Feb 17 2011

Tensions in the Middle East flared

Dow 12,288.17 +61.53 +0.50%
again as two Iranian warships
planned to sail through the Suez S&P 500 1,336.32 +8.31 +0.63%
Canal to Syria, according to an Nasdaq 2,825.56 +21.21 +0.76%
Israeli official. The move was
considered as provocative by Israel. Stocks dipped on the news but later recovered after the
FOMC minutes released on Wednesday showed that the Fed has become more confident on
the economic recovery despite bleak outlook on the labor market.

US shares finished the day in the green, with S&P 500 index settled at 1,336.32. The level
was twice the intraday low hit in March 2009, boosting investors’ sentiment further. The Dow
30 finished 0.5% higher, led by JPM with 2.39% gains. HPQ was at the second spot with
gains of 2.08%, buoyed by DELL’s sterling quarterly report a day earlier. BA was at the third
spot as it booked 1.51% gains. Seven of the 30 stocks were declining, with VZ slipping 0.8%,
and WMT and CSCO falling 0.73% and 0.48%, respectively.

FOMC minutes was the major catalyst for the day’s moves. Fed Reserve
officials upgraded their forecast for this year’s growth to between 3.4%
and 3.9%, higher than earlier projection of 3% and 3.6%. Forecasts for
2012 and 2013 were barely changed. Unemployment rate, a prime
problem for the US economy, according to the Fed, was expected to be
around 8.8% and 9% in Q4 2011. This was a small change from earlier
projection between 8.9% and 9.1%. Inflation is expected to be around 1.3% to 1.7%, slightly
higher than the previous forecast of 1.1% to 1.7%.

Economic data were mixed. PPI was reported less than expected at 0.8% vs. prior 0.9% and
below the consensus of 0.9%, but core PPI jumped 0.5% in January, twice faster than
December’s 0.2% and above the expected 0.3% rise. Industrial production in January was
below the expected rise of 0.4%, falling 0.1% after it rose 1.2% in December. Housing starts
however, jumped to 596K, way above the expected 520K.

As inflation at the production stage has been somewhat timid, the market attention will focus
on the CPI data which will be released on Thursday. CPI is expected to slow from 0.5% to
0.3% in January, while the core CPI is seen stable at 0.1%. Leading indicators however, is
seen to slow to 0.2% after it was reported at 1.0% in December. The last piece of data of the
week, Philly Fed Index, is seen improving from 19.3 to 20.8 in February.
 Feb 17 2011
Corporate News
 JPM led the Dow 30 with a 2.39% rise on Wednesday, following the report of its
impressive trading record in Q4. Speaking at the bank’s annual investor day, CEO Jamie
Dimon said that JPM plans to expand in both consumer and private banking in the next
five years. JPM could use its capital to raise the dividend, distributing special dividend or
buying back shares. Oppenheimer analysts said that JPM is more likely to go up than
down and considered the stock as ‘still cheap’. Also, JPM announced its plan to reduce the
number of trading platforms around the world, according to FT. The plan would include
eliminating or redeploying employees and would cost JPM around $500 million. This year,
the bank also plans to add 225 branches in Florida and California, while 2,000 new
branches are to be added in the next five years.
 HPQ acquired a contract extension with the Oklahoma Health Care
Authority worth $281 million and would last for seven years.
Meanwhile, DigiTimes Research expected global desktop shipments
to reach 152 million units in 2011, with 20% of them would be all-
in-one PCs. The projection means 3% higher than shipments in 2010
which stood at 148 million. In India, HPQ pushed DELL to the second place in the Indian PC
market after spending two quarters below DELL. In Q4, HPQ’s market share was at 17.3%
while DELL got 14.2%. HPQ gained 2.08% on Wednesday behind JPM as upbeat
earnings from DELL boosted market sentiment. HPQ will release its quarterly earnings
report on Feb 22nd.
 BA’s rival in its bid to win aerial refueling contract, EADS, said that it has revised its bid.
The Pentagon’s contract is worth $35 billion. The grounding of 96 aircrafts owned by
United Continental was said to be temporary and voluntary. The grounded aircrafts consist
of BA’s 757s.
 DIS has raised the wholesale prices on its new DVDs for both Redbox and Netflix. The new
price is now at full rate and could be as high as $17.99 for DVDs.
 VZ languished at the bottom as its iPhone sales were said to have been below the
expectations during the first week. From Thursday to Monday, sales were at 3,992 units,
compared to T’s sales of 3,009 units during the same period. Switch rate was also below
the expectation as only 14% of buyers were T’s iPhone owners. VZ’s shares declined 0.8%
to end at $36.17.
 WMT was one of the additions to First Pacific Advisors portfolio during Q4 2010. Other
notable additions were MSFT, PFE, and TRV. Dow 30 member CVX got sold out by the
firm. WMT did not fare well on Wednesday however, as it dipped to $54.55 or down
0.73%.
 Fibercore, a designer and manufacturer of specialty optical fibers has been acquired by
H.I.G. Europe. Fibercore was previously owned by CSCO. CSCO’s shares remained under
pressure as it settled at $18.58, down 0.48% on the day.
 GE Hitachi and Lockheed Martin have agreed to cooperate on the design and
manufacture of the main control room systems for GE Hitachi water reactors. The bad news
was, the US House of Reps voted to halt the funding of backup engines made by GE and
Rolls-Royce Group Plc. The project on engines for F-35 fighters worth $450 million.
Obama said that the engine project has been a wasteful spending. GE edged lower to
settle at $21.44.
 Feb 17 2011
 CVX will takeover Atlas Energy in a deal worth $3.58 billion, adding
shale-gas to the company’s business. Nearly all of the shareholders
voted in favor of the takeover. Elsewhere in Ecuador, the fine that
would have to be paid by CVX for environmental damages will not
be aggressively pursued by the Ecuadorean lawyers. The lawyers will
wait until CVX has completed the appeal process. The fine worth $9.5 billion.
 INTC CEO Paul Otellini indicated that 2011 will see Intel-powered smartphones to arrive
at the market. On Nokia-MSFT link-up, Otellini said that the MeeGo mobile OS that INTC
developed with Nokia has a future ahead. INTC went up 1.4% by the end of the day.
 MRK is considering shutting down its Organon unit because the Dutch bioscience R&D unit
has failed to attract buyers.
 Carter Machinery Co., CAT’s dealership in Virginia will be sold. Senior management will
remain, however. Former CAT VP, Jim Parker will be the Carter Machinery’s CEO and
principal owner. The sale is expected to be completed in Q1 2011.

