wis summer update september 19, 2014. 2q14 report is on the website wis returned 4.25% versus...

WIS Summer UpdateSeptember 19, 2014

2Q14

• Report is on the website

• WIS returned 4.25% versus S&P 5.23%

• Outperforming Sectors: Basics, Staples, Energy, Financials, and Healthcare

• Underperforming Sectors: Discretionary, Industrials, Tech, and U&T

• Earned dividends of $24.1k

S&P WIS

Basic Materials 2.90% 5.83%

Consumer Discretionary 3.72% 1.48%

Consumer Staples 3.62% 5.84%

Energy 8.16% 12.80%

Financials -0.22% 2.29%

Healthcare 3.60% 6.36%

Industrials 2.99% -1.38%

Technology 5.50% 1.01%

Utilities & Telecom 6.58% 3.37%

Total 5.23% 4.25%

Current Portfolio • Current Value at of 9/18 close: $5,416,655.36

• YTD return of 8.028% time-weighted / 9.62% money-weighted vs S&P 9.79%

WIS Sector Weightings

Basics; 6.6% Consumer Discretionary;

10.0%

Consumer Staples; 10.9%

Energy; 13.0%

Financials; 15.0%

Healthcare; 16.0%

Industrials; 8.3%

Technology; 14.4%

U&T; 5.9%

WIS Sector Weightings vs S&P

Basics

Consumer Discretionary

Consumer Staples

Energy

Financials

Healthcare

Industrials

Technology

U&T

1.0% 3.0% 5.0% 7.0% 9.0% 11.0% 13.0% 15.0% 17.0% 19.0%

Basics Con-sumer Discre-tionary

Con-sumer Staples

Energy Finan-cials

Health-care

Indus-trials

Tech-nology

U&T

WIS 0.0662115426085897

0.10014066340

4849

0.10860997878

6357

0.12982999284

0963

0.14968073966

3144

0.15971851922

055

0.0829490546530224

0.14384804678

0913

0.0590114620416128

S&P 0.035 0.094 0.094 0.104 0.161 0.137 0.102 0.194 0.054

Basic Materials

Cary Carabasi, Blake Liebling, Katie Lotterman, Stu Lotz, and Arthur Olsen

LYB ($113.75, up ~30%) • New chemical plant in SE Texas (2019)

• 2Q earnings soundly beat estimates EPS $2.22 beat by $0.29 Rev $12.1B (+9% YoY) beat by $650M Record quarterly revenues Improvements in Op Income led by I&D (up 32%),

Refining Segment (up from prior Q/Q loss), and Olefins and Polyolefins in America (+3% YoY)

• 3Q results will be down by delayed startup of La Porte ethylene plant

SLW ($22.25) • Weak Q2 results

Earnings miss on EPS and Revenue Declines in revenues, production, and cash flows

Revenue -11% YoY Op. cash flows -18% YoY

Production outpaced sales ~5.7M oz. past 6Qs Hurt by lower silver prices 14.3% dividend decrease to $0.06/share quarterly

dividend

MON ($114.4) • Expecting US approval of new soybean seeds by

2014 and international approval in 2015

• Affirmed 2014 guidance: EPS: $5.10-$5.20 FCF: $700M-$800M

• Completed $4.5B bond sale to help fund $10B stock buyback plan (6/26/14)

• 3Q Results: EPS $1.62 beat by $0.06 Rev $4.25B flat YoY & missed by $150M

• Vermont requires GMO food labeling (first state)

MEOH ($70.10) • Anticipates lower H2 Trinidad Gas Supply

Maintenance & mismatch between NGC supply and NGC demand

Owns two plants in Trinidad (100% and 63% interest)

• Weak 2Q results: EPS $0.94 miss by $0.11 Rev $792M (+8% YoY) miss by $31M

CF ($259.71)• Poor 2Q Results:

EPS $6.10 missed by $0.61 Rev $1.47B (-14.0% Y/Y) beat by $130M Hurt by lower prices and higher natural gas costs Nitrogen segment sales fell, and GM hurt by lower prices Partially offset by increase in product sold

• Positive Future: Seeking to expand nitrogen capacity 25% by 2016 Raising dividend 50% $1B share repurchase program

Consumer DiscretionaryChris Camerota Cam Lewis

TJ Redmond Jean Turlington

Consumer Discretionary

The consumer discretionary sector of the economy consists of businesses that sell nonessential goods and services and relies on consumers to spend their disposable income on things they do not absolutely need to survive.

