETF.




                                                                                                      15
Appendix
Investment Team . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Analyst Example Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22




                                                                                                                                             16
Cougar Investment Fund Spring 2008 Investment Team

SECTOR                                   STUDENT NAMES

Portfolio Managers   Drew Boston        Taylor Hall


Basic Materials      Ryan Rakoz         Chien-Cheng      Ming-Shien Lee
                                        Pan

Consumer Goods       Alexa Makhani      Justin Lewis     Jonathan         Daniel Denmark
                                                         Kilpatrick

Consumer Services    Nick Sheldon       Robert Barnes    Tyler Wanke      Nate Soper


Oil & Gas            Drew Boston        Yi Chieh Liu     Andrew Hunter


Financial Services   Vivek Kondaveeti   Dustin Wilder    Chih-hao Chen    Justin Foster


Health Care          Westley Richards   Kyle Kuykendall Jessica Moore     Rijia Sun


Industrials          Devin Cox          Robbie           Jeff Troxel      Hsiao-Wen Liang
                                        Kirkaldie


Technology           Sean Spangler      Scott Peterson   Daniel Dorazio   Jeff Vetter


Telecommunications   Ka Seng Chan       Meng-Ju Chi


Utilities            Taylor Hall        Jason Jukubiak   Davis McNeil




                                                                                          17
Glossary of Terms
American Stock Exchange (AMEX):
      The stock exchange with the third highest volume of trading in the United States, located at
      86 Trinity Place in downtown Manhattan. The bulk of trading on AMEX consists of index
      options (computer technology index, institutional index, major market index) and shares of
      small to medium-size companies are predominant. Bonds, options, and derivatives are also
      actively traded. AMEX merged with the NASDAQ in 1998.

Basis Points (bps):
       Each percentage point of yield on an investment equals 100 basis points. For example, a
       return of 5 percent is 50 basis points higher than a return of 4.5 percent.

Bearish (Bear Market):
      A condition in the stock market in which there is a downward trend. It can be a belief that a
      particular security, sector, or overall market is about to fall. Also can be a large scary animal.
      If it is brown it is most likely a grizzly; black it is most likely a black bear; white it is probably
      a polar bear; white and black chances are it is a cute, cuddly, harmless, and endangered panda
      bear.

Bollinger Bands:
       Trading bands useful for technical analysis, as they vary in distance from the moving average
       of a security’s price based on the security’s volatility. During periods of increased fluctuation,
       the bands widen to take this into account. When the fluctuation decreases, the bands are
       tapered for a narrower focus to the price range.

Derivatives:
      A financial security, such as an option or future, whose value is derived in part from the
      value and characteristics of another security, which is the underlying asset.

Dow Jones Total Market Index:
      An index of more than 2,000 publicly-traded U.S. companies representing 95 percent of the
      total capitalization of the U.S. stock market.

Earnings per Share Torpedo:
      The earnings per share torpedo are an earnings momentum measure based on the ratio of
      the forecast yearly earnings per share divided by the yearly trailing earnings per share. All
      valid values are then ranked in ascending order. It is the measure of the estimated growth in
      earnings for a security, relative to historical earnings.

Edwards-Bell-Ohlson (EBO) model:
     A simple, yet powerful measure of a stock’s fundamental value. The fundamental value is
     derived as the sum of current book value and the present value of future abnormal earnings.
     Abnormal earnings are generated when the return on equity (ROE) is greater than the
     discount rate.




                                                                                                          18
Equity Capitalization (market cap):
       The total dollar value of all outstanding shares. Computed as shares times current market
       price. Capitalization is a measure of corporate size.

ETF (Exchange Traded Fund):
      Similar to a mutual fund, but shares are traded on an exchange (typically the American Stock
      Exchange), can be sold short, purchased on margin, and bought and sold throughout the
      trading day. Sector ETFs hold securities within a given sector (e.g., Technology).

Historical Beta:
       Historical beta is calculated as the slope or coefficient in a regression of a security’s total
       returns over the past 60 months versus the returns of the S&P 500 over the same period.

Institutional Ownership:
        Ownership of securities by professional, including insurance companies, depository
        institutions, pension funds, investment companies, mutual funds, and endowment funds.

Margin Trading:
      Allows investors to buy securities by borrowing money from a broker. The margin is the
      difference between the market value of a stock and the loan a broker makes.

