2Q12 Earnings Review

Fortrend Securities

General Advice

The advice has been prepared without taking

into account the clients objectives, financial

situation and needs. Clients should consider

the appropriateness of the advice by taking

into consideration your objectives, financial

situations and needs before acting on the

advice.

Contents

• Market Overview and Movers

• Relative Value

• Earnings by sector

• Stock Selection

• Performance

Market Performance • The S&P 500 rose 2.1%

• EE’13 were cut 1.5%

• P/E’13 rose to 12.1

• S&P yield is 2.4% vs. 10 Year Treasury fell to 1.56%

• The VIX dropped to 15

• The Fortrend portfolio rose 5.7% on strong moves from ITT and Thermo Fisher and Procter & Gamble.

8.7

12.1

21.1

Movements

• Telco stocks rose 10%

• Oil was up 5%

• Paper & Forest increased 4%.

• Although Hospitals fell 4.5%, Thermo surged.

• Transportation fell 4%

• Metals, dropped another 3% - dragged by coal

and iron ore company Cliff Resources, which

fell 15%

2Q Earnings Results

• 408/500: 68% beat, 21% missing, 11% in line

• Last year 71% beat

• Earnings are $23.62, up 2.8% from 2Q11.

• Wall Street expects $102.97 for 2012 and $115.21

in 2013.

Companies that surprised

• Spectacular results from Oil Field Services companies

Halliburton and Baker Hughes.

• Carnival earnings rebounded quickly.

• Manufacturers - ITT and Textron – performed very well.

• Consumer stocks - Mattel, Hershey and Procter &

Gamble all beat.

• In technology Western Digital and Microsoft did

extremely well.

• Wireless providers MetroPCS and Sprint soared.

• JP Morgan and Goldman Sachs beat the street.

Spectacular Misses

• Drought: Archer-Daniels Midland and Navistar, Deer.

• United Continental and Delta: weaker demand and

higher oil.

• Nike spent too much on marketing.

• Energizer and Avon: lower demand in Europe and China

hurt the top line, so they will cut marketing expenses.

• Alcatel, RIMM and Netflix: crushed by obsolescence.

• AMD and Micron Tech: good insight into PC/HH market.

• Financial stocks were jockeying for position, while

leveraged companies Morgan Stanley and Bank of

America missed

Raw Materials • In a megacycle: iron ore and coal markets are deflating as

China sources product from Africa to get supply up and

prices down.

• Cliff Resources down15%, est. down 21%.

• Barrick and Newmont estimates cut. Gold in down trend.

• Shale boom sent natural-gas prices to a 10-year low –now

oil markets. Apache, Marathon Oil and Devon Energy

blamed a glut of propane and related products for lower

profits in the second quarter.

• Halliburton and Baker Hughes bounced. Rigs are being

redeployed to oil fields. They look good investments.

Industrial – Strong US, weak

International, FX headwind

• Dow Chemical sales fell 10% - Europe

• Celanese (acetate and vinyl) blamed Europe and China.

• Kimberly Clark strong Euro demand diapers/towels

Mead Westvaco, Weak Europe, FX headwind.

• Union Pacific, cars, chemicals & fracking up, up.

• United Parcel Service, international volumes are falling

• ITT and Honeywell were the best performing stocks

• We are overweight US manufacturing.

• McDonald’s rare complaint about U.S.

consumers: lower prices not working. Overvalued.

• Ditto for Starbucks and Chipotle, these are going

down.

• Marriott – strange: demand for high end rooms in

U.S. & Asia are up.

• Starwood warned about European demand.

• Food – strong: Nestle, Kraft, Dr. Pepper, Pepsi

and Coke led the sector higher.

Consumer Non-Cyclical

Media

• In Media there are the losers:

• Netflix and Sony, which detracts from the

general wellbeing.

• Even CBS and New York Times beat the

street.

• There is currently sector rotation into

advertising outlets.