Areas of focus in CD include: Emerging Markets Consumer Confidence E-Commerce Trends in Wealth

Macroeconomic trends affecting CD include: Global economic woes including:

Consumer Confidence – University of Michigan’s preliminary reading on September cam in at 84.6, beating the 83.5 estimate & August’s 82.5 final reading

Unemployment – 6.1% Interest rates and Feds QE (ending in October) China/emerging markets

OverviewOverview

Consumer Discretionary vs. S&P

Starbucks vs. Coach

Company Overview Starbucks Corporation operates as a roaster, marketer, and retailer

of specialty coffee worldwideIts stores offer coffee and tea beverages, packaged roasted whole

bean and ground coffees, single serve products, and juices and bottled water.

Up ~2.8% since we bought it

Starbucks update

Company Overview The Walt Disney Company, together with its subsidiaries, operates as

an entertainment company worldwide. It operates the ABC Television Network and 8 owned television

stations, the ESPN Radio Network and Radio Disney Network, and 35 owned radio stations.

The company’s Parks and Resorts segment owns and operates the Walt Disney World Resort in Florida that includes theme parks

Up 34.6% y-o-y

Disney update

IGT update

Company Overview International Game Technology, a gaming company, designs,

develops, manufactures, and markets casino-style gaming equipment, systems technology, and game content for land-based and online markets worldwide. .

Down 19% y-o-y

Recent NewsItalian lottery operator Gtech is expected to complete a buyout of

IGT in the first half of 2015 for $6.4 billion.

Company Overview Polaris Industries Inc., together with its subsidiaries, engages in

designing, engineering, manufacturing, and marketing off-road vehicles, snowmobiles, and on-road vehicles primarily in the United States, Canada, and internationally.

Up 18% y-o-y

Recent NewsMoving into road vehicles market with the Indian Scout and the

Slingshot

PII update

Company Overview

The TJX Companies Inc. (TJX) is the largest off-price apparel and home fashions retailer operates under its T.J. Maxx and Marshalls (Marmaxx), Homegoods, Homesense, Winners, and T.K. Maxx trademarks, with over 2,900 retail chain locations in the United States, Canada and Europe.

Up 6% y-o-y

TJX update

Consumer StaplesTyler Goldman, Buck Armstrong, Noah Henderson, and Will Raul

CVS Caremark Corporation (CVS)• American retailer and health care company

• The company operates through Pharmacy Services, and Retail Pharmacy segments Accounted for 22.8% of the nation’s total prescription

revenues in 2012 Largest U.S. pharmacy based on total prescription

revenue

• Operate throughout U.S., District of Columbia, and Puerto Rico

Anheuser Busch Inbev (BUD)• Belgian-Brazilian multinational beverage and

brewing company

• Leading global brewer and one of the world’s top 5 consumer product companies

• 17 brands that individually generate over $1 billion per year in revenue out of a portfolio of more than 200 brands

The J.M. Smucker Company (SJM)• Manufactures and markets a variety of branded

food products U.S. Retail Coffee, U.S. Retail Consumer Foods, and

International, Foodservice, and Natural Foods

• Brands include: Folgers, Dunkin’ Donuts, Jif, Uncrustables, Goober, Magic Shell, Funfetti, Santa Cruz Organic, Double Fruit, R.W. Knudsen Family

PepsiCo, Inc. (PEP)• Makes, markets, sells and distributes a range of foods and beverages

in more than 200 countries and territories

• Organized into four business segments: PepsiCo Americas Foods, PepsiCo Americas Beverages, PepsiCo Europe, and PepsiCo Asia

• Lays, Ruffles, Doritos, Tostitos, Cheetos, Fritos, Quaker Products, Cap’n Crunch, Pepsi, Gatorade, Mountain Dew, Aquafina

