General Meeting 6

October 16, 2012

Meeting Agenda
Market Update Portfolio Evaluation Stock Pitch Breakout Session Announcements

S&P Since 10/08/2012

S&P Since July

Major Events
Alcoa starts off earnings season beats earnings but tumbles
Lower aluminum demand for 2012

Bernanke Defends QE3

Money outflows to other nations Currency war inflationary pressure?

JPM and Wells Fargo report earnings

State of housing market Effect of QE on banks?

Softbank acquisition of Sprint for $20.1Bn

Entry into US market Possibility of overleverage?

Economic News/Next Week

Unemployment down 7.8%
Jack Welch Its a trap!

Spain hasnt asked for bailoutyet

Talks point to November and larger bailout package Posturing vs Germany

September retail sales up +1.1% (beating 0.7%)

Recovery?

Michigan Consumer Sentiment Index 5-year high!

Earnings reports this week:

GS/MS/BAC GOOG/MSFT/VZ GE/MCD

Portfolio Evaluation

Kohls
2.7% decline in September same-store sales. 52,000 seasonal employees for the holiday shopping season. Opening new stores and renovating old ones in expectance of a busy holiday shopping season. Hold until after the holiday season and then reevaluate.

Apache
Not been doing so well, continuous downward trends Hurricane Isaac stopped production for 6 weeks, but the COO released a statement saying that production is now at an all-time high. So, the fourth quarter should be better than their third. Hold until after the election due to instability in the environment causing oil price fluctuations and then sell if theres no improvement

Bank of America Corp.

BAC

Sell or Keep?
Legal risks
Linked to mortgage origination during the crisis Withholding information about Merrill Lynch acquisition from investors

Increased regulatory costs and limitations on business Forced buybacks for securitized mortgages could put downward pressure on earnings (could be up to $5B of buybacks)

Decision:
SELL Risks outweigh the potential upside; Beta of 2.32 too much volatility for USIT portfolio

Entry Point: $12.27 Current Price: $9.44 Loss: 23%

Rio Tinto Ltd.

Risks
Strongly impacted by U.S. recovery, Eurozone crisis and ability for China to stimulate more growth Plans to expand iron ore production Labor dispute caused aluminum production to be down 12% from last quarter Copper and bauxite up 5% and 8% respectively Affected by natural disasters (Japan earthquake, etc.)

Decision:
SELL Minerals possibly increasing in price (good for RIO) but too much risk involved for little upside potential Entry Point: $65.21 Current Price: $48.34 Loss: 25.8%

Key Advantages
All parts of Steel value chain
Vertical Integration

Internal Distribution system

Commissions down, margins up

Exposure to foreign markets

Brazil, China etc.

Industry Indicators

Key Disadvantages
Global Economy Dependent
Steel Product Demand

Geographical Spread
exposure: local politics

Recent Downgrades
GS to sell, many to hold

Exit Point
Key Takeaways -High Risk -Low/No Growth Recommendation: Sell

IBM
Hold
Hardware segment on a slight decline Software and Service segment new focus for IBM
Total Solution are higher margin services and can be very profitable

Risk
General information Technology spending decrease Increase competition Risk with integrating newly acquired companies

Financial Metrics
52-Wk High 211.79 P/E Ratio- 15.19x Market Cap- 240.2B Beta- .7 Dividend Yield- 1.63% Expected YoY Revenue Growth- (1.38%) Expected Diluted EPS- 15.15

LINC
Hold Until 11/5 (reevaluate immediately)
Announced earnings call MD&A
claim to have effectively restructured after selling off seven campuses

Risk
New regulation of for-profit education Repubs take Senate, fewer student loans, lower student demand Just Settled two class action lawsuit; likely face more

Financial Metrics
Current P/E: 47.3 EPS TTM: 0.09 Market Cap: 97.08M Dividend Yield: 6.58%

Pitch

USIT Stock Pitch

10/16/2012

Analysts:

Andrew Smith Arun Gopalakrishnan James Jittiwan

Ryan Lemen

Portfolio Compatibility

Only one other company in sinful industry (BUD) Value stocks not growing USIT portfolio Risk tolerance needs to increase Need for growth

Buy at Current Price: $113.94 6 month time frame Exit Strategy: Sell half after 15% increase and ride growth Sell half after 10% decline and reevaluate

Diageo Overview

Company Overview Key Facts

30,000 suppliers 180 countries 58 brands of alcohol Focused marketing strategy

Management
CEO: Paul Walsh in brewery business for 30 years (Grand Met Guinness Diageo) CFO: Dierdre Mahlan in alcoholic beverages for 20 years (Seagram Diageo)

Key Trading Statistics

Price: $113.94 P/E: 22.27 52 Week: 72.39 116.96 Mkt Cap: 71.46B Dividend Yield: 2.42% Beta: 0.79 EPS: 5.00

Key Developments
2008 acquired Rosenblum Cellars 2009 opened malt distillery in Scotland 2011 acquires Mey Icki in Turkey 2011 acquires Ypica in Brazil

Competitor Analysis Intl. Spirits Market Share

Diageo 30%

2011 Sales (in billions $)

Brown Forman, 3.6
Beam Inc, 2.3

Other 40%

Pernod Ricard, 13.18

Diageo, 23.46

Brown Forman 7%

Pernod Ricard 23%

Investment Merits

Financial Strength
Operating Margin Growth - Last 3 Years

Operating Margin ($m)

5000 4800

29.5% 29.0%

Operating Margin %
EPS

5200

30.0%

4600
4400 4200 4000

28.5%
28.0% 27.5% 27.0%

$850M Cash on hand $3,360M Cash from Ops Healthy M&A Activity

2010

2011

2012

Years
Operating Margin Operating Margin %

Net Sales and EPS Growth Net Sales ($m)

