JPMorgan Chase

1
JPMorgan Chase Co. (JPM)
2
Company Description

• Leading global financial services firm
• Investment Banking Advises on corporate
  strategy and structure, capital raising in equity
  and debt markets, risk management and
  market-making in cash investments and derivative
  instruments
• Commercial Banking Serves 25,000 clients with
  annual revenues from 10 million to 2 billion
• Treasury and Security Services Provides
  transaction, investment and information services
  to clients
• Asset Wealth Management Provides investment
  management to retail and institutional investors,
  financial intermediaries and high net worth
  families and individuals
• Retail Financial Services Provides consumers
  and small businesses with financial services
  including deposits, investments, loans and
  insurance
• Card Services Largest issuer of general purpose
  credit cards in the U.S.

JPMorgan Chase Co. (JPM)
3
Stock Performance Events

• Event 1 Agree to pay 2 billion to Enron
  Investors
• Involvement with the accounting scandal that
  led
• to Enrons collapse
• Event 2 Hurricane Katrina
• 3rd Quarter earnings released in Nov. included
  
• 400 million in estimated credit losses
• Event 3 New CEO
• James Dimon will succeed William B. Harrison,
  Jr.
• at year end, 6 months earlier then expected

3
1
2

• - Purchased on 2/25/2000 for 51.08
• - Now trading at 38.26 (Friday Close)
• - Major losses occurred in 2002
• - Overexposure in derivatives
• - Lack of proper accounting of derivatives
• - Role in hiding accounts associated with
  Enron

JPMorgan Chase Co. (JPM)
4
Risks

• Overextended?
• - Recent mergers with Chase and Bank One
• Merger-acquisition risks
• - Merger with Bank One has been seen with
  uncertainty through
• some analysts opinions. Loss of key employees
  and disruption of
• ongoing business may hurt client and supplier
  relationships
• Internet Security
• - Increasing concern of rising theft associated
  with online banking
• Stiff Competition
• - Operating in a highly competitive industry
  which is
• experiencing consolidation. Other mergers and
  acquisitions in
• industry include Provident Financial by
  National City, GreenPort by
• North Fork and FleetBoston by Bank of America
• More involvement with accounting scandals to
  come?
• -Reputation hurt for involvement with Enron
  scandal
• -A similar scandal would be devastating to
  reputation

JPMorgan Chase Co. (JPM)
5
Opportunities

• Full Integration with Bank One
• - Merger with Bank One still not fully
  integrated
• - 3Q profits included 500 million in merger
  savings
• - Total of 3 billion in savings expected to be
  realized by end of 2007
• Turning the company around
• - Similar to the turnaround Bank One had,
  management must focus on
• transforming JPM and properly integrating a
  decade of mergers and
• acquisitions
• Concentrate on core businesses
• - Sell small businesses in order to concentrate
  and strengthen core businesses
• Growth in Asset Wealth Management
• - According to report published by Merrill
  Lynch/Cap Gemini Ernst and
• Young, total global wealth of high net worth
  individuals grew by 7.7
• Rising Interest Rates
• - Expected to result in strong growth in the
  equity markets
• - Will boost the companys interest income
• New CEO
• - James Dimon will succeed William B. Harrison,
  6 months earlier
• then expected, markets have seen this as a
  positive factor

JPMorgan Chase Co. (JPM)
6
Conclusion

• We should Hold JPMorgan Chase Co.
• Integration with Bank One is leading to increased
  revenues
• - Stock price has shown growth as 3rd Quarter
  earnings
• were positive
• Bank One has experience in rebuilding and
  transforming as it underwent a similar turnaround
  that JPM must undergo to reestablish itself
• New CEO will provide leadership to concentrate
  company on core businesses
• Other recent analyst opinions have been upgrading
  the stock value to hold/market outperform
• Stock price will not skyrocket but will trade
  consistently

JPMorgan Chase Co. (JPM)
7
(SOV)
Graham Gullans 11/14/04
8
Company Description

• Sovereign Bank is one of the largest financial
  institutions serving, Mid-Atlantic and New
  England regions.
• Consumer Bank
• Auto Loan, Home Equity, Mortgages, Checking, ATM
• Corporate Bank
• Business Line of Credit, Investments, Money
  Market, Capital Markets, Checking, Management
  services.

