2011 Investor Survival Guide

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2011 Investor
Survival Guide
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2011 Investor Survival Guide
Case for Investing in U.S. in 2011

by Robert Holmes
13 Stock Picks for 2011

by Glen Bradford
10 Best Dow Dividend Stocks for 2011

by Jake Lynch
All 10 Surprises
by Doug Kass
Number 1
3
Case for Investing investors brave enough to put money on the U.S. instead of
Brazil, China, India, and industrial and precious metals.
in U.S. in 2011 “I’m expecting a bigger U.S. recovery next year,” says Marc
by Robert Holmes Pado, U.S. market strategist with Cantor Fitzgerald. “We’re
12/13/10 - 06:00 AM EST in a much better position than we were years ago with our
exports. We’re seeing that in trade deficit numbers.”
BOSTON (TheStreet) — Billionaire investor Warren Buffett
wrote an opinion piece for The New York Times on Oct. 16, Pado and other professionals say there are four major themes
2008, saying he was moving all of his personal money into that will play out in the coming year. For one, U.S. stocks
U.S. equities, citing widespread fear following the collapse of remain undervalued, specifically large-cap companies with
Lehman Brothers. pristine balance sheets. In addition, the Federal Reserve is so
entrenched in its plan to stimulate the economy that it can’t
Five months later, stocks roared back to life. But, today, the extract itself until lasting growth is achieved.
U.S. economy is still limp, and many investors are pouring
money into emerging markets and commodities, and pulling More broadly, emerging markets will face inflation on food and
away from the S&P 500 and Dow. So now, two years on, an other commodity prices, which could benefit U.S. companies.
opportunity to buy on fear still exists, and those bets may pay And lastly, the political climate -- which stifled the health-care,
off for investors in 2011, fund managers and analysts say. education and financial industries this year -- should become
Put another way -- in Buffett’s own words -- “bad news is an more accommodative of U.S.-based companies.
investor’s best friend.” And there’s certainly no shortage as we
approach the New Year. John Buckingham, chief investment officer
The U.S. is grappling with high unemployment and an el-
with Al Frank Asset Management, notes
evated rate of foreclosures. Debt crises in Europe have forced that the market has come a significant way
bailouts in Greece and Ireland. Investors fear that monetary from the early 2009 lows and even since
easing by the Federal Reserve in November will fuel inflation
the pullback in August.
and create asset-price bubbles in emerging markets, such as
China. I’m still optimistic for 2011, but investors should be paying
fundamentals now even more so because we’ve had this
And the hits keep coming. On Friday, China raised the reserve significant rally,” he says.
Number 1
ratio for banks ahead of a key reading on November inflation
in the People’s Republic. Jeff Auxier, president of Auxier Asset Management and port-
folio manager of the Auxier Focus Fund, says now is a good
Helped mainly by a surge in September and October, the S&P time to hunt for strong businesses with double-digit free-cash-
500 has climbed 11% in 2010 and the Dow has added 9.5%, flow yields.
lagging behind last year’s returns by a wide margin. But some
contrarians are predicting that 2011 will be a winning year for
Case for Investing in U.S. in 2011 • by Robert Holmes • 12/13/10 - 06:00 AM EST
4
“It’s an exceptional time to be a business analyst because no The estimate for earnings of the S&P 500 companies is
one is. They’re in ETFs or whatever and they don’t even know nowhere close to projecting increases, argues Pado, which
what they own,” Auxier says. “Remember, the top 25 busi- means the market has a low hurdle to top. “As demand picks
nesses in the U.S. over the last 30 years, like Wal-Mart, are up up, I think 1350 is a low-end target for next year,” he says.
between 18,000% and 63,000%” Robert Pavlik, chief market strategist with Banyan Partners in
Palm Beach Gardens, Fla., says that at 13 times next year’s
Not that 2011 comes without pitfalls. Paul Nolte, director of estimates, the market is undervalued.
investments with Dearborn Partners in Chicago, sounds cau-
tiously optimistic as he lays out his case for 2011 as a year of “Without even seeing any expansion in earnings, a 15 multiple
two halves. is quite doable and maybe even conservative,” he says. “At a
16 multiple, without any type of expansion in earnings, you’re
“The front half is going to be very good because of the Fed talking 1500 on the S&P 500. That’s pretty reasonable.”
intervention,” Nolte says. “The back half might not be as good
as we wait to see if the outcome is good. It’s a lab experiment Two arguments counter that view. The first is that buy-and-
and we’re doing this all on the fly. We don’t have a blueprint.” hold is dead. During the so-called “lost decade,” large cap
stocks -- and therefore the major stock indices -- went no-
That said, Nolte and others expect several U.S. stocks to where. It’s hard to believe that will change in 2011. Second,
thrive in 2011. Read on to see the biggest investment themes as the chart above shows, the actual performance of S&P 500
for 2011 and stock picks to play on those ideas. earnings lags expectations over the several quarters dating
back to 2006.
Cantor Fitzgerald’s Pado, though, points out that U.S. corpo-

rations should see cash and cash equivalents held on balance
sheets top $2 trillion by the end of this quarter, four times the
average level. Companies hoarded this cash on double-dip
recession fears, but now they will be forced to put it to use.
“That’s what has been lacking in the valuation of the market,”

Pado says. “There’s no rate of return, and they’re not build-
ing their companies up. That’s when you get buybacks, M&A
U.S. Stocks Remain Undervalued activity and increased dividends.”
Number 1
John Butters, a research associate with Thomson Reuters,
said the bottoms-up earnings-per-share estimate for the S&P Banyan Partners’ Pavlik offers several stock picks across sec-
500 for 2011 is $95.77. Market observers note that a tra- tors held in client accounts at his firm. He finds value in the
ditional 15-times multiple would mean the S&P 500 would financial industry, and he views Bank of America (BAC) as a
reach 1436 by the end of 2011, an increase of 200 points, or long-term investment. Citigroup (C), he says, should “easily
nearly 16%. see $7 over the next year or so.”
5
Among industrials, Pavlik looks to Boeing (BA) ahead of the The Federal Reserve Won’t Give Up
delivery of the Dreamliner 787 plane. “They’ve had a lot of In November, the Federal Open Market Committee announced
hiccups in the production, but once that plane begins flying, its intent to purchase $600 billion of Treasury securities.
people are going to jump all over that stock,” he says. But the speculation over the quantitative-easing measures,
Last, he said value can be found in the materials sector, noting dubbed QE2, heated up in July. The S&P 500 rode that spec-
that FMC Corp. (FMC) trades at 14.5 times next year’s earn- ulation from July until November, good for a 16% climb in that
ings estimate and Cliffs Natural Resources (CLF) only at 7.5 four-month time span, as the timeline on the left illustrates.
times next year’s earnings.
Now, there is market chatter over a possible QE3 after Fed
Large-cap dividend-paying stocks are Buckingham’s top picks Chairman Ben Bernanke said in an interview with 60 Minutes
for 2011, based on a hunch. that more quantitative easing in the U.S. is “certainly possible.”
That may be due to the fact that QE2, which was designed
“I don’t know. That’s my honest response,” Buckingham says. to drive down interest rates, has had the opposite effect. The
“But as a value manager and an equity investor, I want to be yield of the 10-year Treasury was below 2.5% in early Novem-
putting my money in inexpensively priced stocks. Ultimately, ber but has now jumped to nearly 3.3%.
the value will get recognized. As Buffett says, if the business
does well, the stock will follow.” Some market watchers say rising rates and a strong dollar
aren’t necessarily a great sign for the stock market. Others
Buckingham’s focus falls on technology, targeting Intel (INTC) disagree and instead say this is a trend that better reflects a
and Microsoft (MSFT), even though the dividend yields are return to normality.
spectacular.
“If the economy is going to grow at a stronger pace, then
“The P/E ratios for each are in the 12 range,” he says. “These rates should go up and the dollar should go up,” Cantor
are fantastic balance sheets loaded with cash. Earnings are Fitzgerald’s Pado says. “The last 12 months wasn’t normal
expected to grow modestly and the downside risk is relatively because the Fed was stepping in doing major moves. We’re
subdued.” now getting back to normal. It’s not one or the other. They can
all go up.”
Banyan Partners’ Pavlik says the dollar will continue to rally

because of growth in the U.S., which investors may initially
take the wrong way.
Number 1
“You’ll see an initial negative reaction in the overall market

because things are more expensive,” he says. “But as growth
continues on, you’re going to want to be where you see more
growth. You really have to pay attention to what’s happening
and understand why the gyrations are occurring. You want
6
to be invested in the U.S. market because growth is a good “The big negative is the sovereign debt and euro-zone issue,
sign.” which will continue to be the thorn in the side of the global
recovery for several years,” Cantor Fitzgerald’s Pado says, not-
One of the obvious risks is that the 10-year Treasury yield ing that the austerity plans are targeting 2014 and 2015.
grows at a faster clip than the market expects. In addition,
Dearborn Parters’ Nolte argues that the benefit of QE2 is It may be puzzling, then, to find that Pado is still bullish on the
not finding its way into the economy because fiscal policy, U.S. But the explanation he provides is remarkably simple.
not monetary policy, is needed to see more robust economic
growth. “Our top trading partners are Canada, China and Mexico. You
don’t have any of the so-called PIIGS on the top 10 or 15
“You can have QE3, QE4 and QE5,” he says. “But no matter list,” he says. “They have no economic impact in terms of our
how much you throw at it, you’re not solving the debt situa- exporting. We don’t import a heck of a lot either. The direct
tion. That’s really the part of the economy that needs to heal. impact is overblown. The residual impact is far less than most
And that’ll take time. The consumer gets it, but it’ll take a while people are concerned about.”
to get their balance sheets back in order.”
Instead, market strategists are keeping a watchful eye on infla-
For investors looking to play the currency shift, Al Frank’s tion overseas, which can directly benefit the U.S. As the chart
Buckingham says multinational global companies are way to above shows, commodities like cotton and grain have skyrock-
hedge the currency risk. “We like some of the big conglom- eted in 2010, which can lead to price inflation for countries
erates like United Technologies (UTX), 3M (MMM) or Eaton abroad that are forced to import from the U.S.
(ETN).”
Auxier takes the traditional route in finding U.S. companies
that are in emerging markets but aren’t trading at a premium,
such as Procter & Gamble (PG) and Pepsi (PEP).
Meanwhile, Dearborn Partners’ Nolte expects that economi-

cally sensitive companies like Deere (DE) and Caterpillar
(CAT) will be top picks based on the continued rise in corn
prices.
“The next bubble is rumored to be in farms,” he says. “But

Number 1
when farmers get money, they put it back into the farms.
They’ll be buying and upgrading equipment. Plus, these
Overseas Crises Benefit the U.S. companies do a fair amount of business overseas. As long as
There’s no shortage of drama when dealing with the PIIGS there is a steady growing demand for grains, these companies
countries: Portugal, Ireland, Italy, Greece and Spain. The will do well.”
globe has already seen two of these countries bailed out and
more could be on the way in 2011. With energy prices expected to stay firm, Nolte says invest-
7
ments in Exxon Mobil (XOM) and Chevron (CVX) “make Obama push for extending the Bush-era tax cuts in a bipar-
sense.” He also names Freeport-McMoRan (FCX) as a good tisan surprise. Additionally, the president has pushed for a
metals pick. $120 billion reduction to the Social Security tax.
Dearborn Partners’ Nolte warns investors not to get too
On the other hand, Nolte says consumer stocks may actually caught up in the excitement of the extension of the tax cuts.
be hurt by commodity prices because of input costs. For ex- “The Bush tax cuts do nothing because it’s status quo,” he
ample, he says Kellogg will struggle a bit. “They may be able says. “It avoids the negative change that we would’ve seen,
to raise prices, but the cost of input will go up,” he says. but it doesn’t necessarily improve anything. At the margin,
they have changed some of the Social Security withholding.
But they didn’t do it on the corporate side, so if someone
hires you, they’ll have to pay what they had to pay before.
Nolte goes a step further and suggests the impact of politics

is hard to handicap. “The political environment moves so
slowly,” he says. “Even if you look at ObamaCare, it took well
over a year to finally come to fruition. While we can speculate
now as to what might happen, there will be lots of time before
anything gets done.”
The Political Landscape Turns Favorable Auxier of the Auxier Focus Fund is willing to take on the risks
It’s no secret that political powers took a toll on financial, of political pressure if others aren’t. He has been buying a
health-care and education sectors as government officials basket of education and medical-device stocks, which he
turned the industries into dartboards. finds compelling.
As the chart above shows, key education, financial and health- On the education side, he’s focused on Strayer Educa-
care stocks are down sharply this year. tion (STRA) , Apollo Group (APOL) and Career Education
(CECO), noting that the sector is “really hated. It’s been at-
But that was 2010. In the coming year -- the third of President tacked, and it’s really cheap.”
Barack Obama’s four-year term -- stocks are expected to out-
perform as political pressures bode well for equities. Medtronic (MDT) and Abbott Labs (ABT) , meanwhile, are in
Auxier’s group of medical-device stocks, which he calls “hope-
Number 1
“If you want to run for re-election, you care about the year lessly out of favor” like the education companies.
you’re running in,” Cantor Fitzgerald’s Pado says. “In order to
make things good in year four, you have to get things going in “It’s a reversion to the mean,” he says. “It’s like BP (BP), which
year three. It takes a year before whatever fiscal or monetary we bought on the way down. You want to make sure, though,
measures show their full benefit.” that these companies have the balance sheets to endure so
you can get into some quality businesses that historically have
It’s not quite 2011 yet, but Americans have already seen higher premiums.”
December 12, 2010
NYSE: BA
BOEING CO
BUY HOLD SELL
HOLD
RATING SINCE 04/22/2010
A+ A A- B+ B B- C+ C C- D+ D D- E+ E E- F
Annual Dividend Rate Annual Dividend Yield Beta Market Capitalization 52-Week Range Price as of 12/9/2010
$1.68 2.60% 1.28 $47.4 Billion $53.10-$76.00 $64.61
Sector: Industrials Sub-Industry: Aerospace & Defense Source: S&P

