THE OUTLOOK

INTELLIGENCE FOR THE INDIVIDUAL INVESTOR

March 30, 2015

Volume 87
Number 12

The Outlook will not be

published on Monday,
April 6. The next issue
will be published on
Monday, April 13.

Whats Inside
Intelligencer

ETF Strategies

Sub-Industry Outlook

Focus Stock

Master List

Top Ten Portfolio

Observatory

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Please see page 8 for required research
analyst certification disclosures.

Tech Knowledge
Foreign exchange weighs on tech, but opportunities still exist
After crossing the psychologically significant
5,000 mark for the first time in 15 years on
March 2, the tech-filled Nasdaq composite
index traded lower the following two weeks,
closed above the 5,000 level on March 20
and March 23, and has since moved lower.
Extreme U.S. dollar appreciation has been
cited as a key contributor to the tech sectors
sudden loss of price momentum. The U.S.
dollar index, which compares the U.S. dollar
with a basket of currencies, has risen 7.9%
year-to-date through March 26, with a nearly
50% appreciation happening in just the first
half of March.
Many tech companies anticipated a negative impact from exchange rates when they
provided 2015 guidance in January and
February. In fact, 2015 S&P 500 tech sector
earnings estimates have declined while the
dollar has strengthened. In mid-January, as
the fourth quarter earnings season kicked
off, analysts were anticipating 2015 calendar
year tech earnings growth of 10.3%, compared with current expectations of just 5.3%.
However, the swift move in currencies has
investors and analysts concerned that the

initial downward revisions to forward earnings expectations may be too conservative.

However, from a valuation perspective,
the S&P 500 information technology sector trades at 16.2X on a forward year basis,
about in line with its 10-year average. That
also compares with a 66X multiple the last
time the Nasdaq composite index was at
5,000. Further, the tech sector is trading
at a 21% discount to its historical average
relative to the S&P 500, which is the largest
discount across relative valuations for all 10
subsectors. Typically the sector trades at a
24% premium to the S&P 500.
The S&P Capital IQ Investment Policy Committee, chaired by Sam Stovall, managing
director of U.S. equity strategy, recommends
overweighting the technology sector. The
sector makes up 19.8% of the S&P 500; the
IPC advises a 20.1% weighting.
Of the three tech industry groups (hardware, semiconductors, and software), the
semiconductors are trading at a significant
discount to historical earnings. (See cover
(Continued on page 8)

S&P 500 INFORMATION TECHNOLOGY SECTOR VALUATION SUMMARY

Semiconductors Industry Group

Software & Services Industry Group
Hardware & Equip. Industry Group
Information Technology Sector

2015 EPS ($)

2015 EPS
GROWTH (%)

12-MONTH
FORWARD P/E

10-YEAR
AVERAGE P/E

35.50
48.40
56.40
42.94

3.1
4.3
9.2
5.3

14.4
18.7
13.7
16.2

21.5
16.8
14.8
15.9

Source: S&P Capital IQ. EPS-earnings per share. P/E-price/earnings ratio. All data as of March 26, 2015.

2 S&P CAPITAL IQ THE OUTLOOK MARCH 30, 2015

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Intelligencer

S&P Capital IQs The Outlook

GLOBAL MARKETS INTELLIGENCE
Content Director Beth Piskora
Contributing Editors John Hackett, Robin Mordfin

Headlines, Highlights, and Whats on our Minds

RESEARCH & ANALYTICS

Director, Global Equity Research
Kenneth Leon
Managing Director, U.S. Equity Strategy
Sam Stovall

PORTFOLIO CHANGES: Parexel International (PRXL 67.87 ) replaces Molina

Healthcare (MOH 64.44 ) in the Small/Mid-Cap portfolio effective March 30.

KRAFT MERGER WITH HEINZ PROMISES TO PAY OFF: The agreement by Kraft Foods
Group (KRFT 84.39 ) to merge with food manufacturer H.J. Heinz promises
significant cost-synergy potential and international revenue growth opportunities, says S&P Capital IQ Equity Analyst Joseph Agnese. The merger will result in
a new publicly traded company to be named the Kraft Heinz Company, and we
expect the deal to be completed in the second half of 2015, pending approvals,
says Agnese. S&P Capital IQ is raising its 12-month target price by $15 to $89.

