Transcript Slide 1

Strategy Tear Sheet
Most Recent Strategy Calls…
Brian G. Belski
612.303.1503 / [email protected]
Adam J. Freeman
612.303.1509 / [email protected]
Chad E. Klatt, CFA
612.303.1506 / [email protected]
January Effect 2005 ~ November 22, 2004
Revisiting current views on current sector weightings, growth
vs. value, and small-cap vs. large-cap investment strategies.
Growth vs. Value
Small vs. Large
Front Burner Topics ~ November 15, 2004
Revisiting current views on current sector weightings, growth
vs. value, and small-cap vs. large-cap investment strategies.
OK to be Neutral ~ November 1, 2004
Maintain Market Weight Positions Within Consumer Discretionary, Consumer Staples, and Telecom Services.
Outside The Box ~ October 25, 2004
See the 10-stock list of names NOT in major indices
that are timely according to our model in full report
Identifying Growth In Value ~ October 18, 2004
See the 10-stock list of growth names within the major value
indices that are timely according to our models in full report
Living In The Now ~ October 4, 2004
Technology Overweight ~ September 22, 2004
Earnings
Health Care Overweight ~ September 20, 2004
Please call or e-mail for complete reports
Market Pulse
Valuation
Weightings
Please click on buttons for further analysis on each subject
Disclaimer
Updated as of: 11/22/2004
Growth vs. Value
Take-Away
Russell 1000 Grow th vs. Russell 1000 Value
Russell 1000 Indices - Value outperformance likely extended;
look for growth to close the relative gap over the next 2-3
quarters
1.06
1.05
1.03
1.02
1.00
0.99
0.97
0.96
0.94
Grow th
11/12/2004
9/24/2004
8/06/2004
6/18/2004
4/30/2004
3/12/2004
1/23/2004
12/05/2003
10/17/2003
8/29/2003
7/11/2003
Russell 2000 Indices - Despite longer-term relative discount,
value becoming progressively more expensive
Value
Relative Valuation - Russell 2000 Value vs. Russell 2000 Growth
0.00
-0.05
-0.10
-0.15
-0.20
-0.25
Fundamentals…
Growth = Deep relative discounts to market and value persist;
increased doubt for growth expectations
-0.30
-0.35
-0.40
Main Page
P/CF Rel. Val.
P/S Rel. Val.
5/2004
10/2004
7/2003
12/2003
2/2003
9/2002
4/2002
11/2001
6/2001
1/2001
8/2000
3/2000
5/1999
10/1999
7/1998
P/FE Rel. Val.
12/1998
2/1998
9/1997
4/1997
6/1996
11/1996
1/1996
8/1995
3/1995
Conclusion
Long-term focus = High-quality growth companies
-0.45
10/1994
Performance…
Value performance is testimony to extreme conservatism
Small vs. Large
Relative Valuation - Russell 1000 vs. Russell 2000
Relative Perform ance - RUT vs. SPX (Monthly)
0.50
1.40
0.40
0.30
1.20
0.20
0.10
1.00
0.00
0.80
-0.10
P/CF Rel. Val.
5/2004
10/2004
7/2003
12/2003
2/2003
9/2002
4/2002
6/2001
11/2001
1/2001
8/2000
3/2000
5/1999
10/1999
7/1998
P/FE Rel. Val.
12/1998
2/1998
9/1997
4/1997
6/1996
11/1996
1/1996
8/1995
10/2004
3/2003
8/2001
1/2000
6/1998
11/1996
4/1995
9/1993
2/1992
7/1990
0.60
3/1995
10/1994
-0.20
P/S Rel. Val.