Momentum:
  1. A relatively straightforward indicator that measures the rate of change in price as opposed to
     price itself. It is calculated by subtracting the price of x periods ago from the price now. This
     indicator can also be referred to as rate-of-change (ROC).

   2. Momentum as used in iQuantum reports is made up of three components: Net Earnings
      Revision, Price Reversal, and Earnings per Share Torpedo.

Monte Carlo Simulation:
      An analytical technique in which a large number of simulations are run using random
      quantities for uncertain variables and looking at the distribution of results to infer which
      values are most likely.

National Association of Securities Dealers Automatic Quotation System (NASDAQ):
      An electronic quotation system that provides price quotations to market participants about
      the more actively traded common stock issues in the over-the-counter (OTC) market. About
      4000 common stock issues are included in the NASDAQ system.

New York Stock Exchange (NYSE):
     Also known as the ―Big Board‖ and ―the Exchange‖, where more than 2000 common and
     preferred stocks are traded. The exchange is the oldest in the United States, founded in 1792,
     and the largest. It is located on Wall Street in New York City.

Net Earnings Revision:
      Net earnings revision, also referred to as analyst estimate revisions, is the difference between
      the number of analyst upward earnings estimate revisions and the number of analyst
      downgrade estimate revisions divided by the total number of estimates.

                                                                                                    19
PEG ratio:
      Price-to-earnings ratio divided by forecasted growth rate in earnings. This serves as an
      estimate of the growth rate-adjusted PE ratio.

Periodic Moving Averages:
       An indicator for technical analysis that shows the average value of a security’s price over
       time. It is perhaps the oldest and the most widely used technical indicator.

Piotroski Score:
       A model developed by Joseph Piotroski which incorporates nine measures of change in a
       firm’s financial health. Firms that meet a minimum level of financial health and have
       improving conditions score high. Firms with worsening performance score low.

Price Reversal:
       Price reversal, also known as price momentum, is the measure of the difference between a
       security’s actual return and expected return based on CAPM in the last month.

Price-to-Book ratio (P/B):
       Compares a stock's market value to the value of total assets less total liabilities (book value
       of equity). Determined by dividing current stock price by common stockholder equity per
       share (book value), adjusted for stock splits.

Price-to-Earnings ratio (P/E):
       Current stock price divided by trailing annual earnings per share or expected annual earnings
       per share.

Price-to-Sales ratio (P/S):
       Determined by dividing current stock price by revenue per share (adjusted for stock splits).
       Revenue per share for the P/S ratio is determined by dividing revenue for past 12 months by
       number of shares outstanding.

Regression:
      A statistical tool used for forecasting future price. The concept behind regression is to find
      the best estimate of the trend given a noisy sample of data points. It is calculated by using
      the "Least Squares" method over a given period, which is drawn as a trendline extending
      through the defined period that attempts to filter out market noise.

Sharpe Ratio:
      A risk-adjusted measure developed by William F. Sharpe, calculated using standard deviation
      and excess return to determine reward per unit of risk. The higher the Sharpe ratio, the
      better the fund's historical risk-adjusted performance.

Short Position:
       Occurs when a person sells stocks he or she does not yet own. Shares must be borrowed,
       before the sale, to make "good delivery" to the buyer. Eventually, the shares must be bought
       back to close out the transaction. This technique is used when an investor believes the stock
       price will drop.

                                                                                                    20
Size (Natural Logarithm of Market Capitalization):
       Natural logarithm of market capitalization is the natural logarithm of the product of a
       security’s price times the number of shares outstanding. The factor is updated daily.

Standard & Poor’s 500 (S&P 500):
      A widely used U.S. stock market benchmark. The S&P 500 is a value-weighted index of 500
      large capitalization U.S. securities.

Standard & Poor’s Depositary Receipts (SPDRs):
      SPDRs (Spiders) are designed to track the value of the Standard & Poor's 500 Composite
      Price Index. Stands for Standard & Poor's Depositary Receipt. They trade on the American
      Stock Exchange under the symbol SPY. SPDRs are similar to closed-end funds but are
      formally known as a unit investment trust. One SPDR unit is valued at approximately one -
      tenth (1/10) of the value of the S&P 500. Dividends are disbursed quarterly, and are based
      on the accumulated stock dividends held in trust, less any expenses of the trust.