Sovereign Bank SOV
9
Stock Performance Events
Disgruntled shareholders

• The NYSE is considering blocking SOVs request
  to sell 2.4b equity stake to Spains Banco
  Santander giving them 19.8 ownership in SOV.
  Relational who owns 7.3 of SOV states that they
  want shareholder approval before sale to Banco
  Santander.
• Relational is also in a position to block the
  acquisition in which SOV plans to buy NY based -
  Independence Community Bank for 3.6b

Sovereign Bank SOV
10
Risks MA

• "Relational is astounded by this expensive series
  of transactions,"
• Selling 19.8 of stock to Banco Santandar
• Purchase of Independent Community Bank
• The price for Independence represents about a 29
  percent
• premium to its closing share price of 32.45
  on Friday.
• "Not only will Sovereign pay what we believe is
  an inordinate price for assets that are riskier
  than Sovereign's, but our analysis shows that
  these transactions will be dilutive to earnings
  when compared to a share repurchase in both the
  near term and the long term," Relational said.
• Downgrade by Bear Stearns, Ryan, Beck Co, etc
  from Outperform to Market Perform offers little
  growth opp.

Sovereign Bank SOV
11
Opportunities

• The partnership with Santander should result in
  many financial and operational benefits for
  Sovereign, including leveraging Santander's
  expertise in technology, marketing, and retail
  banking, and improving Sovereign's debt credit
  ratings
• With purchase of ICBC, Sovereigns geographic
  coverage is the size of original FleetBoston
  before its acq. by BOA

Sovereign Bank SOV
12
Summary

• My Opinion Neutral (Not adverse to a Sell pitch
  or Hold) because
• Their geographic coverage is expanding,
  consistent with the rest of the industry.
• SOV returns 63 in last 3 years compared to 7
  by Lehman mid-cap Bank Index.
• There are no foreseeable large long term growth
  opportunities.
• 100 week range 20 - 25, selling at 23
• Disgruntled Shareholders, SOV board difficulties

Pros ()
Cons (-)
Sovereign Bank SOV
13
International Business Machines Corporation (IBM)
14
Company Description

• The principal activity is to provide business and
  information technology services
• Global Services provides consulting services to
  clients. Often the solution to clients problems
  requires IBM software and hardware, but other
  suppliers products may be used if necessary
• Hardware Product
• Systems and Tech Provides advanced computing
  power and storage capabilities
• Personal Systems Personal computers for
  business and home
• Software consists of middleware and operating
  systems software
• Global Financing customer commercial
  financing, marketing
• Enterprise Investments develops and provides
  industry-specific IT solutions

International Business Machines Corporation
(IBM)
15
Stock Performance Events
Microsoft Antitrust issues resolved
-operations restructuring -2Q05 loss

• December 2004 Leveno Group Ltd. announced to
  purchase IBMs Personal Computing division.
• April 15 Restructuring actions cost about 1.3
  to 1.7 billion, cut 10,000 to 13,000 jobs and
  record a second quarter charge
• July 1 settled with receiving 775 M from
  Microsoft

International Business Machines Corporation
(IBM)
16
Risks

• Year-over-year revenue growth of -0.4 is
  considerably below sub-industry average of 3.6
• IBM tends to underperform the SP500 by 39 in
  bull market, and in bear market the shares
  generally decrease by 47 more
• Both Institutional investors and insiders
  decreased their numbers of share

International Business Machines Corporation
(IBM)
17
Opportunities

• 3Q05 EPS 1.26, a positive surprise of 11.1
  above 1.13 forecast.
• Restructuring started to benefit the company
• Undervalued (trailing forward P/E, forward PEG
  is discounted about 21 in comparison to 5 yr
  average)
• 4Q05 EPS forecast increased from 1.87 to 1.93,
  a rise of 3.3 while industry average moved -2.0

International Business Machines Corporation
(IBM)
18
Conclusion/Summary

• We should hold IBM because
• Strong recovery potential
• Slightly undervalued
• Predicting strong 4Q05 earnings
• 1yr Price target 85

International Business Machines Corporation
(IBM)
19
EMC Corporation (EMC)
20
Company Description

• EMC is engaged in creating products and solutions
  for information storage.
• EMC products include storage systems that manage
  and store files
• EMC software supports these systems and other
  technology infrastructure
• The newly acquired VMware helps to simplify the
  way infrastructure systems are managed across the
  board

EMC Corporation (EMC)
21
Stock Performance Events
52 week LOW (04/15/05)
52 week HIGH (01/03/05)

