Information TechnologyStock Presentation

Finance 724/824SIM Class

Summer 2009Russell Kolmin

Zachary McAllisterPaul Melko

Mahavir SanghaviDaniel Schuerman

Agenda• Current Holdings• Sector Recommendation• Recommendation• An Omen about Oracle• A Bite of Apple• Into the Big Blue• Recommendation

Agenda

SIM Portfolio Composition

SIM Portfolio CompositionS&P 500 Weight SIM Weight +/-

Consumer Discretionary 9.11% 7.19% -1.92%

Consumer Staples 11.81% 11.65% -0.16%

Energy 12.04% 10.74% -1.31%

Financials 13.86% 8.93% -4.93%

Health Care 13.73% 13.30% -0.43%

Industrials 9.98% 12.37% 2.39%

IT Current 18.72% 20.41% 1.69%

IT Proposed 18.72% 19.72% 1.00%

Materials 3.40% 4.98% 2%

Telecommunication Services 3.41% 3.39% -0.02%

Utilities 3.94% 3.61% -0.34%

Sector recommendation: Reduce IT holdings by 69 basis points.

SIM Weightings Relative S&P 500

SIM Weighting Relative S&P

SIM Portfolio Composition

IT Recommendation

Security TickerMarket Value

Unrealized Gain/(Loss)

%age Assets Recommendation

New %age Assets

Apple Inc. AAPL $258,973.15 $38,851 1.50% Sell 150 bps 0.00%Hewlett Packard Co. HPQ $650,625.80 ($58,589) 3.77% Hold 3.77%Intel Corp. INTC $537,075.00 ($78,722) 3.11% Hold 3.11%Microsoft Corp. MSFT $706,517.28 ($127,337) 4.09% Hold 4.09%NCR Corp NCR $521,482.00 ($548,254) 3.02% Hold 3.02%Oracle Corp ORCL $850,234.60 $185,882 4.92% Sell 92 bps 4.00%IBM IBM       Buy 173 bps 1.73%

20.41%   19.72%

Reduce Oracle• Oracle is nearing 5% of all SIM holdings.• Oracle has shown recent and remarkable

increases.• Oracle will continue to do so in the future.• Time to reap some value.• Reduce Oracle Corporation to 4% (sell 92

basis points)

Sell Apple– Company Profile• A computer hardware/software company with revenue

from:– Personal Computers– Small Business Computers– iPods– iPhones– Music Sales– Americas, Europe, Japan, Retail

• Incorporated in 1977• Symbol - AAPL

Sell Apple– DCF

Terminal Discount Rate = 12.0%

Terminal FCF Growth = 5.5%

Upside/(Downside) to DCF = -4.2%

Assumes Revenue of Growth: 20%Assumes Margins of: 17%

Sell Apple– ValuationAbsolute High Low Median CurrentP/Trailing E 90.56 15.9 37.2 30.9P/Forward E 49.3 16.7 30.1 30.3P/B 11.4 2.8 6.6 5.8P/S 7.2 1.9 3.7 5.5P/CF 82.6 14.3 35.6 27.3

Relative to the Sector High Low Median CurrentP/Trailing E 3.5 1.4 1.7 1.7P/Forward E 2.1 1.0 1.6 1.7P/B 2.5 .7 1.7 1.6P/S 2.7 .7 1.6 2.7P/CF 5.5 1.7 2.4 2.3

Sell Apple– Pros/Cons• Pros to Selling

– Overvalued based on DCF and Valuation– Microsoft Windows 7 comes out in October– Sales dependent on trendy products– Good run in 2009– Other options with better value

• Cons to Selling– $27 cash per share– Growth of the iPhone and continued phone/network

development– If Apple is able to continue revenue growth through new

products or sales in emerging markets large gains will be missed

Buy IBM• A Diversified Computer System with revenue tied to

– IT infrastructure and business process services – Consulting and systems integration– Computing & storage solutions, including servers, disk & tape

storage systems & software– Info Mgmt, integration, intelligence, security, storage, &

collaboration software– commercial financing to dealers and remarketers of IT products

• Founded 1910• Symbol - IBM

Buy IBM – DCF

Terminal Discount Rate = 11.0%

Terminal FCF Growth = 4.0%

Upside/(Downside) to DCF = 36.60%

Assumes Revenue of Growth: 6%Assumes Margins of: 16%

Buy IBM – ValuationAbsolute High Low Median Current

P/Forward E 18.3 9.1 14.2 11.8P/B (*Removed GW from BV) 10.3 3.6 5.2 10.2P/S 1.9 1.1 1.6 1.6P/CF 13.3 6.5 10.1 9.0

Target $122.40 Upside = 4%

Relative to the Sector High Low Median CurrentP/Forward E .90 .60 .70 .70P/B 4.0 .90 1.3 2.8P/S .90 .50 .60 .80P/CF .90 .60 .70 .80

Buy IBM – Pros/Cons• Pros

– Mature stock with large growth potential– Focus on high margin products (i.e. services, integration)– 1.80% Dividend Yield– Cash On Hand = $12.5B

• Cons– Debt ($96B in Tot Liabilities…$42B CL vs $49B CA)

• Removing GW and Intang Assets leads to TL > TA– Similarities/Competition with HP– Up 17.6% since July 10th (Overbought??)

SIM Portfolio Composition

IT Recommendation

Security TickerMarket Value

Unrealized Gain/(Loss)

%age Assets Recommendation

New %age Assets

Apple Inc. AAPL $258,973.15 $38,851 1.50% Sell 150 bps 0.00%Hewlett Packard Co. HPQ $650,625.80 ($58,589) 3.77% Hold 3.77%Intel Corp. INTC $537,075.00 ($78,722) 3.11% Hold 3.11%Microsoft Corp. MSFT $706,517.28 ($127,337) 4.09% Hold 4.09%NCR Corp NCR $521,482.00 ($548,254) 3.02% Hold 3.02%Oracle Corp ORCL $850,234.60 $185,882 4.92% Sell 92 bps 4.00%IBM IBM       Buy 173 bps 1.73%

20.41%   19.72%

Appendix

Microsoft• There shall not be any action taken upon

Microsoft this quarter• However it should be noted that the SIM

weight is approaching 5%, therefore the next quarter should look into cutting back

• Microsoft appears to have an upside of about 32.3%

Other Stocks Considered• FLIR • GOOG• ERTS• ADBE• HRS• RHT

• PEGA• PCLN• WEBMD• CRM• VRSN• TSRA