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Intelligence for the Individual Investor

Sam Stovall
April 14, 2010
Volume 82
First-Quarter Chief Investment
Strategist

Number 14 Earnings Outlook

Earnings reporting season is upon us again.

Now that the United States is possibly nine 2.35% in the first quarter of 2010; histori-
What’s Inside months into this economic recovery, it should cally low short-term interest rates (which
Intelligencer 2 not be too surprising to see forecasts for sub- S&P doesn’t expect will rise until after the
stantial earnings per share (EPS) growth. November elections at the earliest); elevated
Observatory 3
Easy comparisons and the result of dramatic productivity gains; and the year-over-year
Global Bond Funds 4 cost-cutting will likely magnify contributions decline in the value of the U.S. dollar, which
Frontier Markets 5 from revenue growth. As a result, S&P equi- could boost the profits of multi-nationals.
ty analysts expect the S&P 500 to record a
ETF Portfolios 7 70% year-over-year increase in operating Consumer Discretionary
The Right REITs 8 earnings for the first quarter. Dwarfing this First-quarter EPS for apparel companies and
figure is the 257% projected growth in earn- retailers will likely benefit from a consumer
Real Estate Funds 9
ings for the S&P MidCap 400, and a 384% weary of pinching pennies and the return of
Focus Stock: HME 10 jump for the S&P SmallCap 600. the luxury shopper, but not to the extent seen
Master List 11 The factors propelling these expectations during 2005-2007. With controlled invento-
for substantial EPS growth include an ries and a marketplace with fewer stores and
Platinum Portfolio 12
expansion in real U.S gross domestic prod- less competition, we see easy earnings com-
uct, which S&P Economics projects will rise parisons for most industry participants.
S&P Equity Research
Recommended Asset
S&P COMPOSITE 1500 SECTOR & COMPONENT Y/Y % CHANGES
Allocation OPER EPS 2009 Y/Y % CHANGES E2010 Y/Y % CHANGES
S&P 1500 SECTOR Q1 Q2 Q3 Q4 YEAR Q1 Q2 Q3 Q4 YEAR

Foreign
Consumer Discretionary -78 46 186 NM 107 452 44 13 6 40
Cash
10%
Equities Consumer Staples -3 8 5 19 7 10 5 6 6 6
17% Energy -104 -66 -72 177 -67 NM 81 48 43 107
Financials NM NM NM NM NM 451 192 186 153 205
Bonds Health Care 4 2 11 11 7 12 14 12 25 16
25%
U.S. Equities Industrials -41 -37 -39 -8 -33 11 3 25 7 11
48% Information Techology -40 -23 1 166 7 95 57 37 11 41
Materials -75 -62 -33 NM -18 130 78 25 40 57
Telecommunication Services -8 -18 -12 -15 -13 -9 0 6 19 3
Utilities -9 -2 -3 -3 -5 10 13 11 16 12
S&P Composite 1500 -43 -21 -3 NM 12 79 38 31 27 40
S&P 500 -39 -19 -1 NM 15 70 37 30 25 37
Please see page 3 for required research S&P MidCap 400 -76 -30 -15 NM -8 257 32 32 33 52
analyst certification disclosures.
S&P SmallCap 600 -82 -57 -35 NM -25 384 121 111 79 126
For important regulatory information,
please go to: www.standardandpoors.com E-Estimated. NM-Not meaningful. Source: S&P Indices.
and click on “Regulatory Affairs.” (Continued on page 6)
2 STANDARD & POOR’S THE OUTLOOK APRIL 14, 2010 www.outlook.standardandpoors.com

Intelligencer Standard & Poor’s The Outlook

EDITORIAL
Headlines, Highlights, and What’s on Our Minds Managing Editor, The Outlook Lisa Sanders
Managing Editor, U.S. Editorial Beth Piskora

INDONESIAN RAIL PROJECTS ON TRACK: By 2030, Indonesia will attract more Statistician Chris Peng

than $20 billion of investments, says Trimex Group, a minerals and metals O P E R AT I O N S
company located in the United Arab Emirates (UAE) and India. A portion of Managing Director, Global Business Operations
the funds will go toward improving Indonesia’s freight and passenger railways. Robert Barriera
Managing Director, Product Development,
Indonesia is building new rail lines to move coal, a large export, and to Marketing, Business Development Andrea Remyn
expand its metropolitan passenger network. Vice President, Data Operations Frank LoVaglio
A 130-kilometer rail line to transport coal in East Kalimantan province
For customer service, please call 1-800-852-1641 between 9am
on the island of Borneo is expected to be completed in 2011 for about $1 and 4pm Eastern Time, Monday through Friday.
billion by a joint venture of Ras al Khaimah, an emirate of the UAE, and The Outlook (USPS 415-780, ISSN 0030-7246) is published weekly
Trimex Group, according to Trimex and Oxford Business Group, a publisher except for April 7, July 7, September 8, and December 29, 2010
by Standard & Poor’s, 55 Water St., New York, NY 10041.
of economic and political information. Trimex says the railway is part of a Annual subscription: $298. Periodicals postage paid at New
proposed $5 billion development of industrial facilities in Indonesia by York, NY, and additional mailing offices. POSTMASTER: Send
address changes to The Outlook, Standard & Poor’s, 55 Water
Trimex and its partners. St., New York, NY 10041.

Two other coal railway projects not associated with Trimex, totaling about Copyright ©2010 by Standard & Poor’s Financial Services LLC.
All rights reserved. “S&P,” “S&P 500,” and “Standard & Poor’s”
$2.5 billion, are planned for Central Kalimantan and Sumatra, said Oxford, are registered trademarks of The McGraw-Hill Companies, Inc.
“S&P MidCap 400” and “S&P SmallCap 600” are trademarks of
and up to $3 billion may be spent on passenger railways planned for major The McGraw-Hill Companies, Inc. Reproduction in whole or in
part prohibited except by permission. All rights reserved.
cities such as Jakarta, Surabaya, and Medan. Officers of The McGraw-Hill Companies: Harold W. McGraw, III,
Investment in Indonesia rail projects may benefit Market Vectors Indonesia Chairman, President and Chief Executive Officer; Robert J.
Bahash, Executive Vice President and Chief Financial Officer;
Index ETF (IDX 74 Underweight), an exchange-traded fund. / Art Epstein John Weisenseel, Senior Vice President, Treasury Operations;
Kenneth M. Vittor, Executive Vice President and General
Counsel. Because of the possibility of human or mechanical
error by S&P’s sources, S&P, or others, S&P does not guarantee
CNOOC, BG GROUP, SIGN HUGE GAS CONTRACT: CNOOC (CEO 176 ★★★★★), the accuracy, adequacy, or completeness of any information
and is not responsible for any errors or omissions or for the
China’s largest offshore producer of crude oil and natural gas, and BG Group results obtained from the use of such information.

