Post on 14-Apr-2018
7/30/2019 NOT to sell in May
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North America Equity Research02 May 2013
US Equity Strategy FLASHNew cycle lows in HY spreads another reason NOT tosell in May; Contrarian to stay Cyclical in 2Q; 17 ideas
Portfolio Strategy
Thomas J Lee, CFAAC
(1-212) 622-6505
thomas.lee@jpmorgan.com
Katherine C Khor
(1-212) 622-0934
katherine.khor@jpmorgan.com
J.P. Morgan Securities LLC
See page 21 for analyst certification and important disclosures.J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that tfirm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factormaking their investment decision.
There are really two storylines supporting a constructive thesis on equity markets: (i)
falling equity risk premia (ERP) driving a re-rate and/or (ii) reflation/cyclical lift
driving earnings. On the former, investors are primarily leveraging this by seeking
spread compression equities, or bond-like equities, and re-rating those higher
hence, dividend stocks (although ironically, in past regimes of falling ERP, Cyclicals
usually have led). And naturally, in a reflationary world, capital spending rises
(incentives created), driving top-line/EPS acceleration and, thus, Cyclicals lead.
Neither is mutually exclusive, but the falling ERP remains the more credible base case
in investors consensus.
Balance of 2Q: what storyline leads? Referring to some axioms relied upon as
former sector analyst. In 2013, the cadence of the economic data, alternating
between cyclical lift and softness, has tilted towards soft-side readings recently
resulting in falling inflation expectations (TIPS, commodities, etc.) and, thus,
providing more support for an ERP thesis than cyclical lift/reflation. In any case, the
key question for the investor is what storyline gains credibility over the balance of
the 2Q (8 weeks). To answer this, we refer to axioms relied on during 15 years
(1993-2007) as former equity sector analyst covering Wireless Services (prior to
taking the mantle as Equity Strategist at J.P. Morgan).
Rule #1: The credit market (high-yield) is right (usually)High-Yield spreads
at new lows point to continued new highs for equities, or no sell in May.
Foremost, we learned in the early 1990s (and heard repeated many times from HY
counterparts), high-yield markets lead equities. This was particularly true covering
the capital-consuming wireless sector which relied on access to debt markets for
viability. What is it telling us at the moment? Take a look atFigure 3; HY spreads
recently fell to new tights (lows) for this cycle, at 484bp STW (below previous tights
of 503bp on 3/13). As we have noted many times in the past 4 years, new HY tights
point to new highs in equity levels, providing a supportive backdrop for stocks to
continue to build upon recent highs. The flip-side of this is the positive backdrop
for HY is negated if spreads widen by 25bp, or rise above 514bp STW.
Rule #2: Crowd is usually wrongthus, no sell in May. In The Wisdom of
Crowds, James Surowiecki argued that the judgment of the crowd is usually right
unless judgments are not derived independently (contrasting how many gumballs in
a jar vs. stock markets). We found this particularly pertinent when consensus is
grounded on intuitive arguments. Take the current consensus of sell in May
many guideposts argue for this: (i) treasury yields and commodities have plunged;
(ii) downside reads in economic data; and (iii) this has held up in 2010, 2011 and
2012, so why should 2013 be any different.
Source: J.P. Morgan, FactSet, Bloomberg.
Performance:
S&P500(LHS)5/2/131,598
Cyclicals(RHS),
5/2/13, 109
Defensives(RHS)5/2/13117
10
10
10
10
10
11
11
11
11
11
12
1,400
1,450
1,500
1,550
1,600
1,650
12/12 2/13 4/13 6/13 8/13 10/13 12/13
S&P500 (LHS) Cyclicals (RHS)
Defensives (RHS)
2Q12 3Q12 4Q12 1Q13 QTD
S&P500 (3%) 6% -1% 10% 2% 1
Cycl (Mat, IT, Disc, Ind) (5%) 5% 0% 8% 1%
Near- Cycl(Ener, Fin) (7%) 8% 1% 10% 1% 1
Def(Stpl, HC, Tel, Util) 5% 3% -3% 12% 4% 1
Valuation:
2013E 2014E
S&P500 Level 1598
EPS $110 $117
P/E (current) 14.5x 13.7x
Div Yield 2.2% 2.4%
S&P500 Year-End Targets:
Price 1580
P/E 13.2x 13.5x
Sector Ratings:
Overwei ght Neutral
Materials Telecom
Industrials
Discretionary Underweight
Technology Staples
Financials Utilities
Energy
HealthCare
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North America Equity Research02 May 2013
Thomas J Lee, CFA(1-212) 622-6505thomas.lee@jpmorgan.com
We want to take the other side of this trade for multiple reasons, but the three most
notable: (i) client positioning is diametrically opposite of that in the last 3 yearsHF
beta, for instance, rather than registering the highs of the year in April (as was the casein 2010, 2011 and 2012) today is at the lowest levels since 8/12 (seeFigure 6); (ii) we
believe the early downturn in gasoline (and other commodities) will act as stimulus in
coming weeks by as much as 50bp lift to GDP (q/q)in past 3 years, gasoline surged in
2Q and thus was a headwind; (iii) the message from continued improvement in jobless
claims (new cycle lows this week at 324k) and the rally in HY market in the face of
mixed economic data argues the seasonal weakness in the economy is not likely to play
out in 2Q as in past years.
Rule #3: Give ideas time to workCyclicals (make that High FCF Yield Cyclicals)
should lead in 2Q. Being non-consensus also means feeling off-sides away from the
safety of the crowd. Thus, it is tempting to consider cutting losses and moving to
consensus. In our view, the continued outperformance of Defensives into 2Q is
consensusafter all, if one were to position for a sell in May, why look to buy a
Cyclical? And as noted above, the HF beta at new lows argues for investors expecting
a sell-off. We continue to support OW Cyclicals through 2Q, albeit, high-FCF yielding.
History supports this as we have noted in recent notes: (i) 1Q laggards have led in 2Q in
11 of 13 years (exceptions 2002 and 2008,US Equity Strategy FLASH: 1Q Laggards
to Outperform 2Q dated 4/4/13); (ii) the recent material underperformance of
Cyclicals by 821bp is the 8th worst since 1973, and in the 10 worst Cyclical
underperformance periods they outperformed in the following quarter 9 of 10 times (see
US Equity Strategy FLASH: Europe Feedback Part II dated 4/26/13); and (iii)
while valuations are not necessarily the reason to create turning points, Cyclicals trade
at the largest discount to Defensives (30%) since 1990 (seeFigure 7).
Obviously, improvements in economic data or policy backdrop will be key. Visibility
in the US housing recovery remains impressive and this is still a multi-year story.
There is also room for policy surprise in Europe whether from the ECB or potentiallyfrom an easing of austerity measures. And we continue to see the continued
improvement in US jobless claims as pointing to an economy sustaining momentum
despite concerns about seasonal weakness and sequester cuts.
What could go wrong? Consensus continues to be right in avoiding Cyclicals. The
risk to this view is that the consensus is right, more so on the favoring of Defensives.
Therefore, we would see the following as undermining our views: (i) evidence emerges
the price weakness in commodities is DUE TO DEMAND, thus, no 2Q lift; (ii) US
sequester is more severe than anticipated leading to further misswe will have some
sense looking at the April payrolls report; and (iii) the divergences last longer than
expected and Cyclicals extend their underperformance another quarter.
