march 2012 monthly valuation report - blaylock van, llc · monthly valuation report clayton earle...

Blaylock Robert Van LLC, member FINRA, MSRB, SIPC

Monthly Valuation Report Clayton Earle 510.208.6101

[email protected] Thursday, March 8, 2012

Utilities 2.45 Telecommunication Serv 2.24 Consumer Staples 1.88 Financials 1.85 Industrials 1.81 Energy 1.68

Materials 1.61 Health Care 1.49 Consumer Discretionary 1.48 Information Technology 1.43 Grand Total 1.69 Source: BRV Research

Market Cap-Weighted

Sector Rankings

by Average Reward / Risk Ratio

Percentage of Stocks in Each Reward/Risk Ratio Range

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

40.00%

Range of Rwd/Rsk Ratio

Russell Mid Cap Both 0.00% 0.72% 4.61% 4.92% 2.87% 8.09% 0.20%

Russell Mid Cap Growth 0.00% 0.72% 6.35% 7.17% 3.07% 8.61% 0.10%

Russell Mid Cap Value 0.10% 1.95% 8.09% 5.74% 3.38% 12.81% 0.31%

Russell Top 200 Both 0.00% 0.00% 1.33% 1.33% 1.02% 1.74% 0.00%

Russell Top 200 Growth 0.00% 0.10% 0.92% 1.33% 1.23% 3.38% 0.00%

Russell Top 200 Value 0.10% 0.20% 1.33% 2.87% 0.82% 2.46% 0.00%

Current Price=Target

Price

Speculative (0-0.5x)

High (.5x-1x)Moderate (1x-

1.5x)Moderate (1.5x-

2x)Low (Greater

Than 2x

Current Price=Support

Price

(Yellow Boxes = 2 Sectors with largest number of s tocks in that grouping)

Financials-47.28%Utilities-47.05%

Materials-16.41%Telecommunication Serv-13.33%

Information Technology-31.03%Industrials-28.35%

Consumer Discretionary-34.61%Industrials-29.1%

Health Care-22.68%Utilities-17.64%

Consumer Discretionary-1.92%

Consumer Staples-1.88%

Energy-1.35%Consumer Discretionary-

0.64%

Key Takeaways:

After our model portfolio beat the benchmark by 246 Bps in January, February had us trailing the R1k by 3bps. YTD, we aree still significantly ahead of the R1K.

As of the production date of this report-March

7th-some consolidation has begun to occur and our Reward Risk level is at the least attractive level we’ve seen in months.

With Utilities and the Telecom sector having

such attractive Reward Risk values, we position ourselves for a pullback.

Summary & Latest Sector Ranking: The Utilities Sector tops our sector ranking this month with a 2.45x Reward/Risk Ratio. The Telecom Sector Industrial sector is in 2nd place with a ratio of 2.24x. The Financials sector has the largest number of bargains with approximately 47.28% of the number of stocks in that sector labeled as “Low” risk by our Reward/Risk metric. The Utilities sector has the second highest number of stocks (47.06%) that are labeled as “Low” risk, which is our most attractive moniker. The second bar from the right within the stacked bar graph, below, highlights this observation.

Mar

ch 2

012

Blaylock Robert Van LLC, member FINRA, MSRB, SIPC - 2 -

Current Portfolio of 100 Equal Weighted Stocks

Sector Ticker CompanyName Rsk/Rwd

Consumer Discretionary BBY BEST BUY CO INC 280.000

JW.A WILEY (JOHN) & SONS -CL A 81.250WMS WMS INDUSTRIES INC 56.429LEA LEAR CORP 47.742WEN WENDY'S CO 30.741DTV DIRECTV 24.231TIF TIFFANY & CO 13.500MORN MORNINGSTAR INC 10.748RCL ROYAL CARIBBEAN CRUISES LTD 10.431RSH RADIOSHACK CORP 10.238KSS KOHL'S CORP 9.635LEG LEGGETT & PLATT INC 8.182DECK DECKERS OUTDOOR CORP 8.038BBBY BED BATH & BEYOND INC 7.244AWAY HOMEAWAY INC 7.086

NVR NVR INC 7.043WYNN WYNN RESORTS LTD 6.549ESI ITT EDUCATIONAL SERVICES INC 6.043GES GUESS INC 5.244

Consumer Staples CLX CLOROX CO/DE 175.000BEAM BEAM INC 46.786HNZ HEINZ (H J) CO 18.036KR KROGER CO 10.556TSN TYSON FOODS INC -CL A 7.175

Energy PTEN PATTERSON-UTI ENERGY INC 52.667SPN SUPERIOR ENERGY SERVICES INC 28.722BHI BAKER HUGHES INC 27.273UNT UNIT CORP 12.485SUN SUNOCO INC 9.130EQT EQT CORP 8.252RRC RANGE RESOURCES CORP 7.189

Financials UNM UNUM GROUP 116.364

GDOT GREEN DOT CORP 110.625CPT CAMDEN PROPERTY TRUST 69.677JOE ST JOE CO 65.714PRE PARTNERRE LTD 43.600AVB AVALONBAY COMMUNITIES INC 30.400VNO VORNADO REALTY TRUST 18.732BXP BOSTON PROPERTIES INC 18.133ARE ALEXANDRIA R E EQUITIES INC 15.478NLY ANNALY CAPITAL MANAGEMENT 11.837CBG CBRE GROUP INC 10.137TFSL TFS FINANCIAL CORP 9.675PBCT PEOPLE'S UNITED FINL INC 9.083FNFG FIRST NIAGARA FINANCIAL GRP 8.280AXS AXIS CAPITAL HOLDINGS LTD 7.476XL XL GROUP PLC 6.723BK BANK OF NEW YORK MELLON CORP 6.338CIM CHIMERA INVESTMENT CORP 6.276ENH ENDURANCE SPECIALTY HOLDINGS 6.077MS MORGAN STANLEY 5.294CYN CITY NATIONAL CORP 5.117