(BRGYY 90 NR), a United Kingdom-based natural gas company, signed a 20- The Outlook is a publication of Standard & Poor’s Investment
Services. This department operates independently of, and has no
year contract on March 24 for BG to supply 3.6 million tonnes of liquefied access to, non-public information obtained by Standard & Poor’s
Ratings Services, which may in its regular operations obtain
natural gas (LNG) each year to China. information of a confidential nature. Information included in The
Outlook may at times be inconsistent with information available in
The gas is to be manufactured at a plant to be built in Queensland, S&P’s MarketScope, an electronically delivered online service.
Permission to reprint or distribute any content from this
Australia, with the first shipment expected by 2014. newsletter requires the written approval of Standard & Poor’s.
The contract is the largest gas deal in Australian history and worth more
than $54 billion, according to ABC Radio Australia News. BG believes the
contract is the world’s first fully-termed sale and purchase agreement for the
supply of LNG from coal seam gas (gas from coal beds), and marks the first S&P EVALUATION SYMBOLS
STARS Rankings
sale of LNG from coal seam gas into China, the fastest-growing gas market in Our evaluation of the 12-month potential of stocks is indicated by
the world. / Art Epstein ■ STARS:
Strong Buy—Total 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.
MARKET MEASURES Buy—Total return is expected to outperform the
CLOSE % CHG. % CHG. ‡OPERATING †P/E RATIO INDICATED total return of a relevant benchmark over the
WED. YEAR TO PAST —EARNINGS— WED. ANNUAL % coming 12 months, with shares rising in price on an
INDEX 4/7/2010 DATE 52 WKS. 2009 E2010 4/7/2010 DIVIDEND YIELD absolute basis.
Hold—Total return is expected to closely approximate
S&P 500 Composite 1182.45 6.0 43.3 56.87 78.12 15.14 22.03 1.86 the total return of a relevant benchmark over the
coming 12 months, with shares generally rising in price
S&P MidCap 400 808.77 11.3 59.1 27.59 41.98 19.27 10.85 1.34 on an absolute basis.
Sell—Total return is expected to underperform the
S&P SmallCap 600 371.22 11.6 59.4 7.62 17.22 21.56 3.86 1.04 total return of a relevant benchmark over the coming
S&P SuperComposite 1500 271.74 5.4 45.1 12.47 17.43 15.59 4.86 1.79 12 months, and the share price is not anticipated to
show a gain.
Strong Sell—Total return is expected to underperform
the total return of a relevant benchmark by a wide
Dow Jones Industrials 10897.52 4.5 39.1 579.85 786.54 13.86 273.85 2.51 margin over the coming 12 months, with shares falling
Nasdaq Composite 2431.16 7.1 52.8 ... ... ... … ... in price on an absolute basis.
NR Not ranked.
S&P Global 1200 1362.73 3.7 45.9 ... ... ... ... ...
Quality Rankings (QR)
BBB Indus. Bond Yield (10-yr.) 5.89 -0.22 à -3.33 à ... ... ...
Our appraisals of the growth and stability of earnings and dividends
Data through April 7, 2010. E-Estimated. †Based on estimated 2010 earnings. ‡Before special factors. àActual change in yield over the past 10 years for STARS and other companies are indicated
(not percentage change). by Quality Rankings:
A+ Highest B+ Average C Lowest
A High B Below Avg. D In reorganization
A- Above Avg. B- Lower NR Not Ranked
For even more market intelligence, visit www.outlook.standardandpoors.com. Quality Rankings are not intended to predict stock price movements.
www.outlook.standardandpoors.com STANDARD & POOR’S THE OUTLOOK APRIL 14, 2010 3

The Observatory
Selected actions for April 5 through April 9.

One to Watch EDWARDS LIFESCIENCES (EW)

Edwards Lifesciences EW 103
To From RELATIVE PERFORMANCE

We believe a federal court jury’s initial damage award of $74 million and 200
180
its finding that a Medtronic (MDT 45 ★★★★★) unit infringed on EW
160
Edwards Lifesciences’ transcatheter heart valve patent are positives for the 140
120
company, but given that the patent in question expires in 2012, we look 100
for a negotiated settlement instead of an injunction against Medtronic, and S&P MIDCAP
80
60
see only a modest benefit to Edwards. We expect this to further delay 40
2008 2009 2010
Medtronic’s U.S. launch of transcatheter valves, but we believe Edwards 20

MILLIONS
Lifesciences had a two- to three-year lead to market in the United States. 15
10
We raised our target price by $4 to $113 on a premium-to-peers valuation 5
0
based on Edwards Lifesciences’ relatively higher growth rate. ■ AVERAGE MONTHLY VOLUME

FALLING STARS
Corning GLW 20
To From
Ahead of Corning’s first-quarter results
due out in late April, we expect the
liquid crystal display (LCD) and tele-
com equipment maker to generate rev-
enues of $1.4 billion and earnings of
$0.39 per share, both up sharply from
a year earlier. With improved con-
sumer spending for LCD TVs and a
more normal supply chain relative to
the lows of 2009, we expect Corning’s
revenues and operating income to be
strong throughout 2010. However,
with the shares up more than 50%
since last April and trading near our
12-month target price of $21, we low-
ered our recommendation.
Harris HRS 48
To From
We expect Harris to report revenues
of $1.3 billion and earnings of $1.21
per share when it releases results in
late April. We believe the outlook for
order demand for the company’s tac-
tical radios has improved following we see earnings increasing on acquisi-
fiscal 2009 (ended June) weakness, tions and industry consolidation.
and we are encouraged by recent
Terex TEX 25
orders from Harris’ public safety seg-
To From
ment. However, we believe govern-
We continue to think Terex’s results
ment communications segment rev-
will begin to trough in 2010. We
enues are slowing as projects are
maintained our forecast for a nearly
completed. With Harris shares up
18% increase in revenue on our
approximately 70% over the past
expectation for a modest overall
year and recently trading near our
improvement in demand and already
price-to-earnings (P/E)-based 12-
completed acquisitions. Although we
month target price of $49, we low-
kept our earnings estimates, we
ered our opinion on the shares on
raised our target price $2 to $26 on
valuation.
higher relative peer valuations.
Reliance Steel & Aluminum RS 53 However, we now see limited upside
To From following the nearly 24% share price
We continue to estimate earnings per rise since Terex posted fourth-quarter
share (EPS) of $3.61 in 2010 and results on February 18. ■
$4.24 in 2011, and we maintained
our 12-month target price of $56. On S&P 500 TOTAL RETURN (%)
our projected P/E on 2010’s EPS, ENDED MARCH 31, 2010
Reliance Steel would sell at a premi- YEAR- LAST LAST
um to its main peer. Following a very 5-YEAR* 10-YEAR* TO-DATE 12 MONTHS MONTH
sharp rise in the stock price, we do 1.92 -0.65 5.39 49.77 6.03
not believe that Reliance Steel is
Monthly total return statistics for all S&P indices are available
undervalued, recently trading at 14.7 at www.standardandpoors.com. *Annualized average through
times our 2010 estimate. Long term, March 31, 2010.

