november 14, 2005 portfolio update

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November 14, 2005 PORTFOLIO UPDATE JPMorgan Chase & Co. (JPM)

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Page 1: November 14, 2005 PORTFOLIO UPDATE

November 14, 2005

PORTFOLIO UPDATE

JPMorgan Chase & Co. (JPM)

Page 2: November 14, 2005 PORTFOLIO UPDATE

November 14, 2005

PORTFOLIO UPDATE

Company Description• Leading global financial services firm

– Investment Banking Advises on corporate strategy and structure, capital raising in equity and debt markets, risk management and market-making in cash investments and derivative instruments

– Commercial Banking Serves 25,000+ clients with annual revenues from $10 million to $2 billion– Treasury and Security Services Provides transaction, investment and information services to clients– Asset & Wealth Management Provides investment management to retail and institutional investors, financial intermediaries and high net worth

families and individuals– Retail Financial Services Provides consumers and small businesses with financial services including deposits, investments, loans and insurance– Card Services Largest issuer of general purpose credit cards in the U.S.

JPMorgan Chase & Co. (JPM)

JPM 2004 Net Income Breakdown

Investment Bank

Retail FinancialServices

Card Services

Commercial Bank

Treasury andSecurity Services

Asset and WealthManagement

Page 3: November 14, 2005 PORTFOLIO UPDATE

November 14, 2005

PORTFOLIO UPDATE

Stock Performance & Events

JPMorgan Chase & Co. (JPM)

•Event 1: Agree to pay $2 billion to Enron Investors

Involvement with the accounting scandal that led

to Enron’s collapse

•Event 2: Hurricane Katrina

3rd Quarter earnings released in Nov. included

$400 million in estimated credit losses

•Event 3: New CEO

James Dimon will succeed William B. Harrison, Jr.

at year end, 6 months earlier then expected

- Purchased on 2/25/2000 for $51.08

- Now trading at $38.26 (Friday Close)

- Major losses occurred in 2002:

- Overexposure in derivatives

- Lack of proper accounting of derivatives

- Role in hiding accounts associated with Enron

12

3

Page 4: November 14, 2005 PORTFOLIO UPDATE

November 14, 2005

PORTFOLIO UPDATE

Risks• Overextended?

- Recent mergers with Chase and Bank One• Merger-acquisition risks

- Merger with Bank One has been seen with uncertainty through some analysts opinions. Loss of key employees and disruption of ongoing business may hurt client and supplier relationships

• Internet Security- Increasing concern of rising theft associated with online banking

• Stiff Competition- Operating in a highly competitive industry which is experiencing consolidation. Other mergers and acquisitions in industry include Provident Financial by National City, GreenPort by North Fork and FleetBoston by Bank of America

• More involvement with accounting scandals to come?-Reputation hurt for involvement with Enron scandal-A similar scandal would be devastating to reputation

JPMorgan Chase & Co. (JPM)

Page 5: November 14, 2005 PORTFOLIO UPDATE

November 14, 2005

PORTFOLIO UPDATE

Opportunities• Full Integration with Bank One

- Merger with Bank One still not fully integrated- 3Q profits included $500 million in merger savings- Total of $3 billion in savings expected to be realized by end of 2007

• Turning the company around- Similar to the turnaround Bank One had, management must focus on transforming JPM and properly integrating a decade of mergers and acquisitions

• Concentrate on core businesses- Sell small businesses in order to concentrate and strengthen core businesses

• Growth in Asset Wealth Management- According to report published by Merrill Lynch/Cap Gemini Ernst and Young, total global wealth of high net worth individuals grew by 7.7%

• Rising Interest Rates- Expected to result in strong growth in the equity markets- Will boost the company’s interest income

• New CEO- James Dimon will succeed William B. Harrison, 6 months earlier then expected, markets have seen this as a positive factor

JPMorgan Chase & Co. (JPM)

Page 6: November 14, 2005 PORTFOLIO UPDATE

November 14, 2005

PORTFOLIO UPDATE

Conclusion• We should Hold JPMorgan Chase & Co.