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Copyright 2015. All rights reserved. Standard &
Poors, S&P, S&P 500, S&P MidCap 400, and
S&P SmallCap 600 are registered trademarks
of McGraw Hill Financial. Reproduction in whole
or in part prohibited except by permission. All
rights reserved. Executive Committee of McGraw
Hill Financial: Douglas Peterson, President and
Chief Executive Officer; Jack F. Callahan, Jr., Executive Vice President and Chief Financial Officer; Lucy
Fato, Executive Vice President and General Counsel; and Imogen Dillon Hatcher, President, S&P
Capital IQ. Because of the possibility of human or
mechanical error by S&Ps sources, S&P, or others,
S&P does not guarantee the accuracy, adequacy,
or completeness of any information and is not
responsible for any errors or omissions or for the
results obtained from the use of such information.

GOOGLES INCOMING CFO COULD BE GOOD NEWS FOR INVESTORS: Google (GOOGL

563.64 ) announced that May 26 will be the start date for its new chief
financial officer, Ruth Porat, currently CFO at Morgan Stanley. Porat will replace
CFO Patrick Pichette, who announced his planned retirement three weeks ago.
Porat has been CFO of Morgan Stanley for more than five years, and was the
lead investment banker for a number of technology-related companies, including Amazon, eBay, and Netscape. We wonder if Porats arrival will lead to more
shareholder-friendly capital allocation actions, perhaps related to stock repurchases and dividends, says S&P Capital IQ Equity Analyst Scott Kessler.
S&P CAPITAL IQ STARTS AMERICAN AIRLINES OFF WITH A BUY: Based on our posi-

tive industry view and a favorable view on valuation, we find shares of American
Airlines (AAL 51.27 ) attractive, says S&P Capital IQ Equity Analyst Jim
Corridore. S&P Capital IQ has initiated EPS estimates for 2015 and 2016 at
$10.34 and $9.97, respectively, with a 12-month target price of $70. American
Airlines deserves to trade at a modest discount to the group based on a slower revenue growth rate and higher debt levels,
but we see the current valuation gap versus peers as too high, says Corridore.
TENET HEALHCARE ENTERS $2.6 BILLION JOINT VENTURE DEAL: Tenet Healthcare (THC 49.61 ) has entered into a deal

with Welsh, Carson, Anderson & Stowe to merge Tenet Healthcares short-stay surgery and imaging centers with United
Surgical Partners International in a joint venture valued at $2.6 billion. Tenet will own 50.1% of the joint venture, with an
option to buy the rest within five years. The deal is expected to close in the third quarter of this year. We view the deal
positively, as we see outpatient admissions growing faster than inpatient admissions, says S&P Capital IQ Equity Analyst
Jeffrey Loo. We are keeping our 12-month target price at $68.
GROWTH IS FORECAST IN AMEX BUSINESS LINES: S&P Capital IQ is lowering its 12-month target price on shares of American

Express (AXP 78.48 ) by $3 to $87. Reflecting foreign exchange headwinds and company guidance, S&P Capital IQ is
also cutting its 2015 EPS estimate to $5.50 from $6.00, and the 2016 EPS estimate to $5.80 from $6.65. However, we see
good growth in many of American Expresss business lines, and we expect the company to transform itself so it can outperform in an increasingly competitive environment, says S&P Capital IQ Equity Analyst Erik Oja.
S&P CAPITAL IQ EVALUATION SYMBOLS
STARS Rankings

Our evaluation of the 12-month potential of stocks is indicated

by STARS:

Strong BuyTotal return is expected to outperform

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

coming 12 months, with shares generally rising in

price on an absolute basis.
SellTotal return is expected to underperform the
total return of a relevant benchmark over the coming
12 months, and the share price is not anticipated to
show a gain.
Strong SellTotal return is expected to underperform the total return of a relevant benchmark by a
wide margin over the coming 12 months, with shares
falling in price on an absolute basis.
NR Not ranked.

Quality & Fair Value Rankings

Our appraisals of the growth and stability of earnings and dividends
over the past 10 years for STARS and other companies are indicated by Quality Rankings:

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

A+
A
A-

Highest
High
Above Avg.