MARKET STRATEGY: 17 Ideas Our base case for the next two months, therefore, sees
equities higher through end of 2Q and Cyclicals outperforming during that period. But as
noted in past reports, we would rather buy high-FCF yield equities (over dividends),
inclusive of Cyclicals and other areas of the market. We have identified 17 stocks using
the following criteria: i) High FCF Yield (in the highest quartile of FCF yield, translating
to FCF Yield 5.5%); ii) OW rated by J.P. Morgan analysts; iii) High Dividend Yield
(above 2%); and iv) Positive upside to J.P. Morgan price targets. The tickers are: UFS,
TEVA, CA, AAPL, CMTL, STJ, CG, PRU, BBY, WFC, TWC, BA, SPLS, KEY,
CBL, CTL and GD (see Figure 8).
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North America Equity Research02 May 2013
Thomas J Lee, CFA(1-212) 622-6505thomas.lee@jpmorgan.com
Figure 1: Summary Statistics S&P 500
Source: J.P. Morgan, FactSet and Bloomberg.
Figure 2: Potential Catalysts
Source: J.P. Morgan and FactSet.
Related ETF
Current ETF Current P/E Buzz-o- Delta vs. % change -- Mkt Cap Weight Equal Recommended Weighting Delta
GICS # Index Index T icker Pr ice (NT M) Meter Wk Ago 1 week 1 month YTD YTD - - - Neutra + + +
S&P 500 I ndex 1,583 S PY $158.28 15.1x 236 18 0.2 0.9 11.0 12.5
Russell 2000 947 IWM $91.82 15.6x 201 12 1.9 (0.4) 11.6 8.4
Cyclicals15 Materials 245 XLB $38.85 15.0x 184 48 1.0 (1.2) 2.9 1.4 - - | 1% -
25 Discretionary 430 XLY $54.32 15.5x 249 24 0.6 2.4 14.5 15.7 - - | 1% -
20 Industrials 355 XLI $40.91 14.5x 226 25 0.6 (2.0) 7.9 7.9 - - | 1% -
45 Technology 483 XLK $30.53 14.6x 216 9 2.8 0.0 4.2 10.2 - - | 1% -
Near-Cyclicals
10 Energy 569 XLE $77.05 12.9x 229 6 0.8 (2.5) 6.8 7.7 - - 0% - -
40 Financials 249 XLF $18.49 12.4x 268 23 0.4 1.6 12.7 14.9 - - | 2% -
Defensives
30 Staples 422 XLP $40.90 17.5x 250 31 (1.4) 2.7 16.9 19.0 -3% - | - -
35 Health Care 543 XLV $46.83 14.8x 235 30 (2.8) 1.8 17.3 14.3 - - 0% - -
50 Telecom 166 IYZ $26.45 17.9x 197 (5) (1.7) 5.0 13.6 10.5 - - 0% - -
55 Utilities 208 XLU $41.02 17.0x 236 4 0.5 4.9 17.3 17.6 -3% - | - -
Monday Tuesday Wednesday Thursday Friday
5/6 5/7 5/8 5/9 5/10
Economics/Policy Economics/Policy Economics/Policy Economics/Policy Economics/Policy
2:00pm Senior loan officer survey (2Q, tentative) 10:00am JOLTS (Mar) 8:30am Initial claims (w/e prior Sat) 2:00pm Federal budget (Apr)
3:00pm Consumer credit (Mar) 10:00am Wholesale trade (Mar)
Corporate Corporate Corporate Corporate Corporate
J.P. Morgan Events J.P. Morgan Events J.P. Morgan Events J.P. Morgan Events J.P. Morgan Events
Asia Rising Dragons Forum (Kuala Lumpur) Asia Rising Dragons Forum (Singapore) Asia Rising Dragons Forum (Singapore) Asia Rising Dragons Forum (Hong Kong) Asia Rising Dragons Forum (Hong Kong)
Earnings: APC, AMTG, AVID, BPI, DPM, EOG, FTR, GDP, GWAY,
HOLX, ORBK, PAA, PL, PSB, QLYS, RPAI, SMG, STAG, SHO,
SYY, TLLP, SSP, TSN, VNO, WLK
Earnings: ARAY, AER, ARC, ARB, ARCC, ARIA, CAR, BMC,
CHRW, CA, CHTR, CHSP, XEC, CNK, GSJK, DVA, DNDN, DTV,
DISCA, DISH, DIS, DEI, DRQ, EMR, ENDP, EXEL, GTY, GSM,
LOPE, HCN, HTA, HSIC, HFC, HUSKF, IFF, KGC, LPX, LUFK,
MAKO, MRO, MCK, MODN, TAP, MDLZ, MYGN, OAK, OMX,
ONXX, PLT, QLTY, RAX, RLOC, REG, RBCN, RHP, SD, BOX,
SGEN, SLRC, SYMC, TRNX, TW, TRIP, UUU CN, VVUS, WFM,
WMB, WPZ, WYNN
Earnings: AMRN, APO, BR, CSTE, CRZO, CTL, CLVS, CTSH,
CLR, CUZ, TRAK, DTSI, ETP, FSC, FOSL, G NMK, GEI CT, GLP,
GRPN, HL, HII, INFI, LAMR, MWE, MDVN, MBLX, NWSA, NICE,
OILT, PVA, PNNT, PRGO, PPO, KWK, RGP, SLH, WEN, TC, THI,
TDG, VSI, WPRT
Earnings: AGU, AL, AMCX, APEI, APA, BVMF3 BZ, BBD/B, CVC,
CFN, CF, CDE, CTB, CPA, CPNO, DF, ESE, EVEP, ET, FXCM,
GXP, PODD, LPI, LPR, MNKD, MPEL, MNST, NVDA, OREX,
PCLN, PSA, SVNT, SODA, GEVA, TSLA, CG, THS, VRTU, VC,
WR, WIN
Earnings: ARX, FOLD, BTE, BECN, CCXI, DDS, IAG SM, MGA,
MCP, NCLH, QRE, RNDY, SGNT, SLW, SIRO
Relevant Sector ETFs
Double Sectors Sing le Double
DU G E nergy XLE DIG
SMN M aterials XLB UYM
SIJ Industrials XLI U XI
S CC Discretionary XLY U C CSZK S taples XLP U G E
RXD Health C are XLV RXL
SKF Financials XLF U Y G
REW Technology XLK ROM
Telecom IYZ
SDP U tilities XLU UPW
SDS S&P 500 SPY SSO
**Single beta ETFs based on SP500, Double Beta & Telecom on DJ Indicies.
Positive BetaNegative Beta
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North America Equity Research02 May 2013
Thomas J Lee, CFA(1-212) 622-6505thomas.lee@jpmorgan.com
Credit markets are right (usually) and HY sees equity marketscontinuing to rally...
Equities, as the junior piece of the capital structure, will generally take their cues from corporate bonds, as long as valuations incorporate bonds are not extremely over-valued. For most of the last 30 years, equities were most closely linked to high-grade butsince 2009 the most correlated market has been high-yield.
Take a look at Figure 3; HY spreads recently fell to new tights (lows) for this cycle, at 484 bp STW (below previous tights of503bp on 3/13).
As we have noted many times in the past 4 years, new HY tights point to new highs in equity levels, providing a supportivebackdrop for stocks to continue to build upon recent highs.
The flip-side of this is the positive backdrop for HY is negated if spreads widen by 25bp, or rise above 514bp STW.
Figure 3: JPM Global HY Spreads
Bloomberg CSSWHYI Index
Source: J.P. Morgan and Bloomberg.