– Integration with Bank One is leading to increased revenues- Stock price has shown growth as 3rd Quarter earnings were positive

– Bank One has experience in rebuilding and transforming as it underwent a similar turnaround that JPM must undergo to reestablish itself

– New CEO will provide leadership to concentrate company on core businesses

– Other recent analyst opinions have been upgrading the stock value to hold/market outperform

– Stock price will not skyrocket but will trade consistently

JPMorgan Chase & Co. (JPM)

Page 7: November 14, 2005 PORTFOLIO UPDATE

November 14, 2005

PORTFOLIO UPDATE

(SOV)

Graham Gullans

11/14/04

Page 8: November 14, 2005 PORTFOLIO UPDATE

November 14, 2005

PORTFOLIO UPDATE

Company Description

• Sovereign Bank is one of the largest financial institutions serving, Mid-Atlantic and New England regions. – Consumer Bank

• Auto Loan, Home Equity, Mortgages, Checking, ATM

– Corporate Bank• Business Line of Credit, Investments, Money Market,

Capital Markets, Checking, Management services.

Sovereign Bank [SOV]

Page 9: November 14, 2005 PORTFOLIO UPDATE

November 14, 2005

PORTFOLIO UPDATE

Stock Performance & Events

Sovereign Bank [SOV]

• The NYSE is considering blocking SOV’s request to sell $2.4b equity stake to Spain’s Banco Santander giving them 19.8% ownership in SOV. Relational who owns 7.3% of SOV states that they want shareholder approval before sale to Banco Santander.

• Relational is also in a position to block the acquisition in which SOV plans to buy NY based - Independence Community Bank for $3.6b

Disgruntled shareholders

Page 10: November 14, 2005 PORTFOLIO UPDATE

November 14, 2005

PORTFOLIO UPDATE

Risks – M&A• "Relational is astounded by this expensive series of

transactions," – Selling 19.8% of stock to Banco Santandar– Purchase of Independent Community Bank

• The price for Independence represents about a 29 percent premium to its closing share price of $32.45 on Friday.

• "Not only will Sovereign pay what we believe is an inordinate price for assets that are riskier than Sovereign's, but our analysis shows that these transactions will be dilutive to earnings when compared to a share repurchase in both the near term and the long term," Relational said.

• Downgrade by Bear Stearns, Ryan, Beck & Co, etc from Outperform to Market Perform – offers little growth opp.

Sovereign Bank [SOV]

Page 11: November 14, 2005 PORTFOLIO UPDATE

November 14, 2005

PORTFOLIO UPDATE

Opportunities

• The partnership with Santander should result in many financial and operational benefits for Sovereign, including leveraging Santander's expertise in technology, marketing, and retail banking, and improving Sovereign's debt credit ratings

• With purchase of ICBC, Sovereigns geographic coverage is the size of original FleetBoston before its acq. by BOA

Sovereign Bank [SOV]

Page 12: November 14, 2005 PORTFOLIO UPDATE

November 14, 2005

PORTFOLIO UPDATE

Summary• My Opinion = Neutral (Not adverse to a Sell

pitch or Hold) because:– Their geographic coverage is expanding,

consistent with the rest of the industry. – SOV returns = 63% in last 3 years compared to

7% by Lehman mid-cap Bank Index.– There are no foreseeable large long term growth

opportunities.– 100 week range: $20 - $25, selling at $23– Disgruntled Shareholders, SOV board difficulties

Sovereign Bank [SOV]

Pros (+)

Cons (-)

Page 13: November 14, 2005 PORTFOLIO UPDATE

November 14, 2005

PORTFOLIO UPDATE

International Business Machines Corporation (IBM)

Page 14: November 14, 2005 PORTFOLIO UPDATE

November 14, 2005

PORTFOLIO UPDATE

Company Description• The principal activity is to provide

business and information technology services

• Global Services: provides consulting services to clients. Often the solution to clients problems requires IBM software and hardware, but other suppliers’ products may be used if necessary