B+ Average
B Below Avg.
B- Lower

C Lowest
D In reorganization
NR Not Ranked

Quality Rankings are not intended to predict stock price movements.

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

www.spoutlook.com

S&P CAPITAL IQ THE OUTLOOK MARCH 30, 2015

ETF
STRATEGIES
Todd Rosenbluth
S&P Capital IQ
Director of ETF
Research

Dont Forget to Look Inside

Choosing among funds should involve more than comparing expense ratios
As new and innovative ETFs that
hedge foreign currencies or U.S.
interest rates gain traction, it is
easy to forget that many investors
are using plain vanilla products to
build asset allocation strategies.
However, we are concerned that
these investors are focusing too
exclusively on finding the ETFs with
the lowest expense ratios, rather
than understanding whats inside
these funds.
With over $18 billion in assets,
Vanguard Value Index (VTV) is
more than twice the size of iShares
S&P 500 Value (IVE) and has
seen stronger inflows thus far in
2015. Vanguard, with a 0.09% net
expense ratio, is half the cost of
iShares. But there are other differences to consider.
Vanguards U.S style ETFs seek to
track a CRSP index, run by the University of Chicago. Unlike the S&P
Dow Jones Index followed by IVE,
CRSP uses a different approach,
involving packeting, which allows
a holding to be shared between
two indices of the same family,
and thereby cushions movement
between indices. In other words,
a stock can be in both the CRSP
Large Cap Value and Large Cap
Growth indices.
In addition, the value criteria
used by the two index providers is
different. S&P Dow Jones Indices

uses historical book value, earnings and sales-to-price ratios of

the S&P 500 Index constituents
to form its S&P 500 Value Index.
CRSP incorporates those factors,
along with 12-month forward
earnings/price ratio and dividend
yield, in forming its value universe.
(S&P Capital IQ operates
independently of S&P Dow Jones
Indices; as such, we have no
insight into the selection criteria
other than what can be found on
its website.)
Both Vanguard Value and iShares
S&P 500 have more than 300
holdings and 26% of assets in their
top 10 positions, but the exposures
are different.
VTVs largest sector weightings
are financials (21% of assets),
health care (15%), consumer
staples (12%), and information
technology (11%), which is a
surprisingly high level for a value
product. Meanwhile, consumer discretionary (5%) is one of the larger
underweights compared with the
more broadly diversified large-cap
index.
In contrast, IVEs largest sector exposure is also in financials
(24%), but energy (14%) was 400
basis points higher, while information technology (7%) was similarly
lower relative to VTV. Meanwhile,
consumer discretionary (8%) and

consumer staples (10%) weightings are also notably different.

The distinctions between VTV
and IVE are further visible when
looking into industry exposure, as
IVE has a larger stake in oil, gas &
consumable fuels companies (12%
vs. 10%) but a smaller stake in
pharmaceuticals (6% vs. 9%).
In the one-year period ended
March 20, VTVs 12.3% return was
ahead of IVEs 11.5%, though they
have a similar fractional gain thus
far in 2015. While some investors
might look further back in time to
see a stronger three-year record
and lower standard deviation for
VTV than IVE, we caution that part
of this record occurred while Vanguard was constructed differently.
In April 2013, Vanguard changed
the index VTV seeks to replicate
from an MSCI benchmark to a
CRSP one.
Both ETFs have favorable strong
risk considerations, using S&P
Capital IQ Quality Rankings and
Standard & Poors Credit Ratings
of the holdings, and modest costs,
using expense ratio and bid/ask
spread analysis. (S&P Capital
IQ also operates independently
from Standard & Poors Ratings
Services.) From a cost perspective,
while VTV has a lower expense
ratio, it had a wider bid/ask spread
than IVE.

FUNDS WITH NOTABLE DISTINCTIONS

FUND NAME / SYMBOL

RANK

CURRENT
PRICE ($)

Vanguard Value Index / VTV

iShares S&P 500 Value / IVE

OW
OW

83.05
91.89

Source: S&P Capital IQ. OW-Overweight. *Average annualized.