4/26/10574.0
4/8/11499.0
3/14/12624.0
2/12/10710.0
6/9/10737.0
6/25/11605.0
6/5/12745.0
5/1/13484.0
4001/10 5/10 9/10 1/11 5/11 9/11 1/12 5/12 9/12 1/13 5/13 9/13
S&P500 Peak,
4/23/10, 1217
S&P500 Peak,
4/29/11, 1364
S&P500 Peak,
4/02/12, 1419
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North America Equity Research02 May 2013
Thomas J Lee, CFA(1-212) 622-6505thomas.lee@jpmorgan.com
How much can equities ultimately re-rate? High-Yield indicates 18x P/E ratio, High-Gradesays 29.5xwell above todays 13.9x
The question is, naturally, how high can the equity P/E re-rate?
Take a look at Figure 5below. The divergence between the equity market P/E and those of credit continues to widen. To
illustrate the differences in valuation, we inverted the yield of the HG and HY markets.
For instance, in 2009, equities traded at only a 4.6x discount to HG bonds and were actually at PREMIUM to HY by 3.1x.
Today, the difference has widened sharply. The discount to high-grade bonds is now 15.6x (HG trades at a 29.5x P/E) andequities are now at a discount to HY bonds (4.1x turn discount).
Figure 4: S&P 500 Forward P/E
Since 2009
Source: J.P. Morgan and Bloomberg.
Figure 5: Forward P/E of S&P 500, High Yield and High Grade
NTM P/E and inverted yield for high-grade and high-yield.
Source: J.P. Morgan, Bloomberg, Thomson Reuters. Note: Year reflects P/E as of 12/31 of respective year, i.e.
2009 reflects 12/31/2009.
5/1/13
13.8x
10.0x
11.0x
12.0x
13.0x
14.0x
15.0x
16.0x
1/1/09 7/1/09 1/1/10 7/1/10 1/1/11 7/1/11 1/1/12 7/1/12 1/1/13 7/1/13
S&P5
00NTMP
/E
14.0x13.1x
12.3x13.2x
13.9x
10.9x
12.9x11.6x
15.8x
18.0x18.6x
20.9x
23.2x
28.7x29.5x
10.0x
15.0x
20.0x
25.0x
30.0x
35.0x
2009 2010 2011 2012 5/1/2013
NTMP/E
S& P 50 0 J PMorgan Hig h Y ie ld I nd ex JU LI In de x- 4.6x discount to High-Grade
+ 3.1x PREMIUM to HY
- 15.6x discount to
- 4.1x DISCOUNT to
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North America Equity Research02 May 2013
Thomas J Lee, CFA(1-212) 622-6505thomas.lee@jpmorgan.com
The market is positioned for a sell-offmost notable is that HFBeta is NEGATIVE
The consensus of sell in May is built on multiple arguments but the most prominent seem to be: (i) treasury yields andcommodities have plunged; (ii) downside reads in economic data; and (iii) this has held up in 2010, 2011 and 2012, so why should2013 be any different.
We want to take the other side of this trade for multiple reasons, but the three most notable: (i) client positioning is diametricallyopposite of that in the last 3 yearsHF beta, for instance, rather than registering the highs of the year in April (as was the case in2010, 2011 and 2012) is at the lowest levels since 8/12 (see Figure 6); (ii) we believe the early downturn in gasoline (and othercommodities) will act as stimulus in coming weeks by as much as 50bp lift to GDP (q/q)in past 3 years, gasoline surged in 2Qand thus was a headwind; (iii) the message from continued improvement in jobless claims (new cycle lows this week at 324k) andthe rally in HY market in the face of mixed economic data argues the seasonal weakness in the economy is not likely to play outin 2Q as in past years.
Figure 6: Hedge Fund Beta
Rolling 21-day beta of macro and equity long/short hedge-fund returns to the S&P 500
Source: J.P. Morgan Asset Allocation Group, Bloomberg and DataStream. Note: Based on correlation of HFRX to S&P 500, as calculated by Nikolaos Panigirtzoglou.
5/1/13(0.034)
1/27/12(0.258)
7/12/12
(0.260)
3/30/100.369
5/10/110.569
3/20/12
0.404
Contrarian Sell Signal
Contrarian Buy Signal
(0.50)
(0.30)
(0.10)
0.10
0.30
0.50
0.70
0.90
1/10 5/10 9/10 1/11 5/11 9/11 1/12 5/12 9/12 1/13 5/13 9/13
S&P500 Peak,
4/23/10, 1217
S&P500 Peak,
4/29/11, 1364
S&P500 Peak,
4/02/12, 1419 Hedge-fund
RISK-ON
(Contrarian Sell)
Hedge-fund
RISK-OFF
(ContrarianBuy)
https://markets.jpmorgan.com/CFP_Research/CFP?page=analyst_page&analystId=U943533&referrerPortlet=research-doc-analystshttps://markets.jpmorgan.com/CFP_Research/CFP?page=analyst_page&analystId=U943533&referrerPortlet=research-doc-analystshttps://markets.jpmorgan.com/CFP_Research/CFP?page=analyst_page&analystId=U943533&referrerPortlet=research-doc-analystshttps://markets.jpmorgan.com/CFP_Research/CFP?page=analyst_page&analystId=U943533&referrerPortlet=research-doc-analysts7/30/2019 NOT to sell in May
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North America Equity Research02 May 2013
Thomas J Lee, CFA(1-212) 622-6505thomas.lee@jpmorgan.com
Cyclicals should lead in 2Qultimately
We continue to support OW Cyclicals through 2Q, albeit, high-FCF yielding. History supports this as we noted in recent notes:
(i) 1Q laggards have led in 2Q in 11 of 13 years (exceptions 2002 and 2008 seeUS Equity Strategy FLASH: 1Q Laggards to
Outperform 2Q dated 4/4/13);
(ii) The recent material underperformance of Cyclicals by 821bp is the 8th worst since 1973, and in the 10 worst Cyclicalunderperformance periods, they outperformed in the following quarter 9 of 10 times (seeUS Equity Strategy FLASH:Europe Feedback Part II dated 4/26/13); and
(iii) While valuations are not necessarily the reason to create turning points, Cyclicals trade at the largest discount to Defensives(30%) since 1990 (see Figure 7).
Figure 7: Cyclicals vs Defensives P/E
Since 1973
Source: J.P. Morgan, Bloomberg and Datastream.
-50%
-30%
-10%
10%
30%
50%
70%
50%
70%
90%
110%
130%
150%
170%
190%
1/73 1/75 1/77 1/79 1/81 1/83 1/85 1/87 1/89 1/91 1/93 1/95 1/97 1/99 1/01 1/03 1/05 1/07 1/09 1/11 1/13
Cyclicalsvs.
Defensives(1-yrforward)
Cyclicals/Defensives(LTM
PE)
Cyclicals less Defensives (1-yr return) (right-axis) Cyclicals/Defensives (LTM PE) (left-axis)
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North America Equity Research02 May 2013
Thomas J Lee, CFA(1-212) 622-6505thomas.lee@jpmorgan.com
MARKET STRATEGY
Our base case for the next two months, therefore, sees equities higher through end of 2Q and Cyclicals outperforming during thatperiod. But as we have noted in past reports, we would rather buy high-FCF yield equities (over dividends), inclusive of Cyclicalsand other areas of the market. We have identified 17 stocks, listed in Figure 8,based on the following criteria:
High FCF Yield (in the highest quartile of FCF Yield, translating to FCF Yield 5.5%);
OW rated by J.P. Morgan analysts;
High Dividend Yield (above 2%); and
Positive upside to J.P. Morgan price targets.
These 17 names (see Figure 8) have an average upside potential to target prices of 15%, as well as an average 2013E P/E of 11.0xand a 1.42x P/B. On average, they have 18% FCF Yield and 3% Dividend Yield. The tickers are: UFS, TEVA, CA, AAPL,CMTL, STJ, CG, PRU, BBY, WFC, TWC, BA, SPLS, KEY, CBL, CTL and GD.
