Sellinger Applied Portfolio Report Spring 2014 May 6

Sellinger Applied Portfolio Report Spring 2014 May 6 th 2014

Table of Contents I. II. IV V. VIII. Economic Conditions and News’ Highlights Sector Summaries Strategy & Portfolio Composition Portfolio Holdings Risk Analysis Performance Evaluation Recommended Enhancements Student Manager Profiles

ECONOMIC CONDITIONS AND NEWS’ HIGHLIGHTS

bls. gov/news_releases/archives inflationdata. com

Domestic News - Housing § It appears the market for buying big houses is on the rise § Housing starts (building new houses) rose 18 % in 2013 § In July 2013, sales of homes costing more than $1 million were up 46. 6 percent from the previous July § Affordability and steady job growth are expected to put the two-year upward trend in home sales back on track § The Commerce Department said new home sales in January rose to their highest level since July 2008. bloomberg. com/news (August 28, 2013)

Domestic News – Federal Reserve § Fed to slow down asset purchase program for the third time §Monthly buying of bonds down to $65 billion from $85 billion § Change to future estimates for rates § § Fed funds rate now expected to be 1% by the end of 2015 § Compared to. 75% previously By the end of 2016 Fed expects a FF rate of 2. 25% § Previously expected to be 1. 75% § Fed expects to keep rates close to zero until unemployment falls well below 6. 5%, especially if inflation remains low § U. S. consumer prices rose slightly in march (. 2%) due to in increase in food prices § Janet Yellen announced a possible increase in liquidity and capital requirements pertaining to the use of short-term wholesale funding. Yahoo Finance (September 19, 2013) money. cnn. com/data/commodities (October 1, 2013) CNN Money (November 14, 2013)

Domestic News § Widespread strength in personal consumption, exports and homebuilding suggests real GDP rose 3. 4% in Q 4, held back only by sequestration and the partial government shutdown § U. S. consumer confidence rose to 82. 3 in March § From an upwardly revised 78. 3 in February § Retail Sales recorded their largest gain in 1 -1/2 years § Up for the 9 th straight month § Industrial production capped its strongest quarter last month since 2010 § Consumer Credit increased § Due to auto loans and student loans made by the government § Credit card use decreased § Total consumer credit increase of $16. 49 billion Bloomberg; NY Times (September 2013)

Domestic News § Congressional Budget Office projected the U. S. budget deficit will shrink to $492 billion from $680 billion. § Decrease in subsidies for health insurance § Lower Medicare and food stamp expenses § Less defense spending § The dollar rose against the Euro § European Central bank announced further monetary easing § Strong U. S. retail sales data § U. S. plans to more than triple the number of American “cyberwarriors” to 6, 000 by the end of 2016 § The U. S. actually briefed China on this program with the hope that the rising number of cyber attacks between the U. S. and China would decrease.

Domestic News – JPMorgan Chase Fraud Settlement § News came out the JPMorgan Chase and Co. had a fraud settlement totaling 13 billion dollars with the US government § The accord, announced in November, settled allegations that the biggest U. S. lender by assets misled investors and the public when it sold bonds backed by faulty residential mortgages. § U. S. and state officials blamed JPMorgan’s actions for helping to cause the credit crisis, and said the agreement didn’t shield JPMorgan or its employees from possible charges § Better Markets Inc. is seeking judicial scrutiny of the accord because it’s the largest settlement with a single entity in the 237 year history of the US according to a complaint that was recently filed in Washington federal Court

International News § § Russia-Ukraine Conflict (Events in order) Ukrainian President Viktor Yanukovych's decision in November to pull out of an association deal with the EU sparked huge street protests that eventually led to his downfall. § President Yanukovych's cabinet abandons an agreement on closer trade ties with EU, instead seeking closer cooperation with Russia, and Ukrainian MPs also reject a bill to allow Yulia Tymoshensko to leave the country. § Small protests begin and police launch first raid § Protestors begin occupying key buildings in Kiev, Ukraine’s capital while hundreds of people are getting killed and wounded § President Yanukovych signs compromise deal with opposition leaders but then disappears § Parliament names speaker Olexander Turchynov as interim president while an arrest warrant is issued for Mr Yanukovych § Ukraine's interim PM Yatsenyuk says Russia has effectively declared war. US says Russia is in control of Crime. § Crimea's parliament votes to join Russia and schedules a referendum for 16 March. § The US and France warn of "new measures" against Russia if it does not withdraw its forces from Ukraine. § EU leaders gathered in Brussels condemn Russia's "annexation" of Crimea and extend the list of individuals targeted for sanctions. The US also extends sanctions. § Russian President Vladimir Putin says that gas supplies to Ukraine could be cut if Kiev does not pay off its debts, and warns this could affect gas deliveries to Europe.

International News § § Russia-Ukraine Conflict (Events in Order) Cont. § Ukraine's acting President, Olexander Turchynov, announces start of "anti-terrorist operation" against pro-Russian separatists. § Russia, Ukraine, the US and the EU say they have agreed at talks in Geneva on steps to de-escalate the crisis in eastern Ukraine. Three people are killed when Ukrainian forces fend off a raid on a base in Mariupol. § The shooting of three people manning a pro-Russian checkpoint near Sloviansk outrages Russia, which blames it on Ukrainian nationalists. § Russian Foreign Minister Sergei Lavrov accuses Kiev of breaking the Geneva agreement. Kiev releases photos as "proof" of Russian soldiers operating in eastern Ukraine § Ukraine's acting president orders relaunch of military operations against pro-Russian militants in the east after two men, one a local politician, are found "tortured to death" in Donetsk region. § Tony Blair warns Western leaders they must put aside their differences with Russia over Ukraine to focus on the threat of Islamic extremism. How it affects us all § 30% of gas supplies to Europe come from Russia and goes through Ukraine; Escalating tensions between Russia and Ukraine have been a recent catalyst in oil prices § If the two countries continue the war, sanctions on gas exports may be imposed which will place considerable strain and concerns for countries such as Germany, France, the UK and many more.