Colgate (CL)• Global Consumer Products Company

• Two product segments Oral, Personal, and Home Care and Pet Nutrition

• Global Leader in Oral Care and Personal Care Worldwide market leading toothpaste and manual

toothbrush brands Global leadership in liquid hand soap

• Hill’s specialty pet nutrition Designed for Dogs and Cats, sold in over 95 countries

• Colgate, Palmolive, Ajax, Softsoap, Speed Stick, Irish Springs

Consumer Staples Industry Analysis• Consumer Staple ETFs have been active and reaching high

gains as: Investors shift to a defensive stance, looking for lower volatility and

higher yields Dow trading at an all-time high provokes fear in investors, pushing

them towards Consumer Staples Currently edging higher buoyed by ConAgra shares 4.6% jump

• Historically, as the stock market rallies, the Consumer sector is sluggish, but this has not been the case as investors prepare for a pullback Money tends to flow into riskier sectors to maximize profit, but in this

run to new heights, money has flowed into both high risk and low risk areas

• The Consumer space does not appear to be due for a slow down: The American economy is still not great

Profits have mainly been due to cost cutting, rather than organic expansion

Made up of strongest dividend performers All-time highs force a perpetual fear of a market correction

S&P 500 Index vs. Consumer Sector vs. WIS Consumer Portfolio

EnergyAustin Miller, Stephen Mitchell, Andrew Head, and Hampton Ike

Performance

Ticker Price as of 6/2/14

Price as of 9/18/14 % Change

ARLP 45.12 47.90 6%

COP 79.48 79.97 1%

CCJ 19.83 19.76 0%

DVN 73.56 71.56 -3%

KMI 33.72 38.00 13%

SLB 103.91 104.47 1%

Stories from the Summer• Geopolitical tension

• Stability in Iraqi production

• Crude export ban

• Continued supply growth from North America

• Weak power burn

• Weak demand outlooks, especially China

• Dollar strength

KMI News• Restructuring. GP bought MLP

• Strong market response

• Loss of faith in the MLP structure?

FinancialsColin Fraser, Richard Nelson, Chris Buckingham, and Jimmy Kleitches

Financials• Firms and companies involved in a diversified array of services, including: Wholesale and Investment Banking,

Credit Services, REITs, Re-insurance, and Insurance

• Financials vs. S&P

Important Trends

• Rising interest rates as tapering comes to an end in October Financials have strengthened their balance sheets in preparation Yellen revealed a clear ‘exit strategy,’ but rates not expected to rise until

spring

• Some uncertainty remains, but U.S. financials have recovered strongly

• Possibility of Scottish Independence Pound plummeting – Volatile exchange rates RBS to move HQ to Britain

• Equifax (EFX) Leading global provider of information solutions for businesses and

consumers On Sept. 11, announced additional $400 million share repurchasing plan, adding

to $141.7 million from current plan Dividend of 2.7%

• Wells Fargo (WFC) One of the 4 largest full-service banks in the U.S.

Largest bank in the world by market cap (~$278.5 Bn)

Stock price has increased by 21% in the last 52 weeks, 3Q release on Oct. 14

Financials

• Visa (V) Global payments technology company that enables consumers,

businesses, financial institutions and governments to use digital currency One of the strongest performers in the WIS portfolio Visa and Apple Pay

• Verisk (VRSK) Conducts risk assessment services and decision analytics to help

customers better understand and manage risk Offers data, statistical and actuarial services, as well as standardized

insurance policy programs

Financials

• Ventas (VTR) Largest health care real estate investment trust in the U.S Lagged sector and S&P in 2014 as REITs struggled with the prospect of rising

rates Quarterly dividend of 0.725 per share

• Charles Schwab (SCHW) Diversified financial services company

Engages in securities brokerage, banking, money management and financial advisory through subsidiaries.

