6_23_2014

THE OUTLOOKINTELLIGENCE FOR THE INDIVIDUAL INVESTOR

June 23, 2014Volume 86

Number 23

Summer Tech InvestingWhat seasonal slump?

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Some market wags suggest avoiding information technology stocks during the seasonal summer slump. S&P Capital IQ dis-agrees. The S&P Capital IQ Investment Policy Committee maintains an overweight recom-mendation for the S&P 500 Information Technology sector, which makes up 18.9% of the index. According to Capital IQ consensus estimates, the sector is likely to post profit growth of 7.8% in the second quarter, 6.3% in the third quarter, and 10.5% in the fourth quarter.

Within the information technology sector, the strong balance sheets will likely be used to pursue value-added R&D, M&A, buybacks, and dividends, says Sam Stovall, managing director-U.S. equity strategy for S&P Capital IQs Global Market Intelligence team, who notes the S&P 500 tech sector pays a divi-dend yield of 1.6%.

Several tech-focused mutual funds garner S&P Capital IQs highest four- or five-star ranking (based on our proprietary fund rank-ing methodology, which incorporates not only past performance, but also an analysis of the

likely future prospects of underlying holdings, as well as risk considerations and fees). The funds are listed in the table, below.

Within the tech sector, the personal com-puter (PC) industry appears to be heading towards a period of stabilizing, according to S&P Capital IQ Equity Analyst Angelo Zino, after a shipment decline of more than 10% in 2013. Obviously, the poor results can be largely attributable to the tablet cannibaliza-tion of PCs. However, Zino thinks this head-wind is starting to alleviate as there remains a need for PCs in the marketplace, especially on the corporate side.

An indication of the stabilizing PC landscape comes from Intels (INTC 30.09 ) positive pre-announcement earlier this month. The company provided a prelimi-nary second quarter update after the market close on June 12 and now foresees revenue of $13.7 billion, compared with $13 billion previously. Intel also raised its gross margin view to 64%. The technology giant said the

Whats InsideIntelligencer 2

Focus Stock 3

Mutual Fund Strategies 4

ETF Strategies 5

Master List 6

Top Ten Portfolio 7

Observatory 8

HOT FUNDS IN SUMMER HEAT

FUND NAME / SYMBOL RANKCURRENT PRICE ($)

YIELD (%)

TOTAL RETURN (%)

EXPENSE RATIO (%)3-YEAR*

Fidelity NASDAQ Composite Index Fund / FNCMX 5 57.76 2.46 19.68 0.33MFS Technology Fund / MTCAX 4 23.48 1.62 18.15 1.54Rydex NASDAQ-100 Fund / RYOCX 5 22.60 2.38 20.02 1.27Vanguard Information Tech. Index Fund / VITAX 5 49.20 2.16 18.25 0.15

Source: S&P Capital IQ. *Average annualized.

(Continued on page 8)

2 S&P CAPITAL IQ THE OUTLOOK JUNE 23, 2014 www.spoutlook.com

S&P Capital IQs The Outlook

GLOBAL MARKETS INTELLIGENCEContent Director Beth PiskoraContributing Editors John Hackett, Robin Mordfin

RESEARCH & ANALYTICSDirector, Global Equity Research

Kenneth Leon

Managing Director, U.S. Equity Strategy Sam Stovall

For customer service, please call 1-800-523-4534 and choose option 1 and then option 2 between 9am and 4pm Eastern Time, Monday through Friday.The Outlook (USPS 415-780, ISSN 0030-7246) is published weekly except for one issue in January, March, July, and September by S&P Capital IQ, 55 Water St., New York, NY 10041.Annual subscription: $325. Periodicals postage paid at New York, NY, and additional mailing offices. POSTMASTER: Send address changes to The Outlook, S&P Capital IQ, 55 Water St., New York, NY 10041.Copyright 2014. All rights reserved. Standard & Poors, S&P, S&P 500, S&P MidCap 400, and S&P SmallCap 600 are registered trademarks of McGraw Hill Financial. Reproduction in whole or in part prohibited except by permission. All rights reserved. Officers of McGraw Hill Financial: Harold W. McGraw, III, Chairman; Douglas Peterson, Presi-dent and Chief Executive Officer; Jack F. Callahan, Jr., Executive Vice President and Chief Financial Officer; Elizabeth OMelia, Senior Vice President, Treasury Operations; Kenneth M. Vittor, Executive Vice President and General Counsel. Because of the possibil ity of human or mechanical error by S&Ps sources, S&P, or others, S&P does not guarantee the accuracy, adequacy, or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information.

