Feb 15 2011

WMT’s downgrade and Obama’s

Dow 12,268.19 -5.07 -0.04%
budget proposal were the top US
news on Monday. Abroad, the S&P 500 1,332.32 +3.17 +0.24%
decision by the EU finance ministers Nasdaq 2,817.18 +7.74 +0.28%
on new bailout funds along with the
drop in Japan’s GDP became the background themes in the market. Rising Brent crude also
gave boost to XOM and CVX.

The Dow Jones Industrial Average finished down 5.07 points or 0.04% to 12,268.19 as WMT
downgrade weighed on the index. JPM slashed WMT rating to NEUTRAL from OVERWEIGHT
with PT set at $54. Lack of positive catalysts and unfavorable traffic and market share trends
were behind the downgrade.

From Washington, Obama proposed a $3.7 trillion budget plan which if approved, would
mean some freeze or reduction in safety-net programs for the poor. The aim is to squeeze the
current deficit of $1.6 trillion to around $600 billion in five-year time. The current budget
year is seen to suffer a $1.1 trillion of deficit, though and it would include $8 billion
investment in clean energy. Taxes will be raised by $1.6 trillion in a decade as some current
tax cuts will expire. However, government debt will increase instead to $21 trillion from the
current $14.2 trillion by 2016.

In Europe, finance ministers have agreed to set up a 500 billion euros fund to prepare for a
new crisis should it happens in the future. The fund will be available in 2013, but the ministers
would continue to find the best solution to fight the current fiscal crisis in the Eurozone. No
details yet on how much money will come from the IMF.

China’s export accelerated in January, rising 37.7% while imports

rose nearly double to 51%. In prior period, exports were rising
17.9%, while imports were rising 25.6%. The data beat
expectations of 22.5% and 27% increases in exports and imports,
respectively. Consequently, trade balance declined from $13.08
billion to $6.46 billion, way below the expected $11.30 billion. On
the same day, Japan reported that its Q4 GDP fell from a rise of 3.3% to a contraction by
1.1%. Although still better than the expected decline of 2.0%, the drop means that China is
now the number 2 economy after U.S. while Japan slipped to number 3. Quarter-to-quarter,
Japan’s GDP fell 0.3% from 0.8% recorded during the Q3. For the same period, China’s GDP
expanded 9.8%. Last year, China recorded GDP of $5.88 trillion, while Japan’s was at $5.47
trillion.

Given that China is now one of the dominant forces in the global economy, it is essential to
keep an eye to its economic developments. On Tuesday, China’s Consumer Price Index (CPI)
was reported to have accelerated to 4.9% in January from 4.6% a month earlier. Producer
Price Index (PPI) which is also due on Tuesday has jumped to rise 6.6% in January, exceeding
the consensus of a rise of 6.2% and higher than last month’s 5.9% rise.
 Feb 15 2011
U.S. economic indicators for Tuesday will focus on the retail sales report, as there are no
earnings to be announced this week from among the Dow 30 stocks.