• 52 week HIGH (01/03/05) -- 15.09
• 52 week LOW (04/15/05) -- 11.10
• Current Price (as of 11/11/05) -- 13.67

EMC Corporation (EMC)
22
Risks

• EPS has declined 5.01 over the past 5 year
• Technology stocks are not as sexy in the
  marketplace as they once were
• EMCs P/E ratio vs. the computer hardware
  industry is 96.06 and makes it overvalued

EMC Corporation (EMC)
23
Opportunities

• Analysts at SP feel that Sarbanes-Oxley will
  create more of a need for data storage for
  corporations
• The acquisition of VMware can help EMC boost
  revenue by acting as a multi-infrastructure
  support system
• EMC has a strong balance sheet with over 3 per
  share in net cash and investments

EMC Corporation (EMC)
24
Conclusion/Summary

• We should HOLD EMC because
• EMCs AMware division presents a new growth
  opportunity for the company
• The technology industry is picking up due to
  increased spending and developments in tech
• Sarbanes-Oxley requires that much more
  information is to be stored for regulatory reasons

EMC Corporation (EMC)
25
Cepheid (CPHD)
26
Cepheid and the BioTech Industry

• Develops systems for Genetic Testing, for
  clinical, industrial, and biothreat markets
• SmartCycler DNA amplification for genetic
  analysis
• GeneXpertalong with SmartCycler technology
  automates sample preparation
• GeneXpert Anthraxdetection of anthrax
• (Biothreat sales are 68 of total sales)

CEPHEID (CPHD)
27
Stock Performance Events
Event 2 November 3, 2005
Event 1 August 6, 2005

• Event 1 Announced a loss per share of .09 in
  the 2nd Qtr because of higher costs
• Event 2 Announced a loss per share of .08 in
  the 3rd Quarter

CEPHEID (CPHD)
28
Risks

• Beta is 2.08high volatility
• YTD Return is 12.7, compared to the Industry
  Return of 19.7
• No P/E because earnings are negative
• Cepheid has reported a loss per share for at
  least the past 5 quarters

CEPHEID (CPHD)
29
Opportunities

• Sub-Industry BioTech is a growth industry with
  is expected to have positive earnings in 2006
• Revenue has grown rapidly (158) over the past 3
  years, compared to 11.84 for the Med. Equipment
  Industry.
• Cepheid is focused on the LT, with large RD
  expenditures

CEPHEID (CPHD)
30
Conclusion

• We should pitch an sell next week because
• Earnings have not met expectations
• High Beta (2.08)
• Negative earnings, YTD Return, Cash Flows, ROA,
  and ROE

CEPHEID (CPHD)
31
MSFT
32
Company Description

• Microsofts principal activity is to develop,
  manufacture, license and support a wide range of
  software products for a multitude of computing
  devices

MSFT
33
Stock Performance Events
Q1 Earnings Report
Google-Sun Partnership Announced
Q2 Earnings Report
52 wk low
Q1 2006 Earnings Report

• 52 wk high 30.20
• 52 wk low 23.82
• Current Price 27.28

Q3 Earnings Report
Q4 Earnings Report
MSFT
34
Risks

• 
  ???
• Upcoming product flops
• Slow in computer sales
• Businesses/consumers comfortable current software
  (Windows XP, etc.), reluctant to upgrade

MSFT
35
Opportunities

• Considered a value stock, low P/E, analysts
  expecting 10 growth rate each year over the next
  5 years
• Share buyback decent dividend solid
  investment with returns
• Still hasnt jumped out of the 25-27 range,
  possible to get in early if winter product
  releases are a success
• In a transitional period, between products
• 40 billion cash, no debt, additional 1 billion
  in free cash flow each month

MSFT
36
Conclusion/Summary
We should HOLD because
VS.
MSFT
GOOG
Release Date Tuesday, November 22nd!!
37
XM Satellite Radio Holdings Inc. (XMSR)
38
Company Description

• It is a holding company that provides music,
  entertainment, and information programming for
  reception by vehicle, home, and portable radios,
  as well as over the Internet primarily in the
  United States.
• Satellite radio 150 channels of commercial free
  digital music, sports events, weather forecasts,
  and more.

XM Radio Holdings Inc. (XMSR)
39
Stock Performance Events
52-week high
52-week low

• Favourable quarterly earnings declared on May 5th
• Contract with Honda boosts stock price in Mid
  May.
• XM Satellite Posts Wider Loss On Higher Costs in
  October 27th.

