Materials Sector

November 24, 2009

Ellis Krienik, Minh Le, Brian Mandel

Materials Sector Recommendation

Sell 50 bps:

Trim 150 bps of DOWBuy 100 bps of MON

Market PerformanceIndex Name Market

CapMTD QTD YTD

S&P 500 9,617B 5.33% 3.24% 20.83%

Info Tech 1,826B 5.06% 4.66% 51.54%

Materials 344B 11.01% 5.09% 42.78%

Cons Disc 911B 6.90% 4.25% 33.21%

Financials 1,389B 3.79% -2.48% 16.24%

Industrials 996B 8.24% 3.19% 15.50%

Health Care 1,226B 7.87% 5.38% 13.68%

Cons Staples 1,136B 4.34% 5.42% 12.49%

Energy 1,154B 2.21% 5.43% 11.70%

Utilities 344B 2.32% -0.97% -0.30%

Telecom 291B 3.47% -1.54% -4.55%

SIM Portfolio Structure as of 10/31/09Sector S&P 500 Weight SIM Weight +/-

Consumer Discretionary 9.11% 7.51% -1.60%

Consumer Staples 11.94% 12.23% 0.29%

Energy 12.35% 12.80% 0.45%

Financials 14.66% 6.59% -8.07%

Health Care 12.65% 13.13% 0.48%

Industrials 10.09% 11.97% 1.88%

Information Technology 19.04% 21.97% 2.92%

Materials 3.39% 4.52% 1.13%Telecommunication Services 3.09% 3.51% 0.43%

Utilities 3.68% 3.19% -0.49%

Cash 0.00% 2.51% 2.51%

Materials Sector Valuation Multiples

Absolute Basis

High Low Median Current

P/Trailing E 25 8.1 15.7 25.0

P/Forward E 28.6 10.5 15.2 21.1

P/B 3.7 1.3 2.9 2.8

P/S 1.5 .5 1.2 1.1

P/CF 13.1 5.4 9.4 13.1

Current Materials Holdings in SIM Portfolio

$ Unit Cost

Market Price

% Gain/ (Loss)

% of Portfolio

Dow Chemicals (DOW)

$8.26 $27.98 238.74% 2.58%

Monsanto (MON) $82.10 $80.13 (2.4%) 1.94%

Current Materials Holdings in SIM Portfolio

Current Materials Holdings in SIM Portfolio

Dow Chemicals

Dow Multiples Analysis

Relative to Industry

High Low Median Current

P/Trailing E 7.9 0.6 1.0 7.9P/Forward E 3.4 0.68 0.9 1.3P/B 1.2 0.6 0.9 0.7P/S 1.1 0.4 0.8 0.9P/CF 1.7 0.5 0.9 1.7

Dow Multiples Analysis

Absolute Valuation High Low Median Current

#Your Target

Multiple

*Your Target E,

S, B, etc/Share

Your Target Price

(F x G)P/Forward E 61.6 7.5 14.9 22.9 14.9 0.67 9.93

P/S 1.6 0.1 0.9 0.7 0.9 40.36 36.32P/B 5.1 0.5 2.6 1.8 2.6 20.01 32.15

P/EBITDA 17.89 1.62 5.89 8.36 5.89 1.94 11.43P/CF 16.1 1.6 8.9 11.4 8.9 2.67 23.76

The ‘average price’ for the stock from the 5 target prices above is 26.20

Dow Chemicals DCFDow Chemicals (DOW)

Analyst: Minh Le Terminal Discount Rate = 11.0%10/19/2009 Terminal FCF Growth = 4.0%

Year 2009E 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E

Revenue 46,011 50,612 57,698 60,179 62,767 65,466 68,281 71,149 74,137 77,251 80,418 % Grow th 6.0% 7.0% 4.3% 4.3% 4.3% 4.3% 4.2% 4.2% 4.2% 4.1%

EBT 1,429 2,817 3,969 4,634 4,833 5,041 5,258 5,621 5,857 6,103 6,353 EBT Margin 3.1% 4.3% 6.9% 7.7% 7.7% 7.7% 7.7% 7.9% 7.9% 7.9% 7.9%

Net Income 857 1,690 2,580 3,568 3,721 3,881 4,048 4,328 4,510 4,699 4,892 % Grow th 97.1% 52.6% 38.3% 4.3% 4.3% 4.3% 6.9% 4.2% 4.2% 4.1%

Add Depreciation/Amort 2,526 2,216 2,014 2,588 2,573 2,684 2,800 2,846 2,891 3,013 3,056 % of Sales 4.4% 4.4% 4.4% 4.3% 4.1% 4.1% 4.1% 4.0% 3.9% 3.9% 3.8%Plus/(minus) Changes WC (1,181) (1,181) (1,181) (1,204) (1,255) (1,309) (1,366) (1,423) (1,483) (1,545) (1,608) % of Sales -2.6% -2.3% -2.0% -2.0% -2.0% -2.0% -2.0% -2.0% -2.0% -2.0% -2.0%Subtract Cap Ex (1,783) (1,890) (2,022) (2,227) (2,322) (2,422) (2,390) (2,490) (2,595) (2,627) (2,734) Capex % of sales -3.9% -3.7% -3.5% -3.7% -3.7% -3.7% -3.5% -3.5% -3.5% -3.4% -3.4%