Weekly Price: (US$) SMA (50) SMA (100) 1 Year 2 Years
BA BUSINESS DESCRIPTION
The Boeing Company designs, develops, 80
manufactures, sells, and supports commercial 75
jetliners, military aircraft, satellites, missile 70
defense, human space flight, and launch systems
65
and services worldwide.
60
STOCK PERFORMANCE (%) 55
3 Mo. 1 Yr. 3 Yr (Ann) 50
Price Change 1.84 16.47 -11.49 45
GROWTH (%) 40
Last Qtr 12 Mo. 3 Yr CAGR 35
Revenues 1.67 4.26 -0.38 30
Net Income 153.51 8,221.42 -5.41 Rating History
EPS 150.45 7,850.00 -3.54 HOLD HOLD BUY HOLD
RETURN ON EQUITY (%) Volume in Millions

100
BA Ind Avg S&P 500
Q3 2010 76.96 30.37 12.69 50
Q3 2009 NM 23.32 2.50
0
Q3 2008 43.23 25.34 10.32 2009 2010
COMPUSTAT for Price and Volume, TheStreet.com Ratings, Inc. for Rating History
P/E COMPARISON
RECOMMENDATION
We rate BOEING CO (BA) a HOLD. The primary factors that have impacted our rating are mixed - some
indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a
positive or negative performance for this stock relative to most other stocks. The company's strengths can
be seen in multiple areas, such as its notable return on equity, good cash flow from operations and solid
stock price performance. However, as a counter to these strengths, we also find weaknesses including
generally poor debt management and poor profit margins.
13.89 16.67 18.37 HIGHLIGHTS

Compared to other companies in the Aerospace & Defense industry and the overall market, BOEING CO's
BA Ind Avg S&P 500
return on equity significantly exceeds that of both the industry average and the S&P 500.
EPS ANALYSIS¹ ($) Net operating cash flow has significantly increased by 54.97% to $1,855.00 million when compared to the
same quarter last year. In addition, BOEING CO has also vastly surpassed the industry average cash flow
growth rate of 1.01%.
Q1 1.61
Q4 1.77
BOEING CO reported significant earnings per share improvement in the most recent quarter compared to the
Q2 1.16
Q3 0.94
Q1 0.87
Q2 1.41
Q3 -2.22
Q1 0.70
Q2 1.06
Q3 1.12
same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is
Q4 -0.12
poised for EPS growth in the coming year. During the past fiscal year, BOEING CO reported lower earnings of
$1.83 versus $3.59 in the prior year. This year, the market expects an improvement in earnings ($4.00 versus
$1.83).
2008 2009 2010 The gross profit margin for BOEING CO is rather low; currently it is at 21.70%. Regardless of BA's low profit
NA = not available NM = not meaningful
margin, it has managed to increase from the same period last year. Despite the mixed results of the gross
profit margin, the net profit margin of 4.90% trails the industry average.
1 Compustat fiscal year convention is used for all fundamental
data items.
The debt-to-equity ratio is very high at 2.79 and currently higher than the industry average, implying that there
is very poor management of debt levels within the company. Along with this, the company manages to
maintain a quick ratio of 0.49, which clearly demonstrates the inability to cover short-term cash needs.
This report is for information purposes only and should not be considered a solicitation to buy or sell any security. Neither TheStreet.com Ratings nor any other party guarantees its Report Date: December 12, 2010 PAGE 1
accuracy or makes warranties regarding results from its usage. Redistribution is prohibited without the express written consent of TheStreet.com Ratings, Inc. Copyright(c) 2006-2010.
All rights reserved.
December 12, 2010
NYSE: BA
BOEING CO
Sector: Industrials Aerospace & Defense Source: S&P
$1.68 2.60% 1.28 $47.4 Billion $53.10-$76.00 $64.61
PEER GROUP ANALYSIS INDUSTRY ANALYSIS

REVENUE GROWTH AND EBITDA MARGIN* The aerospace and defense (A&D) industry provides defense, space, homeland security, and information
technology products. The aerospace industry is driven by the overall economic climate while the defense
industry is driven by the U.S. military budget and the global political landscape. The profitability of individual
6%
LMT companies depends on technical expertise and their ability to secure long-term contracts. The industry is
FA
highly concentrated and largely dependent on federal government spending. It is cyclical and unpredictable
V
COL
OR
BA RTN
due to uncertainty of the annual government budgeting process and election cycles. The US A&D market has
AB
performed well in recent years due to an increased defense budget to fight terrorist groups, wrap up the war
LE
NOC in Iraq, and execute the war for Afghanistan. These budget increases have countered the declining civil
HON aerospace sector, which saw a downturn in the end-user airline industry after the 9/11 terrorist attacks.
UK and European companies are actively seeking a broader US footprint. Softness in the US dollar has
LLL
Revenue Growth (TTM)
rendered American companies particularly attractive to international buyers and the regulatory environment
UTX GR has been supportive. Second and third-tier suppliers are aggressively looking to consolidate operations and
UN
expand capacity. Demand for advanced and innovative products has surged, especially in the realm of
FA
robotics including unmanned aerial vehicles. This A&D manufacturing supply network is shifting from
VO
GD
R
products to solutions and from assets to the implementation of those assets to provide maximum flexibility for
AB
-2%
LE
PCP meeting strategic objectives.

10% 27.5%
EBITDA Margin (TTM) In response to escalating cost pressures from airlines and reduced capacity of the aerospace industry,
Companies with higher EBITDA margins and aircraft manufacturing companies have begun to concentrate their production efforts on the defense industry
revenue growth rates are outperforming companies to exploit growing military spending and maintain revenue streams. Final production runs of the F/A 22 are
with lower EBITDA margins and revenue growth giving way to cost overruns in the development of the various F-35 Joint Strike Fighter configurations. The
rates. Companies for this scatter plot have a market plan for the US missile defense network were changed but not eliminated under the Obama administration
capitalization between $8.1 Billion and $71.7 Billion. boosting business for the leading players in the industry. As NASA continues to develop a next-generation
Companies with NA or NM values do not appear. space vehicle, the demand for a publicly accessible space platform has prompted initiatives within the
aerospace sector to produce a viable option. While the development of high-speed rocket replacement
*EBITDA – Earnings Before Interest, Taxes, Depreciation and
Amortization. technologies, such as scramjet engines, could usher in a new era of space and air transport sometime in the
future, in the present they are areas of research being funded.
REVENUE GROWTH AND EARNINGS YIELD
6%
PEER GROUP: Aerospace & Defense

LMT Recent Market Price/ Net Sales Net Income
FA
Ticker Company Name Price ($) Cap ($M) Earnings TTM ($M) TTM ($M)
V
COL
OR
BA RTN
AB
BA BOEING CO 64.61 47,397 13.89 65,693.00 3,411.00

LE
COL ROCKWELL COLLINS INC 57.90 9,082 16.45 4,673.00 561.00

NOC
HON LLL L-3 COMMUNICATIONS HLDGS IN 71.38 8,079 9.13 15,633.00 914.00
UTX UNITED TECHNOLOGIES CORP 77.63 71,684 16.95 53,761.00 4,247.00
HON HONEYWELL INTERNATIONAL INC 51.34 40,054 19.37 32,401.00 2,051.00
LLL
GR GD GENERAL DYNAMICS CORP 68.89 26,023 10.60 31,763.00 2,509.00

UTX
LMT LOCKHEED MARTIN CORP 68.31 24,600 9.63 45,212.00 2,770.00
UN
PCP PRECISION CASTPARTS CORP 140.41 20,025 21.24 5,780.60 960.10

FA
VO
GD NOC NORTHROP GRUMMAN CORP 63.61 18,573 9.52 35,075.00 2,090.00

R AB
-2%
LE
PCP RTN RAYTHEON CO 45.87 16,722 9.66 25,281.00 1,885.00

4% 11%
GR GOODRICH CORP 85.68 10,742 20.50 6,803.00 535.40
Earnings Yield (TTM)
The peer group comparison is based on Major Aerospace & Defense companies of comparable size.
Companies that exhibit both a high earnings yield
and high revenue growth are generally more
attractive than companies with low revenue growth
and low earnings yield. Companies for this scatter
plot have revenue growth rates between -1.4% and
5.3%. Companies with NA or NM values do not
appear.
December 12, 2010
NYSE: BA
BOEING CO
$1.68 2.60% 1.28 $47.4 Billion $53.10-$76.00 $64.61
COMPANY DESCRIPTION STOCK-AT-A-GLANCE

The Boeing Company designs, develops, manufactures, Below is a summary of the major fundamental and technical factors we consider when determining our
sells, and supports commercial jetliners, military aircraft, overall recommendation of BA shares. It is provided in order to give you a deeper understanding of our rating
satellites, missile defense, human space flight, and methodology as well as to paint a more complete picture of a stock's strengths and weaknesses. It is
launch systems and services worldwide. It operates in important to note, however, that these factors only tell part of the story. To gain an even more comprehensive
five segments: Commercial Airplanes, Boeing Military understanding of our stance on the stock, these factors must be assessed in combination with the stock’s
Aircraft (BMA), Network & Space Systems (N&SS), valuation. Please refer to our Valuation section on page 5 for further information.
Global Services & Support (GS&S), and Boeing Capital
Corporation (BCC). The Commercial Airplanes segment FACTOR SCORE
develops, produces, and markets commercial jet aircraft,
as well as provides related support services to the Growth out of 5 stars 3.5
commercial airline industry. This segment also offers Measures the growth of both the company's income statement and weak strong
aviation services support, aircraft modifications, spares, cash flow. On this factor, BA has a growth score better than 60% of the
training, maintenance documents, and technical advice stocks we rate.
to commercial and government customers. The BMA
segment engages in the research, development,
production, and modification of military aircraft and
Total Return out of 5 stars 3.0
precision engagement, and mobility products and Measures the historical price movement of the stock. The stock weak strong
services. The N&SS segment involves in the research, performance of this company has beaten 50% of the companies we
development, production, and modification of products cover.
and services to assist customers in transforming their
operations through network integration, intelligence and Efficiency out of 5 stars 4.5
surveillance systems, communications, architectures, Measures the strength and historic growth of a company's return on weak strong
and space exploration. The GS&S segment provides invested capital. The company has generated more income per dollar of
logistics support functions for military platforms and capital than 80% of the companies we review.
operations. The BCC segment facilitates, arranges,
structures, and provides financing solutions for its
commercial airplanes customers. Its financing portfolio
Price volatility out of 5 stars 2.5
consists of equipment under operating leases, finance Measures the volatility of the company's stock price historically. The weak strong
leases, notes and other receivables, assets held for sale stock is less volatile than 40% of the stocks we monitor.
or re-lease, and investments. The company also engages
in engineering, operations, and technology activities. The Solvency out of 5 stars 5.0
Boeing Company was founded in 1916 and is based in Measures the solvency of the company based on several ratios. The weak strong
Chicago, Illinois. company is more solvent than 90% of the companies we analyze.
BOEING CO Income out of 5 stars 4.5

100 North Riverside Plaza
Measures dividend yield and payouts to shareholders. The company's weak strong
Chicago, IL 60606-1596
dividend is higher than 80% of the companies we track.
USA
Phone: 312-544-2000
Fax: 312-544-2082 THESTREET.COM RATINGS RESEARCH METHODOLOGY
http://www.boeing.com
Employees: 157000 TheStreet.com Ratings' stock model projects a stock's total return potential over a 12-month period including
both price appreciation and dividends. Our Buy, Hold or Sell ratings designate how we expect these stocks to
perform against a general benchmark of the equities market and interest rates. While our model is
quantitative, it utilizes both subjective and objective elements. For instance, subjective elements include
expected equities market returns, future interest rates, implied industry outlook and forecasted company
earnings. Objective elements include volatility of past operating revenues, financial strength, and company
cash flows.
Our model gauges the relationship between risk and reward in several ways, including: the pricing drawdown
as compared to potential profit volatility, i.e.how much one is willing to risk in order to earn profits; the level of
acceptable volatility for highly performing stocks; the current valuation as compared to projected earnings
growth; and the financial strength of the underlying company as compared to its stock's valuation as
compared to projected earnings growth; and the financial strength of the underlying company as compared
to its stock's performance. These and many more derived observations are then combined, ranked, weighted,
and scenario-tested to create a more complete analysis. The result is a systematic and disciplined method of
selecting stocks.
December 12, 2010
NYSE: BA
BOEING CO
$1.68 2.60% 1.28 $47.4 Billion $53.10-$76.00 $64.61
Consensus EPS Estimates² ($) FINANCIAL ANALYSIS