• Hardware Product: – Systems and Tech – Provides advanced

computing power and storage capabilities– Personal Systems – Personal computers

for business and home

• Software: consists of middleware and operating systems software

• Global Financing: customer & commercial financing, marketing

• Enterprise Investments: develops and provides industry-specific IT solutions

[International Business Machines Corporation (IBM)]

2004 Revenue Breakdown

Global Services

48%

Hardware32%

Software16%

Enterprise Investment

s/Other1%

Global Financing

3%

Page 15: November 14, 2005 PORTFOLIO UPDATE

November 14, 2005

PORTFOLIO UPDATE

Stock Performance & EventsMicrosoft Antitrust issues resolved

-operations restructuring-2Q05 loss

[International Business Machines Corporation (IBM)]

•December 2004: Leveno Group Ltd. announced to purchase IBM’s Personal Computing division.

•April 15 : Restructuring actions cost about $1.3 to $1.7 billion, cut 10,000 to 13,000 jobs and record a second quarter charge

•July 1: settled with receiving $775 M from Microsoft

Page 16: November 14, 2005 PORTFOLIO UPDATE

November 14, 2005

PORTFOLIO UPDATE

Risks

• Year-over-year revenue growth of -0.4 is considerably below sub-industry average of 3.6

• IBM tends to underperform the S&P500 by 39% in bull market, and in bear market the shares generally decrease by 47% more

• Both Institutional investors and insiders decreased their numbers of share

[International Business Machines Corporation (IBM)]

Page 17: November 14, 2005 PORTFOLIO UPDATE

November 14, 2005

PORTFOLIO UPDATE

Opportunities

• 3Q05 EPS $1.26, a positive surprise of 11.1% above $1.13 forecast.

• Restructuring started to benefit the company• Undervalued (trailing & forward P/E, forward PEG is

discounted about 21% in comparison to 5 yr average)

• 4Q05 EPS forecast increased from $1.87 to $1.93, a rise of 3.3% while industry average moved -2.0%

[International Business Machines Corporation (IBM)]

Page 18: November 14, 2005 PORTFOLIO UPDATE

November 14, 2005

PORTFOLIO UPDATE

Conclusion/Summary

• We should hold IBM because:

• Strong recovery potential

• Slightly undervalued

• Predicting strong 4Q05 earnings

• 1yr Price target $85 <PIBM< $105 (mean:97.33)

[International Business Machines Corporation (IBM)]

Page 19: November 14, 2005 PORTFOLIO UPDATE

November 14, 2005

PORTFOLIO UPDATE

EMC Corporation (EMC)

Page 20: November 14, 2005 PORTFOLIO UPDATE

November 14, 2005

PORTFOLIO UPDATE

Company Description

• EMC is engaged in creating products and solutions for information storage. – EMC products include storage systems that

manage and store files– EMC software supports these systems and

other technology infrastructure– The newly acquired VMware helps to simplify

the way infrastructure systems are managed across the board

EMC Corporation (EMC)

Page 21: November 14, 2005 PORTFOLIO UPDATE

November 14, 2005

PORTFOLIO UPDATE

Stock Performance & Events

52 week LOW

(04/15/05)52 week

HIGH(01/03/05)

EMC Corporation (EMC)

•52 week HIGH: (01/03/05) -- $15.09

•52 week LOW: (04/15/05) -- $11.10

•Current Price: (as of 11/11/05) -- $13.67

Page 22: November 14, 2005 PORTFOLIO UPDATE

November 14, 2005

PORTFOLIO UPDATE

Risks

• EPS has declined 5.01% over the past 5 year

• Technology stocks are not as sexy in the marketplace as they once were

• EMC’s P/E ratio vs. the computer hardware industry is 96.06% and makes it overvalued

EMC Corporation (EMC)

