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Advisory Board
Presentation
AIM XXXI
December 6, 2010
AIM XXXI Analysts
2Applied Investment Management XXXI
Brooke, Brian Fahrenbach, Eric Li, Susan Smith, Jack
[email protected] [email protected] [email protected] [email protected]
Sotheby's, Zagg Newmont Mining, Symmetry Medical NeuStar, OptionsXpress Walgreens, DreamWorks
Clark, Chelsea Flaherty, John Mack, Ryan Straccia, William
[email protected] [email protected] [email protected] [email protected]
Abbott Labs, Chiquita DaVita, Spectra Energy Perrigo, Cisco Systems Comscore, Cree
Colianni, Martin Friel, Thomas O'Brien, Kevin Sturm, Patrick
[email protected] [email protected] [email protected] [email protected]
Amazon, Whirlpool Activision-Blizzard, NetApp Coca-Cola, Potash Brandywine, Archer Dan. Mid.
Conklin, Kaitlin Goode, Nicholas Pappas, James Sullivan, Jessica
[email protected] [email protected] [email protected] [email protected]
Hansen Natural, Dresser-Rand UnitedHealth, Hercules Offshore Republic Services, Global Payments EcoLab, Royal Carribbean
Corcoran, Matt Haddad, Thomas Patton, Ryan Weeldreyer, Eric
[email protected] [email protected] [email protected] [email protected]
General Dynamics, Choice Hotels Gilead, Cal-Maine Foods Google, Astec Ind. Alliant Techsystems , Chevron
Deboer, Tyler Hinckley, James Roggeveen, Richard Zumot, James
[email protected] [email protected] [email protected] [email protected]
Apple, Canadian National Railway Paychex, Greenbrier Int. Game Tech., Urban Outfitters Chubb, Acme Packet
Delaney, Matt Idaszak, Joseph Santrach, Steve
[email protected] [email protected] [email protected]
Morningstar, FedEx Insituform, J. Crew Diamond Foods, Alaska Air
Presentation Agenda
• We appreciate the opportunity to present to the AIM Advisory Board
• Agenda
– Portfolio Objectives and Guidelines
– Economic Environment
– Security Analysis
– Portfolio Performance
– General Information
3Applied Investment Management XXXI
Portfolio Objectives and Guidelines
4Applied Investment Management XXXI
Course Overview
5Applied Investment Management XXXI
• Course objectives
– Provide analysts with a foundation in portfolio
management
– Blend theoretical academic objectives with practical hands-
on investing
Analyst Responsibilities
• Coverage of two companies
– One from the initial portfolio handed over by the previous
AIM class
– One of the analyst’s choosing
Applied Investment Management XXXI 6
Analyst Responsibilities
• Security analysis
– Company background – How does the company make money?• SWOT analysis
– Industry analysis – What is the competitive environment of the industry?• Porter’s Five Forces
– Fundamental analysis – What are the key drivers of return on equity?• DuPont analysis
– Earnings forecast – What EPS will the company earn through the next fiscal year?
• Heuristic and financial model approaches
– Final valuation and recommendation – What is the intrinsic value of the stock?
• Free cash flow model, dividend discount model, multiplier model
– Technical analysis – How has the stock traded in the short-term?• Moving averages, relative strength, support and resistance
Applied Investment Management XXXI 7
Group Responsibilities
• Monitoring current economic conditions
– Unemployment, inflation, GDP growth, etc.
– How do these economic variables impact the portfolio?
• Tracking portfolio performance
– Relative performance
– Sector weighting
– Risk adjusted metrics
• Executing trades
– Final portfolio voting occurred on Monday November 22nd with trades executed the following day
• Preparing and publishing AIM newsletters
• Recording class votes and activities
8Applied Investment Management XXXI
Portfolio Decision Process
• Full discussion of each stock in the existing portfolio and those
with initiating coverage
• Buy or sell recommendations given by analysts based on their
final intrinsic valuations
• Final portfolio decisions require a majority vote of all analysts
9Applied Investment Management XXXI
Investment Philosophy
• Investment Objectives– Long-term investment horizon (3-5 years)
– Outperform S&P 500 using equities traded on US exchanges
• Risk Tolerance– Not a factor that will be managed actively
• Portfolio diversification will naturally limit risk
• Natural allocation to small/mid/large cap stocks
• Specific benchmarks– S&P 500
– Russell 2000
– Hank Blended Index (HBI)• 65% S&P 500, 35% Russell 2000
10Applied Investment Management XXXI
AIM Investment Policies
• Only equities traded on major U.S. exchanges
- No bonds, money market instruments, or derivatives
- No margin purchases or short-selling
• Portfolio Target Allocation
- 35% in Small (<$500M) and Mid-Cap ($500M-$5B) Stocks
- 65% in Large Cap (>$5B) Stocks
- +/- 10% Boundary
• Composition will roughly match the S&P 500
• No individual position should exceed 10% of portfolio’s market value
• 0% long-term target for cash holdings
- Short-term cash positions will be invested in a market index
portfolio
11Applied Investment Management XXXI
AIM Investment Policies
AIM will not invest in any company whose values are not
consistent with those of the University of Notre Dame.
This includes, but is not
limited to:
• Abortifacients
•Birth Control
•Tobacco
12Applied Investment Management XXXI
Portfolio Allocation
13Applied Investment Management XXXI
69%
31%
AIM XXX
Large Cap
Small & Mid-
Cap68%
32%
AIM XXXI
• Slightly overweight in large-cap stocks, similar to inherited portfolio
Economic Environment
14Applied Investment Management XXXI
Economic Environment
Applied Investment Management XXXI 15
I. Summary
II. Unemployment
III. Inflation
IV. Housing
V. Consumer Spending
VI. Gross Domestic Product (GDP)
VII. The Fed’s Response
The Uncertain Recovery
• Economic growth continues to disappoint – 2.5% in Q3 2010
• Unemployment remains high – 9.8% in Nov.
• Core inflation below informal Fed targets – 0.6% in Oct.