S&P CAPITAL IQ EVALUATION SYMBOLSSTARS RankingsOur evaluation of the 12-month potential of stocks is indicated by STARS:

Strong BuyTotal return is expected to outperform the total return of a relevant benchmark by a wide margin over the coming 12 months, with shares ris-ing in price on an absolute basis.

BuyTotal return is expected to outperform the total return of a relevant benchmark over the coming 12 months, with shares rising in price on an absolute basis.

HoldTotal return is expected to closely approximate the total return of a relevant benchmark over the

coming 12 months, with shares generally rising in price on an absolute basis.

SellTotal return is expected to underperform the total return of a relevant benchmark over the coming 12 months, and the share price is not anticipated to show a gain.

Strong SellTotal return is expected to underper-form the total return of a relevant benchmark by a wide margin over the coming 12 months, with shares falling in price on an absolute basis.

NR Not ranked.

Quality & Fair Value RankingsOur appraisals of the growth and stability of earnings and dividends over the past 10 years for STARS and other companies are indi-cated by Quality Rankings:

A+ Highest B+ Average C LowestA High B Below Avg. D In reorganizationA- Above Avg. B- Lower NR Not Ranked

Quality Rankings are not intended to predict stock price movements.

S&P Fair Value Rank: Using S&Ps exclusive proprietary quantita-tive model, stocks are ranked in one of ve groups, ranging from Group 5, listing the most undervalued stocks, to Group 1, the most overvalued issues. Group 5 stocks are expected to generally out-perform all others. The Fair Value rankings imply the following: 5-Stock is signi cantly undervalued; 4-Stock is moderately undervalued; 3-Stock is fairly valued; 2-Stock is modestly over-valued; 1-Stock is signi cantly overvalued. As an input to the S&P Mutual Fund Ranking, S&P evaluates the weighted average Fair Value Rank of the underlying holdings of the mutual fund com-pared with its category.

For important regulatory information, go to www.capitaliq.com/home/legal-disclaimers/sp-capital-iq-research-reports.

PORTFOLIO CHANGES: Covidien (COV 91.24 ) was deleted from the Platinum portfolio effective June 16, 2014.

FRANCE APPROVES GE DEAL WITH ALSTOM: The French government has backed General Electrics (GE 26.93 ) revised proposal to acquire certain assets and form joint ventures related to other assets with Alstom, a French multina-tional company with interests in the electricity generation and rail transport markets. This approval makes it likely the deal with Alstom, will go ahead, says S&P Capital IQ Equity Analyst Jim Corridore. Under the new proposal, GE will create 50:50 joint ventures with Alstom on its grid energy and renewables busi-nesses. Overall, we would be favorable on the deal, which we think accelerates GEs transition to a much more industrial focused company as it intends to transition away from its finance business, says Corridore. We see significant synergy and cross selling potential. Though this would be the largest deal in GEs history, we think the company has a successful track record with large deals.

AETNA GROWTH PREDICTED: S&P Capital IQ raised its target price on Aetna (AET 81.41 ) by $12 to $98 or 15 times S&Ps 2014 EPS estimate, which is slightly above peers and historical levels. According to S&P Capital IQ Equity Analyst Jeffrey Loo, we see AET growing faster than its peers, driven by its Coventry acquisition and a healthy rise in membership, mainly in commercial and government businesses, and by new contract wins. Loo adds that though Aetna limited its participation in the healthcare exchanges, we still see benefits from the better-than-expected enrollment of eight million Americans in the exchanges and by the five million new Medicaid enrollees. Finally, says Loo, Aetnas cost controls should enable a healthy EPS rise in spite of the new tax.

