November 16, 20009

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11/16/2009
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• November 16, 20009

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TONIGHT'S AGENDA

• Portfolio Update
• Market Update
• Buy Pitch Polo Ralph Lauren
• Buy Pitch Research in Motion
• Sales and Trading 101

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Portfolio Update
Market Update By James Cullen

• 11/2 to 11/16

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11/16/2009
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Portfolio Status

• Market Value of 275,211
• Cash of 33,786 (12.28)
• 28 Positions
• Avg. Position Size of 8,312 (3.02)
• 24.41 YTD vs. 21.06 for SP 500

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Recent Transactions

• November 4th
• Sold 147 Shares Pfizer (PFE)
• Sold 400 Shares EquityOne (EQY)
• October 21st
• Bought 250 Shares Short 20 Yr. Treasury (TBF)
• Sold 400 Shares CarMax (KMX)

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Portfolio Performance

• 4.56 Since 11/2 vs. 6.60 for SP 500
• Laggards Through 11/13 (Friday)
• Cal-Maine (CALM), -6.80
• Ultra Petroleum (UPL), -1.88
• VeriSign (VRSN), -1.73

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5 Largest Positions

• USG (Building Products)
• KBR (Infrastructure)
• Waters (WAT - Semiconductor Equipment)
• TBF (Short Long-Duration Treasuries)
• XTO Energy (Oil and Nat. Gas EP)
• Total 61,709 (22.42 of Portfolio)

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5 Smallest Positions

• IBKR (Online Brokerage)
• CHL (China Mobile)
• UPL (Oil and Nat. Gas EP)
• NTAP (Electronic Data Storage)
• ADP (Payroll/Business Services)
• Total 23,696 (8.61 of Portfolio)

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Market Update By Kevin Kelly

• November 16, 20009

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THIS WEEKS PERFORMANCE
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WHILE THE MARKETS RALLY FROM THE LOWS CAN BE
ATTRIBUTED TO ECONOMIC GROWTH, SUBSTANTIAL
GOVERNMENT STIMULUS, AND SUCCESSFUL CRISIS
MANAGEMENT, THE RALLY IS NOW BEING FUELED BY
LIQUIDITY
Because investors cant expect a reasonable
return on cash, they must allocate capital into
risk assets, which offer higher potential
returns.
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RISK ASSETS SHOWING REMARKABLE CORRELATION

• Equities (SP), commodities (oil/gold),
  consumer-discretionary (retail stocks RTH),
  emerging market equities (EEM), high-yield bonds
  (JNK) all moving higher.

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LIQUIDITY / INFINITY

• We must wonder if capital indiscriminately
  returning to risk assets is a) sustainable and
  b) based on underlying fundamentals
• The market will continue to trade higher until
  investors become concerned about sources of new
  capital/liquidity
• Then Risk of Losing Money gt Risk of Missing
  Continued Rally
• Potential causes of less liquidity
• money managers no longer have dry powder to
  invest
• higher taxes (marginal, capital gains, state)
• less government stimulus
• tighter Fed policy (either direct, i.e.
  increasing rates, or indirect, i.e. winding down
  innovative tools employed during the crisis)

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WHY IT MATTERS

• One of the keys to understanding the current
  environment is that there is a lot of financial
  liquidity, which obscures a lack of demand for
  products that are not staples. With unemployment
  so high, and perhaps worsening, it is difficult
  to invest in new plant and equipment.. David
  Merkel
• Right or wrong, in an over-liquefied world risk
  assets can trade in a vacuum.-Goldman Sachs

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IMPORTANT NEWS

• Gold
• Reached all time high on Thursday, 1,123
• Investors view gold as an inflation hedge and
  alternative to fiat currencies.
• Foreign Governments Support U.S. Dollar
• Net exporters to the U.S. are concerned, as a
  weaker dollar makes their goods more expensive
• E.g. South Korea
• Dollar bottom?
• Intel/AMD
• Intel paid AMD 1.25 billion to settle patent
  dispute.
• Meaningful positive for AMD according to FBR

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BUY POLO RALPH LAUREN CO.
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PRODUCT SEGMENTATION