International News § Missing Malaysian Flight 370 § a scheduled international passenger flight from Kuala Lumpur to Beijing lost contact with air traffic control on March 8 2014 at 01: 20 MYT less than an hour after takeoff § The aircraft, a Boeing 777 -200 ER, was carrying 12 Malaysian crew members and 227 passengers from 14 nations § A multinational search and rescue effort, later reported as the largest in history, began in the Gulf of Thailand the South China Sea and extended very far § On 24 March, the Malaysian government confirmed two independently made analyses by the British Air Accidents Investigation Branch (AAIB) and Inmarsat, and concluded "beyond any reasonable doubt" that the aircraft had gone down in the southern part of the Indian Ocean with no survivors § Earlier search areas were abandoned and all search efforts are being concentrated on the Australian-led area. There has been no confirmation of any flight debris and no crash site has been found

International News § World Markets § China’s economy continues to struggle due to their manufacturing sector slowing down. Another factor is its overcapacity and mostly because of the excessive level of investment--about 50 percent of China's GDP. Also, exports and real estate have cooled down. § The Turkish Lira has been leading gains among emerging-market currencies § The Japanese Yen weakened and is causing prices to rise; core inflation at its highest since 2008. “Japan’s swing from a trade surplus country to a deficit is one of the important shifts in the world economy in recent years, ” said Marc Chandler, global head of currency strategy at Brown Brothers Harriman § Alibaba, a Chinese Internet company, will file for an initial public offering. It is potentially the biggest public offering since Facebook's inauspicious debut in 2012. It's critical to Yahoo, which owns 24% of the company. And it's got plenty of users: 500 million at last count.

International News § Europe Stocks fall after six-year high on Ukraine tension § The Stoxx Europe 600 Index and U. K. ’s FTSE 100 have been overall declining due to the conflict § However, the European markets have been recovering this April and are performing better as tensions hopefully ease in Ukraine and Russia

International News

SECTOR SUMMARIES

Consumer Discretionary SUMMARY: Consumer Discretionary is an economic sector comprised of businesses that sell nonessential goods and services. This sector has a vast array of companies including retailers, media companies, consumer service companies, consumer durables and apparel companies, and automobiles and component companies as well as leisure equipment. These industries tend to be the most sensitive to economic cycles. Consumer Discretionary has a market capitalization of $4. 07 T and a market weight of 12. 36%. In the United States, there are 947 companies in the Consumer Discretionary sector, divided between 17 industries. OUTLOOK: One of the biggest risks for consumer discretionary stocks was macroeconomic exposure to Europe, where many countries were dealing with structural sovereign debt issues that needed to be addressed by fiscal austerity efforts. This backdrop generally wasn’t supportive of economic growth, although the European Economy seems to be recovering. If these modest economic improvement trends are sustainable in Europe and an early-cycle recovery takes hold, there could be a resumption of positive growth, which would provide a positive backdrop for consumer discretionary spending.

Consumer Staples SUMMARY: The Consumer Staples Sector comprises companies whose businesses are less sensitive to economic cycles. It includes manufacturers and distributors of food, beverages and tobacco and producers of non-durable household goods and personal products. It also includes food & drug retailing companies as well as hypermarkets and consumer super centers. OUTLOOK: The consumer staples sector is not as impacted by the economic environment as other sectors are. This is a positive factor during rough economic periods. However, this is a negative during times of improving economic conditions. Consumer staples is a defensive sector. Due to the improving economy, we assert that the consumer staples sector will underperform relative to its peers. Moreover, consumer staples companies tend to have narrow margins and do not typically increase profitability rapidly The consumer staples sector also is seeing a drastic increase in competition.

Energy SUMMARY: The energy sector consists of companies that either produce or supply energy. The types of energy that these companies produce or supply are natural gas, oil, and integrated power firms. When looking at these historical figures, it is apparent that the energy sector has underperformed the S&P 500 in the short term and has severely underperformed over the past year. OUTLOOK: President Obama promoted many new American energy initiatives in his State of the Union Address, and has seemed to be a popular subject in the media. Our four individual energy sector stocks in our portfolio have provided an average return of 26. 00%. It is evident that the sector as a whole has not been performing well, but our individual securities have definitely outperformed the market. There has been an increase in volatility in the natural gas market due to the cold weather. The energy sector is heavily impacted by supply and demand factors. In turn, global economic outlook is a key factor to monitor. Unfortunately, energy supplies could increase due to a renewed commitment to exploration and technological improvements. Large drivers of the energy sector are the U. S. and Chinese economies. On a positive note, developing nations will need more energy as they modernize and improve their infrastructure. Zack’s Investment Research

Financials SUMMARY: The financials sector consists of companies engaged in the operation of retail and commercial banks, insurance companies, real estate operations, investment trusts and other financial service providers. Within the S&P 500, the healthcare sector makes up about 16% of the index. The sector has grown by approximately 21. 83% over one year and has outperformed the S&P 500 as a whole. OUTLOOK: Within the financial sector, large scale changes, including monetary policy shifts, new regulations, technology developments, and changing demographics can quickly disrupt markets while simultaneously creating sector opportunities. For most of 2013, investors focused on expectations for the Federal Reserve to rein in quantitative easing and potentially set the stage for short-term interest rates to rise. Broadly speaking changes in quantitative easing, investor psychology, economic expansion, and other developments are likely to be significant factors for financial services firms for 2014. Also, improved technology is the cornerstone of many banking industry priorities and as time goes on, technology is becoming more advanced which will result in easier decision making and innovative investing by financial services firms and banks. Overall, the sector should be seeing gains over the course of the year.

Healthcare SUMMARY: The Healthcare sector is comprised of two main industry groups. The first includes companies involved in manufacturing medical supplies and equipment as well as operating healthcare facilities and provision of managed healthcare. The second group is involved in the research, development, production, and marketing of pharmaceuticals and biotechnology products. Within the S&P 500, the healthcare sector makes up an approximate 13. 34% of the index. OUTLOOK: In the fiscal year of 2013, the healthcare sector was the best performing group of stocks to date and has outperformed other sectors in previous years as well, which can be attributed to its stable demand. Since the passage of Obamacare on March 23, 2010, health care stocks have outperformed the broad market, gaining 75%, compared with a 57% rise in the S&P 500 Index. ” Historically, health care has been one of the market’s most consistent performers, even throughout numerous business cycles and periods of extreme market volatility. Stable demand is anticipated to continue due to an aging population and the fact that people can survive longer with chronic diseases. Also, emerging markets are creating larger middle classes that will increase demand for health care products. Finally, the Affordable Care Act should have a positive impact on health care utilization, as approximately 30 million uninsured Americans will gain coverage. On the other hand, the biotech industry has recently experienced some volatility due to Congress raising concerns over the pricing of drugs. The government will have a large impact on this sector in near future.