Re lative Pe rform ance - RUT vs . RUI (Daily)
1.20
Main Page
0.90
11/16/2004
8/10/2004
4/30/2004
1/22/2004
10/13/2003
7/07/2003
3/27/2003
0.80
12/16/2002
Conclusion
Small-cap absolute outperformance will likely to come to an
end over the next few quarters; large-cap poised for
fundamental “run”
1.00
9/09/2002
Performance…
Longer-term: Potential Peak
Shorter-term: Outperformance Decelerating
1.10
5/31/2002
Fundamentals…
Large-cap valuation discounts proceed
Earnings Analysis
1.00
Growth
Consensus projections of 10-12% next 3-4
quarters likely too low
0.90
0.80
0.20
0.10
Fiscal Year 2
Main Page
Fiscal Year 1
December
November
October
S&P 500 Revisions / Seasonality - Long-term positive
trends still intact; near term weakness likely due to traditional
seasonality patterns; preliminary “less negative” trends
developing within several areas
September
Conclusions
S&P 500 Earnings Seasonality
0.200
0.150
0.100
0.050
0.000
(0.050)
(0.100)
(0.150)
January
11/01/2004
4/2004
9/2003
2/2003
7/2002
5/2001
12/2001
3/2000
10/2000
8/1999
1/1999
6/1998
4/1997
11/1997
9/1996
2/1996
7/1995
0.00
12/1994
-2.00
August
-1.00
PJC S&P 500 Projections
EPS: $65.05 – 2004
EPS: $70.88 – 2005
1200 – 1250 Price Target – 2004
1300 – 1350 Price Target – 2005
July
0.30
June
0.40
May
0.50
0.00
Momentum
Near-term momentum models rolling over; longerterm strength intact
April
0.60
March
0.70
February
1.00
Revision Ratio
% Change in EPS Revision
2.00
Valuation Analysis
Indices
Overall contraction intact; small- and mid-cap still trading
at premium
Valuation - Price / EPS (FY2)
30
25
Differentiation
Growth sector contraction creates opportunity; Industrial
cyclical trends indicative of recovery
20
Conclusion
Market NOT as expensive as consensus believes
15
10
RUT
S&P 500
Main Page
Average
Upper (+1 SD)
11/12/2004
12/2003
1/2003
Lower (-1 SD)
S&P 500 Valuation - According to our PPV model (which
takes into account P/FE, P/S, P/CF, & P/B) the S&P 500 is
trading below it’s 14 year valuation multiple average
Cheap or Expensive?? - On a relative and absolute basis
small cap multiples are trading at a premium to large cap
11/12/2004
4/23/2004
10/03/2003
3/14/2003
8/23/2002
2/01/2002
SPX
Conclusions
2/2002
3/2001
4/2000
5/1999
6/1998
7/1997
8/1996
9/1995
10/1994
S&P 500 Valuation Model
7/13/2001
12/22/2000
6/02/2000
11/12/1999
4/23/1999
10/02/1998
3/13/1998
5
Sector Weightings
S&P 500 Index
6-12 Month Weighting
Russell Mid-Cap Index
6-12 Month Weighting
Russell Small-Cap Index
6-12 Month Weighting
Consumer Discretionary
Market Weight
Autos & Transportation
Market Weight
Autos & Transportation
Market Weight
Consumer Staples
Market Weight
Consumer Discretionary
Market Weight
Consumer Discretionary
Market Weight
Market Weight
Consumer Staples
Market Weight
Energy
Underweight
Consumer Staples
Financials
Underweight
Energy
Underweight
Energy
Underweight
Health Care
Overweight
Financials
Underweight
Financials
Underweight
Industrials
Overweight
Health Care
Overweight
Health Care
Overweight
Information Technology
Overweight
Materials & Processing
Market Weight
Materials & Processing
Market Weight
Materials
Market Weight
Producer Durables
Overweight
Producer Durables
Overweight
Telecommunication Services
Market Weight
Technology
Overweight
Technology
Overweight
Utilities
Underweight
Utilities
Underweight
Utilities
Underweight
The Positives ~ Sectors to Overweight
Overweight Health Care: Earnings Consistency + Contracting
Aggregate Multiples = Long-Term Key
Overweight SPX Industrials and RMC/Rut Producer Durables:
Earnings Growth Recovery + Long-Term Revision Strength + Peak
Valuation = Traditional Upward/Positive Change In Cycle
Overweight Technology: Tech earnings are NOT as bad as
consensus believes + Fundamental SEASONALITY is turning positive
+ Valuation contraction is attractive = Appetite for growth investing vs.
current “defensive posture.”
Main Page
The Negatives ~ Sectors to Underweight
Financials:
Earnings: We believe momentum has peaked.
Macro Pulse: Treasury yield spread contraction is potentially
negative to forward earnings.
Valuation: Small- and Mid-Cap Financials are among the most
expensive areas in the market.
Energy:
Earnings: We believe momentum is peaking.
Macro Pulse: The sector is very over-owned by institutions.
Valuation: Multiples are volatile and not necessarily “cheap.”
Utilities:
Earnings: We believe momentum is reversing (negatively).
Macro Pulse: High yielding stocks have actually underperformed.
Valuation: Multiples are very expensive – near historical highs.