Style (Earnings to Price Ratio):
       The earnings to price ratio is the sum of the most recent four quarters’ earnings per share
       dividend by the closing price. Earnings are updated monthly.

Stochastics:
      The Stochastics oscillator, a popular and dynamic indicator developed by Dr. George Lane,
      is based on the premise that during an upward trading market, prices tend to close near their
      high, and during a downward trading market, prices tend to close near their low. Stochastics
      measures at what point the price of a security is within the entire price range of the security
      over a given period.

Stop-Loss Price:
      An order to sell a stock is issued when its price falls to this level, which is specified by the
      investor.

Target Price:
       The price that an investor hopes a stock will reach in a certain time period.

Technical Analysis:
      Security analysis that seeks to detect and interpret patterns in past security prices.

Value Ratio:
      Price-to-book ratio divided by return on equity. This serves as an estimate of the ROE-
      adjusted price-to-book ratio.




Note: Man y of the d efinitions for the terms in this glossary were obtain ed from the Yahoo! Finan cial Glossary, Silicon
Investor, and Barron’s Dictionary of Fin an ce and Investment Terms.



                                                                                                                        21
                                   Example Analyst Report
The following report was written by Robert Barnes for Estee Lauder(EL). Each security investment
report follows this exact format. The first page reports general information about the company, the
investment thesis (i.e., why the analyst recommends that our investment team purchase the stock),
and a summary of the valuation indicators. The following three pages provide a company summary
and an analysis of the company’s competition and strategy. The rest of the report contains selected
research-justified analyses including an Edwards-Bell-Ohlson (fundamental) valuation, a relative
valuation, technical analysis, an earnings analysis, analyst recommendations, changes in institutional
ownership, and Piotroski score.




                                                                                                    22
Estee Lauder Companies Inc. (EL)                                                         Robert Barnes
Date:                             April 21, 2008         Consensus Estimate 12/07A 12/08E 12/09E
Sector:                         Consumer Goods           EPS                    $2.20   $2.37   $2.66
Industry:                       Personal Products        P/E                    20.50   19.38   17.26
Current Price:                        $44.97             Long Term Growth Rate:                 12.19%
52 Wk Price Range:               $37.03 - $52.31         Ratio Analysis    Co.   Indus.  Sector SP500
Ave. Daily Vol:                     1,700,000            P/E (TTM)        20.53   22.35  19.88   18.45
Beta:                                  0.56              P/S (TTM)         1.19    2.73   2.49    2.54
Market Cap ($billion):                $8.70              P/B (MRQ)         6.47    6.62   5.65    3.78
Shares Out (million):                193.43              ROA (TTM)        10.30    9.51  10.98    8.79
Inst. Hold %:                         86.11              EBO Valuation                           $97.56
Div Yld:                              1.20%              Recommendation:                        HOLD
Total Debt/Equity:                     0.93              Stop-loss Price:                        $40.00
Member S&P 500?                        Yes                                 Price     6-mo prob    12-mo prob
                                                         Target Price     $50.00       46%           55%

INVESTMENT THESIS                                          SUMMARY
    Recent launch of an exclusive brand on the            Fundamental Valuation: Bullish
     home shopping network will increase                      Using a discount rate of 8.75 percent, the EBO
     revenue and investors have under reacted to              valuation has an implied price of $97.56.
     the news and are yet to fully incorporate the
     news in the stock price.                              Relative Valuation: Neutral/ Bearish
                                                              All of the ratios indicate Estee Lauder is fairly
       Inelasticity of the company’s products will           valued with respect to its competitors.
        allow the company to outperform current
        expectations which will drive the stock price      Technical Analysis: Neutral / Bearish
        up later this year.                                   Technical analysis suggests that the stock is
                                                              appropriately priced although the recent trend
                                                              has an upward slope.
       A recent analyst downgrade pushed the
        stock price excessively lower because of the       Earnings Analysis: Neutral / Bearish
        markets overreaction.                                 Estee Lauder has only had two positive earnings
                                                              surprises in the last five quarters. Future
       The company has increased sales growth                earnings are expected to increase and there are
        each year since its IPO and the continuing            both upward and downward revisions.
        trend will drive the stock price higher as the
        company becomes worth more.                        Analyst Recommendations: Neutral
                                                              Only one analyst expects the company to
                                                              underperform while the majority gives a hold
                                                              recommendation.        Buy and outperform
       Year to date Estee Lauder has outperformed
                                                              recommendations have decreased from one year
        both the S&P 500 and consumer goods ETF
                                                              ago and the mean rating is increasing.
        which suggests the rest of the year will
        follow suit.
                                                           Institutional Ownership: Neutral / Bearish
                                                               There are 24 more sellers than buyers however;
       The company’s vast international presence              there has been an increase in institutional
        allows the company to exploit favorable                ownership of about two percent.
        exchange rates that constrain other
        competitors which will increase their              Piotroski Analysis: Neutral
        revenue and stock price.                               Estee Lauder has a Piotroski score of five and is
                                                               in the first quintile with a P/B ratio of 6.47.