For a rolling eight-day list of STARS changes, additions, and deletions by S&P Equity Research, please visit our website.

S&P Observatory provides a selection of analytical actions and commentary — upgrades, downgrades, initiations — from S&P Equity Research. Stocks featured in
S&P 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. Specific risks to each stock recommendation and target price can be found in each company’s
individual stock report.
All of the views expressed in this research report accurately reflect 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 specific recommendations or views expressed in this research report.
4 STANDARD & POOR’S THE OUTLOOK APRIL 14, 2010
Global Bond Funds for the
Yield-Hungry Investor
The three global bond funds in the table stand out,
according to S&P Mutual Fund Reports.
Investors are hungry for yield. national bond funds are a popular
More than $16 billion has flowed place to be. They offer an escape
into bond mutual funds each and from the “exceptionally low” inter-
every month since the start of est rate environment now being
2009, with a massive $47.7 billion maintained by the Federal Reserve
arriving in September alone. At the in the United States. Not to men-
same time, inflows and outflows for tion, funds that hold bonds
equity funds have stayed roughly denominated in foreign currencies
equal, meaning no net inflows, even provide a hedge against a declining
though the Standard & Poor’s 500 U.S. dollar.
was up 23.5% last year. To identify attractive foreign
Much of the money is flowing bond funds, we screened for funds
into bond funds with the highest with at least $20 million in assets,
yields, either “junk” bond funds or open to new investors, with no
foreign market bond funds. For the sales load, and an annual expense
week ending March 24, emerging ratio of less than 1%. Among that
market bond funds brought in more group of about 17 funds, we choose
than $1 billion in new assets, three that had above average per-
according to data from fund flow formance over the past one- and
tracking firm EPFR Global, the sec- three-year periods and a ranking of
ond-highest weekly total since it at least three star from S&P, which
started keeping records. uses a five star system to rank
Even Greece, which was forced to funds (five being highest).
pull a bond sale in February due to (A note: Standard & Poor’s
a collapse in investor confidence, Mutual Fund Methodology has
found a very different situation a moved from the industry standard
week later when it offered twice the for ranking funds based solely on
yield available from German gov- backward-looking risk-adjusted
ernment bonds; it received bids to performance to a more holistic
lend three times the five billion approach, which incorporates a
euros it wanted to borrow. holding-based analysis that
For those willing to lend their includes performance, risk, and
money to, say, European govern- cost factors.)
ments, Australian television net- Fidelity’s New Markets Income
works, Air Jamaica, or the national Fund earns a mention for its low
oil company of Kazakhstan, inter- costs and extremely strong track
POSITIVE POTENTIAL IMPLICATIONS
S&P *TOTAL RETURN
FUND NAME / TICKER RANKING YTD 1-YEAR 3-YEAR 5-YEAR
Fidelity New Markets Income Fund / FNMIX 5 1.3 46.2 7.8
Loomis Sayles Global Bond Fund; Retail / LSGLX 3 0.5 28.6 6.2
T Rowe Price Emerging Markets Bond Fund / PREMX 4 2.1 38.8 5.8
Data through February 28, 2010. *Total returns include reinvested dividends and capital gains, all annualized; calculations do not reflect the
effect of sales charges. **As of 4/6/2010. Source: S&P Mutual Fund Reports.
www.outlook.standardandpoors.com
Vaughan Scully
S&P Editorial
record. As of the end of February,
2010, the $3.1 billion emerging
market debt fund had a blistering
one year total return of 46.2%,
above its peer average of 38.2%
for the same period. Over the past
three years, its 7.8% average annu-
alized return easily beat its peer
average of 5.5%. Its annual
turnover rate is pleasingly low at
59% compared with a peer average
of 111%, and its 30-day SEC yield
is an impressive 6.1% compared
with 4.8% for peers.
Such strong performance didn’t
happen without the fund taking
risks. According to Lipper holdings
data, none of the rated holdings are
higher than BBB and an above-
average 16% were in bonds rated B
and below. Top holdings at the end
of January included sovereign debt
issued by Russia, Argentina,
Mexico, Venezuela, Indonesia, and
the Ivory Coast.
The T. Rowe Price Emerging
Markets Bond Fund takes much the
same approach, posting strong
returns on a portfolio of unrated or
low-rated bonds. Less than 3% of
its holdings are rated above BBB
compared to 11% in securities
rated B or below, and issues consid-
ered to be unrated account for
more than 40% of its portfolio,
according to Lipper data. So far,
it’s hard to argue with that
strategy: the $2 billion
**CURRENT EXPENSE fund had a one year total
PRICE RATIO
return of 38.8% as of the
9.1 16 0.95
end of February, 2010, and
4.7 16 1.00
8.5 13 0.98
an average annualized gain
of 5.8% over three years,
both above peer averages.
(Continued on page 8)
www.outlook.standardandpoors.com STANDARD & POOR’S THE OUTLOOK APRIL 14, 2010 5

Justin Menza
Renewed Interest in Frontier Markets S&P Editorial

Investors with a sense of adventure and a high tolerance

for risk might want to take a look.