INTEL SEEN AIDED BY PC SALES: S&P Capital IQ maintains its buy recommendation on shares of Intel (INTC 30.09 ), and raises its 2014 operating EPS estimate by $0.17 to $2.04 and 2015s by $0.12 to $2.14. We up our 12-month target price by $4 to $34, on higher revised P/E near peers, says S&P Capital IQ Equity Analyst Angelo Zino. Indications of improved pros-pects for sales of personal computers bode well for the company. We believe that INTC is benefiting from PC stabilization in the more mature U.S./Europe markets, which is driving sales/earnings growth, says Zino. Meanwhile, S&P Capital IQ believes that Intel will also see multiples expand and trade closer to other semiconductor companies given an improving PC outlook and our view that it will witness greater momentum for its foundry/mobility businesses, says Zino.

KORN/FERRY GROWTH SEEN: S&P Capital IQ maintains its 12-month target price of $36 on Korn/Ferry (KFY 29 ), applying a P/E of 21 times, at the mid-point of its three-year range, to S&P Capitals fiscal year 2015 (Apr.) EPS estimate of $1.73. S&P Capital IQ Equity Analyst Joseph Agnese says, we are initiating fiscal year 2016 EPS of $1.99. Apr-Q adjusted EPS of $0.43 vs. $0.32 is $0.05 above our estimate. Results benefited from strong growth across all business segments. However, we expect margin expansion in FY 15 to be limited by increased expenses, says Agnese.

IntelligencerHeadlines, Highlights, and Whats on our Minds

www.spoutlook.com S&P CAPITAL IQ THE OUTLOOK JUNE 23, 2014 3

FOCUSSTOCK

Jeffrey Loo, CFAS&P Capital IQ Equity Analyst

The Focus Stock for the week ended June 22 is Icon Plc, which carries S&P Capital IQs highest investment recommendation of 5-STARS, or strong buy. Icon (ICLR) is a leading global contract research organization (CRO) providing services to support all stages of the clinical development process, from compound selection to Phase I-IV clinical trials for the pharmaceutical, biotechnology, and medical devices industries. The company has an extensive global footprint, with 77 locations in 38 countries, which we believe gives ICLR a competitive advantage.

The CRO industry is highly frag-mented, with about 1,000 CROs worldwide. There are, however, only a handful of truly global full-service CROs, with the top six accounting for about 40% of the industrys estimated $24 billion in sales. We believe that figure will grow to $33 billion in five years, with the market share of top six growing to 50%.

The industry has been grow-ing at a solid rate of about 7% over the past several years, as drug firms are increas-ingly outsourcing to CROs to drive efficiencies and reduce costs in their drug develop-ment process. However, larger global players like ICLR have disproportionately benefitted from the increased demand from biopharmaceutical firms. ICLRs extensive global footprint enables it to design and man-age parallel, multi-country clinical trials to accelerate time to market. This ability to quickly and efficiently attract volun-

teers and/or patients to a clinical trial could enable a drug firm to complete clinical trials faster and potentially get a drug approved earlier, thereby boosting sales and cost savings.

We believe the recent share price volatility within the CRO industry due to increased pharmaceutical merger and acquisition activ-ity is overdone. ICLRs shares, in particular, were hurt as its largest client, Pfizer, offered to acquire Astra Zeneca. We believe some investors were concerned that a large merger would result in Pfizer canceling a substantial number of projects. However, we do not agree with the perception that pharma-ceutical mergers cause project cancellations. Rather, we believe the main driver of these mergers is the strengthening or expansion of pipelines. Pfizer subsequently ended its pursuit of Astra Zeneca, but we believe it could revive its pursuit later in the year.

We expect 2014 net sales at Icon to rise 12.3% to $1.5 billion, fol-lowing the 19.8% growth in 2013, driven primarily by the strategic partnership with Pfizer. In May 2011, Pfizer chose ICLR as one of two preferred CRO providers. This significantly reduced the number of CROs Pfizer had used, which we believe totaled over two dozen. Pfizer now accounts for about 29% of ICLR sales, but we see healthy growth from other clients and segments. Backlog as of March 31, 2014 was a robust $3.1 billion as ICLR was awarded more than $1.65 billion in new contracts over the past 12 months. We expect contin-ued solid new bookings.