TOTAL RETURN (%)

YIELD
(%)

1-YEAR

3-YEAR*

5-YEAR*

EXPENSE
RATIO (%)

ASSETS
($ MLNS)

2.20
2.12

11.82
10.95

16.48
15.47

13.64
13.04

0.09
0.18

18,226
8,246

4 S&P CAPITAL IQ THE OUTLOOK MARCH 30, 2015

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SUBINDUSTRY
OUTLOOK
Erik Oja
S&P Capital IQ
Equity Analyst

Consumer Finance
Outlook: Positive
S&P Capital IQs fundamental
outlook for the consumer finance
sub-industry for 2015 is positive,
as we think companies in this
sub-industry are positioned well to
reap the rewards of an improving
economic environment.
A dramatic improvement in
credit quality that began in 2011
has continued through 2015 due
to tight underwriting standards
employed through the downturn.
S&P Capital IQ thinks overall credit
quality trends will be stable in
2015, and we expect card spending to grow at a faster rate than
consumer loans.
While the industry is now under
a higher level of regulatory scrutiny
than in the past, we think companies will act prudently. And with
credit at historically strong levels,
company managements have
time to focus on strategic growth
initiatives.
Of the types of consumer loans
offered by companies within this
sub-industry, credit cards are the
biggest segment, as auto finance

and private student loan portfolios

are relatively smaller markets.
The U.S. credit card industry is
relatively mature, but its players
have experience dealing with competition, and balancing account
growth, margin, and expenses.

With credit at historically

strong levels, companies
have time to focus
on strategic growth
initiatives.
These companies are sophisticated, information-rich marketers,
and we expect them to develop
innovative new products. The most
significant area of development is
in mobile payments, which are producing new industry competitors.
S&P Capital IQ forecasts a slight
gain in receivables and loans in the
next 12 months. Companies will
likely continue to modestly loosen
credit standards over the next couple of years. Industry receivables

growth and discount revenues

for the card networks will likely
continue to be moderate due to
lackluster spending and consumers increasingly cautious attitude
toward debt. We think receivables
growth and spending will pick up as
consumer confidence and employment levels improve.
For the longer term, we think
pricing pressure and competition
will remain intense, and we expect
the larger consumer finance
companies to continue to look to
develop new niches.
Year to date through March 20,
the S&P consumer finance index
was down 7.7% versus a 2.7%
increase for the S&P 1500 index
and a 2.4% increase for the S&P
500 index. In 2014, the S&P Consumer Finance Index was up 7.1%,
trailing a 10.9% rise in the S&P
1500 Index and an 11.4% increase
for the S&P 500.
The table lists all of the stocks
in this sub-industry that garner a
5- (strong buy) or 4-STARS (buy)
ranking from S&P Capital IQ.

RECOMMENDED STOCKS
STARS

QUALITY
RANKING

CURRENT
PRICE ($)

12-MONTH
TARGET
PRICE ($)

STYLE

P/E
RATIO*

YIELD (%)

American Express / AXP

B+

77.89

87

Growth

14.6

1.4

Capital One Financial / COF

B+

78.89

93

Blend

10.6

1.5

Discover Financial Services / DFS

NR

56.82

65

Growth

11.8

1.7

Navient / NAVI

B-

20.32

23

Blend

7.7

3.1

PRA Group / PRAA

B+

54.31

69

Growth

15.8

Nil

COMPANY NAME / SYMBOL

Source: S&P Capital IQ. *Trailing 12 months.