• Housing market displays prolonged weakness
• Consumers and businesses still hesitant to spend
16Applied Investment Management XXXI
Unemployment
17Applied Investment Management XXXI
Unemployment
18Applied Investment Management XXXI
19901981
20011958
19531948
1960196919741980
Unemployment
19Applied Investment Management XXXI
-800
-600
-400
-200
0
200
400
Ch
an
ge
in N
on
farm
Pa
yro
lls
(00
0's
)
Change in Nonfarm Payrolls
January 2008 – December 2009 : -8,363,000
3%
4%
5%
6%
7%
8%
9%
10%
11%
Un
emp
loy
men
t R
ate
Unemployment Rate, 2000 - Present
20
Employment Levels
Construction, 83.3%
Durable Goods
Manufacturing, 66.2%
Finance, 98.7%
Government, 108.1%
Business
Services, 102.3%
Hospitality, 112.4%
Information
Services, 76.5%
60.0%
70.0%
80.0%
90.0%
100.0%
110.0%
120.0%
Ind
ex V
alue
Industry Employment since 2000
Applied Investment Management XXXI
21
Employment Levels
Construction, 72.9%
Durable Goods
Manufacturing, 80.8%
Finance, 90.8%
Government, 100.7%
Business
Services, 94.2%
Hospitality, 98.9%
Information
Services, 89.7%
70.0%
75.0%
80.0%
85.0%
90.0%
95.0%
100.0%
105.0%
110.0%
Ind
ex V
alue
Industry Employment since 2007
Applied Investment Management XXXI
Unemployment
Applied Investment Management XXXI 22
Mean Duration of Unemployment
• September 2010: 33.3 weeks
• October 2010: 33.9 weeks
• November 2010: 33.8 weeks
November: 6,313
Inflation
23Applied Investment Management XXXI
Inflation
24Applied Investment Management XXXI
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
Jan
-05
Ma
r-0
5
Ma
y-0
5
Jul-
05
Sep
-05
No
v-0
5
Jan
-06
Ma
r-0
6
Ma
y-0
6
Jul-
06
Sep
-06
No
v-0
6
Jan
-07
Ma
r-0
7
Ma
y-0
7
Jul-
07
Sep
-07
No
v-0
7
Jan
-08
Ma
r-0
8
Ma
y-0
8
Jul-
08
Sep
-08
No
v-0
8
Jan
-09
Ma
r-0
9
Ma
y-0
9
Jul-
09
Sep
-09
No
v-0
9
Jan
-10
Ma
r-1
0
Ma
y-1
0
Jul-
10
Sep
-10
Yea
r O
ver
Yea
r P
erce
nt
Ch
an
ge
in C
PI
YOY CPI Inflation Rates, 2005 - Present
Oct 2010: 1.17%
Inflation
25Applied Investment Management XXXI
Applied Investment Management XXXI 26
Housing
New Home Starts
27Applied Investment Management XXXI
Source: US Census Bureau
0
500
1,000
1,500
2,000
2,500
Jan-0
4
Mar
-04
May
-04
Jul-
04
Sep
-04
No
v-0
4
Jan-0
5
Mar
-05
May
-05
Jul-
05
Sep
-05
No
v-0
5
Jan-0
6
Mar
-06
May
-06
Jul-
06
Sep
-06
No
v-0
6
Jan-0
7
Mar
-07
May
-07
Jul-
07
Sep
-07
No
v-0
7
Jan-0
8
Mar
-08
May
-08
Jul-
08
Sep
-08
No
v-0
8
Jan-0
9
Mar
-09
May
-09
Jul-
09
Sep
-09
No
v-0
9
Jan-1
0
Mar
-10
May
-10
Jul-
10
Sep
-10
No
v-1
0
Hou
sin
g S
tart
s, T
hou
san
ds
of
Un
its
New Housing Starts Jan '04-Oct '10
New Home Sales
28Applied Investment Management XXXI
Source: CalculatedRiskBlog.com
Case-Shiller Price Index
29Applied Investment Management XXXI
Source: Standard & Poor
0.00
50.00
100.00
150.00
200.00
250.00
Jan-8
7
Aug-8
7
Mar
-88
Oct
-88
May
-89
Dec
-89
Jul-
90
Feb
-91
Sep
-91
Ap
r-9
2
No
v-9
2
Jun-9
3
Jan-9
4
Aug-9
4
Mar
-95
Oct
-95
May
-96
Dec
-96
Jul-
97
Feb
-98
Sep
-98
Ap
r-9
9
No
v-9
9
Jun-0
0
Jan-0
1
Aug-0
1
Mar
-02
Oct
-02
May
-03
Dec
-03
Jul-
04
Feb
-05
Sep
-05
Ap
r-0
6
No
v-0
6
Jun-0
7
Jan-0
8
Aug-0
8
Mar
-09
Oct
-09
May
-10
Mortgage Rates
30Applied Investment Management XXXI
2.50%
3.00%
3.50%
4.00%
4.50%
5.00%
5.50%
6.00%
6.50%
7.00%
7.50%
Jan-0
4
Ap
r-0
4
Jul-
04
Oct
-04
Jan-0
5
Ap
r-0
5
Jul-
05
Oct
-05
Jan-0
6
Ap
r-0
6
Jul-
06
Oct
-06
Jan-0
7
Ap
r-0
7
Jul-
07
Oct
-07
Jan-0
8
Ap
r-0
8
Jul-
08
Oct
-08
Jan-0
9
Ap
r-0
9
Jul-
09
Oct
-09
Jan-1
0
Ap
r-1
0
Jul-
10
Oct
-10
Historic Mortgage Rates Jan '04- Oct '10
15-Year FRM
30-Year FRM
1-Year ARM
Source: HSH Associates
Existing Home Inventory
Applied Investment Management XXXI 31
Source: CalculatedRiskBlog.com
Housing Outlook
32
•Unprecedented foreclosure crisis
-Affected by high unemployment
-Add to housing inventories
•Months of supply for Oct 2010 increased to 8.6
•Mortgage Rates
-Rise from record low levels
•Demand for housing will grow gradually
-Consumer confidence and businesses expanded
-Demand may grow, lack of building
•Forecast: New Housing Starts will rise 12% through 2011
Applied Investment Management XXXI
Applied Investment Management XXXI 33
Consumer Spending
Personal Consumption
34Applied Investment Management XXXI
-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
2000 2002 2004 2006 2008 2010
PCE (% Change)
Consumer Credit Conditions
35Applied Investment Management XXXI
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
1943 1950 1958 1965 1973 1980 1988 1995 2003 2010
Total Consumer Credit Outstanding (bb)
25.00
26.00
27.00
28.00
29.00
30.00
31.00
32.00
33.00
1980 1984 1988 1992 1996 2000 2004 2008
Household Debt Obligations to Disposable Personal Income (%)
Personal Savings Rate
Applied Investment Management XXXI 36
0.0
2.0
4.0
6.0
8.0
10.0
12.0
Personal Savings Rate (%)
%
Consumer Sentiment
37Applied Investment Management XXXI
Applied Investment Management XXXI 38
Gross Domestic Product
(GDP)
Contributors to GDP
39Applied Investment Management XXXI
-8%
-6%
-4%
-2%
0%
2%
4%
6%
20
07
-II
20
07
-III
20
07
-IV
20
08
-I
20
08
-II
20
08
-III
20
08
-IV
20
09
-I
20
09
-II
20
09
-III
20
09
-IV
20
10
-I
20
10
-II
20
10
-III
Contributors to GDP % Change
Government
Spending
Net Exports
Private
Investment
Personal
Consumption
Net Annualized Real
GDP Change
from Previous
Period 3.2 2.3 2.9 -0.7 0.6 -4.1 -7.0 -5.0 -0.7 1.6 4.9 3.7 1.7 2.5
Business Spending
40Applied Investment Management XXXI
1,400
1,500
1,600
1,700
1,800
1,900
2,000
2,100
2,200
Private Domestic Investment ($ Billions) Financing Gap ($ Billions)
Structures vs. Equipment
Applied Investment Management XXXI 41
• Equipment and Software investment has recovered to pre-crisis levels, but
spending on structures continues to decline.
