Finding the Next Apple

www.morganmarkets.com

North America Equity Research05 April 2012

Circle of Life15 "Apples" not far from AAPL in TMT

Portfolio Strategy

Thomas J Lee, CFA AC

(1-212) 622-6505

[email protected]

Daniel M McElligott

(1-212) 622-5598

[email protected]

Katherine C Khor

(1-212) 622-0934

[email protected]

J.P. Morgan Securities LLC

See page 73 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 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 decision.

Please join us for a conference call on Thursday, 4/5 at 12:00pm ET on “Finding the Next AAPL in TMT”. Joining us will be Mark Moskowitz, J.P. Morgan IT hardware analyst, Doug Anmuth, Internet analyst; Alexia Quadrani, Media analyst; and Paul Coster, Applied and Emerging Technologies analyst.. Dial-in details: 800-593-9988 (US); +1-312-470-7406 (outside US); Passcode: Strategy. Replay through 4/12: 888-566-0438 (US); +203-369-3047 (outside US); Passcode: 4512. Replay available approximately one hour after the call ends.

The S&P 500 has gained 12% YTD and reflects the favorable conditions at the start of the year (see “2012 to be year of ‘contrarian optimism’…” dated 1/6/12) given (i) a 60-yr high in equity risk premia; (ii) challenged active manager performance; and (iii) investors too defensive. The setup for 2Q is less favorable. After two back-to-back double-digit quarters, both investor positioning and economic momentum are at different reference points today (i) greater embracement of risk by investors; (ii) macro challenges are emerging such as China, European growth and gasoline. As a result, short-term risk/reward less asymmetrically favorable (particularly compared to the 1Q setup).

We still see more positives than negative and therefore remain overall constructive for FY2012 and see this year playing out similarly to 2009 (post-financial crisis period) (see Figure 1). History actually argues that market momentum tends to persist after two double-digit quarters—79% of the time, the following quarter is positive (Figure 2) with Energy leading (Figure 3) most instances. Cyclicals tend to be mixed, and as we noted last week, we want to avoid "smoke-stack" groups right now.

Active managers are having a decent start to 2012 (Figure 6). Worse than 2011 (18% are missing by 250bp vs. 14% at this time last year) but below the seasonal trend of 20% by March. Last year, the real tracking error took place after September 2011. Growth managers are doing particularly well, with 25% beating by 250bp and only 15% missing, or a net positive diffusion of 10%.

Let’s turn our attention to Apple (AAPL-OW). At 8% of the Russell 1000 Growth Index, the stock is simply exceeding ownership limits for many funds (Figure 7) and as a result, investors are asking where the next Apple is. Plus, other investors want to buy the next Apple to hold for the next few years. The company really hit its stride in the second half of its public history (Figure 10).

We compiled the quantitative and qualitative characteristics of AAPL (Figure 12 and Figure 13). Among them are: (i) products that inspire a following; (ii) reputational excellence; (iii) lifestyle products that focus on what one can do with their services/products; (iv) culture of success; and (v) prodigious growth offset by (vi) attractive valuations and (vii) ability to return capital.

Mark Moskowitz

(1-415) 315-6704

[email protected]

Sterling Auty, CFA

(1-212) 622-6389

[email protected]

Alexia S. Quadrani

(1-212) 622-1896

[email protected]

Tien-tsin Huang, CFA

(1-212) 622-6632

[email protected]

Philip Cusick, CFA

(1-212) 622-1444

[email protected]

John DiFucci

(1-212) 622-2341

[email protected]

Rod Hall, CFA

(1-415) 315-6713

[email protected]

Doug Anmuth

(1-212) 622-6571

[email protected]

Paul Coster, CFA

(1-212) 622-6425

[email protected]

Christopher Blansett

(1-415) 315-6708

[email protected]


https://mm.jpmorgan.com/PubServlet?action=open&doc=GPS-753536-0.pdf

2


Thomas J Lee, CFA(1-212) [email protected]

15 Stock Ideas: Our analysts identified 15 ideas that possess qualities similar to Apple within their addressable markets. Our 11 analysts identified 15 ideas based on a comprehensive comparison of qualitative (Figure 16) and quantitative characteristics (Figure 17) and their views are summarized in this report. These companies are different stages of their maturity (Figure 15). The tickers are: BRCM, VMW, NTAP, INTU, DIS, CMCSA, QCOM, ACN, QLIK, ANSS, TIBX, CREE, LNKD, AMZN, and TRMB.. J.P. Morgan Derivatives & Delta One Strategy has also created a basket for investors who would like to leverage the theme discussed in this report. The basket can be found on Bloomberg under ticker JPUSALTB Index. This basket should be considered separately from the basket we created in late February (JPUSAAPL), which focused purely on Technology stocks with a high price correlation to AAPL and did not take an in-depth fundamental approach like this week’s basket.

3



MARKET STRATEGY: 2Q altered risk/reward compared to 1Q…

1Q was about contrarian optimism....

The S&P 500 has gained 12% YTD and the strong performance speaks to the favorable conditions at the start of the year, which we viewed as the basis for “contrarian optimism” (see “2012 to be year of ‘contrarian optimism’…” dated 1/6/12) – then, we saw (i) a 60-yr high in equity risk premiums; (ii) challenged active manager performance; and (iii) investors too defensive. The setup for 2Q is less favorable.

But 2Q is starting with less favorable conditions…

After two back-to-back double-digit quarters, both investor positioning and economic momentum are at different reference points today. By several measures, we have seen greater embracement of risk by investors (but not at any pivot). As for economic &macro, some challenges are emerging at this time. The key takeaway is that we do not see the current growth scares as “thesis changers” or at extremes, but they do make the short-term risk/reward less asymmetrically favorable (particularly compared to the 1Q setup).

The first “growth scare” asserting itself is China and the potential for a hard landing. Adrian Mowat, JPM’s EM strategist, asserts “Forget the hard/soft landing debate” as he sees a plethora of data pointing to contraction from passenger vehicle sales (-1.6%), steel production (-3.5%), residential sales (-13.5%), power demand (down m/m) as signs of a contraction. But Policy makers do have room to maneuver and thus, more a growth scare.

The second short-term headwind is higher gasoline, which reached $3.92 recently, not far from the $3.985 high in 2011, whenwe saw weakness develop in consumer spending (granted, Japan quake, Europe, Arab spring were also dampers). If decade patterns hold, gasoline prices seasonally peak in April (most years) before declining so that this pressure will likely prove short term and fade by May/June.

Lastly, we attended an investor meeting with Terry Belton, head of JPM’s US fixed income strategy team, and one of our takeaways is that we will see an eventual rise in interest rates. The trigger is a move of the unemployment rate below 7%, leading to Fed tightening (Belton est. each 100bp of fed funds is 48bp on the 10yr). We looked at periods of rising rates since 1962, and the key takeaway is that Cyclicals outperform when rates begin to rise. Financials in the short term, surprisingly, do not perform well.


4



Plenty of positives and negatives in 2012…but more positives

Bulls and bears can cite a litany of arguments for their view. But in our recent meetings, it seems most investors generally view this as a cyclical bull market, primarily fueled by easy monetary policy. And that “relative” value is primarily viewed through the lens that bonds are “overpriced” but stocks are not necessarily cheap. But take a look below, we see more reasons to be bullish than bearish:

Figure 1: Plenty of positives and negatives…but we think investors are FIXATED on the negatives

Notable Positives Notable Negatives

1. US equities are in a secular bull market, in our view

2. US Labor market expanding and set to add 2.5-3.0mm jobs in

2012, leading to an acceleration of household formation.

3. US housing market is recovering and we expect starts to

increase in 2012.

4. Bank capital positions are healthy.

5. Equity risk premia is still near 60-year highs and corporate

profits are at all-time highs.

6. Global Central Banks are easing.

7. US corporates are sitting on a $3.7T mountain of cash and have

strong balance sheets and accelerating cash return in 2012.

8. Institutional investors are still underweight equities.

9. Both retail and institutional investor sentiment is still not

consistent with a secular bull market.

10. Credit markets remain healthy with strong demand and inflows.

11. Profit margins have not peaked and support further upside

revisions to earnings.

12. HY P/E is 14X vs. S&P 500 P/E of 12.7X--only second time in

history.

1. China visibility is limited and region represents 1/3 global

growth in 2012.

2. European sovereign markets while more stable than 2011 are

not demonstrating universal recovery.

3. US bank lending standards remain extremely high limiting

credit expansion in US mortgages

4. US electoral outcome is still unclear

5. Global policy rates remain at emergency levels

6. Sovereign debt levels are high and will be for many years

7. US faces fiscal cliff in 2013

8. Brent crude oil prices surpassed 2011 highs and are going to

deliver a notable drag to many large countries (US, China, etc).

9. Investors continue to pull money out of equities--$300b since

2007

Source: J.P. Morgan

5



…and history says 2Q should be positive (not explosive)

Two Consecutive Quarters of Double-Digit Gains on S&P 500

The S&P 500 has produced two consecutive quarters of double-digit gains (11%, 12% in 4Q/1Q). And the natural question is whether equities sustain such gains.

Take a look at Figure 2 below. Of the 14 prior instances of two consecutive double-digit quarters, 11 of the 13 saw further gains in the following quarter, or 79% of the time. Meaning, based on historical precedent, 2Q12 is likely positive.

In fact, this is also true in recent history. Take a look at 2009 and 2010 where after two consecutive double-digit quarters, the S&P 500 gained in the following quarter.

The takeaway is that the S&P 500 is likely to further build on its recent gains.

Figure 2: Two consecutive quarters of double-digit gains suggest strong likelihood of further gains in 2Q12

Instances of S&P 500 being up > 10% for two consecutive quarters

Source: J.P. Morgan and Bloomberg

+6Q -3%

+5Q -14% 7%

+4Q 5% -29% 4%

+3Q -6% 1% 10% -1% 6% -3% -12%

+2Q -4% 9% 5% 7% 11% -2% 12% 5% -8% 5% 0%

+1Q -3% -5% 14% 29% 4% 5% 16% 7% 2% 0% -12% 5% 5% 5%

0Q 16% 23% 22% 15% 10% 15% 13% 19% 11% 10% 14% 13% 15% 10% 12%

-1Q 12% 13% 17% 11% 14% 10% 21% 10% 11% 11% 22% 16% 15% 11% 11%

1897 1898 1904 1914 1921 1928 1935 1942 1954 1958 1974 1985 2009 2010 Current

negativenegative

negative

2 consecutive double-digit quarters…

6



Post 2 double-digit quarters, Energy outperforms, other Sectors are a coin-toss

But what to own today? One place to start is to look at history, in particular, the instances in the past 40-years where we saw consecutive double-digit quarters (Figure 3).

There is no pronounced pattern (i.e., laggards to leaders, leaders stay leaders, etc);

But Energy is the most consistent group. And like ’75, ’86, and ’09, it has been a notable laggard in past 2 quarters.

Figure 3: Sector Perf in instances of S&P 500 being up > 10% for two consecutive quarters

Sector Perf in instances of S&P 500 being up > 10% for two consecutive quarters

Source: J.P. Morgan, Bloomberg, and Datastream

1975 1986 2009 2010 Current

During 2

Double-

Digit Qtrs

Following

Qtr

During 2

Double-

Digit Qtrs

Following

Qtr

During 2

Double-

Digit Qtrs

Following

Qtr

During 2

Double-

Digit Qtrs

Following

Qtr

During 2

Double-

Digit Qtrs

Following

Qtr

S&P 500 Abs Perf 39% -12% 31% 5% 32% 5% 22% 5% 24% ??

Cyclicals

Materials 17% -1% 11% -5% 17% 4% 26% -1% 1% ??

Industrials 14% -3% 3% -6% 10% 0% 5% 3% 5% ??

Discretionary 20% 0% 14% 2% -2% 2% 6% -3% 2% ??

Technology -3% -1% -7% -9% 7% 6% 2% -2% 7% ??

Near-Cyclicals

Energy -6% 4% -37% 0% -9% -1% 12% 10% -2% ??

Financials -3% -9% 19% -4% 21% -8% -7% -3% 7% ??

Defensives

Staples -1% -2% 8% 12% -9% -1% -6% -2% -10% ??

HealthCare -9% -6% 11% 11% -14% 3% -10% 0% -5% ??

Telecom -22% 2% -3% 6% -24% 0% 5% -2% -16% ??

Utilities -4% 2% -1% -4% -16% 0% -10% -3% -19% ??

Cyclicals 12% -1% 5% -4% 8% 3% 10% -1% 4% ??

Near-Cyclicals -5% -3% -9% -2% 6% -4% 3% 4% 3% ??

Defensives -9% -1% 4% 6% -16% 0% -5% -2% -13% ??

Buy Energy

Buy Defensives

Buy Cyclicals

Buy Energy

Cyclicals do badly…

7



And active managers are having an “average” year

2012 has actually been a better year for active managers, particularly compared to 2011. As of 3/31, about 20% of large-cap managers are missing their benchmark by 250bp, while 17% are ahead by a similar amount. This is a decent performance and means that while there are fewer managers slightly behind, their plurality is small. And thus, the pressure to chase is small.

Looking at “Growth” managers, specifically. This tells a story of managers ahead of their benchmarks. See below that 25% of Russell 1000 Growth funds are ahead (vs. 15% behind) and 19% of Russell 2000 Growth funds are ahead (vs. 13% behind). Again, less pressure for growth managers to chase.

The opposite is true for Russell 1000 value managers. There we can see that significantly more are trailing.

Figure 4: YTD Active manager summary performance

Performance of mutual funds relative to their respective benchmarks


Relative Performance (2012 YTD)

Missing Beating

Benchmark

# of

Funds

AUM

($b)

%

Missing

by at least

500bp

%

Missing

by at least

250bp

% Beating

by at least

250bp

% Beating

by at least

500bpLarge CapRussell 1000 491 $1,168 7% 20% 11% 4%Russell 1000 Growth 432 $861 6% 15% 25% 9%Russell 1000 Value 316 $643 8% 26% 16% 3%Large Cap Total 1,239 $2,672 7% 20% 17% 6%

Small & Mid CapRussell Midcap Growth 215 $196 6% 19% 15% 4%Russell 2000 199 $191 5% 13% 16% 7%Russell 2000 Growth 196 $121 3% 13% 19% 7%Russell Midcap Value 110 $118 5% 13% 15% 5%Russell 2000 Value 101 $85 4% 15% 18% 8%Russell 3000 11 $14 9% 18% 64% 55%Small & Mid Cap Total 832 $724 5% 15% 17% 7%

MSCI / Other 682 $608 11% 20% 43% 29%

All Funds 2,753 $4,004 7% 18% 24% 12%

Growth managers are doing better in 2012…

Value doing poorly…

8



2012 is starting off on a better note than 2011….

We have compared the performance of Russell 1000 managers against seasonal trends (tracking those trailing by 250bp). A couple of things stand out:

First, 2012 is tracking in line with historical patterns as 18% are trailing, compared to 20% on average.

2012 is very similar to 2011, with perhaps only slightly a greater number of managers behind.

Notice in 2011, that the massive slippage really took place between October 2011 and YE11—at that time, every investor got too defensive.

Figure 5: 2011 month-by-month comparison (2011 vs. historical avg)

% missing by 250b


Figure 6: 2012 month-by-month comparison (2012 vs. historical avg)

% missing by 250b


7

14 1418

22 2225

47

37 40

42

48

0

5

10

15

20

25

30

35

40

45

50

Jan Feb Mar Apr May June Jul Aug Sep Oct Nov Dec

2011 Historical Avg

7

13

18

0

5

10

15

20

25

30

35

40

Jan Feb Mar Apr May June Jul Aug Sep Oct Nov Dec

2012 Historical Avg

Similar to 2011…slightly worse…

Problems after Oct ‘11

9



SECTOR STRATEGY: does the apple fall far from the Apple?

For many active manages, they have an Apple problem, even if they own the stock. With the stock up 48% YTD, on the heels of a 3-yr cumulative gain of 474%, Apple is not only the largest stock in the world, it represents a very large share of many indexes. Take a look at Figure 7 below.

Apple is 4.5% of the S&P 500, but it is even larger share of these other indices. Why does it matter?

It is 18% of the Nasdaq 100 and more pertinently, it is 8% of the Russell 1000 Growth benchmark (see Figure 7). Many funds have individual stock constraints of 5%--meaning an individual stock can only be 5% of the portfolio, due to concentration concerns. Even if the weight in the benchmark is larger.

In other words, to own track Apple for a Russell 1000 Growth manager means to basically exceed concentration requirements.

As a consequence, for those who own Apple. They probably do not own enough of it and thus, need to find other Apples to own.

Figure 7: Market weighting of Apple in various indices

% total

Source: J.P. Morgan.