The frontier equity markets, which acquisition would give Bharti access to can be extremely low and volatility
are comprised of the less developed 42 million subscribers in 15 faster extremely high, making it difficult for
economies from Latin America to growing African markets. investors to easily exit their holdings
Africa, are currently among the few The key market in the transaction is when circumstances warrant. These
sporting significant year-to-date gains. Nigeria, which generated about 21% risks may also be reflected in the costs
Over the first quarter, the MSCI of Zain’s total earnings and 22% of associated with owning and trading
Frontier Markets index gained 10.3% its total sales. Nigeria is Africa’s sec- frontier market ETFs and mutual funds.
in U.S. dollar terms, outperforming the ond-largest economy with a popula- A lack of transparency into corpo-
MSCI Emerging Markets index, which tion of 155 million. IHS Global rate financials can also be an issue, and
gained 2.1%, and the MSCI EAFE Insight, an economic research firm, with fewer research analysts covering
index, which added 0.2%. forecasts economic growth of 6% this individual companies it can be more
The best performing countries this year, after 5.8% last year, which difficult to get a good sense of the earn-
year are widespread, with Baltic would place Nigeria among the ings expectations, and, in turn, discern
countries, such as Estonia and world’s fastest growing economies. reliable valuations for individual com-
Ukraine, leading the frontier market For the past few years, Chinese com- panies and the broader indices.
advance, followed by strong gains in panies also have been investing heavily Corporate governance may also be
Nigeria and Kuwait. in Africa. In late March, for instance, lax. For instance, the Nigerian central
Last year, however, the asset class Sinopec (SHI 40 NR) (00386 Hong bank was forced to intervene in the
lagged its more developed peers, gain- Kong ★★★★) agreed to purchase a banking sector last August, injecting
ing only 7% vs. 74.5% for emerging 55% stake in Angola’s Sonangol capital into the country’s top five banks
markets and 27.8% for developed Sinopec International for $2.5 billion and sacking management after the
markets. From the market bottom in to acquire deep-water oil assets. banks ran up $7.6 billion in bad debts,
March 2009, the asset class rose only In addition to potential growth a significant sum given the relative size
about 52% vs. a more than 108% opportunities, another attraction of of the country’s banking system.
gain for emerging markets. frontier equity markets is that they tend In general, these factors tend to lead
“Frontier markets are the last thing to be uncorrelated with other asset class- to lower valuations for frontier markets
people come back to so it is not sur- es. According to Young, as of the end of than their more developed peers. Young
prising to see it lag,” says S&P February the correlation between fron- believes lower valuations are warranted
International Equity Strategist Alec tier markets and the S&P 500 was only given the questions about transparency
Young. He also believes that the out- 55% vs. an 82% correlation between and corporate and political governance.
performance this year can be attributed the S&P 500 and emerging markets and Nevertheless, they also can be an
to investors becoming more comfort- an 89% correlation between the S&P attraction, as valuations have risen for
able with risk and the view that fron- 500 and the MSCI EAFE. more developed markets. Additionally,
tier markets are not as potentially over- Nevertheless, investors need to some of these frontier market countries
bought as emerging markets, given remain aware of the many risks associ- could turn out to be tomorrow’s emerg-
their smaller bounce off the bottom. ated with frontier market investing. At ing markets, making them potentially
In addition to equity investors, the individual security level, liquidity attractive despite the risks. ■
strategic investors also have
shown renewed interest in
POSITIVE POTENTIAL IMPLICATIONS
frontier markets recently, as S&P *TOTAL RETURN CURRENT EXPENSE
they too seek out potential FUND NAME / TICKER RANKING YTD 1-YEAR 3-YEAR PRICE RATIO
growth opportunities. Indian Claymore/BNY Mellon Frontier Markets ETF / FRN NR 6.3 68.3 NA 20 0.87
telecom Bharti Airtel (BHAR- Market Vectors-Africa ETF / AFK NR 14.8 60.0 NA 32 3.15
TIART Bombay NR) reached Market Vectors-Gulf States ETF / MES NR 15.4 39.6 NA 22 2.16
an agreement on March 30 to Market Vectors-Vietnam ETF / VNM NR 1.8 NA NA 26 1.42
buy the African assets of Powershares Mena Frontier Countries Portfolio / PMNA NR 7.9 28.9 NA 14 0.95
Kuwait’s Zain for $10.7 bil- SPDR S&P Emerging Middle East & Africa ETF / GAF NR 10.6 63.8 5.7 69 0.59
lion, underscoring the poten- Wisdomtree Middle East Dividend Fund / GULF NR 13.6 24.9 NA 16 1.49
tial growth opportunities in Data through April 6, 2010. *Total returns include reinvested dividends and capital gains, all annualized; calculations do not reflect the effect of
these markets. If finalized, the sales charges. NA-Not available. Source: S&P ETF Reports.
6 STANDARD & POOR’S THE OUTLOOK APRIL 14, 2010
First-Quarter Earnings Outlook (Continued from cover)
As demonstrated through improving
confidence reports, consumers have
become increasingly willing to open
their wallets over the past three
months. In addition, we think many
companies that sell discretionary
products have effectively altered their
products and lines to offer more value
at attractive price points. / Marie
Driscoll and Eric Kolb
Consumer Staples
We look for the sector’s companies
to report moderately higher earnings
for the first quarter of 2010, helped
by productivity savings in various
manufacturing or supply chain opera-
tions. The raw material, or input, pic-
ture was mixed, in our opinion. We
think that the prospect of plentiful
crop harvests in 2010 helped to
restrain price increases for such ingre-
dients as corn and soybeans. Other
costs have been less favorable, includ-
ing a rise in the price of crude oil to
above $80 a barrel. / Tom Graves
Energy
Earnings for the sector should be
helped by easy comparisons and
higher oil prices. Crude oil prices
rose 79% year-over-year, dwarfing
the 12% decline in natural gas
prices during the same period.
Production and earnings should
also be helped by higher prices, as
well as improving oil demand from
China. The oil services companies,
on the other hand, are likely to see
EPS declines, partly due to pricing
concessions granted in 2009. /
Stewart Glickman
Financials
Diversified financial services com-
panies should see both a sequential
and year-over-year improvement in
earnings in the first quarter. A steep
yield curve continues to benefit
lenders, though tighter standards
and a lack of qualified borrowers
will probably result in an industry-
wide reduction in loans outstanding.
Plus non-interest banking revenues
will likely begin to see the impact of
legislation enacted to reduce fees for
consumers.
We expect results for most insurers
to reflect the impact of a weak econo-
my. For property-casualty insurers,
competitive market conditions are
being exacerbated by a weak economy,
which is depressing premium rates for
most lines of coverage. Underwriting
margins should also contract in the
first quarter, as catastrophe claims
increased from a year ago. / Cathy
Seifert and Matthew Albrecht
Health Care
We see sales growth in the low-to-
mid single-digits, aided by neutral to
slightly positive foreign exchange.
Foreign exchange adversely impacted
the year-ago quarter’s sales by about
5% to 7%. We look for the biotech
industry to report robust sales growth
in the low double digits aided by price
increases and EPS growth of 15% to
20%. Overall, we believe firms will
report EPS growth in the low double
digits from better sales and continued
aggressive cost cutting, including
R&D costs. / Jeffrey Loo
Industrials
We expect improving revenue and
EPS trends in the first quarter. We see
revenues being aided by the recovering
economy and the restocking of inven-
tories. Following several quarters of
sequential growth in revenues, we
expect the quarter to be the first in
some time to show year-over-year
gains (albeit modest ones). We expect
EPS gains to be healthier than the
forecasted rise in revenues, as we see
margins being aided by the aggressive
cost cuts and streamlining initiatives
put into place by companies over the
past few years. / Michael Jaffe
Information Technology
We expect IT results for the March
quarter to be relatively strong, given
recent results, preannouncements,
www.outlook.standardandpoors.com
and related company comments.
Aided by relatively easy compar-
isons, we expect earlier-cycle compa-
nies — such as those in the semicon-
ductor equipment and semiconduc-
tor industries — to fare well on a
fundamental basis. Importantly,
while we think demand for sector
offerings and related pricing has
been pretty healthy, we wonder to
what extent margins can widen,
given growing commitments related
to capacity, infrastructure, and
employees. / Scott Kessler
Materials
This group is expected to see
strong gains in year-over-year operat-
ing results due to easy comparisons.
Metals and mining companies should
see improvements in both volumes
and pricing, which should more than
offset rising cost pressures. The only
exceptions might be companies heav-
ily exposed to commercial construc-
tion. / Stewart Glickman
Telecom Services
We see results from large integrat-
ed telecom carriers limited by access
line losses, weak enterprise opera-
tions, and high handset subsidies,
but we believe cash flow will be
strong enough to support dividends.
Meanwhile, we believe wireless com-
panies will benefit from strong
demand for data services growth
even as competitive pressure for sub-
scribers at the carriers remains high.
/ Todd Rosenbluth
Utilities
For electric utilities, we see first-
quarter earnings up from the year-
ago period, with the increase due to
the rate increases implemented since
then and, for many companies, more
favorable weather, partially offset by
the impact of restoration expenses
related to severe storms. We note
that for some utilities, first-quarter
results are the least significant, due
to seasonality. / Todd Rosenbluth ■
www.outlook.standardandpoors.com STANDARD & POOR’S THE OUTLOOK APRIL 14, 2010 7