200
400
600
800
1,000
1,200
1,400
1,600
Non-Residential Fixed Investment ($ Billions)
Total
Equipment and
Software
Structures
Contributors to GDP
Applied Investment Management XXXI 42
-8%
-6%
-4%
-2%
0%
2%
4%
6%
20
07
-II
20
07
-III
20
07
-IV
20
08
-I
20
08
-II
20
08
-III
20
08
-IV
20
09
-I
20
09
-II
20
09
-III
20
09
-IV
20
10
-I
20
10
-II
20
10
-III
Contributors to GDP % Change
Government
Spending
Net Exports
Private
Investment
Personal
Consumption
Net Annualized Real
GDP Change
from Previous
Period 3.2 2.3 2.9 -0.7 0.6 -4.1 -7.0 -5.0 -0.7 1.6 4.9 3.7 1.7 2.5
Exports – A Disappointing Recovery
Applied Investment Management XXXI 43
-800
-700
-600
-500
-400
-300
-200
-100
0
U.S. Trade Deficit ($ Billions)
1,500
1,700
1,900
2,100
2,300
2,500
2,700
U.S. Imports and Exports ($ Billions)
Imports
Exports
Conclusion
44
• Commodity Inflation
Chevron—BUY/OVERWEIGHT
Cal-Maine Foods--BUY
Archer Daniels Midland—BUY
Potash Corp—HOLD
Newmont Mining—HOLD
• Stagnant Job Growth
Paychex—SELL
Brandywine Realty—SELL
• Government Spending Cuts
General Dynamics—UNDERWEIGHT
Alliant Tech Systems—UNDERWEIGHT
Applied Investment Management XXXI
• Our GDP Forecast—Slow growth of 2.5-3.0% in 2011 and 2012
Applied Investment Management XXXI 45
The Fed’s Response
Quantitative Easing 2
• Recovery not progressing adequately
• ―No one’s doing anything, so we need to do
something.‖
• Can’t lower short-term rates any further
– Large-scale asset purchases to depress longer-term
rates
Applied Investment Management XXXI 46
Concerns
• Will the Fed be successful in cutting back asset purchases and stimulus?
• International response
– Trade implications
– Asset bubbles?
• Behavior of long-term rates in response to potential implications of QE2
Applied Investment Management XXXI 47
Performance Since QE2 Announcement
Applied Investment Management XXXI 48
2.40%
2.50%
2.60%
2.70%
2.80%
2.90%
3.00%
11/3/10 11/8/10 11/13/10 11/18/10 11/23/10 11/28/10 12/3/10
Yie
ld
10-year Treasury Yield
4.00%
4.10%
4.20%
4.30%
4.40%
4.50%
11/3/10 11/8/10 11/13/10 11/18/10 11/23/10 11/28/10 12/3/10
Yie
ld
30-year Treasury Yield
3.02%
4.31%
Security Analysis
49Applied Investment Management XXXI
Security Selection Process
50Applied Investment Management XXXI
•The AIM portfolio employs a bottom-up approach to
security selection
•Analysts complete six reports on potentials stocks
that address key areas of concern:
•Company Background
•Fundamental Analysis
•Industry Report
•EPS Forecast
• Final Valuation
•Technical Analysis
•All six reports are considered and each analyst
makes a buy, sell, no buy recommendation for his/her
securities
Analyst Agenda
Analyst Company Focus
Joe Idaszak J. Crew Group Company Background
Matt Delaney Morningstar Fundamental Analysis
Tom Haddad Cal-Maine Foods Fundamental Analysis
Billy Straccia comScore EPS Valuation
Ryan Mack Cisco Systems DCF Valuation
James Pappas Global Payments Multiples Valuation
Eric Fahrenbach Symmetry Medical Discovery
Tom Friel NetApp Technical Analysis
Applied Investment Management XXXI 51
J. Crew Group (JCG)
Applied Investment Management XXXI 52
Market Price $37.65
Forward P/E 13x
Market Cap $2.40B
2010 Revenue $1.71B
2010 EPS $2.29
-
2,000,000
4,000,000
6,000,000
8,000,000
10,000,000
12,000,000
14,000,000
16,000,000
18,000,000
20,000,000
$0.00
$10.00
$20.00
$30.00
$40.00
$50.00
$60.00
Company Background
53Applied Investment Management XXXI
The Company• Specialty Retailer
– Niche: 18-50 yr old female
– Single Product, no multi
branding (e.g. GPS, URBN)
– Multi-Channel Outlet
– Opportunities:
2007 2008 2009 1H 2009 1H 2010
Women 66% 66% 65% 67% 65%
Men 20% 19% 19% 18% 19%
Children 1% 3% 4% 3% 5%
Accessories 13% 12% 12% 12% 11%
Total 100% 100% 100% 100% 100%
% Revenue Breakdown by Product
Company Background
• Management Team:– CEO Millard ―Mickey‖ Drexler, 2003
• Previously CEO of Gap, Inc. during the 1990s rise of the Gap brands
– President, Executive Creative Director Jenna Lyons, 2010• Employee since 1990, promoted to current position in
September
• Public Perception: Michelle Obama– Catalyst: J. Crew in the public eye
• Tonight Show with J. Leno
• London with Prime Minister’s wife
Applied Investment Management XXXI 54
JCG Recommendation - Buy
Applied Investment Management XXXI 55
Investment Thesis:
J. Crew serves a niche position within apparel and provides a quality, well-designed selection of
products that matches market styles and trends. Led by one of the best management teams in the
industry, the company will continue to prosper as it expands itself into more menswear, children’s
clothing (crewcuts), and internationally.
Valuation Method Value Weight Weighted Value
Forward P/E 43.94$ 17.5% 7.69$
Forward Price-to-Sales 44.02 12.5% 5.50
Price-to-Book 43.70 5.0% 2.19
Forward P/E, % of S&P 500 49.43 7.5% 3.71
Forward P/E, % of Ralph Lauren 46.00 7.5% 3.45
Free Cash Flow 45.05$ 50.0% 22.53$
Final Valuation 45.06$
Price as of 11/22/10 37.65$
Estimated Upside 19.68%
Buyout Offer
• TPG Capital Partners (~75%)
– Previously owned 88% when privatized in 1997
• Leonard Green & Partners (~22%)
• Chairman/CEO Mickey Drexler (~3%)
• $3 bn, or $43.50 per share
– Drexler will stay on in same role for 4 years
starting at the completion of the buyout
• Market Price > Bid Price Another Bid?
56Applied Investment Management XXXI
Morningstar (MORN)
Applied Investment Management XXXI 57
$30
$35
$40
$45
$50
$55Market Price $49.87
Forward P/E 22x
Market Cap $2.5B
LTM Revenue $526MM
LTM EPS $1.58
Business Overview
Applied Investment Management XXXI 58
19.1%
13.7%
13.3%
8.2%
6.3%
2009 Top Five Products by Revenue
Licensed Data
Advisor Workstation
Investment Consulting
Morningstar.com
Morningstar Direct
Total: 61% of Revenue
Operating Segments
•Investment Information
•80% of revenues
•30% operating margin
•Investment Management
•20% of revenues
•50% operating margin
Target Client Tailored Product
Institutional Morningstar Direct
Financial Advisors Advisor Workstation
Individuals Morningstar.com
Target Client Tailored Product
Institutional Money Management
Financial Advisors Investment Consulting
Retirement Participants Retirement Advice
Business Overview
59Applied Investment Management XXXI
U.S. 87.0% 86.0% 79.4% 75.8% 73.0%
Non-U.S. 13.0% 14.0% 20.6% 24.2% 27.0%
Percentage Revenue by Region
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
2005
Japan
Australia
Europe
Asia
Canada
U.S.