www.spoutlook.com

S&P CAPITAL IQ THE OUTLOOK MARCH 30, 2015

FOCUS
STOCK
Efraim Levy
S&P Capital IQ
Equity Analyst

Magna International
This auto components firm set to benefit from expected rise in vehicle production
The Focus Stock for the week
ended March 29 is Magna International Inc., which carries S&P
Capital IQs highest investment
recommendation of 5-STARS, or
strong buy. Based in Aurora, Ontario, Magna is one of the worlds
largest automotive components
manufacturers and the biggest in
Canada. We expect the company
to generate about $34.3 billion in
revenues in 2015, and $36.4 billion
in 2016. Our recommendation is
based on our expectation that
Magna will benefit from rising
global vehicle production, led by
growth in the U.S., despite lower
total revenues expected in 2015,
and that the stock has attractive
total return potential.
Magnas operations include
producing body, chassis, interior,
exterior, seating, power train,
electronic, vision, closure of roof
systems and modules, as well
as complete vehicle engineering
and contract manufacturing. The
company is focusing its product
strategy on becoming a full
systems supplier or integrator for
large automotive body systems.
Magna also plans to
pursue strategic acquisitions
that provide access to new
technologies, entry into new
markets, and diversification of its
customer base.
Sales in North America
accounted for almost 52% of
2014 revenues, with Europe at
42%, and other international at
6.2%. This excludes revenues
from complete vehicle assembly
and tooling, engineering and
other.

We forecast 6.6% lower revenues

for 2015, with decreases largely
the result of exchange rates and
regional weakness (notably South
America and Russia), along with
lower complete vehicle assembly
sales. North America sales should
be higher. Revenues are likely to
recover 6.2% in 2016.
S&P Capital IQ Equity Research
forecasts U.S. new light vehicle
sales volume will rise 2.7% to 16.9
million units in 2015. J.D. Power
& Associates (which, like S&P, is
owned by McGraw Hill Financial)
and LMC Automotive project global
new light vehicle sales volume will
increase 3.2% in 2015 to 89.6 million units, and 4.9% to 94.0 million
units in 2016.
With volume and exchange rate
pressure, Magna operating margins
are likely to be near 2014 levels of
7.2%, although we see an upside
bias. Significant progress is being
made in Europe, we believe, aided
by higher production (excluding
Russia) in that key region. Mean-

MAGNA INTERNATIONAL
Ticker: MGA
S&P Ranking:
Current Price: $51.71
12-Month Target Price: $64
Market Capitalization ($ Blns): $22.05
Price/Earnings Ratio: 11.09
Yield: 1.64%
Source: S&P Capital IQ.

while, Magna is investing heavily

in expanding in new and emerging
regions. These actions are likely
to aid results in 2015, we expect.
The drain from troubled European
plants should be mitigated over
time as the company focuses on
profitability over revenue.
We view the companys financial
position as strong, with $1.25 billion in cash and cash equivalents
as of December 31, 2014, and
long-term debt of $811 million
(including $750 million recently
issued to fund share repurchases).
Priorities for using cash are likely
to be: organic growth in emerging
markets, acquisitions, dividend
increases, and stock repurchases.
In March, MGA effected another
2-for-1 stock split and a 16%
increase in the cash dividend.
Our 12-month split-adjusted
target price of $64 is 11.4X our
2016 EPS estimate of $5.60,
reflecting historical and peer P/E
comparisons. We expect EPS of
$4.79 for 2015.
With a target price of $64, and
a recent 1.7% dividend yield, we
see approximately $12 upside
for the stock and more than 21%
total return potential.
Risks to our recommendation and target price include a
slower-than-expected increase
in demand for vehicles in general
and for vehicles with high Magna
parts content in particular,
especially in Europe, as well as
weaker-than-expected demand
in certain troubled regions.
Unfavorable currency movements
would be a negative for the stock
as well.

6 S&P CAPITAL IQ THE OUTLOOK MARCH 30, 2015

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Small/Mid-Cap Model Portfolio

To enter the Small/Mid-Cap Model Portfolio, a stock must
have a market capitalization of $4 billion or less, a 4-STARS
or 5-STARS ranking, and good long-term prospects in the
opinion of the S&P Capital IQ equity analyst who follows
it. S&P Capital IQs Senior Portfolio Group may replace any
stock in the portfolio with another stock at any time for
reasons that can include a downgrade in STARS ranking
or other factors, though a stock will not necessarily be

removed for changes to its market capitalization. This

portfolio was launched on May 23, 2003. From inception
through February 28, 2015, the portfolio rose at an average
annualized rate of 13.38% excluding dividends, compared
with 10.72% for its benchmark, the S&P Mid-Cap 400. For
the period from December 31, 2014 through March 20,
2015, the portfolio rose by 12.83%, compared with 6.00%
for the S&P Mid-Cap 400.