We look for operating margins to increase 160 basis points to 11.4% in 2014, following the 320 basis point increase in 2013. Our operat-ing EPS estimate for 2014 is $2.36, which would represent an increase of 33.3% over 2013s $1.77.

There are several risks to our recommendation and target price. ICLRs quarterly opera-tions can fluctuate depending on the number and scope of ongoing client projects. The company is subject to signifi-cant project cancellation risks each quarter due to various reasons that may be beyond its control. ICLR may also encoun-ter a slowdown in the outsourc-ing trend by the pharmaceutical industry. Client concentration risk has increased as ICLRs top client, Pfizer, accounted for about 26% of sales in 2013 and 29% of sales in the first quarter 2014.

Icon PlcGlobal presence confers a competitive advantage

ICON

Ticker: ICLR

S&P Ranking:

Current Price: $47.32

12-Month Target Price: $54

Market Capitalization ($ Blns): $2.91

Price/Earnings Ratio: 18.20

Fair Value Rank: 4

Source: S&P Capital IQ.


Todd Rosenbluth S&P Capital IQ

Director of Mutual Fund Research

FUNDSTRATEGIES

S&P Capital IQs Mutual Fund ranking is based on a combination of holdings-based analysis and relative performance/cost analysis of the fund. The U.S. equity funds that earn a five-star ranking score in the top 10% of a broad category of more than 7,000 share classes. Because of this selectivity, many investors are holding funds that rank much lower.

Indeed, of funds with more than $1 billion in assets under management, S&P Capital IQ has one- or two-star rankings on 78. Our ranking inputs include a review of a funds holdings based on S&P Capital IQ STARS and S&P Capital IQ Quality Rankings, as well as a review of the funds performance record compared with peers. In all three of the cases reviewed below, the fund underperformed its peer group during the last three years, and we believe there may be other reasons for concern.

Lord Abbett Affiliated Fund (LAFFX 16.52 ) is an equity income fund with more than $6 billion in assets for the A share class. Its two star ranking stems from a couple of factors, including a weak record and holdings that S&P Capital IQ is neutral on. Rela-tive to peers, the funds three-year

total return is in the third quartile and incurred above-average volatility as well as generated a below-average Sharpe ratio. Add-ing to the risks, the funds current co-managers Prahl and Ruvkun have been at the helm for just one year.

While the funds ranking is offset in part from holding many stocks with above-average S&P Capital IQ Quality Rankings, including IBM (IBM 182 ) and McDonalds (MCD 102 ), these and many other positions are considered fairly valued based on S&P Capital IQ STARS. Further, the funds recent 93% turnover rate is double that of its peers, adding to the weak cost factors.

Columbia Acorn Fund (LACAX 35.62 ) is a mid-cap growth two star fund with more than $3.5 billion for the A share class. Relative to peers, the funds total return is in the third quartile on a three-year basis and generated a moderately below-average Sharpe

ratio. This is partially offset by lead-manager Mohns 10-year plus tenure with the fund.

From a holdings perspective, many of the stocks are fairly or overvalued based on S&P Capital IQ STARS and/or Fair Value and have relatively weak credit ratings from Standard & Poors Ratings Services. Examples of holdings deemed overvalued based on S&P Capital IQ Fair Value are Amphenol (APH 97 ) and Donaldson (DCI 42 NR). S&P Capital IQ operates independently from Standard & Poors Ratings Services.

Fidelity Small Cap Stock (FSLCX 19.71 ) is a small-cap core two star fund with more than $2 billion in assets. Manager Harris took over in late 2011 and since then the fund lagged its peers in 2012 and in 2013. The Fidelity funds three-year total return is in the bottom quartile of its peer group and its standard deviation is much higher than its peers.