IBES consensus estimates are provided by Thomson Financial BOEING CO's gross profit margin for the third quarter of its fiscal year 2010 has significantly increased when
compared to the same period a year ago. The company has grown sales and net income during the past
quarter when compared with the same quarter a year ago, however, it was unable to keep up with the growth
of the average competitor within its industry. BOEING CO has very weak liquidity. Currently, the Quick Ratio is
0.49 which clearly shows a lack of ability to cover short-term cash needs. The company's liquidity has
increased from the same period last year, indicating improving cash flow.
At the same time, stockholders' equity ("net worth") has greatly increased by 533.26% from the same quarter
1.10 4.00 E 4.55 E last year. The key liquidity measurements indicate that the company is in a position in which financial
Q4 FY10 2010(E) 2011(E) difficulties could develop in the near future.
INCOME STATEMENT
Q3 FY10 Q3 FY09
Net Sales ($mil) 16,967.00 16,688.00
EBITDA ($mil) 1,757.00 -1,758.00
EBIT ($mil) 1,341.00 -2,192.00
Net Income ($mil) 837.00 -1,564.00
BALANCE SHEET
Q3 FY10 Q3 FY09
Cash & Equiv. ($mil) 9,966.00 6,446.00
Total Assets ($mil) 65,222.00 58,667.00
Total Debt ($mil) 12,419.00 11,038.00
Equity ($mil) 4,454.00 -1,028.00
PROFITABILITY
Q3 FY10 Q3 FY09
Gross Profit Margin 21.68% 16.08%
EBITDA Margin 10.36% -10.53%
Operating Margin 7.90% -13.14%
Sales Turnover 1.01 1.07
Return on Assets 5.23% -0.07%
Return on Equity 76.96% NM
DEBT
Q3 FY10 Q3 FY09
Current Ratio 1.15 0.94
Debt/Capital 0.74 1.10
Interest Expense 172.00 134.00
Interest Coverage 7.80 -16.36
SHARE DATA
Q3 FY10 Q3 FY09
Shares outstanding (mil) 733 697
Div / share 0.42 0.42
EPS 1.12 -2.22
Book value / share 6.07 -1.47
Institutional Own % NA NA
Avg Daily Volume 5,554,666 5,056,037
2 Sum of quarterly figures may not match annual estimates due to
use of median consensus estimates.
December 12, 2010
NYSE: BA
BOEING CO
$1.68 2.60% 1.28 $47.4 Billion $53.10-$76.00 $64.61
RATINGS HISTORY VALUATION

Our rating for BOEING CO has not changed since HOLD. This stock's P/E ratio indicates a discount compared to an average of 16.67 for the Aerospace &
4/22/2010. As of 12/9/2010, the stock was trading at Defense industry and a discount compared to the S&P 500 average of 18.37. For additional comparison, its
a price of $64.61 which is 15.0% below its 52-week price-to-book ratio of 10.64 indicates a significant premium versus the S&P 500 average of 2.21 and a
high of $76.00 and 21.7% above its 52-week low of significant premium versus the industry average of 4.13. The price-to-sales ratio is well below both the S&P
$53.10. 500 average and the industry average, indicating a discount. The valuation analysis reveals that, BOEING CO
seems to be trading at a discount to investment alternatives within the industry.
2 Year Chart
$80
HOLD: $40.82
HOLD: $51.07
BUY: $62.56
HOLD: $75.59
Price/Earnings 1 2 3 4 5 Price/CashFlow 1 2 3 4 5
premium discount premium discount
$60 BA 13.89 Peers 16.67 BA 9.52 Peers 11.40
• Discount. A lower P/E ratio than its peers can • Discount. The P/CF ratio, a stock’s price divided by
$40 signify a less expensive stock or lower growth the company's cash flow from operations, is useful
expectations. for comparing companies with different capital
• BA is trading at a discount to its peers. requirements or financing structures.
2009 • BA is trading at a discount to its peers.
Price/Projected Earnings 1 2 3 4 5 Price to Earnings/Growth 1 2 3 4 5

MOST RECENT RATINGS CHANGES BA 14.20 Peers 17.46 BA 0.12 Peers 1.01
Date Price Action From To • Average. An average price-to-projected earnings • Discount. The PEG ratio is the stock’s P/E divided
4/22/10 $75.59 Downgrade Buy Hold ratio can signify an industry neutral stock price and by the consensus estimate of long-term earnings
1/28/10 $62.56 Upgrade Hold Buy average future growth expectations. growth. Faster growth can justify higher price
10/22/09 $51.07 Downgrade Buy Hold • BA is trading at a valuation on par with its peers. multiples.
10/16/09 $53.19 Upgrade Hold Buy • BA trades at a significant discount to its peers.
12/9/08 $40.82 No Change Hold Hold Price/Book 1 2 3 4 5 Earnings Growth 1 2 3 4 5
Price reflects the closing price as of the date listed, if available premium discount lower higher
BA 10.64 Peers 4.13 BA 7850.00 Peers 1066.22
• Premium. A higher price-to-book ratio makes a • Higher. Elevated earnings growth rates can lead to
RATINGS DEFINITIONS &
stock less attractive to investors seeking stocks capital appreciation and justify higher
DISTRIBUTION OF THESTREET.COM RATINGS
with lower market values per dollar of equity on the price-to-earnings ratios.
(as of 12/9/2010) balance sheet. • BA is expected to have an earnings growth rate
• BA is trading at a significant premium to its peers. that significantly exceeds its peers.
33.27% Buy - We believe that this stock has the
opportunity to appreciate and produce a total return of Price/Sales 1 2 3 4 5 Sales Growth 1 2 3 4 5
more than 10% over the next 12 months. premium discount lower higher
BA 0.72 Peers 1.25 BA 4.26 Peers 3.06
37.58% Hold - We do not believe this stock offers • Discount. In the absence of P/E and P/B multiples, • Higher. A sales growth rate that exceeds the
conclusive evidence to warrant the purchase or sale of the price-to-sales ratio can display the value industry implies that a company is gaining market
shares at this time and that its likelihood of positive total investors are placing on each dollar of sales. share.
return is roughly in balance with the risk of loss. • BA is trading at a significant discount to its industry • BA has a sales growth rate that significantly
on this measurement. exceeds its peers.
29.14% Sell - We believe that this stock is likely to
decline by more than 10% over the next 12 months, with DISCLAIMER:
the risk involved too great to compensate for any
possible returns. The opinions and information contained herein have been obtained or derived from sources believed to be reliable, but
TheStreet.com Ratings, Inc. can not guarantee its accuracy and completeness, and that of the opinions based thereon. Data is
provided via the COMPUSTAT® Xpressfeed product from Standard &Poor’s, a division of The McGraw-Hill Companies, Inc., as
TheStreet.com Ratings, Inc. well as other third-party data providers.
262 Washington Street, 4th Floor
Boston, MA 02108 TheStreet.com Ratings, Inc. is a wholly owned subsidiary of TheStreet.com, Inc. which is a publisher and has registered as an
investment adviser with the U.S. Securities and Exchange Commission. This research report contains opinions and is provided
www.thestreet.com for informational purposes only. You should not rely solely upon the research herein for purposes of transacting securities or
Research Contact: 617-531-9717 other investments, and you are encouraged to conduct your own research and due diligence, and to seek the advice of a
qualified securities professional, before you make any investment. None of the information contained in this report constitutes,
Sales Contact: 866-321-8726
or is intended to constitute a recommendation by TheStreet.com Ratings, Inc. of any particular security or trading strategy or a
determination by TheStreet.com Ratings, Inc. that any security or trading strategy is suitable for any specific person. To the
extent any of the information contained herein may be deemed to be investment advice, such information is impersonal and not
tailored to the investment needs of any specific person.
December 12, 2010
NYSE: CLF
CLIFFS NATURAL RESOURCES INC

BUY HOLD SELL
BUY
TARGET PRICE $94.47
$0.56 0.77% 2.43 $9.8 Billion $39.13-$76.17 $71.98
Sector: Materials Sub-Industry: Steel Source: S&P

CLF BUSINESS DESCRIPTION
Cliffs Natural Resources Inc., a mining and natural 100
resources company, produces iron ore pellets, TARGET
TARGET
TARGETPRICE
TARGET PRICE
PRICE$94.47
$94.47
$94.47 90
lump and fines iron ore, and metallurgical coal. The
80
company operates six iron ore mines in Michigan,
Minnesota, and Eastern Canada; and two coking 70
coal mines in West Virginia and Alabama. 60

3 Mo. 1 Yr. 3 Yr (Ann) 40
Price Change 9.89 66.85 13.67 30
GROWTH (%) 20
Revenues 102.46 67.04 25.76 Rating History
Net Income 405.78 387.26 43.96 HOLD BUY
EPS 384.44 347.93 32.22
Volume in Millions
100
RETURN ON EQUITY (%)
CLF Ind Avg S&P 500 50
Q3 2010 21.38 8.76 12.69
Q3 2009 6.27 -13.32 2.50 0
2009 2010
Q3 2008 32.77 9.06 10.32 COMPUSTAT for Price and Volume, TheStreet.com Ratings, Inc. for Rating History
P/E COMPARISON RECOMMENDATION

We rate CLIFFS NATURAL RESOURCES INC (CLF) a BUY. This is driven by a few notable strengths, which we
believe should have a greater impact than any weaknesses, and should give investors a better performance
opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its
robust revenue growth, solid stock price performance, notable return on equity, attractive valuation levels
and expanding profit margins. Although no company is perfect, currently we do not see any significant
weaknesses which are likely to detract from the generally positive outlook.
HIGHLIGHTS
13.28 26.33 18.37 CLF's very impressive revenue growth greatly exceeded the industry average of 21.6%. Since the same
quarter one year prior, revenues leaped by 102.5%. Growth in the company's revenue appears to have helped
CLF Ind Avg S&P 500
boost the earnings per share.
EPS ANALYSIS¹ ($) Powered by its strong earnings growth of 384.44% and other important driving factors, this stock has surged
by 66.85% over the past year, outperforming the rise in the S&P 500 Index during the same period. Regarding
the stock's future course, although almost any stock can fall in a broad market decline, CLF should continue
to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
Q4 0.82
Q1 0.50
Q4 0.47
Q3 0.45
Q2 0.36
The company's current return on equity greatly increased when compared to its ROE from the same quarter
Q1 0.16
Q1 -0.07
Q2 2.57
Q3 1.61
Q2 1.92
Q3 2.18
one year prior. This is a signal of significant strength within the corporation. In comparison to the other
companies in the Metals & Mining industry and the overall market, CLIFFS NATURAL RESOURCES INC's
return on equity significantly exceeds that of the industry average and is above that of the S&P 500.
2008 2009 2010 41.80% is the gross profit margin for CLIFFS NATURAL RESOURCES INC which we consider to be strong. It has
increased significantly from the same period last year. Along with this, the net profit margin of 22.00% is
above that of the industry average.
data items.
December 12, 2010
NYSE: CLF

Sector: Materials Steel Source: S&P
$0.56 0.77% 2.43 $9.8 Billion $39.13-$76.17 $71.98

REVENUE GROWTH AND EBITDA MARGIN* The metals and mining industry is comprised of companies that engage in exploration, mine development, and
ore mining. The industry includes precious metals mining for metals such as gold, silver, and platinum
aluminum as well as companies mining or processing industrial metals such as steel, copper, & aluminum.
70%
CLF SID
The US is the world's largest producer of primary aluminum and the second largest producer of gold,
FA
exporting materials worth over $26 billion annually.