2005 2006 2007 2008 2009
Business Overview
Applied Investment Management XXXI 60
Renewal Rate of Contracts Retention Rate of Subscriptions
0%
20%
40%
60%
80%
100%
120%
2005 2006 2007 2008 2009
Renewal Rate (Contracts) Margin of Error
90%
0%
20%
40%
60%
80%
100%
120%
2005 2006 2007 2008 2009
Retention Rate (Subscriptions) Margin of Error
Third Quarter 2010 Updates:
•Licenses for Morningstar Direct rose 32.3% to 4,403, with particularly strong growth outside
the United States, partly reflecting client migrations from Institutional Workstation
100%
95% 95%
80%
60% 60% 60%65%
55%
Fundamental Analysis: Ratios
61Applied Investment Management XXXI
0.00
0.50
1.00
1.50
2.00
2.50
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Capital T/O Leverage Ratio F.A.T/O
0.00
5.00
10.00
15.00
20.00
25.00
30.00
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Return on Equity
Profitability Ratio: Return on Equity
Components of Return on Equity
MORN Recommendation – Sell
62Applied Investment Management XXXI
Valuation Method Value Weight Weighted Value
Price-to-Operating Profits 47.76$ 0% -$
Forward P/E 51.06$ 10% 5.11$
Forward Price-to-Sales 48.51$ 15% 7.28$
Free Cash Flow 37.70$ 75% 28.28$
Final Valuation 40.66$
Price as of 11/22/10 49.87$
Estimated Upside / Downside -18.47%
Investment Thesis:
Morningstar continues to build-out its global distribution platform to leverage a wide-
variety of products and services across a fragmented market. However, the company
continues to struggle to sustainably generate revenue growth that is commensurate
with the assigned value of its proprietary databases.
Market Price: $30.75Forward P/E: 10.36Market Cap: $737MMLTM Revenue: $912MMLTM EPS: $3.20
Cal-Maine Foods (CALM)
63
0
200000
400000
600000
800000
1000000
1200000
0
5
10
15
20
25
30
35
40
Applied Investment Management XXXI
Overview
64
• Largest producer and marketer of shell eggs in the
US
• Sell primarily to grocery stores and other food
companies
• In 2010, sold 805 million dozen shell eggs, 18%
of domestic shell egg consumption
• Largest geographic presence in Southeast
• Only publically company in egg production
Applied Investment Management XXXI
What Drives the Business?
$-
$0.20
$0.40
$0.60
$0.80
$1.00
$1.20
$1.40
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
900,000
1,000,000
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Ave
rage
Se
llin
g P
rice
Sales Volume Average Price
Correlation of…•Egg Prices and Sales = .97•Egg Prices and EBIT = .95•Egg Prices and Margins = .90•ROE and Margins = .93•Feed Prices to Egg Prices = .92
0.0%
20.0%
40.0%
60.0%
80.0%
2003 2004 2005 2006 2007 2008 2009 2010 TTM
Total Debt Capital/Total Capital
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
2003 2004 2005 2006 2007 2008 2009 2010 TTM
Cash Flow/Total Debt
High volatility in sales (27%) and EBIT (127%) growth, but low volatility in volume growth (4%)
65Applied Investment Management XXXI
Drivers of Future Growth
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
2003 2004 2005 2006 2007 2008 2009 2010
Increasing Market Share
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
2004 2005 2006 2007 2008 2009 2010
Trend Towards Specialty
% of Sales Dollars
% of Volume
66
Blue Shading indicates Cal-Maine Major Market Areas
Applied Investment Management XXXI
CALM Recommendation - BUY
Investment Thesis:
Cal-Maine’s extensive investments in advanced facilities have allowed it to become a
low cost leader. Given the company’s low financial risk and the opportunity for above
average growth through geographic expansion and the trend toward specialty eggs, the
analyst sees an upside even with moderately decreasing egg prices.
67
Valuation Method Value Weight Weighted Value
Discounted Cash Flow 47.40$ 30% 14.22$
P/B Multiple 35.20 40% 14.08
P/E Multiple 32.02 20% 6.40
Dividend Discount Model 25.90 10% 2.59
Final Valuation 37.29$
Price as of 11/22/10 30.75$
Estimated Upside 21.28%
Applied Investment Management XXXI
comScore, Inc. (SCOR)
68Applied Investment Management XXXI
$0.00
$5.00
$10.00
$15.00
$20.00
$25.00
$30.00
Market Price $22.00
Forward P/E 81x
Market Cap $691B
2010 Revenue $174B
2010 EPS ($0.02)
Business Overview
69Applied Investment Management XXXI
• Global panel of more than 2 million internet users
• Projects consumer online behavior for the total online population
EPS Heuristic Valuation
70Applied Investment Management XXXI
• Street consistently
overestimates earnings
potential
• Significant negative surprise
history
• Utilized heuristic valuation as
a guideline to the financial
valuation
• Heuristic method implies
($0.13) per share for 2010
- 0% weight
- High operating leverage
-0.1
-0.05
0
0.05
0.1
0.15
0.2
0.25
0.3
Quarterly EPS: 3Q'07 - 3Q'10
Quarterly Earnings Surprise
Mean Actual Surprise
Sep-10 0.01 (0.07) (800%)
Jun-10 0.04 0.03 (30%)
Mar-10 0.01 0.01 (29%)
Dec-09 0.04 0.05 14%
Sep-09 0.05 0.03 (37%)
Jun-09 0.02 0.04 74%
Mar-09 0.01 0.01 (29%)
$ $
EPS Final Valuation
Applied Investment Management XXXI 71
• Utilized an earnings forecast model assuming 2010 revenue growth of 31% and 30% in 2011
• Catalysts
– Recent acquisitions expand global footprint
– Larger market opportunity ($2.7bn vs. $800mm previously)
• Street Misperceptions
– We believe margin expansion will be somewhat limited near-term as SCOR works on integrating its 4 recent acquisitions
– Slow global economic recovery will adversely affect overly optimistic foreign growth potential (currently 19.5% of total revenues)
– Competitive market for digital marketing intelligence – Google, Nielsen, Compete
AIM Estimate
FY END Q1 Q2 Q3 Q4 FY
2010 $0.01 $0.03 ($0.07) $0.01 ($0.02)
2011E $0.04 $0.06 $0.04 $0.08 $0.22
Analyst Consensus
FY END Q1 Q2 Q3 Q4 FY
2010 $0.01 $0.03 ($0.07) $0.01 ($0.02)
2011E $0.08 $0.06 $0.08 $0.10 $0.32
SCOR Recommendation – Sell
72Applied Investment Management XXXI
Valuation Method Value Weight Weighted Value
Forward P/E 23.90$ 10% 2.39$
Forward Price-to-Sales 23.60 10% 2.36
Free Cash Flow 23.00$ 80% 18.40$
Final Valuation 23.15$
Price as of 11/23/10 21.69$
Estimated Upside 6.73%
Investment Thesis:
Despite sales growth potential, we believe margin expansion will be limited near-term
while international sales projections remain overly optimistic. Although we see 6.73%
upside, our analysts have discovered more lucrative investment opportunities.