Health Care UTHR UNITED THERAPEUTICS CORP 150.172QGEN QIAGEN NV 110.000VRTX VERTEX PHARMACEUTICALS INC 89.401BCR BARD (C.R.) INC 87.692JNJ JOHNSON & JOHNSON 16.939BIO BIO-RAD LABORATORIES INC 13.068WCRX WARNER CHILCOTT PLC 12.129HRC HILL-ROM HOLDINGS INC 11.395MDRX ALLSCRIPTS HEALTHCARE SOLTNS 6.716

Industrials WCN WASTE CONNECTIONS INC 242.000BGC GENERAL CABLE CORP/DE 29.153MAN MANPOWERGROUP 19.077NLSN NIELSEN HOLDINGS NV 10.181EXPD EXPEDITORS INTL WASH INC 8.986HSC HARSCO CORP 8.261EMR EMERSON ELECTRIC CO 7.157LLL L-3 COMMUNICATIONS HLDGS INC 6.759ATK ALLIANT TECHSYSTEMS INC 6.364OC OWENS CORNING 5.461JOY JOY GLOBAL INC 5.118

Information EA ELECTRONIC ARTS INC 52.353FIO FUSION-IO INC 16.514WBMD WEBMD HEALTH CORP 15.620XRX XEROX CORP 12.500

NATI NATIONAL INSTRUMENTS CORP 11.972FLIR FLIR SYSTEMS INC 9.750SLH SOLERA HOLDINGS INC 8.981G GENPACT LTD 8.211ZBRA ZEBRA TECHNOLOGIES CP -CL A 7.621

ISIL INTERSIL CORP -CL A 7.128LRCX LAM RESEARCH CORP 6.328RVBD RIVERBED TECHNOLOGY INC 5.851JDSU JDS UNIPHASE CORP 5.787

CREE CREE INC 5.231Materials RGLD ROYAL GOLD INC 1540.000

CMP COMPASS MINERALS INTL INC 22.979IPI INTREPID POTASH INC 10.724AA ALCOA INC 7.670SEE SEALED AIR CORP 6.419HUN HUNTSMAN CORP 5.679SCHN SCHNITZER STEEL INDS -CL A 5.440

Telecommunication NIHD NII HOLDINGS INC 201.250Utilities CNP CENTERPOINT ENERGY INC 26.774

CPN CALPINE CORP 23.659POM PEPCO HOLDINGS INC 23.611UGI UGI CORP 10.938HE HAWAIIAN ELECTRIC INDS 7.951PCG PG&E CORP 7.053

This month’s Reward/Risk Ratio of 1.6861 is a significant move downward from the previous months value of 2.1124x. This figure indicates that the market is at less attractive levels. There are fewer bargains, but they can still be found (see Tables A & B below). Universe Assessment of Aggregate Reward/Risk Ratios

Cap-Whtd Rwd/Rsk number

Equal Wht Rwd/Rsk number

Both** Value Growth AllRussell Top 200 1.33 1.68 1.98 1.67

1.64 1.94 2.39 2.02Russell Mid Cap 1.60 1.75 1.78 1.72

1.81 1.82 1.88 1.84Total Sum of WhtdAvgofRwdRskRatio 1.40 1.70 1.92 1.6861

Total Average of Actual Reward / Risk Ratio 1.78 1.84 1.99 1.8726

**"Both" refers to stocks that have representation in BOTH the Russell Growth and Value Indices

Siz

e

Style

With all of the style/size combinations in the index having a Reward/Risk ratio close to 1.5x, from a fundamental perspective on forward earnings, and on a technical basis, the market seems positioned for a retrenchment. On a cap-weighted basis (green numbers) Similar to last month, the Top 200 Growth names look most attractive compared to any other Size/Style category with a Reward/Risk ratio of 1.98x (vs. last month’s top figure of 2.25x). The Russell MidCap Growth stocks are in second place with a 1.78x ratio. The least attractive Size/Style category would be the Top 200 “Both” names with a ratio of 1.33x. (“Both”=stocks that are represented in “both” the value and growth portions of the Index). On an equal-weight basis (blue numbers)

Similarly as above, the Top 200 Growth names come in as the most attractive group on an equal weighted basis with a 2.39x ratio vs 2.62x last month. The Russell Mid-Cap Both names come in second with a ratio of 1.81x. Like the market-weight names above, the Top 200 “Both” category would be the least attractive set of stocks possessing a ratio of 1.64x.


Last Month....reached an inflection point

This month...divergence has occurred

The Trend Lines have diverged. Last month we reiterated that for the last several months the market’s trend line had been moving in tandem with our Reward/Risk trend line. However, by the beginning of last month, we had reached an “inflection point”. This month’s chart (highlighted in green to the right), indicates that we have experienced the divergence we expected; The R1000 market line (blue) continued its ascension while our Reward Risk (Red line) declined. We anticipated that divergence last month at the “inflection point” referenced above and suggested positioning portfolios for this possibility. We enter this month suggesting refocusing the stocks and/or weights in portfolios on less volatile bellwether names while the “risk on” stocks settle in and consolidate. With the Utilities and Telecom sectors having the most attractive Reward/Risk ratios, we suggest aligning ourselves a bit more defensively during what we anticipate will be a consolidation phase – albeit, possibly short-lived. There are a few bargains left.... Referring to Table A on the following page, only 44.03% of the weight of the index is in our two most attractive Reward/Risk categories representing stocks with ratios of 1.5x or better. A full 24.93% of the benchmark weight straddles the risk line with a Reward Risk ratio between 1x-1.5x. Roughly 30% of the benchmark weight lies within our High Risk Rwd/Rsk category. This month there are only 3 specific “bargain areas”, i.e. green highlights.