V
OR
AB
STLD According to recent estimates, there are more than 7000 metals and mining firms in the US. The industry is
LE
GGB mature, cyclical, capital intensive and dominated by large companies. Fierce consolidation activity has been
a key trend since 2005. Some of the major names in the industry are Alcoa Inc. (AA), Century Aluminum Co.
X (CENX), Kaiser Aluminum Corporation (KALU), Nucor Corporation (NUE), Cliffs Natural Resources Inc. (CLF),
TX and Newmont Mining Corp. (NEM).
NUE
MT The US steel industry is currently worth more than $50 billion with annual growth rates around 1% to 2%.
ATI
UN
Process chains are long with high production volumes. Recently, large quantities of low-cost imports have
FA
MTL impeded growth. However, the industry has seen enhanced productivity, energy efficiency, and higher yield
VO
-10%
due to restructuring, downsizing, and widespread implementation of new technologies. In the coming years,
AB
RS
LE
overcapacity and price instability will remain critical issues. Efficient production, better-suited products,
0% 45% enhanced capacity utilization and environmentally friendly practices are vital factors to future success.
EBITDA Margin (TTM)
Companies with higher EBITDA margins and The US is the largest producer of primary aluminum, exporting $39 billion annually. The aluminum sector is
revenue growth rates are outperforming companies cyclical, mature, capital intensive, and geographically concentrated. Demand comes from transportation,
with lower EBITDA margins and revenue growth packaging, consumer electronics, construction, aerospace and power companies. The industry is overtly
rates. Companies for this scatter plot have a market responsive to economic conditions. Companies are responding to pricing pressures through consolidation
capitalization between $3.6 Billion and $55.6 Billion. and vertical integration, which is aimed at streamlining the supply chain.
Companies with NA or NM values do not appear.
The US is the world's third largest gold producer with Nevada accounting for four-fifths of all total domestic
Amortization. output. Domestic demand for gold has declined as retail jewelry sales have fallen sharply in recent years.
However, higher consumption in emerging countries and increased investor demand for gold investment
REVENUE GROWTH AND EARNINGS YIELD products like ETFs have helped bolster market prices. High gold prices have attracted new players and have
prompted existing ones to expand.
70%
SID CLF
Future growth for the US metals and mining industry depends upon demand from BRIC nations, developing
FA
V
countries, and domestic consumers. The industry faces a number of challenges including environmental
OR
AB
STLD concerns, deteriorating ore grades, overproduction, technological changes, and a global economic
LE
slowdown. Intense competition from nations such as Canada, Russia, China and Mexico pose threats to the
GGB US mining industry because those nations have lower labor costs, lax environmental regulations and lower
X operating costs. The global economic slowdown has hurt demand for metals. However, sustainability of high
TX prices, resurgent global demand, particularly from the Asia-Pacific region, and signs of increasing industrial
output across Europe and the United States may boost industry performance.
NUE
MT
ATI
UN
PEER GROUP: Metals & Mining

FA
MTL
Recent Market Price/ Net Sales Net Income
VO
-10%
AB
RS
LE
-7.5% 10% CLF CLIFFS NATURAL RESOURCES I 71.98 9,750 13.28 4,087.50 734.80
X UNITED STATES STEEL CORP 52.94 7,603 NM 16,428.00 -500.00
TX TERNIUM SA -ADR 37.15 7,448 10.58 6,819.67 703.85
and high revenue growth are generally more MT ARCELORMITTAL SA 35.65 55,647 13.30 79,984.00 4,803.00
attractive than companies with low revenue growth ATI ALLEGHENY TECHNOLOGIES INC 53.48 5,273 58.77 3,825.90 93.40
and low earnings yield. Companies for this scatter RS RELIANCE STEEL & ALUMINUM C 49.42 3,687 14.84 6,001.70 246.97
plot have revenue growth rates between -3% and STLD STEEL DYNAMICS INC 16.75 3,636 23.27 5,952.56 159.57
67%. Companies with NA or NM values do not SID COMPANHIA SIDERURGICA NACIO 16.33 24,218 14.65 8,325.20 1,682.58
appear.
NUE NUCOR CORP 41.44 13,084 64.75 14,928.82 204.36
GGB GERDAU SA 13.04 12,190 12.54 17,770.28 1,477.98
MTL MECHEL OAO 27.01 11,243 21.44 7,625.21 665.94
The peer group comparison is based on Major Steel companies of comparable size.
December 12, 2010
NYSE: CLF

$0.56 0.77% 2.43 $9.8 Billion $39.13-$76.17 $71.98

Cliffs Natural Resources Inc., a mining and natural Below is a summary of the major fundamental and technical factors we consider when determining our
resources company, produces iron ore pellets, lump and overall recommendation of CLF shares. It is provided in order to give you a deeper understanding of our rating
fines iron ore, and metallurgical coal. The company methodology as well as to paint a more complete picture of a stock's strengths and weaknesses. It is
operates six iron ore mines in Michigan, Minnesota, and important to note, however, that these factors only tell part of the story. To gain an even more comprehensive
Eastern Canada; and two coking coal mines in West understanding of our stance on the stock, these factors must be assessed in combination with the stock’s
Virginia and Alabama. It also owns two iron ore mining valuation. Please refer to our Valuation section on page 5 for further information.
complexes in Western Australia; a coking and thermal
coal mine located in Queensland, Australia; and a FACTOR SCORE
Brazilian iron ore project in Latin America. The company,
formerly known as Cleveland-Cliffs Inc, was founded in Growth out of 5 stars 5.0
1847 and is headquartered in Cleveland, Ohio. Measures the growth of both the company's income statement and weak strong
cash flow. On this factor, CLF has a growth score better than 90% of the
stocks we rate.
200 Public Square, Suite 3300
Cleveland, OH 44114-2315
USA Total Return out of 5 stars 5.0
Phone: 216-694-5700 Measures the historical price movement of the stock. The stock weak strong
Fax: 216-694-4880 performance of this company has beaten 90% of the companies we
http://www.cliffsnaturalresources.com cover.
Efficiency out of 5 stars 5.0

Measures the strength and historic growth of a company's return on weak strong
invested capital. The company has generated more income per dollar of
capital than 90% of the companies we review.

Measures the volatility of the company's stock price historically. The weak strong
stock is less volatile than 30% of the stocks we monitor.
Solvency out of 5 stars 4.0

Measures the solvency of the company based on several ratios. The weak strong
company is more solvent than 70% of the companies we analyze.
Income out of 5 stars 3.5

THESTREET.COM RATINGS RESEARCH METHODOLOGY
TheStreet.com Ratings' stock model projects a stock's total return potential over a 12-month period including
cash flows.
selecting stocks.
December 12, 2010
NYSE: CLF

$0.56 0.77% 2.43 $9.8 Billion $39.13-$76.17 $71.98

IBES consensus estimates are provided by Thomson Financial CLIFFS NATURAL RESOURCES INC's gross profit margin for the third quarter of its fiscal year 2010 has
significantly increased when compared to the same period a year ago. The company has grown sales and net
income significantly, outpacing the average growth rates of competitors within its industry. CLIFFS NATURAL
RESOURCES INC has strong liquidity. Currently, the Quick Ratio is 1.72 which shows the ability to cover
short-term cash needs. The company's liquidity has increased from the same period last year, indicating
improving cash flow.
2.12 6.78 E 9.25 E last year. The key liquidity measurements indicate that the company is unlikely to face financial difficulties in
Q4 FY10 2010(E) 2011(E) the near future.
INCOME STATEMENT
Q3 FY10 Q3 FY09
Net Sales ($mil) 1,348.80 666.20
EBITDA ($mil) 495.60 132.60
EBIT ($mil) 411.20 74.60
Net Income ($mil) 297.40 58.80
BALANCE SHEET
Q3 FY10 Q3 FY09
Cash & Equiv. ($mil) 969.40 359.90
Total Assets ($mil) 7,078.90 4,511.20
Total Debt ($mil) 1,855.80 525.00
Equity ($mil) 3,436.90 2,405.70
PROFITABILITY
Q3 FY10 Q3 FY09
EBITDA Margin 36.74% 19.90%
Operating Margin 30.49% 11.20%
Return on Assets 10.38% 3.34%
Return on Equity 21.38% 6.27%
DEBT
Q3 FY10 Q3 FY09
Interest Coverage 23.77 7.46
SHARE DATA
Q3 FY10 Q3 FY09
Div / share 0.14 0.04
EPS 2.18 0.45
Book value / share 25.38 18.37
Avg Daily Volume 3,894,124 5,725,316
December 12, 2010
NYSE: CLF

$0.56 0.77% 2.43 $9.8 Billion $39.13-$76.17 $71.98

Our rating for CLIFFS NATURAL RESOURCES INC BUY. The current P/E ratio indicates a significant discount compared to an average of 26.33 for the Metals &
has not changed since 8/24/2010. As of 12/9/2010, Mining industry and a discount compared to the S&P 500 average of 18.37. To use another comparison, its
the stock was trading at a price of $71.98 which is price-to-book ratio of 2.84 indicates a premium versus the S&P 500 average of 2.21 and a discount versus the
5.5% below its 52-week high of $76.17 and 84.0% industry average of 3.70. The price-to-sales ratio is well above the S&P 500 average, but well below the
above its 52-week low of $39.13. industry average. Upon assessment of these and other key valuation criteria, CLIFFS NATURAL RESOURCES
INC proves to trade at a discount to investment alternatives within the industry.
2 Year Chart
$75
HOLD: $23.13
BUY: $57.81
$50 CLF 13.28 Peers 26.33 CLF 11.77 Peers 24.24
• Discount. A lower P/E ratio than its peers can • Discount. The P/CF ratio, a stock’s price divided by
$25 signify a less expensive stock or lower growth the company's cash flow from operations, is useful
• CLF is trading at a significant discount to its peers. requirements or financing structures.
2009 • CLF is trading at a significant discount to its peers.

MOST RECENT RATINGS CHANGES CLF 7.78 Peers 17.68 CLF 0.04 Peers 0.31
Date Price Action From To • Discount. A lower price-to-projected earnings ratio • Discount. The PEG ratio is the stock’s P/E divided
8/24/10 $57.81 Upgrade Hold Buy than its peers can signify a less expensive stock or by the consensus estimate of long-term earnings
12/9/08 $23.13 No Change Hold Hold lower future growth expectations. growth. Faster growth can justify higher price
Price reflects the closing price as of the date listed, if available • CLF is trading at a significant discount to its peers. multiples.
• CLF trades at a significant discount to its peers.
RATINGS DEFINITIONS & Price/Book 1 2 3 4 5 Earnings Growth 1 2 3 4 5

DISTRIBUTION OF THESTREET.COM RATINGS premium discount lower higher
(as of 12/9/2010) CLF 2.84 Peers 3.70 CLF 347.93 Peers 263.44
• Discount. A lower price-to-book ratio makes a • Higher. Elevated earnings growth rates can lead to
33.27% Buy - We believe that this stock has the stock more attractive to investors seeking stocks capital appreciation and justify higher
opportunity to appreciate and produce a total return of with lower market values per dollar of equity on the price-to-earnings ratios.
more than 10% over the next 12 months. balance sheet. • CLF is expected to have an earnings growth rate
• CLF is trading at a discount to its peers. that significantly exceeds its peers.
37.58% Hold - We do not believe this stock offers
conclusive evidence to warrant the purchase or sale of Price/Sales 1 2 3 4 5 Sales Growth 1 2 3 4 5
premium discount lower higher
shares at this time and that its likelihood of positive total
CLF 2.39 Peers 24.18 CLF 67.04 Peers 24.00
return is roughly in balance with the risk of loss.
• Discount. In the absence of P/E and P/B multiples, • Higher. A sales growth rate that exceeds the
29.14% Sell - We believe that this stock is likely to the price-to-sales ratio can display the value industry implies that a company is gaining market
decline by more than 10% over the next 12 months, with investors are placing on each dollar of sales. share.
the risk involved too great to compensate for any • CLF is trading at a significant discount to its • CLF has a sales growth rate that significantly
possible returns. industry on this measurement. exceeds its peers.
DISCLAIMER:
TheStreet.com Ratings, Inc.
262 Washington Street, 4th Floor The opinions and information contained herein have been obtained or derived from sources believed to be reliable, but
Boston, MA 02108 TheStreet.com Ratings, Inc. can not guarantee its accuracy and completeness, and that of the opinions based thereon. Data is
www.thestreet.com well as other third-party data providers.
Research Contact: 617-531-9717
Sales Contact: 866-321-8726 TheStreet.com Ratings, Inc. is a wholly owned subsidiary of TheStreet.com, Inc. which is a publisher and has registered as an
for informational purposes only. You should not rely solely upon the research herein for purposes of transacting securities or
other investments, and you are encouraged to conduct your own research and due diligence, and to seek the advice of a
18
13 Stock Picks for 2011 China MediaExpress Holdings (CCME) in my opinion will be a
dividend stock in the next 12 months, is growing, and comes
by Glen Bradford at a P/E less than 8 on growth that makes growth investors
12/02/10 - 06:00 AM EST salivate.
I believe that knowing where the best deals in the world are is China Redstone Group (CGPI) recently went public and they
something of value. A small, highly intelligent investor commu- are crushing the guidance that they put out. I have to admit, I
nity that I am privileged to be a part of puts together an index underestimated them.
of what we consider to be the most undervalued companies in
the world. It’s no surprise to me that these don’t get media at- Jade Art Group (JADA) is experiencing a selloff. At the current
tention because the best opportunities in the world are never prices, this is tough to sell -- so I figure it must be a buy.
“well known” at the time that they are the “most valuable.”
Two oil plays: Longwei Petroleum (LPH) is a growing cash
The trick is to see value before everyone machine and is priced to shrink. China North East Petroleum
(NEP) came back strong from the trading halt and is cheap on
else does and get in before they do at a
a forward basis.
great price. At this point, I’m going to tell
you what makes up this list and a little Sino Agro Food (SIAF) has institutional interest even though it
about each company. In my opinion, this trades on the PINK sheets because they consistently deliver
list will outperform any other list of stocks on their promises so far.
anyone else could put together over the
next five years. Sad, but true. Telestone Technologies (TSTC) is falling in price likely due to
the offering just announced. People worry about the AR. This
Asia Entertainment & Resources (AERL) recently came under one is cheap and will be higher a few years from now than it is
the attack of Tim Sykes. I find AERL better than your compa- today.
rables here in America especially for the price. The trick of the
shorts is just to overwhelm long investors with lots of ques- Universal Travel Group (UTA) got beat up by John Hempton.
tionable information --- capitulating longs who aren’t sure into Another weak short if you ask me.
selling --- and starting a self-fulfilling prophecy. This, of course,
doesn’t mention that when Sykes announces a short , all of his Yongye International (YONG) is going to be a consistent
followers go out and try to short as well for better or worse. grower and comes a little more expensive than the others here
Number 1
but I figure it’s worth it.
Biostar Pharmaceuticals (BSPM) recently uplisted as pre-
dicted. Growth on the cheap; come and get it. ZST Digital Networks (ZSTN) has a lot of cash and is cheap
by my calculations.
China Ceramics (CCCL) is ridiculously cheap. I own warrants
instead -- CCCLW. Kind of surprised they never called me to Well, there you have it. Now, if you’re like me -- you’ll find your-
ask me to convert. self putting your money where your mouth is. Or, you could be
13 Stock Picks for 2011 • by Glen Bradford • 12/13/10 - 06:00 AM EST