4.5% 4.0%

7.9%

18.2%

11.7%

0.0%2.0%4.0%6.0%8.0%

10.0%12.0%14.0%16.0%18.0%20.0%

S&P 500 Russell 1000 Russell 1000 Growth

Nasdaq 100 Nasdaq Composite

10



Apple’s financial market dominance is a misperception

Maybe too much Ado about AAPL….There are bigger “Apples” in Europe and Asia

The S&P 500 is more diversified than other global indices on both market cap weighting and volume weighting.

Based on market cap weighting, the top stock in the S&P 500 (AAPL) is only 4% of the index, well below the weightings of top stocks in other indices, such as Nestle in the SMI index or ENI SpA in the FTSEMIB index (see Figure 8).

From a volume perspective, the top 10 stocks in the S&P 500 are also a much smaller impact than in other global indices. The top 10 stocks in the S&P 500 represent only 18% of trading volume (based on avg over past 6 months), well below the 40-80% of volume that the top 10 stocks represent in other indices.

Figure 8: Weighting of Largest Stock in Index by Market Cap

Weighting of Largest Stock in Index by Market Cap

Source: J.P. Morgan and Bloomberg.

Figure 9: Weighting of Largest 10 Stocks in Index by Volume

Weighting of Largest 10 Stocks in Index by Volume

Source: J.P. Morgan and Bloomberg.

25%

21%

16% 15%14%

11% 10%9%

7% 6% 6%4%

SM

I (S

witz

erla

nd)

FT

SE

MIB

(Ita

ly)

KO

SP

I (K

orea

)

Han

g S

eng

(Hon

g K

ong)

CA

C (F

ranc

e)

BO

VE

SP

A (B

razi

l)

Sha

ngha

i (C

hina

)

DA

X (G

erm

any)

Nik

kei 2

25 (J

apan

)

FT

SE

100

(UK

)

Eur

o S

toxx

50

(Eur

ope)

S&

P 5

00 (U

S)

Nestle

ENI SpA

Samsung

HSBC

Vale

PetroChina

Siemens

Fast Retailing

Total SA

Apple

Total SA HSBC

83%

76%

64%

55% 54%50%

41%36%

29%

21% 20%

11%

SM

I (S

witz

erla

nd)

FT

SE

MIB

(Ita

ly)

DA

X (G

erm

any)

BO

VE

SP

A

(Bra

zil)

Han

g S

eng

(Hon

g K

ong)

CA

C (F

ranc

e)

Eur

o S

toxx

50

(Eur

ope)

FT

SE

100

(UK

)

KO

SP

I (K

orea

)

Nik

kei 2

25

(Jap

an)

S&

P 5

00 (U

S)

Sha

ngha

i (C

hina

)

AAPL much smaller than other indices

AAPL much smaller than other indices

11



Apple price performance history shows transformation of company

The Apple story of the past few years belies a transformation of the company in the past decade (Moskowitz has written extensively about this). But this change is apparent in price history of Apple (Figure 10) below. Apple went through several phases in its public trading history:

The last decade has seen remarkable consistency reflecting the transformation, product cycles, secular growth, and supply chain initiatives of Apple;

The earliest stages of Apple were much rockier--note that in the first decade and a half of its public trading history, the stock had more down years than up years.

And as shown on Figure 11, its price appreciation CAGR since its IPO at 19% is not substantially higher than the S&P 500 overall.

Figure 10: Annual price performance of Apple (relative to S&P 500)Annual change since IPO. % performance relative to S&P 500


Figure 11: AAPL and S&P 500 CAGRAAPL and S&P 500 price perf CAGR

Source: J.P. Morgan, Bloomberg, and Datastream

-25%

20%

-36%

18%

-51%

69%

105%

-17%

-40%

29%

5% 1%

-58%

34%

-52%-55%-68%

185%

132%

-61%

60%

-11%

23%

192%

120%

4%

130%

-18%

123%

40%26%

43%LT Avg27%

$1

$10

$100

$1,000

-85%

-35%

15%

65%

115%

165%

1/80

1/81

1/82

1/83

1/84

1/85

1/86

1/87

1/88

1/89

1/90

1/91

1/92

1/93

1/94

1/95

1/96

1/97

1/98

1/99

1/00

1/01

1/02

1/03

1/04

1/05

1/06

1/07

1/08

1/09

1/10

1/11

1/12

AA

PL

pri

ce (l

og s

cale

)

AA

PL

Yo

Y R

el P

rice

Per

f

AAPL Rel Price Perf LT Avg AAPL price

8%2%

0%

21%19%

48% 45%

79%

-5%

5%

15%

25%

35%

45%

55%

65%

75%

85%

Since IPO 10yr 5yr 3yr

Pri

ce P

erf C

AG

R

S&P 500 CAGR AAPL CAGR

Post-IPO Controversial period (Sculley, transition)8 of 15 yrs DOWN years..

iMac, iPod , iPhone transformation…

Jobs returns as CEO

Notable performance gap…

12



Apple: Qualitative Differentiators

Qualitative differentiators…

There are many ways to identify what distinguishes Apple qualitatively. In fact, this has been well documented. We came across some commentary of a Ted Talk by Simon Sinek and found his extractions of what makes Apple unique very illustrative. We have summarized those 4 characteristics below:

Figure 12: Qualitative differentiators of Apple

Based on comments from a Ted Talk with Simon Sinek

Customer loyalty: Products/services that inspire a following.

Reputational excellence: Products are dependable. And meet customer expectations fully and beyond.

Lifestyle products: Company always talks about challenging the status quo. Think differently. Does not make grand forecasts. They focus on what customers can do with the products. Not how they will “take over the world”

Culture of success: The golden circle of why, how, when. Motivating and growing employee

Supply chain management: This is not something other companies can replicate, but Moskowitz has extensively written about Apple's investment in the supply chain.


Applying these to find the next Apple

We used the above as a qualitative template to identify the next Apples (talking to our analysts). Their ideas are summarized on Figure 14 to Figure 16. And those names reflect a combination of qualitative and quantitative characteristics.

13



Apple: Quantitative Differentiators

The quantitative summary of Apple is below.

The obvious characteristic that stands out is Apple’s prodigious growth rates for both top line and earnings. Apple’s revenues have growth at 57% CAGR since 2010 and at 6X that of the Technology sector.

The company’s P/E and P/E to growth rate are well below that of the S&P 500 and Technology sector overall. In other words, the stock does not fully reflect its impressive growth rates.

The company remains institutionally underowned. Only 73% of the shares are held by institutions compared to 88% for the S&P 500 overall and 85% for Technology.

Finally, R&D surprisingly is not that high. This likely reflects the work Apple did on working with its supply chain partners, resulting in investment in that channel of production as a substitute for R&D. Or put another way, Apple is not as much of a"tech" company as its R&D belies.

Figure 13: Quantitative differentiators of Apple

Source: J.P. Morgan and FactSet.

AAPL Tech

S&P500

ex-Fins Comments

Growth Revenue Growth CAGR ('10-'12E) 57% 10% 9% 6X that of Technology

Earnings Growth CAGR ('10-'12E) 72% 13% 9% Margin expansion delivers leverage

Investment R&D Spend as a % of Sales 2% 13% 6% Less on R&D, focus on products

Valuation 2013 P/E (Current) 10.4x 12.3x 11.8x Low P/E

PEG (2012 P/E vs 2013 Growth) 0.8x 1.1x 1.2x Discount to growth

Cash as a % of Assets ('10-'11) 31% 31% 14% Conservative

Cash as a % of Market Cap ('10-'11) 9% 20% 12% Due to price rise

Ownership Current Institutional Ownership 73% 88% 85% Low ownership by institutions

14



Stock Strategy: 15 Next Apples

We have compiled a list of 15 ideas for companies that our analysts view as having secular growth opportunities, a strong market position, and attractive valuation, which make these equities attractive to own as the potential next "Apple." As we show on the next page, these companies are at various stages of maturity (see Figure 15).

Figure 14 is a summary of the major characteristics of each company (the darker circle is better) both on qualitative and quantitative metrics. We have ranked them based on the overall score. But we emphasize the entire list is attractive.

15



Figure 14: Summary information of Next Apples

Qualitative and Quantitative metrics summary

Source: J.P. Morgan and FactSet

16



The stocks are arguably Apple at different stages

We placed the various ideas on the Apple “scale” (really the price chart) based on comparative size of the company and its growth prospects. This provides some context for where the idea sits on the spectrum.

We are placing companies “roughly” in a quadrant based on their size and overall market they are addressing. And we are hardly forecasting that their pathway would match Apple.

Figure 15: At what stage is this company? Value shown is $ revs in billions

Apple stock price since IPO. Log scale

Source: J.P. Morgan and FactSet

$1

$10

$100

$1,000

'80 '81 '82 '83 '84 '85 '86 '87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11

AAPL price

Early Apple Middle Apple Modern Apple

CMCSA $55.8b

AMZN$48.1b

DIS$40.9b

ACN$29.3B

QCOM$15.9B

BRCM$7.4B

NTAP$6.0B

INTU$4.1B

TRMB$1.6B

CREE$1.0B

ANSS$0.7B

LNKD$0.5BQLIK

$0.3B

VMW$3.8B

TIBX$1.0B

17



Comparative summary of the Next Apples

Qualitative Comparative Summary

Below is the qualitative summary of Apple based on the metrics that we discussed in earlier. Each analyst ranked their company based on their assessment of each characteristic.

Figure 16: QUALITATIVE Grid: the next Apples


18



Quantitative Comparative Summary

Below is the quantitative summary of Apple based on the metrics that we discussed in earlier. Each company was force ranked based on the attractiveness of that particular metric.

Figure 17: QUANTITATIVE Grid: the next Apples


19



NetApp — NTAP — Mark Moskowitz

In IT Hardware, we highlight NetApp as another company developing its own unique legion of loyal customers and partners. The company continues to optimize enterprise storage environments in an elegant approach, one built upon a software-driven architecture. NetApp offers a singular operating system with a common dashboard of storage systems management features, which earn high marks from customers we speak to in the field. Overall, NetApp’s approach has resulted in a cleaner fit for its storage systems in server virtualization environments running on VMware. We believe that this dynamic has been an important reason behind NetApp’s major market share gains over the past three years, and it is similar to the common user interface attribute that has elevated Apple in mobile devices.

Figure 19: Price Performance — NTAP

Trailing 1yr


Figure 20: Qualitative and Quantitative Summary — NTAP

Full moon indicates more like AAPL; Empty moon indicates less like AAPL


Back to NetApp, the storage competition currently offers disparate, less user-friendly system architectures. More recently, competitors such as EMC and Hewlett-Packard have been working to replicate the NetApp model of storage simplicity, i.e., a

Figure 18: Coverage List


Ticker Rating Ticker Rating

AAPL OW LXK UW

ARX N NTAP OW

BRCD UW ORBK N

DELL OW QLGC UW

ELX UW STEC UW

EMC OW STX N

FIO N WDC N

HPQ UW XRX UW

IBM OW

20



common architecture across all price bands and workloads. We think it will take time, though, allowing NetApp to continue building out its legion of loyal customers over the next few years. Our conversations with NetApp’s storage partners and customers consistently indicate that the NetApp solutions are user-friendly and easy to manage. These differentiating attributes have helped NetApp overcome its higher-pricing structure for low-end and midrange systems versus competitive offerings, in our view. We point out that this relative premium in storage is similar to the premium price attached to Apple’s mobile devices. Despite the premium, customers continue to buy NetApp solutions, as there is less cost overage post-deployment.

NetApp has had its fair share of growing pains recently. In the past 12 months, execution has been choppy, due in part to the company’s increased exposure to more demanding enterprise customers. Historically, NetApp shipped standard storage configurations into the channel, requiring less post-sale customization. In contrast, more demanding enterprise customers require both initial deployment and post-deployment customization support, which we think has been causing some fulfillment issues at NetApp. Meanwhile, the company has struggled with keeping its product cycle refreshes on schedule and also monetizing prior acquisitions. Its 2003 acquisition of Spinnaker still has not ushered in a complete scale-out NAS clustering solution.

Despite these challenges, we believe that NetApp possesses the technology and market position to continue achieving above-peer revenue and earnings growth over the next five years. Below, we present an overview of how NetApp scores on certain attributes (relative to its peers) that have been attached to leading companies, such as Apple.

(Best = 1, Worst = 5) (i) Customer loyalty (Score = 1): NetApp’s easy-to-use software architecture has built a loyal following of customers over

the past five years. The company’s software-driven systems are easier to scale and manage relative to the competition, based on our conversations with partners and customers in the field.

(ii) Reputational excellence (Score = 1): Despite some recent hiccups in product fulfillment, NetApp’s solutions continue to be regarded as the leading solution to support server virtualization environments. This attribute is important, as our recent CIO survey results indicate that server virtualization cycle has plenty of legs left.

(iii) Lifestyle products (Score = NA): NetApp sells only to the enterprise, not the consumer.

(iv) Culture of success (Score = 2): Employees and the channel love to work at NetApp. First, the company culture prides itself on being a Silicon Valley start-up that can compete with anyone. The company’s practice of rewarding stock options to executives and rank-and-file also helps. NetApp also consistently ranks highly in lists of “best places to work” surveys. Lastly, the channel partners enjoy working with NetApp, as the company is more willing share the margin-rich post sale of services and support.

(v) Potential to accelerate cash return to shareholders (Score = 3): On this topic, NetApp does not score as well. In our view, NetApp may have to use cash for acquisitions to fend off deeper pocketed EMC and Oracle over time in the data center. NetApp does possess a strong cash flow profile.

21



Amazon — AMZN —Doug Anmuth

(Best = 1, Worst = 5) (i) Customer loyalty (Score = 1): Over the last 10+ years Amazon has done something we once thought was impossible

online—win customer loyalty. The company’s focus on price, selection, and convenience has enabled it to cut through a very crowded physical retail and ecommerce space to earn repeat customers. Amazon is driven by strong fulfillment capabilities and an easy to navigate front-end site, and the Amazon Prime membership program encourages repeat purchasing. Amazon has also virtually created the eReader and eBook market with the Kindle.

(ii) Reputational excellence (Score = 2): Amazon has a strong reputation around shipping and fulfillment. Free Super Saver Shipping and Prime have helped Amazon differentiate versus other retailers. The company’s 3rd-party business featuring vetted and reliable sellers also accounts for ~35% of units. Amazon is also increasingly shifting this business into its own warehouses through Fulfillment by Amazon.

Figure 22: Price Performance — AMZN

Trailing 1yr


Figure 23: Qualitative and Quantitative Summary — AMZN




Source: J.P. Morgan


AMZN OW P OW

AWAY OW PCLN OW

EBAY N QNST N

EXPE UW RATE N

GOOG OW RLOC OW

GRPN N TRIP N

LNKD OW YHOO N

NFLX N ZNGA N

22



(iii) Lifestyle products (Score = 3): Amazon management runs the business on a very long –term timeframe and is not afraid to make near-term investments to drive long-term share gains. Amazon has challenged the status quo by pioneering online commerce, shifting from books/media to other general merchandise, launching the Kindle eReader and eBooks, and launching AWS, Amazon’s cloud services.

(iv) Culture of success (Score = 4): Amazon employees think and operate the business for the long-term. The business is run in a very lean way. Management’s focus is on long-term share gains and FCF generation.

(v) Potential to accelerate cash return to shareholders (Score = 5): Potential is there with an estimated $8B of cash on the BS at the end of 1Q12, but we would not expect major capital returns. Amazon strategically buys shares, but I would not expect a dividend or bigger return given the competitive nature of the space and Amazon’s desire to continuously innovate to gain share.

23



LinkedIn — LNKD — Doug Anmuth

(Best = 1, Worst = 5) (i) Customer loyalty (Score = 2): Strong user base among corporate enterprises and consumer users. More than 9200

enterprises and 100M+ users. LinkedIn has strong network effects driven by social dynamics and Internet trends. LNKD has established itself as the leading career network.

(ii) Reputational excellence (Score = 1): Strong reputation with corporate customers who place high value on LinkedIn's broad network and deep information. High ROI for enterprises.

(iii) Lifestyle products (Score = 4): Not lifestyle products, but challenging the status quo by disrupting the traditional job placement and recruitment market. Conservatively run and investing for the long-term.

(iv) Culture of success (Score = 3): Strong management team with leadership and vision in the Internet space.

(v) Potential to accelerate cash return to shareholders (Score 5): Unlikely given early stage nature of company and significant growth opportunity ahead.

Figure 24: Price Performance — LNKD

Trailing 1yr


Figure 25: Qualitative and Quantitative Summary — LNKD



24



Disney — DIS — Alexia Quadrani

These grades are relative to Disney’s peers (TWX, VIAB, CBS, etc): (Best = 1, Worst = 5) (i) Customer loyalty (Score = 1): Theme parks (Walt Disney World and others around the world, Disneyland Shanghai in

development), movies/characters (animated classics, Pixar), ESPN.