Financial stocks that are considered Value stocks in the Russell Top 200 categories Consumer Staples stocks considered to be “Both” growth and value in the Russell Top

200 index R1K Top 200 Growth Information Technology Stocks

Table B groups the stocks and weights of the index into each of its size/style segments and delivers a slightly better message. Comparing the amount of green in Table B to Table A, the reader will observe more Green highlighted values in the table representing ample concentrations of attractive stocks within each Size/Style portion of the index.


The tables on the following pages show where significant weights lie within the Index based on our proprietary Reward/Risk metric. The left column identifies each Reward/Risk sub-category, along with its numeric value. The rows represent the GIC sectors and each column is a different Size/Style grouping within the Index. Red highlights are Speculative to High, i.e., very risky weights within each Sector by Size and Style, Yellow are Moderate Reward/Risk, i.e., less risky weights and Green are Low risk weights within each Sector by Size and Style.


Table A below identifies the weight distribution across the entire index and highlights those sectors (horizontal) that have the highest weight in each Reward/Risk category. Go with Green & Run from Red!

Table A Table A

Aggregate Weight Distribution of Reward/Risk within Index

Reward Risk Range SectorName

Russell Mid Cap Both

Russell Mid Cap Growth

Russell Mid Cap Value

Russell Top 200 Both

Russell Top 200 Growth

Russell Top 200 Value Grand Total

Current Price=Target Price Consumer Discretionary - - 0.00% - - - 0.00%Consumer Staples - - - - - - -Energy - - - - - 0.03% 0.03%Financials - - - - - - -Health Care - - - - - - -Industrials - - - - - - -

Information Technology - - - - - - -Materials - - - - - - -Telecommunication Serv - - - - - - -Utilities - - - - - - -

Current Price=Target Price Total - - 0.00% - - 0.03% 0.03%Speculative (0-0.5x) Consumer Discretionary - - 0.12% - - - 0.12%

Consumer Staples - - - - - - -Energy 0.06% 0.08% - - - 0.72% 0.86%Financials - - 0.11% - - - 0.11%Health Care - 0.01% - - - - 0.01%Industrials 0.03% - 0.02% - - - 0.05%Information Technology - - 0.10% - - - 0.10%Materials 0.12% 0.13% 0.05% - 0.29% 0.21% 0.80%Telecommunication Serv - - 0.04% - - - 0.04%Utilities - - 0.08% - - - 0.08%

Speculative (0-0.5x) Total 0.21% 0.22% 0.52% - 0.29% 0.93% 2.17%High (.5x-1x) Consumer Discretionary 0.37% 1.00% 0.55% 1.28% 0.85% 0.26% 4.33%

Consumer Staples - 0.16% 0.23% 1.06% - 0.44% 1.89%Energy 0.24% 0.10% 0.16% 4.65% - - 5.14%Financials 0.12% 0.02% 0.93% 1.22% - 0.64% 2.93%Health Care 0.02% 0.21% 0.10% - 0.19% 2.62% 3.15%Industrials 0.59% 0.56% 0.25% 0.17% 0.17% - 1.73%Information Technology 0.20% 0.57% 0.27% 0.64% 5.58% 0.92% 8.17%Materials 0.13% 0.26% 0.18% 0.10% - - 0.66%Telecommunication Serv 0.08% 0.04% - - - - 0.12%Utilities 0.03% - 0.36% - - 0.24% 0.63%

High (.5x-1x) Total 1.77% 2.93% 3.03% 9.10% 6.79% 5.12% 28.76%Moderate (1x-1.5x) Consumer Discretionary 0.31% 0.52% 0.22% 0.42% 0.60% 0.86% 2.92%

Consumer Staples 0.25% 0.12% - 0.94% 0.80% 0.15% 2.26%Energy 0.19% 0.22% 0.26% 0.90% - 0.64% 2.22%Financials 0.14% 0.35% 0.71% - - 2.13% 3.33%Health Care 0.14% 0.49% 0.13% 0.39% 0.12% 0.51% 1.78%Industrials 0.58% 0.37% 0.15% 0.18% 1.03% 2.09% 4.40%Information Technology 0.24% 0.88% 0.27% 0.57% 2.96% 1.63% 6.55%Materials 0.03% 0.43% 0.03% - - 0.28% 0.77%Telecommunication Serv - 0.11% - - - 0.23% 0.34%Utilities 0.06% - 0.29% - - - 0.36%

Moderate (1x-1.5x) Total 1.95% 3.49% 2.06% 3.40% 5.51% 8.52% 24.93%Moderate (1.5x-2x) Consumer Discretionary 0.07% 0.24% 0.03% 0.33% 0.96% 0.27% 1.89%

Consumer Staples 0.25% 0.06% 0.04% 0.20% - 0.45% 1.00%Energy 0.35% 0.13% 0.03% - 0.22% 0.22% 0.95%Financials 0.16% - 0.34% 0.81% 0.10% 0.40% 1.82%Health Care 0.18% 0.37% 0.18% 0.81% 0.58% 0.39% 2.51%Industrials 0.12% 0.13% 0.01% 1.33% 0.61% - 2.21%Information Technology 0.10% 0.33% 0.10% - 0.14% - 0.68%Materials 0.14% 0.04% 0.06% - 0.63% - 0.87%Telecommunication Serv 0.02% - - - - - 0.02%Utilities - - 0.38% - - 0.38% 0.76%