                                                                                                           23
                                              Company Summary

Estee Lauder was founded in 1936 and manufactures and distributes personal care products. The company’s
products are considered by most to be relatively luxurious in nature. The products Estee Lauder makes range
from perfumes and colognes to shampoo and skin moisturizers. With a global presence in more than 130
countries and over 27 brands, Estee Lauder has a strong sales base internationally. In 2007, 50 percent of
revenue came from the Americas which represented 45 percent of operating revenue. 8 Estee Lauder prides
itself on technological innovation and relies heavily on its reputation for marketing. In addition to
manufacturing their own products, Estee Lauder has exclusive licensing agreements with companies like Sean
John.

A positive reputation is crucial to Estee Lauder. The company is a firm believer in corporate social
responsibility and donates millions of dollars each year to foundations such as the Breast Cancer Awareness
Foundation. ―The brand also works with the United Nations to foster sustainable development partnerships
between indigenous communities and businesses.‖9 The company operates out of big department stores but
also has 450 free standing stores like MAC, Jo Malone and Avida.10 Estee Lauder also does a considerable
amount of sales via the internet and considers their distribution channels to be a key competitive advantage.
―About 3.5 million people visited aveda.com in 2007.‖11 If it is a personal hygiene product, chances are it is a
brand under the Estee Lauder Company. ―In North America, two out of every five skin care products sold in
department stores are Clinique products.‖12

Americas                                 Europe, Middle East & Africa                           Asia/ Pacific
  51%                                               35%                                              14%




8 http://library.co rporate-ir.net/library/10/109/109458/items/264399/el2007.pdf
9 http://library.co rporate-ir.net/library/10/109/109458/items/264399/el2007.pdf
10 http://library.co rporate-ir.net/library/10/109/109458/items/264399/el2007.pdf
11 http://library.co rporate-ir.net/library/10/109/109458/items/264399/el2007.pdf
12 http://library.co rporate-ir.net/library/10/109/109458/items/264399/el2007.pdf




                                                                                                             24
Competition and Strategy

To provide superior products, Estee Lauder has to remain technologically innovative. The company spends
an enormous amount of money in research and development. ―Advanced technology is giving rise to a new
generation of ultra-luxe beauty where no ingredient is too luxurious or costly.‖ 13 The company pays close
attention to their employees and works diligently to keep them satisfied. A well informed employee is a more
efficient and productive worker.14 Every year employees are urged to attend professional training course to
further their education. The strategies the company continues to elaborate on can be summed up into five
categories.15
              a. Optimize the brand portfolio
              b. Strengthen product categories
              c. Strengthen and expand global presence
              d. Strengthen and diversify distribution channels
              e. Achieve operational and cost excellence

To ensure that the brands remain fresh in the consumer’s mind, Estee Lauder follows innovation in all
aspects—using new formulas to the latest technology and the most environmentally friendly packaging—
keeping the new product excitement elevated. ―The company has research centers in Asia, Europe, Canada
and the United States that spotlight the precise needs of the many faces of global beauty.‖16

With 27 brands and new ones emerging each year, it is clear that Estee Lauder has a large piece of the $37
billion a year sector of cosmetics. Companies like Proctor and Gamble and Revlon continue to ride the coat
tails of Estee Lauder as far as product quality is concerned. The products Estee Lauder sells are very inelastic
and for some consumers they are a necessity. By setting the technological curve for the industry, Estee
Lauder will always appeal to the affluent upscale demographics. The company may be hurt by slow growth
but the international expansion has hedged this obstacle. Estee Lauder has an impressive return on assets
and each year their margins increase.