Global Asset MODERATE PORTFOLIO

*ANNUALIZED

Allocation ASSET CLASS/

ALLOCATION INVESTMENT STYLE

48% U.S. STOCKS

ETF/TICKER
S&P TOTAL CURRENT
RANKING RETURN (%) PRICE

Update 38
6
Large-Cap Blend
Mid-Cap Blend
SPDR S&P 500 / SPY
S&P MidCap 400 SPDR / MDY
OW
MW
7.3
12.4
119
147
S&P’s Investment Policy 4 Small-Cap Blend iShares S&P SmallCap 600 / IJR OW 12.5 61
17% FOREIGN STOCKS
Committee raised its 13 International iShares MSCI EAFE / EFA MW 2.9 57
target for the S&P 500. 4 Emerging Markets iShares MSCI Emerging Markets / EEM UW 5.4 44
25% BONDS
20 U.S. Debt iShares Barclays U.S. Aggregate / AGG NR 1.1 104
On April 7, the committee voted to 5 U.S. Short-Term Debt iShares Barclays 1-3 Year Treasury / SHY NR 0.4 83
raise its 12-month target for the 10% CASH U.S. 6-Month Treasury Bills
S&P 500 to 1270 from 1215, due Total = 100%
to the strengthening of our gross *Data as of 4/6/2010. The Outlook’s Moderate ETF Portfolio gained 3.6% year to date through March 31 vs. a gain of 3.1% for its
domestic product growth projec- custom benchmark. Past performance is no guarantee of future results. NR-Not ranked. MW-Marketweight. OW-Overweight. UW-
Underweight. Source: S&P ETF Reports.
tions and an increase in 12-month
earnings per share (EPS) forecasts.
We left our asset allocations intact. DETAILED GROWTH
*ANNUALIZED
The path the market will take over ASSET CLASS/ S&P TOTAL CURRENT
ALLOCATION INVESTMENT STYLE ETF/TICKER RANKING RETURN (%) PRICE
the coming year to reach that target is
a topic of intense debate. The 500 58% U.S. STOCKS
rose more than 75% from the March 44 Large-Cap Blend SPDR S&P 500 / SPY OW 7.3 119
9, 2009 low without experiencing a 8 Mid-Cap Blend S&P MidCap 400 SPDR / MDY MW 12.4 147
6 Small-Cap Blend iShares S&P SmallCap 600 / IJR OW 12.5 61
10%-plus decline (we saw five
27% FOREIGN STOCKS
declines of 5% to 8%). We believe a
20 International iShares MSCI EAFE / EFA MW 2.9 57
10%-plus drop is likely in the coming
7 Emerging Markets iShares MSCI Emerging Markets / EEM UW 5.4 44
year, but we can’t be certain of its 10% BONDS
timing or duration. Also, valuations 5 U.S. Debt iShares Barclays U.S. Aggregate / AGG NR 1.1 104
do not appear extended to us. S&P 5 U.S. Short-Term Debt iShares Barclays 1-3 Year Treasury / SHY NR 0.4 83
equity analysts’ first quarter 2011 5% CASH U.S. 6-Month Treasury Bills
estimated EPS of $82, at a trailing Total = 100%
P/E of 16.0, supports our target. *Data as of 4/6/2010. The Outlook’s Growth ETF Portfolio gained 4.2% year to date through March 31 vs. a gain of 3.6% for its
The S&P growth ETF asset alloca- custom benchmark. Past performance is no guarantee of future results. NR-Not ranked. MW-Marketweight. OW-Overweight. UW-
Underweight. Source: S&P ETF Reports.
tion is geared toward risk-tolerant
investors with longer time horizons.
The conservative risk profile is DETAILED CONSERVATIVE
designed for investors who primarily *ANNUALIZED
ASSET CLASS/ S&P TOTAL CURRENT
seek capital appreciation, but have ALLOCATION INVESTMENT STYLE ETF/TICKER RANKING RETURN (%) PRICE
some income requirements. In gener- 33% U.S. STOCKS
al, the time horizon for this model is 24 Large-Cap Blend SPDR S&P 500 / SPY OW 7.3 119
five to seven years. The moderate risk 5 Mid-Cap Blend S&P MidCap 400 SPDR / MDY MW 12.4 147
profile is designed for investors with a 4 Small-Cap Blend iShares S&P SmallCap 600 / IJR OW 12.5 61
primary objective of capital apprecia- 12% FOREIGN STOCKS
tion. In general, the time horizon for 10 International iShares MSCI EAFE / EFA MW 2.9 57
this allocation is 10 to 15 years. 2 Emerging Markets iShares MSCI Emerging Markets / EEM UW 5.4 44
The growth risk profile, with a time 45% BONDS
horizon of 20 to 25 years, is designed 35 U.S. Debt iShares Barclays U.S. Aggregate / AGG NR 1.1 104
10 U.S. Short-Term Debt iShares Barclays 1-3 Year Treasury / SHY NR 0.4 83
for investors who seek capital appre-
10% CASH U.S. 6-Month Treasury Bills
ciation and are willing to tolerate the
Total = 100%
higher risk levels associated with
*Data as of 4/6/2010. The Outlook’s Conservative ETF Portfolio gained 3.0% year to date through March 31 vs. a gain of 2.4% for its
greater exposure to domestic and custom benchmark. Past performance is no guarantee of future results. NR-Not ranked. MW-Marketweight. OW-Overweight. UW-
international equity markets. ■ Underweight. Source: S&P ETF Reports.
8 STANDARD & POOR’S THE OUTLOOK APRIL 14, 2010 www.outlook.standardandpoors.com

Beth Piskora
The Right REITs Managing Editor
S&P Editorial
We screened for four- and five-STARS REITs.