(ii) Reputational excellence (Score = 1): All three areas mentioned above are unrivaled

(iii) Lifestyle products (Score = 2): Not so much challenging the status quo, but clear leadership that has been maintained.

(iv) Culture of success (Score = 2): High level of creativity instilled in the business (Parks developers are known as Imagineers), Pixar is leader in animation, ESPN holds an ongoing dominance and is the highest valued cable network by far.

(v) Potential to accelerate cash return to shareholders (Score = 2): Company is working through a peak capex year in F2012 (Sep YE) due to several major Parks attractions opening, after which capex should come down meaningfully to allow accelerated return of cash to shareholder, mostly through buybacks.

Figure 27: Price Performance — DIS

Trailing 1yr


Figure 28: Qualitative and Quantitative Summary — DIS




Source: J.P. Morgan


DIS OW OMC OW

DISCA N SNI N

GCI N SSP OW

HHS N TWX OW

IPG OW VCI OW

MNI N VIAb OW

NYT N WPP.L N

25



Comcast — CMCSA— Phil Cusick

(Best = 1, Worst = 5) (i) Customer loyalty (Score = 2): Comcast has 22m video subscribers of which almost 11m take advanced services (such as

HD or DVR service) and the company has 18m high speed internet subscribers, which is quickly becoming a necessity in the modern home. Comcast also owns 51% of NBCUniversal which has premium cable network, broadcast, film and theme park properties with a loyal following.

(ii) Reputational excellence (Score = 3): The company has an excellent service record and is continuously trying to improve its product and service offerings to its customers.

(iii) Lifestyle products (Score =3): Comcast has been innovative it trying to extend delivering entertainment services through various platforms and integrating its offerings into the everyday life of the consumer. The company’s Streampix offering could have a substantial impact on how subscribers consume media.

Figure 30: Price Performance — CMCSA

Trailing 1yr


Figure 31: Qualitative and Quantitative Summary — CMCSA




Source: J.P. Morgan


AMT OW NTLS OW

CCI N PCS OW

CHTR OW S N

CLWR N SBAC

CMCSA OW T N

CTL OW TDS N

CVC UW TWC N

DISH N USM UW

DTV OW VZ N

FTR N WIN N

LEAP OW

26



(iv) Culture of success (Score = 2): Comcast continues to lead the cable and media space with its aggressive culture and leadership.

(v) Potential to accelerate cash return to shareholders (Score = 1): We expect the company to repurchase $3.0b in stock in 2012 and issue dividends of $1.7b for a combined cash return to shareholders of $3.7bn in 2012, up 42% y/y. We could see upside if the cable business performs better than expected.

27



Trimble — TRMB— Paul Coster

Searching for the Next Apple….

In Applied & Emerging Technologies, we highlight Trimble as a company developing some Apple-like characteristics, not least the potential for this electronic equipment company to post growth for many years to come.

Trimble designs, manufactures and sells equipment that is used in engineering and construction, field agriculture, asset management and tracking, mining and exploration. The company is often equated with the GPS industry, however in recent years, a slew of hardware, software and service acquisitions re-positions the company as a full life-cycle IT-based solutions provider for the industry verticals that the company services. Trimble’s vision is to achieve the connected construction site, the connected farm, the connected mobile enterprise.. As an analogy, Trimble is beginning to do for engineering, mining, construction, and agriculture, what SAP and Oracle did for the manufacturing industry with increasingly broad-scope ERP systems in the 1990s. We think this is a powerful value proposition.

Figure 33: Price Performance — TRMB

Trailing 1yr


Figure 34: Qualitative and Quantitative Summary — TRMB



Figure 32: Coverage List (part 1)

Source: J.P. Morgan


ACTG OW ELON N

AVID OW ELT OW

COMV ENOC N

CSTR N ESE N

CUB N FLIR UW

DBD N FN OW

DGI OW GEOY N

DLB OW GRMN UW

DTSI N IRBT UW

28



Consider the Tekla acquisition, one of dozens of acquisitions that Trimble has made in the last few years. Tekla develops software products for use by architecture, engineering, construction, government and utilities customers, to design and construct large concrete and steel infrastructure projects and buildings, to manage workflow, assets, contractors and staff during the project and to commission the building or infrastructure for use. Combining this Tekla software with Trimble’s traditional GPS-based equipment used for precision control of machinery, or to manage the supply of concrete and other supplies to the project, in real-time, provides a holistic efficiency-oriented solution for industries that have typically been slow to adopt information technology. The company claims that its technology can improve efficiency by 30%, reduce fuel use and emissions by 30%.

At the 2011 JPMorgan TMT conference, Trimble’s CEO, Steve Berglund, suggested that Trimble’s growth could endure for decades to come. Though we expect nothing less than supreme self-confidence from the typical CEO, we feel he makes a good case for Trimble to follow an Apple-like trajectory owing to the magnitude of the problems that the firm is trying to solve; megatrends relating to infrastructure, affluence and technology. In short, we live in an increasingly urbanized, over-populated, resource-constrained world, characterized by housing shortages, escalating energy consumption, transportation congestion, and episodic food crises. Trimble’s solutions address many of these challenges by improving the speed with which infrastructureprojects are executed, improving the yield from farmland, and optimizing asset utilization. We expect the company to continuously expand the scope of its solutions (e.g. new sensor technologies, 3D modeling, SaaS), principally through acquisition.

(Best = 1, Worst = 5) (i) Customer Loyalty (Score = 2). Trimble’s technology is an industry-standard in engineering and construction, surveying,

and in agricultural field solutions. Trimble Dimensions, the firm’s international user conference, is now in its 6th year; last year it attracted nearly 3000 participants from more than 60 countries. The firm was founded over 30 years ago and has offices in 21 countries.

(ii) Reputational excellence (Score = 2). One measure of the firm’s reputation is the fact that it has entered into two JVs with Caterpillar, one of which utilizes the Caterpillar dealer network to distribute Trimble product. In 2011 Trimble was awarded a Blanket Purchase Agreement (BPA) by the Federal GSA, meaning fleet management services can be provided to 75 US federal agencies. Two Chinese government agencies have formed JVs with Trimble: CASIC-IT and CREEC. Hilti Group entered into a JV with Trimble in 2010.

(iii) Lifestyle products (Score = 4). We will abuse this category by using it as an excuse to reflect upon the role that Trimble’s products play in the building of roads, railways, airports, buildings, in the extraction and transport of energy, in improving crop yields, and in optimizing the allocation and movement of mobile workers and equipment.

(iv) Culture of success (Score = 2). Trimble has grown at a 15% CAGR since 2000, and experienced only one significant down year (-15% in 2009). The company is very focused on operating margins, with the CEO expressing the intention of achieving 15% operating margins, even during down-cycles. Trimble’s corporate culture embraces frugality; there are many paths to success. Looking forward the company aspires to 15-17% CAGR revenue growth, and over 20% operating margins in the next 5 years.

Figure 35: Coverage List (part 2)

Source: J.P. Morgan


ITRI OW SYNA N

LOGI UW TASR N

NCR OW TNAV N

NICE OW TRMB OW

OVTI N TSYS N

PLT N TTMI N

RLD OW VRNT OW

RMBS N ZBRA OW

RPXC OW ZIP OW

29



(v) Potential to accelerate cash return to shareholders (Score = 5). But not now. Trimble exited 2011 with record EBITDA margins of over 25%, and the firm generated $240 million of cash flow from operations (normalized free cash flow of just over $200 million). Trimble is however firmly committee to growth at this point in the firm’s history, and investors should expect at least 5% of y/y growth to originate in acquisitions. In this context, Trimble exited 2011 with net debt of $410 million. The company does execute share buy-backs but these have typically done little for the stock. We don’t expect significant cash to be returned to investors in the next 5 years.

30



Qualcomm — QCOM— Rod Hall

I would say that there is a huge amount of growth still go in smartphones and QCOM is very well tied to that.(Best = 1, Worst = 5) (i) Customer Loyalty (Score = 5). Loyalty doesn't matter much for the royalty business where they make 2/3 of their

earnings.

(ii) Reputational excellence (Score = 1). Very solid product reputation on chips, again doesn't matter for royalties

(iii) Lifestyle products (Score = 4).

(iv) Culture of success (Score = 2).

(v) Potential to accelerate cash return to shareholders (Score = 2). It spins off plenty of cash but thy still think of themselves as a growth company. Returns probably depend on intl cash repatriation.

Figure 37: Price Performance — QCOM

Trailing 1yr


Figure 38: Qualitative and Quantitative Summary — QCOM




Source: J.P. Morgan


APKT N MITL N

CIEN N MMI N

CSCO OW QCOM OW

FFIV N RIMM N

GLW UW RVBD OW

INFN N TLAB UW

JNPR N

31



Accenture — ACN — Tien-Tsin Huang

(Best = 1, Worst = 5)

(i) Customer loyalty (Score = 1): ACN has strong relationship with its customers; the company wins a lot of contracts on sole-sourced basis (competitors are not even invited to bid). Many clients identify ACN as a partner, instead of as a vendor. More than 100 clients contribute $100M+ in annual revenue for the company.

(ii) Reputational excellence (Score = 2): The company’s one of the most diversified IT services firms offering a full suite of IT services including consulting, systems integration and outsourcing. The company also has a global delivery network of more than 160k spread across the world at various low cost locations. The biggest advantage to clients is the tight integration of various services and delivery locations.

(iii) Lifestyle products (Score = 3): Although not as much applicable given the nature of the business, ACN is nimble and early to identify the changing industry trends and offer solutions/services that their clients demand. The company built and expanded its offshore delivery network organically and has more employees at low cost locations than most offshore firms.

Figure 40: Price Performance — ACN

Trailing 1yr


Figure 41: Qualitative and Quantitative Summary — ACN




Source: J.P. Morgan


ACN OW GPN OW

ADP N HPY N

BR OW MA OW

CSC UW MGI N

CTSH OW PAY OW

EXLS OW PAYX UW

FIS N V OW

FISV N WNS UW

FLT OW WU OW

G OW WXS N

GDOT OW

32



(iv) Culture of success (Score = 1): The company focuses a lot on preserving its culture- First, ACN does not pursue any large acquisitions which might dilute its culture. ACN roots as a pure play consulting company with partnership model resulted in an army of senior partners that own a lot of stake in the company. ACN spends a lot in training its employee- spent $800M in FY11. The company pays a mix of variable and fixed compensation to motivate its employees.

(v) Potential to accelerate cash return to shareholders (Score = 1): The company has more than $5.5B in cash and no debt (net cash is 12% of market cap). Since they do not do large acquisitions and have no debt, ACN is focused on returning cash to shareholders. The company intends to return $3B in dividends and buybacks this year (7% of market cap) including 2% in dividends. ACN’s dividend per share has increased by 220% over the last three years.

33



Broadcom — BRCM— Harlan Sur


(i) Customer loyalty (Score = 1): Broadcom is the number one supplier in enteprise networking, broadband, and mobile connectivity semiconductors. Their leadership in digital signal processing, mixed signal/ feature/functionality integration, and best-in-class performance has driven their success in the markets in which they compete. Their tier-1 customer base (Apple, Cisco, and Samsung for example) is a reflection of their success. Apple, for example, uses Broadcom silicon in every product they sell (iPad, iPhone, macbook air, etc) and is a reflection of the loyalty and long-standing relationship that Broadcom has fostered over the past decade with Apple.

(ii) Reputational excellence (Score = 1): Similar to (i), their market segment leadership and tier-1 customer base which includes some of the most demanding customers (Apple and Samsung) is a reflection of Broadcom’s ability to execute, its customer service/support, and its ability to provide customers with a set of products that fits their requirements now AND, more importantly, for future generations of customer platforms.

Figure 43: Price Performance — BRCM

Trailing 1yr


Figure 44: Qualitative and Quantitative Summary — BRCM




Source: J.P. Morgan


BRCM OW MRVL OW

CAVM OW MU N

ENTR N NVDA N

FSL OW NXPI N

IMI OW PMCS N

LSI N SNDK N

MLNX N

34



(iii) Lifestyle products (Score = 1): The company’s leadership in mobile connectivity through an integrated solution (WiFi, Bluetooth, FM, GPS) was challenged several years back by competitors who were selling discrete solutions. The market thought is would be technically difficult and too cost prohibitive for Broadcom to be successful with an integrated solution. Fast forward to today where Broadcom is now the number one supplier of mobile connectivity solutions to the smartphone and tablet markets (70%+ market share) and biggest differentiator is their integrated solution where they have a three generationlead over their nearest competitors. Today, Broadcom’s platform approach (supplying as much of the silicon and software) is a key competitive differentiator and many successful semiconductor companies (like Qualcomm), have adopted a similar approach.

(iv) Culture of success (Score =1): Broadcom is based on a culture of A) engineering excellence and B) operational, strategic, and technical execution. Tthe company has a very different product development model (central engineering team with each of the business units pulling shared resources from the central team) which has driven fast-time-to-market versus competitors. The company also has a solid development infrastructure in place to re-use much of the developed IP across multiple divisions. The central engineering model also creates an atmosphere of sharing and collaboration.

(v) Potential to accelerate cash return to shareholders (Score = 2): should continue to generate 15-20% of cashflow from ops (as a perc of revenue) and expect increasing dividends over time…..

35



VMware — VMW — John DiFucci

(i) Customer Loyalty (Score = 1): The leading server virtualization vendor in the world with maintenance renewal rates of 95% or more.

(ii) Reputational Excellence (Score = 1): VMware is writing the definition of what virtualization is and what it can mean going forward.

(iii) Lifestyle Products (Score = 5): This is not really applicable, since the user of VMware products is an IT professional. However, VMware products do reduce real estate, power, and cooling requirements, which not only save money, but contribute to a “green” environment.

(iv) Culture of Success (Score = 2): VMware is expanding its offerings from core server virtualization, to systems management, application development, and end-user virtualization.

(v) Potential to accelerate cash return to shareholders (Score = 2): VMware is growing significantly, and is spending in order to capture a material market in front of it, but it still has close to a 40% free cash flow margin (excluding acquisitions).

Figure 46: Price Performance — VMW

Trailing 1yr


Figure 47: Qualitative and Quantitative Summary — VMW




Source: J.P. Morgan


AVG OW PRO N

BMC N QLIK OW

CA OW QSFT OW

CARB OW RHT UW

CRM N SWI OW

CTXS UW SYMC OW

LOGM OW TIBX OW

MSFT N TLEO N

ORCL OW VMW N

36



TIBCO — TIBX — John DiFucci

(i) Customer Loyalty (Score = 1): The last remaining pure-play integration software company with maintenance renewal rates easily in excess of 90%.

(ii) Reputational Excellence (Score = 1): The standard for low latency messaging has parlayed that success into the broader integration software, application development, grid computing, social networking, and analytics spaces. TIBCO’s solutions were built for the future in mind more than ten years ago. The future has caught up with TIBCO.

(iii) Lifestyle Products (Score = 5): This is not really applicable, since the user of TIBCO products is an IT professional.

(iv) Culture of Success (Score = 2): TIBCO has been through many trials and tribulations, not dissimilar to Apple in its youth, but has continued to persevere through the tireless determination and confidence of its founder and leader.

(v) Potential to accelerate cash return to shareholders (Score = 3): Generates free cash flow at greater than 20% margin, with 35% growth a year ago. Has reduced share count by greater than 20% over the last five years through share repurchases.

Figure 48: Price Performance — TIBX

Trailing 1yr


Figure 49: Qualitative and Quantitative Summary — TIBX



37



QLIK Technologies — QLIK — John DiFucci

(i) Customer Loyalty (Score = 2): QlikTech’s strategy to “land and expand” yields increased loyalty based on products that simply get used more once they are initiated.

(ii) Reputational Excellence (Score = 1): QlikTech provides a “new” approach to the age old problem of analytics, and it does it through the unique leveraging of recent advances in computing technology.

(iii) Lifestyle Products (Score = 3): Ease of use spawns increased use, which is an important tenant of QlikTech’s success in the enterprise.

(iv) Culture of Success (Score = 2): A unique culture that values the employee as an agent of change – “to change the world.”

(v) Potential to accelerate cash return to shareholders (Score = 4): This is a relatively young company looking to continue its rapid expansion, so it is not looking to return cash to shareholders at this time, but once it builds mass and attains a steady state growth rate, it can pull back on spending and should generate significant cash flow.

Figure 50: Price Performance — QLIK

Trailing 1yr


Figure 51: Qualitative and Quantitative Summary — QLIK



38



ANSYS — ANSS — Sterling Auty


(i) Customer Loyalty (Score = 1): In the design engineering field there are dedicated simulation engineers that live and breathe this technology. Making it easier, this is starting to expand out to the basic design engineer.

(ii) Reputational Excellence (Score = 1): When Japan went through the tragedy last year, there was an increase in demand for Ansys solutions to simulate outcomes and what could happen in other regions to reactors with various natural and unnatural events.