Moderate (1.5x-2x) Total 1.41% 1.29% 1.17% 3.49% 3.24% 2.10% 12.71%Low (Greater Than 2x) Consumer Discretionary 0.28% 0.72% 0.18% 0.17% 0.70% 0.23% 2.28%

Consumer Staples 0.42% 0.06% 0.26% 2.61% 1.38% - 4.72%Energy 0.30% 0.22% 0.05% 0.45% 1.07% 0.27% 2.37%Financials 0.73% 0.18% 1.81% - 0.30% 3.63% 6.64%Health Care 0.30% 0.43% 0.25% 1.82% 0.87% 0.15% 3.83%Industrials 0.29% 0.37% 0.33% 0.65% 0.81% 0.23% 2.67%Information Technology 0.11% 0.54% 0.28% 0.12% 3.03% - 4.07%Materials 0.03% 0.18% 0.16% - 0.53% 0.08% 0.97%Telecommunication Serv 0.02% 0.02% 0.02% 0.77% - 1.29% 2.12%Utilities 0.02% 0.03% 0.70% - - 0.91% 1.66%

Low (Greater Than 2x) Total 2.50% 2.74% 4.04% 6.58% 8.67% 6.79% 31.32%Current Price=Support Price Consumer Discretionary 0.03% 0.00% - - - - 0.03%

Consumer Staples - - 0.01% - - - 0.01%Energy - - - - - - -Financials - - - - - - -Health Care - - - - - - -Industrials - - 0.05% - - - 0.05%Information Technology - - - - - - -Materials - - - - - - -Telecommunication Serv - - - - - - -Utilities - - - - - - -

Current Price=Support Price Total 0.03% 0.00% 0.05% - - - 0.09%Grand Total 7.86% 10.68% 10.89% 22.57% 24.51% 23.50% 100.00%


Table B below identifies the same Reward/Risk weight distribution but WITHIN EACH STYLE &SIZE PORTION of the entire index (i.e., the column totals at the bottom of the page sum to 100 for that particular size/style). Like Table A, it highlights those sectors (horizontal) that have the highest weight in each Reward/Risk category, but by each SIZE and STYLE component of the index. Go with Green & Run from Red!

Table B: Table B

Size & Style Reward/Risk Weight Distribution within Index

Reward Risk Range SectorName

Russell Mid Cap Both

Russell Mid Cap Growth

Russell Mid Cap Value

Russell Top 200 Both

Russell Top 200 Growth

Russell Top 200 Value Grand Total

Current Price=Target Price Consumer Discretionary - - 0.00% - - - 0.00%Consumer Staples - - - - - - -Energy - - - - - 0.11% 0.03%Financials - - - - - - -Health Care - - - - - - -Industrials - - - - - - -

Information Technology - - - - - - -Materials - - - - - - -Telecommunication Serv - - - - - - -Utilities - - - - - - -

Current Price=Target Price Total - - 0.00% - - 0.11% 0.03%Speculative (0-0.5x) Consumer Discretionary - - 1.12% - - - 0.12%

Consumer Staples - - - - - - -Energy 0.74% 0.74% - - - 3.09% 0.86%Financials - - 1.00% - - - 0.11%Health Care - 0.11% - - - - 0.01%Industrials 0.34% - 0.18% - - - 0.05%Information Technology - - 0.92% - - - 0.10%Materials 1.58% 1.21% 0.49% - 1.17% 0.88% 0.80%Telecommunication Serv - - 0.34% - - - 0.04%Utilities - - 0.78% - - - 0.08%

Speculative (0-0.5x) Total 2.66% 2.06% 4.82% - 1.17% 3.96% 2.17%High (.5x-1x) Consumer Discretionary 4.76% 9.39% 5.09% 5.66% 3.48% 1.12% 4.33%

Consumer Staples - 1.51% 2.15% 4.69% - 1.86% 1.89%Energy 3.01% 0.94% 1.46% 20.59% - - 5.14%Financials 1.49% 0.23% 8.51% 5.40% - 2.73% 2.93%Health Care 0.27% 2.00% 0.92% - 0.79% 11.17% 3.15%Industrials 7.46% 5.24% 2.29% 0.74% 0.67% - 1.73%Information Technology 2.56% 5.35% 2.45% 2.82% 22.77% 3.91% 8.17%Materials 1.60% 2.45% 1.64% 0.43% - - 0.66%Telecommunication Serv 1.02% 0.36% - - - - 0.12%Utilities 0.38% - 3.35% - - 1.02% 0.63%

High (.5x-1x) Total 22.54% 27.46% 27.86% 40.33% 27.71% 21.81% 28.76%Moderate (1x-1.5x) Consumer Discretionary 3.89% 4.87% 1.99% 1.87% 2.43% 3.67% 2.92%

Consumer Staples 3.21% 1.09% - 4.17% 3.28% 0.64% 2.26%Energy 2.47% 2.08% 2.36% 4.00% - 2.74% 2.22%Financials 1.80% 3.31% 6.54% - - 9.05% 3.33%Health Care 1.78% 4.56% 1.22% 1.73% 0.49% 2.18% 1.78%Industrials 7.37% 3.47% 1.41% 0.78% 4.20% 8.89% 4.40%Information Technology 3.03% 8.22% 2.47% 2.53% 12.10% 6.93% 6.55%Materials 0.41% 4.04% 0.26% - - 1.20% 0.77%Telecommunication Serv - 1.01% - - - 0.97% 0.34%Utilities 0.80% - 2.70% - - - 0.36%