Historical Revenue and Earnings:

                               Historical Revenue                                   Historical Earnings
                  FY 08/06         FY 07/06         FY 06/06          FY 08/06           FY 07/06       FY 06/06
1st Quarter       $1,710,100       $1,539,500       $1,497,100          $0.20              $0.28          $0.27
2nd Quarter       2,308,800         1,991,100       1,783,900           1.16                1.00          0.38
3rd Quarter          N/A            1,690,500       1,578,200           N/A                 0.46          0.28
4th Quarter          N/A            1,762,400       1,604,600           N/A                 0.46          0.21
Total             $4,018,900       $7,037,500        $643,800           $1.36              $2.20          $1.14
                                                      Finan cial data from www.moneycentral.com on April 15, 2008

Over the last two years, Estee Lauder’s revenue has increased and based on this years first and
second quarter, it appears that 2008 will be no exception to the trend. Recent history shows that the
company’s revenue is evenly distributed throughout their fiscal year with little fluctuation. With
respect to earnings, Estee Lauder has almost doubled earnings per share from 2006 to 2007
however, the first quarter earnings of 2008 stand out as it contrasts the previous increasing trend.



13 http://library.co rporate-ir.net/library/10/109/109458/items/264399/el2007.pdf
14 http://library.co rporate-ir.net/library/10/109/109458/items/264399/el2007.pdf
15 http://library.co rporate-ir.net/library/10/109/109458/items/264399/el2007.pdf
16 http://library.co rporate-ir.net/library/10/109/109458/items/264399/el2007.pdf




                                                                                                               25
                                                            I. Fundamental Valuation
Estee Lauder Inc.      PARAMETERS                  FY1           FY2       Ltg
                       EPS Forecasts                 2.37          2.66   12.19%              Model 1: 12-year forecasting horizon (T=12).
                       Book value/share (last fye)   6.18                                               and a 7-year growth period.
                       Discount Rate               8.75%
                       Dividend Payout Ratio       1.20%
                       Next Fsc Year end            2008
                       Current Fsc Mth (1 to 12)        4
                       Target ROE (industry avg.) 29.53%

                       Year                           2008        2009      2010      2011        2012      2013      2014    2015     2016    2017    2018     2019
                       Long-term EPS Growth Rate (Ltg)                    0.1219    0.1219      0.1219    0.1219    0.1219
                       Forecasted EPS                  2.37        2.66      2.98      3.35        3.76      4.21      4.73
                       Beg. of year BV/Shr           6.180        8.522   11.150    14.098      17.406    21.117    25.280
                       Implied ROE                                0.312    0.268     0.237       0.216     0.200     0.187

ROE                    (Beg. ROE, from EPS forecasts) 0.383       0.312    0.268     0.237       0.216     0.200     0.187    0.209    0.230   0.252   0.274    0.295
Abnormal ROE           (ROE-r)                        0.296       0.225    0.180     0.150       0.128     0.112     0.100    0.121    0.143   0.164   0.186    0.208
growth rate for B      (1-k)*(ROEt-1)                 0.000       0.379    0.308     0.264       0.235     0.213     0.197    0.185    0.206   0.228   0.249    0.270
Compounded growth                                     1.000       1.379    1.804     2.281       2.816     3.417     4.091    4.847    5.846   7.176   8.962   11.386
growth*AROE                                           0.296       0.310    0.325     0.342       0.361     0.383     0.407    0.587    0.835   1.180   1.668    2.366
required rate (r)                           0.088     0.088       0.088    0.088     0.088       0.088     0.088     0.088    0.088    0.088   0.088   0.088    0.088
discount rate                                         1.088       1.183    1.286     1.399       1.521     1.654     1.799    1.956    2.127   2.314   2.516    2.736
div. payout rate (k)                        0.012
Add to P/B             PV(growth*AROE)                 0.27        0.26     0.25      0.24        0.24      0.23      0.23     0.30     0.39    0.51    0.66     0.86
Cum P/B                                                1.27        1.53     1.79      2.03        2.27      2.50      2.73     3.03     3.42    3.93    4.59     5.46
  Add: Perpetuity
 beyond current yr     (Assume this yr's AROE forever) 3.11        2.99     2.89      2.80        2.72      2.65      2.59     3.43     4.49    5.83    7.58     9.88
Total P/B              (P/B if we stop est. this period)  4.38     4.53     4.67      4.83        4.98      5.15      5.31     6.46     7.90    9.76   12.17    15.34
Implied price                                            27.88    28.80    29.73     30.70       31.70     32.73     33.79    41.07    50.27   62.08   77.41    97.56