Reached its 52 week high this week In good position for a rising rate environment

Financials

Cameron Dabir, Garland Neal, Charlie Karp, and Greg Rogowski

Healthcare

Trends• Inversions

Vast majority are taking place in the healthcare sector Acquisitions in general are heating up $87 billion already, eclipsing 2013

total

• Obamacare enrollment Most recent numbers show smaller number of people have signed up

compared to previous reports 10% missed first month’s premium payment

• Pipelines are drying up Partnerships between Big Pharma companies becoming a viable option Acquisitions with large premiums

Roche buying InterMune for a 63% premium

• Growing middle class in emerging markets

• Aging population

• Continued emphasis on cost containment shifting more of the costs to the consumer

• Biotech sector has outperformed

Holdings Update

• Continues to be market leader in dialysis treatment Stable business model that

delivers strong free cash flow

• Significant Medicare/Medicaid reimbursement rate cuts (9%) were slated for 2014 Congress eventually agreed to

phase them in over the next 2-3 years

• One of Ted Weschler’s biggest positions at Berkshire Hathaway

• Spun off existing company real estate into new entity named CareTrust REIT Lets the company focus on

running its healthcare business rather than managing properties

• Recently bought four new facilities in California Deal is expected to close in Q4

• Most recent quarter had revenue grow by 10.1% year over year

Holdings Update

• Blockbuster Hepatitis C Drug Sovaldi doing extremely well

$3.5 billion in sales during Q2 More than 80,000 patients treated in US and

Europe Questioned on cost by Congress

• Most successful holding in our portfolio

Up 67% year over year

• Simtuzumab, a drug used to treat patients with untreated pancreatic cancer, recently failed Phase 2 of FDA approval

• 123% revenue increase year over year in Q2

• Pursued inversion deal with AstraZeneca

• Rumors of another round of negotiations and/or different target

• Palbociclib submitted to FDA on August 18th

• Grappling with patent loss on key drugs resulting in slow revenue growth

• Continuing its approved $10 billion share buyback program

• 83 programs in drug pipeline 20 in Phase 3, 6 in Registration

Holdings Update

• Recently applied to sell health plans in 24 states’ health-law consumer marketplaces in 2015 Previously only sold in 4 states Opportunity for substantial

revenue growth and expansion of their footprint

The move is closely watched and analyzed as they are the industry leader

• Recently touched 52-week high in early September

• Q2 revenues grew 7% year over year

INDUSTRIALSDrew Weprinsky, Peter Schubert, Bennett Henson, and Jonathan Jetmundsen

Industry Snapshot

Industrials: Companies engaged in providing industrial and commercial supplies and services, diversified trading, distribution operations and transportation services

Largely driven by supply and demand for building construction - residential, commercial and industrial - as well as the demand for manufactured products. Look to data in housing market and US manufacturing data Also contingent on whether companies continue to hold cash

Sector is +16.89% in last 12 months Top Performer: Rails and Roads – Freights +40% Bottom Performer: Highways and Railtracks +3.88%

Holdings

Equity Purchase Date

Current Price

Gain/Loss(Total)

12 Months

General Electric (GE) 3/26/12 26.21 +30.7% +7.16%

Chicago Bridge & Iron (CBI)

10/23/13 62.22 +18.25% -6.73%

Snap-On (SNA) 11/11/09 125.33 +222.8% +24.11%

UPS (UPS) 10/1/12 99.62 +38.35% +8.64%

Waste Management (WM) 12/09/10 47.40 +34.09% +12.13%

Recent News• General Electric (GE)

Selling appliance business to Electrolux for 3.3B Announced plans for investing 2B in Africa by 2018

• Chicago Bridge & Iron (CBI) Accused of creative accounting techniques in June

stock took a hit but nothing serious has come of it

Berkshire Hathaway invested in them about a month ago and price popped up after that

• Snap-On (SNA) Pretty uneventful few months- reported strong earnings

in June

Recent News• United Parcel Service (UPS)

Expanding in Brazil and China New CEO David Abney

• Waste Management (WM) Selling waste-to-energy unit to private equity firm

Energy Capital Partners for $1.9B in cash. Wheelabrator Technologies, generated ~$845M of the

company's $14B of total revenue in 2013.

In the period from April 8 to September 17, our holdings have gained approximately 6.66%. Our holdings have underperformed the broader Nasdaq index and the Technology Select Sector SPDR by approximately 492 basis points and 635 basis points, respectively

Portfolio Overview

In the period from April 8 to September 17, our holdings have underperformed the S&P 500 Index by approximately 167 basis points. The S&P 500 continued its gains this summer, posting an 8.33% increase in the same time period.