SMALL/MID-CAP MODEL PORTFOLIO

ENTRY
PRICE ($)

ENTRY
DATE

37.21

12/19/2011

CURRENT
PRICE ($)

12-MONTH
TARGET
PRICE ($)

STARS

QUALITY
RANK

B+

SYMBOL

COMPANY NAME

ATW

Atwood Oceanics

CLW

Clearwater Paper

61.89

04/07/2014

63.74

70

NR

CY

Cypress Semiconductor

14.32

02/09/2015

14.12

18

B-

28.58

39

DAL

Delta Air Lines

HAR

Harman International

8.03

12/03/2008

44.09

62

NR

44.48

03/25/2013

133.02

140

HLX

Helix Energy Solutions

26.79

07/28/2014

14.54

19

B-

ICLR

ICON Plc

28.51

01/22/2013

69.61

86

NR

KELYA

Kelly Services

17.03

06/24/2013

17.01

19

B-

NICE

NICE-Systems

54.97

02/17/2015

58.64

78

NR

PRXL

Parexel International

67.87

03/30/2015

67.87

78

B+

SBAC

SBA Communications

29.62

09/15/2008

119.23

135

SBGI

Sinclair Broadcast Group

34.71

12/30/2013

30.70

30

SUNE

SunEdison

7.52

06/24/2013

23.76

28

SWFT

Swift Transportation

24.75

11/03/2014

26.27

37

NR

UNFI

United Natural Foods

67.99

11/03/2014

73.56

83

B+

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

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

LEADERS
NAME

LAGGARDS
YTD GAIN / LOSS

NAME

YTD GAIN / LOSS

ICON Plc

39.81%

Helix Energy Solutions

Harman International

27.94%

Delta Air Lines

-34.88%

SunEdison

25.47%

Clearwater Paper

-3.57%

Sinclair Broadcast

14.11%

United Natural Foods

-2.00%

Atwood Oceanics

-0.67%

-3.60%

Source: S&P Capital IQ. Current portfolio members only. Performance is based on the year to date through 3/20/2015, or, if the security was added after the start of the year, for
the time it has been a portfolio member.

www.spoutlook.com

S&P CAPITAL IQ THE OUTLOOK MARCH 30, 2015

Top Ten Model Portfolio

The Top Ten Model Portfolio comprises
stocks that S&P Capital IQ believes to
be well positioned for capital appreciation over the next 12 months.
The goal of the Top Ten Model
Portfolio is to outperform the S&P
500 index on a capital appreciation
basis. S&P Capital IQs Senior Portfolio
Group, a subcommittee of our Investment Policy Committee, selects the
stocks. The intention of the model

portfolio is to be fairly balanced

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

The model portfolio was launched on

December 31, 2001. From inception to
February 28, 2015, the model portfolio
rose at an average annualized rate of
5.59% excluding dividends, compared
with 4.71% for the S&P 500. For the
period from December 31, 2014 to
March 20, 2015, the model portfolio
rose by 11.44% excluding dividends,
compared with 2.39% for the S&P
500.

TOP TEN PORTFOLIO

ENTRY
DATE

STARS

12-MONTH
TARGET
PRICE ($)

49.55

108

0.59

68

114.81

47.14

125

56.80

6.35

65

-6.78

110

180.57

86

ENTRY
PRICE ($)

CURRENT
PRICE ($)

PRICE
CHANGE (%)

SYMBOL

COMPANY NAME

AET

Aetna

04/11/2014

70.82

105.91

CBS

CBS

04/17/2014

60.64

61.00

STZ

Constellation Brands

04/11/2014

78.03

DFS

Discover Financial

01/17/2014

53.41

EOG

EOG Resources

04/30/2014

98.00

91.36

ICLR

ICON Plc

10/18/2012

24.81

69.61

QRVO

Qorvo

01/29/2015

75.76

77.19

1.89

80

SAVE

Spirit Airlines

02/07/2014

46.00

73.67

60.15

100

SUNE

SunEdison

02/26/2015

22.49

23.76

5.65

28

TROW

T.Rowe Price Group

06/14/2013

73.40

81.16

10.57

92

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

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

Por tfolio Focus: SunEdison

SunEdison is the most recent addition
to the Top 10 portfolio, added on
February 26, 2015. S&P Capital IQ
Equity Analyst Angelo Zino has a bullish outlook on the company, a leading
solar systems installer and producer
of silicon wafers used in semiconductors for microelectronic applications.
The company was formerly called
MEMC Electronic Materials.