Furthermore, from a holdings-perspective, many of stocks have below-average S&P Capital IQ Quality Rankings, including Cleco (CNL 56 NR) and FirstMerit (FMER 20 NR). The funds turnover rate is also moderately higher than its peers.

Some Funds Fail to ImpressCharacteristics that add up to a two-star ranking

LESS THAN STELLAR


YIELD (%)

TOTAL RETURN (%)EXPENSE RATIO (%)

ASSETS ($ MLNS)1-YEAR 3-YEAR* 5-YEAR*

Lord Abbett Affiliated Fund / LAFFX 2 16.52 2.95 19.02 14.60 15.91 0.84 6,098Columbia Acorn Fund / LACAX 2 35.62 1.66 17.84 13.56 18.97 1.07 3,561Fidelity Small Cap Stock / FSLCX 2 19.71 2.25 20.11 8.72 16.12 0.72 2,037

Source: S&P Capital IQ. *Average annualized.

These three funds underperformed peers in the last three years.


ETFSTRATEGIES

John KreyS&P Capital IQ

Intl. Analyst Todd Rosenbluth

S&P Capital IQ Director of ETF

Research

Group of Ten (G-10) foreign exchange trends since the outset of the year appear to suggest that only the economies that are expanding the quickest have mer-ited the highest spot returns.

This would be accurate were it not for the fact that speedier infla-tion in the countries with the two strongest currencies (New Zealand and Australia with 5.6% and 5.5% spot returns, respectively) has been accompanied by higher mar-ket interest rates, initiated by the central bank in New Zealand and the money market in Australia.

By contrast, the Canadian and U.S. currencies have underper-formed on a real, effective trade-weighted basis due to economic weakness in the former and sub-optimal momentum in the latter. Yet, Australia and New Zealands exposure to Chinas economic variability mirrored by relatively high implied volatilities render their exchange rates increasingly susceptible to cyclical variations in Asias fastest-growing economy.

Given the divergent economic tendencies among dollar-bloc cur-rencies, carry trades that are long Australian or New Zealand currency and short U.S. or Canadian dol-lars still offer risk-eager investors opportunities for arbitraging yields. A long Australian or New Zealand

trade, combined with a short U.S. position established at the end of last year, for instance, would have garnered risk-keen investors 6.7% and 7.1%, respectively.

For a diversified currency ETF alternative, investors may want to consider PowerShares DB G-10 Currency Harvest (DBV 26 NR). The ETF, which has a 0.81% expense ratio, includes long trades on the Australian and New Zealand dollar and short trades on the Japanese yen and the U.S. dollar.

Apart from the carry trade opportunities offered by dollar-bloc currencies, the 1.6% and 3.2% spot year-to-date returns of U.K. pounds in relation to the U.S. dollar and the euro, respectively, clearly reflect policy achievements of the countrys government. Indeed, the speedup in macroeconomic activity that led to a remarkable resur-gence in hiring and investment by businesses is expected to proceed apace.

These developments should provide risk-aggressive appetites the opportunity to further diversify their exposures by taking advan-tage of another potential strength-ening of the U.K. pound against the euro and the U.S. dollar in the period immediately ahead.

The prospective trend of the euro, in contrast to the U.K. pound,

provides an entirely different avenue of investment. After trim-ming the 2014 real GDP Eurozone growth forecast to 1%, policymak-ers of the European Central Bank (ECB) took decisive action to reduce the main refinancing and marginal facility rates to 0.15% and 0.40%, correspondingly, as well as to cut the deposit facility rate to 0.10%, signaling to the market their collective commitment to keeping disinflation from turning into outright deflation.

With analysts expecting the economy of the European Monetary Union (EMU) to display barely any energy, the ECBs aggressive policy decision to drive a key lending rate into negative territory marks the first time a major G-7 central bank has undertaken such a bold measure to establish a floor for inflation. In light of the discourag-ing macroeconomic climate for this year, along with the tendency in price pressures toward deflation, the euro appears to have no direc-tion to take in the near term other than downward.

One way to participate in the European equity market while hedging against a decline in the euro is db X-trackers MSCI Euro-pean Hedged Equity (DBEU 28 Marketweight), which launched in October 2013.