Check:
Beg. BV/Shr                                              6.18      8.52    11.15     14.10       17.41     21.12     25.28    29.95    36.13   44.35   55.39    70.36
Implied EPS                                              2.37      2.66     2.98      3.35        3.76      4.21      4.73     6.25     8.32   11.17   15.16    20.78
Implied EPS growth                                                0.122    0.122     0.122       0.122     0.122     0.122    0.322    0.331   0.343   0.356    0.371
                                                                            Inputs:

      1. EPS Forecasts and long-term growth rate (LTG) of 12.19 percent was derived from
         www.reuters.com on April 15, 2008.
      2. Book value per share derived from www.reuters.com on April 15, 2008 off of Estee Lauder’s 2007
         annual balance sheet. Book value was equal to $1,199 million in total equity divided by 194,000 total
         common shares outstanding.
      3. Discount rate of 8.75 percent was derived using the risk free rate on a 20 year T-bond (4.33 percent)
         from www.federreserve.gov on April 15, 2008. An expected market return of 12 percent was used in
         an attempt to remain conservative however; double digit economic growth is not foreseen for the
         year 2008. Estee Lauder’s beta of 0.56 was derived from www.moneycentral.com on April 15, 2008.
      4. Dividend payout ratio of 1.20 percent was derived from www.moneycentral.com on April 15, 2008.
      5. Next fiscal year-end is 2008
      6. Current fiscal month is 4/12 (April)
      7. Target ROE= 29.53 percent in the personal products industry and was derived from
         www.retuers.com on April 15, 2008.

Output and Sensitivity Analysis:
   1. Based on these parameters, a 12 year forecasting horizon and a 7 year growth period, the EBO
       valuation is $97.56.
   2. Changing the discount rate to 12.85 percent gives the price the stock is currently trading at on April
       15, 2008. A discount rate of 15 percent gives an implied price of $31.56.
   3. Changing the growth rate to seven percent gives an implied price of $84.88. A growth rate of 15
       percent gives an implied price of $105.51.
   4. Changing the industry ROE to 20 percent gives an implied price of $56.75. A ROE of 40 percent
       gives an implied price of 35 percent gives an implied price of $125.86.




                                                                                                                                                                   26
                                                              II. Relative Valuation
Comparables
                                                                  Mean FY2
                                                               Earnings Estimate     Forward  Mean LT       PEG       P/B       ROE       Value
    Ticker   Name                   Mkt Cap   Current Price     (next fiscal year)    P/E    Growth Rate             (MRQ)     5 yr ave   Ratio   P/S
1   AVP                              $17.1B
             Avon Products Incorporated          40.04                2.59            15.46    11.64%       1.33      24.67    105.28%    0.23    1.79
2   CHTT     Chattem Incorporated     $1.3B      67.29                4.49            14.99    12.75%       1.18      5.90     32.25%     0.18    2.92
3   RDEN                            $552.3M
             Elizabeth Arden Incorporated        19.41                1.97             9.85    12.67%       0.78      1.61     14.33%     0.11    0.50
4   REV      Revlon                 $506.1M       0.93                0.04            23.35     5.00%       4.67      0.75      6.75%     0.11    0.34

    EL       Estee Lauder            $8.5B       44.19                2.66            16.61    12.19%       1.36      6.47     23.89%     0.27    1.19

             Implied Price based on:                                                  P/E                    PEG       P/B                Value    P/S
1   AVP      Avon Products Incorporated                                              $41.12                 $43.07   $168.50              $38.23 $66.47
2   CHTT     Chattem Incorporated                                                    $39.86                 $38.11    $40.30              $29.85 $108.43
3   RDEN     Elizabeth Arden Incorporated                                            $26.21                 $25.22    $11.00              $18.33 $18.57
4   REV      Revlon                                                                  $62.11                $151.43     $5.12              $18.13 $12.63