Cisco Systems (CSCO)
Applied Investment Management XXXI 73
m
200 m
400 m
600 m
800 m
1000 m
1200 m
1400 m
1600 m
1800 m
2000 m
$15.00
$17.00
$19.00
$21.00
$23.00
$25.00
$27.00
$29.00
Market Price $19.56
Forward P/E 12x
Market Cap $108B
LTM Revenue $42B
LTM EPS $1.41
Company Overview
Applied Investment Management XXXI 74
54%
20%
11%
11%4%
2010 Revenue by Region
United States and
Canada
European Markets
Emerging Markets
Asia Pacific
Japan
2010 Revenue by Segment
Routers & Switches Advanced Technologies
Connect >Routers & Switches
Wireless
50%
Secure >Network Storage
Security & Surveillance
Communicate >Voice & Video Conferencing
Service >Supported solutions
Other Products Service
24% 7% 19%
NEWS:
•Beat 1Q earnings estimates but gave poor outlook
•Public sector cut IT spending
•Predict sales will grow 3-5% in next quarter (down from 12-
17%)
REACTION:
•Shares fell 15% and Cisco lost $23 billion in market cap
•Investors seem to be perceiving a stalling tech sector
Recent Earnings Announcement
75Applied Investment Management XXXI
Additional Assumptions
WACC: 7.38%
Terminal growth rate: 2.5%
Share Repurchase:
Forecast additional stock repurchase of $18 billion over five years
Final DCF Valuation:
$25.28
Revenue Projections
76Applied Investment Management XXXI
2011 2012 2013 2014 2015
Revenue Growth
Routers 2% 4% 5% 5% 5%
Switches 4% 9% 10% 10% 8%
Advanced Technologies 8% 11% 14% 12% 12%
Other Products 15% 22% 25% 20% 17%
Service 8% 10% 10% 10% 10%
Total Revenue 6% 10% 11% 11% 10%
•Maturing Routing business
•High growth in Advanced Technologies as network security becomes more important
•Video related products will drive future growth
• Solid growth in service segment—tempered by centralized data centers
Investment Thesis:
CSCO Recommendation - Buy
77Applied Investment Management XXXI
Cisco is a dominant market leader aimed at retaining that position through organic
and acquisition-based growth. The recent drop in the stock price is largely an
overreaction and allowed us to buy cheap and position ourselves for substantial long-
term returns.
Valuation Method Value Weight Weighted Value
Forward P/E 26.88$ 15% 4.03$
Forward Price-to-Sales 30.84 15% 4.63
Price-to-Book 31.82 0% -
Price-to-Operating Income 23.69 15% 3.55
Free Cash Flow 25.28$ 55% 13.90$
Final Valuation 26.12$
Price as of 11/22/10 19.56$
Estimated Upside 33.51%
Global Payments Inc. (GPN)
78Applied Investment Management XXXI
Market Price $41.03
Forward P/E 15.31x
Market Cap $3.27B
LTM Revenue $1,672MM
LTM EPS $2.54
0
2,000,000
4,000,000
6,000,000
8,000,000
10,000,000
12,000,000
14,000,000
$25
$30
$35
$40
$45
$50
$55
De
c-0
9
Jan
-10
Feb
-10
Mar
-10
Ap
r-1
0
May
-10
Jun
-10
Jul-
10
Au
g-1
0
Sep
-10
Oct
-10
No
v-1
0
The Mechanics of a Credit Card Transaction
Applied Investment Management XXXI 79
Global Payments Overview
Applied Investment Management XXXI 80
Key Differentiators
End Market and Geographic Diversity
•Leading market share among independent service providers
•Only true worldwide player in the processing sector
•Long standing relationships with card associations (Visa, MasterCard, and Discover)
•Unlike card issuers, Global Payments does not bear customer default risk
•Demonstrated ability to create value through international acquisitions
7%
19%
19%55%
FY 2010 Sales by Geography
Asia
Europe
Canada
US
FY Ends May 31st
FY 2010 Sales by End Market
Global Payments -Global Opportunities
Leadership in Growing Markets Card Penetration by Market
81Applied Investment Management XXXI
0
0.01
0.02
0.03
0.04
0.05
0.06
US Hong Kong
Canada UK India China Czech Republic
Russia
Credit Cards /GDP ($ Thousand) Market Share Rank Card Vol. Growth
Eastern Europe 50% 1st 19%
Asia Pacific 25% 1st 18%
Russia 20% 1st 33%
United States 12% 6th*
UK 20% 3nd
Canada 20% 2nd
*Highest among independent processors
•Key acquisitions have provided Global
Payments an unmatched market share in the
most promising emerging markets
•Emerging markets remain underpenetrated in
financial services
Multiples Analysis: P/E
82Applied Investment Management XXXI
Qtr
GPN
Price EPS Implied Fwd PE
Heartland
Payments FWD PE % of HPY S&P Fwd PE % of S&P
Q1 09 46.4 $0.71 21.7x 53.7x 40.4% 16.7x 129.6%
Q2 09 44.68 $0.57 21.2x NA NA 11.8x 180.0%
Q3 09 32.68 $0.43 14.5x NA NA 9.7x 150.3%
Q4 09 33.31 $0.43 13.9x NA NA 10.3x 134.8%
Q1 10 37.37 $0.68 14.7x NA NA 11.6x 126.8%
Q2 10 46.62 $0.71 18.4x 21.9x 83.8% 12.5x 147.1%
Q3 10 53.78 $0.58 22.0x 13.8x 159.4% 13.3x 165.3%
Q4 10 45.5 $0.58 18.1x 22.7x 80.0% 12.0x 151.1%
Q1 11 36.52 $0.67 14.0x 17.3x 81.1% 14.0x 100.6%
Q2 11 (E) 37.58 $0.61 14.0x
Q3 11 (E) $0.65
Q4 11 (E) $0.67
Q1 12 (E) $0.75
Average Since 2009 17.6x 25.9x 88.9% 12.4x 142.8%
Average Since 2007 20.6x 28.0x 82.7% 18.5x 127.1%
Subjective Implied Forward PE Ratio 18.5xNext 12 Month Projected EPS $2.68
Implied Intrinsic Share Value $49.58
Multiples Analysis: P/BV & P/Rev
83Applied Investment Management XXXI
Price/Fwd Price/Fwd Price/Fwd
Revenue Price/BV Revenue Price/BV Revenue Price/BV
Q1 09 2.4x 3.3x 0.4x 4.1x 6.9x 19.4x
Q2 09 2.3x 3.4x 0.2x 2.0x 4.5x 11.8x
Q3 09 1.6x 2.9x 0.2x 1.7x 3.6x 8.3x
Q4 09 1.6x 2.6x 0.2x 2.3x 4.1x 8.1x
Q1 10 1.8x 3.7x 0.3x 2.7x 4.0x 6.7x
Q2 10 2.3x 4.1x 0.3x 4.0x 4.8x 7.5x
Q3 10 2.7x 4.7x 0.4x 5.3x 6.0x 8.7x
Q4 10 2.3x 4.3x 0.3x 4.0x 5.8x 8.0x
Q1 11 1.8x 3.3x 0.3x 3.4x 4.4x 5.3x
Average Since 2009 2.1x 3.6x 0.3x 3.2x 4.9x 9.3x
Overall Average 2.3x 3.5x 0.4x 4.5x 4.7x 8.7x
GPN Subjective Implied Price/ Fwd Revenue 2.5x
GPN Forward Revenue/Share 20.7
Implied Intrinsic Share Value $51.71
GPN Subjective Implied Price/Book 3.5
GPN Book/Share 3.3
Implied Intrinsic Share Value $43.98
Average of P/Revenue & P/Book Approaches $47.84
Global Payments (GPN) MasterCard (MA)Heartland Payments (HPY)
GPN Recommendation – Buy
84Applied Investment Management XXXI
Investment Thesis:
The market’s failure to recognize the company’s international growth potential, as
well as a broad overreaction to regulatory headwinds, has driven the stock below its
intrinsic value.