• Apparel, home (American Living), accessories (new
  push into handbags), and fragrances.
• Revenue by distribution channel (for FY end
  3/09)
• Wholesale 57.53
• Retail 38.58
• Licensing 3.89
• Revenue by geography (for FY end 3/09)
• sales growth, YOY
• 2009 2008 2009
• U.S. 71.52 (4.46) (6.86)
• Europe 20.49 4.54 8.28
• Japan 7.82 40.14 272.00
• One of the strongest and unique business models
  in all of retail, leveraging its core brand
  assets across multiple channels, geographies, and
  price points.
• (Source Bloomberg)

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PRIMARY COMPETITORS

• Market Cap. Rev For. P/E Dil. EPS
• RL 8.01B 4.87B 18x 4.00
• VFC 8.26B 7.22B 13.2x 4.58
• PVH 2.15B 2.39B 14.1x 1.29
• WRC 1.92B 1.96B 13.25x 1.48

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• 52 week range 31.22 - 83.50
• Price as of 4pm

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VALUATION

• Actual EPS will be higher than expected.
• Right now expected EPS for FY2010/11 (end 3/11)
  is 4.46.
• As of November 9th, GS raised their expected EPS
  for FY2010/11 (end 3/11) to 5.20.
• With forward P/E of 18x, price should settle near
  94 in the coming year.
• RL has beat EPS expectations for the last 8
  quarters by an average of 47.

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EPS DRIVERS

• Underestimated top-line and bottom-line growth.
• Prior Est.
• FY10E FY11E FY12E
• Revenue 4,972 5,309 5,696
• Net Income 452 497 540
• Present Est. (as of 11/09/09)
• FY10E FY11E FY12E
• Rev 5,033 5,327 5,713
• NI 466 503 546
• (Source GS Research)

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GROWTH POTENTIAL

• GS expects, in the coming years
• I. 6-9 YOY increase in revenue due to
• 1. U.S. recovery
• 2. SE Asia build-out
• 3. Category expansion
• YOY Revenue growth for last FY 2.84
• 10-year average for YOY revenue growth
  11.52
• II. 8-13 increase in EBIT annually by 3/2011 due
  to
• 1. Increase in revenue
• 2. Margin expansion
• (Source GS Research)

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U.S. BET ON AFFLUENT CONSUMER SPENDING

• 2009Q2 ended 9/09 RL SSS down 6 YOY
• Beta of 1.65
• Same store sales
• Retail sales grew 1.4 in October
• Department stores sales rose 0.59 in October
• But, companies that are more closely associated
  with RL SKS, GPS, and JWN, had year-high
  same-store sales growth in Oct.
• Affluent consumer is spending money again.
• (Source Bloomberg)

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RL EXPANSION ABROAD

• European market accounts for 20.49 of annual
  revenue and growing.
• Japanese market has expanded dramatically
• 64.6m ? 392.6m (507.74 in 2 years)
• 1/1/10 RL will assume direct control of its
  distribution in SE Asia.
• Dynamic, emerging market with incredibly strong
  growth characteristics. Roger Farah
• Heavy expected future investment in foreign
  markets.

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STRONG BALANCE SHEET

• Solid Cash Reserves 925.7m
• over 9 cash/ share.
• Limited current liabilities Current ratio 3.07
• 95.88 equity no preferred equity
• No short term debt 307.5m in LT debt
• Interest coverage 34.6x (3/10 est.)
• BS can absorb the shock of upcoming investment
  phase"

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EPS DRIVERS

• Buyback authorization increased
• 225m ? 431m
• Reduces shares outstanding, makes each share more
  valuable.
• Expect near 1000m in buyback power within two
  years.
• Increased Annual Dividend
• 0.20 ? 0.40
• First dividend increase since May 2003.
• Both indicators of managements confidence in
  future outlook.

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RL RISK

• ST Drop in U.S. revenue.
• 3,653.10 ? 3,589.30
• ST Green field investments in SE Asia.
• LT Sustainability of Japanese revenue growth.
• LT 90 of voting power in maintained by CEO
  Ralph Lauren.

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HEDGE AGAINST ITSELF

• Unquantifiable opinion
• But, I believe when the economy is up
• the middle class buy Polo for them, it is
  luxury apparel
• When the economy is down
• the affluent buy Polo for them, it is a cheap
  standard, opposed to far high-end apparel,
  without the stigma of cheap apparel.