XM Radio Holdings Inc. (XMSR)
40
Risks

• Strong competition with iPod (podcasts) and other
  Mp3 players.
• Increasing net loss for the last 3 years of
  operations.

XM Radio Holdings Inc. (XMSR)
41
Opportunities

• Honda, Audi, BMW, and many more car manufacturers
  are pre-wiring radio satellite systems to their
  cars.
• Being a relatively new company, it already has
  5.2 million subscribers and growing.
• Its only competitor, Sirius, has 3 million
  subscribers less than XM radio.

XM Radio Holdings Inc. (XMSR)
42
Conclusion/Summary

• We should hold this stock because
• Company is still in its expansion phase, losses
  are expected in the first years of operation.
• Number of subscribers is increasing every year.
• Revenue is growing steadily.

XM Radio Holdings Inc. (XMSR)
43
Winnebago Industries (WGO)
44
Company Description

• Vertically integrated RV manufacturer
• 95 of revenues from RVs.
• Broad product line multiple brands, gas and
  diesel, low price to 200K
• Does not provide financing
• Industry leading returns and quality standards

Winnebago Industries (WGO)
45
Stock Performance Events
3/17 2Q earnings far below expectations
10/13 4Q profit falls, but beats street
Winnebago Industries (WGO)
46
Risks

• OIL
• Cyclical industry (Consumer confidence / rising
  interest rates)
• Maintaining market share in industry upswing
• Capacity expansion could impact margins
• Rising fuel costs (risk to market price, not to
  operations)
• Rising dealer inventories (market sensitive to
  this)

Winnebago Industries (WGO)
47
Opportunities

• Baby boomers
• Still relatively low interest rates
• Diesel market expanding rapidly
• Share buyback plan
• Estimated 40,000 RVs will be bought industry-wide
  following Katrina

Winnebago Industries (WGO)
48
Conclusion/Summary

• We should hold WGO, in the long run, because
• Opportunities are still there
• Very profitable and well run company
• Diversifies our portfolio

• Question is, do we hold now, or sell and buy
  back in a few years as oil prices cool off?

Winnebago Industries (WGO)
49
Barnes Noble Inc. (BKS)
50
Company Description

• Barnes Noble Inc. is a national bookseller,
  operates over 820 stores nationwide.
• Sells books online through BarnesandNoble.com,
  which was recently repurchased.
• Spun off Gamestop last year (November 2004),
  profitable move.

Barnes Noble Inc. (BKS)
51
Stock Performance Events
Failed to meet earnings by .02, GameStop spinoff
announcement
Barnes Noble Inc. (BKS)
52
Risks

• Susceptible to industry book trends (best
  sellers, etc.)
• Purchase of books can be affected by
  geo-political events (rising gas prices, etc.)
• Google Books?

Barnes Noble Inc. (BKS)
53
Opportunities

• Improved Cash Flow is being reinvested into
  website
• Board is bullish, initiating massive share
  buyback (200 million), and also dividend. Len
  Riggio, chairman is pushing this drive.

Barnes Noble Inc. (BKS)
54
Conclusion/Summary

• We should hold this stock because
• By far the best bookseller in the country, main
  competitor Borders is struggling
• Buying back shares, very little debt, in general
  in strong financial shape
• Coffee Shop/Bookstore is still very effective
  method of luring customers

Barnes Noble Inc. (BKS)
55
Water Pik Technologies Inc. (PIK)
56
Company Description

• A growth oriented consumer products company that
  capitalizes on well recognized brand names and
  develops innovative products that provide
  outstanding value to their customers.
• Personal Health Care Segment (187 million)
• Showerheads Numerous models ranging from
  mounted sprayers to hand-held massagers.
• Dental Care Manufactures different types of
  electric toothbrushes.
• Water Filtration Mounted sink filters and
  replacement cartridges.
• Pool Products and Heating Systems Segment (134
  million)
• Laars and Jandy Pool and Spa Heaters
• Chlorine generators, valves, filters, toys,
  ladders etc

Water Pik Technologies Inc. (PIK)
57
Stock Performance Events

• January 4th, after a strong 2004 year, Board is
  considering selling a portion or all of the
  company to maximize value for shareholders.
• July 1st, sells Heating Systems business to
  Bradford White.
• October 3rd hits 52 week high at 21.84

Water Pik Technologies Inc. (PIK)
58
Risks

• Lots of competition in the Dental Care (Oral B)
  and Water Filtration (Brita) industries.
• Lacking in ability to develop new products and
  execute its growth strategy.
• Uncertainty of product testing and regulatory
  approvals.
• Rising commodity costs and poor housing market

Water Pik Technologies Inc. (PIK)
59
Opportunities

• Creating a new dental product that will replace
  modern flossing.
• Future growth in homecare products after selling
  heating systems.
• Improving dental market due to current
  moderizations.