17500 17000 16500 16000 15500 15000 2010 2011
Years

1 0.9 0.8 0.7 0.6 0.5 2012

Credit Rating: A Dividend Yield: 2.42%

Net Sales

EPS

First-Class Brand Strength

Global Rank #1 Ultra Premium Vodka #1 Premium Vodka #1 Stout in the world #2 Latin Am, Whiskey Unranked Irish Whiskey #1 Scotch Whiskey

Organic Sales Growth (YoY)

62%

6%

4%

24%

20%

15%

Key Markets U.S., Brazil U.S., France, U.S., G.B, Indonesia, South Am., Nigeria Brazil U.S., Mexico, U.S., Ireland, U.S., Middle Russia, G.B., East, China, Brazil, Mexico France Colombia

Strategic Market Presence

Current Presence Opportunity
Sales (millions USD)

Alcoholic Beverage Sales by Region

195000

175000

155000

135000

115000

Acquisitions have strengthened market position Expertise in entering markets will help DEO enter new markets Opportunity to enter new markets and strengthen positions in existing markets (South America, East Asia)

95000

75000

55000 2008 2009 2010 2011 2012

Year
North America Europe South America Asia-Pacific

Risks and Mitigations

Risks and Mitigations

Eurozone debt crisis worsens

Suppliers hike prices

Regulation in foreign countries

Likelihood: 3/10 Magnitude: 4/10 Mitigation: Alcohol consumption has steadily increased; grow sales in emerging markets

Likelihood: 3/10 Magnitude: 5/10 Mitigation: Diageo can leverage the volume that they purchase in to get favorable terms

Likelihood: 6/10 Magnitude: 2/10 Mitigation: Diageo is in so many markets that regulation in a few wont affect the company too much

Financials

Supplemental Slides

Breakdown by Product

Recent Acquisitions

Tarun Kanthety Manideep Ravi

 Royalty revenue from handset makers use of CDMA based networks (30% of revenue) Early adoption of 4G patent technologies from many mobile manufacturers Hardware present in all 3 of the largest phone manufacturers (Apple, Samsung, Nokia) Snapdragon S4 chips are present in most tablets/smartphones Developing pipeline of new technologies Machine to machine communications Halo wireless charging system (electric cars) Strong acquisition presence (4 in the last 2 years)

 Very solid and strong balance sheet

Debt/Equity Ratio of 0.03

Held 48% market share in smartphone chips Operating margins are north of 30% Growing dividend (1.7%) Strong Cash Flow: $4.29 B ($2.52/share)

 Shortage of new 28 nanometer chips mobile chips Demand far outpaced the supply for these Snapdragon S4 chips Taiwan Semiconductor Manufacturing shortages expected to last till December New entrants into the 3G/4G LTE baseband processors-(only one currently producing) Intel NVIDIA Correlation with AAPL has caused stock price to fluctuate (minor risk)

 Based on the strong fundamental performance and market positioning: We recommend holding Qualcomm (QCOM) for another 1 year Entry Point = $54.06 Current Price = $59.28 Gain = 9.78% Current Holding Period = 1.5 years Fair Value Consensus Estimate = $70.55

Strong growth over the past 3 years

Humira Expected to be the best selling drug in the nation (Reuters)
Patent expires Dec. 31, 2016

Consistent growth Successful acquisitions

Strong patent outlook

Company is splitting into two -> Better valuation
AbbVie is a promising split

Potential competition with Humira

Heavily dependent: 21% of sales

Affordable Care Act Cost $85 billion over 10 years for the industry Qualifications of new CEO: Richard Gonzalez
Accidentally misstated, but still cause to worry

for investors - minor

 Entry Point: 53.05 Spring of 2011 Current Price: 72.05 as of yesterday

Gain: +35.81%
Current Holding period: <1.5 years

Watch over the next few months for split and then

re-evaluate based on allocation

EXXON MOBIL
TICKER: XOM LAST PRICE: 91.51 PURCHASE PRICE: $79.94 SHARES: 5 RETURN: 14.57%

GRAPH

REVENUE

Segment

Geography

EPS

INVESTMENT THESIS
Growth: Short-term growth estimates are down for the current quarter and this year, but up for next quarter and next year. Analyst expectations are already priced in. They went up due to QE3. Expansion: Exxon Mobil has invested more in PPE, but they have decreased exploration costs. Macro Outlook: Oil prices are likely to fall due to increasing supply and the crude oil future is decreasing. EPS expectation: Lower than last years EPS, but expected to grow next year

RISKS
Economic Events Elections Euro-debt Crisis Demand and Supply Increase in supply of oil and natural gas Increase in demand for renewable energy Catastrophic Events Major Oil spills or damage to rigs Political unrest in Middle-East

TECHNICAL ANALYSIS

CONCLUSION
My recommendation is to sell before the earnings call on November 1,2012. It has reached its resistance level of 92. It is most likely to fall after this. It is best to book profits now. XOM is not likely to expand fast in the short-term (1-3yrs) as it is a mature company.

Kinder Morgan (KMP)

Strong Dividend (MLP) Not highly leveraged towards price of oil Strong growth prospects moving forward Recommendation: HOLD

Anheuser-Busch InBev (BUD)

Strong Price Action Growth through Chinese middle class Low risk Recommendation HOLD

Pitch Schedule
Date 11-Sep 18-Sep 25-Sep 2-Oct 9-Oct 16-Oct 23-Oct 30-Oct 6-Nov 13-Nov 20-Nov 27-Nov 4-Dec Name SCG Directors John C Olympics John T John C Billy Stephen Ryan Angela Finance Panel Thanksgiving Ali John T

Announcements

Clip of the week

http://www.youtube.com/watch?v=yFU774q6 eVM&feature=g-logo-xit