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North America Equity Research02 May 2013
Thomas J Lee, CFA(1-212) 622-6505thomas.lee@jpmorgan.com
Figure 8: 17 Ideas, priced as of 5/1/13
Source: J.P. Morgan and Bloomberg
JPM Coverage Screen Metrics (2 of 2) EPS and Valuation
Name Sub-Industry Ticker
Current
Price
Market
Cap
JPM
Rtg JPM Analyst
arget
Price
Implied
Upside
High FCF Yield
(>=5.5%)
High Div
Yield (>2%)
2013E
EPS
P/E
('13E) P/B
1 Domtar C orp. Paper Products UFS $67.96 $2,314 OW Phil Gresh, CFA $95.00 40% 11.0% 2.3% $5.47 12.4x 0.83x
2 eva Pharmaceutical InduPharmaceuticals EVA $38.10 $35,952 OW Chris Schott, CFA $50.00 31% 7.9% 2.6% $5.05 7.5x 1.43x
3 CA Inc. Systems Software CA $26.80 $12,219 OW John DiFucci $34.00 27% 8.9% 4.0% $2.53 10.6x 2.23x
4 Apple Inc. Computer Hardware AAP L $439.29 $412,339 OW Mark Moskowitz $545.00 24% 9.1% 2.4% $39.76 11.0x 3.05x
5 Comtech TelecommunicatCommunications Equipment CMTL $23.84 $401 OW Joseph B. Nadol III $29.00 22% 5.5% 4.5% $0.82 28.9x 0.97x
6 St. Jude Medical Inc. Health Care Equipment STJ $40.70 $11,522 OW Michael Weinstein $49.00 20% 6.1% 2.3% $3.70 11.0x 3.14x
7 Car ly le Group LP Asset Management & Custody Ban CG $31.83 $1,376 OW Kenneth B. Worthington, C $37.50 18% 98.3% 2.1% $3.12 10.2x 1.29x
8 Prudential Financial Inc. Life & Health Insurance PRU $59.28 $27,583 OW Jimmy S. Bhullar, CFA $69.00 16% 73.4% 2.7% $7.86 7.5x 0.71x
9 Best Buy Co. Inc . Computer & Electron ics Retai l BBY $25.90 $8,774 OW Christopher Horvers, CF $29.00 12% 13.7% 3.1% $2.19 11.8x 2.86x
10 Wel ls Fargo & Co. Divers if ied Banks WFC $37.46 $198,118 OW Viv ek Juneja $41.00 9% 26.5% 2.6% $3.71 10.1x 1.32x
11 ime Warner Cable Inc. Cable & Satellite WC $94.37 $27,458 OW Philip Cusick, CFA $103.00 9% 5.9% 2.3% $6.43 14.7x 3.98x
12 Boeing C o. Aerospace & Defense BA $91.18 $69,177 OW Joseph B. Nadol III $98.00 7% 5.8% 2.1% $6.46 14.1x 9.27x
13 Staples Inc. Specialty Stores SPLS $13.08 $8,744 OW Christopher Horvers, CF $14.00 7% 6.6% 3.3% $1.33 9.9x 1.43x
14 K eyCorp Regional Banks KEY $9.88 $9,115 OW Steven Alexopoulos, CF $10.50 6% 11.0% 2.0% $0.88 11.2x 0.91x
15 CB L & Associates ProperRetail REITs CB L $23.57 $3,851 OW Michael W. Mueller, CFA $25.00 6% 8.0% 3.7% $0.62 38.0x 2.87x
16 CenturyLink Inc. Integrated Telecommunication ServicCTL $37.19 $22,857 OW Philip Cusick, CFA $38.00 2% 5.8% 8.3% $2.66 14.0x 1.21x
17 General Dynamics Corp. Aerospace & Defense GD $73.78 $26,058 OW Joseph B. Nadol III $75.00 2% 6.2% 2.9% $6.75 10.9x 2.25x
Average 15% 18% 3% 11.0x 1.43x
7/30/2019 NOT to sell in May
10/23
10
North America Equity Research02 May 2013
Thomas J Lee, CFA(1-212) 622-6505thomas.lee@jpmorgan.com
US Equity Strategy Recent Publications
US Strategy
Europe Feedback Part II: Too Consensus to Be UW Cyclicals and to Sell in May. 11Ideas. 4/26/13
S&P 500 1Q EPS: Doubts emerging about global growth: But we see 1Q at $26.75,$107 annualized. Investors cautious like 2Q12/4Q12. 20 Ideas. 4/19/13
Capitulating on "correction call". Case for FCF yield in 2Q. 25 ideas. 4/11/13
1Q Laggards to Outperform 2Q: Technology and Materials. More than Seasonals. 20Ideas. 4/4/13
Still see mixed risk/reward but performance anxiety and buybacks strong support.Focus on 1Q laggards for 2Q. 13 ideas. 3/7/13
Stepping Aside Short-Term; Fade Strength and Look for Better Entry Point Around1400-1450; Big Picture Constructive. 2/22/13
The Big Picture Remains Positive, Even as Rally Is Maturing Short-Term; 42 Ideas. 2/14/13
Advocating shift to high-quality. Lower risk short-term. Still see further gains prior to asell-off in 1H. 19 ideas. 1/31/13
P/E converging with CCC-bonds? ST constructive even as we reach 1H target of 1500.
36 ideas. 1/24/134Q12EPS Preview: Bar not high: investors more cautious than in front of 3Q3Q wastrough in growth. 26 ideas. 1/17/13
Stay constructive as active manager performance, low HF beta, and strong HY point tofurther gains. 20 ideas. 1/10/13
A very solid start for 2013. Favor Materials, Energy and Technology 1/3/13
Final thoughts on 2012. While Cliff fears weigh, Cyclicals outperform since mid-Dec12/31/12
Focus on Broken Stocks Like Late 2011; Raising YE Target to 1450 (from 1440); 20Ideas 12/20/12
Special Reports
MARKETING DECK: Better Bull than we expected; S&P 500 1580 by YE. SeemsLow 4/10/13
SMid-Cap Perspective: Still small up-cycle. Adding NAV, CMTL and OPEN to the JPMSMid Fresh Money List 3/21/13
SMid-Cap Perspective: Small-cap outperformance cycle underway. Raising Russell2000 YE13 Target to 990 from 875. 3 new ideas. 2/8/13
SLIDES: 2013 Equity Outlook 12/12/12
2013 SMid-Cap Outlook: 2013 YE Target of 875; Value Outperforms Growth 12/6/12
MARKETING DECK: We See a Melt-Up Into Election Day: S&P 500 to EXCEED 1495Short-TermMarkets Base Case is Obama Victory 9/20/12
SLIDES: Housing Food Chain IV: 10 Reasons We Are Early in Housing Up-Cycle, 18ideas 8/29/12
3PointsTV Video
(Click the links below for 3PointsTV and to view the required video, click on thePLAYLIST option in the video screen.)