19
like everyone else and talk about the great things you could
have done. The choice is yours. Please excuse me while I get
back to making a fortune, but before I leave I want to tell you
what I would do if I had a billion dollars.
I’d take half of it, and buy up entire companies at these

multiples, roll them up into a billion dollar conglomerate and
take them public on the Hang Seng / Shanghai and make
something like xxx% on that half billion. I’d use the other half a
billion to scoop up private placements at the same multiples.
I figure I could turn $1 billion into much more -- the trick is be-
ing large enough to be able to buy entire companies and then
piecing together a conglomerate to take public overseas.
Disclosure: Glen and his investors hold long positions in all

the companies mentioned and he takes pride in putting his
money where his mouth is.
Number 1
13 Stock Picks for 2011 • by Glen Bradford • 12/13/10 - 06:00 AM EST

December 12, 2010
NASDAQ: TSTC
TELESTONE TECHNOLOGIES CORP

BUY HOLD SELL
HOLD
NA NA 3.16 $134.0 Million $7.29-$24.94 $10.95
Sector: Technology Sub-Industry: Communications Equipment Source: S&P

TSTC BUSINESS DESCRIPTION
Telestone Technologies Corporation provides 25
access network solutions primarily in the People's 23
Republic of China. Its access network solutions 20
include the research and development, and
18
application of access network technology.
15
3 Mo. 1 Yr. 3 Yr (Ann) 10
Price Change 13.58 -30.48 24.82 8
GROWTH (%) 5
Revenues 128.15 94.76 53.98 0
Net Income 184.04 66.97 49.29 Rating History
EPS 178.04 64.07 44.51 HOLD BUY HOLD
RETURN ON EQUITY (%) Volume in Millions

8
TSTC Ind Avg S&P 500 5
Q3 2010 22.16 17.08 12.69
3
Q3 2009 17.82 10.83 2.50
0
Q3 2008 12.61 23.69 10.32 2009 2010
COMPUSTAT for Price and Volume, TheStreet.com Ratings, Inc. for Rating History
P/E COMPARISON
RECOMMENDATION
We rate TELESTONE TECHNOLOGIES CORP (TSTC) a HOLD. The primary factors that have impacted our rating
are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the
expectation of either a positive or negative performance for this stock relative to most other stocks. The
company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial
position with reasonable debt levels by most measures and notable return on equity. However, as a counter
to these strengths, we also find weaknesses including weak operating cash flow and a generally
disappointing performance in the stock itself.
6.48 31.73 18.37
TSTC Ind Avg S&P 500 HIGHLIGHTS
TSTC's very impressive revenue growth greatly exceeded the industry average of 3.3%. Since the same
quarter one year prior, revenues leaped by 128.2%. Growth in the company's revenue appears to have helped
EPS ANALYSIS¹ ($) boost the earnings per share.
TSTC's debt-to-equity ratio is very low at 0.11 and is currently below that of the industry average, implying
that there has been very successful management of debt levels. To add to this, TSTC has a quick ratio of 1.88,
Q3 0.41
Q4 0.32
which demonstrates the ability of the company to cover short-term liquidity needs.
Q2 0.19
Q2 0.17
Q2 0.16
Q3 0.11
Q1 0.11
Q1 0.08
Q1 -0.11
Q4 0.50
Q3 1.14
45.30% is the gross profit margin for TELESTONE TECHNOLOGIES CORP which we consider to be strong.
Regardless of TSTC's high profit margin, it has managed to decrease from the same period last year. Despite
the mixed results of the gross profit margin, TSTC's net profit margin of 28.00% significantly outperformed
against the industry.
2008 2009 2010
TSTC's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the
net result is that it is down by 30.48%, which is also worse that the performance of the S&P 500 Index.
data items. Investors have so far failed to pay much attention to the earnings improvements the company has managed
to achieve over the last quarter. Naturally, the overall market trend is bound to be a significant factor.
However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper
(in proportion to its earnings over the past year) than most other stocks in its industry. But due to other
concerns, we feel the stock is still not a good buy right now.
Net operating cash flow has significantly decreased to -$0.71 million or 156.99% when compared to the same
quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
December 12, 2010
NASDAQ: TSTC

Sector: Technology Communications Equipment Source: S&P
NA NA 3.16 $134.0 Million $7.29-$24.94 $10.95

REVENUE GROWTH AND EBITDA MARGIN* The US communications equipment industry is comprised of companies that manufacture communication
equipments and products, including LANs, WANs, routers, telephones, switchboards and exchanges. The
industry is highly competitive and characterized by rapidly changing technologies, evolving industry and
100%
TSTC
government standards, changes in customer preferences, and new product introductions and enhancements
FA
VOR
Companies compete on the basis of product performance, quality, customer service, technological
AB
innovation, delivery time and price. The industry is becoming increasingly concentrated and globalized,
LE
dominated by large players with significant financial resources and technological capabilities. Cisco Systems
(CSCO) and Motorola (MOT) are large domestic players. Alcatel-Lucent (ALU), Nortel Networks (NT), Siemens
(SI), and LM Ericsson Telephone (ERIC) are international forces.
Industry demand is dependent on the capital spending of cellular and broadband companies for constructing,
rebuilding or upgrading their communications systems. The domestic market is evolving at a brisk pace as
EXFO
UN
cable and telecom network operators expand their video, data and voice services, commonly known as the
PCTI
FA
JCS “triple play”, to expand their subscriber base. Telecom operators are expanding their broadband networks
VO
NWKOPXT
-20%
and offering advanced video and data services using IPTV and PON technologies. Cable operators are
AB
EMKR
LE
responding by bundling voice-over-IP services and expanding their broadband data service through Data
-15% ALVR WSTL 35% Over Cable Service Interface Specifications (DOCSIS).
EBITDA Margin (TTM)
Companies with higher EBITDA margins and Companies are regulated by the United States Federal Communications Commission (FCC) and other global
revenue growth rates are outperforming companies governmental communication regulators. The International Telecommunications Union (ITU) is adopting
with lower EBITDA margins and revenue growth cellular wireless access standards (4G) for the cellular infrastructure industry based on OFDM technology,
rates. Companies for this scatter plot have a market commonly known as Long Term Evolution (LTE).
capitalization between $115.4 Million and $170.3
Million. Companies with NA or NM values do not The industry faces investment risks related to the introduction of new products such as advanced wireless
appear. handsets, WiMAX, 4G technologies, and products for the transmission of telephony and high-speed data over
hybrid fiber coaxial cable systems. Research and development is a complex and uncertain process, requiring
Amortization. high levels of innovation and an accurate understanding of market trends. The industry has witnessed
consolidation in order to facilitate product breadth and improve technologies.
REVENUE GROWTH AND EARNINGS YIELD
100%
TSTC PEER GROUP: Communications Equipment

Recent Market Price/ Net Sales Net Income
FA
VOR
AB
TSTC TELESTONE TECHNOLOGIES CO 10.95 134 6.48 103.81 17.82

LE
CNTF CHINA TECHFAITH WIRELESS-ADR 3.88 170 9.24 255.12 21.56

WSTL WESTELL TECH INC 2.95 156 13.41 172.95 14.83
ALVR ALVARION LTD 2.47 154 NM 215.22 -22.90
SILC EXFO EXFO INC 6.66 147 111.00 202.76 6.62
CNTF OPXT OPNEXT INC 1.60 144 NM 318.09 -67.57

EXFO EMKR EMCORE CORP 1.52 129 NM 177.73 -36.34
UN
NWK NETWORK EQUIPMENT TECH INC 4.07 122 NM 68.93 -21.55

FA
PCTI JCS
VO
OPXT
-20%
JCS COMMUNICATIONS SYSTEMS INC 14.10 118 13.18 116.20 8.96

R
NWK
AB
EMKR
LE
SILC SILICOM LTD 16.89 116 23.14 27.34 5.11

-50% ALVR WSTL
20%
PCTI PCTEL INC 6.25 115 NM 65.48 -3.32
The peer group comparison is based on Major Communications Equipment companies of comparable size.
appear.
December 12, 2010
NASDAQ: TSTC

NA NA 3.16 $134.0 Million $7.29-$24.94 $10.95

Telestone Technologies Corporation provides access Below is a summary of the major fundamental and technical factors we consider when determining our
network solutions primarily in the People's Republic of overall recommendation of TSTC shares. It is provided in order to give you a deeper understanding of our
China. Its access network solutions include the research rating methodology as well as to paint a more complete picture of a stock's strengths and weaknesses. It is
and development, and application of access network important to note, however, that these factors only tell part of the story. To gain an even more comprehensive
technology. The company designs and sells electronic understanding of our stance on the stock, these factors must be assessed in combination with the stock’s
equipments, such as WFDS products, RFPA products, valuation. Please refer to our Valuation section on page 5 for further information.
passive components, repeaters, radio frequency
peripherals, and base station antennas used to provide FACTOR SCORE
access network solutions for 2G, 3G, broadband access,
and CATV networks. It also provides project design, Growth out of 5 stars 4.0
project management, installation, maintenance, and Measures the growth of both the company's income statement and weak strong
other after-sales services. In addition, Telestone offers cash flow. On this factor, TSTC has a growth score better than 70% of
coverage solutions, which cover indoor and outdoor the stocks we rate.
environments, including hotels, residential estates, office
buildings, airports, exhibition centers, underground
stations, highways, and tunnels, to the
telecommunications industry. Further, it provides 3D Measures the historical price movement of the stock. The stock weak strong
solution, a third generation indoor coverage solution, performance of this company has beaten 30% of the companies we
which utilizes fiber technology in the radio frequency cover.
signal distribution to transmit high speed data signals;
and the PHS system optimization solution that addresses Efficiency out of 5 stars 4.5
network coverage, network planning, network capacity, Measures the strength and historic growth of a company's return on weak strong
and network disturbance issues of wireless networks. invested capital. The company has generated more income per dollar of
The company was founded in 1987 and is headquartered capital than 80% of the companies we review.
in Beijing, the People's Republic of China.

10th Floor China Ruida Plaza, No 74 Lugu Road Shi Measures the volatility of the company's stock price historically. The weak strong
Beijing 100040 stock is less volatile than 10% of the stocks we monitor.
USA
Phone: 86 10 6860 833 Solvency out of 5 stars 3.0
Fax: 86 10 6860 833 Measures the solvency of the company based on several ratios. The weak strong
http://www.telestone.com company is more solvent than 50% of the companies we analyze.

Measures dividend yield and payouts to shareholders. This company weak strong
pays no dividends.
cash flows.
selecting stocks.
December 12, 2010
NASDAQ: TSTC

NA NA 3.16 $134.0 Million $7.29-$24.94 $10.95

IBES consensus estimates are provided by Thomson Financial TELESTONE TECHNOLOGIES CORP's gross profit margin for the third quarter of its fiscal year 2010 is
essentially unchanged when compared to the same period a year ago. The company has grown sales and net
income significantly, outpacing the average growth rates of competitors within its industry. TELESTONE
TECHNOLOGIES CORP has strong liquidity. Currently, the Quick Ratio is 1.88 which shows the ability to cover
short-term cash needs. The company's liquidity has increased from the same period last year.
last year. The key liquidity measurements indicate that the company is unlikely to face financial difficulties in
0.92 2.36 E 2.36 E the near future.
Q4 FY10 2010(E) 2011(E)
INCOME STATEMENT
Q3 FY10 Q3 FY09
Net Sales ($mil) 43.10 18.89
EBITDA ($mil) 14.17 5.59
EBIT ($mil) 14.09 5.51
Net Income ($mil) 12.05 4.24
BALANCE SHEET
Q3 FY10 Q3 FY09
Cash & Equiv. ($mil) 9.81 5.29
Total Assets ($mil) 158.15 98.01
Total Debt ($mil) 8.78 3.66
Equity ($mil) 80.42 59.90
PROFITABILITY
Q3 FY10 Q3 FY09
DEBT
Q3 FY10 Q3 FY09
SHARE DATA
Q3 FY10 Q3 FY09
Div / share 0.00 0.00
EPS 1.14 0.41
Avg Daily Volume 351,333 263,029
December 12, 2010
NASDAQ: TSTC