Corporate News
 XOM and CVX rose 2.5% and 1.3% respectively, as the price of ICE Brent
crude climbed 2.12% to $103.08. This is the highest closing price since
2008. Brent’s rise was driven by the unrests in the Middle East countries
such as Yemen, Iran, Algeria and Bahrain. NYMEX Crude Future fell $0.77
a barrel however, as it settled at $84.58 due to high inventories. In Equador, CVX has
been fined $8.6 billion for contaminating the jungle. CVX responded that the company will
appeal for the decision which was considered as illegitimate and unenforceable.
 BAC moved higher by 0.81% despite the news that Warren Buffett and John Paulson
reduced their holdings of BAC shares. Buffett divested his entire 5 million BAC shares,
while Paulson reduced his holdings by nearly 14 million shares. Appaloosa however,
bought 2.59 million shares of BAC in the Q4 2010.
 GE is to buy John Wood Group for $2.8 billion. The British oil services will be the next
purchase by GE after it bought Wellstream Holdings Plc, a yet another British oil drilling
company two months ago for $1.3 billion. The purchase of John Wood Group underlined
GE’s ambition to put emphasis on energy sector. Meanwhile, GE Healthcare and SAS has
entered into an agreement to jointly develop and market SAS technology. GE ended at
$21.50, up 0.8% on the day.
 HPQ is bound to acquire Vertica, but financial details were not disclosed. Vertica’s
software used to predict sales, analyzing network performance, market tracking and other
business applications. HPQ fell 0.68% however, to settle at $48.31.
 Following up INTC’s chip defects reported recently, INTC has announced that the company
will pay for the cost of defects in full along with the shipping costs. Also, INTC has signed a
$300 million deal, to last 5 years in Israel. Investment Center has agreed to grant the
company $200 million for a new center in Kiyrat Gat. Also on Monday, Intel Capital
announced six new investments: Borqs – an open source mobile software solutions
company; CloudMade – a mapping platform and tools provider which is location-based;
InVisage – an image sensor vendor; Kaltura – an online video platform; SecureKey
Technologies which provide online authentication; and VisionOSS Solutions which provides
communications and collaboration service software.
 In a response to the rise of social media companies recently, JPM was said to be raising
capital for social media fund. This fund will focus on the likes of Facebook and Twitter. The
fund was rumored to be between $500 million to as high as $1 billion. Twitter was
rumored to receive $200 million of the funds. JPM said that it has agreed to use Mitek
Systems’ advanced image capture and analytics technologies on its QuickDeposit feature.
JPM was also added to the Appaloosa Management’s portfolio. The stock however,
edged lower on Monday, settling the day at $46.54.
 MCD warned that the company may need to raise prices in China around the third or
fourth quarter. The rise may be around 50% to 60% of the inflation rate. Inflation rate
has been stubbornly high in China, with the CPI rising 4.9% in January. MCD ended at
$76.24, 0.13% higher on Monday.
 Feb 15 2011
 MMM and Sage Products have expanded their agreement on sales
representation of Sage Products by MMM. This agreement is the second
between the two and will be effective immediately. MMM added
0.11% on Monday as it settled at $91.90.
 MRK stated that the company had won its first FOSAMAX state court trial. In the case of
Rosenberg vs. Merck, the court jury rejected a woman’s claims who blamed MRK for her
dental and jaw related problems due to FOSAMAX use. Meanwhile, MRK’s Organan unit
in Netherlands was on bid by Pantarhei Bioscience, a Dutch firm. MRK fell 0.76% to finish
Monday’s session at $32.82.

Upgrades & Downgrades

Rating PT
Code House Date
Prv Current Prv Current
HPQ Stifel Nicolaus 14-Feb - Buy $53.00 $58.00
KFT Citigroup 14-Feb - Buy - $38.00
MMM Zacks Investment Research 14-Feb Neutral Neutral - $95.00
WMT JPMorgan 14-Feb Overweight Neutral - $54.00

US Economic Calendar
Date Time Report Period Actual Forecast Previous
15-Feb 8:30 AM Retail sales Jan 0.5% 0.6%
15-Feb 8:30 AM Retail sales ex-autos Jan 0.5% 0.0
15-Feb 8:30 AM Import price index Jan n/a 1.1%
15-Feb 8:30 AM Empire state index Feb 14.3 11.9
15-Feb 10:00 AM Inventories Dec 0.6% 0.2%
15-Feb 10:00 AM Home builders' index Feb 17 16
16-Feb 8:30 AM Producer price index Jan 0.9% 1.1%
16-Feb 8:30 AM Core PPI Jan 0.3% 0.2%
16-Feb 8:30 AM Housing starts Jan 515,000 529,000
16-Feb 9:15 AM Industrial production Jan 0.4% 0.8%
16-Feb 2:00 PM FOMC minutes 1/26/2011
17-Feb 8:30 AM Jobless claims 2/12/2011 n/a 383,000
17-Feb 8:30 AM Consumer price index Jan 0.3% 0.5%
17-Feb 8:30 AM Core CPI Jan 0.1% 0.1%
17-Feb 10:00 AM Leading indicators Jan 0.2% 1.0%
17-Feb 10:00 AM Philly Fed Feb 20.8 19.3
 Feb 15 2011
Stock focus: AA