It’s been a tough real estate mar-

ket, but S&P Equity Research is STOCK SCREEN OF THE WEEK
12-MONTH
still enthusiastic about select ‡QUALITY CURRENT TARGET †P/E YIELD
REITs. COMPANY / TICKER ‡STARS RANKING *RISK STYLE PRICE PRICE RATIO (%)

From the 8.9% gain posted by Acadia Realty Trust / AKR 4 B+ Low Blend 18 20 18.4 4.0
residential real estate investment Alexandria Real Estate Equities / ARE 4 A- Low Blend 71 71 16.0 2.0
trusts (REITs) in the first quarter American Campus Communities / ACC 4 NR Medium Value 29 31 19.0 4.7
of the year to the 6.8% increase CBL & Associates Properties / CBL 5 B- Low Blend 15 17 7.9 2.7
for office REITs, REITs, as a Federal Realty Investment Trust / FRT 4 A- Low Blend 74 80 19.3 3.6
whole, had a standout first quarter. First Industrial Realty Trust / FR 4 B- Medium Value 9 9 9.6 Nil
The FTSE NAREIT All-REIT index Glimcher Realty Trust / GRT 4 C Medium Value 6 6.5 7.4 6.7
posted a quarterly gain of more • Home Properties / HME 5 B Low Value 48 55 16.0 4.8
than 8%. HRPT Properties Trust / HRP 4 B Medium Value 8 9 8.2 6.0
The REITs listed in the table Kite Realty Group Trust / KRG 4 NR Medium Value 5 6 10.6 4.8
boast a four- or five-STARS rank- Macerich / MAC 4 B Low Value 40 44 12.9 6.0
ing from S&P Equity Research. As Mack-Cali Realty / CLI 4 B- Low Value 37 42 13.2 4.9
a group, these 17 REITs pay aver- Pennsylvania RE Invest. Trust / PEI 4 A Low Value 14 15 7.0 4.3
age yield of 4.6%. ProLogis / PLD 4 B Medium Value 14 16 19.4 4.3
“Near-term earnings fundamen- Simon Property Group / SPG 5 B Low Blend 85 99 14.8 2.8
tals are still weak for most REIT Sun Communities / SUI 4 C Medium Value 27 27 9.2 9.3
sectors,” says Royal Shepard, a UDR / UDR 5 B- Low Value 18 19 16.4 4.0
REIT analyst for S&P Equity • Master List issue. *Based on our analysts’ assessment of qualitative factors, including financial strength, potential share volatility,
Research. “However, we think competitive position, industry cyclicality, regulatory/legal issues, and other factors. Please note that all investments carry risks.
Specific risks to each stock recommendation and target price can be found in each company’s individual stock report. ‡See definitions
some investors are trying to get a on page 2. †Based on S&P estimated fiscal 2010 earnings. Source: S&P Equity Research.
jump on an earnings turnaround
that could begin to take hold at the investors, are evaluating opportu- ding activity could help provide a
end of 2010 and into 2011. Also, nities to purchase distressed real bottom for underlying asset valua-
many REITs, as well as private estate. An increased level of bid- tions.” ■

Global Bond Funds for the Yield-Hungry Investor (Continued from page 4)
Its top ten holdings are comprised
of government debt issued by
Brazil, Iraq, Serbia, Russia, Turkey,
and Mexico, as well as bonds
issued by the national oil company
of Venezuela. Its 3-day SEC yield is
6.4%. Portfolio turnover is a rela-
tively low 57%.
The Loomis Sayles Global Bond
Fund takes a different approach. It
takes substantially less risk, holding
a portfolio of much higher quality
credits: more than 30% of its
bonds have an AAA rating, with
another 15% rated either AA or A. from issuers in the United States or
Still, about 26% of its bonds are Germany, with only about 2% from
recognized as unrated as well. emerging markets as of the end of
Because of investors’ recent February. Its top ten holdings are
appetite for risk, the fund’s short- made up of government debt issued
term performance has lagged the by Germany, Denmark, Canada, the
other two funds substantially, with United States, and Japan, as well as
a one-year return of 28.6%, but its Dublin-based DEPFA Bank. Unlike
three-year return of 6.2% compares the other two funds, most of its
relatively well. The fund has out- portfolio is in non dollar-denomi-
performed its global income peers nated securities. Its 30-day SEC
in both periods. yield is considerably lower, at
This $1 billion fund’s share class 2.9%. Turnover is relatively high,
takes more than half its holdings at 75% annually. ■
www.outlook.standardandpoors.com STANDARD & POOR’S THE OUTLOOK APRIL 14, 2010 9

Beth Piskora
Recommended Real Estate Funds Managing Editor
S&P Editorial
These mutual funds garner the top four- or five-star ranking
from S&P’s mutual fund ranking methodology.

After several tumultuous years, seeking higher yields in junk bonds McMillan, a REIT analyst for S&P
many U.S. real estate markets and in REIT securities. Equity Research. “We are encour-
appear to be stabilizing, according aged by the ability of numerous
to various recent economic reports. REITs to raise equity and/or debt
Home prices are no longer falling in “Although REITs tend to be highly capital.”
many markets, while retailers are leveraged, most of this leverage The table on page 8 lists all REITs
starting to commit to store openings is mortgage debt, which is secured currently recommended buy or
in malls and shopping centers. And by the underlying properties, and strong buy by S&P Equity Research.
while some real estate investment For investors who prefer the diversi-
trusts (REITs) were forced to cut lenders have generally been fication benefits of mutual funds,
their dividend payments in recent refinancing this debt,” says the table on this page lists all REIT
years, more recently, some have Robert McMillan funds open to new investors with a
raised dividends. (Many REITs, by minimum investment of $10,000 or
law, are required to pay out a cer- less, and that boast a four- or five-
tain percentage of their earnings in “Although REITs tend to be high- star ranking from S&P’s mutual
dividends.) ly leveraged, most of this leverage is fund reports. Our reports look not
This, in turn, has reportedly been mortgage debt, which is secured by only at past performance, but also
attracting yield-hungry investors, the underlying properties, and at the prospects of the underlying
who, not interested in the low rates lenders have generally been refinanc- holdings as well as risk and cost
on Treasuries right now, have been ing this debt,” says Robert considerations. ■

POSITIVE POTENTIAL IMPLICATIONS

S&P *TOTAL RETURN **CURRENT EXPENSE MIN. INITIAL
FUND NAME / TICKER RANKING YTD 1-YEAR 3-YEAR 5-YEAR PRICE RATIO INVESTMENT