NA NA 3.16 $134.0 Million $7.29-$24.94 $10.95

Our rating for TELESTONE TECHNOLOGIES CORP HOLD. TELESTONE TECHNOLOGIES CORP's P/E ratio indicates a significant discount compared to an average
has not changed since 6/9/2010. As of 12/9/2010, the of 31.73 for the Communications Equipment industry and a significant discount compared to the S&P 500
stock was trading at a price of $10.95 which is average of 18.37. To use another comparison, its price-to-book ratio of 1.44 indicates a discount versus the
56.1% below its 52-week high of $24.94 and 50.2% S&P 500 average of 2.21 and a significant discount versus the industry average of 3.26. The price-to-sales
above its 52-week low of $7.29. ratio is below the S&P 500 average and is well below the industry average, indicating a discount. Upon
assessment of these and other key valuation criteria, TELESTONE TECHNOLOGIES CORP proves to trade at a
2 Year Chart discount to investment alternatives within the industry.
$30
HOLD: $1.27
BUY: $12.80
HOLD: $8.89
$20 premium discount premium discount
TSTC 6.48 Peers 31.73 TSTC NM Peers 16.87
$10 • Discount. A lower P/E ratio than its peers can • Neutral. The P/CF ratio, a stock’s price divided by
signify a less expensive stock or lower growth the company's cash flow from operations, is useful
2009 • TSTC is trading at a significant discount to its requirements or financing structures.
peers. • TSTC's P/CF is negative making the measure
meaningless.
MOST RECENT RATINGS CHANGES
Date Price Action From To premium discount premium discount
6/9/10 $8.89 Downgrade Buy Hold TSTC 4.64 Peers 18.68 TSTC 0.07 Peers 0.50
11/24/09 $12.80 Upgrade Hold Buy • Discount. A lower price-to-projected earnings ratio • Discount. The PEG ratio is the stock’s P/E divided
12/9/08 $1.27 No Change Hold Hold than its peers can signify a less expensive stock or by the consensus estimate of long-term earnings
Price reflects the closing price as of the date listed, if available lower future growth expectations. growth. Faster growth can justify higher price
• TSTC is trading at a significant discount to its multiples.
peers. • TSTC trades at a significant discount to its peers.
DISTRIBUTION OF THESTREET.COM RATINGS Price/Book 1 2 3 4 5 Earnings Growth 1 2 3 4 5
(as of 12/9/2010)
TSTC 1.44 Peers 3.26 TSTC 64.07 Peers 104.03
33.27% Buy - We believe that this stock has the • Discount. A lower price-to-book ratio makes a • Lower. Elevated earnings growth rates can lead to
opportunity to appreciate and produce a total return of stock more attractive to investors seeking stocks capital appreciation and justify higher
more than 10% over the next 12 months. with lower market values per dollar of equity on the price-to-earnings ratios.
balance sheet. • However, TSTC is expected to significantly trail its
37.58% Hold - We do not believe this stock offers • TSTC is trading at a significant discount to its peers on the basis of its earnings growth rate.
conclusive evidence to warrant the purchase or sale of peers.
shares at this time and that its likelihood of positive total
return is roughly in balance with the risk of loss.
Price/Sales 1 2 3 4 5 Sales Growth 1 2 3 4 5
TSTC 1.11 Peers 3.60 TSTC 94.76 Peers 13.54
29.14% Sell - We believe that this stock is likely to
decline by more than 10% over the next 12 months, with • Discount. In the absence of P/E and P/B multiples, • Higher. A sales growth rate that exceeds the
the risk involved too great to compensate for any the price-to-sales ratio can display the value industry implies that a company is gaining market
possible returns. investors are placing on each dollar of sales. share.
• TSTC is trading at a significant discount to its • TSTC has a sales growth rate that significantly
industry on this measurement. exceeds its peers.
TheStreet.com Ratings, Inc.
262 Washington Street, 4th Floor DISCLAIMER:
Boston, MA 02108
The opinions and information contained herein have been obtained or derived from sources believed to be reliable, but
www.thestreet.com TheStreet.com Ratings, Inc. can not guarantee its accuracy and completeness, and that of the opinions based thereon. Data is
Research Contact: 617-531-9717 provided via the COMPUSTAT® Xpressfeed product from Standard &Poor’s, a division of The McGraw-Hill Companies, Inc., as
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25
10 Best Dow Dividend Below are analysts’ aggregate ratings, calculated by

Bloomberg, of the bottom 20 Dow dividend stocks.
Stocks for 2011 30. Travelers (TRV), Aggregate Rating: 3.58/5

by Jake Lynch 29. Verizon (VZ), Aggregate Rating: 3.73/5
12/13/10 - 06:00 AM EST 28. Exxon Mobil (XOM), Aggregate Rating: 3.74/5
27. Caterpillar (CAT), Aggregate Rating: 3.79/5
BOSTON (TheStreet) -- Pimco, the bond-fund manager that 26. Alcoa (AA), Aggregate Rating: 3.82/5
predicted the next five years would be a “new normal” of slow 25. Disney (DIS), Aggregate Rating: 4.06/5
economic growth and below-average investment returns, 24. Home Depot (HD), Aggregate Rating: 4.07/5
boosted its 2011 economic-growth forecast last week by a 23. J&J (JNJ), Aggregate Rating: 4.08/5
full percentage point. 22. GE (GE), Aggregate Rating: 4.10/5
21. 3M (MMM), Aggregate Rating: 4.11/5
Pimco’s new normal, coined after the financial meltdown and 20. Intel (INTC), Aggregate Rating: 4.11/5
stock-market crash, has cast a pall over the investing world 19. AT&T (T), Aggregate Rating: 4.11/5
because the firm runs the world’s biggest bond fund and 18. Pfizer (PFE), Aggregate Rating: 4.21/5
employs some of the brightest minds in the market. With U.S. 17. B. of A. (BAC), Aggregate Rating: 4.24/5
stocks struggling this year, it seemed Pimco’s prediction was 16. Boeing (BA), Aggregate Rating: 4.27/5
prescient. 15. Am. Express (AXP), Aggregate Rating: 4.27/5
14. McDonald’s (MCD), Aggregate Rating: 4.27/5
But some investors disagreed. Ken Fisher, billionaire CEO 13. DuPont (DD), Aggregate Rating: 4.28/5
of Fisher Investments, said as stocks were rebounding in 12. Cisco (CSCO), Aggregate Rating: 4.31/5
September that the next decade would be as fruitful as the 11. P&G (PG), Aggregate Rating: 4.33/5
1990s, when the S&P 500 Index rose in eight of 10 years. He
called the concept of the new normal “idiotic.” Just on Friday, Now, here is a closer look at the 10 highest-rated Dow divi-
“Mad Money” host Jim Cramer said a “raging” bull market is dend stocks for 2011...
beginning.
So, the case for stocks is compelling,

given the low yields offered by bonds
and the government’s commitment to Number 1
accelerate economic growth. Among the 10. IBM (IBM) makes technology products and offers con-
cheapest stocks in the U.S. market are Dow sulting services worldwide.
components, which offer clean balance

12-Month Sales Growth: 2.7%
sheets, powerful brands and emerging- 12-Month Net Income Growth: 10%
markets exposure. Quarterly Operating Profit Margin: 19%
10 Best Dow Dividend Stocks for 2011 • by Jake Lynch • 12/13/10 - 06:00 AM EST
26
Cash Flow Multiple: 9.5 (41% peer discount) Cash Flow Multiple: 7.7 (13% peer discount)
Analysts’ Median Target: $152.50 Analysts’ Median Target: $61.05
3-Year Dividend Growth: 19% 3-Year Dividend Growth: 14%
Dividend Yield: 1.8% Dividend Yield: 2.2%
Payout Ratio: 23% Payout Ratio: 29%
2011 Catalyst: It may seem paradoxical to call the world’s
2011 Catalyst: Despite mediocre growth, with third-quarter largest company a growth story, but Wal-Mart has the most
sales up 3% and net income up 12%, IBM’s stock has risen effective distribution network in history, with the lowest-cost
10% in 2010. Its float has decreased 5.5% since the year-ago business model in its field, offering the highest-savings propo-
quarter. Quarterly earnings per share jumped 18%, boosted sition to customers.
by the lower share count. Furthermore, return on equity was
exceptionally high, at 65%, exceeding the industry average Its stock has delivered annualized gains of 3.5% since 2007,
of 51% and the S&P 500 average of 13%. Such outstand- excluding the effect of dividends. Quarterly return on equity, at
ing metrics have helped the stock deliver annualized gains of 23%, bested the industry average of 19% and the S&P 500
9.9% since 2007, outperforming indices. average of 13%.
A foray into cloud computing will help bolster growth in the An expansion into frontier markets is ongoing. A deal for a
coming year. IBM has purchased 14 competitors in 2010. 51% stake in South African MassMart is pending. Quarterly
Three more deals are pending. Cloud-computing company international sales and international operating income in-
Salesforce.com has seen its shares more than triple this year. creased 7% and 17%, respectively. Wal-Mart is beginning its
Cloud is the tech theme of 2011. next phase of domination.
Bullish Scenario: Citigroup predicts that IBM’s stock will ap- Bullish Scenario: HSBC values Wal-Mart at $68, suggesting
preciate 10% to $160. a 25% 12-month gain.
Bearish Scenario: Gleacher & Co. offers a target of $137, Bearish Scenario: Goldman Sachs expects the stock to rise
implying 5% downside. 7% to $58 in the next year.
Number 1
9. Wal-Mart (WMT) is the world’s biggest retailer. 8. Kraft Foods (KFT) makes snacks, cheese, candies and
quick-meal products.
12-Month Sales Growth: 4%
12-Month Net Income Growth: 12% 12-Month Sales Growth: 20%
Quarterly Operating Profit Margin: 5.5% 12-Month Net Income Growth: 72%
27
Quarterly Operating Profit Margin: 14% Cash Flow Multiple: 8.2 (39% peer discount)
Cash Flow Multiple: 16 (12% peer premium) Analysts’ Median Target: $55.40
Analysts’ Median Target: $34.71 3-Year Dividend Growth: -7.2%
3-Year Dividend Growth: 4.4% Dividend Yield: 0.8%
Dividend Yield: 3.8% Payout Ratio: 9%
Payout Ratio: 73% 2011 Catalyst: HP’s stock price has suffered since CEO
2011 Catalyst: Though expensive based on cash flow, Kraft is Mark Hurd departed in August. But it is one of the cheapest
cheap relative to packaged-food peers based on its forward technology large-caps. Its sells for a forward earnings multiple
earnings multiple of 13, book value multiple of 1.6 and sales of 7.4, a book value multiple of 2.4 and a sales multiple of 0.8,
multiple of 1.2. Quarterly revenue rose 23%, boosted by the discounts of up to 76% to computer and peripheral industry
Cadbury buy. averages.
Developing-market revenue surged 70%, with double-digit Value is no guarantee of performance. HP’s stock has suf-
percentage gains in the Latin America and Asia-Pacific fered annualized loss of 6.4% since 2007. A movement into
regions. According to management, the Cadbury purchase cloud-computing should help in 2011. HP has completed
is already creating cost savings and gave the formerly U.S.- eight acquisitions in 2010. One deal is pending. A pick-up in
focused company a tremendous foothold in emerging mar- consumer sentiment, evident in the 74.2 read of last week’s U.
kets. It’s using “power brands” to garner loyalty as middle Michigan sentiment survey, should abet a laggard consumer
classes form in Brazil, India, China and elsewhere and ramp segment.
up consumption.
Bullish Scenario: Citigroup values Hewlett-Packard at $70,
Bullish Scenario: JPMorgan forecasts that Kraft’s stock will implying 65% of upside.
rise 30% to $40.
Bearish Scenario: Deutsche Bank, ranking the stock “hold”,
Bearish Scenario: Deutsche Bank predicts that the shares will expects it to climb to $45.
decline to $30.
Number 1
7. Hewlett-Packard (HPQ) makes computers and servers 6. Merck (MRK) is a global pharmaceutical company.
and offers consulting services.
12-Month Sales Growth: 10% 12-Month Net Income Growth: -2%
12-Month Net Income Growth: 14% Quarterly Operating Profit Margin: 30%
Quarterly Operating Profit Margin: 11% Cash Flow Multiple: 12 (7% peer premium)
28
Analysts’ Median Target: $41.65 3-Year Dividend Growth: 13%
3-Year Dividend Growth: 0% Dividend Yield: 2.2%
Dividend Yield: 4.2% Payout Ratio: 38%
Payout Ratio: 54% 2011 Catalyst: United Technologies’ shares jumped Thursday
2011 Catalyst: Merck is a solid dividend stock. Its 4.2% as management boosted its 2011 earnings guidance. It now
yield is third-highest in the blue-chip Dow. However, it hasn’t expects 7% to 14% net profit growth and 3% to 5% organic
increased the distribution since 2004. As with Pfizer, patent revenue growth.
expiry is a concern.
Industrial companies are the best-performing investments at
However, analysts see value in Merck shares. A forward earn- this stage in the growth cycle. Also, bullish analysts are telling
ings multiple of 9.4, a book value multiple of 2 and a sales investors that management’s assumptions are typically too
multiple of 2.5 represent 20%, 61% and 22% industry dis- conservative at the Hartford, Conn.-based company. United’s
counts. The 2009 purchase of Schering-Plough has bolstered forward earnings multiple of 15 and book value multiple of 3.4
earnings, but one-time charges have plagued recent results, reflect 16% and 18% discounts to peer averages.
most recently, a $950 million reserve related to a recall.
The company has completed five acquisitions in 2010. One is
Emerging markets are a growth venue. That geographic seg- still pending. It has $5.7 billion of cash on hand.
ment added 18% of quarterly sales.
Bullish Scenario: Jefferies believes that United Technologies
Bullish Scenario: Deutsche Bank forecasts that Merck’s stock will climb 15% to $90.
will advance 34% to $48.
Bearish Scenario: Goldman Sachs expects the stock to ap-
Bearish Scenario: Jefferies values the shares at $37.80, imply- preciate 6% to $83.
ing 5% of upside.
5. United Technologies (UTX) is an aerospace, defense and 4. Microsoft (MSFT) sells software, including the Windows
Number 1
industrial company. operating system and Office product suite.
12-Month Sales Growth: 0.8% 12-Month Sales Growth: 17%