Carry Trade and Currency OpportunitiesThe U.K., Australia, and New Zealand worth a look

LOOKING AT CURRENCIES


TOTAL RETURN (%)EXPENSE RATIO (%)

ASSETS ($ MLNS)1-YEAR 3-YEAR* 5-YEAR*

PowerShares DB G-10 Currency Harvest / DBV NA $26.15 2.89 2.90 4.23 0.81 105db X-trackers MSCI European Hedged Equity / DBEU MW $28.00 NA NA NA 0.45 NA

Source: S&P Capital IQ. MW-Marketweight. *Average annualized.


Performance calculations do not take into account reinvestment of dividends, capital gains taxes or brokerage commissions and fees. If the foregoing had been factored into the portfolios investment performance, it would have been lower. This performance calculation also does not take into account timing differences between the portfolio selections and purchases made based on those selection by actual investors. Over certain periods, the portfolio incurred losses and over time the portfolio is expected to continue to pose a risk of negative investment returns. Because the portfolio has a high turnover rate, it is best suited for tax-deferred accounts such as IRAs and is less suited for other accounts. Investors should seek financial advice before investing based on the portfolio. This portfolio does not address the specific investment objectives, financial situation, and particular needs of any person. Stocks in the portfolio will not be suitable for all investors. Past performance is no guarantee of future results.

LEADERSNAME YTD GAIN / LOSS

Suncor Energy 30.75%

Mylan 15.67%

McKesson 13.14%

Johnson & Johnson 11.94%

Canadian Natl Railway 11.33%

LAGGARDSNAME YTD GAIN / LOSS

SCANA -2.78%

Manulife Financial -1.41%

Danaher -0.35%

Raymond James Financial -0.22%

Costco Wholesale 1.19%

Source: S&P Capital IQ. Current portfolio members only. Performance is based on the year to date through 6/13/2014, or, if the security was added after the start of the year, for the time it has been a portfolio member.

To enter the High-Quality Capital Appreciation Model Portfolio, a stock must have a Quality Ranking of A- or better, which indicates a 10-year history of above average earnings and dividend growth. Stocks must have a 4-STARS or 5-STARS ranking to enter this portfolio. S&P Capital IQs Senior Portfolio Group may replace any stock in the portfolio with another stock at any time for reasons that can include a downgrade in STARS or Quality Ranking of the constitu-

ents or for other factors. This portfolio was launched on May 23, 2003.

From inception through May 2014, the portfolio rose at an average annualized rate of 7.32% excluding dividends, compared with 6.78% for the S&P 500. From December 31, 2013 to June 13, 2014, the portfolio rose by 6.17% exclud-ing dividends, compared with an increase of 4.75% for the S&P 500.

High-Quality Capital Appreciation Portfolio

HIGH-QUALITY CAPITAL APPRECIATION PORTFOLIO

SYMBOL COMPANY NAMEENTRYDATE

ENTRYPRICE ($)

CURRENTPRICE ($)

12-MONTHTARGET

PRICE ($) STARSQUALITY

RANK

CNI Canadian Natl Railway 02/24/2014 56.23 63.12 68 4 A+

CE Celanese 04/28/2014 59.72 64.65 71 5 A-

COST Costco Wholesale 02/24/2014 113.94 116.26 124 4 A

DHR Danaher 06/09/2014 80.55 80.10 85 4 A+

DIS Disney 11/14/2011 36.12 83.77 88 4 A+

GPS Gap 04/14/2014 37.80 41.59 50 5 A

GE Genl Electric 02/24/2014 25.29 26.93 32 4 A-

JNJ Johnson & Johnson 07/22/2013 92.28 103.81 110 4 A+

MFC Manulife Financial 02/24/2014 19.15 19.44 22 4 A-

MCK McKesson 08/16/2010 60.85 185.24 203 4 A-

MYL Mylan 05/26/2009 13.13 50.41 59 4 A-

QCOM QUALCOMM 05/28/2013 64.07 79.61 85 4 A-

RJF Raymond James Finl 04/28/2014 49.08 50.01 60 4 A-

SCG SCANA 04/14/2014 52.14 52.86 56 4 A-

SU Suncor Energy 01/27/2014 32.65 42.43 44 4 A-

Source: S&P Capital IQ. All data are as of Thursdays close.