Key takeaway from Europe, investors too defensive 4/26/13
1Q laggards outperform in 2Q 11 of last 13 years. 4/5/13
Still like small-caps and small-cap value. 3 new ideas. 3/22/13
Buybacks + perf anxiety support stocks. Favor laggards. 3/8/13
An upcycle in small-caps is underway thru 2014 2/8/13
Stay constructive but advocate switch to high quality. 2/1/13
Stay constructive even as we reach 1500 1H target. 1/25/13
4Q results should be supportive of equities. 1/18/13
Stay constructive given surge in HY and low client beta. 1/11/13
Raising S&P 500 target incrementally to 1450 from 1440. 12/21/12
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NOT to sell in May
11/23
11
North America Equity Research02 May 2013
Thomas J Lee, CFA(1-212) 622-6505thomas.lee@jpmorgan.com
Ownership vs. Valuation Matrices
Figure 9: Comparative Risk Reward of Industries Ownership vs. Valuation MatrixX-axis is relative valuation; Y-axis is institutional ownership
Source: J.P. Morgan and FactSet., as of 4/26/13
Figure 10: Comparative Risk Reward of Styles Ownership vs. Valuation MatrixX-axis is relative valuation; Y-axis is institutional ownership
Source: J.P. Morgan and FactSet. as of 4/26/13
Energy Equip & Svcs
Oil Gas & ConsumableFuels
Chemicals
Metals & Mining
Paper & ForestProducts
Aerospace & Defense
Building Products
IndustrialConglomerates
MachineryCommercial Svcs/Supp
Airlines
Other TransportsAutos/Components
Consumer Durables &Apparel
Casinos & Gaming
Hotels, Resorts &Cruise Lines
Restaurants
Media
Internet & CatalogRetail
Multiline Retail
Specialty Retail
Food & Staples Retail
Food Beverage &Tobacco
HH & PersonalProducts
HealthCare Equip/Svcs
Biotech
Pharm
Life Scnces Tools &SvcsBanks
Dvrsfd Financial Svcs
Consumer Finance
Capital Markets
Insurance
Real Estate
Software
Comm Equip
Computers &Peripherals
Semiconductors
Telecom Svcs
Utilities
0
5
10
15
20
25
30
35
40
0 5 10 15 20 25 30 35 40
RankofInsti
.OwnershipWeightingvs.
TotalMkt
Rank of R elative P/E delta vs. 10yr AvgExpensive Cheap
Underowned
Overo
wned
Unattractive Risk
Reward
Better RiskReward
Low Beta
High Beta
Low Price
High Price
Small Cap
Large Cap
Low P/E
High P/E
S&P High Quality
S&P Low Quality
Low EV/EBITDA
High EV/EBITDA
Low Momentum
High MomentumPure Growth
Pure Value
Low Leverage
High LeverageLeast Liked
Most Liked
Low Short Interest
High Short Interest
Low Div Yield
High Div Yield
Low FCF Yield
High FCF Yield
0
5
10
15
20
25
0 5 10 15 20 25
Ran
ko
fIns
ti.O
wners
hipWe
ightingvs
.To
talMkt
Rank of R elative P/E delta vs. 10yr AvgExpensive Cheap
Un
derowne
d
Overow
ne
d
Unattractive Risk
Reward
Better RiskReward
7/30/2019 NOT to sell in May
12/23
12
North America Equity Research02 May 2013
Thomas J Lee, CFA(1-212) 622-6505thomas.lee@jpmorgan.com
Macro at a Glance
Economic Highlights
Case-Shiller house price index increased 1.2% samr in FebruaryThe housing recovery continues to expand throughout the United States. In February, the Case-Shiller 20-city composite indexincreased 1.2% samr (+9.3% oya). Geographically, the prices are up in all 20 metropolitan areas over the most recent 1, 3, 6 and12 months (SA). Despite the weakening of other economic indicators, recent housing dataprice rise above expectations forFebruary according to J.P. Morgan Economistshighlights the strength of the housing market. (SeeUS: Case-Shiller dated4/30/13.)
Initial claims down 18k during the week ending April 27
Initial claims for the week ending April 7 fell 18k to 324k, the lowest since Jan-08. As claims data is relatively timelycompared to most other economic indicators, the recent improvement is a positive for the economy, contrasting many of therecent signs of slowing economic growth of late. J.P. Morgan Economists believe that growth has slowed between 1Q and 2Q;however, it appears that growth is limited as labor market will be relatively modest. (SeeUS: Claims... dated 5/2/13.)
Figure 11: Case-Shiller Monthly Home Price Indices
Source: J.P. Morgan and Standard&Poors.
Figure 12: Initial Jobless Claims
Source: J.P. Morgan Economics and U.S. Department of L abor and Employment.
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13/23
13
North America Equity Research
02 May 2013Thomas J Lee, CFA(1-212) 622-6505thomas.lee@jpmorgan.com
Industry Roadmap
Figure 13: INDUSTRY ROADMAP Trailing-Three-Month Relative Performance
Source: J.P. Morgan and FactSet.
Trailing 3-month Relative Performance
6/ 1/ 12 7/1/12 8/ 1/ 12 9/1/12 10/ 1/12 11/1/12 12/ 1/ 12 1/ 1/ 13 2/1/13 3/1/13 4/ 1/ 13 5/1/13
CyclicalsMaterials -4.6% - 1.5% -3.4% -2.4% -1.3% 1.7% 2.0% 3.0% 1.5% -2.2% -6.4% -6.6%
Capital Goods -3. 0% -2.2% -2. 0% -1.5% -0.3% 1.7% 2. 4% 3.2% 2. 6% 2. 0% -1.7% -4.4%
Commercial & Prof Svcs -2.8% -0.1% 0.8% -1.7% -5.0% -0.1% 2.6% 7.8% 3.0% 2.7% 1 .6% -0.7%
Transportation 1.4% 4.9% 1.0% -4.4% -11.8% -4.3% -2.6% 5.0% 3.1% 6.2% 3.2% -0.8%
Autos & Components -9.5% -15.0% -18.2% -15.6% -4.5% 11.8% 11.7% 21.3% 9.8% 5.2% -4.8% 0.8%
Consumer Durables & Apparel -4.1% -11.0% -11.7% -3.6% 4.4% 10.5% 4.7% 6.4% -1.8% -1.5% -1.2% 6.1%
Consumer Svcs 0.8% -3.2% -10.8% -9.7% -5.2% -0.4% 0.3% -0.1% 3.1% -0.3% 0.3% 0.3%
Media 3.8% 7.8% 8.0% 6.7% 4.9% 4.5% 4.2% 2.7% 2.7% 3.6% 4.7% 6.5%
Retailing 7.2% 2.0% -3.6% 0.4% 0.9% 2.3% 3.6% 0.7% 1.8% -2.2% 1.0% 1.3%
Software & Svcs -1.0% -0.6% -1.6% 1.4% 2.2% 1.1% -1.1% -1.4% 1.6% 1.7% -0.5% -1.4%
Tech Hardware & Equip -0.3% -6.4% -2.4% 4.4% 3.5% -5.3% -8.9% -9.8% -13.3% -16.6% -14.8% -6.8%
Semiconductors & Equip -5.7% -6.4% -7.3% -4.9% -14.3% -10.9% -12.9% 0.0% -0.9% 4.4% -2.4% 3.3%
Near Cyclicals
Energy -10.1% -3.2% -0.5% 4.3% 4.1% -0.6% -1.3% -2.6% 0.6% 0.7% 0.0% -6.2%
Banks 3.1% 1.0% 0.1% 2.4% -0.1% -1.7% -3.8% -2.0% -1.8% 0.7% -1.4% -1.3%
Dvrsfed Financials -9.6% -11.8% -10.4% 3.8% 4.1% 16.2% 9.2% 12.3% 7.1% 9.0% 1.4% -0.9%
Insurance -0.8% -0.2% -2.2% 0.6% 1.2% 5.8% 3.6% 3.7% 3.7% 4.5% 4.2% 2.0%
Real Estate 5.9% 6.5% 4.4% 0.3% -6.3% -5.6% -2.6% 4.7% -0.2% 0.1% -3.9% 3.9%
Defensives
Food & Staples Retailing 8.3% 9.2% 13.1% 0.0% 0.7% -2.1% 0.6% -0.9% -1.1% -1.6% 3.0% 6.5%
Food Beverage & Tobacco 8.7% 6.4% 4.6% -4.6% -5.4% -7.0% -0.2% -2.4% -1.7% -1.7% 4.3% 6.6%
HH & Pe rsonal Products 2.6% -0.9% 3.5% -1.2% 3.8% 1.5% 2.2% -1.4% 2.1% 2.4% 5.2% 0.6%
Health Care Equip & Sv cs 2.6% 1.0% -3.0% -4.0% -3.1% 4.3% 1.0% 0.4% 0.1% 1.1% 1.6% -1.0%
Pharma Biotech & Life Science 5.7% 6.2% 7.9% 0.9% 1.7% 0.0% 3.9% 0.1% 1.7% 2.0% 8.2% 6.4%
Telecom Services 13.0% 15. 9% 15.5% -0.1% 0.5% -6.5% -3.1% -5.6% -5.1% -3.2% -0.5% 4.5%
Utilities 9.0% 8.8% 7.2% -8.4% -8.0% -6.9% -3.5% -2.2% -5.4% -0.8% 2.1% 7.2%
S&P 500 -7.0% -3.3% -2.2% 10.1% 6.0% 3.8% 0.7% -1.3% 6.0% 7.2% 9.5% 4.6%
7/30/2019 NOT to sell in May
14/23
14
North America Equity Research02 May 2013
Thomas J Lee, CFA(1-212) 622-6505thomas.lee@jpmorgan.com
Index Performance Analysis
Figure 14: Sector Contribution to Five-Day S&P 500 Point Change
Source: FactSet and J.P. Morgan.