Valuation Method Value Weight Weighted Value
Forward Price/Earnings 49.58$ 30% 14.87$
Traditional Multiples 47.84 30% 14.35
Free Cash Flow Model 45.75 40% 18.30
Final Valuation 47.53$
Price as of 11/22/2010 41.03$
Estimated Upside 15.83%
Symmetry Medical (SMA)
85Applied Investment Management XXXI
Market Price $8.63
Forward P/E 13x
Market Cap $310MM
LTM Revenue $370MM
LTM EPS $0.56
Business Overview
86Applied Investment Management XXXI
Instruments
46%
Implants
29%
Cases
19%
Other
6%
$0
$50
$100
$150
$200
$250
$300
$350
$400
$450
2003 2004 2005 2006 2007 2008 2009
Mill
ion
s
Revenues
Instruments
Implants
Cases
Other
Discovery
Contacts
• Steve Rozow: Zimmer VP Global Manufacturing
• Fred Hite: Symmetry CFO
• Dave Bickel: Lake City Bank VP
Findings
• New Product Launch
• Regulation
• Competent Management
87Applied Investment Management XXXI
SMA Recommendation – Buy
88Applied Investment Management XXXI
Investment Thesis:
Smaller suppliers will not be able to cost-effectively comply with new healthcare
regulations, causing orthopedic OEMs to shift their business to Symmetry—the
dominant player in a fragmented sector.
NetApp, Inc. (NTAP)
89
Market Price $51.46
Forward P/E 25.63x
Market Cap $18.44B
FY 2010 Revenue $4.23B
FY 2010 EPS $1.39
Applied Investment Management XXXI
0
10
20
30
40
50
60
70
80
90
$0
$10
$20
$30
$40
$50
$60
Company Background
Applied Investment Management XXXI 90
Segments and Geographies
Segmented Income Statement
2010 2009 2008 2007 2006
Hardware
Revenue $2,381 $2,152 $2,242 $2,085 $1,577
% Growth 10.64% -4.01% 7.53% 32.21% -COGS 976 1,007 938 815 616
Gross Profit $1,405 $1,145 $1,304 $1,270 $961
Gross Margin 59.01% 53.21% 58.16% 60.91% 60.94%
Software
Revenue $679 $618 $486 $341 $239
% Growth 9.87% 27.16% 42.52% 42.68% -COGS 12 9 8 8 5
Gross Profit $667 $609 $478 $333 $234
Gross Margin 98.23% 98.54% 98.35% 97.65% 97.91%
Services
Revenue $870 $764 $573 $377 $249
% Growth 13.87% 33.33% 51.99% 51.41% -
COGS 423 400 342 185 135
Gross Profit $447 $364 $231 $192 $114
Gross Margin 51.38% 47.64% 40.31% 50.93% 45.78%
•NTAP’s revenues are about equally split between
US and International
•30% of total revenues are from Europe
•Asia represents significant growth opportunity
•High barriers to entry though
•Distribution channel is indirectly scaled
•Mostly hardware, IBM represents main
distributor
Market Share
Company Background: The Product
Applied Investment Management XXXI 91
Technical Indicators: Moving Averages
92Applied Investment Management XXXI
Signal: Ambiguous/Bearish
Technical Indicators: MACD Histogram
93Applied Investment Management XXXI
Signal: Bearish
Technical Indicators: Dynamic Support and Resistance
94Applied Investment Management XXXI
Signal: Ambiguous
Summary
Applied Investment Management XXXI 95
Dynamic Support and Resistance
MACD Histogram
Traditional MA Ambiguous/Bearish
Bearish
Ambiguous
Technical Analysis Summary
Conclusion: Slightly Bearish
NTAP Recommendation – No Buy
96Applied Investment Management XXXI
Valuation Method Value Weight Weighted Value
Forward Price-to-Sales vs. EMC 52.61$ 5% 2.63$
Price-to-Book 52.61 5% 2.63
Forward P/E vs. S&P 500 49.64 15% 7.45
Forward P/E vs. EMC 48.66 20% 9.73
DCF 49.72$ 55% 27.35$
Final Valuation 49.79$
Price as of 11/22/10 52.22$
Estimated Upside -4.66%
Investment Thesis:
Given the slight down side based on the quantitative methods, technical analysis shows that
there may be some irrational bullish sentiment moving the stock. In a market that is only
expected to grow at 8% y-o-y, the optimistic 20% top-line growth assumptions used in the
DCF were still not enough to justify a buy.
Portfolio Performance
97Applied Investment Management XXXI
98
Performance Analysis
• Portfolio Return, Risk and Performance Metrics
– Historical Returns
– Risk Adjusted Performance Measures
– Attribution Analysis
– Top 5 / Bottom 5 Performing Stocks
– Portfolio Transactions
– Final Portfolio
Applied Investment Management XXXI
99
Return Comparison to Benchmarks
Applied Investment Management XXXI
24.63%
-0.92%
4.45%
9.92%
16.52%
-6.49%
1.73%
6.38%
20.07%
-5.49%
2.29%
6.76%
26.58%
-3.91%
3.07%
6.93%
-10.00%
-5.00%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
1 Year 3 Years 5 Years Since Inception
AIM Portfolio S&P 500 HBI Russell 2000
Tota
l A
nn
uali
zed
Ret
urn
(%
)
Applied Investment Management XXXI 100
Cumulative Wealth
$4,067.67
$2,664.47 $2,773.50
$2,549.63
$-
$500.00
$1,000.00
$1,500.00
$2,000.00
$2,500.00
$3,000.00
$3,500.00
$4,000.00
$4,500.00
$5,000.00 $1,000 invested at inception of portfolio
AIM Portfolio HBI Russell 2000 S&P 500
101
Sharpe Ratio Explained
• Sharpe Ratio
– Measures excess return (or risk premium) over a risk-free
portfolio per unit of total risk (standard deviation)
– Explains whether the excess returns are from investment
decision efforts or higher total risk
– Higher ratios indicate better performance
• Formula
Average Portfolio Return – Risk Free Rate
Portfolio Standard Deviation
Applied Investment Management XXXI
102
Sharpe Ratio Comparison
Applied Investment Management XXXI
1.48
0.05
0.21
0.420.42
(0.13)(0.14)
0.25
1.03
(0.16)
0.10
0.43
-0.4
-0.2
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1 Year 3 Year 5 Year Inception
AIM
S&P 500
HBI
103
Jensen’s Alpha Explained
• Jensen’s Alpha
– A performance measure that adjusts for systematic risk
– Measures the excess return over the expected return as given
by the Capital Asset Pricing Model
– Explains whether the excess returns are from investment
decisions or higher systematic risk
– Higher values indicate better performance
• Formula
(Portfolio Return) – (Risk Free Rate + β x Market Risk Premium)
Applied Investment Management XXXI
104
Jensen’s Alpha Comparison
Applied Investment Management XXXI
8.96
6.53
3.00 3.43
2.24 1.86
0.76 0.13
-
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
1 Year 3 Year 5 Year Inception
% AIM
HBI
Attribution Analysis
Applied Investment Management XXXI 105
Management Effect
Allocation Effect: Industry
Weightings
Selection Effect: Stock
Picking
Applied Investment Management XXXI 106
Attribution Analysis
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
1 Year 3 Years 5 Years
% O
ver
/Un
der
per
form
an
ce
Allocation Effect Selection Effect Management Effect
Applied Investment Management XXXI 107
Attribution Analysis
Financial
ServicesHealthcare Utilities
Consumer
Discr.