(iii) Lifestyle Products (Score = 3): The company is trying to change how products are designed fundamentally. Instead of starting with a drawing, just outline the parameters of what you want the part/product to do and let the software solve for the design.

Figure 53: Price Performance — ANSS

Trailing 1yr


Figure 54: Qualitative and Quantitative Summary — ANSS




Source: J.P. Morgan

Ticker Rtg Ticker Rtg Ticker Rtg

ADSK OW CSGS N PMTC OW

ADVS UW DOX N ROVI OW

AKAM N EQIX OW SNPS OW

ANSS N FTNT N SSNC

AZPN OW GWRE OW VRSN N

BLKB N IMPV OW WBSN UW

CDNS OW INTU OW WWWW OW

CHKP N MOTR N

CMVT N NSR N

39



(iv) Culture of Success (Score = 2):- Turnover is lower than industry average and employees love working there. Now they are in Pittsburgh not silicon valley so less competition.

(v) Potential to accelerate cash return to shareholders (Score = 3): have a share repurchase program, but does not stand out, but good cash flow and could at some point decide to support a dividend.

40



Intuit — INTU — Sterling Auty

(i) Customer Loyalty (Score = 1): TurboTax and QuickBooks have a very loyal following. Once on them it is a community. QuickBooks has 6M businesses that run on it, and you can search online and find forums dedicated to the solution.

(ii) Reputational Excellence (Score = 1): Taxes for people, and the financials for small business are a sensitive matter to users they demand accuracy and dependability; so, the growth is a testament.

(iii) Lifestyle Products (Score = 1): Company is building off of its tradition with Quicken for personal finance and has Mint.com to manage finances from any device. In India, they have a mobile solution for farmers to help lock in market prices.

(iv) Culture of Success (Score = 1): Best company in coverage at hiring, developing, promoting and inspiring talent. They are very GE like (Welch era) in this approach.

(v) Potential to accelerate cash return to shareholders (Score = 2): Currently pays a 1% dividend yield, and they grow that moderately. As the economy heats up small business creation kicks in and demand should accelerate that could provide a foundation to do even more.

Figure 55: Price Performance — INTU

Trailing 1yr


Figure 56: Qualitative and Quantitative Summary — INTU



41



Cree — CREE — Chris Blansett

One of the things that separates Cree and most of the companies under coverage from Apple is the dependency on B2B sales. Even though we believe Cree could have a multi-year positive outlook, the lack of direct sales to consumers and the general diversification of product requirements for LED and LED based lighting applications means its unlikely to be a big winner in all of them.

We think there could be a number of Cree like LED lighting companies over the next 5 years, and I do think Cree will be a significant benefactor of the adoption of LED based lighting technology.


(i) Customer Loyalty (Score = 4)

(ii) Reputational Excellence (Score = 5)

(iii) Lifestyle Products (Score = 5)

(iv) Culture of Success (Score = n/a): No Idea, Cree is a black box

(v) Potential to accelerate cash return to shareholders (Score = 3)


Source: J.P. Morgan


AMAT N PLAB N

BWEN N RBCN OW

CREE OW SPWR UW

FSLR UW VECO OW

KLAC N WFR UW

LRCX N

NVLS N

42



Figure 58: Price Performance — CREE

Trailing 1yr


Figure 59: Qualitative and Quantitative Summary — CREE



43



Circle of Life Metrics show slightly slower momentum

Our subjective ranking of the 10 economic sectors based on fundamentals, credit profile, valuation, investor flow, and analyst ratings is below. The net change column on the right of the table shows the accumulated delta compared to the last Circle of Life publication for each of the 10 sectors, and the net change row at the bottom shows the accumulated delta for each of the metrics.

Overall, our Circle of Life metrics showed slowing momentum this month, with a net -3 decline overall for the ten sectors based on our ranking system. The main driver of the weakening was price performance, however, rather than any of the fundamental criteria such as sales or earnings revisions, suggesting that the weaker momentum is likely a short-term impact.

Figure 60: Overall Subjective Ranking of Ten Economic Sectors

Source: J.P. Morgan. G=Good, N=Neutral, U=Unattractive.

Fundamental, Technical, and Sentiment Metrics (Relative to S&P 500)

Sectors

Strategy

Rating

Price

Perf

Price/50d

mav g

Sales

Rev ision

Sales

Momentum

Earnings

Rev ision

Earnings

Momentum

JULI

Spreads

FC Mean

Rating

Short

Interest

ETF Fund

Flow s

P/10Yr

EPS

Composite

Score

Net

Change

Industrials OW N N from U G N G G N N G G G G from N +1

Technology OW G U G G G G N G N G N G

Energy OW N from G G from N N G N G G N from G N N G N from G -1

Materials OW U from N N from U G G U G G N from G N G N N -1

HealthCare OW N U G from N U N G N N G from N N G N +2

Discretionary OW G U G N N G N N N G U N

Financials OW G U N U N N from G G G N N G N -1

Telecom N N N from G G N U N N N G G from N N N

Staples UW U from N U from N G N N N N N G N G N -2

Utilities UW U N G N N N N N N U from N U N -1

10 Sectors N N from U G N N G N N N N N N

10 Sectors -3 +1 +1 -1 -2 +1 -3

Cyclicals N from G U G G N G N N from G N G N N

Cyclicals -1 +2 -1 +0

Defensives U from N U from N G N N N N N G N N N

Defensives -1 -2 +1 +1 -1

Near-Cyclicals G N from U N N N G G G N N G N

Near-Cyclicals -1 +1 -1 -1 -2

Reading the Table

The overall rankings, as shown earlier, should be viewed as a

“conviction” measure, separate but

generally consistent with our “Strategy ratings.”

Figure 61: % Change Since 3/9/12

Source: FactSet.

5.5%

4.1%

3.3%

2.4%

2.3%

2.3%

1.4%

0.6%

0.1%

-0.8%

-3.1%

-8% -3% 2% 7%

Financials

Technology

Health Care

Staples

Discretionary

S&P 500

Industrials

Materials

Utilities

Telecom

Energy

44



Below is a timeline for the change in the 11 metrics followed by our Circle of Life model, broken down by Cyclicals, Near-Cyclicals, and Defensives.

Figure 62: Circle of Life Metrics Monthly Changes – Cyclicals, Near-Cyclicals, and Defensives


Cyclicals: Materials, Industrials, Discretionary, & Tech

4/11 5/11 6/11 10/11 1/12 3/12 4/12

Price Performance -1 -1 +1 -1

Price/50d mavg +2 -2 +4 -3 -2 -2 +2

Sales Revision

Sales Momentum

Earnings Revision -3 +1

Earnings Momentum

JULI Spreads +1 -1 +3 -3

FC Mean Rating -1 +1 -1

Short Interest -1 -1 +1 -1

ETF Fund Flows +1 +1

P/10Yr EPS -1 +1

Total Delta +1 -3 +2 -4 -2

Composite Score 0.6 0.5 0.5 0.6 0.4 0.4 0.4

Near-Cyclicals: Energy & Financials

4/11 5/11 6/11 10/11 1/12 3/12 4/12

-1 -1 +1 +2 -1

+1 +1 -1 -1 +1

-1

-1

+2 -1 -1 +1

-1

+1 -1 -1 +1 +1

-1

-2 +1

+2 +1 -3 -2 -1 +3 -2

0.5 0.6 0.5 0.4 0.3 0.4 0.3

Defensives: Staples, HealthCare, Telecom, & Utilitiees

4/11 5/11 6/11 10/11 1/12 3/12 4/12

+4 +2 -3 -1

+1 +1 -1 -2

+1 +1 -1 +1

-1 +1

+1 -1 -2

+1 -1

+1 +2 -1 -2

+1 -1 -1 +1

+1 +1

+2 +1 -1 -1 -1

+1 -2 +1

+6 +5 +3 -6 -4 -1

0.2 0.3 0.3 0.3 0.2 0.1 0.1

45



Circle of Life Metrics Monthly Changes

Figure 63: Circle of Life Metrics Monthly Changes – Sectors


Materials

6/11 10/11 1/12 3/12 4/12

Price Performance

Price/50d mavg

Sales Revision

Sales Momentum

Earnings Revision

Earnings Momentum

JULI Spreads

FC Mean Rating

Short Interest

ETF Fund Flows

P/10Yr EPS

Total Delta 1 -1 -1 0 -1

Composite Score 0.7 0.6 0.4 0.4 0.3

Industrials

6/11 10/11 1/12 3/12 4/12

-1 0 0 -2 1

0.6 0.6 0.6 0.5 0.5

Discretionary

6/11 10/11 1/12 3/12 4/12

0 1 -1 -1 0

0.3 0.4 0.3 0.2 0.2

Technology

6/11 10/11 1/12 3/12 4/12

0 2 -2 1 0

0.5 0.6 0.5 0.5 0.5

Energy

6/11 10/11 1/12 3/12 4/12

-1 -1 -1 0 -1

0.7 0.6 0.5 0.5 0.5

Financials

6/11 10/11 1/12 3/12 4/12

Price Performance

Price/50d mavg

Sales Rev ision

Sales Momentum

Earnings Revision

Earnings Momentum

JULI Spreads

FC Mean Rating

Short Interest

ETF Fund Flows

P/10Yr EPS

Total Delta -2 -1 0 3 -1

Composite Score 0.3 0.2 0.0 0.3 0.2

Staples

6/11 10/11 1/12 3/12 4/12

2 0 -1 -1 -2

0.5 0.5 0.4 0.3 0.1

HealthCare

6/11 10/11 1/12 3/12 4/12

1 -2 -2 -1 2

0.5 0.4 0.1 0.0 0.2

Telecom

6/11 10/11 1/12 3/12 4/12

1 -1 -2 -1 0

0.5 0.5 0.3 0.2 0.2

Utilities

6/11 10/11 1/12 3/12 4/12

-1 3 -1 -1 -1

(0.2) 0.1 0.0 (0.1) (0.2)

46



Figure 64: Circle of Life

Subjective Based on JPM Strategy Views

Source: J.P. Morgan estimates.

US GDP

Euro GDP

EM GDPOil ISM

Auto sales

Retail sales

Jobs

Dollar

Housing

High Grade

Treasuries

Munis

Agency MBS

RMBS

TIPS

HY/Lev Loans

CMBS

ABX, ABS, CDOs

Energy

Materials

Industrials

Discretionary

Staples

HealthCare

Financials

Technology

Telecom

Utilities

Energy

Materials

Capital Goods

Commercial & Prof Svcs

Transportation

Autos & Components

Consumer Durables & Apparel

Consumer Svcs

Media

Retailing

Food & Staples Retailing

Food Beverage & Tobacco

HH & Personal Products

Health Care Equip & Svcs

Pharma Biotech & Life Sciences

Banks

Dvrsfed Financials

Insurance

Real Estate

Software & Svcs

Tech Hardware & Equip

Semiconductors & Equip

Telecom Services

Utilities

Peaking

Bottoming

Breaking Down

Early-stage Underweight

Recovery

Later-stage Overweight

Early-stage Overweight Later-stage

Underweight

The Circle of Life:

Macro

The macro picture has been strong

recently, with initial jobless claims continuing their downward trend to

~350k, ISM remaining steady

above 50, and payrolls gaining momentum.

CreditHG bond spreads have tightened

to 191bp from vs. 219bp in late

January. HY yields have risen slightly recently to 7.5%.

EquityThe S&P 500 has risen 3.2% over

the past month. Cyclicals have

outperformed over the past month, rising by 2.7% vs. a 2.5% rise for

Defensives and 1.7% rise for Near-

Cyclicals…

47



Quarterly Price Performance

Figure 65: Sector Quarterly Price PerformanceShaded box highlights performance of sector, Bold/Italics highlights S&P 500 performance


Materials

1Q11 2Q11 3Q11 4Q11 QTD

16% 7% 0% 18% 22%

8% 5% -5% 16% 21%

5% 4% -8% 15% 15%

5% 3% -9% 12% 12%

4% 1% -11% 11% 10%

4% 0% -13% 10% 10%

4% -1% -14% 9% 8%

3% -1% -21% 9% 4%

3% -2% -22% 8% 3%

2% -5% -23% 7% 1%

2% -6% -25% 6% -3%

Industrials

1Q11 2Q11 3Q11 4Q11 QTD

16% 7% 0% 18% 22%

8% 5% -5% 16% 21%

5% 4% -8% 15% 15%

5% 3% -9% 12% 12%

4% 1% -11% 11% 10%

4% 0% -13% 10% 10%

4% -1% -14% 9% 8%

3% -1% -21% 9% 4%

3% -2% -22% 8% 3%

2% -5% -23% 7% 1%

2% -6% -25% 6% -3%

Discretionary

1Q11 2Q11 3Q11 4Q11 QTD

16% 7% 0% 18% 22%

8% 5% -5% 16% 21%

5% 4% -8% 15% 15%

5% 3% -9% 12% 12%

4% 1% -11% 11% 10%

4% 0% -13% 10% 10%

4% -1% -14% 9% 8%

3% -1% -21% 9% 4%

3% -2% -22% 8% 3%

2% -5% -23% 7% 1%

2% -6% -25% 6% -3%

Technology

1Q11 2Q11 3Q11 4Q11 QTD

16% 7% 0% 18% 22%

8% 5% -5% 16% 21%

5% 4% -8% 15% 15%

5% 3% -9% 12% 12%

4% 1% -11% 11% 10%

4% 0% -13% 10% 10%

4% -1% -14% 9% 8%

3% -1% -21% 9% 4%

3% -2% -22% 8% 3%

2% -5% -23% 7% 1%

2% -6% -25% 6% -3%

Energy

1Q11 2Q11 3Q11 4Q11 QTD

16% 7% 0% 18% 22%

8% 5% -5% 16% 21%

5% 4% -8% 15% 15%

5% 3% -9% 12% 12%

4% 1% -11% 11% 10%

4% 0% -13% 10% 10%

4% -1% -14% 9% 8%

3% -1% -21% 9% 4%

3% -2% -22% 8% 3%

2% -5% -23% 7% 1%

2% -6% -25% 6% -3%

Financials

1Q11 2Q11 3Q11 4Q11 QTD

16% 7% 0% 18% 22%

8% 5% -5% 16% 21%

5% 4% -8% 15% 15%

5% 3% -9% 12% 12%

4% 1% -11% 11% 10%

4% 0% -13% 10% 10%

4% -1% -14% 9% 8%

3% -1% -21% 9% 4%

3% -2% -22% 8% 3%

2% -5% -23% 7% 1%

2% -6% -25% 6% -3%

Staples

1Q11 2Q11 3Q11 4Q11 QTD

16% 7% 0% 18% 22%

8% 5% -5% 16% 21%

5% 4% -8% 15% 15%

5% 3% -9% 12% 12%

4% 1% -11% 11% 10%

4% 0% -13% 10% 10%

4% -1% -14% 9% 8%

3% -1% -21% 9% 4%

3% -2% -22% 8% 3%

2% -5% -23% 7% 1%

2% -6% -25% 6% -3%

HealthCare

1Q11 2Q11 3Q11 4Q11 QTD

16% 7% 0% 18% 22%

8% 5% -5% 16% 21%

5% 4% -8% 15% 15%

5% 3% -9% 12% 12%

4% 1% -11% 11% 10%

4% 0% -13% 10% 10%

4% -1% -14% 9% 8%

3% -1% -21% 9% 4%

3% -2% -22% 8% 3%

2% -5% -23% 7% 1%

2% -6% -25% 6% -3%

Telecom

1Q11 2Q11 3Q11 4Q11 QTD

16% 7% 0% 18% 22%

8% 5% -5% 16% 21%

5% 4% -8% 15% 15%

5% 3% -9% 12% 12%

4% 1% -11% 11% 10%

4% 0% -13% 10% 10%

4% -1% -14% 9% 8%

3% -1% -21% 9% 4%

3% -2% -22% 8% 3%

2% -5% -23% 7% 1%

2% -6% -25% 6% -3%

Utilities

1Q11 2Q11 3Q11 4Q11 QTD

16% 7% 0% 18% 22%

8% 5% -5% 16% 21%

5% 4% -8% 15% 15%

5% 3% -9% 12% 12%

4% 1% -11% 11% 10%

4% 0% -13% 10% 10%

4% -1% -14% 9% 8%

3% -1% -21% 9% 4%

3% -2% -22% 8% 3%

2% -5% -23% 7% 1%

2% -6% -25% 6% -3%

48



Update on Stocks for the 4th Year of Bull Market Trade Idea

We are keeping our Stocks for the 4th Year of Bull Market trade open this month. As a reminder, we identified stocks that look well-positioned to outperform in the 4th year of the bull market. We identified 10 stocks using the following criteria: (i) Stock is in one of the top 4 sectors, namely Industrials, Financials, Energy, and Technology; (ii) Stock is in 3 or more of the current best-performing styles (Less Liked, High Div Yield, Lower Beta, High Quality, Large Cap, and High FCF Yield); (iii) Rated Overweight by J.P. Morgan; and (iv) Upside to J.P. Morgan target price.