12-Month Net Income Growth: 8.9% 12-Month Net Income Growth: 50%
Quarterly Operating Profit Margin: 16% Quarterly Operating Profit Margin: 44%
Cash Flow Multiple: 13 (11% peer premium) Cash Flow Multiple: 8.9 (53% peer discount)
29
3-Year Dividend Growth: 10% Payout Ratio: 34%
Dividend Yield: 2.3% 2011 Catalyst: Like Microsoft, Chevron offers a compelling
Payout Ratio: 24% risk-reward proposition, given its size, management and com-
2011 Catalyst: Microsoft is one of the most compelling value petitive position.
stocks in the market. It has the strongest brand name in
software, lofty margins, with a gross spread of 85%, and an Its trailing earnings multiple of 10, forward earnings multiple of
obscene coffer for acquisitions. The Redmond, Wash.-based 8.9, book value multiple of 1.7, sales multiple of 0.9 and cash
company held $44 billion of cash and equivalents at its fiscal flow multiple of 5.8 represent discounts of 46%, 58%, 59%,
first-quarter’s end and less than $11 billion of debt, for a net 70% and 35% to oil and gas industry averages. Its PEG ratio,
liquidity position of $34 billion, plenty for acquisitions. a measure of value relative to predicted long-run growth, of
0.1 reflects a 90% discount to estimated long-term fair value.
Its quarterly return on equity rose to 44%, more than doubling
the industry average. Return on assets hit 23%, indicating With oil above $90 a barrel and predicted by some to pass
superlative efficiency. Despite such attractive metrics, Micro- $100 in 2011, Chevron’s margins will elevate, amplifying its
soft sells for just 10-times forward earnings, a 59% industry net income and earnings per share.
discount.
Bullish Scenario: Barclays values Chevron’s stock at $107,
Bullish Scenario: Stifel Nicolaus projects a $40 share price, suggesting 23% of upside.
implying 46% upside.
Bearish Scenario: Deutsche Bank expects Chevron’s shares
Bearish Scenario: FBR Capital Markets expects Microsoft’s to drop 8% to $80.
stock to rise marginally to $28.
3. Chevron (CVX) is the world’s second-largest energy com- 2. JPMorgan (JPM) is a financial-services company, with
pany. Its rival is Exxon(XOM_). commercial- and investment-banking units.
Number 1
12-Month Sales Growth: 20% 12-Month Sales Growth: -1.7%
12-Month Net Income Growth: 36% 12-Month Net Income Growth: 73%
Quarterly Operating Profit Margin: 12% Quarterly Operating Profit Margin: 44%
Cash Flow Multiple: 5.8 (35% peer discount) Cash Flow Multiple: 31 (52% peer premium)
3-Year Dividend Growth: 7.9% 3-Year Dividend Growth: -48%
Dividend Yield: 3.3% Dividend Yield: 0.5%
30
Payout Ratio: 6% 2011 Catalyst: Coca-Cola has, arguably, the world’s best
2011 Catalyst: In 2010, JPMorgan suffered along with brand, and it’s expanding overseas. Third-quarter volume
other financials. The industry group has been the third-worst jumped 6%, with a 2% gain in North America and a 6%
performing among S&P 500 components, narrowly beating advance overseas. Eurasia and Africa volume climbed 12%.
health care and utility stocks. Pacific volume, including China, expanded 12%. Chinese
volume itself rose 11%.
But an improving credit environment, with fewer foreclosures
and debt defaults, will translate to fewer loss reserves and The beverage business is booming. Coke opened three new
greater profitability in 2010. Divestiture of principal-strategies bottling plants in China during the quarter. Though not cheap
is a concern. relative to beverage peers, Coke is a fundamentally attractive
stock, with a 27% return on equity in the latest quarter and a
Still, at 8.7 times forward earnings, a 27% industry discount, 14% return on assets. Of analysts covering Coke, 85% rec-
JPMorgan is too cheap to pass up. Net charge-offs and delin- ommend buying its shares and 15% advise holding them.
quencies in its card business are rapidly declining. The bank’s
dividend is poised to rebound as the economy gains steam. Bullish Scenario: Stifel Financial forecasts that Coke’s stock
will advance 16% to $75.
Bullish Scenario: Barclays predicts that JPMorgan’s stock will
advance 45% to $60. Bearish Scenario: HSBC values Coke at $64, suggesting a
marginal decline.
Bearish Scenario: FBR Capital Markets expects the shares to
gain 9% to $45.
1. Coca-Cola (KO) sells syrups, concentrates and beverages

worldwide.

Number 1
12-Month Net Income Growth: 21%
Quarterly Operating Profit Margin: 29%
Cash Flow Multiple: 16 (16% peer premium)
Analysts’ Median Target: $69.23
3-Year Dividend Growth: 9%
Dividend Yield: 2.7%
Payout Ratio: 53%
December 12, 2010
NYSE: KO
COCA-COLA CO
BUY HOLD SELL
BUY
TARGET PRICE $78.22
$1.76 2.71% 0.61 $150.5 Billion $49.47-$64.97 $64.83
Sector: Consumer Non-Discretionary Sub-Industry: Soft Drinks Source: S&P

KO BUSINESS DESCRIPTION
The Coca-Cola Company manufactures, distributes, 80
TARGET
TARGET
TARGETPRICE
TARGET PRICE
PRICE$78.22
$78.22
$78.22
and markets nonalcoholic beverage concentrates 75
and syrups worldwide. It principally offers sparkling
70
and still beverages.
65
3 Mo. 1 Yr. 3 Yr (Ann)
55
Price Change 11.21 12.10 0.88
50
GROWTH (%)
45
Last Qtr 12 Mo. 3 Yr CAGR
Revenues 4.74 4.99 5.38 40
Net Income 8.38 20.79 11.66 35
EPS 8.64 20.37 11.57 Rating History
BUY
RETURN ON EQUITY (%)
Volume in Millions
KO Ind Avg S&P 500 200
Q3 2010 27.17 22.26 12.69
Q3 2009 26.20 22.06 2.50 100
Q3 2008 25.38 21.71 10.32
0
2009 2010
P/E COMPARISON COMPUSTAT for Price and Volume, TheStreet.com Ratings, Inc. for Rating History
RECOMMENDATION
We rate COCA-COLA CO (KO) a BUY. This is based on the convergence of positive investment measures,
which should help this stock outperform the majority of stocks that we rate. The company's strengths can be
seen in multiple areas, such as its increase in stock price during the past year, growth in earnings per share,
revenue growth, notable return on equity and expanding profit margins. Although no company is perfect,
currently we do not see any significant weaknesses which are likely to detract from the generally positive
outlook.
19.95 19.40 18.37
KO Ind Avg S&P 500 HIGHLIGHTS
The stock has risen over the past year as investors have generally rewarded the company for its earnings
growth and other positive factors like the ones we have cited in this report. Looking ahead, unless broad
EPS ANALYSIS¹ ($) bear market conditions prevail, we still see more upside potential for this stock, despite the fact that it has
already risen over the past year.
COCA-COLA CO has improved earnings per share by 8.6% in the most recent quarter compared to the same
quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the
past two years. We feel that this trend should continue. During the past fiscal year, COCA-COLA CO increased
its bottom line by earning $2.93 versus $2.49 in the prior year. This year, the market expects an improvement in
earnings ($3.50 versus $2.93).
Q1 0.64
Q2 0.61
Q3 0.81
Q4 0.43
Q1 0.58
Q2 0.88
Q3 0.81
Q4 0.66
Q1 0.69
Q2 1.02
Q3 0.88
Despite its growing revenue, the company underperformed as compared with the industry average of 6.0%.
2008 2009 2010 Since the same quarter one year prior, revenues slightly increased by 4.7%. This growth in revenue appears
to have trickled down to the company's bottom line, improving the earnings per share.
data items. The return on equity has improved slightly when compared to the same quarter one year prior. This can be
construed as a modest strength in the organization. When compared to other companies in the Beverages
industry and the overall market, COCA-COLA CO's return on equity exceeds that of the industry average and
significantly exceeds that of the S&P 500.
The gross profit margin for COCA-COLA CO is rather high; currently it is at 69.20%. It has increased from the
same quarter the previous year. Along with this, the net profit margin of 24.40% is above that of the industry
average.
December 12, 2010
NYSE: KO
COCA-COLA CO
Sector: Consumer Non-Discretionary Soft Drinks Source: S&P
$1.76 2.71% 0.61 $150.5 Billion $49.47-$64.97 $64.83

REVENUE GROWTH AND EBITDA MARGIN* The US beverage industry is broadly divided into alcoholic and non-alcoholic segments. The alcoholic
segment includes beer, wine, and spirits. The non-alcoholic segment includes carbonated soft drinks (CSDs),
fruit beverages, bottled water, milk, sports drinks, ready-to-drink (RTD) tea, and RTD coffee. The industry has
40%
around 4000 manufactures and distributors generating upwards of $70 billion in annual revenue. The industry
KOF
FA
is highly competitive on pricing, packaging, marketing, and developing new products. The two biggest players
VOR
are Coca-Cola (KO) and PepsiCo (PEP), which together hold more than 50% of the market.
AB
LE
PEP The non-alcoholic beverage segment represents 60% of the market. Premium wineries revenue has
registered annual growth of 8% over recent years and energy drink volume continues to surge.
HANS
Faced with limited volume growth in developed markets, high-growth developing markets are increasingly
important to the bottom line. Mergers, acquisitions, and partnerships are on the rise as food and drink brands
look to establish or expand their presence in international markets. PepsiCo and Pepsi Bottling Group Inc.
HEK COT KO
UN
acquired a 75% stake in Russia’s Lebedyansky JSC for around $2.0 billion in March 2008 and Coca-Cola bid
FA
FIZZ DPS $2.3 billion for China Huiyuan Juice Group Ltd. in September 2008.
VO
-10%
R
AB
LE
CCH Health and convenience remain major challenges and play a significant role in shaping product strategies.
-5% 35% Beverages have been in the spotlight over the last five years because of research that links ingredients, such
EBITDA Margin (TTM) as sugars and acids, with prevalent chronic diseases, such as obesity, diabetes, and dental decay. Rising
Companies with higher EBITDA margins and environmental concerns also present a challenge. The production, distribution, and sale of beverages in the
revenue growth rates are outperforming companies United States are subject to the Federal Food, Drug, and Cosmetic Act, the Dietary Supplement Health and
with lower EBITDA margins and revenue growth Education Act of 1994, and the Occupational Safety and Health Act. These acts, various environmental
rates. Companies for this scatter plot have a market statutes, and numerous other federal, state, and local statutes are applicable to the production,
capitalization between $487.9 Million and $150.5 transportation, sale, safety, advertisement, and ingredients. Industry fragmentation also poses a major threat.
Billion. Companies with NA or NM values do not To overcome this, companies are acquiring smaller players or developing independent plants. Coca-Cola’s
appear. Monster distribution will help bottlers realize economies of scale in their direct store distribution system.
Amortization.
PEER GROUP: Beverages
REVENUE GROWTH AND EARNINGS YIELD Recent Market Price/ Net Sales Net Income
40%
KO COCA-COLA CO 64.83 150,537 19.95 32,135.00 7,581.00

AKO.B AKO.A
CCH COCA-COLA HELLENIC BOTTLING 26.58 9,730 17.96 9,049.87 540.90
FA
V
KOF
OR
DPS DR PEPPER SNAPPLE GROUP INC 37.63 8,545 17.67 5,580.00 530.00
AB
COT COTT CORP QUE 8.08 766 11.88 1,664.20 56.10

LE
PEP
FIZZ NATIONAL BEVERAGE CORP 15.19 701 19.99 595.66 35.11
HEK HECKMANN CORP 4.48 488 NM 40.00 -18.40
HANS HANS HANSEN NATURAL CORP 50.10 4,438 21.50 1,276.19 216.25
AKO.B EMBOTELLADORA ANDINA SA 30.67 3,502 18.26 1,792.71 212.04
AKO.A EMBOTELLADORA ANDINA SA 24.60 3,502 14.64 1,792.71 212.04

HEK KO COT
UN
KOF COCA-COLA FEMSA SAB DE CV 79.07 2,142 19.05 8,375.83 766.65

FIZZ
FA
DPS PEP PEPSICO INC 64.72 102,571 16.34 52,980.00 6,389.00

VO
-10%
R
AB
The peer group comparison is based on Major Soft Drinks companies of comparable size.
LE
CCH
-4% 10%
appear.
December 12, 2010
NYSE: KO
COCA-COLA CO
$1.76 2.71% 0.61 $150.5 Billion $49.47-$64.97 $64.83