Portfolio Overview Cont.

Oracle (ORCL) Update• June 20: Oracle agrees to acquire LiveLOOK, a leading provider of

real-time, visual collaboration technology for co-browsing and screen sharing

• June 23: Oracle agrees to acquire MICROS Systems, a provider of integrated software and hardware solutions to the Hospitality and Retail industries. The transaction is valued at $5.3 billion

• July 31: Oracle agrees to acquire TOA Technologies, a leading provider of cloud-based field service solutions that manage and optimize the last mile of customer service for enterprises by coordinating activities between dispatchers, mobile employees, and their customers

• September 14: Oracle agrees to acquire Front Porch Digital, a provider of content storage management solutions that help companies migrate, manage and monetize large-scale media assets

• In the period from April 7 to September 17, Oracle has underperformed the broader indices, posting a gain of 4.36%

• Oracle CEO Ellison to step down

Holdings

Computer Programs & Systems (CPSI) Update• Healthcare information technology systems provider

to rural and community hospitals with less than 300 beds

• As of June 30, 2014, $24.7 billion in the form of Medicare incentive payments have been disbursed to hospitals which modernized their healthcare information systems (main source of revenue for CPSI)

• As of May 31, 2014 CPSI is ranked third in successful hospital electronic health record (EHR) system implementations

• Financial Results – six months ended June 30, 2014 Revenue increased 2.3% YoY to $105.1 million NI increased 9% YoY

• Since April 7, CPSI has depreciated 5%

Microsoft (MSFT) UpdateMobile first, cloud first

• September – Acquisition of Mojang and Minecraft for $2.5 bn. Mojand and Minecraft founders will not stay with Microsoft Lead Developer of Minecraft joins Microsoft

• July – Acquisition of inMage – developer of cloud-based business continuity (backup, replicate, and recover apps in case of system failure)

• July – Acquisition of SyntaxTree – creator of Unity game development engine

• May – Acquisition of Capptain, developer of mobile app management tools

• May – Acquisition of GreenButton – developer of software that helps businesses move to the cloud and use it to crunch data

• Since April 7, Microsoft has appreciated 17%

Google• Q2 EPS of $6.08, missed analyst targets by $.015

• Nearly 20 acquisitions since May

• Skybox Imaging ($500m) Satellite imaging company that plans to be able to take

high quality pictures of the earth twice a day with 12 units by 2016, 3 times a day with 24 units in 2018

Google Earth to become a much more powerful tool

• DropCam ($555m) Offers cameras that let users monitor homes and offices Purchased by Google’s Nest Labs to add to its smart

home offerings

• Since April 7, Google is up 9.5%

Google• Google I/O 2014 took place earlier this summer with

a lot of big announcements including: Android L Android wear Android auto Android TV Android one Google Cardboard Google Fit

Qualcomm• Q3 EPS of $1.31, beat analysts expectations by

$0.23

• Investigation just completed after anti-trust accusations in China, where its mobile smartphone chips dominate the market 66% of the phone processor market globally

• Recently added 3G/4G LTE into less premium mobile phone processors, which will extend the company’s reach in the phone processor market

• Since April 7, down 2%

TechnologyWilson Hallett, Eic Pelnik, Kiril Krendov, James Emanuelson, and Brian Krouskos

In the period from April 8 to September 17, our holdings have gained approximately 6.66%. Our holdings have underperformed the broader Nasdaq index and the Technology Select Sector SPDR by approximately 492 basis points and 635 basis points, respectively

Portfolio Overview

In the period from April 8 to September 17, our holdings have underperformed the S&P 500 Index by approximately 167 basis points. The S&P 500 continued its gains this summer, posting an 8.33% increase in the same time period.

Portfolio Overview Cont.