Performance calculations do not take into account reinvestment of dividends, capital gains taxes or brokerage commissions and fees. If the foregoing had been factored into the portfolios investment performance, it would have been lower. This performance calculation also does not take into account timing differences between the portfolio selections and purchases made based on those selection by actual investors. Over certain periods, the portfolio incurred losses and over time the portfolio is expected to continue to pose a risk of negative investment returns. Because the portfolio has a high turnover rate, it is best suited for tax-deferred accounts such as IRAs and is less suited for other accounts. Investors should seek financial advice before investing based on the portfolio. This portfolio does not address the specific investment objectives, financial situation, and particular needs of any person. Stocks in the portfolio will not be suitable for all investors. Past performance is no guarantee of future results.

Constellation Brands was added to the Top Ten Model Portfolio on April 11, 2014. This alcoholic beverage compa-ny is the name behind iconic brands in wine (Robert Mondavi, Ravenswood), beer (Corona, Modelo, St. Pauli Girl, Tsingtao), and spirits (Svedka Vodka, Black Velvet Canadian Whisky).

S&P Capital IQ Equity Analyst Joseph Agnese views the shares as

very attractive, trading at a discount to peers. Following a sales increase of 74% in fiscal 2014 (ended February), driven by the purchase of the remain-ing 50% interest in Crown Imports it did not already own, Constellation is likely to post 23% revenue growth in fiscal 2015 to $6.3 billion. Agnese thinks growth will be supported by new product launches and increased mar-

keting of its existing brands. Crown brands are likely to outperform the overall beer industry, Agnese predicts, with volume growth around 5%. He also expects the gross margin will improve this year, and over the longer term as 100% of the companys beer production is moved to a state-of-the-art brewery acquired in the Crown transaction.

Por tfolio Focus: Constellation Brands

Top Ten Model PortfolioThe Top Ten Model Portfolio comprises stocks that S&P Capital IQ believes to be well positioned for capital appre-ciation over the next 12 months.

The goal of the Top Ten Model Portfolio is to outperform the S&P 500 index on a capital appreciation basis. S&P Capital IQs Senior Portfolio Group, a subcommittee of our Invest-ment Policy Committee, selects the stocks. The intention of the model

portfolio is to be fairly balanced among economic sectors.

Stocks must have a 5-STARS rank-ing to enter the model portfolio, but can remain in the model portfolio if the ranking drops to 4 STARS. If the ranking drops below 4 STARS, the stock will be removed. In addition, any stock in the model portfolio may be replaced with a 5-STARS stock at any time.

The model portfolio was launched on December 31, 2001. From incep-tion through May 31, 2014, the model portfolio rose at an average annual-ized rate of 4.89% excluding dividends, compared with 4.25% for the S&P 500. For the period from December 31, 2013 to June 13, 2014, the model portfolio rose by 12.16% excluding dividends, compared with an increase of 4.75% for the S&P 500.

TOP TEN MODEL PORTFOLIO

SYMBOL COMPANY NAMEENTRY DATE

ENTRY PRICE ($)

CURRENT PRICE ($)

PRICE CHANGE (%) STARS

12-MONTH TARGET

PRICE ($)

AET Aetna 04/11/2014 70.82 81.41 14.95 5 98

ARRS Arris Group 03/11/2014 28.59 33.42 16.89 4 35

CBS CBS 04/17/2014 60.64 60.37 -0.45 5 70

STZ Constellation Brands 04/11/2014 78.03 86.53 10.89 5 98

DFS Discover Financial Svcs 01/17/2014 53.41 61.95 15.99 4 68

EOG EOG Resources 04/30/2014 98.00 115.80 18.16 5 126

ICLR ICON Plc 10/18/2012 24.81 46.90 89.04 5 54

QCOM QUALCOMM 04/27/2012 64.18 79.75 24.26 4 85

SAVE Spirit Airlines 02/07/2014 46.00 63.07 37.11 5 73

TROW T.Rowe Price Group 06/14/2013 73.40 83.51 13.77 4 92

Source: S&P Capital IQ. All data are as of Thursdays close.


