Alex Cooper
Evan Cottington
Zach Gilbert
Kevin Gill
Todd Ireland
Overview
Business
Analysis
Economic
Analysis
Financial
Analysis
Valuation
Analysis
Recommendation
Let me tell you a little something
about our sector
 The consumer discretionary sector includes stocks
from companies that produce goods or services that
the public can buy
 Currently 79 companies
 Include industries most sensitive to economic cycles
 We recommend to underweight our sector relative to
the S&P
Overview
Business
Analysis
Economic
Analysis
Financial
Analysis
Valuation
Analysis
Recommendation
S&P 500 Weights
[as of April 30, 2011]
SIM Weights
[as of April 30, 2011]
SIM is over weighted by 0.02%
Overview
Business
Analysis
Economic
Analysis
Financial
Analysis
Valuation
Analysis
Recommendation
Current Consumer Discretionary Stocks
in SIM Portfolio
Overview
Business
Analysis
Economic
Analysis
Financial
Analysis
Valuation
Analysis
Recommendation
10 Largest Companies by Market Capitalization
as of 4/29/2011
Overview
Business
Analysis
Economic
Analysis
Financial
Analysis
Valuation
Analysis
Recommendation
Industry Breakdown
Overview
Business
Analysis
Economic
Analysis
Financial
Analysis
Valuation
Analysis
Recommendation
Business Analysis
Life Cycle
Business Cycle
• Mature phase
• Many established
companies and industries
• Still some growth
opportunities available in
emerging markets
• Highly cyclical sector tied to economic factors
• Less discretionary
income leads to poor
performance
• “Early cyclical” performs well at onset of
recovery
Overview
Business
Analysis
Economic
Analysis
Financial
Analysis
Valuation
Analysis
Recommendation
Sector Rotation
Overview
Business
Analysis
Economic
Analysis
Financial
Analysis
Valuation
Analysis
Recommendation
External Analysis
Barriers to
Entry
• Significant advantages from economies of scale
High
• High capital requirements
• Strong brand names
• Large number of competitors
Competition
High
• Limited number of new customers
• Difficult to gain market share
• Diverse range of products with many substitutes
Substitutes
High
• Highly price sensitive customers
• Need to differentiate - offer something others don’t
• Success driven by customer demand
Buyer Power
• Demand ebbs and flows with discretionary income
• Supply levels follow forecasted demand
• Most industries within CD have low pricing power
Supplier
Power
Overview
High
Varies
Business
Analysis
• Higher input costs due to rising commodity prices
Economic
Analysis
Financial
Analysis
Valuation
Analysis
Recommendation
Key Macro Indicators: Consumer Spending
Overview
Business
Analysis
Economic
Analysis
Financial
Analysis
Valuation
Analysis
Recommendation
Spending Still In The “New Normal” Range
Overview
Business
Analysis
Economic
Analysis
Financial
Analysis
Valuation
Analysis
Recommendation
Key Macro Indicators: Disposable Income
Overview
Business
Analysis
Economic
Analysis
Financial
Analysis
Valuation
Analysis
Recommendation
Real PCI And DPI Growth
Source: Bureau of Economic Analysis, US Department of Commerce
Overview
Business
Analysis
Economic
Analysis
Financial
Analysis
Valuation
Analysis
Recommendation
Demand For Fuel Is Inelastic
Overview
Business
Analysis
Economic
Analysis
Financial
Analysis
Valuation
Analysis
Recommendation
Key Macro Indicators: Consumer Confidence
Overview
Business
Analysis
Economic
Analysis
Financial
Analysis
Valuation
Analysis
Recommendation
Many Factors Weighing On Consumer Minds
 High Unemployment
 U.S. Government
Spending
 Rising Gasoline Prices
 European Sovereign
Debt Crisis
 Rising Food Prices
 Unrest in the Middle
 Looming Tax Increases?
East
Overview
Business
Analysis
Economic
Analysis
Financial
Analysis
Valuation
Analysis
Recommendation
Key Macro Indicators: Unemployment
Overview
Business
Analysis
Economic
Analysis
Financial
Analysis
Valuation
Analysis
Recommendation
Net Profit Margin
Absolute
Relative to the S&P 500
Overview
Business
Analysis
Economic
Analysis
Financial
Analysis
Valuation
Analysis
Recommendation
Return on Equity
Absolute
Relative to the S&P 500
Overview
Business
Analysis
Economic
Analysis
Financial
Analysis
Valuation
Analysis
Recommendation
Revenue
Overview
Business
Analysis
Economic
Analysis
Financial
Analysis
Valuation
Analysis
Recommendation
Net Profit Margin by Industry
16.0%
14.1%
14.0%
12.0%
10.5%
10.0%
8.0%
7.9%
6.3%
5.8%
6.0%
4.3%
4.7%
4.7%
4.0%
4.0%
2.7%
2.7%
2.0%
0.0%
Auto.
Manufacturers
Comp.
Electronics
Retail
Overview
General
Merchandise
Business
Analysis
Auto Parts &
Equipment
Restaurants Internet Retail
Economic
Analysis
Home
Improve.
Retail
Financial
Analysis
Retail Apparel
Movies &
Department
Entertainment
Stores
Valuation
Analysis
Hotel
Resort/Cruise
Recommendation
ROE by Industry
40.0%
36.3%
35.0%
30.8%
30.0%
25.0%
23.2%
20.0%
18.0%
19.0%
15.4%
14.1%
15.0%
13.1%
11.4%
9.3%
10.0%
7.2%
5.0%
0.0%
Auto.
Manufacturers
Overview
Comp.