CGM Realty Fund / CGMRX 4 -0.1 88.4 -2.4 7.6 25 0.86 2,500
Cohen & Steers Realty Income; A / CSEIX 4 0.1 107.3 -12.2 0.4 10 1.32 1,000
Cohen & Steers Realty Shares / CSRSX 4 0.0 100.3 -12.7 3.3 54 1.00 10,000
Columbia Real Estate Equity; Z/ CREEX 4 0.6 85.7 -13.1 1.0 12 1.12 2,500
First American RE Securities; A / FREAX 4 0.7 93.6 -12.0 4.1 16 1.27 1,000
Forward Select Income Fund; A / KIFAX 4 5.4 115.4 -5.7 -1.0 22 2.41 4,000
ING Real Estate Fund; O / IDROX 4 -0.6 98.5 -13.0 2.7 12 1.35 1,000
Managers Real Estate Securities / MRESX 4 NA 102.3 -11.9 3.4 7 1.51 2,000
Neuberger Berman Real Estate Trust / NBRFX 4 0.7 97.8 -10.8 4.5 10 1.52 1,000
PHOCAS Real Estate / PHREX 4 -0.7 91.5 -11.7 NA 18 1.50 5,000
Principal Real Estate Securities; J / PREJX 4 0.2 88.6 -12.9 2.9 15 1.60 1,000
Stratton Real Estate / STMDX 5 -0.3 85.3 -8.7 2.2 25 1.00 2,000
T Rowe Price Real Estate / TRREX 4 0.6 105.6 -14.8 1.7 16 0.75 2,500
Vanguard REIT Index; Investor / VGSIX 4 -0.1 97.8 -13.7 1.8 17 0.26 3,000
Data through February 28, 2010. *Total returns include reinvested dividends and capital gains, all annualized; calculations do not reflect the effect of sales charges. **As of 4/6/2010. NA-Not available.
Source: S&P Mutual Fund Reports.
10 STANDARD & POOR’S THE OUTLOOK APRIL 14, 2010
Focus Stock: Home Properties
We believe this REIT is nearing the end of a cyclical downturn
in rents for its apartment communities.
Over the last two years, owners of
commercial real estate properties,
including apartment communities,
have taken a hit on the chin from
pressure on rental rates and occupan-
cy levels due to a weak economy.
However, we expect the balance
between supply and demand will turn
in the favor of apartment owners in
late 2010 and throughout 2011.
According to economists at
Standard & Poor’s, an improving
economy will expand the total number
of U.S. households by 1.0% in 2010,
up from a 0.4% gain in 2009.
Household formations are expected to
accelerate a further 1.4% in 2011. In
our opinion, this will translate into
higher demand for housing, and multi-
family units in particular. Moreover,
we believe Home Properties’ 40%
annual turnover rate, well below
apartment REIT peers, suggests a loyal
tenant base and pricing flexibility as
the economic recovery takes hold.
Importantly, we also see favorable
trends in the supply of new apartment
units. According to statistics published
by the U.S. Census Department, new
construction starts for structures with
five or more units fell 63% in 2009. In
our view, this will lead to lower com-
pletions in 2010 and less new competi-
tive supply in coming quarters. Home
Properties’ established portfolio of
apartment communities, which is con-
centrated in supply-constrained
Northeast markets, is likely to be a
primary beneficiary, by our analysis.
We expect the first half of 2010 to
be a transition period for apartment
operators, as the economy stabilizes.
For Home Properties, we forecast
total 2010 revenues of $499.1 million,
down 0.9% from 2009. However, we
look for improving market conditions
in late 2010 to carry over into 2011.
Our 2011 revenue forecast of $516.7
million, up 3.5%, reflects higher rents
at existing properties and excludes
any upside potential from renewed
acquisition activity.
Despite industry cyclicality, Home
Properties has been able to maintain
relatively steady cash flow and earn-
ings, as measured by funds from oper-
ations (FFO). Our 2011 FFO estimate
of $3.15 per share, up from $2.95
forecast for 2010, also reflects expect-
ed enhanced operating efficiencies as
revenue growth resumes. Home
Properties’ long-term growth profile is
enhanced by what we see as a disci-
plined acquisition strategy focused on
high barrier to entry markets. We
believe the REIT has developed core
expertise in renovating and upgrading
older properties to generate signifi-
cantly positive investment returns.
After stepping back from new invest-
ments in 2009, due to unstable credit
market conditions, we expect Home
Properties to renew its search for
attractive purchases in 2010 that will
add incrementally to future earnings.
We believe the trust’s solid balance
HOME PROPERTIES
RELATIVE PERFORMANCE
HME
S&P SMALLCAP
2009
2008
STATISTICS
Ticker: HME
S&P Ranking:
Current Price: 48
12-Month Target Price: 55
Market Cap: $1.6 billion
Investment Style: Small-Cap Value
www.outlook.standardandpoors.com
Royal Shepard
S&P Equity Analyst
sheet, access to new capital, and high
occupancy levels warrant a price-to-
FFO multiple at least comparable to
apartment REIT peers. Based on our
price-to-FFO analysis, we think the
shares are trading at a compelling val-
uation. At recent levels, the stock was
trading at 16.3 times our 2010 per-
share FFO estimate and about a 15%
discount to our coverage universe of
apartment REITs. Over the next 12
months, we expect the valuation gap
to narrow as the prospect for rental
growth likely improves.
Our 12-month target price of $55 is
based on applying a multiple of 18.6
times to estimated 2010 FFO of
$2.95, matching the current peer valu-
ation. Although this is higher than
Home Properties’ five-year average
price-to-FFO multiple of 14.5 times,
we note that it reflects the recent cycli-
cal decline in operating earnings.
We have also calculated a net asset
value of $55, using estimated annual
property level income and recent mar-
ket transactions. Our model assumes
a one-year cash rate of return of
5.5%, appropriate, we believe, for
high-quality properties located prima-
120
110 rily in coastal markets.
100
90
There are investment risks.
80 Although Home Properties’ diversified
70
60 apartment portfolio provides a stable
50
40 source of operating cash flow, the real
2010
estate business is cyclical and demand
for the trust’s properties is ultimately
driven by employment levels and pos-
sible competition from new construc-
tion in its markets. In addition, an
increased pace of acquisitions, as we
expect, could lead to a higher level of
financial leverage and greater execu-
tion risk. Other risks to our recom-
mendation and target price include an
increase in interest rates, which could
raise borrowing costs as well as
reduce demand for properties from
investors, and a lack of suitable acqui-
sition targets. ■
www.outlook.standardandpoors.com STANDARD & POOR’S THE OUTLOOK APRIL 14, 2010 11

High-Quality Capital Appreciation Portfolio

12/31/2009 — 4/1/2010
Base Currency: US Dollar
The High-Quality Capital Appreciation Portfolio out- the portfolio’s performance year-to-date through April 1.
performed its benchmark from the beginning of the For information on individual stocks in the portfolio,
year through April 1, gaining 6.3% vs. a 5.7% gain in please visit www.outlook.standardandpoors.com for
the S&P 500. The data we have provided show which S&P’s reports on the companies ■
stocks and sectors contributed to, or detracted from,