Figure 15: Sector Contribution to One-Month S&P 500 Point Change
Source: FactSet and J.P. Morgan.
Figure 16: Stock Contribution to Five-Day S&P 500 Point Change
Ten Largest Positive Contributors and Ten Largest Negative Contributors
Source: FactSet and J.P. Morgan.
Figure 17: Stock Contribution to One-Month S&P 500 Point Change
Ten Largest Positive Contrbutors and Ten Largest Negative Contributors
Source: FactSet and J.P. Morgan.
8.71.4
1.21.1
0.90.6
0.3(1.0)
(2.9)(6.3)
3.9
(10.0) (5.0) 0.0 5.0 10.0
echnologyFinancials
EnergyIndustrials
DiscretionaryMaterials
UtilitiesTelecomStaples
HealthCare
S&P 500
5.64.23.9
3.22.8
1.90.7
(0.8)(3.3)
(4.8)
13.5
(10.0) (5.0) 0.0 5.0 10.0 15.0
StaplesDiscretionary
FinancialsHealthCare
Utilitieselecom
echnologyMaterials
IndustrialsEnergy
S&P 500
3.62.1
1.00.8
0.60.60.50.40.40.4
(0.6)(0.6)(0.6)(0.7)
(0.9)(1.0)(1.1)(1.2)
(1.7)(1.8)
(3.0) (2.0) (1.0) 0.0 1.0 2.0 3.0 4.0
Apple Inc.Microsoft Corp.
Internationa l Business MachinesGeneral Electric Co.
Chevron Corp.Occidental Petroleum Corp.Google Inc. Cl A
Intel Corp.Philip Morris International Inc.
Oracle Corp.
Eli Lilly & Co.Gilead Sciences Inc.
QUALCOMM Inc.Amgen Inc.
AT&T Inc.Merck & Co Inc
Amazon.com Inc.Exxon Mobil Corp.
Procter & Gamble Co.Pfizer Inc.
S&P 500up 3.9points
3.91.31.31.2
1.21.10.90.90.90.9
(0.5)(0.5)(0.6)
(0.7)(0.8)
(0.9)(0.9)
(1.2)(1.7)
(1.9)
(3.0)(2.0) (1.0) 0.0 1.0 2.0 3.0 4.0 5.0
Microsoft Corp.Walt Disney Co.
Intel Corp.Wal-Mart Stores Inc.
Google Inc. Cl AVerizon Comm unications Inc.Coca-Cola Co.
Johnson & JohnsonAbbVie Inc.
Occidental Petroleum Corp.
Cognizant Technology SolutionsNewmont M ining Corp.
Marathon Petroleum Corp.Phillips 66
Hewlett -Packard Co.QUALCOMM Inc.Amazon.c om Inc.
General Electric Co.Exxon Mobil Corp.
International Business Machines
S&P 500up 13.5points
Positivechangesupported7 of the 10sectors
While Defensives contributednegative 9.8 points this week,Cyclicals and Near-Cyclicalscontributed positive 11.2 and2.6 points, respectively, to thepositive 3.9-point gain in theS&P this week
op names were
concentrated amongTechnology (6)
HealthCare saw 5 names
among the bottom
echnoled the with 4 itop tennames t
month
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15/23
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North America Equity Research02 May 2013
Thomas J Lee, CFA(1-212) 622-6505thomas.lee@jpmorgan.com
Figure 18: Best Two and Worst Two Sectors Relative Performance over the Past Month
Performance Relative to the S&P 500
Source: FactSet and J.P. Morgan.
Figure 19: Best Two and Worst Two Sectors Relative Performance over the Past Three Months
Performance Relative to the S&P 500
Source: FactSet and J.P. Morgan.
Figure 20: Best Two and Worst Two Industries Relative Performance over the Past Month
Performance Relative to the S&P 500
Source: FactSet and J.P. Morgan.
Figure 21: Best Two and Worst Two Industries Relative Performance over Past Three Months
Performance Relative to the S&P 500
Source: FactSet and J.P. Morgan.
Utilities, 3
Telecom, 2
Industrials, -2
Energy, -2
-5
-4
-3
-2
-1
0
1
2
3
4
5
6
4/3 4/7 4/11 4/15 4/19 4/23 4/27 5/1
Re
lative
1mos
Performance
Utilities, 7
Telecom, 6
Energy, -7
Materials, -7
-12
-10
-8
-6
-4
-2
0
2
4
6
8
10
1/29 2/12 2/26 3/12 3/26 4/9 4/23
Re
lative
3mos
Performance
Wireless, 10
Semiconductors,7
Construction &Engineering, -7
CommunicationsEquipment, -8
-10
-5
0
5
10
15
4/3 4/7 4/11 4/15 4/19 4/23 4/27 5/1
Re
lative
1mos
Performance
Biotechnology, 19
LeisureEquipment &Products, 17
Metals & Mining,-22
ConstructionMaterials, -23-30
-20
-10
0
10
20
30
1/29 2/12 2/26 3/12 3/26 4/9 4/23
Relative3mosPerformance
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16/23
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North America Equity Research02 May 2013
Thomas J Lee, CFA(1-212) 622-6505thomas.lee@jpmorgan.com
Style Roadmap
Below is a Style roadmap that plots the recent relative performances of 10 style components, sorted from best to worst.
Figure 22: STYLE ROADMAP Trailing-Three-Month Relative Performance
Source: J.P. Morgan and FactSet.