Oracle (ORCL) Update June 20: Oracle agrees to acquire LiveLOOK, a leading provider of real-time, visual collaboration technology

for co-browsing and screen sharing

June 23: Oracle agrees to acquire MICROS Systems, a provider of integrated software and hardware solutions to the Hospitality and Retail industries. The transaction is valued at $5.3 billion

July 31: Oracle agrees to acquire TOA Technologies, a leading provider of cloud-based field service solutions that manage and optimize the last mile of customer service for enterprises by coordinating activities between dispatchers, mobile employees, and their customers

September 14: Oracle agrees to acquire Front Porch Digital, a provider of content storage management solutions that help companies migrate, manage and monetize large-scale media assets

In the period from April 7 to September 17, Oracle has underperformed the broader indices, posting a gain of 4.36%

Oracle CEO Ellison to step down

Holdings

Computer Programs & Systems (CPSI) Update Healthcare information technology systems provider to rural and community hospitals with less

than 300 beds

As of June 30, 2014, $24.7 billion in the form of Medicare incentive payments have been disbursed to hospitals which modernized their healthcare information systems (main source of revenue for CPSI)

As of May 31, 2014 CPSI is ranked third in successful hospital electronic health record (EHR) system implementations

Financial Results – six months ended June 30, 2014 Revenue increased 2.3% YoY to $105.1 million NI increased 9% YoY

Since April 7, CPSI has depreciated 5%

Microsoft (MSFT) UpdateMobile first, cloud first

September – Acquisition of Mojang and Minecraft for $2.5 bn. Mojand and Minecraft founders will not stay with Microsoft Lead Developer of Minecraft joins Microsoft

July – Acquisition of inMage – developer of cloud-based business continuity (backup, replicate, and recover apps in case of system failure)

July – Acquisition of SyntaxTree – creator of Unity game development engine

May – Acquisition of Capptain, developer of mobile app management tools

May – Acquisition of GreenButton – developer of software that helps businesses move to the cloud and use it to crunch data

Since April 7, Microsoft has appreciated 17%

Google Q2 EPS of $6.08, missed analyst targets by $.015

Nearly 20 acquisitions since May

Skybox Imaging ($500m) Satellite imaging company that plans to be able to take high quality pictures of the earth twice a day

with 12 units by 2016, 3 times a day with 24 units in 2018 Google Earth to become a much more powerful tool

DropCam ($555m) Offers cameras that let users monitor homes and offices Purchased by Google’s Nest Labs to add to its smart home offerings

Since April 7, Google is up 9.5%

Google Google I/O 2014 took place earlier this summer with a lot of big

announcements including: Android L Android wear Android auto Android TV Android one Google Cardboard Google Fit

Qualcomm Q3 EPS of $1.31, beat analysts expectations by $0.23

Investigation just completed after anti-trust accusations in China, where its mobile smartphone chips dominate the market 66% of the phone processor market globally

Recently added 3G/4G LTE into less premium mobile phone processors, which will extend the company’s reach in the phone processor market

Since April 7, down 2%

U&TVincent Gennaro, Will Park, Wilson West, Ryley Goldsworthy

Sector overviewUtilities

• Moderate coal rebound

• Long term trends in natural gas

• Regional trends

• Regulatory environment

Sector overviewTelecommunications

• Failed buyout of T-Mobile by Sprint (August 5th)

http://dealbook.nytimes.com/2014/08/05/sprint-and-softbank-said-to-abandon-bid-for-t-mobile-us/?_php=true&_type=blogs&_r=0

• Emerging market/EMEA growth Smartphone adoption in

India increased 84% in Q2 2014

Utility holdings

Duke Energy (DUK)

• $500 MM expenditure program to increase in NC solar power by 60%

• Sold un-regulated mid-west assets

• Plans for wind generation in Texas

ITC Holdings (ITC)

• Purchased 03/2014

• ~0% gain1. Stormy summer season

in Midwest2. FERC unfavorable

decision on ISO New England ROE complain

“For this reason, we prioritize our development strategy in the current environment around our existing regions.”

– Joseph Welch, CEO ITC Holdings

Telecom holdings

American Tower (AMT)

• Investment thesis finally playing out 20% YTD

• 28,000 US towers, 39,000 international

• 12,000 towers in India Indian govt. approved REIT’s in 2014-2015

union budgets to encourage investment

• Mgmt. still expects to double AFFO from 2012-2017

• 95% of company is held by institutional investors

• Major risks include exchange rate risks and inflated valuations

Verizon (VZ)

• Pricing pressure from major US competitors ~0% YTD

• 4.2% yield