Industrials SUMMARY: The Industrials sector includes an array of stocks related to the producing of goods used in construction and manufacturing. Companies involved in activities such as aerospace and defense, industrial machinery, tools, construction, lumber production and much more. In order for the industrials sector to be doing well as a whole there must be high demand for building and construction, as well as the demand for manufactured products. When the economy is not doing well, consumers tend to save their money and activity in the industrials sector slows down. Companies begin to delay building and produce only as many goods as they need. OUTLOOK: Indicators of economic health and sentiment remain positive. The housing and automotive industries continue to rebound from recession lows. U. S. industrial production increased 1. 1% sequentially and 3. 2% year over year in November. This gap upward is more in line with the recent persistently optimistic sentiment metrics. Moreover, industrial production improved in most categories and should yield continued increases as the market as a whole stabilizes.

Information Technology SUMMARY: The information technology sector consists of companies that either do technological research, or produce technological based goods or services. This sector relies heavily on electronics, which are constantly changing, becoming faster and more powerful every year. It is considered to be a rapidly growing industry. The information technology sector makes up 18. 8% of the S&P 500. In the Sellinger Applied Portfolio, information technology slightly overweight at 17. 83%. Over the past year, the S&P 500 has risen by 18. 39% while the information technology sector has risen by 18. 23%. Over the past quarter, the S&P 500 has fallen by -5. 1%, while the information technology sector has fallen by -4. 19%. By looking at these simple statistics, it is apparent that this sector outperforms the S&P 500 in both the long and short term. OUTLOOK: In more recent years, the information – technology sector has outperformed other market sectors while companies within the sector have yielded high growth margins. With large cash balances, increasing dividend payments, solid management in many cases and tight inventory controls, the tech sector appears far more stable than it was in the late-1990 s environment. Additionally, balance sheets in the sector appear solid, with large cash balances and relatively low debt. This enables the group to increase dividends and pursue mergers and acquisitions that might help performance as competition is removed and expenses consolidated.

Materials SUMMARY: The materials section consists of companies involved with the discovery, development and processing of raw materials. The materials sector comprises of metals, chemicals, construction materials, glass, paper and forestry products. In the United States, there are 148 materials companies. The largest industry within the materials sector is chemicals, accounting for approximately 67%. The metals and mining industry produced the worst performance within the materials sector. OUTLOOK: The materials sector is very sensitive to the business cycle and the economy. The materials sector is a large supplier for construction. In turn, the sector depends on a strong economy and on the housing market. The housing market has been recovering and is projected to continue to improve. Makers of paint and other construction chemicals are likely to benefit. The Federal Reserve also has a large impact on the materials sector. Gold, a popular product in the materials sector, is heavily influenced by the Federal Reserve’s tapering policy. Gold is utilized as a safe haven against inflation. In turn, the Fed’s reduction in its stimulus program could have an extensive effect on gold and the materials sector.

Telecommunications SUMMARY: With 109 companies in the Telecommunications Sector, this sector is a combination of stocks that include complex networks, telephones, mobile phones and internet-linked PCs. All of these comprised entities allow consumers to communicate and share various thoughts regardless of the communicators’ locations. There are currently no SAP investments in the Telecommunications sector due to the sector’s overall poor performance; this sector has underperformed at -0. 55% compared to the S&P 500 at +13. 21% over the past year. OUTLOOK: Telecommunications is a necessary utility and a recovering economy speeds up the demand for real-time voice, data, and video manifold. The escalation in demand has encouraged telecom service providers to undertake large network extensions while upgrading plans. Moreover, the FCC projects mobile data demand to grow 25 -50 fold over the next five years. Wireless is the key- the focus of operators is to shift voice calls to data and video. Currently, there are 176 million LTE connections worldwide, and it is predicted that number will be more than 1 billion by 2017 with 465 LTE networks across 128 countries. There is room for tremendous growth in the telecommunications sector. Source: Google Finance, Investopedia

Utilities SUMMARY: The Utilities Sector is made up of a collection of stocks that deal with the delivery of electricity, gas, water and other related services. The utilities sector holds an estimated 3. 02% within the S&P 500. The companies in the Utilities sector often carry large amounts of debt due to the need for infrastructure. Generally, this sector performs best when interest rates are dropping which alters the amount of debt. OUTLOOK: Those aiming for growth should be wary of the sector’s underperformance in previous years. Notably, the combination of low interest rates, a slowly improving U. S. economy, and increased demand from yield-seeking investors has driven many utility stocks to above-average valuations. Investors planning for retirement will continue to be satisfied with the stable demand higher-than-average dividends that utilities offer. More favorable winter weather will help the utilities sector this year, as opposed to the unseasonably warm winter of 2012 -2013. A maturing baby boom generation and shifting investor preferences indicate that high paying equities, like utilities, will be preferred to other investment options.

STRATEGY AND PORTFOLIO COMPOSITION

Growth Strategy Buy Criteria ●Conservative Mentality – Expect to perform better than industry ●Revenue growth ≈> industry average and forecasted to continue ●Strong Earnings ~ 5 years of CAGR ●ROE ≈ ≥ 15% and > Industry Average ●PEG ≈ ≤ 1. 2 and < Industry Average ●Debt / Equity < 1. 5 (or Acceptable Interest Coverage Ratio when D/E >1. 0) Stop Loss Criteria ● Establish at 80% of Purchase Price ● Evaluate as information and stock price changes. ● If stock appreciates – move stop loss up accordingly (consider trailing / crawling stop) ● If company business fundamentals deteriorate – raise stop loss or sell per sell criteria. ● Earnings miss, lower guidance, slowing revenue growth etc. Sell Criteria ● Re-evaluate positions when: ○ The price reaches 10% below target price ○ The price is 20% above purchase price. ● Evaluate Sell under following: ○ Company loses its leadership position ○ Company business fundamentals deteriorate. ○ Slowing unit volume, revenue decline, etc. ○ Superior investment alternatives are identified.