Figure 66: 10 Stocks for the 4th Year of Bull Market

Initiated on 03/08/2012

Source: J.P. Morgan and FactSet. Note: The table above shows the performance of a hypothetical trade assuming an investor bought and sold all the stocks shown on the dates shown.

03/08/2012 — 04/04/2012 (Open Trade): Stocks for 4th Year of Bull Mkt

JPM Rating Trade Initiated As of 04/04/2012 Profit (Loss)

Name Stock

Ticker

Current as of

03/08/12

Date Price $ Value Date Price $ Value $ Chg % Chg

Bank of America Corp. BAC OW OW 3/08/12 $8.06 $1,000 4/04/12 $9.20 $1,141 $141 14.1%

AFLAC Inc. AFL OW OW 3/08/12 $44.76 $1,000 4/04/12 $45.04 $1,006 $6 0.6%

Validus Holdings Ltd. VR OW OW 3/08/12 $30.17 $1,000 4/04/12 $31.01 $1,028 $28 2.8%

General Electric Co. GE OW OW 3/08/12 $19.03 $1,000 4/04/12 $19.74 $1,037 $37 3.7%

Enterprise Products Partners L.P. EPD OW OW 3/08/12 $51.49 $1,000 4/04/12 $50.28 $977 ($23) -2.3%

ACE Ltd. ACE OW OW 3/08/12 $71.49 $1,000 4/04/12 $73.43 $1,027 $27 2.7%

International Business Machines Corp. IBM OW OW 3/08/12 $199.81 $1,000 4/04/12 $206.05 $1,031 $31 3.1%

General Dynamics Corp. GD OW OW 3/08/12 $72.01 $1,000 4/04/12 $72.63 $1,009 $9 0.9%

Health Care REIT Inc. HCN OW OW 3/08/12 $53.93 $1,000 4/04/12 $53.55 $993 ($7) -0.7%

Annaly Capital Management Inc. NLY OW OW 3/08/12 $16.15 $1,000 4/04/12 $15.74 $975 ($25) -2.5%

Sub-Total $224 2.2%

S&P 500 SP50 3/08/12 1,366 $10,000 4/04/12 1,399 $10,242 $242 2.4%

Long: 10 Stocks for the 4th Year of Bull Mkt 3/08/12 $10,000 4/04/12 $10,224 $224 2.2%

Trade vs. S&P 500 ($18) -0.2%

49



Update on Financials Top Ideas from J.P. Morgan Fundamental Analysts

We are keeping our Financials Top Ideas trade open this month. As a reminder, we aggregated the top stock ideas from each of J.P. Morgan’s fundamental equity analysts in the Financials space (see “Best Equity Near-Term Ideas” dated 1/24/12 for full write-ups of these analysts’ views on these stocks).

Figure 67: 7 Financials Top Ideas Stocks



01/26/2012 — 04/04/2012 (Open Trade): Financials Top Ideas


Name Stock

Ticker

Current as of

01/26/12


Citigroup Inc. C N OW 1/26/12 $30.38 $1,429 4/04/12 $35.04 $1,648 $219 15.3%

Allstate Corp. ALL OW OW 1/26/12 $29.15 $1,429 4/04/12 $32.62 $1,599 $170 11.9%

Och-Ziff Capital Management Group LLC. OZM OW OW 1/26/12 $9.90 $1,429 4/04/12 $9.65 $1,392 ($36) -2.5%

Zions Bancorporation ZION OW OW 1/26/12 $16.58 $1,429 4/04/12 $21.08 $1,816 $388 27.1%

Prudential Financial Inc. PRU OW OW 1/26/12 $55.59 $1,429 4/04/12 $62.82 $1,614 $186 13.0%

Apollo Investment Corp. AINV OW OW 1/26/12 $7.53 $1,429 4/04/12 $7.34 $1,393 ($36) -2.5%

SL Green Realty Corp. SLG OW OW 1/26/12 $73.82 $1,429 4/04/12 $75.35 $1,458 $30 2.1%

Sub-Total $920 9.2%

S&P 500 SP50 1/26/12 1,318 $10,000 4/04/12 1,399 $10,611 $611 6.1%

Long: 7 Financials Top Ideas from JPM Fundamental Analysts 1/26/12 $10,000 4/04/12 $10,920 $920 9.2%

Trade vs. S&P 500 $309 3.1%

50



Update on Cyclical Cocktail Stocks Trade Idea

We are keeping our Cyclical Cocktail Stocks trade open this month. As a reminder, this trade identified stocks in industry groups and styles that worked in both ’98 and ’08, or in offensive styles that have led since the start of the year. Specifically, we identified 26 stocks using the following criteria:

In one of the following Industry Groups: Semiconductors, Consumer Svcs, Software & Svcs, Tech Hardware & Equip, Retailing, or Diversified Financials;

In at least three of the following Styles: High P/B (>3.37x), More Liked (FC Mean Rating <2.00), High Beta (>1.69), Low Momentum (Price/200D MAVG < 80%), Low Price (<$13.85), Small Mkt Cap (<$1.2b), or Low Quality (S&P Stock Rating >= 21); and

Rated Overweight by J.P. Morgan.

51



Figure 68: 26 Cyclical Cocktail Stocks



10/20/2011 — 04/04/2012 (Open Trade): 26 Cyclical Cocktail Stocks


Name Stock

Ticker

Current as of

10/20/11


Rubicon Technology Inc. RBCN OW OW 10/20/11 $9.70 $385 4/04/12 $9.67 $383 ($1) -0.3%

RealD Inc. RLD OW OW 10/20/11 $10.10 $385 4/04/12 $12.64 $481 $97 25.1%

Office Depot Inc. ODP OW OW 10/20/11 $2.15 $385 4/04/12 $3.31 $592 $208 54.0%

Veeco Instruments Inc. VECO OW OW 10/20/11 $26.04 $385 4/04/12 $27.20 $402 $17 4.5%

ShoreTel Inc. SHOR OW 10/20/11 $5.48 $385 4/04/12 $5.40 $379 ($6) -1.5%

Bank of America Corp. BAC OW OW 10/20/11 $6.47 $385 4/04/12 $9.20 $547 $162 42.2%

MGM Resorts International MGM OW OW 10/20/11 $10.01 $385 4/04/12 $13.55 $521 $136 35.4%

Pinnacle Entertainment Inc. PNK OW OW 10/20/11 $11.25 $385 4/04/12 $11.55 $395 $10 2.7%

Strayer Education Inc. STRA OW OW 10/20/11 $85.32 $385 4/04/12 $88.54 $399 $15 3.8%

Och-Ziff Capital Management Group LLC. OZM OW OW 10/20/11 $10.00 $385 4/04/12 $9.65 $371 ($13) -3.5%

OmniVision Technologies Inc. OVTI N OW 10/20/11 $16.77 $385 4/04/12 $19.94 $457 $73 18.9%

Verint Systems Inc. VRNT OW OW 10/20/11 $27.50 $385 4/04/12 $30.72 $430 $45 11.7%

Orient Express Hotels Ltd. OEH OW OW 10/20/11 $7.88 $385 4/04/12 $10.05 $491 $106 27.5%

Investment Technology Group Inc. ITG OW OW 10/20/11 $11.06 $385 4/04/12 $11.41 $397 $12 3.2%

American Capital Ltd. ACAS OW OW 10/20/11 $6.77 $385 4/04/12 $8.63 $490 $106 27.5%

DineEquity Inc. DIN OW OW 10/20/11 $43.24 $385 4/04/12 $48.33 $430 $45 11.8%

Gaylord Entertainment Co. GET N OW 10/20/11 $20.90 $385 4/04/12 $30.90 $569 $184 47.8%

Las Vegas Sands Corp. LVS OW OW 10/20/11 $41.76 $385 4/04/12 $57.17 $527 $142 36.9%

LogMeIn Inc. LOGM OW OW 10/20/11 $34.92 $385 4/04/12 $34.80 $383 ($1) -0.3%

Aeroflex Holding Corp ARX N OW 10/20/11 $10.19 $385 4/04/12 $10.91 $412 $27 7.1%

Monotype Imaging Holdings Inc. TYPE OW OW 10/20/11 $12.77 $385 4/04/12 $14.72 $443 $59 15.3%

Cadence Design Systems Inc. CDNS OW OW 10/20/11 $9.91 $385 4/04/12 $11.76 $456 $72 18.7%

ON Semiconductor Corp. ONNN OW OW 10/20/11 $6.73 $385 4/04/12 $8.57 $490 $105 27.3%

Cardtronics Inc. CATM OW OW 10/20/11 $23.59 $385 4/04/12 $25.23 $411 $27 7.0%

Motricity Inc. MOTR N OW 10/20/11 $1.78 $385 4/04/12 $1.40 $303 ($82) -21.3%

KKR & Co. L.P. KKR OW OW 10/20/11 $11.70 $385 4/04/12 $14.73 $484 $100 25.9%

Sub-Total $1,643 16.4%

S&P 500 SP50 10/20/11 1,215 $10,000 4/04/12 1,399 $11,510 $1,510 15.1%

Long: 26 Cyclical Cocktail Stocks 10/20/11 $10,000 4/04/12 $11,643 $1,643 16.4%

Trade vs. S&P 500 $132 1.3%

52



Update on Cyclicals Summer Bounce Trade Idea

We are keeping our Cyclicals Summer Bounce trade open this month. As a reminder, this trade identified Cyclicals stocks that were likely to outperform over the next few months as stocks were expected to rebound last summer led by Cyclicals. Specifically, we used the following criteria: 1) stock is in a Cyclical sector (Technology, Materials, Industrials, Discretionary); 2) Price < 50D MAVG; 3) RSI < 33; 4) rated Overweight by J.P. Morgan; 5) upside to J.P. Morgan target price; 6) market cap > $3B; and 7) P/B < 2.0x.

Figure 69: 13 Stocks for a Summer Bounce Led by Cyclicals



6/16/2011 — 04/04/2012 (Open Trade): 13 Summer of Cyclicals Stocks


Name Stock

Ticker

Current as of

6/16/11


ManpowerGroup MAN OW OW 6/16/11 $52.60 $769 4/04/12 $46.21 $676 ($93) -12.1%

Nucor Corp. NUE OW OW 6/16/11 $39.46 $769 4/04/12 $42.10 $821 $51 6.7%

Alcoa Inc. AA OW OW 6/16/11 $14.79 $769 4/04/12 $9.81 $510 ($259) -33.7%

Staples Inc. SPLS OW OW 6/16/11 $15.05 $769 4/04/12 $16.07 $821 $52 6.8%

Royal Caribbean Cruises Ltd. RCL N OW 6/16/11 $33.70 $769 4/04/12 $28.03 $640 ($129) -16.8%

CA Inc. CA OW OW 6/16/11 $21.35 $769 4/04/12 $27.16 $979 $209 27.2%

Textron Inc. TXT N OW 6/16/11 $21.57 $769 4/04/12 $28.38 $1,012 $243 31.6%

Jacobs Engineering Group Inc. JEC OW OW 6/16/11 $41.14 $769 4/04/12 $43.93 $821 $52 6.8%

Synopsys Inc. SNPS OW OW 6/16/11 $24.91 $769 4/04/12 $30.47 $941 $172 22.3%

Mohawk Industries Inc. MHK N OW 6/16/11 $57.91 $769 4/04/12 $66.60 $885 $115 15.0%

Ingersoll-Rand Plc IR OW OW 6/16/11 $43.63 $769 4/04/12 $41.21 $727 ($43) -5.5%

General Electric Co. GE OW OW 6/16/11 $18.44 $769 4/04/12 $19.74 $823 $54 7.0%

Republic Serv ices Inc. RSG N OW 6/16/11 $30.29 $769 4/04/12 $30.45 $773 $4 0.5%

Sub-Total $429 4.3%

S&P 500 SP50 6/16/11 1,268 $10,000 4/04/12 1,399 $11,036 $1,036 10.4%

Long: 13 Summer of Cyclicals Stocks 6/16/11 $10,000 4/04/12 $10,429 $429 4.3%

Trade vs. S&P 500 ($607) -6.1%

53



Update on HealthCare Trade Idea

We are keeping our HealthCare trade open this month. As a reminder, this trade identified 18 top HealthCare stock ideas from J.P. Morgan’s fundamental research analysts.

Figure 70: 18 HealthCare Top Ideas from J.P. Morgan Analysts



5/12/2011 — 04/04/2012 (Open Trade): 18 HealthCare Top Ideas


Name Stock

Ticker

Current as of

5/12/11


Dendreon Corp. DNDN OW OW 5/12/11 $37.80 $556 4/04/12 $10.26 $151 ($405) -72.9%

United Therapeutics Corp. UTHR N OW 5/12/11 $67.40 $556 4/04/12 $45.23 $373 ($183) -32.9%

Allscripts Healthcare Solutions Inc. MDRX N OW 5/12/11 $20.31 $556 4/04/12 $16.39 $448 ($107) -19.3%

Pfizer Inc. PFE OW OW 5/12/11 $20.89 $556 4/04/12 $22.39 $595 $40 7.2%

Mylan Inc. MYL OW OW 5/12/11 $24.09 $556 4/04/12 $23.16 $534 ($21) -3.9%

McKesson Corp. MCK OW OW 5/12/11 $85.02 $556 4/04/12 $87.89 $574 $19 3.4%

Express Scripts Holding Co ESRX OW OW 5/12/11 $59.79 $556 4/04/12 $56.88 $529 ($27) -4.9%

Life Technologies Corp. LIFE OW OW 5/12/11 $56.35 $556 4/04/12 $47.51 $468 ($87) -15.7%

Cigna Corporation CI OW 5/12/11 $48.05 $556 4/04/12 $48.80 $564 $9 1.6%

Accretive Health Inc. AH OW OW 5/12/11 $26.36 $556 4/04/12 $20.02 $422 ($134) -24.1%

Covidien PLC COV OW OW 5/12/11 $56.13 $556 4/04/12 $53.82 $533 ($23) -4.1%

Gilead Sciences Inc. GILD OW OW 5/12/11 $41.29 $556 4/04/12 $47.19 $635 $79 14.3%

St. Jude Medical Inc. STJ OW OW 5/12/11 $52.17 $556 4/04/12 $41.67 $444 ($112) -20.1%

WellPoint Inc. WLP OW 5/12/11 $80.00 $556 4/04/12 $72.12 $501 ($55) -9.8%

Illumina Inc. ILMN OW OW 5/12/11 $75.23 $556 4/04/12 $52.28 $386 ($169) -30.5%

Onyx Pharmaceuticals Inc. ONXX OW OW 5/12/11 $43.60 $556 4/04/12 $39.28 $501 ($55) -9.9%

UnitedHealth Group Inc. UNH OW 5/12/11 $50.08 $556 4/04/12 $59.06 $655 $100 17.9%

Alkermes PLC ALKS OW OW 5/12/11 $17.02 $556 4/04/12 $18.47 $603 $47 8.5%

Sub-Total ($1,084) -10.8%

S&P 500 SP50 5/12/11 1,349 $10,000 4/04/12 1,399 $10,373 $373 3.7%

Long: 18 HealthCare Top Ideas 5/12/11 $10,000 4/04/12 $8,916 ($1,084) -10.8%

Trade vs. S&P 500 ($1,457) -14.6%

54



Figure 71: Circle of Life Trades Since Launch of Publication

Performance of trades

Source: J.P. Morgan and FactSet. Note: The table above shows the performance of hypothetical trades assuming an investor bought and sold on the dates shown above, according to the trade parameters

highlighted in each of our past Circle of Life reports.