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ANALYST ESTIMATES

• Target Price
• Goldman Sachs 94
• UBS 88
• Morgan Stanley 80
• CITI 80
• Credit Suisse 91
• Current Price 81.79

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SUMMARY

• Undervalued EPS growth potential
• 0.40 Dividend
• Bet on
• 1. Increase in Affluent Consumer Spending.
• 2. Recovery of the U.S. economy.
• 3. Long-term growth potential abroad.

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(No Transcript)
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Buy Pitch Research In Motion (RIMM)

• Buy 200 Shares _at_ 61.67
• (18 month watch)

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Who Are They?

• Research in Motion (RIMM) is Blackberry
• Hardware- Blackberry Phones
• Software- Operating system, Browsers etc.
• Service- EDGE network

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Historic Stock Price
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Strengths

• Dominant player in the smart phone sector at
  about 40
• Smart phones are gaining market share in the Cell
  Phone market
• Multiple Programs at Once
• (iPhone cant)
• No encroachment on core market - Business
• Room to grow
• Majority of Sales are US/Canada

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Weaknesses

• Q2 showed less growth in market share than iPhone
• BlackBerry Storm is closest competitor but not as
  Dynamic
• lt 1 Market Share in Asia
• Margin strength losses
• Market adaptations

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Staying Competitive

• Products are updated Frequently
• Touch Screen
• iPhone
• Web Browser
• iPhone

• Walmart Sales
• New markets
• Partnerships with Verizon
• Platform Advertising

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Financials

• 1.2B, Stock Buyback
• They see their stock as undervalued (we should
  too)
• D/E .32
• No long-term debt

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Analyst Reports

• Vivek Arya, analyst at Bank of America/Merrill
  Lynch, repeated his Buy rating and 100 target,
  asserting that the selloff is overdone. Arya says
  he understands the concerns about the new
  entrants from Motorola, but that Verizon seems
  committed to RIMM judging by its continued
  aggressive promotions all BlackBerry products.
  He also thinks the Street is ignoring the
  companys dominant position in the enterprise,
  which he thinks is worth more than 40 a share
  alone.
• Jesup Lamont analyst Kevin Dede repeated his
  Buy rating and 80 target. We think the handset
  market is large enough to support more than a few
  contenders, and believe that RIMM can hold its
  share and ride the growth wave certain to come as
  3G networks expand, he writes.
• Gus Papageorgiou, Scotia Capital repeated his
  Outperform rating and 103 target. There has
  always been competition in smartphones and there
  always will be, he writes. That others are
  launching devices or software platforms does not
  guarantee success. We believe RIMM meets all the
  key success factors for industry success and very
  few other players come close.

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Sales and Trading 101

• By Anthony Vitiello

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Sales and Trading

• BC CSOM mentality focus on Investment Banking,
  Sales and Trading Consulting
• Overview of what ST is without recruiters
• Question and answer time period

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Sales and Trading Intro

• Large financial institutions offer as service to
  their clients know as Sales and Trading
• To do so, firms act in their capacity of
  Broker/Dealers to facilitate client transactions
  in the secondary markets
• Secondary vs. Primary Markets

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Broker/Dealer

• Broker a company which connects a buyer and a
  seller to facilitate a client transaction
• Dealer a company which may use its own capital
  to facilitate a trade, and buy or sell from a
  client directly
• Most modern banks act as both Broker Dealer

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So how do they do that?

• Broker/Dealers activities are carried out by
  Traders, those permitted to make markets on
  behalf of firm
• Making Markets Quoting a Bid or Ask Size
• Firms must transact at the quoted price or risk
  losing business
• Clients find best bid and offer and trade with
  that firm

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The Bid/Ask Spread

• A trader is fundamentally one who sets prices
• Bid Price a trader will buy from client
• A client must sell at the bid price
• Ask Price a trader will sell to client
• A client must buy at the offer price
• The spread between what the bid and ask price is
  the traders profit margin

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Seems simple?

• By quoting a price, trader is putting firms money
  at risk
• Manage risk produced by client order flow
• Need to understand entire market, have an opinion
• Work with researchers, other traders, risk
  mangers
• When to take a position onto the proprietary
  book

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Salespeople

• While the trader is driving the pricing decision,
  salespeople provide the customers
• Talk to customers constantly, understand needs,
  deliver ideas, market color for trader
• Main responsibility is maintaining the
  relationship with client