Moderate (1x-1.5x) Total 24.75% 32.66% 18.94% 15.07% 22.49% 36.27% 24.93%Moderate (1.5x-2x) Consumer Discretionary 0.88% 2.20% 0.30% 1.46% 3.90% 1.13% 1.89%

Consumer Staples 3.19% 0.53% 0.33% 0.90% - 1.91% 1.00%Energy 4.51% 1.18% 0.25% - 0.89% 0.94% 0.95%Financials 2.05% - 3.13% 3.61% 0.42% 1.70% 1.82%Health Care 2.26% 3.43% 1.67% 3.60% 2.37% 1.67% 2.51%Industrials 1.57% 1.26% 0.13% 5.88% 2.49% - 2.21%Information Technology 1.34% 3.11% 0.91% - 0.58% - 0.68%Materials 1.79% 0.39% 0.53% - 2.58% - 0.87%Telecommunication Serv 0.30% - - - - - 0.02%Utilities - - 3.53% - - 1.61% 0.76%

Moderate (1.5x-2x) Total 17.89% 12.11% 10.78% 15.45% 13.24% 8.95% 12.71%Low (Greater Than 2x) Consumer Discretionary 3.62% 6.74% 1.65% 0.74% 2.85% 0.99% 2.28%

Consumer Staples 5.31% 0.54% 2.40% 11.55% 5.61% - 4.72%Energy 3.87% 2.07% 0.48% 2.00% 4.37% 1.13% 2.37%Financials 9.26% 1.69% 16.60% - 1.22% 15.44% 6.64%Health Care 3.84% 4.05% 2.30% 8.07% 3.54% 0.66% 3.83%Industrials 3.64% 3.44% 3.00% 2.86% 3.30% 0.98% 2.67%Information Technology 1.37% 5.04% 2.57% 0.51% 12.34% - 4.07%Materials 0.33% 1.65% 1.48% - 2.14% 0.33% 0.97%Telecommunication Serv 0.28% 0.19% 0.16% 3.41% - 5.50% 2.12%Utilities 0.28% 0.26% 6.46% - - 3.87% 1.66%

Low (Greater Than 2x) Total 31.80% 25.67% 37.10% 29.14% 35.38% 28.90% 31.32%Current Price=Support Price Consumer Discretionary 0.36% 0.04% - - - - 0.03%

Consumer Staples - - 0.06% - - - 0.01%Energy - - - - - - -Financials - - - - - - -Health Care - - - - - - -Industrials - - 0.44% - - - 0.05%Information Technology - - - - - - -Materials - - - - - - -Telecommunication Serv - - - - - - -Utilities - - - - - - -

Current Price=Support Price Total 0.36% 0.04% 0.50% - - - 0.09%Grand Total 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%


Sub-Industry analysis using the Reward / Risk ratio within each Sector The summary table, below, shows the top 5 industries within each of our Top Ranked Sectors identified on the cover page (assuming no overlap between the Reward/Risk and Cash Flow Valuation tables). At an aggregate level and not heeding the style component analysis of the index discussed above, this table highlights those industries we would favor within each of the Sectors ranked in the Summary section on the first page. On subsequent pages, the reader will find full table rankings of all of the GIC Sectors (in alphabetical order) and GIC sub-industries. The full Reward/Risk table is followed by our CF Valuation metric table. In both full tables, the Sectors are sorted alphabetically, and within each Sector the GIC sub-industries are sorted in descending order with the highest Reward/Risk ratio (Cash Flow Valuation figures for the Cash Flow table) at the top. Conversely, the sub-industry with the least attractive figure is listed last.

Summary Table: Top 5 Industries within the top Sectors

Industry Evaluation of Recommended Sectors

Top 5 Industries by Average Reward/Risk Ratio Top 5 Industries by Average CF Valuation Level*

Market Cap-Weighted

Utilities Multi-Utilities 2.75 Utilities Multi-Utilities 7.00 Electric Utilities 2.52 Electric Utilities 7.00 Water Utilities 2.34 Water Utilities 7.00 Independent Power Producers 1.14 Independent Power Producers 6.59 Gas Utilities 1.13 Gas Utilities 6.11

Telecommunication Serv Integrated Telecommunication 2.37 Health Care Health Care Distrib & Svcs 7.00

Wireless Telecomm Svcs 1.27 Health Care Services 7.00 Alternative Carriers 1.15 Pharmaceuticals 6.96

Consumer Staples Food Distributors 5.03 Managed Health Care 6.93 Brewers 3.89 Health Care Facilities 6.25 Soft Drinks 2.61 Information Technology Office Electronics 7.00 Hypermarkets & Super Centers 2.35 Computer Hardware 6.98 Personal Products 2.14 Semiconductor Equipment 6.93

Financials Multi-Sector Holdings 4.80 Systems Software 6.73 Thrift & Mortgage Finance 4.63 Semiconductors 6.61 Real Estate Operating Compan 3.58 Consumer Staples Food Distributors 7.00 Investment Banking & Brokera 3.50 Drug Retail 7.00 Multi-line Insurance 2.43 Tobacco 7.00

Grand Total 2.57 Brewers 7.00 Household Products 7.00

Grand Total 6.90

Sub-Industry Average of Color Indicator for Valuation0.0 To 1.39

1.4 To 2.79

2.8 To 4.19

4.2 To 5.59

5.6 To 7.00

Full Table follows on the next page


(Note: the Sector averages presented below are calculated using each individual observation at the stock level.) Industry Rankings by Average Reward / Risk Ratio Sub-Ind Average