Publication Dates Pair Trade Re-Cap Long/Short Performance Sector rating changes

Trade Open

Trade

Close Long Short Sector Perf + or - % chg Lon

g R

EL

Pe

rf

vs

S&

P 5

00

Sho

rt R

EL

Per

f

vs

S&

P 5

00

Upgrade/

Downgrade Sector

3/8/2012 - Open Long: 10 Stocks for 4th Year of Bull Market 2.2% x +100.0% 2.2% -0.2%

1/26/2012 - Open Long: 7 Financials Top Ideas 9.2% x +100.0% 9.2% 3.1%

10/20/2011 - Open Long: 26 Cyclical Cocktail Stock Ideas 16.4% x +100.0% 16.4% 1.3%

12/9/2011 Upgrade Discretionary N ---> OW

6/16/2011 - Open Long: 13 Summer of Cyclicals Stocks 4.3% x +100.0% 4.3% -6.1%

5/12/2011 - Open Long: 18 HealthCare Top Ideas -10.8% x +100.0% -10.8% -14.6% Upgrade HealthCare N ---> OW

3/31/2011 - 6/16/2011 Long: 18 Stocks post-Oil spike -4.8% x +100.0% -4.8% -0.4% Downgrade Discretionary OW ---> N

Avoid: 6 Stocks post-Oil spike -3.6% x -100.0% 3.6% 8.0%

2/3/2011 - 10/20/2011 Long: 15 Street Momentum Ideas -13.4% x +100.0% -13.4% -6.3%

11/11/2010 - 1/26/2012 Long: 5 Energy Top Ideas -8.9% x +100.0% -8.9% -17.6% Upgrade Energy N ---> OW

10/7/2010 - 2/3/2011 Long: 25 Stocks Attractive on Circle of Life Metrics 15.7% x +100.0% 15.7% 2.9%

8/19/2010 - 1/26/2012 Long: 19 Stocks Correlated with Res. Constr. or Inventory 26.3% x +100.0% 26.3% 3.7%

6/3/2010 - 10/7/2010 Long 25 Clobbered Stocks with FCF Yld > BY 3.7% x +100.0% 3.7% -1.3% Downgrade Energy OW ---> N

4/22/2010 - 10/7/2010 Long 25 Employment Demographics Stocks -12.0% x +100.0% -12.0% -7.8%

3/25/2010 - 10/7/2010 Long 23 Price Target Upgrade Stocks 4.2% x +100.0% 4.2% 4.8%

2/11/2010 - 3/25/2010 Long 24 Correction Stocks 11.4% x +100.0% 11.4% 3.3%

1/14/2010 - 10/7/2010 Long 19 Financials Stocks 5.8% x +100.0% 5.8% 5.0%

11/19/2009 - 1/26/2012 Long 25 Pro-Cyclical Stocks 60.0% x +100.0% 60.0% 39.6%

55



Figure 72: Circle of Life Trades Since Launch of Publication (Continued)

Performance of trades

Source: J.P. Morgan and FactSet. Note: The table above shows the performance of hypothetical trades assuming an investor bought and sold on the dates shown above, according to the trade parameters

highlighted in each of our past Circle of Life reports.

Publication Dates Pair Trade Re-Cap Long/Short Performance Sector rating changes

Trade Open

Trade

Close Long Short Sector Perf + or - % chg Long

RE

L P

erf

vs S

&P

500

Sho

rt R

EL

Per

f

vs S

&P

500

Upgrade/

Downgrade Sector

12/11/2009 Upgrade Health Care UW ---> N

10/22/2009 - 11/19/2009 Long 25 High Debt Stocks -2.0% x +100.0% -2.0% -2.2%

9/18/2009 - 10/22/2009 Long 26 Cyclical Stocks for the Next Leg of the Recovery -1.4% x +100.0% -1.4% -3.7%

8/5/2009 - 1/14/2010 Long Top 15 Energy Stks (Composite Score) 28.8% x +100.0% 28.8% 14.2% Upgrade Energy N ---> OW

Downgrade Health Care N ---> UW

7/1/2009 - 8/5/2009 Long 15 Top Smoke Stackey Industries 14.7% x +100.0% 14.7% 6.1%

6/25/2009 Upgrade Industrials N ---> OW

Upgrade Materials N ---> OW

6/4/2009 - 7/1/2009 Long 6 Sub-Industries -1.9% x +100.0% -1.9% 0.1%

Short 5 Sub-Industries -6.6% x -100.0% 6.6% 4.6%

4/29/2009 - 6/4/2009 Long Consumer Ideas -0.3% x +100.0% -0.3% -8.2%

Short Consumer Ideas -1.2% x -100.0% 1.2% 9.1%

4/29/2009 - 6/4/2009 Long Discretionary 4.5% x +100.0% 4.5% -3.4% Upgrade Energy UW ---> N

Short Staples 8.0% x -100.0% -8.0% -0.1%

3/30/2009 - 4/29/2009 Long Materials 12.6% x +100.0% 12.6% 1.7% Upgrade Industrials UW ---> N

Long Industrials 18.2% x +100.0% 18.2% 7.3% Downgrade Health Care OW ---> N

Short Utilities 2.4% x -100.0% -2.4% 8.6%

2/19/2009 - 3/30/2009 Long Materials 8.0% x +100.0% 8.0% 6.9% Upgrade Materials UW ---> N

Short Telecom Svcs 8.4% x -100.0% -8.4% -7.3% Downgrade Telecom OW ---> N

1/16/2009 - 2/19/2009 Long Health Care 0.0% x +100.0% 0.0% 8.3% Upgrade Health Care N ---> OW

Short Energy -7.3% x -100.0% 7.3% -1.1% Downgrade Energy N ---> UW

56



Sector Comparative

Relative Price Performance

Price vs. 50-Day Moving Avg

Monthly Relative Sales Revision

Relative Sales Growth (vs. S&P 500)

Monthly Relative Earnings Revision

Relative Earnings Momentum

JULI Spreads (Relative to All Industries’ Average)

First Call Mean Rating (Relative to S&P 500)

Short Interest (Relative to S&P 500)

ETF Fund Flows

Price/10-Yr EPS (Relative to S&P 500)

Sector Comparative

57



Trailing One-Month Relative Price Performance – Sectors

Figure 73: Energy Figure 74: Materials Figure 75: Industrials Figure 76: Technology

Figure 77: Staples Figure 78: Health Care Figure 79: Telecom Figure 80: Utilities

Figure 81: Discretionary Figure 82: Financials

Source: J.P. Morgan and Datastream.

-15%

-10%

-5%

0%

5%

10%

15%

20%

12/05 12/06 12/07 12/08 12/09 12/10 12/11

Recession Trailing 1-mos Relative Perf. MAVG past 12mos

-10%

-5%

0%

5%

10%

12/05 12/06 12/07 12/08 12/09 12/10 12/11


-8%

-3%

2%

7%

12/05 12/06 12/07 12/08 12/09 12/10 12/11


-10%

-5%

0%

5%

10%

12/05 12/06 12/07 12/08 12/09 12/10 12/11


-10%

-5%

0%

5%

10%

12/05 12/06 12/07 12/08 12/09 12/10 12/11


-12%

-7%

-2%

3%

8%

12/05 12/06 12/07 12/08 12/09 12/10 12/11


-10%

-5%

0%

5%

10%

15%

12/05 12/06 12/07 12/08 12/09 12/10 12/11


-10%

-5%

0%

5%

10%

15%

12/05 12/06 12/07 12/08 12/09 12/10 12/11


-10%

-5%

0%

5%

10%

12/05 12/06 12/07 12/08 12/09 12/10 12/11


-20%

-15%

-10%

-5%

0%

5%

10%

15%

12/05 12/06 12/07 12/08 12/09 12/10 12/11

Recession Trailing 1-mos Relative Perf. MAVG past 12mosRelative Price Performance:

Trailing one-month price

performance of sector minus trailing one-month price

performance of S&P 500.

N

G

N U

N G

G

N from G U from N

U from N

58



Price vs. 50-Day Moving Avg – Sectors (best is low and rising)





23%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

8/02 8/03 8/04 8/05 8/06 8/07 8/08 8/09 8/10 8/11

% of stocks above mavg

Caution Zone

Buy Zone

57%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

8/02 8/03 8/04 8/05 8/06 8/07 8/08 8/09 8/10 8/11

% of stocks above mavgCaution

Zone

Buy Zone

59%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

8/02 8/03 8/04 8/05 8/06 8/07 8/08 8/09 8/10 8/11


Caution Zone

Buy Zone

80%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

8/02 8/03 8/04 8/05 8/06 8/07 8/08 8/09 8/10 8/11


Caution Zone

Buy Zone

86%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

8/02 8/03 8/04 8/05 8/06 8/07 8/08 8/09 8/10 8/11


Caution Zone

Buy Zone

88%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

8/02 8/03 8/04 8/05 8/06 8/07 8/08 8/09 8/10 8/11


Caution Zone

Buy Zone

43%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

8/02 8/03 8/04 8/05 8/06 8/07 8/08 8/09 8/10 8/11


Caution Zone

Buy Zone

50%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

8/02 8/03 8/04 8/05 8/06 8/07 8/08 8/09 8/10 8/11


Caution Zone

Buy Zone

78%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

8/02 8/03 8/04 8/05 8/06 8/07 8/08 8/09 8/10 8/11


Caution Zone

Buy Zone

84%

0%

10%

20%30%

40%

50%

60%70%

80%

90%

100%

8/02 8/03 8/04 8/05 8/06 8/07 8/08 8/09 8/10 8/11


Caution Zone

Buy Zone

Price Momentum:

% of stocks in sector above 50-day

moving average.

NU

U

U

U

G from N N from UN from U

U from N N from G

59



Monthly Sales Revision – Sectors




Source: J.P. Morgan and Datastream. Change in Sales (NTM) as compared to one month ago divided by total sales of the sector.

-25.0%

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

8/06 8/07 8/08 8/09 8/10 8/11-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8/06 8/07 8/08 8/09 8/10 8/11

-5.0%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

8/06 8/07 8/08 8/09 8/10 8/11-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8/06 8/07 8/08 8/09 8/10 8/11

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

8/06 8/07 8/08 8/09 8/10 8/11-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

8/06 8/07 8/08 8/09 8/10 8/11

-2.0%

0.0%

2.0%

4.0%

6.0%

8/06 8/07 8/08 8/09 8/10 8/11-2.5%

-1.5%

-0.5%

0.5%

1.5%

2.5%

3.5%

4.5%

8/06 8/07 8/08 8/09 8/10 8/11

-5.0%

-3.0%

-1.0%

1.0%

3.0%

5.0%

8/06 8/07 8/08 8/09 8/10 8/11

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

8/06 8/07 8/08 8/09 8/10 8/11

Sales Revisions:

Change in sales NTM (current vs. one month ago) divided by sector

sales (one month ago).

Based on bottom-up consensus sales of current S&P 500

constituents.

G: Consistently positive


G: Upward revisions continue

G: Consistently positive G: Consistently Positive


N: Mixed revisions

G: Positive revisions recently

N: Mixed revisions

G from N: Positive

60



Relative Sales Growth (vs. S&P 500) – Sectors (best if tail is rising)





3.8%

-30%

-20%

-10%

0%

10%

20%

30%

40%

7/07 6/08 5/09 4/10 3/11 2/12 1/13

5.3%

-16%

-12%

-8%

-4%

0%

4%

8%

12%

7/07 6/08 5/09 4/10 3/11 2/12 1/13

5.7%

-8%

-4%

0%

4%

8%

7/07 6/08 5/09 4/10 3/11 2/12 1/13

6.0%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

7/07 6/08 5/09 4/10 3/11 2/12 1/13

3.2%

-8%

-4%

0%

4%

8%

12%

7/07 6/08 5/09 4/10 3/11 2/12 1/13

-0.4%

-8%

-4%

0%

4%

8%

12%

16%

7/07 6/08 5/09 4/10 3/11 2/12 1/13

2.4%

-10%

0%

10%

20%

30%

7/07 6/08 5/09 4/10 3/11 2/12 1/13

4.1%

-12%

-8%

-4%

0%

4%

8%

7/07 6/08 5/09 4/10 3/11 2/12 1/13

3.4%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

7/07 6/08 5/09 4/10 3/11 2/12 1/13

-21.4%

-30%

-20%

-10%

0%

10%

20%

30%

7/07 6/08 5/09 4/10 3/11 2/12 1/13

Relative Sales Growth NTM:

Sales growth NTM of sector less

sales growth NTM of S&P 500.

Based on bottom-up results of current S&P 500 constituents.

Historical data reflect actual

growth.

Dashed line reflects First Call

bottom-up consensus.

Up or down trend of line is most important indicator for determining

sector momentum.

G: Positive growth

G: Positive

N: Trend turningpositive G: Improving growth

N: Momentum turning positive

N: Improvingmomentum

N: Outlook for consumer improving

U: Negative

NU: Negative

61



Monthly Earnings Revision – Sectors




Source: J.P. Morgan and Datastream. Change in Net Income (NTM) as compared to one month ago divided by market cap.

-5.0%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

8/06 8/07 8/08 8/09 8/10 8/11-3.0%

-2.5%

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

8/06 8/07 8/08 8/09 8/10 8/11-2.0%

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

8/06 8/07 8/08 8/09 8/10 8/11-1.2%

-0.8%

-0.4%

0.0%

0.4%

0.8%

8/06 8/07 8/08 8/09 8/10 8/11

-0.4%

-0.3%

-0.2%

-0.1%

0.0%

0.1%

0.2%

0.3%

8/06 8/07 8/08 8/09 8/10 8/11-0.3%

-0.2%

-0.1%

0.0%

0.1%

0.2%

0.3%

0.4%

0.5%

8/06 8/07 8/08 8/09 8/10 8/11-2.0%

-1.6%

-1.2%

-0.8%

-0.4%

0.0%

0.4%

0.8%

1.2%

8/06 8/07 8/08 8/09 8/10 8/11-0.8%

-0.6%

-0.4%

-0.2%

0.0%

0.2%

0.4%

0.6%

8/06 8/07 8/08 8/09 8/10 8/11

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

8/06 8/07 8/08 8/09 8/10 8/11-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

8/06 8/07 8/08 8/09 8/10 8/11

Earnings Revisions:

Change in net income NTM

(current vs. one month ago) divided

by sector market cap.

Based on bottom-up consensus net

income of current S&P 500

constituents.

G: Positive revisions recently

N: Mixed revisions

N: Mixed revisions recently

N

U

N: Mixed revisions

G

NU

N

62



Relative Earnings Momentum – Sectors (best if tail is rising)




Source: J.P. Morgan and Datastream. Area portion of the chart is actual relative earnings and the line is based on consensus NTM.

0.6%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

7/07 6/08 5/09 4/10 3/11 2/12 1/13

0.2%

-6%

-4%

-2%

0%

2%

4%

6%

7/07 6/08 5/09 4/10 3/11 2/12 1/13

0.7%

-6%

-4%

-2%

0%

2%

4%

6%

7/07 6/08 5/09 4/10 3/11 2/12 1/13

1.4%

-6%

-4%

-2%

0%

2%

4%

6%

8%

7/07 6/08 5/09 4/10 3/11 2/12 1/13

0.3%

-6%

-4%

-2%

0%

2%

4%

6%

7/07 6/08 5/09 4/10 3/11 2/12 1/13

-0.1%

-6%

-4%

-2%

0%

2%

4%

6%

7/07 6/08 5/09 4/10 3/11 2/12 1/13

0.0%

-6%

-4%

-2%

0%

2%

4%

6%

7/07 6/08 5/09 4/10 3/11 2/12 1/13

-0.3%

-6%

-4%

-2%

0%

2%

4%

6%

7/07 6/08 5/09 4/10 3/11 2/12 1/13

0.5%

-6%

-4%

-2%

0%

2%

4%

6%

7/07 6/08 5/09 4/10 3/11 2/12 1/13

2.3%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

7/07 6/08 5/09 4/10 3/11 2/12 1/13

Relative Earnings Momentum:

Contribution of growth by sector to

S&P 500 EPS. Change in net income (NTM vs. year ago) divided

by S&P 500 net income.

Based on bottom-up results of current S&P 500 constituents.

Historical data reflect actual

growth.

Dashed line reflects First Call

bottom-up consensus.

G: Positive growth

G: Positive G: In positive territory

G: Strong in near term

N: Flat earnings momentum

G: Positive N: Flat earnings momentum

G: Positive

N: Flat earnings momentum

N from G: Flat earnings momentum

63



JULI Spreads (Relative to All Industries’ Averages) – Sectors (best is high and narrowing)





(250)

(150)

(50)

50

150

250

'03 '05 '07 '09 '11Energy Avg 1 STD

Widening

Narrowing

(250)

(150)

(50)

50

150

250

'03 '05 '07 '09 '11Materials Avg 1 STD

Widening

Narrowing

(250)

(150)

(50)

50

150

250

'03 '05 '07 '09 '11Industrials Avg 1 STD

Widening

Narrowing

(250)

(150)

(50)

50

150

250

'03 '05 '07 '09 '11Technology Avg 1 STD

Widening

Narrowing

(250)

(150)

(50)

50

150

250

'03 '05 '07 '09 '11Staples Avg 1 STD

Widening

Narrowing

(250)

(150)

(50)

50

150

250

'03 '05 '07 '09 '11HealthCare Avg 1 STD

Widening

Narrowing

(250)

(150)

(50)

50

150

250

'03 '05 '07 '09 '11Telecom Avg 1 STD

Widening

Narrowing

(250)

(150)

(50)

50

150

250

'03 '05 '07 '09 '11

Utilities Avg 1 STD

Widening

Narrowing

(250)

(150)

(50)

50

150

250

'03 '05 '07 '09 '11Discretionary Avg 1 STD

Widening

Narrowing

(250)

(150)

(50)

50

150

250

'03 '05 '07 '09 '11Financials Avg 1 STD

Widening

Narrowing

Relative JULI Spreads: Calculated as spread of sector less

avg. spread of ten sectors.