AA
Feb 14th MTD Resistances 18.13 18.85 20.17 22.44 24.87

↑ 1.27% ↑ 6.16% Supports 17.48 16.97 16.72 15.60 15.03

YTD 12-Month Outlook

↑ 14.29% ↑ 32.26%
Last
POSITIVE
$17.59 Strategy Buy weakness to $16.72, risk < $15.03, PT @ $20.17
 Feb 15 2011

Dow 30 - Feb 14th 2011

XOM 2.52% 1 MMM 0.11% 11 DIS -0.39% 21
AA 1.27% 2 UTX 0.01% 12 HPQ -0.43% 22
PFE 1.17% 3 JNJ 0.00% 13 JPM -0.45% 23
BAC 0.81% 4 T -0.04% 14 AXP -0.49% 24
GE 0.80% 5 MSFT -0.07% 15 KFT -0.55% 25
CSCO 0.59% 6 DD -0.11% 16 KO -0.68% 26
CVX 0.52% 7 TRV -0.25% 17 MRK -0.76% 27
HD 0.27% 8 CAT -0.27% 18 INTC -0.87% 28
BA 0.17% 9 PG -0.29% 19 VZ -1.35% 29
MCD 0.13% 10 IBM -0.38% 20 WMT -1.60% 30

Dow 30 - Month-to-Date - Feb 14th 2011

DIS 11.24% 1 TRV 4.59% 11 JNJ 1.56% 21
BA 8.45% 2 PFE 4.56% 12 VZ 0.79% 22
DD 7.58% 3 MMM 4.53% 13 IBM 0.75% 23
AXP 7.24% 4 BAC 4.00% 14 INTC 0.51% 24
GE 6.75% 5 JPM 3.56% 15 KO 0.46% 25
CAT 6.44% 6 MCD 3.49% 16 KFT -0.26% 26
AA 6.16% 7 T 3.42% 17 MRK -1.06% 27
HPQ 5.73% 8 PG 2.23% 18 MSFT -1.80% 28
XOM 5.24% 9 HD 2.20% 19 WMT -2.27% 29
UTX 4.81% 10 CVX 2.13% 20 CSCO -11.06% 30

Dow 30 - YTD Feb 14th 2011

GE 17.55% 1 DD 9.30% 11 VZ 0.34% 21
XOM 16.12% 2 PFE 8.79% 12 PG 0.33% 22
DIS 15.28% 3 AXP 8.39% 13 MCD -0.68% 23
HPQ 14.75% 4 UTX 8.24% 14 JNJ -1.86% 24
AA 14.29% 5 HD 7.19% 15 MSFT -2.44% 25
BAC 11.62% 6 MMM 6.49% 16 T -3.13% 26
IBM 11.22% 7 CVX 6.25% 17 KFT -3.24% 27
BA 10.73% 8 TRV 5.62% 18 KO -4.00% 28
CAT 10.25% 9 INTC 2.57% 19 CSCO -7.02% 29
JPM 9.71% 10 WMT 1.61% 20 MRK -8.93% 30
 Feb 15 2011

Dow 30 - Trailing Twelve Months (TTM) - Feb 14th 2011

CAT 81.00% 1 AXP 21.81% 11 KFT 7.25% 21
DD 61.68% 2 HD 20.45% 12 INTC 5.07% 22
DIS 38.41% 3 KO 19.76% 13 PG 1.99% 23
CVX 34.09% 4 MCD 19.40% 14 WMT 1.35% 24
GE 33.87% 5 T 14.71% 15 JNJ -3.65% 25
AA 32.26% 6 MMM 14.66% 16 HPQ -4.88% 26
XOM 30.63% 7 BA 14.41% 17 MSFT -5.02% 27
IBM 28.36% 8 TRV 11.88% 18 BAC -10.62% 28
UTX 24.12% 9 JPM 10.89% 19 MRK -11.01% 29
VZ 24.09% 10 PFE 8.55% 20 CSCO -22.69% 30

Disclaimer: This report is provided for information purposes only. It is not an offer to sell or to buy any
securities. This report has been prepared based on sources believed to be reliable, but there is no
assurance or guarantee regarding its completeness & and accuracy. The author accepts no responsibility or
liability arising from any use of the report.