Value Strategy Buy Criteria Goal: To find stocks priced less than their intrinsic value. ● Price/Sales < industry average ● Price/Book Value < industry average ● Dividends > Industry Average ● Positive Free Cash Flow Stop Loss Criteria ● 0. 20% below purchase price if all buy criteria are met ● Adjust lower for additional risk (i. e. , some buy criteria are not met) ● Increase stop loss to take profit as price increases ● Consider the use of crawling / trailing stops as stock begins to rise. Sell Criteria ● Re-evaluate positions when: ○ Merger or acquisition news ○ Significant earnings restatement ○ Change in executive management ○ Exceed initial price target ○ Price approaches sell stop ○ Superior investment alternatives are identified ● Evaluate Sell under following: ○ Beginning to trend downwards ○ Significant industry news

Dividend Strategy Buy Criteria ●Dividend Yield ≥ SPDR S&P Dividend ETF ●Quick Ratio ≥ Industry Average ●Total cash dividends paid annually ●Total cash from investing activities ●Total cash from operating activities ●Is there a constant dividend? ●Is there historical and potential dividend growth? Stop Loss Criteria ● 20% below purchase price is all buy criteria are met ●Consider crawling / trailing stops to protect profits. Sell Criteria ●Superior investment alternatives are identified ●Dividends are cut ●Free cash flow diminishes ●Stock price loses (≈20%)

ETF Growth & Value Strategies

Strategic Analysis Contributions

Overall Return & Beta

SAP Holdings by Strategy

PORTFOLIO HOLDINGS

Apple (AAPL) Description: Leading provider of personal technology Sector: Information – Technology Industry: Wireless Telephone & Handset Manufacturing Bought at: $413. 86 Return: 30. 8% § New additions to the i. Life series § i. Phone 6 is soon to be released §Predicted to better compete in Asian markets, thus boosting revenue § Forecasted stock increases by over 20% in 2015 § Share buyback program § Recent 7 for 1 stock split

Bank of Nova Scotia ADR (BNS) Description: Provider of retail, commercial, international, corporate, investment and private banking services and products. Sector: Financials Industry: Banking Bought at: $57. 10 Return: 2. 732% § Canadian banks have an excellent reputation; BNS is one of the “Big 5” in Canada § In Q 4 2013, BNS reported a 10% increase in net profit § Strong presence in Asia and Latin America § Analysts predict a strong 38% upside

B/E Aerospace Inc. (BEAV) Description: Maker of cabin components for commercial, business jets and military aircraft Sector: Industrials Industry: Aerospace Products & Parts Manufacturing Bought at: $77. 35 Return: 14. 261% § Airline industry reports air-travel increases § Reported high profit margins in recent quarters § High cabin retrofit demand

Buckeye Partners (BPL) Description: owns and operates liquid petroleum products pipeline systems. Sector: Materials/Energy Industry: oil & gas pipelines Bought at: $65. 87 Return: 15. 22% ▪ Long-term distribution sustainability ▪ Revenue growth exceeds industry average ▪ Impressive earnings growth and cash flow ▪ Wide economic moat on Morningstar ▪ BPL storage facilities provide it with scalability and flexibility to optimize its assets § Strong acquisition base

Celgene Corporation (CELG) Description: Celgene is a biopharmaceutical company engaged in discovery and commercialization of innovative therapies designed to treat cancer & immune-inflammatory related diseases Sector: Healthcare Industry: Biotechnology Bought At: $151. 82 Return: -2. 9% • Impressive financials (P/E ratio) • Strong forecasted growth • Strong buy by recommended by multiple analyst • Product pipeline

Continental Resources Inc. (CLR) Description: Engaged in the exploration, development, and production of crude oil and natural gas properties. Sector: Materials Industry: Independent oil & gas Bought at: $101. 19 Return: 22. 7% ▪ Exploration & production of onshore oil-prone plays in US ▪ Strong growth potential tied to natural gas boom ▪ CLR gas production projected to increase 32% in 2014 ▪ Deregulation favors natural gas compared to other commodities ▪ Impressive asset base ▪ One of the more “green” oil and gas companies

Costco (COST) Description: Operates membership warehouses Sector: Consumer Stables Industry: Discount Stores Bought at: $110. 08 Return: . 8% ▪ Sales above industry average ▪ International market is untapped (expansion opportunity) ▪ Impressive Morningstar credit rating (AA-) ▪ Wide economic moat § § ▪ Cost advantages Logistical efficiency Loyal customer base

Dollar General (DG) Description: Operates as a discount retailer which offers a selection of merchandise. Sector: Consumer Staples Industry: Discount Stores Bought at: $1. 79 Return: 1 o% ▪ Likely to benefit from CVS’s no-tobacco § ▪ ▪ ▪ CVS and DG have large geographical overlap Nations largest dollar store according to locations Strong sales and revenues compared to peers DG opens 600 -700 stores per year

Fedex Corporation (FDX) Description: Leading provider of delivery transportation services Sector: Industrials Industry: Express Delivery Services Bought at: $133. 85 Return: 0. 560% § Extremely high growth § E-commerce growth as a main growth factor § Online spending forecasted to increase by 0 ver $109 billion by 2017 § Sales expected to hit $1 trillion in 2016

Foot Locker Inc. (FL) Description: Leading retailer of athletic shoes and apparel Sector: Consumer Discretionary Industry: Shoes Stores Bought at: $33. 09 Return: 44. 808% § Should yield increased profit through Nike apparel sales §High value/ high demand sneaker collections §Has reached record high sales and closing prices

Gilead Sciences (GILD) Description: Discovers, develops, and commercializes medicines for the treatment of life threatening diseases. Sector: Healthcare Industry: Biotechnology Bought at: $73. 64 Return: . 36% § Revenue growth has outpaced the industry average. § High profit margins and inexpensive manufacturing § Market share leader in the HIV drug market § Strong patent protection § Diversified Product base § Hepatitis C Drug, Solvadi was approved by FDA (Record breaking sales)