             High                                                                    $62.11                $151.43   $168.50              $38.23 $108.43
             Low                                                                     $26.21                 $25.22     $5.12              $18.13 $12.63
             Median                                                                  $40.49                 $40.59    $25.65              $24.09 $42.52
                                                                                     Finan cial data from www.reuters.com on April 17, 2008

      Indicator                                                      Interpretation
P/E                             Neutral/ Bearish – Estee Lauder is trading at 16 times future earnings. This is
                                relatively average given the personal products industry as its competitors are closely
                                valued. Estee Lauder may be slightly riskier than its competitors or overvalued.
PEG (P/E/G)                     Neutral/ Bearish – A PEG ratio of 1.36 suggests that the company is richly valued
                                and may have the potential for more growth with respect to its competitors. Other
                                than Revlon, Estee Lauder has a fairly comparable PEG ratio to its competition.
P/B                             Neutral/ Bearish – Other than Avon Products, Estee Lauder has the largest price to
                                book ratio which may suggest that the company is overvalued, less risky or has a larger
                                return on equity.
Value (P/B/ROE)                 Bearish – Estee Lauder has the largest value ratio amongst its competitors which may
                                suggest that the company is less risky or overvalued in a mature industry.
P/S                             Neutral/ Bearish – A price to sales ratio of 1.19 puts Estee Lauder in the median of
                                the distribution. This could mean the stock is undervalued with respect to some of its
                                competition but overvalued to the rest. The ratio could also suggest the company has
                                more risk than some of the competition but less risk to other comparables.
Summary                         The ratios indicate that Estee Lauder is not explicitly overvalued but is not necessarily
                                undervalued with respect to its comparables. The company has the second highest
                                market capitalization which means it is probably not as risky as the competition. The
                                neutral relative evaluation may indicate that it is appropriately priced.




                                                                                                                                                         27
III. Technical Analysis

Chart 1:       Bollinger Bands




                                                  Finan cial data from www.cnb c.com on April 17, 2008


               Slow Stochastics




                                                  Finan cial data from www.cnb c.com on April 17, 2008

Chart 2:       Exponential Moving Average (EMA)




                                                  Finan cial data from www.cnb c.com on April 17, 2008




                                                                                                    28
MACD




                                                             Finan cial data from www.cnb c.com on April 17, 2008
Chart 3:          Linear Regression




                                                             Finan cial data from www.cnb c.com on April 17, 2008
                  Momentum




                                                             Finan cial data from www.cnb c.com on April 17, 2008
     Indicator                                             Interpretation
Bollinger Bands        Neutral – The stock price is currently trading at its 50 day moving average and the
                       width of the Bollinger Bands seems to be constant.
Stochastics            Bearish – The percent K line is below the percent D line and the gap between the two
                       appears to be increasing. Percent K is also less than 80 percent which is a bearish
                       indicator.
Moving Averages        Neutral – The stock price is almost equal to both moving averages however; the trend
                       is forming an increasing slope. The gap between the 25 day and 50 day moving
                       averages is contracting.
MACD                   Neutral / Bearish – The MACD is currently above zero and the signal line is slightly
                       above the MACD which is a bearish sign.
Regression             Neutral/Bullish – The slope of the regression is positive and the current price is on
                       the regression line.
PriceROC               Bearish – Momentum price rate of change is just under 100 which indicate a decrease
                       in the stock price from 100 days ago and momentum seems to gradually declining.




                                                                                                               29
IV. Earnings Analysis
                                               Earnings Surprises
                        12/07               9/07               6/07                3/07               12/06
                      (Last qtr)        (2 qtrs prior)    (3 qtrs prior)      (4 qtrs prior)      (5 qtrs prior)
Estimate                $1.14               $0.10              $0.49               $0.46              $0.76
Actual                   1.14                0.20              0.45                0.45                0.99
Difference              $0.00               $0.10             -$0.04              -$0.01              $0.23
                                           Mean Earnings Estimates
                       3/2008              6/2008              2008                2009            LT Growth
                                                                                                      Rate
Earnings                $0.47               $0.56             $2.37            $2.66
# Estimates              15                   14               15               15                   12.19%
                                Earnings Per Share Estimates Revisions Summary