Water Pik Technologies Inc. (PIK)
60
Conclusion/Summary

• We should Sell because
• Lots of competition.
• Gillette (Braun), Clorox (Brita), Procter and
  Gamble (PUR and Crest), Colgate-Palmolive,
  Conair, Whirlpool, Lennox, Maytag.
• Pentair, Rheem Manufacturing Co., SPX Corp.,
  Burnham Corp., A.O Smith Corp.
• Only an industry leader in Showerheads.
• Housing market is doing poorly.

Water Pik Technologies Inc. (PIK)
61
Carmax (KMX)

• Company Logo

62
Company Description

• CarMax, Inc. is a retailer of used cars and
  light trucks in the United States.
• KMX purchases, reconditions, and sells used
  vehicles.
• KMX provides financing of vehicle purchases, the
  sale of extended service plans and accessories,
  and vehicle repair service.
• The company also sells new vehicles under various
  franchise agreements.

Carmax (KMX)
63
Stock Performance Events

• Consistent downgrading of earnings forecasts.
• June 20, 2005 Report of First Quarter Earnings
  (Up 13 YoY).
• CEO Austin Ligon announces his retirement.

Carmax (CMX)
64
Risks

• Departure of CEO opens company up to cultural
  change
• Rising interest rates
• Overproduction/success of new cars

Carmax (CMX)
65
Opportunities

• Economies of Scale
• Sub-prime financing
• Fewer new car sales
• New car incentives

Carmax (CMX)
66
Conclusion/Summary

• HOLD Recommendation
• Few major competitors (Autonation is larger but
  sells a larger proportion of new cars)
• Demand may be impossible to predict, but company
  is solid financially.

Carmax (CMX)
67
General Electric (GE)
68
Company Description

• GEs 11 divisions are Advanced Materials,
  Commercial Finance, Consumer Finance, Consumer
  and Industrial, Energy, Equipment and Other
  Services, Healthcare, Infrastructure, Insurance,
  NBC Universal, and Transportation.

General Electric (GE)
69
Stock Performance Events

• Stock is well-hedged due to diversification
• Rising energy costs strained business during the
  summer

General Electric (GE)
70
Risks

• Energy prices
• Businesses focused on capital goods would do
  poorly in a weak economic environment
• Rising interests would strain GE Financial
  Services

General Electric (GE)
71
Opportunities

• Synergy savings from announced restructuring.
• Developing renewable energy business
• Economies of scale, diversification, etc.

General Electric (GE)
72
Conclusion/Summary

• Recommendation HOLD
• Solid fundamentals
• Opportunities in several large businesses
• Strong capable managementgreat culture

General Electric (GE)
73
Microtek Medical (MTMD)
74
Designs, manufactures and markets infection
control and fluid control products

• Microtek management of infectious and hazardous
  waste for the healthcare market in the US UK
• Microscope Drapes
• Imaging Equipment Drapes
• Specialty Patient Drapes
• OREX Technologies International (OTI)

Microtek Medical (MTMD)
75
Microtek - 1 yr performance
Add a 1 year annotatedstock graph on this slide
February 25, 2005

• Feb. 25, 2005 - 4Q EPS beat expectations
• Aug. 5, 2005 - Announced appointment of new COO,
  Mark J. Alvarez

August 5, 2005
Microtek Medical (MTMD)
76
Risks

• Geographic Concentration
• political/economic uncertainty
• Decreased Gross Margins
• FX rate rising fuel prices
• Increased Competitive Pressure
• weak domestic branded product lines

Microtek Medical (MTMD)
77
Opportunities

• Acquiring new businesses
• Introducing new products
• Increase international sales

Microtek Medical (MTMD)
78
Conclusion/Summary

• We should pitch a sell next week because
• Lack of sufficient growth opportunities
• High stock price volatility
• Weak industry positioning

Microtek Medical (MTMD)