Our strong buy recommendation

reflects our view of recent construction activity providing better visibility,
pipeline expansion and renewable
expansion into the wind arena, says
Zino. We see the companys solar
energy pipeline offering some stability in the volatile solar industry, with
its backlog concentrated in North
America but diversifying.

We believe the acquisition of

First Wind doubles SunEdisons total
addressable market and provides
greater diversification.
Zino forecasts significant long-term
revenue growth potential, an improvement after the 10% revenue decline in
2014. He estimates the gross margin
will widen in 2015 and 2016, compared with a 10% margin for 2014.

8 S&P CAPITAL IQ THE OUTLOOK MARCH 30, 2015

www.spoutlook.com

The Observatory
Selected actions for March 23 to March 27
NEW
STARS

OLD
STARS

STARS
RANKING
DATE

ADTRAN / ADTN

3/23/2015

18.32

Affiliated Managers / AMG

NR

3/25/2015

AK Steel Holding / AKS

American Airlines / AAL

Capital One Financial / COF

12 MONTH
TARGET
PRICE ($)

QUALITY
RANK

FAIR VALUE
RANK

20

B+

NR

215.14

237

3/23/2015

4.41

NR

3/25/2015

51.27

70

NR

NR

3/23/2015

78.51

93

B+

Caseys General Stores / CASY

3/23/2015

87.20

99

A+

Fiat Chrysler Automobiles / FCAU

NR

3/25/2015

16.08

17

NR

NR

HollyFrontier / HFC

3/25/2015

40.53

42

Huntington Bancshares / HBAN

3/24/2015

10.88

13

B-

Patterson-UTI Energy / PTEN

3/26/2015

19.10

14

B-

NR

Starbucks / SBUX

3/26/2015

95.08

98

B+

Synovus Financial / SNV

3/23/2015

27.79

33

B-

COMPANY NAME / SYMBOL

PRICE ($)

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

For intraday STARS changes, subscribers can visit www.spoutlook.com and click on the STOCKS tab.
The Observatory provides a selection of analytical actions upgrades, downgrades, initiations from S&P Capital IQ. Stocks featured in the Observatory are
selected by The Outlook according to factors including, but not limited to, newsworthiness, capitalization, and inclusion in a portfolio published by The Outlook.
Please note that all investments carry risks. Investors should seek nancial advice before investing.
All of the views expressed in this research report accurately reect the research analysts personal views regarding any and all of the subject securities or issuers.
No part of the analysts compensation was, is, or will be, directly or indirectly, related to the specic recommendations or views expressed in this research report.

Tech Knowledge (Continued from cover)

table.) Even as growth is expected to
moderate in the space, the 32% discount in valuation is intriguing.
Semiconductors typically have
volatile movements in earnings,
which was exhibited over the course
of the last earnings season. When
analyzing the change in 2015 earnings expectations for the S&P 500
information technology sector, we
took a look at the composition of the
25% of companies with estimates
moving the most upward and the
most downward. The semiconductors
represented more than a third of each
quartile.

On March 12, Intel (INTC 30.20

) slashed its earnings guidance

on the back of slowing PC demand,

reminding investors that not all tech
companies are created equal. Secular
trends in mobility, the cloud, big data,
and social media are anticipated to
be key drivers of growth in the sector.
However, PC-related product demand
is widely expected to remain soft,
storage related industries continue
to face challenges, and lower carrier
spending in mature markets is
anticipated (China will likely be a
positive but orders will probably be
lumpy).

S&P Capital IQ equity analysts have

strong buy rankings on 13 technology
stocks, and buy rankings on another
42. To obtain the complete list, please
use the stock screening tool on the
Stocks tab of The Outlooks website,
www.spoutlook.com.
An exchange-traded fund, Technology Select Sector SPDR (XLK 41.26
Overweight) offers diversified exposure to the entire S&P 500 technology
sector.
Lindsey Bell
Senior Analyst
Global Markets Intelligence