Page 23: November 14, 2005 PORTFOLIO UPDATE

November 14, 2005

PORTFOLIO UPDATE

Opportunities

• Analysts at S&P feel that Sarbanes-Oxley will create more of a need for data storage for corporations

• The acquisition of VMware can help EMC boost revenue by acting as a multi-infrastructure support system

• EMC has a strong balance sheet with over $3 per share in net cash and investments

EMC Corporation (EMC)

Page 24: November 14, 2005 PORTFOLIO UPDATE

November 14, 2005

PORTFOLIO UPDATE

Conclusion/Summary

• We should HOLD EMC because:– EMC’s AMware division presents a new

growth opportunity for the company– The technology industry is picking up due to

increased spending and developments in tech– Sarbanes-Oxley requires that much more

information is to be stored for regulatory reasons

EMC Corporation (EMC)

Page 25: November 14, 2005 PORTFOLIO UPDATE

November 14, 2005

PORTFOLIO UPDATE

Cepheid (CPHD)

Page 26: November 14, 2005 PORTFOLIO UPDATE

November 14, 2005

PORTFOLIO UPDATE

Cepheid and the BioTech Industry:• Develops systems for Genetic Testing, for

clinical, industrial, and biothreat markets– SmartCycler –DNA amplification for genetic

analysis– GeneXpert–along with SmartCycler

technology automates sample preparation– GeneXpert Anthrax—detection of anthrax

(Biothreat sales are 68% of total sales)

[CEPHEID (CPHD)]

Page 27: November 14, 2005 PORTFOLIO UPDATE

November 14, 2005

PORTFOLIO UPDATE

Stock Performance & Events

[CEPHEID (CPHD)]

•Event 1: Announced a loss per share of $.09 in the 2nd Qtr because of higher costs

•Event 2 : Announced a loss per share of $.08 in the 3rd Quarter

Event 2:November 3,

2005

Event 1:August 6, 2005

Page 28: November 14, 2005 PORTFOLIO UPDATE

November 14, 2005

PORTFOLIO UPDATE

Risks

• Beta is 2.08—high volatility

• YTD Return is –12.7%, compared to the Industry Return of 19.7%

• No P/E because earnings are negative

• Cepheid has reported a loss per share for at least the past 5 quarters

[CEPHEID (CPHD)]

Page 29: November 14, 2005 PORTFOLIO UPDATE

November 14, 2005

PORTFOLIO UPDATE

Opportunities

• Sub-Industry —BioTech is a growth industry with is expected to have positive earnings in 2006

• Revenue has grown rapidly (158%) over the past 3 years, compared to 11.84% for the Med. Equipment Industry.

• Cepheid is focused on the LT, with large R&D expenditures

[CEPHEID (CPHD)]

Page 30: November 14, 2005 PORTFOLIO UPDATE

November 14, 2005

PORTFOLIO UPDATE

Conclusion

• We should pitch an sell next week because:

– Earnings have not met expectations– High Beta (2.08)– Negative earnings, YTD Return, Cash Flows,

ROA, and ROE

[CEPHEID (CPHD)]

Page 31: November 14, 2005 PORTFOLIO UPDATE

November 14, 2005

PORTFOLIO UPDATE

MSFT

Page 32: November 14, 2005 PORTFOLIO UPDATE

November 14, 2005

PORTFOLIO UPDATE

Windows OS - 31%MS Office - 29%Server & Tools - 23%Home & Entertainment - 8%MSN - 6%Business Solutions/Other - 3%

Company Description

• Microsoft’s principal activity is to develop, manufacture, license and support a wide range of software products for a multitude of computing devices

MSFT

Page 33: November 14, 2005 PORTFOLIO UPDATE

November 14, 2005

PORTFOLIO UPDATE

Stock Performance & Events

MSFT

•52 wk high: $30.20

•52 wk low: $23.82

•Current Price: $27.28

Q1: Earnings Report

52 wk low

Q2: Earnings Report

Q3: Earnings Report

Q4: Earnings Report

Q1 2006: Earnings

Report

Google-Sun Partnership Announced

Page 34: November 14, 2005 PORTFOLIO UPDATE

November 14, 2005

PORTFOLIO UPDATE

Risks

• + + + = ???