A figure above zero means sector has higher yields (relative).

When line is falling, it means

spreads are tightening on a relative basis.

G: TighteningG: Tightening

N: Spreads stable N: Spreads stable

N N

N N

N G

64



First Call Mean Rating (Relative to S&P 500) – Sectors (best is low and rising)





(0.55)

(0.30)

(0.05)

0.20

0.45

6/97 8/99 10/0112/03 2/06 4/08 6/10

Recession Avg Rel Rating LT Avg 1 Std Dev

More

Liked

Less

Liked

(0.55)

(0.30)

(0.05)

0.20

0.45

6/97 8/99 10/0112/03 2/06 4/08 6/10


More

Liked

LessLiked

(0.55)

(0.30)

(0.05)

0.20

0.45

6/97 8/99 10/0112/03 2/06 4/08 6/10


More

Liked

Less

Liked

(0.55)

(0.30)

(0.05)

0.20

0.45

6/97 8/99 10/0112/03 2/06 4/08 6/10


More

Liked

Less

Liked

(0.55)

(0.30)

(0.05)

0.20

0.45

6/97 8/99 10/0112/03 2/06 4/08 6/10


More

Liked

Less

Liked

(0.55)

(0.30)

(0.05)

0.20

0.45

6/97 8/99 10/0112/03 2/06 4/08 6/10


More

Liked

Less

Liked

(0.55)

(0.30)

(0.05)

0.20

0.45

6/97 8/99 10/0112/03 2/06 4/08 6/10


More

Liked

LessLiked

(0.55)

(0.30)

(0.05)

0.20

0.45

6/97 8/99 10/0112/03 2/06 4/08 6/10


More

Liked

LessLiked

(0.55)

(0.30)

(0.05)

0.20

0.45

6/97 8/99 10/0112/03 2/06 4/08 6/10


More Liked

LessLiked

(0.55)

(0.30)

(0.05)

0.20

0.45

6/97 8/99 10/0112/03 2/06 4/08 6/10


More Liked

LessLiked

Relative FC Mean Rating:

Bottom-up FC mean rating of

Street for sector less S&P 500 overall.

Negative "relative" value means

Street has more Buys on sector vs. S&P 500.

When line is rising, it means Street

is upgrading….

N: Flat recently

N: Flat recently

N: Leveled off

G: Upgrades recently

N: Downgraded too much N: Flat recentlyN: Flat recently

G N from G: Upgrades flattening

N from G: Upgrades peaking

65



Short Interest (Relative to S&P 500) – Sectors (best is high and falling)




Source: J.P. Morgan and FactSet. Note: Calculated as shares sold short as % of shares outstanding in each sector minus shares sold short as % of shares outstanding for S&P 500.

-1.5%

-0.5%

0.5%

12/02 12/04 12/06 12/08 12/10

Energy LT Avg 1 Std Dev

-0.5%

0.0%

0.5%

1.0%

1.5%

12/02 12/04 12/06 12/08 12/10

Materials LT Avg 1 Std Dev

-1.1%

-0.6%

-0.1%

12/02 12/04 12/06 12/08 12/10

Industrials LT Avg 1 Std Dev

-0.6%

-0.1%

0.4%

12/02 12/04 12/06 12/08 12/10

Technology LT Avg 1 Std Dev

-1.4%

-0.9%

-0.4%

12/02 12/04 12/06 12/08 12/10

Staples LT Avg 1 Std Dev

-1.5%

-1.0%

-0.5%

0.0%

12/02 12/04 12/06 12/08 12/10

Health Care LT Avg 1 Std Dev

-1.6%

-0.6%

0.4%

12/02 12/04 12/06 12/08 12/10

Telecom LT Avg 1 Std Dev

-1.0%

0.0%

1.0%

12/02 12/04 12/06 12/08 12/10

Utilities LT Avg 1 Std Dev

0.0%

1.0%

2.0%

3.0%

12/02 12/04 12/06 12/08 12/10

Discretionary LT Avg 1 Std Dev

-0.8%

0.3%

1.3%

12/02 12/04 12/06 12/08 12/10

Financials LT Avg 1 Std DevRelative Short Interest:

Calculated as sector short interest

(as % shares outstanding) less

average for S&P 500.

Calculated bi-weekly.

At extremes, we see short interest

as a useful potential contrarian indicator, i.e., if relative short

interest is high, we see the sector

as vulnerable to any disappointments….

N: Volatile recently G: High short interest

N

G: Declining recently

N: In line with S&P 500

N: Has declined significantly N: Has declined

significantly

G

N: Volatile recently

G from N

66



ETF Fund Flows – Sectors


Figure 167: Staples Figure 168: HealthCare Figure 169: Telecom Figure 170: Utilities


Source: J.P. Morgan and EPFR Global.

-$2,000

-$1,000

$0

$1,000

$2,000

$3,000

$4,000

$5,000

3/08 7/08 11/08 3/09 7/09 11/09 3/10 7/10 11/10 3/11 7/11 11/11 3/12

Energy

-$1,000

-$800

-$600

-$400

-$200

$0

$200

$400

$600

3/08 7/08 11/08 3/09 7/09 11/09 3/10 7/10 11/10 3/11 7/11 11/11 3/12

Materials

-$1,000

-$500

$0

$500

$1,000

$1,500

3/08 7/08 11/08 3/09 7/09 11/09 3/10 7/10 11/10 3/11 7/11 11/11 3/12

Industrials

-$800

-$600

-$400

-$200

$0

$200

$400

$600

$800

$1,000

$1,200

3/08 7/08 11/08 3/09 7/09 11/09 3/10 7/10 11/10 3/11 7/11 11/11 3/12

Technology

-$1,500

-$1,000

-$500

$0

$500

$1,000

$1,500

3/08 7/08 11/08 3/09 7/09 11/09 3/10 7/10 11/10 3/11 7/11 11/11 3/12

Staples

-$1,200

-$1,000

-$800

-$600

-$400

-$200

$0

$200

$400

$600

$800

3/08 7/08 11/08 3/09 7/09 11/09 3/10 7/10 11/10 3/11 7/11 11/11 3/12

HealthCare

-$150

-$100

-$50

$0

$50

$100

$150

3/08 7/08 11/08 3/09 7/09 11/09 3/10 7/10 11/10 3/11 7/11 11/11 3/12

Telecom

-$1,000

-$500

$0

$500

$1,000

$1,500

$2,000

3/08 7/08 11/08 3/09 7/09 11/09 3/10 7/10 11/10 3/11 7/11 11/11 3/12

Utilities

-$800

-$600

-$400

-$200

$0

$200

$400

$600

$800

$1,000

3/08 7/08 11/08 3/09 7/09 11/09 3/10 7/10 11/10 3/11 7/11 11/11 3/12

Discretionary

-$3,000

-$2,000

-$1,000

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

3/08 7/08 11/08 3/09 7/09 11/09 3/10 7/10 11/10 3/11 7/11 11/11 3/12

Financials

ETF Fund Flows:

Monthly fund flows for five largest

ETFs (based on AUM) in each

sector.

G: Inflows recently

G: Inflows recently

N: Mixed flowsrecently

N: Mixed flows recently


G: Inflows recently


G

G from N: Inflows recently

U from N: Outflows recently

67



Relative Price/10-Yr EPS (# std dev from long-term avg) – Sectors (best if low and rising)





-4.00

-2.00

0.00

2.00

4.00

'84 '88 '92 '96 '00 '04 '08 '12

Recession # Std Dev from LT Avg STD+1 STD-1

-4.00

-2.00

0.00

2.00

4.00

'84 '88 '92 '96 '00 '04 '08 '12


-4.00

-2.00

0.00

2.00

4.00

'84 '88 '92 '96 '00 '04 '08 '12


-4.00

-2.00

0.00

2.00

4.00

'84 '88 '92 '96 '00 '04 '08 '12


-4.00

-2.00

0.00

2.00

4.00

'84 '88 '92 '96 '00 '04 '08 '12


-4.00

-2.00

0.00

2.00

4.00

'84 '88 '92 '96 '00 '04 '08 '12


-4.00

-2.00

0.00

2.00

4.00

'84 '88 '92 '96 '00 '04 '08 '12


-4.00

-2.00

0.00

2.00

4.00

'84 '88 '92 '96 '00 '04 '08 '12


-4.00

-2.00

0.00

2.00

4.00

'84 '88 '92 '96 '00 '04 '08 '12


-4.00

-2.00

0.00

2.00

4.00

'84 '88 '92 '96 '00 '04 '08 '12


Relative P/10-Yr EPS # std dev from long-term avg:

Relative P/10yr EPS calculated as

sector P/10-yr EPS divided by S&P 500 P/10-yr EPS. The line shown

in charts is current value minus

long-term avg divided by long-term standard deviation.

The lower the line, the greater the

relative discount.

G: Attractive levelG: Attractive level

N: At long-term average…

G: Below long-term average U: Coming off

extreme levels…

U: Expensive

G: Extreme low

N

N: Has declined significantly

G

68



US Equity Strategy Recent Publications

US Strategy

Growth Scares Emerge about China, Europe and US; Short-Term Headwinds, But Not Thesis Changers; 28 Ideas — 03/29/12

Est. $670b Excess Cash on Balance Sheets, Apple's $10b Dividend Only a Start; 28 Ideas — 03/27/12

Why are pullbacks so shallow? Stick with Financials and Cyclicals. 17 ideas. —03/15/12

Circle of Life: Despite ST Headwinds, Upside to 1430 YE Target; Macro and History Favor Industrals, Financials, Tech & Energy; 10 Ideas — 03/09/12

Mostly Positive Developments This Week, Including Taking Out 2011 Highs. But Watch Transports and Materials. 20 Ideas – 03/02/12

Too Early to Fade on AAPL - A Cyclical Sector unto Itself and Still Underowned –02/24/12

Investors Need to Get Cyclical. 42% of Funds UW Cyclicals. 21 Ideas – 02/17/12

S&P 500 Always Had Outliers Like AAPL. Focus on Laggards Within Leaders. 24 Ideas– 02/10/12

4 More Considerations for a "Pause" - Use to Add Cyclicals/Financials; 20 Ideas –02/02/12

Circle of Life: 6 Signs of a Healthy Market; History Shows Pause After 20% Rally...Expect Further Cyclical Rotation – 01/26/12

History Shows High Equity Risk Premiums = Strong Equity Gains Despite Weak GDP; 30 Ideas – 01/19/12

4Q11 Preview: A Tough Earnings Season, But Some Positives; Raising FY11E to $98, FY12E Still $105; 9 Stock Ideas for 4Q EPS – 01/12/12

2012 to be year of "contrarian optimism" plus update on active mgr performance –01/6/12

Special Reports

SLIDES: See “Cyclical Summer” (S&P 500 rally led by Cyclicals) plus S&P 500 1475 by YE11 – 7/7/11

Housing Food Chain: Part III: Six key metrics point to housing improving in mid-/late-2011. 18 ideas – 4/8/11

2011 Outlook: YE 2011 Target 1425; Raise '11E EPS to $94 from $91; Introduce '12E EPS of $102 – 12/10/10

US Equity Strategy Slide Deck: July 2010 : 10 Reasons to remain long equities: S&P 500 YE Target of 1300 – 7/15/10

Positive on Housing Food Chain: Homebuilders most attractive, but also Mortgage Insurers, Suppliers, Timber. 12 Ideas – 4/9/10

3PointsTV – Video

(Click the links below for 3PointsTV and to view the required video, click on the “PLAYLIST” option in the video screen.)

Short term headwinds emerge into 2Q with China and oil — 03/30/12

At least $670b in excess corp cash…see more divs — 03/23/12

Bull enters its 4th year. Stick with Cyclicals/Financials. — 03/09/12

Good news this week but watch transports and materials – 03/02/12

Too early to fade AAPL. A sector unto itself. – 02/24/12

Bullish fundamentals strengthening even as pause expected – 02/17/12

AAPL is not unusual – outliers have driven S&P 500 – 02/10/12

With pause anticipated, rotate into Cyclicals/Financials – 02/03/12

Signs of a healthy market…but first a pause – 01/27/12

Global risk on makes this different from 2011 – 01/20/12

http://jpmorgan.v.reutersinsider.com/PortfolioStrategy/








































69



Basket Details

Bloomberg Ticker JPUSALTB<Index>

Benchmark SPX Index

Number of Components 15

Weighting Scheme Equally weighted


Bloomberg subscribers can use the ticker JPUSALTB to access tracking information on a basket created by the J.P. Morgan Delta One desk to leverage the theme discussed in this report. Over time, the performance of JPUSALTB could diverge from returns quoted in this report, because of differences in methodology. J.P. Morgan Research does not provide research coverage of this basket and investors should not expect continuous analysis or additional reports relating to it. For information on JPUSALTB, please contact your J.P. Morgan salesperson or the Delta One Desk.

The J.P.Morgan Apple-Like Tech Basket

Basket Methodology and Composition

The J.P. Morgan Apple-Like Tech Basket, JPUSALTB <Index> on Bloomberg, comprises 15 US listed stocks highlighted in this note. The basket comprises stocks that are perceived to have qualitative characteristics that are similar to Apple. The basket is equally weighted, but with the constraint that no stock should require more than 10% of its average daily volume to be traded (based on a basket size of $50 million). The sector and capitalization breakdown and the current composition of the basket are shown in the figures below.

Figure 183: Sector and Capitalization Breakdown of the J.P. Morgan Apple-Like Tech Basket –JPUSALTB <Index>, as of April 3, 2012(close).

Source: J.P. Morgan Derivatives & Delta One Strategy, S&P, Bloomberg.

Tech, 59%

Industrials, 20%

Media, 14%

Retail, 7%

Market Cap > $30bn, 42%

Market Cap $10bn-$30bn,

21%

Market Cap < $10bn, 37%

Derivatives & Delta One Strategy

Adam RuddAC

(1-212) 272-1215

[email protected]

Marko KolanovicAC

(1-212) 272-1438

[email protected]


70



Figure 184: Composition of the J.P. Morgan Apple-Like Tech Basket – JPUSALTB <Index>, as of April 3, 2012 (close)

Source: J.P. Morgan Derivatives & Delta One Strategy, Bloomberg.

Basket Performance

The following charts show the hypothetical price performance of the J.P. Morgan US Apple-Like Tech Basket over the last year. The realized volatility, beta and correlation of this basket vs. that of the S&P 500 Index are also shown in the charts below. The J.P. Morgan US Apple-Like Tech Basket would have returned ~7.6% compared to a ~8.6% return for the S&P 500 index and ~83% return for Apple. The basket would have had a beta of ~1.2, and a ~90% correlation to S&P 500 index. The recent 3M realized volatility of the basket would have been ~17.2%, compared to ~9.5% for the S&P 500 index and ~25.5% for Apple. The basket price returns are also ~+62% correlated with daily changes in Apple. The beta of basket daily returns with daily changes in Apple is ~0.69.

Ticker Name Sector Analyst Wgt(% ) Mkt. Cap ($Bn) ADV ($M)

QCOM US Qualcomm Technology Rod Hall 7% 114.0 773.3

AMZN US Amazon Retail Doug Anmuth 7% 88.3 1,023.7

CMCSA US Comcast Media Phil Cusick 7% 79.0 342.3

DIS US Walt Disney Co Media Alexia Quadrani 7% 76.9 372.4

VMW US Vmware Inc-Class A Technology John DiFucci 7% 47.7 153.1

ACN US Accenture Industrial Goods & Services Tien-Tsin Huang 7% 45.4 227.4

BRCM US Broadcom Technology Harlan Sur 7% 20.5 310.0

INTU US Intuit Technology Sterling Auty 7% 17.5 118.2

NTAP US Netapp Technology Mark Moskowitz 7% 16.2 271.5

LNKD US Linkedin Industrial Goods & Services Doug Anmuth 7% 9.8 372.8

TIBX US Tibco Software Inc Technology John DiFucci 7% 5.2 92.1

CREE US Cree Technology Chris Blansett 7% 3.4 77.7

TRMB US Trimble Navigation Industrial Goods & Services Paul Coster 6% 6.7 31.5

QLIK US Qlik Technologies Inc Technology John DiFucci 6% 2.7 33.6

ANSS US Ansys Technology Sterling Auty 4% 6.0 21.4

Figure 185: Price Performance of the J.P. Morgan US Apple-like Tech Basket and S&P 500 Index (over the past year)

Source: J.P. Morgan Derivatives & Delta One Strategy, Bloomberg. Note: All price performance

excludes commissions and fees. Past Performance is not indicative of future returns.

