EFTA01367805.pdf

O I Strategy Flashcard Strategy Flashcard Ouj SEqpiriOn S&P 500 to reach 2150 by 2015 end on a long expansionary cycle of moderate growth Reasons to still buy stocks: 2015 end target: 2150 2016 end target: 2300 Div Yld: 2% 1) - 3% US GDP likely in 2015 2) S&P EPS will rise despite $/oil 2014A 2015E 2016E Quarterly EPS 3) PEs justifiable and been higher EPS $118.0 $118 $128 1Q14A $28.00 1Q15E $28.00 4) Bond yields are nil after inflation PE on yearend S&P targets 17.4 18.2 18.0 2Q14A $29.75 2Q15E $29.00 Dare to ask: DPS $39 $42 $46 3Q14A $30.00 3Q15E $30.00 Why not 2500+ S&P cycle-high? EPS/DPS growth 6%/8% 0%/8% 896/10% 4Q14A $30.25 4Q15E $31.00 2500+ = 17x 2018E EPS of $150 Market strategy and tactics: S&P SOO avg. trailing 4qtr PE: lower S&P returns than history likely, but still decent and few alternatives - stay involved, buy on dips 1960-2014 16.0 Consider lesson of 2014: Interest rates stayed very low despite better growth and tighter labor market 19852014 17.6 Next 5%+ move is likely: Down Risk of near-term correction: Elevated 1995-2014 18.6 "S&P PE stands on the shoulders of bonds." 2005-2014 15.9 Thematic and sector strategy: Tilt toward: Sectors/Industries: 1) Secular Growth Sectors - industries with strong sales growth in the middle of economic cycles Health Care, Tech 2) Sales Growth near 5%- industries not dependent on margin expansion to drive 5%+ EPS growth Health Care, Tech, Consumer Disc. 3) High ROE or long competitive advantage - ability to defend ROE/margins amidst low interest rates Tech, Health Care, some Consumer 4) Dividend Growth - stocks with ability to significantly raise dividend payout ratios Big Banks, Mega-cap Tech 5) Debt Capacity - companies that can issue cheap debt for acquisitions and share buybacks Tech, Health Care, some Consumer Tilt away from: 1) Consumer companies whired brands or facing tough competition (seek unique products/experiences) Staples 2) Smaller cap cyclical plays which are still expensive, prefer big-cap banks and select retailers Be selective and valuation mindful 3) Commodity and industrial capital goods producers, prefer Transports Energy, Industrial Capital Goods Risks - US tax on foreign profits, whether repatriated or not, threatens large multinationals and would cause margin contraction - EM economy weakness that causes a steep decline in commodity prices, especially oil, and threatens US exports and investment spending - A surge in long-term interest rates or any global economic shock would threaten our constructive view on the S&P for 2015 co 0 CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0059418 CONFIDENTIAL SDNY_GM_00205602 EFTA01367805