• Upcoming product flops

• Slow in computer sales

• Businesses/consumers comfortable current software (Windows XP, etc.), reluctant to upgrade

MSFT

QuickTime™ and aTIFF (Uncompressed) decompressorare needed to see this picture.

Page 35: November 14, 2005 PORTFOLIO UPDATE

November 14, 2005

PORTFOLIO UPDATE

Opportunities

• Considered a “value” stock, low P/E, analysts expecting 10% growth rate each year over the next 5 years

• Share buyback + decent dividend = solid investment with returns

• Still hasn’t “jumped” out of the $25-27 range, possible to get in early if winter product releases are a success

• In a transitional period, between products• $40 billion cash, no debt, additional $1 billion in

free cash flow each monthMSFT

Page 36: November 14, 2005 PORTFOLIO UPDATE

November 14, 2005

PORTFOLIO UPDATE

Conclusion/Summary

Chris Liddell

VS.

MSFT GOOG

We should HOLD because:

Release Date: Tuesday, November 22nd!!

Page 37: November 14, 2005 PORTFOLIO UPDATE

November 14, 2005

PORTFOLIO UPDATE

XM Satellite Radio Holdings Inc. (XMSR)

Page 38: November 14, 2005 PORTFOLIO UPDATE

November 14, 2005

PORTFOLIO UPDATE

Company Description

• It is a holding company that provides music, entertainment, and information programming for reception by vehicle, home, and portable radios, as well as over the Internet primarily in the United States.– Satellite radio – 150 channels of commercial

free digital music, sports events, weather forecasts, and more.

XM Radio Holdings Inc. (XMSR)

Page 39: November 14, 2005 PORTFOLIO UPDATE

November 14, 2005

PORTFOLIO UPDATE

Stock Performance & Events

XM Radio Holdings Inc. (XMSR)

52-week low

52-week high

•Favourable quarterly earnings declared on May 5th•Contract with Honda boosts stock price in Mid May.• XM Satellite Posts Wider Loss On Higher Costs in October 27th.

Page 40: November 14, 2005 PORTFOLIO UPDATE

November 14, 2005

PORTFOLIO UPDATE

Risks

• Strong competition with iPod (podcasts) and other Mp3 players.

• Increasing net loss for the last 3 years of operations.

XM Radio Holdings Inc. (XMSR)

XMSR Income Statement

(800)

(600)

(400)

(200)

-

200

400

600

800

2000 2001 2002 2003 2004

$m

m

Revenue

Total operatingexpenses

Operating Loss

Net loss

Page 41: November 14, 2005 PORTFOLIO UPDATE

November 14, 2005

PORTFOLIO UPDATE

Opportunities

• Honda, Audi, BMW, and many more car manufacturers are pre-wiring radio satellite systems to their cars.

• Being a relatively new company, it already has 5.2 million subscribers and growing.

• Its only competitor, Sirius, has 3 million subscribers less than XM radio.

XM Radio Holdings Inc. (XMSR)

Page 42: November 14, 2005 PORTFOLIO UPDATE

November 14, 2005

PORTFOLIO UPDATE

Conclusion/Summary

• We should hold this stock because:– Company is still in its expansion phase,

losses are expected in the first years of operation.

– Number of subscribers is increasing every year.

– Revenue is growing steadily.