Electronics
Retail
General
Merchandise
Business
Analysis
Auto Parts &
Equipment
Restaurants Internet Retail
Economic
Analysis
Home
Improve.
Retail
Financial
Analysis
Retail Apparel
Movies &
Department
Entertainment
Stores
Valuation
Analysis
Hotel
Resort/Cruise
Recommendation
Key Observations
Metric
Current Observations
Outlook/View
Net Profit Margin
Currently at a 10-year high in both
absolute and relative terms
Rising input prices may
put pressure on future
profit margins
Return on Equity
Currently at a 10-year high in both
absolute and relative terms
The slight decline in
early 2011 is troubling
Revenue
Slightly above the 10-year median,
struggling to return to pre-recession
levels
Commodity prices may
hold down sales growth
Overview
Business
Analysis
Economic
Analysis
Financial
Analysis
Valuation
Analysis
Recommendation
Valuation Analysis
Overview
Business
Analysis
Economic
Analysis
Financial
Analysis
Valuation
Analysis
Recommendation
Real GDP Growth Rate
Overview
Business
Analysis
Economic
Analysis
Financial
Analysis
Valuation
Analysis
Recommendation
Key Ratios
Absolute
High
Low
Median
Current
Trail P/E
53.7
14.7
20.8
17.3
For P/E
44.1
13.3
18.8
16.2
P/S
1.1
0.4
0.9
1.1
P/B
3.9
1.5
2.4
3.1
P/CF
14
5.7
9.1
9.7
Economic
Analysis
Financial
Analysis
Overview
Business
Analysis
Valuation
Analysis
Recommendation
Key Ratios
VS S&P
High
Low
Median
Current
Trail P/E
3.9
0.95
1.2
1.1
3
0.96
1.1
1.1
P/S
0.8
0.5
0.6
0.8
P/B
1.3
0.7
0.9
1.3
1
0.7
0.9
1
For P/E
P/CF
Overview
Business
Analysis
Economic
Analysis
Financial
Analysis
Valuation
Analysis
Recommendation
Industries vs. S&P
Automobiles vs
S&P
High
Low
Median
Current
Trail P/E
16.4
0.28
0.47
0.34
For P/E
17.9
0.4
0.71
0.59
P/S
0.3
0
0.1
0.3
P/B
1.6
0.2
0.5
NM
P/CF
0.4
0.1
0.1
0.3
Valuation
Analysis
Recommendation
Overview
Business
Analysis
Economic
Analysis
Financial
Analysis
Industries vs. S&P
Internet
Retail vs
S&P
High
Low
Median
Current
Trail P/E
9.5
1.5
3.5
3.4
5
0.1
2.8
3.2
P/S
22.9
0.7
4.2
1.9
P/B
6
1
3
5.3
7.3
1.3
3.3
3.8
Economic
Analysis
Financial
Analysis
Valuation
Analysis
Recommendation
For P/E
P/CF
Overview
Business
Analysis
Industries vs. S&P
Movies and
Entertainment vs
S&P
High
Low
Median
Current
Trail P/E
3.9
0.67
1.3
1.1
For P/E
2.3
0.68
1.3
1.1
P/S
2.3
0.9
1.3
1.3
P/B
1.1
0.2
0.5
0.8
P/CF
2.6
0.4
1
0.9
Overview
Business
Analysis
Economic
Analysis
Financial
Analysis
Valuation
Analysis
Recommendation
Technical Analysis
Overview
Business
Analysis
Economic
Analysis
Financial
Analysis
Valuation
Analysis
Recommendation
Sector Value
5 yr time period
Overview
Business
Analysis
Economic
Analysis
Financial
Analysis
Valuation
Analysis
Recommendation
Trend?
Sector Value, 5 yr time period
Overview
Business
Analysis
Economic
Analysis
Financial
Analysis
Valuation
Analysis
Recommendation
Double Top?
Sector Value, 5 yr time period
Overview
Business
Analysis
Economic
Analysis
Financial
Analysis
Valuation
Analysis
Recommendation
Bollinger Bands
Overview
Business
Analysis
Economic
Analysis
Financial
Analysis
Valuation
Analysis
Recommendation
Relative Strength Index
Overview
Business
Analysis
Economic
Analysis
Financial
Analysis
Valuation
Analysis
Recommendation
Decision……
 Underweight Consumer Discretionary Sector by 100-
150 bps
 Past This Sector’s Favorable Part Of The Economic Cycle

Sector Rose 25.7% Vs. 12.8% Rise In S&P 500 during 2010
 Input Costs Will Begin To Pressure Margins
 Rising Food And Energy Prices Will Hurt Top Line
Growth
 Continued High Unemployment And Slow Wage
Growth
Overview
Business
Analysis
Economic
Analysis
Financial
Analysis
Valuation
Analysis
Recommendation
Industries Outlook
 Overweight Search
 Underweight Restaurant
Advertising Industry
 U.S. Market Is Mature
But Good International
Growth Prospects
Overview
Business
Analysis
Economic
Analysis
Industry
 Rising Food Costs Will
begin Pressuring
Margins
Financial
Analysis
Valuation
Analysis
Recommendation
Positives And Negatives To Consider
Pros Of Our Decision
Risks
 Evidence To Support Sector
 Commodity Prices Stabilize
Underperformance In The
Near-Term
 Increase Portfolio
Performance By Rotating
Funds To Sectors With Better
Growth Prospects
 Timing of The Sector
Rotation Is Right
Overview
Business
Analysis
Economic
Analysis
Or Begin to Fall
 Personal Income Growth And
Consumer Spending
Accelerates
 Incorrectly Identified The
Stage Of The Economic Cycle
Financial
Analysis
Valuation
Analysis
Recommendation