GIC Sector GIC SubIndustry of Reward-to-Risk Ratio

Market Cap-Weighted Consumer Discretionary Homefurnishing Retail 5.76 Department Stores 3.41 Home Furnishings 2.80 Internet Retail 2.66 Casinos & Gaming 2.27

Automobile Manufacturers 2.20 Homebuilding 2.10 Education Services 2.02 Specialized Consumer Service 1.71 Hotels 1.70 Publishing & Printing 1.63 Broadcasting & Cable TV 1.63 Housewares & Specialties 1.58 Footwear 1.47 Leisure Products 1.47 Tires & Rubber 1.40 Automotive Retail 1.38 Restaurants 1.35 Movies & Entertainment 1.25 General Merchandise Stores 1.19 Distributors 1.18 Apparel Retail 1.09 Apparel & Accessories 0.98 Advertising 0.96 Auto Parts & Equipment 0.96 Cable & Satellite 0.95 Motorcycle Manufacturers 0.84 Specialty Stores 0.82 Consumer Electronics 0.74 Home Improvement Retail 0.73 Household Appliances 0.46 Catalog Retail 0.42 Computer & Electronics Rtl 0.17 Consumer Discretionary Total 1.48 Consumer Staples Food Distributors 5.03 Brewers 3.89 Soft Drinks 2.61


Hypermarkets & Super Centers 2.35 Personal Products 2.14 Household Products 2.01 Packaged Foods 1.93 Agricultural Products 1.35 Drug Retail 1.02 Tobacco 0.94 Food Retail 0.91 Distillers & Vintners 0.90 Consumer Staples Total 1.88 Energy Oil & Gas Equipment & Svcs 3.98 Oil & Gas Refining & Mktg 2.15 Oil & Gas Exploration & Prod 2.10 Oil & Gas Storage & Transpor 2.03 Oil & Gas Drilling 1.68 Coal & Consumable Fuels 1.18 Integrated Oil & Gas 0.80 Energy Total 1.68 Financials Multi-Sector Holdings 4.80 Thrift & Mortgage Finance 4.63 Real Estate Operating Compan 3.58 Investment Banking & Brokera 3.50 Multi-line Insurance 2.43 Specialized REITs 2.38 Asset Management & Cust Bank 2.31 Property & Casualty Insur 2.30 Retail REITs 2.28 Reinsurance 2.10 Office REITs 1.95 Specialized Finance 1.80 Insurance Brokers 1.76 Diversified Financial Svcs 1.65 Regional Banks 1.53 Life & Health Insurance 1.38 Consumer Finance 1.26 Mortgage REITs 1.00 Industrial REITs 0.80 Banks 0.76 Residential REITs 0.65 Real Estate Services 0.60 Diversified REITs 0.45 Real Estate Development 0.45 Real Estate Management & Dev - Financials Total 1.85


Health Care Health Care Equipment 2.48 Health Care Technology 2.39 Health Care Supplies 2.15 Health Care Facilities 2.10 Health Care Distrib & Svcs 2.06 Life Sciences Tools & Servic 2.05 Biotechnology 1.77 Health Care Services 1.66 Managed Health Care 1.17 Pharmaceuticals 0.96 Health Care Total 1.49 Industrials Electrical Components & Equi 3.66 Commercial Printing 3.29 Office Services & Supplies 3.24 Environmental Services 2.61 Air Freight & Couriers 2.59 Building Products 2.41 Construction & Engineering 1.93 Airlines 1.87 Human Resource & Employment 1.82 Aerospace & Defense 1.74 Industrial Conglomerates 1.72 Construction & Farm Mach 1.67 Heavy Electrical Equipment 1.60 Trucking 1.53 Railroads 1.34 Marine 1.28 Industrial Machinery 1.15 Security & Alarm Services 0.99 Diversified Support Services 0.94 Research & Consulting Servic 0.85 Trading Companies & Distrib 0.74 Industrials Total 1.81 Information Technology Electronic Equip & Instru 5.06 Semiconductor Equipment 3.00 Application Software 2.03 Internet Software & Services 1.96 IT Consulting & Services 1.76 Systems Software 1.57 Semiconductors 1.49 Computer Storage & Periphs 1.48 Telecommunications Equipment 1.44 Data Processing & Outsrc Svc 1.31 Electronic COmponents 1.20


Office Electronics 1.17 Electronic Maufacturing Svcs 1.04 Technology Distributors 0.97 Computer Hardware 0.73 Home Entertainment Software 0.62 Information Technology Total 1.43 Materials Aluminum 7.67 Paper Packaging 3.03 Fertilizers & Agri Chemicals 2.36 Industrial Gases 2.16 Commodity Chemicals 1.70 Metal & Glass Containers 1.61 Diversified Chemicals 1.44 Specialty Chemicals 1.35 Construction Materials 1.15 Paper Products 1.06 Diversified Metals & Mining 0.86 Steel 0.77 Gold 0.59 Materials Total 1.61 Telecommunication Serv Integrated Telecommunication 2.37 Wireless Telecomm Svcs 1.27 Alternative Carriers 1.15 Telecommunication Serv Total 2.24 Utilities Multi-Utilities 2.75 Electric Utilities 2.52 Water Utilities 2.34 Independent Power Producers 1.14 Gas Utilities 1.13 Utilities Total 2.45

Source: BRV Research


Sub-Industry analysis using the CF Valuation algorithm within each Sector The following table ranks all of the GIC Sub-industries within each GIC Sector. The organization of the sectors is in descending order beginning with the GIC Sector with the highest average value for the Cash Flow Valuation Indicator. This would imply that these top sectors and sub-industries represent the most attractive investment areas within the Russell 1K. Furthermore, within each Sector, each GIC sub-industry is also ranked in descending order based on the same average value for the Cash Flow Valuation Indicator. (See the legend at the end of this section for an explanation of these color codes and associated numeric figures)