XM Radio Holdings Inc. (XMSR)

Page 43: November 14, 2005 PORTFOLIO UPDATE

November 14, 2005

PORTFOLIO UPDATE

Winnebago Industries (WGO)

Page 44: November 14, 2005 PORTFOLIO UPDATE

November 14, 2005

PORTFOLIO UPDATE

Company Description

• Vertically integrated RV manufacturer– 95% of revenues from RVs. – Broad product line: multiple brands, gas and

diesel, low price to $200K+– Does not provide financing– Industry leading returns and quality standards

Winnebago Industries (WGO)

Page 45: November 14, 2005 PORTFOLIO UPDATE

November 14, 2005

PORTFOLIO UPDATE

Stock Performance & Events

10/13 – 4Q profit falls, but beats

street

3/17 – 2Q earnings far

below expectations

Winnebago Industries (WGO)

Page 46: November 14, 2005 PORTFOLIO UPDATE

November 14, 2005

PORTFOLIO UPDATE

Risks

• OIL• Cyclical industry (Consumer confidence / rising

interest rates)• Maintaining market share in industry upswing• Capacity expansion could impact margins• Rising fuel costs (risk to market price, not to

operations)• Rising dealer inventories (market sensitive to

this)

Winnebago Industries (WGO)

Page 47: November 14, 2005 PORTFOLIO UPDATE

November 14, 2005

PORTFOLIO UPDATE

Opportunities

• Baby boomers

• Still relatively low interest rates

• Diesel market expanding rapidly

• Share buyback plan

• Estimated 40,000 RVs will be bought industry-wide following Katrina

Winnebago Industries (WGO)

Page 48: November 14, 2005 PORTFOLIO UPDATE

November 14, 2005

PORTFOLIO UPDATE

Conclusion/Summary• We should hold

WGO, in the long run, because:– Opportunities are still

there– Very profitable and

well run company – Diversifies our portfolio

Winnebago Industries (WGO)

• Question is, do we hold now, or sell and buy back in a few years as oil prices cool off?

Page 49: November 14, 2005 PORTFOLIO UPDATE

November 14, 2005

PORTFOLIO UPDATE

Barnes & Noble Inc. (BKS)

Page 50: November 14, 2005 PORTFOLIO UPDATE

November 14, 2005

PORTFOLIO UPDATE

Company Description

• Barnes & Noble Inc. is a national bookseller, operates over 820 stores nationwide.– Sells books online through BarnesandNoble.com, which was

recently repurchased.– Spun off Gamestop last year (November 2004), profitable

move.

Barnes & Noble Inc. (BKS)

Revenue Breakdown

B. Dalton Stores

4%

Other3%

Barns & Noble Stores84%

Barns & Noble.com

9%

Page 51: November 14, 2005 PORTFOLIO UPDATE

November 14, 2005

PORTFOLIO UPDATE

Stock Performance & Events

Barnes & Noble Inc. (BKS)

Failed to meet earnings by .02, GameStop spinoff

announcement

Page 52: November 14, 2005 PORTFOLIO UPDATE

November 14, 2005

PORTFOLIO UPDATE

Risks

• Susceptible to industry book trends (best sellers, etc.)

• Purchase of books can be affected by geo-political events (rising gas prices, etc.)

• Google Books?

Barnes & Noble Inc. (BKS)

Page 53: November 14, 2005 PORTFOLIO UPDATE

November 14, 2005

PORTFOLIO UPDATE

Opportunities

• Improved Cash Flow is being reinvested into website

• Board is bullish, initiating massive share buyback ($200 million), and also dividend. Len Riggio, chairman is pushing this drive.

Barnes & Noble Inc. (BKS)

Page 54: November 14, 2005 PORTFOLIO UPDATE

November 14, 2005

PORTFOLIO UPDATE

Conclusion/Summary

• We should hold this stock because:– By far the best bookseller in the country, main

competitor Borders is struggling– Buying back shares, very little debt, in general

in strong financial shape– Coffee Shop/Bookstore is still very effective

method of luring customers

Barnes & Noble Inc. (BKS)

Page 55: November 14, 2005 PORTFOLIO UPDATE

November 14, 2005

PORTFOLIO UPDATE

Water Pik Technologies Inc. (PIK)

Page 56: November 14, 2005 PORTFOLIO UPDATE

November 14, 2005

PORTFOLIO UPDATE

Company Description

– A growth oriented consumer products company that capitalizes on well recognized brand names and develops innovative products that provide outstanding value to their customers.