Trailing 3-month Relative Performance
5/30/12 6/ 29/12 7/ 30/ 12 8/ 30/ 12 9/28/12 10/ 26/12 11/ 30/ 12 12/ 28/ 12 1/ 30/ 13 2/28/ 13 3/ 28/ 13 4/ 30/ 13
Beta Lower 5.3% 6.7% 4.4% -1.8% -3.7% -2.1% 0. 5% 0. 4% -1.1% -0.3% 2.5% 4.1%
Div Yield H igher 1.0% 1.7% 1.8% -0.4% -1.3% 0.0% -0.5% 0. 4% -1.0% 1.8% 3.1% 3.7%
Least Liked 0.4% 0.4% -0.3% 0.2% -0.7% 1.3% 0.5% 3.3% 3.9% 4.0% 3.0% 2.7%
Price Lower -5.1% -4.1% -4.7% 1.1% 1.2% 4.9% 2.2% 4.3% 6.7% 6.7% 5.5% 2.1%
FCF Yield Higher - 3. 0% - 3. 5% -4.3% 0.5% 0.7% 4.8% 1.9% 3.6% 6.8% 5.6% 4.7% 1.8%
S&P High Quality 2.2% 1.1% 0.6% - 1. 6% - 1. 0% -0 .4 % 1.1% 1.5% 0.4% 0.3% 1.1% 1.6%
Short Interest - Lower 0.6% 0.9% 0.4% -0.3% -0.7% -0.5% 0. 7% 2. 1% 2.1% 2. 3% 1. 3% 1.6%
Debt/EBITDA Higher -0.2% 0.9% 0.5% 2.0% 1.2% 4.1% 1.9% 3.4% 1.3% 2.5% 1.3% 1.2%
Market Cap Larger -0.3% -0.3% -0.6% -0.3% 0. 0% -0.4% 0. 8% 1.0% 1.3% 0.6% 1.0% 0.7%
Pure Growth 0.4% -0.3% -2.8% -1.6% -0.8% 0.8% 1.6% 2. 0% 2. 3% 0.2% 2.0% 0.6%
P/E cheaper -7.5% -6.2% -5.7% 1.2% 2.2% 5.5% 2.3% 5.2% 7.2% 5.6% 4.4% 0.6%
Momentum (high P/200d mavg) -0.4% -1.8% -2.0% -1.0% 0. 1% -0.2% 1.7% 1.2% 2.8% 1.3% 3.4% 0.4%
Short Interest - Higher -4.3% -4.6% -4.5% -0.2% 1.3% 4.2% 2.3% 3.4% 5.0% 4.6% 3.9% 0.0%
Market Cap Smaller -3.3% -2.1% -3.8% 0.6% 1.8% 5.5% 4.0% 6.3% 7.8% 6.1% 4.8% 0.0%
EV/EBI TDA cheaper - 8. 8% - 5. 8% -3.6% 2.4% 2.5% 2.6% 0.4% 2.4% 7.5% 5.5% 5.6% 0.0%
FCF Yield Lower -3.2% -1.0% -0.8% -0.2% 0.1% 0.6% 1.3% 2.3% 2.8% 2.4% 1.3% -0.1%
Broken (low P/200d mavg) -3.9% -2.2% -4.3% -1.2% -0.1% 4.1% 2.1% 5.6% 9.4% 3.6% 0.4% -0.4%
Pure Value -6.5% -5.3% -4.5% 1.7% 2.5% 6.2% 3.8% 6.0% 7.5% 7.5% 3.1% -0.5%
Div Yield Lower -3.2% -2.8% -3.2% 1.8% 2.0% 2.1% 2.2% 4.1% 8.3% 5.1% 2.9% -0.6%
Most Liked - 4. 3% - 4. 0% -2.5% -0.8% 1.0% 1.3% 2.3% 3.5% 3.5% 1.9% 1.3% -1.1%
EV/EBI TDA more ex pensive 1.8% 0.5% -1.3% -1.2% -0.1% 0.0% 1.3% 1.7% 3.0% 1.7% 0. 4% - 1. 2%
Price Higher -1.5% -1.7% -3.1% - 2. 6% - 2. 4% -0 .7 % 1.5% 1.7% 2.2% 0. 6% -0. 7% -1.2%
P/E more expensive 1.4% 1.2% -1.3% -1.9% -2.3% -1.5% 0. 3% 1. 5% 3. 4% 1. 6% 0. 2% - 1. 3%
S&P Low Quality -3.3% -2.6% -3.1% 0.4% 0.1% 2.3% 1.5% 3.5% 5.9% 4.3% 2.1% -1.5%
Debt/EBITDA Lower -2.6% -3.1% -3.9% -1.0% -0.7% -1.6% -0.6% 1.6% 5.4% 1.5% -1.2% -1.9%
Beta Higher -8.0% -7.7% -8.2% -1.0% 0.8% 3.6% 3.2% 6.4% 8.8% 5.3% 1.5% -2.9%
S&P 500 -3.8% -3.3% -0.9% 6.6% 5.8% 1.9% 1.2% -2.7% 6.4% 7.0% 11.9% 6.4%
7/30/2019 NOT to sell in May
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North America Equity Research02 May 2013
Thomas J Lee, CFA(1-212) 622-6505thomas.lee@jpmorgan.com
Style Analysis
Figure 23: Best Two and Worst Two Styles Relative Performance over the Past MonthPerformance Relative to the S&P 500
Source: FactSet and J.P. Morgan. Note: Performance is for the top quartile and bottom quartile of stocks in each style.
Figure 24: Best Two and Worst Two Styles Relative Performance over the Past Three MonthsPerformance Relative to the S&P 500
Source: FactSet and J.P. Morgan. Note: Performance is fo r the top quartile and bottom quartile of stocks in each style.
Figure 25: S&P 500 Style Relative Performance over the Past MonthPerformance Relative to the S&P 500
Source: FactSet and J.P. Morgan. Note: Performance is for the top quartile and bottom quartile of stocks in each style.
Figure 26: S&P 500 Style Relative Performance over Past Three MonthsPerformance Relative to the S&P 500
Source: FactSet and J.P. Morgan. Note: Performance is for the top quartile and bottom quartile of stocks in each style.
High Div Yield, 2.4
Beta Lower, 1.3
More Liked, -1.4
Momentum (highP/200d mavg), -2.1
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
3/27 4/3 4/10 4/17 4/24 5/1
Relative1mosPerform
ance
Beta Lower, 4.3
High Div Yield, 3.8
Low Debt/EBITDA,-2.6
Beta Higher, -3.4-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
1/30 2/13 2/27 3/13 3/27 4/10 4/24
Relative3mosPerformance
2.4%1.3%
1.3%1.1%
0.8%0.8%
0.5%0.4%0.3%
0.0%-0.1%-0.1%
-0.3%-0.3%
-0.5%-0.6%-0.6%
-0.7%-0.7%-0.8%
-1.2%-1.2%
-1.3%-1.3%
-1.4%-2.1%
-3.0% -2.0% -1.0% 0.0% 1.0% 2.0% 3.0%
High Div YieldBeta Lower
Less LikedHigh Debt/EBITDA
S&P High QualityBroken (low P/200d mavg)
Citigroup Pure GrowthShort Interest - HigherShort Interest - Lower
Low FCF YieldP/E cheaper
Market Cap LargerHigh FCF Yield
Price LowerLow Debt/EBITDA
Price HigherCitigroup Pure Value
S&P Low QualityP/E m ore expensive
EV/EBITDA more expensiveEV/EBITDA cheaper
Market Cap SmallerBeta HigherLow Div Yield
More LikedMomentum (high P/200d mavg)
1mos RelativePerf
4.3%3.8%
2.6%1.8%
1.6%1.5%
1.4%1.3%0.6%0.6%
0.3%0.0%
-0.2%-0.3%
-0.4%-0.4%-0.6%
-0.8%-1.0%
-1.2%-1.2%
-1.4%-1.5%
-1.6%-2.6%
-3.4%
-4.0% -2.0% 0.0% 2.0% 4.0% 6.0%
Beta LowerHigh Div Yield
Less LikedPrice Lower
Short Interest - LowerHigh FCF Yield
S&P High QualityHigh Debt/EBITDACitigroup Pure Growth
Market Cap LargerP/E cheaper
Broken (low P/200d mavg)Short Interest - Higher
Momentum (high P/200d mavg)Market Cap Smaller
EV/EBITDA cheaperCitigroup Pure Value
S&P Low QualityLow FCF Yield
EV/EBITDA more expensiveLow Div Yield
More LikedPrice Higher
P/E more expensiveLow Debt/EBITDA
Beta Higher
3mos Relative Perf
7/30/2019 NOT to sell in May
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North America Equity Research02 May 2013
Thomas J Lee, CFA(1-212) 622-6505thomas.lee@jpmorgan.com
52-Week Highs/Lows
Net 32% of stocks hitting 52-week highs vs. 52-week lows
Despite the recent volatility in the markets, 10 of the 10 sectors saw a net positive percentage of stocks hitting 52-week highs vs.52-week lows in the past week. Overall, a net 32% of S&P 500 stocks have hit 52-week highs vs. 52-week lows. At the sectorlevel, Defensives, particularly Utilities, saw the largest net percentage of stocks hitting net highs, 77%, in the past five days.