• Not buying yet

Avon disappointed

Western Digital did not disappoint

Honeywell • Added: $53.10 (8/2011)

• Last: $58.57 (11.7 X FY13E)

• Yield: 2.54%

• Unrealized Total Return: 13%

• 2Q12 Revenue $9.44b (+3.8%)

• 2Q12 Profit $902m (+11%), 114CPS vs. 111CPS estimated

• Overweight U.S. industrials, maintain BUY on valuation

discount to peers

ITT Inc. • Added: $17.60 (7/2012)

• Last: $20.58 (11.1 X FY13E)

• Yield: 1.77%

• Unrealized Total Return: 17%

• 2Q12 Revenue $568m (+2.7%)

• 2Q12 Profit 50CPS (+8.7%) vs. 37CPS estimated

• Overweight U.S. industrials, maintain BUY on valuation

discount to peers

SL Green Realty Group • Added: $50.24 (1/2010)

• Last: $80.80 (16.1 X FFO)

• Yield: 1.24%

• Unrealized Total Return: 64%

• 2Q12 Revenue $349m (+16%) vs. $306m estimated

• 2Q12 FFO 192CPS (+76%) vs. 107CPS estimated

• 2Q12 Profit 114CPS

Looking to exit at ~$85

Dr. Pepper Snapple • Added: $36.87 (8/2010)

• Last: $45.23 (14.0 X FY13E)

• Yield: 3.01%

• Unrealized Total Return: 29%

• 2Q12 Revenue $1.62b (+2%)

• 2Q12 Profit $178m (+8%), 85CPS vs. 82CPS estimated

• Maintain BUY on margin expansion

Procter & Gamble

• Quarterly profit beat analysts’ estimates:

$0.82 vs $0.77 per share estimated.

• Activist Investor, Bill Ackman

• Compelling Stock Valuation Relative to

Peers & $4 billion stock buy back plan.

Thermo Fisher Scientific

• Revenues Rose 7.3% year over year

• EPS grew 23% to $1.22

• Lowered revenue guidance due to foreign

exchange headwinds.

Microsoft

• Microsoft reported unearned revenue beating estimates on upgrades of

products

• Unearned revenue was $20.1 billion in the 3 months that ended June30

• Business buying helped compensate for diminishing demand from

consumers who are waiting the Oct 26 release of Windows 8.

• Revenue in the Windows division fell 13% due to consumers opting

for tablets instead of laptops, consumer PC demand was weaker than

corporate demand BUT sales in were up in the Business Division,

Server and Tools and in Entertainment and Devices.

• Profit was 67 cents a share

• Sales rose 4% to $18.1 billion

Oracle

• Oracle reported profit in June that rose more than

analysts had predicted due to sales of new

software licenses

• Added $10 billion to its stock buyback program

• Profit rose 7% to $4.1 billion or 82cents a share

• Sales increased 1% to $10.9 billion

• Oracle said it sees first-quarter adjusted earnings

per share of 51-55 cents which will report in

September

NVIDIA

• Announcements: Tegra3 Chips to be used in

Google Tablet and Microsoft Surface;

rumored to be utilized in the new Amazon

Kindle Fire.

• Consensus quarterly earnings per share

estimates of $0.15; up from $0.14 a month

ago.

iShares Germany ETF

• June 4th: Sell July 21st EWG Puts, strike 19 for $1.50

• July 21st: Closed at $19.66

• Why has this trade worked? Both EWG and SPY

contain global companies selling to global markets.

The big difference we see in the Germany Index is

that the big companies are based in Europe and in the

SPY the big companies are based in the US however

the companies all operate and generate revenue

worldwide!

Avon Products

• Poor quarterly results: 2nd quarter income

fell 70% on the stronger US Dollar and

lower demand globally

• Renewed takeover murmurs

• Confidence in CEO Sheri McCoy

Western Digital

• Added: $40.74 (10/05/2012)

• Last: $41.75 (5.1 X FY13E)

• Yield: Nil

• 4Q12 Revenue $4.75b (+98%)

• 4Q12 Profit $872m, 335CPS vs. 245CPS estimated

• Maintain BUY on valuation and continued recovery in

hard drive demand

Fortrend Portfolio

• Honeywell

• ITT

• SL Green

Dr Pepper Snapple

Procter & Gamble

Thermo Fisher Scientific

Microsoft

Oracle

nVIDIA

iShares Germany Index