– Personal Health Care Segment ($187 million)• Showerheads – Numerous models ranging from mounted

sprayers to hand-held massagers.• Dental Care – Manufactures different types of electric

toothbrushes. • Water Filtration – Mounted sink filters and replacement

cartridges. – Pool Products and Heating Systems Segment ($134 million)

• Laars and Jandy Pool and Spa Heaters• Chlorine generators, valves, filters, toys, ladders etc…

Water Pik Technologies Inc. (PIK)

Page 57: November 14, 2005 PORTFOLIO UPDATE

November 14, 2005

PORTFOLIO UPDATE

Stock Performance & Events

Water Pik Technologies Inc. (PIK)

•January 4th, after a strong 2004 year, Board is considering selling a portion or all of the company to maximize value for shareholders.

•July 1st, sells Heating Systems business to Bradford White.

•October 3rd hits 52 week high at $21.84

Page 58: November 14, 2005 PORTFOLIO UPDATE

November 14, 2005

PORTFOLIO UPDATE

Risks

• Lots of competition in the Dental Care (Oral B) and Water Filtration (Brita) industries.

• Lacking in ability to develop new products and execute its growth strategy.

• Uncertainty of product testing and regulatory approvals.

• Rising commodity costs and poor housing market

Water Pik Technologies Inc. (PIK)

Page 59: November 14, 2005 PORTFOLIO UPDATE

November 14, 2005

PORTFOLIO UPDATE

Opportunities

• Creating a new dental product that will replace modern flossing.

• Future growth in homecare products after selling heating systems.

• Improving dental market due to current moderizations.

Water Pik Technologies Inc. (PIK)

Page 60: November 14, 2005 PORTFOLIO UPDATE

November 14, 2005

PORTFOLIO UPDATE

Conclusion/Summary

• We should Sell because:– Lots of competition.

• Gillette (Braun), Clorox (Brita), Procter and Gamble (PUR and Crest), Colgate-Palmolive, Conair, Whirlpool, Lennox, Maytag.

• Pentair, Rheem Manufacturing Co., SPX Corp., Burnham Corp., A.O Smith Corp.

– Only an industry leader in Showerheads.– Housing market is doing poorly.

Water Pik Technologies Inc. (PIK)

Page 61: November 14, 2005 PORTFOLIO UPDATE

November 14, 2005

PORTFOLIO UPDATE

Carmax (KMX)

[Company Logo]

Page 62: November 14, 2005 PORTFOLIO UPDATE

November 14, 2005

PORTFOLIO UPDATE

Company Description

• CarMax, Inc. is a retailer of used cars and light trucks in the United States.

• KMX purchases, reconditions, and sells used vehicles.• KMX provides financing of vehicle purchases, the sale of extended

service plans and accessories, and vehicle repair service. • The company also sells new vehicles under various franchise

agreements.

Carmax (KMX)

KMX Revenue Breakdown

Extended service plan

revenues2%

Service department

sales2%

Wholesale vehicle sales

11%

New vehicle sales9%

Used vehicle sales76%

Page 63: November 14, 2005 PORTFOLIO UPDATE

November 14, 2005

PORTFOLIO UPDATE

Stock Performance & Events

Carmax (CMX)

•Consistent downgrading of earnings forecasts.

•June 20, 2005 – Report of First Quarter Earnings (Up 13% YoY).

•CEO Austin Ligon announces his retirement.