Free Cash Flow 420 836 1,391 2,726 2,717 2,834 3,092 3,261 3,324 3,540 3,605 % Grow th 99.0% 66.5% 95.9% -0.3% 4.3% 9.1% 5.4% 1.9% 6.5% 1.8%

Current Price 27.03$ Implied equity value/share 29.41$

Upside/(Downside) to DCF 8.8%

Dow Sensitivity Analysis

3.0% 3.5% 4.0% 4.5%

10.5% 29.20 30.42 31.84 33.49

11.0% 27.20 28.23 29.41 30.77

11.5% 25.45 26.32 27.31 28.44

12.0% 23.89 24.64 25.47 26.43

Benefits/Risks of Selling Dow

Benefits• Capture some capital gains ~

250%, since we bought at around $8 per share.

• End markets do not appear so attractive: automobile and construction, both of which have been slumping.

• Dow is already trading within 10% of target.

Risks• Optimists believe the target

being > $40.• Dow is a golden egg, very well

managed.• Buffet is still in there, should

we?• Beta is 2.5, so once economy

recovers, Dow will strongly rebound.

Monsanto

Monsanto Multiples Valuation

Absolute Valuation High Low Median Current

#Your Target

Multiple

*Your Target E,

S, B, etc/Shar

e

Your Target Price

(F x G)

P/Forward E 43.2 15.4 26.6 24.3 26.6 3.79 100.81P/S 7.1 2.2 3.6 3.7 3.6 24.15 86.94P/B 7.6 2.1 4.2 4.3 4.2 18.44 77.45

P/EBITDA 34.85 3.6 15.1 10.6 15.1 7.74 116.87P/CF 34.1 12.4 20.5 14.8 20.5 3.52 72.25

The ‘average price’ for the stock from the 5 target prices above is 90.86

Monsanto Multiples Valuation

Relative to Industry

High Low Median Current

P/Trailing E 1.2 .63 1.0 1.2

P/Forward E 1.3 .87 1.0 1.1

P/B 1.1 .7 1.0 1.1

P/S 1.5 .8 1.0 1.2

P/CF 1.7 .9 1.1 1.1

Monsanto DCFMonsanto (MON)

Analyst: Brian Mandel Terminal Discount Rate = 10.5%11/20/2009 Terminal FCF Growth = 4.5%

Year 2009 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E

Revenue 11,724 13,405 15,621 18,234 20,422 22,872 25,617 28,179 30,715 33,172 35,162 37,272 % Grow th 14.3% 16.5% 16.7% 12.0% 12.0% 12.0% 10.0% 9.0% 8.0% 6.0% 6.0%

EBT 2,954 2,975 3,458 4,025 4,084 4,574 5,123 5,636 6,143 6,634 7,032 7,454 EBT Margin 25.2% 22.2% 22.1% 22.1% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0%

Net Income 2,109 2,103 2,448 2,853 2,930 3,278 3,667 4,031 4,391 4,740 5,023 5,322 % Grow th -0.3% 16.4% 16.6% 2.7% 11.9% 11.9% 9.9% 8.9% 7.9% 6.0% 6.0%

Add Depreciation/Amort 548 643 625 638 592 618 640 704 768 829 879 932 % of Sales 4.7% 4.8% 4.0% 3.5% 2.9% 2.7% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5%Plus/(minus) Changes WC (384) (30) (663) (796) (67) (75) (85) (93) (101) (109) (116) (123) % of Sales -3.3% -0.2% -4.2% -0.3% -0.3% -0.3% -0.3% -0.3% -0.3% -0.3% -0.3% -0.3%Subtract Cap Ex 916 799 906 1,039 592 618 640 704 768 829 879 932 Capex % of sales 7.8% 6.0% 3.4% 3.1% 2.9% 2.7% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5%

Free Cash Flow 1,357 1,918 1,503 1,656 2,862 3,202 3,583 3,938 4,290 4,631 4,907 5,199 % Grow th 41.3% -21.6% 10.1% 72.8% 11.9% 11.9% 9.9% 8.9% 7.9% 6.0% 6.0%

Current Price 80.08$ Implied equity value/share 96.64$ Upside/(Downside) to DCF 20.7%

Monsanto Sensitivity Analysis

3.5% 4.0% 4.5% 5.0%

10.0% 95.00 100.19 106.31 113.66

10.5% 87.39 91.66 96.64 102.52

11.0% 80.81 84.36 88.46 93.24

11.5% 75.07 78.05 81.46 85.39

Benefits/Risks of Buying Monsanto

Benefits• 20% Upside• Market leader• Increasing demand

Risks• Aggressive profit outlook• Intense competition in

herbicide business• Regulatory risks

Recommendation Recap

Sell 50 bps:

Trim 150 bps of DOWBuy 100 bps of MON