Google (GOOG) Description: Provider of the leading internet search engine Sector: Information – Technology Industry: Internet Publishing, Broadcasting & Search Portals Bought at: $1, 015. 89 Return: 9. 725% § Consumers increase smart-phone Google search usage § Advertising paid clicks are up 26% § Self-learning algorithm is bullish for Google in the 1 -month and 3 -month time horizon

Halliburton (HAL) Description: provides energy services and engineering and construction services, as well as manufacturing products for the energy industry. Sector: Energy Industry: oil & gas Equipment & Services Bought at: $33. 85 Return: 76. 9% ▪ Coal is being replaced by natural gas (cost efficiency) ▪ HAL current and quick ratio’s beat industry and sector averages ▪ Recently signed a deal with Russia’s largest oil supplier ▪ Consistently beat earnings estimates ▪ Strong revenue growth ▪ Analyst recommendations (18 strong buy)

Hanesbrands Inc. (HBI) Description: Designs, makes, and sells bras, hosiery, men's boxers, socks, and other intimate apparel under brand names Sector: Consumer Discretionary Industry: Textile – Apparel Clothing Bought at: $67. 29 Return: 15. 050% § Purchasing Maidenform for $550 million. § Maidenform is one of Hanesbrands direct competitors §Increase revenue by $5 billion § International Expansion §International Markets are relatively untapped

Hasbro Inc. (HAS) Description: Hasbro licenses popular names and characters for toys and games Sector: Consumer Discretionary Industry: Toy &Game Manufacturing Bought at: $47. 35 Return: 18. 745% § Reported highest earnings in last earnings release statement § Increased toy production along with popular movie releases § New super hero action figures have increased sales dramatically

Home Depot (HD) Description: Offers home remodeling products as well as installation services for carpeting, cabinetry, and other products Sector: Consumer Discretionary Industry: Home Centers & Hardware Stores Bought at: $80. 44 Return: -0. 431% § Sales for 2013 increased by 7. 2% from the year prior § Increase in online sales was 50% for the quarter § Energy and Energy Costs being cut

Johnson and Johnson (JNJ) Description: Engaged in the research and development, manufacture and sale of a broad range of products in the healthcare field. Sector: Healthcare Industry: Networking & communication devices Bought at: $68. 75 Return: 42. 6% ▪ Worldwide leader in Internet networking ▪ AAA credit rating (only 4 in the US) ▪ Impressive earnings report ▪ Strong free cash flow ▪ High paying dividend

LPL Financial (LPLA) Description: LPL Financial Holdings Inc. provides an integrated platform of brokerage and investment advisory services to independent financial advisors and financial advisors at financial institutions in the United States. It operates through Independent Advisor Services and Institution Services segments. Sector: Financial Industry: Investment Brokerage Bought at: $53. 56 Return: -. 317% § Returned strong earnings for Q 4 of 2013 § LPL continues to add advisors § Acquired Red. Stone Federal Credit Union § Introduced upgrades to LPL’s interfaces and technology infrastructure

Lululemon Athletica Inc. (LULU) Description: Designs and sells yoga-inspired apparel Sector: Consumer Discretionary Industry: Textile – Apparel Clothing Bought at: $49. 40 Return: 9. 150% § Laurent Potdevin as new CEO § Recently purchased 42, 000 shares on January 20 th § Stock is owned by large Mutual Funds §(Fidelity, Thornburg, American Funds)

Mastercard (MA) Description: a global payment solutions company that provides a variety of services in support of the credit, debit and related payment programs of financial institutions. The Company offers transaction processing services for credit and debit cards, electronic cash, automated teller machines, and travelers checks. Sector: Financials Industry: Credit Services Bought at: $78. 31 Return: -4. 57% § Low PEG ratio (1. 1) § High ROE (43. 3%) § Analyst recommendations (15 strong buy) § International Growth § Adoption of EMV chip § Strong sale and profits against competitors

Schlumberger (SLB) Description: Supplies technology, helps manage projects, and provides information solutions to the international oil and gas exploration and production industry. Sector: Energy Industry: oil & gas exploration Bought at: $88. 19 Return: 11% ▪ Impressive 5 -year growth rate of 15. 9% ▪ Strong project earnings ▪ Yield of 1. 8% ▪ 4 star rating on Morningstar ▪ Dominates Russia oil-service market – Russian market continues to steadily grow § Strong acquisition base § Spends a considerable amount on R&D

Sherwin Williams (SHW) Description: develops, manufactures, distributes and sells paint, coatings, and related products to professional, industrial, commercial and retail customers. Sector: Materials Industry: specialty chemicals Bought at: $182. 62 Return: 9. 7% ▪ Improvement in housing market benefits SHW § Strong sale and profits compared to competitors § Impressive margins § Focuses on innovation and customer service § Low-risk stock (beta: 0. 58) § Even during government instability

Starbucks Corporation (SBUX) Description: Offers coffee drinks and food items Sector: Consumer Discretionary Industry: Coffee Shops Bought at: $50. 73 Return: 44. 720% § Selling Verismo machines § Sold over 160, 000 units § Success trials with liquor sales

Symantec Corp. (SYMC) Description: Provides security, storage, and systems management software for businesses and consumers. Sector: Information – Technology Industry: Security Software Bought at: $21. 71 Return: -8. 094% § CEO Steve Bennet fired § Have already begun searching to fill the position § Financial Advisory aid from JPM § JPM to aid the firm as a financial advisor until the appointment of its new CEO

United. Health Group, Inc. (UNH) Description: The firm offers consumer-oriented health benefit plans and services for large national employers. Sector: Healthcare Industry: Healthcare Plans Bought at: $54. 73 Return: 49. 8% ▪ Strong Analyst Recommendations (14 strong buy) ▪ UNH benefits from Obama Care and healthcare reform ▪ Released better than expected Medicare Advantage Rates ▪ High price targets

United Technologies Corp. (UTX) Description: Develops technologies, systems, and services for the aerospace, construction, and security industries Sector: Industrials Industry: Aircraft Engine & Parts Manufacturing Bought at: $88. 74 Return: 34. 521% § Increased air-travel § New demand for pilotless aircrafts § Increased military spending