The following table is based on UNWEIGHTED CF Valuation values Industry Rankings by Average CF Valuation Level Sub-Ind Avg of Color

GIC Sector GIC SubIndustry Indictor for Valuation

Equal-Weighted Consumer Discretionary Automotive Retail 7.00 Catalog Retail 7.00 Publishing & Printing 7.00 Advertising 7.00 Computer & Electronics Rtl 7.00 Specialized Consumer Service 7.00

General Merchandise Stores 7.00 Motorcycle Manufacturers 7.00 Homefurnishing Retail 7.00 Household Appliances 7.00 Home Improvement Retail 7.00 Movies & Entertainment 6.98 Broadcasting & Cable TV 6.97 Department Stores 6.83 Cable & Satellite 6.72 Education Services 6.69 Apparel Retail 6.64 Casinos & Gaming 6.61 Hotels 6.60 Leisure Products 6.35 Home Furnishings 6.12 Distributors 6.04 Automobile Manufacturers 5.95 Restaurants 5.68 Consumer Electronics 4.98 Apparel & Accessories 4.56 Auto Parts & Equipment 4.53 Housewares & Specialties 4.37 Tires & Rubber 4.00


Homebuilding 3.92 Specialty Stores 3.91 Internet Retail 3.23 Footwear 1.93Consumer Discretionary Total 5.97

Consumer Staples Drug Retail 7.00 Food Distributors 7.00 Brewers 7.00 Tobacco 7.00 Household Products 7.00 Packaged Foods 6.38 Hypermarkets & Super Centers 6.21 Food Retail 5.93 Agricultural Products 5.79 Distillers & Vintners 5.76 Personal Products 4.28 Soft Drinks 3.67Consumer Staples Total 6.06 Energy Oil & Gas Storage & Transpor 6.90 Integrated Oil & Gas 6.89 Oil & Gas Drilling 5.33 Oil & Gas Refining & Mktg 5.30 Oil & Gas Exploration & Prod 5.02 Coal & Consumable Fuels 4.99 Oil & Gas Equipment & Svcs 3.43Energy Total 5.86 Financials Banks 7.00 Insurance Brokers 7.00 Specialized Finance 7.00 Diversified Financial Svcs 7.00 Investment Banking & Brokera 6.97 Property & Casualty Insur 6.55 Regional Banks 6.40 Asset Management & Cust Bank 6.27 Mortgage REITs 6.20 Consumer Finance 5.86 Reinsurance 5.75 Thrift & Mortgage Finance 5.70 Multi-line Insurance 5.57 Life & Health Insurance 4.75 Office REITs 4.14 Real Estate Operating Compan 4.00 Multi-Sector Holdings 4.00 Diversified REITs 4.00 Retail REITs 3.86


Specialized REITs 3.71 Real Estate Services 2.00 Residential REITs 1.18 Real Estate Development 1.00 Real Estate Management & Dev 1.00 Industrial REITs 1.00Financials Total 5.93

Health Care Health Care Distrib & Svcs 7.00 Health Care Services 7.00 Pharmaceuticals 6.96 Managed Health Care 6.93 Health Care Facilities 6.25 Health Care Equipment 6.18 Biotechnology 6.01 Health Care Technology 5.70 Life Sciences Tools & Servic 5.48 Health Care Supplies 4.98Health Care Total 6.61 Industrials Commercial Printing 7.00 Environmental Services 7.00 Security & Alarm Services 7.00 Electrical Components & Equi 6.67 Railroads 6.58 Industrial Conglomerates 6.40 Aerospace & Defense 6.38 Airlines 6.13 Industrial Machinery 5.84 Air Freight & Couriers 5.77 Research & Consulting Servic 5.69 Trucking 5.53 Office Services & Supplies 5.49 Marine 5.03 Diversified Support Services 3.87 Construction & Engineering 3.82 Construction & Farm Mach 3.31 Human Resource & Employment 2.90 Building Products 2.37 Heavy Electrical Equipment 2.00 Trading Companies & Distrib 1.47Industrials Total 5.66 Information Technology Office Electronics 7.00 Computer Hardware 6.98 Semiconductor Equipment 6.93 Systems Software 6.73 Semiconductors 6.61 Data Processing & Outsrc Svc 6.28


Technology Distributors 6.10 Internet Software & Services 6.07 Telecommunications Equipment 6.01 Computer Storage & Periphs 5.89 IT Consulting & Services 5.83 Home Entertainment Software 5.45 Electronic Maufacturing Svcs 5.33 Electronic Equip & Instru 3.63 Application Software 3.49 Electronic COmponents 1.21Information Technology Total 6.24 Materials Aluminum 7.00 Diversified Metals & Mining 6.57 Fertilizers & Agri Chemicals 6.45 Diversified Chemicals 6.39 Paper Products 5.72 Metal & Glass Containers 5.53 Paper Packaging 5.20 Steel 4.74 Specialty Chemicals 4.37 Gold 3.66 Industrial Gases 3.62 Construction Materials 3.43 Commodity Chemicals 1.30Materials Total 5.35 Telecommunication Serv Wireless Telecomm Svcs 5.05 Integrated Telecommunication 4.33 Alternative Carriers 4.00Telecommunication Serv Total 4.40 Utilities Electric Utilities 7.00 Multi-Utilities 7.00 Water Utilities 7.00 Independent Power Producers 6.59 Gas Utilities 6.11Utilities Total 6.93