Market Pulse
Conclusions
S&P 500 Technology - EPS Revision Model
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
-0.5
-1.0
S&P 500 Technology Sector EPS Momentum – Steady
estimate revision recovery underway and turning net
positive – therefore, we believe macro EPS trends are
BETTER than what consensus believes…
Next Fiscal Year
11/17/2004
10/08/2004
8/27/2004
7/16/2004
6/04/2004
4/23/2004
3/12/2004
1/30/2004
12/19/2003
11/07/2003
9/26/2003
8/15/2003
7/03/2003
5/23/2003
4/11/2003
2/28/2003
1/17/2003
12/06/2002
9/13/2002
10/25/2002
8/02/2002
Conclusions
S&P 500 Earnings Growth - While growth projections
over the next few quarters are admittedly slowing, we
believe double-digit percentage growth is still double-digit
percent growth…
Current Fiscal Year
S&P 500 EPS Growth Model
What CLIENTS want to talk about….
25.0
20.0
• Energy: Will leadership extend into 2005?
15.0
• Tech: Does the “recovery” have staying power?
10.0
• Health Care: Drug hangover “skewing” performance
5.0
• Cash levels remain HIGH
0.0
-5.0
EPS Growth
Main Page
12/2004
6/2005
6/2003
12/2003
6/2004
12/2001
6/2002
12/2002
12/1999
6/2000
12/2000
6/2001
6/1998
12/1998
6/1999
12/1996
6/1997
12/1997
12/1994
6/1995
12/1995
6/1996
-10.0
12/1993
6/1994
•Dividend investing and “trading range” talk are
dominating forward market trend opinions
Analyst Certification—Brian G. Belski
The views expressed in this report, including the Key Points and Risk sections in particular, accurately reflect my personal views about the subject Company and the subject security. In
addition, no part of my compensation was, is, or will be directly or indirectly related to the specific recommendations or views contained in this report.
Piper Jaffray research analysts receive compensation that is based, in part, on the firm's overall revenues, which include investment banking revenues. Piper Jaffray research analysts who
follow this Company report to the Head of Investment Research who, in turn, reports directly to the Chief Executive Officer of Piper Jaffray.
Rating Definitions
Investment Opinion: Investment opinions are based on each stock’s return potential relative to broader market indices*, not on an absolute return.
Outperform: Expected to outperform the relevant broader market index over the next 12 months.
Market Perform: Expected to perform in line with the relevant broader market index over the next 12 months.
Underperform: Expected to underperform the relevant broader market index over the next 12 months.
Suspended: No active analyst coverage, however coverage expected to resume.
* Russell 2000 and S&P 500
Risk Rating: Our focus on growth companies implies that the stocks we recommend are typically more volatile than the overall stock market. We are not recommending the
“suitability” of a particular stock for an individual investor. Rather, it identifies the volatility of a particular stock.
Low: The stock price has moved up or down by more than 10% in a month in fewer than 8 of the past 24 months.
Medium: The stock price has moved up or down by more than 20% in a month in fewer than 8 of the past 24 months.
High: The stock price has moved up or down by more than 20% in a month in at least 8 of the past 24 months. All IPO stocks automatically get this volatility rating for
the first 12 months of trading.
Piper Jaffray & Co. does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that
could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decisions. This report should be read in conjunction with
important disclosure information at the following site: http://www.piperjaffray.com/researchdisclosures.
Customers of Piper Jaffray in the United States can receive independent, third-party research on the company or companies covered in this report, at no cost to them, where such research
is available. Customers can access this independent research by visiting piperjaffray.com or can call 800 747-5128 to request a copy of this research.
Disclaimer
This material regarding the subject company is based on data obtained from sources we deem to be reliable; it is not guaranteed as to accuracy and does not purport to be complete. This
information is not intended to be used as the primary basis of investment decisions. Because of individual client requirements, it should not be construed as advice designed to meet the
particular investment needs of any investor. It is not a representation by us or an offer or the solicitation of an offer to sell or buy any security. Further, a security described in this release
may not be eligible for solicitation in the states in which the client resides.
Notice to customers in the United Kingdom: Circulation of this report in the United Kingdom is restricted to investment professionals and high net worth individuals falling within Articles 19
and 49 of the Financial Services and Markets Act (Financial Promotion) Order 2001 as amended. No one else in the United Kingdom should read, rely on or act upon the information in the
report. The investments and services to which the report relates will not be made available to others in the United Kingdom.
Securities products and services offered through Piper Jaffray & Co., member SIPC and NYSE, Inc., a subsidiary of Piper Jaffray Companies. Additional information is available upon
request.
No part of this report may be reproduced, copied, redistributed or posted without the prior consent of Piper Jaffray & Co.
© 2004 Piper Jaffray & Co., 800 Nicollet Mall, Suite 800, Minneapolis, Minnesota 55402-7020
Main Page