Upgrades & Downgrades

Rating PT
Code House Date
Prv Current Prv Current
HPQ Wedbush 16-Feb Outperform Outperform $50.00 $55.00
JPM Goldman Sachs 16-Feb - Overweight - $60.00
JPM Wells Fargo 16-Feb Outperform Outperform - -
MSFT Collins Stewart 16-Feb - Buy - $33.00
XOM Citigroup 16-Feb Buy Buy - $90.00

US Economic Calendar
Date Time Report Period Actual Forecast Previous
15-Feb 8:30 AM Retail sales Jan 0.3% 0.6% 0.5%
15-Feb 8:30 AM Retail sales ex-autos Jan 0.3% 0.6% 0.3%
15-Feb 8:30 AM Import price index Jan 1.5% n/a 1.2%
15-Feb 8:30 AM Empire state index Feb 15.4 14.3 11.9
15-Feb 10:00 AM Inventories Dec 0.8% 0.6% 0.4%
15-Feb 10:00 AM Home builders' index Feb 16 16 16
16-Feb 8:30 AM Producer price index Jan 0.8% 0.9% 0.9%
16-Feb 8:30 AM Core PPI Jan 0.5% 0.3% 0.2%
16-Feb 8:30 AM Housing starts Jan 596,000 520,000 520,000
16-Feb 9:15 AM Industrial production Jan -0.1% 0.4% 1.2%
16-Feb 2:00 PM FOMC minutes 1/26/2011
17-Feb 8:30 AM Jobless claims 2/12/2011 400,000 383,000
17-Feb 8:30 AM Consumer price index Jan 0.3% 0.5%
17-Feb 8:30 AM Core CPI Jan 0.1% 0.1%
17-Feb 10:00 AM Leading indicators Jan 0.2% 1.0%
17-Feb 10:00 AM Philly Fed Feb 20.8 19.3
 Feb 17 2011

Stock focus: AXP

AXP
Feb 16th MTD Resistances 47.09 48.23 48.61 49.19 49.68

↑ 1.45% ↑ 8.02% Supports 46.47 45.88 45.49 45.04 44.59

YTD 12-Month Outlook

↑ 9.18% ↑ 22.70%
Last
POSITIVE
$46.86 Strategy BUY dips to $46.47, risk < $45.88, PT $49.68
 Feb 17 2011