Wells Fargo & Company (WFC) Description: Wells Fargo & Company provides retail, commercial, and corporate banking services to individuals, businesses, and institutions. Sector: Financials Industry: Banking Bought at: $49. 77 Return: -. 221% § Strong company; survived the credit crisis unscathed § One of the best deposit franchises in the banking world § Consistent earnings growth § Low PEG ratio (1. 13) § Consistently outperforming its competitors

Wyndham Worldwide Corp. (WYN) Description: Provides hotel lodgings and operates a vacation exchange and rentals segment Sector: Consumer Discretionary Industry: Hotels, Motels & Resorts Bought at: $67. 31 Return: 11. 281% § Strong share buyback § 5. 2% buyback § Have hit 52 week highs § $425 million term securitization § Asset-backed notes

RISK ANALYSIS

Beta vs. Return (All Stocks) FL HAS HBI HD LULU SBUX WYN COST DG BPL CLR HAL SLB BNS LPLA MA WFC CELG GILD JNJ UNH BEAV FDX UTX AAPL GOOG SYMC SHW SPY Beta -1. 35 1. 91 2. 44 -0. 19 -2. 81 0. 35 -0. 19 0. 87 -0. 93 2. 27 -8. 82 -3. 40 -0. 02 2. 09 8. 96 4. 15 1. 50 3. 87 10. 41 0. 64 0. 77 4. 98 0. 68 0. 22 0. 32 0. 05 2. 24 1. 87 1. 00 Return 44. 81% 18. 75% 15. 05% -0. 43% 9. 15% 44. 72% 11. 28% 0. 86% 10. 00% 15. 23% 22. 72% 76. 93% 11. 06% 2. 73% -0. 32% -4. 57% -0. 22% -2. 90% 0. 37% 42. 62% 49. 81% 14. 26% 0. 56% 34. 52% 30. 80% 9. 73% -8. 09% 9. 76% 1. 02%

Correlation Matrix FL FL 1 HAS HBI HD LULU SBUX WYN COST DG BPL CLR HAL SLB BNS LPLA MA WFC CELG HAS 1 0. 79449 -0. 84611 -0. 9638 HBI 1 -0. 4236 -0. 88245 0. 825383 0. 358126 0. 817909 0. 334264 0. 862759 -0. 58007 0. 194409 0. 357424 0. 747849 0. 518422 0. 031047 -0. 10043 0. 764554 0. 490908 -0. 63712 -0. 15162 0. 932921 0. 713559 -0. 59995 0. 811044 0. 840936 0. 352994 0. 46871 0. 549011 -0. 68582 -0. 98367 0. 314132 0. 783798 -0. 81289 -0. 28484 -0. 81295 -0. 49184 -0. 81539 0. 587428 -0. 20124 -0. 26593 -0. 75714 -0. 51866 0. 067291 0. 254733 -0. 85334 GILD -0. 5351 0. 81848 0. 734632 0. 456786 -0. 29244 0. 645708 -0. 17374 0. 412203 0. 772778 0. 339049 0. 135713 0. 067603 0. 237415 0. 216009 -0. 00523 HD 1 LULU 0. 673706 -0. 74408 -0. 96742 0. 083934 0. 55785 1 SBUX 1 WYN 1 COST 1 -0. 13943 -0. 3774 -0. 21498 -0. 44229 -0. 0242 -0. 3965 1 CLR 1 HAL 1 0. 243412 -0. 48927 -0. 1396 0. 674496 0. 487422 -0. 9734 0. 75649 GOOG SYMC SHW SPY 0. 461674 0. 763376 0. 14254 -0. 7534 0. 317329 0. 555428 0. 846002 0. 184668 0. 570176 0. 30114 0. 860959 0. 030338 -0. 37402 -0. 96166 0. 343264 -0. 14255 -0. 8627 0. 011938 0. 60179 0. 3769 -0. 94406 0. 638649 0. 896977 0. 585598 -0. 10718 0. 111655 -0. 5311 -0. 09758 -0. 17987 -0. 07271 0. 982095 0. 686396 -0. 15811 0. 620443 0. 482816 0. 198499 0. 839493 0. 863404 -0. 7615 -0. 77743 -0. 30362 -0. 57354 -0. 23836 0. 295222 -0. 96692 -0. 74888 0. 829998 -0. 48751 -0. 73265 -0. 84566 -0. 54669 -0. 12802 -0. 69296 -0. 73095 0. 164232 -0. 11992 -0. 20203 -0. 89156 0. 131138 0. 53426 0. 543443 -0. 77187 -0. 51255 1 LPLA 1 MA 1 WFC 1 -0. 4105 CELG 1 GILD 1 -0. 4173 -0. 99609 -0. 64591 -0. 25647 -0. 75055 -0. 97663 -0. 06317 0. 381303 SLB BEAV AAPL -0. 52083 0. 528205 0. 439326 -0. 26362 -0. 69107 0. 847085 0. 640714 -0. 50613 -0. 98204 0. 203177 0. 870165 0. 080334 0. 813837 0. 558175 -0. 71888 0. 267212 -0. 18825 -0. 86396 -0. 30343 0. 018214 0. 930433 0. 84011 0. 522023 0. 303721 0. 70356 BNS UTX 0. 464931 0. 966898 -0. 94283 -0. 40001 -0. 19067 0. 991727 0. 915867 0. 481053 0. 157918 0. 831893 0. 886139 -0. 20473 -0. 31314 0. 923227 0. 829701 -0. 03051 0. 724984 0. 503019 -0. 05045 0. 878462 0. 765515 FDX -0. 25868 0. 359054 -0. 32542 -0. 90526 -0. 33661 0. 605038 -0. 44052 -0. 56787 -0. 69774 -0. 43283 -0. 72891 0. 71365 0. 746071 0. 249248 -0. 05383 -0. 45088 -0. 36374 0. 456606 -0. 05701 DG JNJ BEAV 0. 519321 0. 886331 0. 993538 -0. 33541 -0. 56259 -0. 50258 -0. 12963 -0. 20591 -0. 63543 -0. 54935 0. 519345 0. 157776 -0. 29075 -0. 92599 0. 021022 0. 45225 0. 867749 BPL UNH -0. 74033 -0. 98847 0. 211151 0. 409153 0. 267818 -0. 10672 0. 218158 0. 535839 0. 405348 -0. 65785 -0. 30357 -0. 75243 -0. 53172 -0. 67289 0. 141264 -0. 82569 0. 429939 -0. 19172 -0. 57607 -0. 57322 -0. 39459 -0. 24224 -0. 29383 0. 776351 0. 351602 0. 133871 0. 445426 -0. 02247 JNJ 0. 715582 0. 321168 -0. 88078 -0. 80769 0. 575512 -0. 90253 -0. 90064 -0. 20829 -0. 43782 -0. 43518 -0. 31432 -0. 52377 -0. 40424 -0. 01655 -0. 24719 -0. 62274 -0. 46834 0. 603236 0. 193169 -0. 33109 -0. 89271 -0. 03538 0. 391983 0. 918388 -0. 47324 -0. 00802 0. 951005 0. 506033 0. 140765 0. 844333 0. 938246 -0. 14896 -0. 39219 0. 866487 0. 852861 0. 080785 0. 715331 0. 445541 -0. 17348 0. 905758 0. 732298 0. 705953 0. 323625 0. 692009 0. 969879 0. 151142 Green: Excellent Correlation of 0. 25 or less No color: Medium correlation between 0. 25 and 0. 7 Red: Poor Correlation greater than 0. 7 -0. 34 0. 878087 -0. 01835 0. 546634 0. 745045 0. 303377 0. 726454 0. 723876 0. 372401 0. 499927 0. 152232 -0. 30566 0. 982819 0. 768082 0. 3887 0. 101149 0. 781251 0. 720046 0. 228728 0. 022522 0. 604747 -0. 24067 -0. 49382 -0. 01288 0. 817728 0. 836404 -0. 3944 0. 379037 -0. 55621 -0. 61183 0. 374828 0. 492196 0. 742777 0. 796853 -0. 57882 -0. 73295 0. 690978 0. 996149 -0. 16267 0. 030217 -0. 55875 0. 641668 0. 834029 0. 3829 1 -0. 0201 1 0. 658056 1 0. 9664 0. 76077 -0. 3307 0. 560482 0. 280347 0. 616344 0. 239204 -0. 48494 0. 910519 0. 592789 0. 419314 -0. 31796 -0. 51913 0. 813133 -0. 76844 -0. 94761 -0. 15665 0. 282327 0. 292564 -0. 76604 -0. 18739 -0. 69427 -0. 3408 -0. 4279 0. 817534 -0. 16793 0. 322575 0. 655134 0. 595657 0. 331106 0. 722411 0. 80903 FDX UTX -0. 07681 0. 943655 0. 704352 -0. 40341 0. 591779 0. 277811 AAPL 1 GOOG 1 SYMC 1 SHW 1 0. 856227 SPY 1 -0. 39139 -0. 75421 -0. 69533 0. 403795 0. 100169 0. 898096 -0. 19469 0. 357565 0. 142276 0. 169759 0. 030876 0. 010947 -0. 19686 0. 326765