Consumer
StaplesEnergy
Information
TechMaterials Telecom Industrials
Allocation Effect 1.2% 0.1% -0.2% -0.3% -0.4% 0.2% -0.5% 0.3% -0.2% -0.2%
Selection Effect 0.0% -0.1% 0.2% 1.9% 0.4% -0.3% -0.7% -0.4% 0.0% 0.1%
Management Effect 1.2% 0.1% 0.0% 1.7% 0.0% 0.0% -1.1% -0.2% -0.2% -0.1%
-1.5%
-1.0%
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
% O
ver
/Un
der
per
form
an
ce
5 Year Annualized Attribution
Applied Investment Management XXXI 108
Attribution Analysis
Financial
ServicesHealthcare Utilities
Consumer
Discr.
Consumer
StaplesEnergy
Information
TechMaterials Telecom Industrials
Allocation Effect 1.2% 0.1% -0.2% -0.3% -0.4% 0.2% -0.5% 0.3% -0.2% -0.2%
Selection Effect 0.0% -0.1% 0.2% 1.9% 0.4% -0.3% -0.7% -0.4% 0.0% 0.1%
Management Effect 1.2% 0.1% 0.0% 1.7% 0.0% 0.0% -1.1% -0.2% -0.2% -0.1%
-1.5%
-1.0%
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
% O
ver
/Un
der
per
form
an
ce
5 Year Annualized Attribution
Consumer Discretionary 5-Year Annual Returns
23.2
9.5 9.6
3.6
0.0
5.0
10.0
15.0
20.0
25.0
AIM Weight AIM Return S&P 500
Weight
S&P Returns
%
Consumer Discretionary Weight
and Return
Applied Investment Management XXXI 109
-0.3
1.9
1.7
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
Allocation Effect Selection Effect Management Effect
%
Consumer Discretionary Sector
Performance Attribution
Applied Investment Management XXXI 110
Attribution Analysis
Financial
ServicesHealthcare Utilities
Consumer
Discr.
Consumer
StaplesEnergy
Information
TechMaterials Telecom Industrials
Allocation Effect 1.2% 0.1% -0.2% -0.3% -0.4% 0.2% -0.5% 0.3% -0.2% -0.2%
Selection Effect 0.0% -0.1% 0.2% 1.9% 0.4% -0.3% -0.7% -0.4% 0.0% 0.1%
Management Effect 1.2% 0.1% 0.0% 1.7% 0.0% 0.0% -1.1% -0.2% -0.2% -0.1%
-1.5%
-1.0%
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
% O
ver
/Un
der
per
form
an
ce
5 Year Annualized Attribution
Information Technology 5-Year Annual Returns
12.2
-5.7
16.6
5.0
-10.0
-5.0
0.0
5.0
10.0
15.0
20.0
AIM Weight AIM Return S&P 500
Weight
S&P Returns
%
Information Technology Weight
and Return
Applied Investment Management XXXI 111
-0.5
-0.7
-1.1-1.2
-1.0
-0.8
-0.6
-0.4
-0.2
0.0
Allocation Effect Selection Effect Management Effect
%
Information Technology Sector
Performance Attribution
112
Top 5 and Bottom 5 Performers
Determining Returns
– Returns for all stocks held > 1 year are 12-month
returns based on close 11/29/2010
– Returns for all stocks held < 1 year are holding
period returns based on purchase on 4/15/2010 and
close on 11/29/2010
Applied Investment Management XXXI
113
Top 5 Performers
ComscoreHansen Natural
Potash Corporation
Davita Coca Cola
Returns 48.7% 31.1% 19.8% 19.1% 16.5%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
Applied Investment Management XXXI
114
Bottom 5 Performers
*Indicates stock held < 1 year
Brandywine Realty Trust*
General Dynamics*
Insituform*Gilead
Sciences*
International Game
Technology*
Returns -13.9% -14.3% -15.4% -17.7% -21.5%
-25.0%
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
Applied Investment Management XXXI
115
Portfolio Turnover
Applied Investment Management XXXI
Buy Sell Hold•Alaska Air Group •Brandywine Realty •Abbott Labs
•Archer Daniels Midland •ComScore •Activision Blizzard
•Cal-Maine Foods •DaVita •Alliant Tech Systems
•Chevron •Diamond Foods •Apple
•Cisco Systems •Morningstar •Chubb
•FedEx •NeuStar •Coca-Cola
•Global Payments •Paychex •EcoLab
•J. Crew •Republic Services •General Dynamics
•Symmetry Medical •Walgreens •Gilead Sciences
•Hansen Natural
•Insituform
•Intl. Game Tech
•Newmont Mining
•Perrigo
•Potash
•United Health Group
116
Portfolio Purchases
Applied Investment Management XXXI
Stock TickerDecision Day
Price
Intrinsic
ValueUpside
FedEx FDX $87.34 $98.67 13%
Archer Daniels Midland ADM $29.67 $34.33 16%
Global Payments GPN $41.03 $47.53 16%
J. Crew JCG $37.65 $45.06 20%
Cal-Maine Foods CALM $30.75 $37.29 21%
Alaska Air Group ALK $55.45 $67.64 22%
Symmetry Medical SMA $8.63 $10.70 24%
Chevron CVX $83.45 $108.72 30%
Cisco Systems CSCO $19.56 $26.12 34%
117
Portfolio Divestitures
Applied Investment Management XXXI
Stock TickerDecision Day
Price
Intrinsic
Value
Upside/
Downside
Morningstar MORN $49.87 $40.66 (18%)
Walgreens WAG $34.89 $29.20 (16%)
Diamond Foods DMND $48.22 $41.60 (16%)
DaVita DVA $73.28 $65.28 (11%)
Republic Services RSG $28.16 $28.74 2%
Comscore SCOR $21.27 $23.15 6%
Paychex PAYX $28.49 $31.30 10%
Brandywine Realty BDN $10.96 $12.31 12%
NeuStar NSR $26.63 $30.00 13%
Current Portfolio
Applied Investment Management XXXI 118
Stock Ticker New Weight Market Value Stock Ticker New Weight
Market
Value
Apple AAPL 6.10% 316,870$ Gilead Sciences GILD 3.92% 203,830$
Abbott Labs ABT 3.76% 195,258$ Google GOOG 3.81% 197,917$
Archer Daniels Midland ADM 3.72% 193,496$ Global Payments GPN 3.89% 201,880$
Alaska Air Group ALK 2.99% 155,400$ Hansen Natural HANS 3.07% 159,390$
Alliant Tech Systems ATK 2.97% 154,434$ Intl. Game Tech IGT 3.74% 194,250$
Activision Blizzard ATVI 4.02% 208,972$ Insituform INSU 3.75% 194,565$
Cal-Maine Foods CALM 3.82% 198,592$ J. Crew JCG 2.10% 109,125$
Chubb CB 3.74% 194,072$ Coca-Cola KO 3.78% 196,509$
Cisco Systems CSCO 5.05% 262,440$ Newmont Mining NEM 3.58% 185,888$
Chevron CVX 5.82% 302,253$ Potash POT 3.88% 201,390$
EcoLab ECL 3.74% 194,240$ Perrigo PRGO 3.76% 195,232$
FedEx FDX 4.06% 210,657$ Symmetry Medical SMA 4.90% 254,370$
General Dynamics GD 2.04% 106,096$ United Health Group UNH 3.87% 201,245$
0.13% 6,582$
TOTAL 100.00% 5,194,953$
Cash & Hedge
119
Current Portfolio
Energy Materials Industrials Health CareFinancial Services
Consumer Discr.