Page 64: November 14, 2005 PORTFOLIO UPDATE

November 14, 2005

PORTFOLIO UPDATE

Risks

• Departure of CEO opens company up to cultural change

• Rising interest rates

• Overproduction/success of new cars

Carmax (CMX)

Page 65: November 14, 2005 PORTFOLIO UPDATE

November 14, 2005

PORTFOLIO UPDATE

Opportunities

• Economies of Scale

• Sub-prime financing

• Fewer new car sales

• New car incentives

Carmax (CMX)

Page 66: November 14, 2005 PORTFOLIO UPDATE

November 14, 2005

PORTFOLIO UPDATE

Conclusion/Summary

• HOLD Recommendation – Few major competitors (Autonation is larger

but sells a larger proportion of new cars)– Demand may be impossible to predict, but

company is solid financially.

Carmax (CMX)

Page 67: November 14, 2005 PORTFOLIO UPDATE

November 14, 2005

PORTFOLIO UPDATE

General Electric (GE)

Page 68: November 14, 2005 PORTFOLIO UPDATE

November 14, 2005

PORTFOLIO UPDATE

Company Description

• GE’s 11 divisions are: Advanced Materials, Commercial Finance, Consumer Finance, Consumer and Industrial, Energy, Equipment and Other Services, Healthcare, Infrastructure, Insurance, NBC Universal, and Transportation.

General Electric (GE)

Page 69: November 14, 2005 PORTFOLIO UPDATE

November 14, 2005

PORTFOLIO UPDATE

Stock Performance & Events

General Electric (GE)

•Stock is well-hedged due to diversification

•Rising energy costs strained business during the summer

Page 70: November 14, 2005 PORTFOLIO UPDATE

November 14, 2005

PORTFOLIO UPDATE

Risks

• Energy prices

• Businesses focused on capital goods would do poorly in a weak economic environment

• Rising interests would strain GE Financial Services

General Electric (GE)

Page 71: November 14, 2005 PORTFOLIO UPDATE

November 14, 2005

PORTFOLIO UPDATE

Opportunities

• Synergy savings from announced restructuring.

• Developing renewable energy business

• Economies of scale, diversification, etc.

General Electric (GE)

Page 72: November 14, 2005 PORTFOLIO UPDATE

November 14, 2005

PORTFOLIO UPDATE

Conclusion/Summary

• Recommendation: HOLD– Solid fundamentals– Opportunities in several large businesses– Strong & capable management—great culture

General Electric (GE)

Page 73: November 14, 2005 PORTFOLIO UPDATE

PORTFOLIO UPDATE

November 14, 2005

Microtek Medical (MTMD)

Page 74: November 14, 2005 PORTFOLIO UPDATE

PORTFOLIO UPDATE

November 14, 2005

Designs, manufactures and markets infection control and fluid control products

• Microtek: management of infectious and hazardous waste for the healthcare market in the US &UK– Microscope Drapes– Imaging Equipment Drapes– Specialty Patient Drapes

• OREX Technologies International (OTI)

Microtek Medical (MTMD)

Page 75: November 14, 2005 PORTFOLIO UPDATE

PORTFOLIO UPDATE

November 14, 2005

Microtek - 1 yr performance

August 5, 2005

February 25, 2005

Microtek Medical (MTMD)

•Feb. 25, 2005 - 4Q EPS beat expectations

•Aug. 5, 2005 - Announced appointment of new COO, Mark J. Alvarez

Page 76: November 14, 2005 PORTFOLIO UPDATE

PORTFOLIO UPDATE

November 14, 2005

Risks

• Geographic Concentration– political/economic uncertainty

• Decreased Gross Margins– FX rate & rising fuel prices

• Increased Competitive Pressure – weak domestic branded product lines

Microtek Medical (MTMD)

Page 77: November 14, 2005 PORTFOLIO UPDATE

PORTFOLIO UPDATE

November 14, 2005

Opportunities

• Acquiring new businesses

• Introducing new products

• Increase international sales

Microtek Medical (MTMD)

Page 78: November 14, 2005 PORTFOLIO UPDATE

PORTFOLIO UPDATE

November 14, 2005

Conclusion/Summary

• We should pitch a sell next week because:

– Lack of sufficient growth opportunities– High stock price volatility– Weak industry positioning

Microtek Medical (MTMD)