PERFORMANCE EVALUATION

SAP vs. Benchmark

Sector Breakdown

Weight vs. Return

Industry Performance Comparison

Holding Period Return (HPR)

RECOMMENDED ENHANCEMENTS

Proposed changes to SAP requirements § Adjust requirements to focus investment in financially fit companies § § For example, stronger focus on income statements and balance sheets Allow flexibility with the weight of a single industry

Additional enhancements § Require certification on Bloomberg, Morning Star, or Reuters platform § Analysis of past SAP classes and their portfolio § § In terms of bettering the portfolio by learning from past mistakes Added focus on technical analysis

STUDENT MANAGER PROFILES

Maurice Abifadel Hometown: Langhorne, PA Major: Finance Campus Activities: CFA research challenge, member of FMA, Intramural sports including basketball, soccer, and softball, Residential Life Desk Assistant at Loyola University Maryland Work Experience: Summer Analyst At Morgan Stanley, Staff Accountant at Tube. City. IMS, and more After Graduation: Full-time Analyst at Morgan Stanley Additional Info: Passion for fitness and nutrition

Victoria Barney Hometown: Boston, MA Major: Finance Minor: Information Systems Campus Activities: President and NHS member of FMA, Service, Tour guide, Works in the Finance department Work Experience: Interned for Northwestern Mutual, Remote Consultant for Bright Horizons, and Summer Analyst for Morgan Stanley After Graduation: Accepted an analyst position with Morgan Stanley Additional Information: Avid runner; interested in starting her own holistic fitness business one day; studied abroad in England hopes to get back abroad with work.

Daniel Bertuzzi Hometown: Scarsdale, NY Major: Finance Minor: Information Systems Campus Activities: Member of NHS and FMA, Intramural Soccer Work Experience: Assistant to Capital Markets/Treasury Desk Traders at Svenska Handelsbanken; Sales Associate at Banana Republic; Lionsgate Entertainment Intern After Graduation: Sitting for the CFA exam in December and continuing to search for work within investment banking and equity research Additional Info: Studied abroad in Cork, Ireland

Miles Burns Hometown: Hampden, MA Major: Finance Work Experience: Intern at Columbia Management After Graduation: Accepted an analyst position at Barclays

Michael Butta Hometown: Fallston, MD Major: Finance Minor: Information Systems Campus Activities: Member of FMA National Honor Society Work Experience: Baltimore Ravens Marketing Internship After Graduation: T. Rowe Price or Brown Advisory Additional Information: Interests include The Baltimore Ravens, Orioles, Chelsea FC, Seinfeld, Game of Thrones, The Red Hot Chili Peppers, and Bob Marley

Kevin Chappell Hometown: New Canaan, CT Major: Finance Campus Activities: Member of Ski & Snowboard Club Work Experience: Financial Analyst Intern at ING (Summer 2013); Brokerage Intern at CBRE (Spring 2014) After Graduation: Accepted a Property Management position at First Service Realty in New York City Additional Info: Volunteer at the Acts 4 Youth organization

Meagan Conroy Hometown: Aberdeen, NJ Major: Finance Minor: Italian Studies Campus Activities: Captain of Loyola University Dance Team, Vice President of Italian Club, Italian Tutor for the Study and Athletics, member of Beta Gamma Sigma, Phi Sigma Iota, and FMA Work Experience: US Visa Support Coordinator at Siemens AG (Summer 2012); internship at HFP Capital Markets LLC (Summer 2013) After Graduation: Accepted a position to teach computers at St. Gabriel’s in Bangkok, Thailand Additional Info: Studied abroad Rome, Italy at St. John’s University