Source BRV Research

Sub-Industry Average of Color Indicator for Valuation betw een: 0.0 To 1.39






Stock Level Summary:

The stock-level tables below are ranked and presented using UNWEIGHTED Reward/Risk values

On the following pages, we apply our two valuation metrics at the stock level, but maintain the GIC Sector and GIC Sub-Industry organization associated with each stock. The Sectors and Sub-Industries are both organized alphabetically. However, the stocks within each Sub-Industry are ranked according to the Reward to Risk ratio located third to last column to the right. These figures are printed in green font. In utilizing this section of our report, we would pay particular attention to those stocks listed first within each sub-industry and their associated color marker. These stocks represent the most attractively valued stocks based on our proprietary Reward to Risk metric. The reader can then use our second metric, namely the Cash Flow Color Indicator that is located in the center-most column of the page as an alternate barometer to determine that stock’s valuation. The legend for these color indicators (i.e. the “Val Ind” column) is located directly below the header for each page and identifies how each color corresponds to that equity’s valuation relative to certain historical and estimated EPS figures. We would alert our readers that on the following pages, the cash flow valuation model calculates implied prices and various percent return scenarios to best/worst pricing using the following determinants:

1. BETA 2. Weighted Average cost of capital (WACC) 3. Terminal growth rates

ELROI automatically calculates these three required inputs for all 4600 companies within the ELROI universe based on industry averages. (Only the Russell 1k subset is discussed in this report). As such, each individual company’s BETA, WACC, and Terminal Growth rate is not analyzed independently reflecting for their unique characteristics, and, hence, the results presented below may not be representative of a company's current situation. Regarding the frequency of “NM”’s in the below results for forecasted prices and returns: Specifically in cases where the WACC and the Terminal Growth Rate are close to being equal, the implied price may be overstated. The reader should adjust these inputs in ELROI to override an industry average figure that may not reflect the company’s current situation. A BRV analyst would be happy to assist you with this within the ELROI system.


About BRV Research Value Added Services BRV Research is a decision support entity formed to deliver value added solutions to the institutional investment management market. Using fundamental, technical and quantitative disciplines, our research approach addresses the two key areas of active management – stock selection and portfolio selection. Whether an individual idea, or a more encompassing equity strategy, the BRV team provides turnkey solutions that deliver long-term, risk-adjusted superior returns. A consultative approach We engage in discussion with clients to understand the environment and requirements of their investment policy and process. We then tailor our work to offer stock and portfolio strategies consistent with those specifications. Our work Through the use of our proprietary research platform, we examine combinations of the factors shown to explain stock price and portfolio performance. Our analysts combine fundamental rigor with quantitative discipline to effect strategies that deliver consistent alpha within required levels of active risk. Our platform

ELROI is a web-based, on-demand application that delivers integrated financial data and analytics to institutional investment professionals. Through daily coverage of 4600 U.S. domestic stocks and ADRs, it allows for the examination of the key factors shown to impact stock price and portfolio performance, and for the creation and testing of portfolio strategies. It serves BRV as the firm’s primary research product distributed to and used for institutional clients.


Disclaimers This report has been prepared by Blaylock Robert Van, LLC. Blaylock Robert Van, LLC. and its employees, officers, and directors deal (as agents) in securities referred to herein (or options or other instruments related thereto), including in transactions which may be contrary to any recommendations contained herein. Blaylock Robert Van, LLC and its employees may also have engaged in transactions with issuers identified herein. This publication does not constitute an offer or solicitation of any transaction in any securities referred to herein. Any recommendation contained herein may not be suitable for all investors. Although the information contained in the subject report (not including disclosures continued herein) has been obtained from sources we believe to be reliable, the accuracy and completeness of such information and the opinions expressed herein cannot be guaranteed. This publication and any recommendation contained herein speak only as of the date hereof and are subject to change without notice. Blaylock Robert Van, LLC and its affiliated companies and employees companies and employees shall have no obligation to update or amend any information or opinion contained herein. This publication is being furnished to you for informational purposes only and on the condition that it will not form the sole basis for any investment decision. Each investor must make their own determination of the appropriateness of an investment in any securities referred to herein based on the tax, or other considerations applicable to such investor and its own investment strategy. By virtue of this publication, neither Blaylock Robert Van, LLC nor any of its employees, nor any data provider or any of its employees shall be responsible for any investment decision. This report may not be reproduced, distributed, or published without the prior consent of Blaylock Robert Van, LLC ©2011. All rights reserved by Blaylock Robert Van, LLC. This report may discuss numerous securities, some of which may not be qualified for sale in certain states and my therefore not be offered to investors in such states. This document should not be construed as providing investment services. Investing in non-U.S. securities including ADRs involves significant risks such as fluctuation of exchange rates that may have adverse effects on the value or price of income derived from the security. Securities of some foreign companies may be less liquid and prices more volatile than securities of U.S. companies. Securities of non-U.S. issuers may not be registered with or subject to Securities and Exchange Commission reporting requirements; therefore, information regarding such issuers may be limited. STOCK OWNERSHIP AND CONFLICT OF INTEREST DISCLOSURE ANALYST CERTIFICATION I, Clayton Earle, the author of this report, hereby certify that the views expressed in this research report accurately reflect my personal views about the subject company (s) and its (their) securities. I also certify that I have not been, and will not be receiving direct or indirect compensation in exchange for expressing the specific recommendation(s) in this report. Unless otherwise noted, all investment returns reflect the close as of 2/29/2012. For additional Information, please contact Steven Singleton or a Blaylock Robert Van, LLC representative at (510) 208-6101.

march 2012 monthly valuation report - blaylock van, llc · monthly valuation report clayton earle...

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