Figure 186: Daily Returns of the J.P. Morgan US Apple-like Tech Basket vs. Daily changes in the S&P 500 Index



75

80

85

90

95

100

105

110

Apr-11 Jul-11 Oct-11 Jan-12 Apr-12

Apple-Like Tech Basket

S&P 500y = 1.18xR² = 81%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

-10% -5% 0% 5% 10%

Ba

ske

t Da

ily

Re

turr

n

S&P 500 Daily Return

71



Figure 187: 3M Realized Volatility of the J.P. Morgan US Apple-Like Tech Basket vs. S&P 500 Index



Figure 188: Dividend Yield of the J.P. Morgan US Apple-Like Tech Basket vs. S&P 500 Index



0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Oct-09 Apr-10 Oct-10 Apr-11 Oct-11 Apr-12

Apple-Like Tech Basket 3-month volatility

S&P 500 3-month volatility

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

Oct-09 Apr-10 Oct-10 Apr-11 Oct-11 Apr-12

Apple-Like Tech Basket dividend yield

S&P 500 dividend yield

72



Additional Basket Methodology

In order to keep the basket relevant to the investment theme, J.P. Morgan reserves the right to review the following at any time:

Basket methodology. This is to ensure the rules of the basket remain relevant following any structural changes to the theme. This may include ensuring that the sector exposure of the basket remains broadly consistent with the investment theme.

Basket change implementation. J.P. Morgan will consider extending the implementation of changes to the basket composition from one trading session to any period up to five trading sessions in the event that a material increase in the liquidity or capacity of the basket is required to minimize market impact.

Corporate actions may affect the J.P. Morgan US Rising Treasury Yield Basket. The composition of a custom basket is typically adjusted in the following manner:

Cash Merger. The divisor is adjusted, and we remove the merging company from the basket on the day of merger and redistribute gains into remaining companies according to recalculated market cap weights of surviving constituents in the basket.

Stock Merger. If the acquirer is a member of the basket, then the weight allocated to the acquired will transfer to the surviving entity on the close of the last day it trades. If the acquirer is not a part of the basket, then proceeds (losses) from the acquired company will be redistributed to the surviving basket constituents based on the recalculated weighting on the close of its last trading day.

Spinoffs. The spinoff company and parent will be included in the basket, and both the spinoff and parent company weights will be readjusted according to new market capitalizations after the spinoff date.

Tender Offers and Share Buybacks. The company remains in the basket and its weight is adjusted according to the impact the tender/buyback has on the stock’s market value.

Delisting/Insolvency/Bankruptcy. The company is removed from the basket as of the close of the last trading day, and the proceeds (losses) will be redistributed into remaining companies according to re-calculated weights of remaining companies in the basket. If a stock trades on “pink sheets” it will not be included in the basket.

73



Companies Recommended in This Report (all prices in this report as of market close on 04 April 2012)ANSYS, Inc. (ANSS/$64.41/Neutral), Accenture plc (ACN/$64.44/Overweight), Amazon.com (AMZN/$193.99/Overweight), Broadcom Corporation (BRCM/$37.54/Overweight), Comcast (CMCSA/$29.32/Overweight), Cree (CREE/$29.56/Overweight), Disney (DIS/$42.93/Overweight), Intuit (INTU/$59.38/Overweight), LinkedIn Corp (LNKD/$99.38/Overweight), NetApp (NTAP/$44.71/Overweight), QUALCOMM (QCOM/$67.39/Overweight), Qlik Technologies Inc. (QLIK/$31.66/Overweight), TIBCO Software Inc (TIBX/$31.45/Overweight), Trimble Navigation (TRMB/$54.08/Overweight), VMware (VMW/$112.97/Neutral)

Disclosures

This report is a product of the research department's Global Equity Derivatives and Delta One Strategy group. Views expressed may differ from the views of the research analysts covering stocks or sectors mentioned in this report. Structured securities, options, futures and other derivatives are complex instruments, may involve a high degree of risk, and may be appropriate investments only for sophisticated investors who are capable of understanding and assuming the risks involved. Because of the importance of tax considerations to many option transactions, the investor considering options should consult with his/her tax advisor as to how taxes affect the outcome of contemplated option transactions.

Analyst Certification: The research analyst(s) denoted by an “AC” on the cover of this report certifies (or, where multiple research analysts are primarily responsible for this report, the research analyst denoted by an “AC” on the cover or within the document individually certifies, with respect to each security or issuer that the research analyst covers in this research) that: (1) all of the views expressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of any of the research analyst's compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report.

Important Disclosures

Company-Specific Disclosures: Important disclosures, including price charts, are available for compendium reports and all J.P. Morgan–covered companies by visiting https://mm.jpmorgan.com/disclosures/company, calling 1-800-477-0406, or emailing [email protected] with your request.

Explanation of Equity Research Ratings and Analyst(s) Coverage Universe: J.P. Morgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform the average total return of the stocks in the analyst's (or the analyst's team's) coverage universe.] Neutral [Over the next six to twelve months, we expect this stock will perform in line with the average total return of the stocks in the analyst's (or the analyst's team's) coverage universe.] Underweight [Over the next six to twelve months, we expect this stock will underperform the average total return of the stocks in the analyst's (or the analyst's team's) coverage universe.] In our Asia (ex-Australia) and UK small- and mid-cap equity research, each stock’s expected total return is compared to the expected total return of a benchmark country market index, not to those analysts’ coverage universe. If it does not appear in the Important Disclosures section of this report, the certifying analyst’s coverage universe canbe found on J.P. Morgan’s research website, www.morganmarkets.com.

J.P. Morgan Equity Research Ratings Distribution, as of April 3, 2012

Overweight(buy)

Neutral(hold)

Underweight(sell)

J.P. Morgan Global Equity Research Coverage 45% 43% 12%IB clients* 51% 45% 34%

JPMS Equity Research Coverage 43% 48% 9%IB clients* 70% 61% 53%

*Percentage of investment banking clients in each rating category.For purposes only of FINRA/NYSE ratings distribution rules, our Overweight rating falls into a buy rating category; our Neutral rating falls into a hold rating category; and our Underweight rating falls into a sell rating category.

Equity Valuation and Risks: For valuation methodology and risks associated with covered companies or price targets for covered companies, please see the most recent company-specific research report at http://www.morganmarkets.com , contact the primary analyst or your J.P. Morgan representative, or email [email protected].

Equity Analysts' Compensation: The equity research analysts responsible for the preparation of this report receive compensation based upon various factors, including the quality and accuracy of research, client feedback, competitive factors, and overall firm revenues, which include revenues from, among other business units, Institutional Equities and Investment Banking.

mailto:[email protected]

http://www.morganmarkets.com/

mailto:[email protected]

https://mm.jpmorgan.com/disclosures/company

74



Other Disclosures

J.P. Morgan ("JPM") is the global brand name for J.P. Morgan Securities LLC ("JPMS") and its affiliates worldwide. J.P. Morgan Cazenove is a marketing name for the U.K. investment banking businesses and EMEA cash equities and equity research businesses of JPMorgan Chase & Co. and its subsidiaries.

Options related research: If the information contained herein regards options related research, such information is available only to persons who have received the proper option risk disclosure documents. For a copy of the Option Clearing Corporation's Characteristics and Risks of Standardized Options, please contact your J.P. Morgan Representative or visit the OCC's website at http://www.optionsclearing.com/publications/risks/riskstoc.pdf

Legal Entities Disclosures U.S.: JPMS is a member of NYSE, FINRA, SIPC and the NFA. JPMorgan Chase Bank, N.A. is a member of FDIC and is authorized and regulated in the UK by the Financial Services Authority. U.K.: J.P. Morgan Securities Ltd. (JPMSL) is a member of the London Stock Exchange and is authorized and regulated by the Financial Services Authority. Registered in England & Wales No. 2711006. Registered Office 125 London Wall, London EC2Y 5AJ. South Africa: J.P. Morgan Equities Limited is a member of the Johannesburg Securities Exchange and is regulated by the FSB. Hong Kong: J.P. MorganSecurities (Asia Pacific) Limited (CE number AAJ321) is regulated by the Hong Kong Monetary Authority and the Securities and Futures Commission in Hong Kong. Korea: J.P. Morgan Securities (Far East) Ltd, Seoul Branch, is regulated by the Korea Financial Supervisory Service. Australia: J.P. Morgan Australia Limited (ABN 52 002 888 011/AFS Licence No: 238188) is regulated by ASIC and J.P. Morgan Securities Australia Limited (ABN 61 003 245 234/AFS Licence No: 238066) is a Market Participant with the ASX and regulated by ASIC. Taiwan: J.P.Morgan Securities (Taiwan) Limited is a participant of the Taiwan Stock Exchange (company-type) and regulated by the Taiwan Securities and Futures Bureau. India: J.P. Morgan India Private Limited, having its registered office at J.P. Morgan Tower, Off. C.S.T. Road, Kalina, Santacruz East, Mumbai - 400098, is a member of the National Stock Exchange of India Limited (SEBI Registration Number - INB 230675231/INF 230675231/INE 230675231) and Bombay Stock Exchange Limited (SEBI Registration Number - INB 010675237/INF 010675237) and is regulated by Securities and Exchange Board of India. Thailand: JPMorgan Securities (Thailand) Limited is a member of the Stock Exchange of Thailand and is regulated by the Ministry of Finance and the Securities and Exchange Commission. Indonesia: PT J.P. Morgan Securities Indonesia is a member of the Indonesia Stock Exchange and is regulated by the BAPEPAM LK. Philippines: J.P. Morgan Securities Philippines Inc. is a member of the Philippine Stock Exchange and is regulated by the Securities and Exchange Commission. Brazil: Banco J.P. Morgan S.A. is regulated by the Comissao de Valores Mobiliarios (CVM) and by the Central Bank of Brazil. Mexico: J.P. Morgan Casa de Bolsa, S.A. de C.V., J.P. Morgan Grupo Financiero is a member of the Mexican Stock Exchange and authorized to act as a broker dealer by the National Banking and Securities Exchange Commission. Singapore: This material is issued and distributed in Singapore by J.P. Morgan Securities Singapore Private Limited (JPMSS) [MICA (P) 032/01/2012 and Co. Reg. No.: 199405335R] which is a member of the Singapore Exchange Securities Trading Limited and is regulated by the Monetary Authority of Singapore (MAS) and/or JPMorgan Chase Bank, N.A., Singapore branch (JPMCB Singapore) which is regulated by the MAS. Malaysia: This material is issued and distributed in Malaysia by JPMorgan Securities (Malaysia) Sdn Bhd (18146-X) which is a Participating Organization of Bursa Malaysia Berhad and a holder of Capital Markets Services License issued by the Securities Commission in Malaysia. Pakistan: J. P. Morgan Pakistan Broking (Pvt.) Ltd is a member of the Karachi Stock Exchange and regulated by the Securities and Exchange Commission of Pakistan. Saudi Arabia: J.P. Morgan Saudi Arabia Ltd. is authorized by the Capital Market Authority of the Kingdom of Saudi Arabia (CMA) to carry out dealing as an agent, arranging, advising and custody, with respect to securities business under licence number 35-07079 and its registered address is at 8th Floor, Al-Faisaliyah Tower, King Fahad Road, P.O. Box 51907, Riyadh 11553, Kingdom of Saudi Arabia. Dubai: JPMorgan Chase Bank, N.A., Dubai Branch is regulated by the Dubai Financial Services Authority (DFSA) and its registered address is Dubai International Financial Centre - Building 3, Level 7, PO Box 506551, Dubai, UAE.

Country and Region Specific Disclosures U.K. and European Economic Area (EEA): Unless specified to the contrary, issued and approved for distribution in the U.K. and the EEA by JPMSL. Investment research issued by JPMSL has been prepared in accordance with JPMSL's policies for managing conflicts of interest arising as a result of publication and distribution of investment research. Many European regulators require a firm to establish, implement and maintain such a policy. This report has been issued in the U.K. only to persons of a kind described in Article 19 (5), 38, 47 and 49 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (all such persons being referred to as "relevant persons"). This document must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this document relates is only available to relevant persons and will be engaged in only with relevant persons. In other EEA countries, the report has been issued to persons regarded as professional investors (or equivalent) in their home jurisdiction. Australia: This material is issued and distributed by JPMSAL in Australia to "wholesale clients" only. JPMSAL does not issue or distribute this material to "retail clients". The recipient of this material must not distribute it to any third party or outside Australia without the prior written consent of JPMSAL. For the purposes of this paragraph the terms "wholesale client" and "retail client" have the meanings given to them in section 761G of the Corporations Act 2001. Germany: This material is distributed in Germany by J.P. Morgan Securities Ltd., Frankfurt Branch and J.P.Morgan Chase Bank, N.A., Frankfurt Branch which are regulated by the Bundesanstalt für Finanzdienstleistungsaufsicht. Hong Kong: The 1% ownership disclosure as of the previous month end satisfies the requirements under Paragraph 16.5(a) of the Hong Kong Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission. (For research published within the first ten days of the month, the disclosure may be based on the month end data from two months prior.) J.P. Morgan Broking (Hong Kong) Limited is the liquidity provider/market maker for derivative warrants, callable bull bear contracts and stock options listed on the Stock Exchange of Hong Kong Limited. An updated list can be found on HKEx website: http://www.hkex.com.hk. Japan: There is a risk that a loss may occur due to a change in the price of the shares in the case of share trading, and that a loss may occur due to the exchange rate in the case of foreign share trading. In the case of share trading, JPMorgan Securities Japan Co., Ltd., will be receiving a brokerage fee and consumption tax (shouhizei) calculated by multiplying the executed price by the commission rate which was individually agreed between JPMorgan Securities Japan Co., Ltd., and the customer in advance. Financial Instruments Firms: JPMorgan Securities Japan Co., Ltd., Kanto Local Finance Bureau (kinsho) No. 82 Participating Association / Japan Securities Dealers Association, The Financial Futures Association of Japan, Type II Financial Instruments Firms Association and Japan Securities Investment Advisers Association. Korea: This report may have been edited or contributed to from time to time by affiliates of J.P. Morgan Securities (Far East) Ltd, Seoul Branch. Singapore: JPMSS and/or its affiliates may have a holding in any of the securities discussed in this report; for securities where the holding is 1% or greater, the specific holding is disclosed in the Important Disclosures section above. India: For private circulation only, not for sale. Pakistan: For private circulation only, not for sale. New Zealand: This material is issued and distributed by JPMSAL in New Zealand only to persons whose principal business is the investment of money or who, in the course of and for the purposes of their business, habitually invest money. JPMSAL does not issue or distribute this material to members of "the public" as determined in accordance with section 3 of the Securities Act 1978. The recipient of this material must not distribute it to any third party or outside New Zealand without the prior written consent of JPMSAL. Canada: The information contained herein is not, and under no circumstances is to be construed as, a prospectus, an advertisement, a

http://www.optionsclearing.com/publications/risks/riskstoc.pdf

75



public offering, an offer to sell securities described herein, or solicitation of an offer to buy securities described herein, in Canada or any province or territory thereof. Any offer or sale of the securities described herein in Canada will be made only under an exemption from the requirements to file a prospectus with the relevant Canadian securities regulators and only by a dealer properly registered under applicable securities laws or, alternatively, pursuant to an exemption from the dealer registration requirement in the relevant province or territory of Canada in which such offer or sale is made. The information contained herein is under no circumstances to be construed as investment advice in any province or territory of Canada and is not tailored to the needs of the recipient. To the extent that the information contained herein references securities of an issuer incorporated, formed or created under the laws of Canada or a province or territory of Canada, any trades in such securities must be conducted through a dealer registered in Canada. No securities commission or similar regulatory authority in Canada has reviewed or in any way passed judgment upon these materials, the information contained herein or the merits of the securities described herein, and any representation to the contrary is an offence. Dubai: This report has been issued to persons regarded as professional clients as defined under the DFSA rules.

General: Additional information is available upon request. Information has been obtained from sources believed to be reliable but JPMorgan Chase & Co. or its affiliates and/or subsidiaries (collectively J.P. Morgan) do not warrant its completeness or accuracy except with respect to any disclosures relative to JPMS and/or its affiliates and the analyst's involvement with the issuer that is the subject of the research. All pricing is as of the close of market for the securities discussed, unless otherwise stated. Opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The opinions and recommendations herein do not take into account individual client circumstances, objectives, or needs and are not intended as recommendations of particular securities, financial instruments or strategies to particular clients. The recipient of this report must make its own independent decisions regarding any securities or financial instruments mentioned herein. JPMS distributes in the U.S. research published by non-U.S. affiliates and accepts responsibility for its contents. Periodic updates may be provided on companies/industries based on company specific developments or announcements, market conditions or any other publicly available information. Clients should contact analysts and execute transactions through a J.P. Morgan subsidiary or affiliate in their home jurisdiction unless governing law permits otherwise.

"Other Disclosures" last revised January 6, 2012.

Copyright 2012 JPMorgan Chase & Co. All rights reserved. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of J.P. Morgan. #$J&098$#*P

Documents

Finding the Next Apple