Michael Constantine Hometown: New York, NY Major: Finance Minor: Information Systems Campus Activities: Member of FMA, Event Services, Hockey Team Manager Work Experience: Sales Intern American Income Life After Graduation: Traveling Europe

Joseph Curran Hometown: Baldwin, MD Major: Finance Minor: Information Systems Campus Activities: Member of FMA, Resident Hall Association, York Road Youth Initiative Work Experience: Caterer for Classic Catering, RA for Johns Hopkins Center for Talented Youth After Graduation: Marketing Internship with the Baltimore Ravens; planning to work in a finance position as an analyst, wealth manager, or financial planner Additional Information: Eagle Scout, Studied abroad in Cork, Ireland at University County Cork

Michael Di. Santi Hometown: Babylon, NY Major: Finance Minor: Information Systems Campus Activities: Member of FMA and ENACTUS Work Experience: Wealth Management Intern at Morgan Stanley After Graduation: Planning to work as a financial analyst Additional Info: Studied abroad in Cork, Ireland

Courtney Donovan Hometown: Scituate, MA Major: Finance Minor: Information Systems Campus Activities: NHS member of FMA Work Experience: Patient Operations Assistant at Massachusetts Eye & Ear Infirmary; Office Assistant/Data Input at Leo W. Donovan, O. D. ; Sales Associate at Jane Clothing, LLC After Graduation: Accepted a position at Ceres Partners LLC Additional Information: Studied abroad in Copenhagen, Denmark

Ashley Flynne Hometown: Allendale, NJ Major: Finance Campus Activities: Member of FMA and NHS Work Experience: Internship at Bank of Montreal Capital Markets located in New York, NY during Summer 2012, Summer 2013, and Winter 2014 After Graduation: Accepted a position at BMO Capital Markets

Michael Green Hometown: Needham, MA Major: Finance Minor: Information Systems Campus Activities: Member of Club Hockey Work Experience: Strategic Supply Intern at Dunkin’ Brands Inc. ; Financial Advising Intern at Capitol 401 k

James King III Hometown: Freehold, NJ Major: Finance Campus Activities: Member of FMA, Disability Support Services, Intramural Basketball After Graduation: Seeking a financial analyst position in Baltimore

Michael Larrabee Hometown: Needham, MA Major: Finance Campus Activities: Member of Club Hockey Work Experience: Merrill Lynch; Ferris Capital After Graduation: Traveling Europe

Andrew Mc. Gill Hometown: Needham, MA Major: Finance Minor: Information Systems Campus Activities: Member and Captain of the Men's Div. 1 Golf Team, Member of Student Athletic Advisory Committee, Member of the Loyola Athletics Leadership Academy Work Experience: Internships at Bulfinch Group, New England Financial, and Co-Founder of Student Elves Xmas Tree Removal Business After Graduation: Accepted an offer to work at Frito Lay/Pepsi. Co in their Sales and Management Training Program Additional Information: Attended the United States Naval Academy Leadership Conference this Spring

Brian Palmeri Hometown: Brightwaters, NY Major: Finance Campus Activities: Member of FMA and NHS, Intramural Sports, Habitat for Humanity Work Experience: Sidoti & Company, LLC Summer Analyst; Clarkson Capital Markets Summer Analyst – Investment Banking Division After Graduation: Planning to pursue a career in investment banking

Zachary Scott Hometown: Hampton Township, NJ Major: Finance Minor: Information Systems Campus Activities: Member of Loyola Chimes, Member of Loyola’s Honors College, FMA Honors Society Member, Previous Assembly Member of Loyola’s Student Government Association Work Experience: Internship with the Baltimore Orioles and Brotman Financial Group After Graduation: Accepted a job at Brotman Financial Group in Timonium, Maryland Additional Info: Studied abroad in New Zealand at The University of Auckland

John Tirone Hometown: Livingston, NJ Major: Finance Minor: Information Systems Campus Activities: Vice President of FMA, member of Beta Gamma Sigma, John Carrol Volunteer, Intramural soccer and volleyball Work Experience: Intern at AIG (Summer 2012); Intern at Morgan Stanley (Summer 2013) After Graduation: Accepted a position at Morgan Stanley as an Operations Analyst

Dr. Frank D’Souza Academic Degrees: Ph D, Oklahoma State University; MBA, St. Cloud State University, Minnesota; Bachelor of Commerce, University of Bombay. Professional Memberships: Finance Management Association, American Finance Association, Eastern Finance Association, Southwestern Finance Association, Beta Gamma Sigma. Representative Publications: D'Souza, F. , Ellis, N. , & Fairchild, L. , (2010), "Illuminating the Need for Regulation in Dark Markets: Proposed Regulation of the OTC Derivatives Market", University of Pennsylvania Journal of Business Law, 12, 473 -516 Carter, D. , D'Souza, F. , Simkins, B. , & Simpson, W. G. , (2010), "The Gender and Ethnic Diversity of US Boards and Board Committees and Firm Financial Performance", Corporate Governance: An International Review, 18(5), 396 -414 Simpson, W. G. , Carter, D. , & D'Souza, F. , (2010), "What Do We Know About Women on Boards", Journal of Applied Finance, 20(2), 27 -39 D'Souza, F. , Fletcher, H. , & Ionici, O. , (2011), "Equity Market Timing and Subsequent Delisting Likelihood", International Journal of Business and Finance Research, 5(2) 85 -94 "Chapter 18: Cost of Capital: An Introduction", Ionici, O. & Small, K. & D'Souza, F. , in "Capital Budgeting Valuation: Financial Analysis for Today's Investment Projects". Edited by H. Kent Baker and P. English (2011).

Thank you! On behalf of the entire Sellinger Applied Portfolio class, we would like to express our sincere gratitude for the opportunity to participate in this truly unique and rewarding experience. Special thanks to Legg Mason, Dean Leggio, Dr. D’Souza, the Department of Finance, and the Board of Trustees Investment Committee for making this experience possible.