                                                  Last Week                            Last 4 Weeks
                                         Revised Up     Revised Down           Revised Up      Revised Down
Quarter ending 3/08                           0               0                     2                1
Quarter ending 6/08                           0               0                     1                2
Year ending 12/08                             0               0                     2                1
Year ending 12/09                             0               0                     3                2
                                                              Finan cial data from www.cnb c.com on April 17, 2008

Estee Lauder had positive earnings surprises in two of the last five quarters. The company has also failed to
meet analyst’s estimates two times during the last five quarters as well. Earnings are projected to increase
over the next two years to $2.37 in 2008 and $2.66 in 2009. Estee Lauder is projected to have a mean long
term growth rate of 12.19 percent. Analyst’s earnings per share revisions are mixed over the last month with
both upward revisions and downward revisions for 2008 and 2009.




                                                                                                                30
V. Analysts’ Recommendations
                      Current                1 Month Ago           2 Months Ago              1 Year Ago
Buy                       1                       2                      2                        2
Outperform                1                       1                      1                        2
Hold                     12                      12                     12                       11
Underperform              1                       0                      0                        1
Sell                      0                       0                      0                        0
No Opinion                0                       0                      0                        1
Mean Rating             2.87                    2.67                   2.67                     2.69
                                                          Finan cial data from www.cnb c.com on April 17, 2008

Analyst’s recommendations of Estee Lauder are fairly neutral. Only one analyst expects the company to
underperform while the majority gives a hold recommendation. Buy and outperform recommendations have
decreased from one year ago and the mean rating is increasing. These are bearish indicators but the large
amount of hold recommendations suggests neutrality.




                                                                                                            31
VI. Institutional Ownership
                                  # of Holders     % Beg. Holders         Shares              % Shares
Shares Outstanding                                                      152,122,796           100.00%
Total Positions                       378              94.03%           90,969,432            59.80%

New Positions                         55              13.68%               4,975,404            3.27%
Soldout Positions                     49              12.19%              -2,967,109           -1.95%
Buyers                                172             42.79%             16,334,343            10.74%
Sellers                               196             48.76%             -13,133,532           -8.63%
Beg. Total Inst. Positions            402             100.00%            87,768,621            57.70%

#Buyers - #Sellers                    -24              46.74%             3,200,811             2.10%
                                                          Finan cial data from www.cnb c.com on April 17, 2008

Institutional ownership is decreasing with more sellers than buyers however; there are currently more new
positions than sold out positions. While there may be more sellers, the number of shares being held has
increased about two percent. While there may be fewer positions amongst institutions, those who do have
Estee Lauder in their portfolio are holding more shares.




                                                                                                            32
VII. Piotroski Analysis

A. P/B ratio and quintile (1=growth, high P/B; 5=value, low P/B): 6.47 P/B, 1st Quintile

B. Piotroski Score: ________5________


         Piotroski Item             Variable needed to compute                  Value               Points
1. Positive net income          TTM net income                               $449,200,000             1

2. Positive cash flow           TTM cash flow                                -$114,000,000             0

3. Earnings Quality                                                                                    0

4. Decreasing Debt              Debt/assets most recent ann figure                3.44                 0
                                Debt/assets previous ann figure                   2.33

5. Increasing working capital   Current ratio most recent ann figure              1.49                 0
                                Current ratio previous ann figure                 1.51

6. Improving Productivity       Asset turnover most recent ann figure              1.8                 1
                                Asset turnover previous ann figure                 1.7

7. Growing Profitability        ROA most recent ann figure                      11.36%                 1
                                ROA previous ann figure                          6.37%

8. Issuing Stock                Shares outstanding most recent ann            207,000,000              1
                                Shares outstanding previous ann               217,000,000

9. Competitive Position         Gross margin most recent ann                     74.8%                 1
                                Gross margin previous ann                        73.9%

Total                                                                                                  5
                                                     Finan cial data from www.morningstar.com on April 17, 2008

Estee Lauder has a medium Piotroski score of five. The company received points for positive net income,
improving productivity, growing profitability, issuance of stock and competitive position. Items of concern
may be the negative cash flows and increases in company debt. Estee Lauder is a competitive company that
is trying to expand in a slow growth industry. This desire to grow may be reasons for the increases in debt
and lack of cash on hand.




                                                                                                             33

				
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