Consumer Staples
Information Tech
Utilities Telecom
AIM XXX 0% 8% 14% 19% 7% 6% 16% 23% 0% 0%
AIM XXXI 6% 11% 16% 20% 8% 6% 14% 19% 0% 0%
0%
5%
10%
15%
20%
25%
We
igh
t
Sector Allocation- AIM XXX vs. AIM XXXI
Applied Investment Management XXXI
120
Current Portfolio
Health Care Materials IndustrialsConsumer
StaplesInformation
TechConsumer
Discr.Energy
Financial Services
Utilities Telecom
AIM XXXI 20% 11% 16% 14% 19% 6% 6% 8% 0% 0%
S&P 500 12% 4% 11% 11% 19% 10% 11% 16% 4% 3%
0%
5%
10%
15%
20%
25%
We
igh
t
Sector Allocation- AIM XXXI vs. S&P 500
Applied Investment Management XXXI
General Information
121Applied Investment Management XXXI
Chicago Trip
• Alliance Capital (Large Cap Growth Equities)
• Rail-Splitter ( Long/Short Hedge Fund)
• Goldman Sachs (Investment Management)
• Bain & Company (Strategic Consulting)
122Applied Investment Management XXXI
Chicago Trip
• Alliance Capital (Large Cap Growth Equities)
- Hosted by Joe Elegante and Jason Ley
- Introduced Alliance’s growth equities investment
philosophy and research process
• Rail-Splitter ( Long/Short Hedge Fund)
- Hosted by John Souter
- Discussed research and investing approaches
123Applied Investment Management XXXI
Chicago Trip
• Dinner at Maggiano’s Little Italy
124Applied Investment Management XXXI
- Attended by over 40 AIM
alumni in the Chicago area
- Offered words of wisdom
about careers and ways to
enjoy senior year
New York Trip
• S-Squared Technology (Technology Equity)
• Alliance Bernstein (Wealth Management)
• Blackstone (Private Equity)
• Brigade Capital (Distressed Credit)
• Tegean Capital (Hedge Fund)
• Viking Global (Long/Short Equity)
125Applied Investment Management XXXI
Tegean Capital
• Thomas Maheras, ex-chairman and co-
CEO of Citi Markets and Banking
• Introduced unique investment strategies
and provided perspectives on financial
crisis
126Applied Investment Management XXXI
S Squared Technology and Viking Global
• S Squared Technology
-Discussed how to conduct research and leverage technical
expertise into security selection
-Contest involving technology stock return estimates from
2000 to present
• Viking Global
- Hosted by Jim Parsons
- Interactive case study of Coinstar
127Applied Investment Management XXXI
Special Presentations
• Scott Malpass
– Notre Dame endowment pool asset allocation
• Ed Trubac
– Key questions for 2010
– Current economic overview
– Important economic trends for AIM portfolio
128Applied Investment Management XXXI
Guest Speakers
• Doug Pardon, Brigade Capital Management– Distressed debt markets
– Criteria he uses when assessing potential investments
• Nick Parrish, Greg Salter, & Emily King, Grosvenor Capital Management– Hedge fund industry overview
– Unique advantages of investing in hedge funds.
– Associate program at Grosvenor
• Jon Leisinger, Timothy Scallen, & Robert Hellauer, Sankaty Advisors– Work done at Sankaty and the opportunities at the firm
• Jim Rohr, CEO of PNC Financial Services Group– Financial regulation
– State of the economy
– His responsibility to stakeholders
– Challenges of being CEO at a Fortune 500 company
129Applied Investment Management XXXI
Newsletter
• Objectives
– Allows AIM alumni to stay up to date
– Provides quarterly overview of present portfolio
• Current newsletter points of interest
– New Portfolio
– AIM alumni updates
– Chicago trip review
– Quick economic snapshots
130Applied Investment Management XXXI
AIM Website
http://aim.nd.edu/
Applied Investment Management XXXI 131
Thank You
• We would like to extend a special thank you to:
– Professors Langley, Reilly, and Trubac for their support,
guidance, and knowledge
– Scott Malpass, the Notre Dame Investment Office, and the AIM
Advisory Board for the opportunity to participate in such a
unique and rewarding class
– Rachel Karnafel for administrative support
• Post-presentation Agenda
– Food & refreshments
– Questions from the AIM analysts for the advisory board
132Applied Investment Management XXXI
133
Current Portfolio
Stock Ticker New Weight Market Value Stock Ticker New Weight
Market
Value
Apple AAPL 6.10% 316,870$ Gilead Sciences GILD 3.92% 203,830$
Abbott Labs ABT 3.76% 195,258$ Google GOOG 3.81% 197,917$
Archer Daniels Midland ADM 3.72% 193,496$ Global Payments GPN 3.89% 201,880$
Alaska Air Group ALK 2.99% 155,400$ Hansen Natural HANS 3.07% 159,390$
Alliant Tech Systems ATK 2.97% 154,434$ Intl. Game Tech IGT 3.74% 194,250$
Activision Blizzard ATVI 4.02% 208,972$ Insituform INSU 3.75% 194,565$
Cal-Maine Foods CALM 3.82% 198,592$ J. Crew JCG 2.10% 109,125$
Chubb CB 3.74% 194,072$ Coca-Cola KO 3.78% 196,509$
Cisco Systems CSCO 5.05% 262,440$ Newmont Mining NEM 3.58% 185,888$
Chevron CVX 5.82% 302,253$ Potash POT 3.88% 201,390$
EcoLab ECL 3.74% 194,240$ Perrigo PRGO 3.76% 195,232$
FedEx FDX 4.06% 210,657$ Symmetry Medical SMA 4.90% 254,370$
General Dynamics GD 2.04% 106,096$ United Health Group UNH 3.87% 201,245$
0.13% 6,582$
TOTAL 100.00% 5,194,953$
Cash & Hedge
Applied Investment Management XXXI