Figure 27: 32% of Stocks Hitting 52-Week Highs vs.52-Week Lows in Past Five Days Sectors
Source: FactSet and J.P. Morgan. Note: Calculated as (# of stocks hitting
52-week high minus # of stocks hitting 52-week low in past five days) divided
by total stocks in that sector.
Figure 28: Net % of Stocks Hitting 52-Week High vs. 52-Week Low Industries
Source: FactSet and J.P. Morgan. Note: Calculated as (# of stocks hitting 52-week high minus # of stocks hitting 52-week low in past five days) divided by total stocks in that industry.
32%
13%
33%
34%
26%
9%
42%
48%
15%
25%
77%
0% 20% 40% 60% 80% 100%
S&P 500
Materials
Industrials
Discretionary
echnology
Energy
Financials
Staples
Health Care
Telecom
Utilities
Cyclicals
Defensives
Near-Cyclicals
100%
100%
100%
100%
100%
79%
75%
69%
69%
67%
63%
56%
55
50%
50%
50%
50
50%
50%
50%
45%
40%
40%
40%
40%
39
36%
33%
33%
33%
27%
25%
25%
25%
25%
25%
25%
25%
24%
23%
23%
20%
20%
20%
20
20%
20%
17%
13
13%
-7%
-14%
-20%
0%
20%
40%
60%
80%
100%
120%
PersonalProducts
Independen
tPowerProducers&
Hea
lthCareTechnology
GasUtilities
Airlines
Multi-Utilities
Tobacco
ElectricUtilities
RealEstateInvestmentTrusts
ProfessionalServices
Food
&StaplesRetailing
CommercialServices&Supplies
Insurance
ITServices
Road&Rail
Textiles&Apparel&LuxuryGoods
Automobiles
AutoComponents
TradingCompanies&Distributors
LeisureEq
uipment&Products
Aerospace&Defense
Diversifie
dFinancialServices
InternetSoftware&Services
FoodProducts
Internet&CatalogRetail
SpecialtyRetail
HotelsRestaurants&Leisure
Beverages
ElectronicEquipment&Instruments
WirelessT
elecommunications
Media
Pharmaceuticals
Chemicals
HouseholdProducts
ConsumerFinance
MultilineRetail
AirFreight&Logistics
HouseholdDurables
Semiconductors&Semiconductor
CommercialBanks
CapitalMarkets
DiversifiedT
elecommunications
HealthCareP
roviders&Services
Biotechnology
Machinery
LifeScienc
esTools&Services
Con
tainers&Packaging
Software
OilGas&
ConsumableFuels
Computers&Peripherals
HealthCareEquipment&Supplies
Metals&Mining
7/30/2019 NOT to sell in May
19/23
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North America Equity Research02 May 2013
Thomas J Lee, CFA(1-212) 622-6505thomas.lee@jpmorgan.com
Analyst Upgrades/Downgrades
As for the Streets view, downgrades sharply outnumbered upgrades in the past week, with 15 net downgrades overall and 15industries with net downgrades.
Figure 29: Net Upgrades in the Past Five Days Sectors
Source: FactSet and J.P. Morgan.
Figure 30: Net Upgrades in Past Five Days Industries
Source: J.P. Morgan and FactSet.
-15
-5
5
11
-21
11
-2
-8
1
-3
-4
-30 -20 -10 0 10 20
S&P 500
Materials
Industrials
Discretionary
Technology
Energy
Financials
Staples
Health Care
elecom
Utilities
Defensives
Near-Cyclicals
Cyclicals
77
444433
22
-2-2-2-2-2-2-3-3-3-3-3
-4-4
-6
-9-10
-8
-6
-4
-2
0
2
4
6
8
OilGas&ConsumableFuels
Aerospace&Defense
CommercialBanks
SpecialtyRetail
Hea
lthCareProviders&Services
EnergyEquipment&Services
MultilineRetail
Road&Rail
InternetSoftware&Services
Internet&CatalogRetail
Insurance
HouseholdProducts
HealthCareEquipment&Supplies
Multi-Utilities
ConsumerFinance
Containers&Packaging
ITServices
Beverages
FoodProducts
AirFreight&Logistics
Metals&Mining
Diversified
TelecommunicationsServices
CommunicationsEquipment
Sem
iconductors&Semiconductor
Equipment
Software
c
7/30/2019 NOT to sell in May
20/23
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North America Equity Research02 May 2013
Thomas J Lee, CFA(1-212) 622-6505thomas.lee@jpmorgan.com
Stock Highlights: Upgrades and Downgrades
We looked at which stocks have been upgraded and downgraded the most in the past five days by looking at net upgrades(upgrades minus downgrades) as a percentage of analysts covering a stock. Financials had five stocks in the list of 10 mostupgraded stocks. Financials also saw the largest share (five) of stocks in the list of most downgraded stocks.
Figure 31: Ten Most Upgraded Stocks
Net # of Upgrades as % of Analysts Covering Stock
Source: FactSet and J.P. Morgan.
Figure 32: Ten Most Downgraded Stocks
Net # of Upgrades as % of Analysts Covering Stock
Source: FactSet and J.P. Morgan.
33%
25%
20%
17%
14%
14%
13%
13%
12%
11%
0% 10% 20% 30% 40%
Prologis Inc.
AvalonBay
Vornado Realty Trust
Ryder System Inc.
Boston Properties Inc.
J.C. Penney Co. Inc.
Sherwin-Williams Co.
Chipotle Mexican Grill
Cabot Oil & Gas Corp.
Assurant Inc.
-29%
-24%
-17%
-15%
-14%
-14%
-14%
-14%
-12%
-12%
-30% -25% -20% -15% -10% -5% 0%
Ventas Inc.
Microsoft Corp.
Equity Residential
Intuit Inc.
Varian Medical Systems Inc.
Apartment Investment & Management Co.
NASDAQ OMX Group Inc.
SLM Corp.
Molex Inc.
McCormick & Co. Inc.
7/30/2019 NOT to sell in May
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North America Equity Research
02 May 2013Thomas J Lee, CFA(1-212) 622-6505thomas.lee@jpmorgan.com
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Overweight
(buy)Neutral
(hold)Underweight
(sell)
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7/30/2019 NOT to sell in May
23/23
North America Equity Research
02 May 2013Thomas J Lee, CFA(1-212) 622-6505thomas.lee@jpmorgan.com
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