Dow 30 - Feb 16th 2011

JPM 2.39% 1 CAT 0.53% 11 T 0.21% 21
HPQ 2.08% 2 MRK 0.52% 12 TRV 0.19% 22
BA 1.51% 3 BAC 0.47% 13 UTX 0.15% 23
AXP 1.45% 4 HD 0.45% 14 GE -0.09% 24
DIS 1.42% 5 KFT 0.42% 15 JNJ -0.16% 25
INTC 1.40% 6 MMM 0.36% 16 MCD -0.17% 26
PFE 1.21% 7 IBM 0.34% 17 PG -0.25% 27
AA 1.09% 8 KO 0.33% 18 CSCO -0.48% 28
DD 1.03% 9 CVX 0.33% 19 WMT -0.73% 29
XOM 0.87% 10 MSFT 0.22% 20 VZ -0.80% 30

Dow 30 - Week-to-Date - Feb 16th 2011

JPM 2.55% 1 BAC 0.47% 11 KO -0.27% 21
PFE 2.39% 2 BA 0.47% 12 IBM -0.27% 22
AA 1.27% 3 KFT 0.46% 13 JNJ -0.30% 23
XOM 1.05% 4 AXP 0.24% 14 MRK -0.33% 24
HD 1.01% 5 CVX 0.22% 15 T -0.60% 25
HPQ 0.97% 6 DD 0.16% 16 VZ -0.60% 26
TRV 0.80% 7 CAT 0.01% 17 CSCO -0.64% 27
DIS 0.67% 8 INTC -0.05% 18 MSFT -0.84% 28
MMM 0.58% 9 MCD -0.16% 19 PG -1.50% 29
GE 0.52% 10 UTX -0.16% 20 WMT -2.05% 30

Dow 30 - Month-to-Date - Feb 16th 2011

DIS 12.43% 1 TRV 5.69% 11 INTC 1.35% 21
BA 8.08% 2 MMM 5.02% 12 JNJ 1.25% 22
AXP 8.02% 3 UTX 4.62% 13 PG 1.00% 23
DD 7.87% 4 BAC 4.32% 14 KO 0.88% 24
HPQ 7.22% 5 XOM 3.73% 15 IBM 0.86% 25
CAT 6.74% 6 MCD 3.19% 16 KFT 0.75% 26
JPM 6.68% 7 HD 2.96% 17 MRK -0.63% 27
GE 6.45% 8 T 2.83% 18 MSFT -2.56% 28
AA 6.16% 9 CVX 1.82% 19 WMT -2.71% 29
PFE 5.82% 10 VZ 1.54% 20 CSCO -12.15% 30
 Feb 17 2011

Dow 30 - YTD Feb 16th 2011

GE 17.22% 1 PFE 10.11% 11 VZ 1.09% 21
DIS 16.50% 2 DD 9.60% 12 PG -0.89% 22
HPQ 16.37% 3 AXP 9.18% 13 MCD -0.96% 23
XOM 14.46% 4 UTX 8.05% 14 JNJ -2.15% 24
AA 14.29% 5 HD 7.99% 15 KFT -2.25% 25
JPM 13.01% 6 MMM 6.99% 16 MSFT -3.19% 26
IBM 11.34% 7 TRV 6.73% 17 KO -3.60% 27
BAC 11.24% 8 CVX 5.93% 18 T -3.68% 28
BA 11.06% 9 INTC 3.42% 19 CSCO -8.16% 29
CAT 10.56% 10 WMT 1.15% 20 MRK -8.55% 30

Dow 30 - Trailing Twelve Months (TTM) - Feb 16th 2011

CAT 81.51% 1 AXP 22.70% 11 KFT 8.34% 21
DD 62.13% 2 HD 21.35% 12 INTC 5.94% 22
DIS 39.88% 3 KO 20.26% 13 WMT 0.89% 23
CVX 33.69% 4 MCD 19.06% 14 PG 0.76% 24
GE 33.50% 5 MMM 15.20% 15 HPQ -3.54% 25
AA 32.26% 6 BA 14.76% 16 JNJ -3.94% 26
XOM 28.75% 7 JPM 14.22% 17 MSFT -5.76% 27
IBM 28.50% 8 T 14.07% 18 MRK -10.63% 28
VZ 25.03% 9 TRV 13.06% 19 BAC -10.92% 29
UTX 23.90% 10 PFE 9.86% 20 CSCO -23.63% 30

Disclaimer: This report is provided for information purposes only. It is not an offer to sell or to buy any
securities. This report has been prepared based on sources believed to be reliable, but there is no
assurance or guarantee regarding its completeness & and accuracy. The author accepts no responsibility or
liability arising from any use of the report.