TOP CONTRIBUTORS BY HOLDING TOP DETRACTORS BY HOLDING

AVERAGE AVERAGE
COMPANY NAME WEIGHT RETURN CONTRIBUTION COMPANY NAME WEIGHT RETURN CONTRIBUTION
Mylan 8.28 23.22 1.85 EOG Resources 7.56 -4.34 -0.35
Fastenal 6.55 16.36 1.02 C.H. Robinson Worldwide 5.57 -4.45 -0.29
Nike 8.05 11.69 0.94 Int'l Business Machines 7.69 -1.58 -0.13
CVS Caremark 6.10 13.80 0.82 Linear Technology 4.76 -1.64 -0.12
Church & Dwight 6.20 11.01 0.68 General Mills 6.51 0.66 0.05

TOP CONTRIBUTORS BY SECTOR TOP DETRACTORS BY SECTOR

AVERAGE AVERAGE
SECTOR WEIGHT RETURN CONTRIBUTION SECTOR WEIGHT RETURN CONTRIBUTION
Health Care 15.61 15.44 2.35 Energy 7.56 -4.34 -0.35
Consumer Staples 30.93 6.88 2.15 Information Technology 12.45 -0.54 -0.25
Industrials 18.99 6.34 1.17 Financials 6.40 4.33 0.28

CURRENT HIGH-QUALITY CAPITAL APPRECIATION PORTFOLIO

12-MONTH
‡QUALITY CURRENT TARGET †P/E YIELD
COMPANY / TICKER ‡STARS RANKING *RISK STYLE PRICE PRICE RATIO (%)

C.H. Robinson Worldwide / CHRW 4 A+ Low Growth 55 66 23.9 1.8

Church & Dwight / CHD 5 A+ Low Growth 68 73 17.1 0.8
CVS Caremark / CVS 4 A Medium Blend 36 37 12.9 1.0
EOG Resources / EOG 4 A- High Growth 98 116 26.2 0.7
Fastenal / FAST 5 A Medium Growth 50 57 33.3 1.6
General Mills / GIS 5 A- Low Blend 71 82 15.4 2.7
Hudson City Bancorp / HCBK 4 A Low Blend 14 16 11.8 4.3
Int'l Business Machines / IBM 5 A Medium Growth 128 163 11.3 1.7
Johnson & Johnson / JNJ 4 A+ Low Growth 65 74 13.2 3.0
Linear Technology / LLTC 4 A- Medium Growth 29 35 19.6 3.3
Mylan / MYL 5 A- Medium Growth 23 25 14.4 Nil
Nike / NKE 4 A+ Medium Growth 74 83 19.9 1.5
Procter & Gamble / PG 4 A+ Low Growth 64 69 17.6 2.8
United Technologies / UTX 4 A+ Low Growth 75 77 16.5 2.3
Wal-Mart Stores / WMT 5 A+ Low Blend 56 62 14.2 2.2
*Based on our analysts’ assessment of qualitative factors, including financial strength, potential share volatility, competitive position, industry cyclicality, regulatory/legal issues, and other factors. Please
note that all investments carry risks. Specific risks to each stock recommendation and target price can be found in each company’s individual stock report. †Price/earnings ratios are based on Standard &
Poor’s estimated fiscal 2010 per-share earnings. ‡See definitions on page 2. Source: S&P Equity Research.
12 STANDARD & POOR’S THE OUTLOOK APRIL 14, 2010 www.outlook.standardandpoors.com

S&P’s Platinum Portfolio

This portfolio potentially offers the best of both worlds: S&P’s STARS ranking system,
based on fundamental analysis, and Fair Value, S&P’s proprietary quantitative model.

Each Platinum stock initially

carries the highest possible PLATINUM PORTFOLIO
investment ranking from
Standard & Poor’s equity RANKINGS RANKINGS

analysts and our Fair Value FAIR ‡QUALITY CURRENT

TICKER VALUE ‡STARS RANKING PRICE
FAIR ‡QUALITY CURRENT
TICKER VALUE ‡STARS RANKING PRICE
system.
S&P’s STARS rankings are Adobe Systems ADBE 5 5 B+ 35 • Int'l Business Machines IBM 5 5 A 128
based on expected total
return potential. Stocks with Advance Auto Parts AAP 5 5 B+ 42 Jacobs Engineering JEC 5 5 B+ 44
the five-STARS ranking are
expected to outperform the Aeropostale ARO 5 4 NR 29 MEMC Electronic WFR 5 5 B- 16
total return of the S&P 500
Aspen Insurance AHL 5 5 NR 29 Medtronic MDT 5 5 A- 45
index by a wide margin over
the coming 12 months.
Bank of America BAC 4 5 B 19 Multi-Fineline Electronix MFLX 5 5 NR 25

Brocade Communications BRCD 5 5 B- 6 NY Community Bancorp NYB 3 5 B 17

S&P’s STARS rankings
are based on expected Bucyrus International BUCY 4 5 NR 69 NICE-Systems NICE 4 5 NR 33

total return potential. • CVS Caremark Corp CVS 5 4 A+ 36 Noble NE 5 5 B 42

Chico's FAS CHS 3 5 B 14 Oracle ORCL 5 4 B+ 26

S&P’s Fair Value model
Coach Inc COH 3 5 B+ 40 State Street STT 5 5 A- 46
employs a proprietary algo-
rithm to calculate the price at
Computer Sciences CSC 5 5 B+ 54 Teva Pharmaceuticals TEVA 4 5 NR 64
which a stock should be trad-
ing at current market levels. Discover Financial DFS 3 5 NR 15 Time Warner Cable TWC 2 5 NR 52
Fair Value ranks stocks in
five tiers; those with the “5” eBay EBAY 5 4 B+ 27 Transocean RIG 5 5 NR 87
designation are considered to
be the most undervalued and Express Scripts ESRX 4 5 B+ 102 Travelers TRV 4 5 NR 53
to have the greatest price
appreciation potential. Fiserv FISV 5 4 B+ 51 Under Armour UA 5 5 NR 32
Year-to-date through April 1
the portfolio gained 8.3% vs. GameStop GME 5 4 B+ 23 • Wal-Mart Stores WMT 4 5 A+ 55

a rise of 5.7% in the S&P 500.

• General Mills GIS 1 5 A- 70 Western Digital WDC 5 5 B 40
Stocks are removed only if
they lose the top ranking in Gilead Sciences GILD 5 5 B 45 Willis Group WSH 5 5 NR 32
both systems. Portfolio changes
are available in real time at Hewlett-Packard HPQ 3 5 B+ 53 Yahoo YHOO 5 5 B 17
www.outlook.standardand
poors.com. ■ • Master List issue. ‡See definitions on page 2.

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 portfolio’s investment per-
formance, 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 selections 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, we believe 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 not a
valid indicator of future results. Source: S&P Equity Research.