The Observatory provides a selection of analytical actions upgrades, downgrades, initiations from S&P Capital IQ. Stocks featured in the Observatory are selected by The Outlook according to factors including, but not limited to, newsworthiness, capitalization, and inclusion in a portfolio published by The Outlook. Please note that all investments carry risks. Investors should seek nancial advice before investing.

All of the views expressed in this research report accurately re ect the research analysts personal views regarding any and all of the subject securities or issuers. No part of the analysts compensation was, is, or will be, directly or indirectly, related to the speci c recommendations or views expressed in this research report.

For intraday STARS changes, subscribers can visit www.spoutlook.com and click on the STOCKS tab.

COMPANY NAME / SYMBOLNEW

STARSOLD

STARS

STARS RANKING

DATE PRICE ($)

12 MONTH TARGET

PRICE ($)

S&P QUALITY RANKING

S&P FAIR VALUE

RANK

Bard / BCR 3 4 6/19/2014 140.05 150 A 5Concur Technologies / CNQR 4 5 6/16/2014 91.97 102 C 1Covidien / COV 3 5 6/16/2014 91.00 93 NR 3FedEx / FDX 5 4 6/18/2014 148.00 180 B+ 3Health Net / HNT 4 3 6/17/2014 40.65 50 B- 5Janus Capital Group / JNS 3 2 6/16/2014 12.23 12 B 3Standard Pacific / SPF 5 3 6/17/2014 8.24 10 NR 2Synnex / SNX 3 5 6/17/2014 70.44 77 B+ 5Twitter / TWTR 3 4 6/16/2014 38.04 43 NR NRUnited States Steel / X 2 3 6/16/2014 25.08 22 B- 2

Source: S&P Capital IQ. NR-Not ranked.

improved outlook primarily reflects higher than anticipated PC unit vol-ume during the quarter.

Some catalysts, according to Zino, are higher-than-expected orders in the more mature U.S./Europe markets and migration by corporations to Windows 7. While both the U.S. and Western Europe have been the primary culprits in the PC declines witnessed over the last three years, Zino believes these regions have the potential to experience growth in both 2014 and 2015, given the more favorable com-parables and maturing tablet market. While declining Asia/Pacific demand will be a problem for the PC market in 2014, given macroeconomic concerns and other factors, Zino expects the regions to do less damage thereafter.

Although the substitution of tablets for lower-end notebooks will remain a headwind on the consumer front

in the U.S./Europe, Zino thinks most individuals still prefer having access to at least one PC per household. As a result, he anticipates that purchases will continue but at a much slower pace. He believes the average PC will now be replaced every six years, where prior to 2012 the belief was that the average PC was being replaced every four and a half years or so. Given this, Zino thinks we are now at a point where consumers will start to put more capital on reinvesting in a PC.

Zino expects better data points, like that provided by Intel, to be a catalyst for PC related names over the next several quarters. Two names that he believes investors should look to buy amidst an improving PC landscape are Intel and Hewlett-Packard (HPQ 34.48 ).

On Intel, Zino expects that PC sta-bilization will drive higher sales and

earnings growth. He envisions that PC related sales will comprise nearly two-thirds of Intels total revenue base over the next 1218 months.

Zinos buy recommendation on Hewlett-Packard reflects his view of stabilization within its PC and printing markets, which he sees representing 45%-50% of sales over the next two years. He notes that Hewlett-Packard is highly exposed to the U.S. market, where it is the market share leader at about the high 20% range and where the rate of PC decline is expected to be less severe.

Either Intel or Hewlett-Packard is a top-10 holding in the funds listed in the table.

Beth PiskoraDirectorS&P Capital IQGMI Editorial

Summer Tech Investing (Continued from cover)

The ObservatorySelected actions for June 16 through June 20

Documents

6_23_2014