The Coca-Cola Company manufactures, distributes, and Below is a summary of the major fundamental and technical factors we consider when determining our
markets nonalcoholic beverage concentrates and syrups overall recommendation of KO shares. It is provided in order to give you a deeper understanding of our rating
worldwide. It principally offers sparkling and still methodology as well as to paint a more complete picture of a stock's strengths and weaknesses. It is
beverages. The company's sparkling beverages include important to note, however, that these factors only tell part of the story. To gain an even more comprehensive
nonalcoholic ready-to-drink beverages with carbonation, understanding of our stance on the stock, these factors must be assessed in combination with the stock’s
such as energy drinks, and carbonated waters and valuation. Please refer to our Valuation section on page 5 for further information.
flavored waters. Its still beverages consist of
nonalcoholic beverages without carbonation, including FACTOR SCORE
noncarbonated waters, flavored waters and enhanced
waters, noncarbonated energy drinks, juices and juice Growth out of 5 stars 4.5
drinks, ready-to-drink teas and coffees, and sports drinks. Measures the growth of both the company's income statement and weak strong
The Coca-Cola Company also offers fountain syrups, cash flow. On this factor, KO has a growth score better than 80% of the
syrups, and concentrates, such as flavoring ingredients stocks we rate.
and sweeteners. It markets its nonalcoholic beverages
primarily under the Coca-Cola, Diet Coke, Fanta, and
Sprite names. The company sells its finished beverage
products primarily to distributors, and beverage Measures the historical price movement of the stock. The stock weak strong
concentrates and syrups to bottling and canning performance of this company has beaten 70% of the companies we
operators, distributors, fountain wholesalers, and cover.
fountain retailers. The Coca-Cola Company was founded
in 1886 and is headquartered in Atlanta, Georgia. Efficiency out of 5 stars 5.0
Measures the strength and historic growth of a company's return on weak strong
COCA-COLA CO invested capital. The company has generated more income per dollar of
1 Coca Cola Plz NW capital than 90% of the companies we review.
Atlanta, GA 30313-2499
USA
Phone: 404-676-2121
http://www.coca-cola.com Measures the volatility of the company's stock price historically. The weak strong
Employees: 93000 stock is less volatile than 80% of the stocks we monitor.
Solvency out of 5 stars 5.0

Measures the solvency of the company based on several ratios. The weak strong
company is more solvent than 90% of the companies we analyze.

cash flows.
selecting stocks.
December 12, 2010
NYSE: KO
COCA-COLA CO
$1.76 2.71% 0.61 $150.5 Billion $49.47-$64.97 $64.83

IBES consensus estimates are provided by Thomson Financial COCA-COLA CO's gross profit margin for the third quarter of its fiscal year 2010 is essentially unchanged
when compared to the same period a year ago. The company has grown sales and net income during the
past quarter when compared with the same quarter a year ago, however, it was unable to keep up with the
growth of the average competitor within its industry. COCA-COLA CO has weak liquidity. Currently, the Quick
Ratio is 0.98 which shows a lack of ability to cover short-term cash needs. The company's liquidity has
increased from the same period last year, indicating improving cash flow.
During the same period, stockholders' equity ("net worth") has increased by 16.49% from the same quarter last
0.72 3.50 E 3.84 E year. Overall, the key liquidity measurements indicate that the company is in a position in which financial
Q4 FY10 2010(E) 2011(E) difficulties could develop in the future.
INCOME STATEMENT
Q3 FY10 Q3 FY09
Net Sales ($mil) 8,426.00 8,044.00
EBITDA ($mil) 2,767.00 2,518.00
EBIT ($mil) 2,444.00 2,198.00
Net Income ($mil) 2,055.00 1,896.00
BALANCE SHEET
Q3 FY10 Q3 FY09
Cash & Equiv. ($mil) 13,265.00 9,125.00
Total Assets ($mil) 54,089.00 47,107.00
Total Debt ($mil) 13,393.00 11,214.00
Equity ($mil) 27,906.00 23,955.00
PROFITABILITY
Q3 FY10 Q3 FY09
DEBT
Q3 FY10 Q3 FY09
SHARE DATA
Q3 FY10 Q3 FY09
Shares outstanding (mil) 2,315 2,314
Div / share 0.44 0.41
EPS 0.88 0.81
Avg Daily Volume 9,493,411 9,367,909
December 12, 2010
NYSE: KO
COCA-COLA CO
$1.76 2.71% 0.61 $150.5 Billion $49.47-$64.97 $64.83

Our rating for COCA-COLA CO has not changed BUY. The current P/E ratio indicates a premium compared to an average of 19.40 for the Beverages industry
since 10/25/2005. As of 12/9/2010, the stock was and a value on par with the S&P 500 average of 18.37. Conducting a second comparison, its price-to-book
trading at a price of $64.83 which is .2% below its ratio of 5.38 indicates a significant premium versus the S&P 500 average of 2.21 and a premium versus the
52-week high of $64.97 and 31.0% above its 52-week industry average of 5.12. The price-to-sales ratio is well above both the S&P 500 average and the industry
low of $49.47. average, indicating a premium. Upon assessment of these and other key valuation criteria, COCA-COLA CO
proves to trade at a premium to investment alternatives within the industry.
2 Year Chart
$70
BUY: $44.83
$60 premium discount premium discount
KO 19.95 Peers 19.40 KO 16.35 Peers 14.07
$50 • Average. An average P/E ratio can signify an • Premium. The P/CF ratio, a stock’s price divided by
industry neutral price for a stock and an average the company's cash flow from operations, is useful
$40 growth expectation. for comparing companies with different capital
• KO is trading at a valuation on par with its peers. requirements or financing structures.
2009 • KO is trading at a premium to its peers.

MOST RECENT RATINGS CHANGES KO 16.90 Peers 17.57 KO 1.03 Peers 1.36
Date Price Action From To • Average. An average price-to-projected earnings • Discount. The PEG ratio is the stock’s P/E divided
12/9/08 $44.83 No Change Buy Buy ratio can signify an industry neutral stock price and by the consensus estimate of long-term earnings
Price reflects the closing price as of the date listed, if available average future growth expectations. growth. Faster growth can justify higher price
• KO is trading at a valuation on par with its peers. multiples.
• KO trades at a discount to its peers.
DISTRIBUTION OF THESTREET.COM RATINGS Price/Book 1 2 3 4 5 Earnings Growth 1 2 3 4 5
(as of 12/9/2010) premium discount lower higher
KO 5.38 Peers 5.12 KO 20.37 Peers 50.14
33.27% Buy - We believe that this stock has the • Average. A lower price-to-book ratio makes a stock • Lower. Elevated earnings growth rates can lead to
opportunity to appreciate and produce a total return of more attractive to investors seeking stocks with capital appreciation and justify higher
more than 10% over the next 12 months. lower market values per dollar of equity on the price-to-earnings ratios.
balance sheet. • However, KO is expected to significantly trail its
37.58% Hold - We do not believe this stock offers • KO is trading at a valuation on par with its peers. peers on the basis of its earnings growth rate.
conclusive evidence to warrant the purchase or sale of
shares at this time and that its likelihood of positive total Price/Sales 1 2 3 4 5 Sales Growth 1 2 3 4 5
return is roughly in balance with the risk of loss. premium discount lower higher
KO 4.67 Peers 3.80 KO 4.99 Peers 52.89
29.14% Sell - We believe that this stock is likely to • Premium. In the absence of P/E and P/B multiples, • Lower. A sales growth rate that trails the industry
decline by more than 10% over the next 12 months, with the price-to-sales ratio can display the value implies that a company is losing market share.
the risk involved too great to compensate for any investors are placing on each dollar of sales. • KO significantly trails its peers on the basis of sales
possible returns. • KO is trading at a premium to its industry on this growth
measurement.
TheStreet.com Ratings, Inc. DISCLAIMER:
262 Washington Street, 4th Floor
Boston, MA 02108 The opinions and information contained herein have been obtained or derived from sources believed to be reliable, but
www.thestreet.com TheStreet.com Ratings, Inc. can not guarantee its accuracy and completeness, and that of the opinions based thereon. Data is
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TheStreet.com Ratings, Inc. is a wholly owned subsidiary of TheStreet.com, Inc. which is a publisher and has registered as an
36
All 10 Surprises China has about 23% of the world’s population but only ap-
proximately 7% of the world’s fresh water supply. Moreover,
by Doug Kass China’s water resources are not distributed proportionately;
Real Money Silver the 550 million residents in the more industrialized northern
area of the country are supported by only one-fifth of the fresh
Doug Kass is the general partner of Seabreeze Partners water and the 700 million in the southern region of China have
Long/Short LP and Seabreeze Partners Long/Short Offshore the other 80% of the country’s fresh water supply. The shared
LP. Under no circumstances does this information represent resources of water supply have been a focal point of conflict
a recommendation to buy, sell or hold any security. between China and India since the 1962 Indo-China War.
Surprise No. 1: I expect a series of populist initiatives by the My big surprise is that in early 2011, tension intensifies based
current administration beginning by a frontal assault on mutual on a decision by the Chinese government to materially expand
fund 12b-1 fees. The asset managers -- Franklin Resources the plans for the diversion of the 1,800-mile long Brahmapu-
(BEN), T. Rowe Price (TROW) and Waddell & Reed (WDR) tra River, which hugs the Chinese border before dipping into
-- are exposed, and I am short all three of them. India, from the south back up to the water-deprived northern
China area in an expansion of the Zangmu Dam project,
Surprise No. 2: The Internet becomes the tactical nuke of original construction plans of which were announced earlier
the digital age. Cybercrime likely explodes exponentially as this year. At first, trade sanctions are imposed by India against
the Web is invaded by hackers. A specific target next year will China. Later in the year, the impoverished northeastern India
be the NYSE, and I predict an attack that causes a week-long region is the setting for massive protests aimed at China;
hiatus in trading and an abrupt slowdown in domestic busi- ultimately, groups of Indian rebels, fearful of reduced availabil-
ness activity. ity of fresh water and the likelihood of flooding, actually invade
Southern China in retaliation.
Surprise No. 3: Scarcity of water boosts agricultural prices
and causes a military confrontation between China and India. Surprise No. 4: Food and restaurant companies are among
The continued effect of global warming, the resumption of the worst performers in the S&P 500 Index. This surprise is an
swifter worldwide economic growth in 2011, normal popula- extension of surprise No. 3. Several well-known multinational
tion increases and an accelerated industrialization in emerging food companies and a host of domestic restaurant chains face
markets (and the associated water contamination and pollu- margin and earnings pressures as they are unable to pass on
tion that follows) contribute importantly to more droughts and the violent rise in agricultural costs on to the consumer. Profit
the growing scarcity of water, forcing a continued and almost guidance for 2011 is taken down by Kellogg (K), Kraft (KFT),
Number 1
geometric rise in the price of agricultural commodities (which General Mills (GIS) and many other exposed food companies.
becomes one of the most important economic and stock mar- Publicly traded restaurant chains (Darden (DRI), McDonald’s
ket themes in 2011). Increased scarcity of water and higher (MCD), Yum! Brands (YUM), Brinker (EAT) and Ruby Tuesday
agricultural commodity prices (corn, wheat, beans, etc.) not (RT)) all take a hit owing to the abrupt contraction in profit
only have broad economic consequences, but they become margins as product demand swoons in the face of higher
a destabilizing factor and serve as the basis for a developing prices. As a consequence, food companies and restaurant
powder keg in the relations between China and India. chains are among the worst performers in the S&P next year.
All 10 Surprises • by Doug Kass

37
To do the right thing for our Real Money Silver subscribers, the value to Yahoo is about $1 billion for each 10% of search
I plan to release my new surprises on The Edge in advance of share (40% of 50%).
my Fast Money appearance.
• 40% of AliPay. This is the elephant in the room. Current
So, here you go -- my next two surprises for 2011 which I will AliPay payments are about two thirds of PayPal, but the
be discussing on tonight’s Fast Money show with Melissa and company is growing much faster than PayPal and its market
the gang: potential is far greater. PayPal is currently worth $18 billion
- making AliPay valued at $12 billion. Yahoo!’s 40% is worth
Surprise No. 5: In 2011, Microsoft (MSFT) launches a $5 billion now but will easily be $10 billion in three years.
tender offer for Yahoo! (YHOO) at $21.50 a share. With the
company tee’d up, News Corporation (NWS) follows with a By means of background, on Feb. 1, 2008, Microsoft offered
competing and higher bid. The private equity community joins $31 a share, or $45 billion, to acquire Yahoo! in an unsolicited
the fray. Microsoft ultimately prevails and pays $24 a share for bid that included a combination of stock and cash. At that
Yahoo!. Currently, Yahoo! is universally viewed as a dysfunc- time, Yahoo!’s shares stood at $19 a share, and Microsoft
tional company, and few expect that Microsoft has an interest was trading at $32 a share. (Today Microsoft trades at $27 a
in the company. But a deal could be profitable and advanta- share, and Yahoo! trades at $16 a share.)
geous (more critical mass and immediate exposure to the
rapidly growing Chinese market) to Microsoft: Yahoo! rejected the bid, claiming that it “substantially un-
dervalued” the company and was not in the interest of its
• Microsoft is hemorrhaging cash in its Internet operations (es- shareholders. In January 2009, Carol Bartz replaced Yahoo!
timated $2.5 billion of losses in the last 12 months). Yahoo! cofounder Jerry Yang, and six months later Microsoft and
will immediately contribute $1.25 billion-plus of cash flow. Yahoo! entered into a search joint venture.
(Applying a normal multiple, 6x to 9x creates $8.5 billion of
value to Microsoft from Yahoo!’s current earnings before Surprise No. 6: Vice President Joe Biden and Secretary of
interest, taxes, depreciation and amortization). State Hillary Clinton switch jobs by midyear 2011, 18 months
before the 2012 Presidential election.
• Yahoo! boasts net cash of $3.4 billion.
It is generally recognized that President Obama has been seri-
• Yahoo!’s public holdings total $9.5 billion of value (AliBaba. ously weakened politically, but the situation gets worse early
com and Yahoo! Japan). next year. A sustained and high level of unemployment and a
quiescent housing market fail to revive, forcing the administra-
Number 1
• Yahoo!’s private holdings total $6.0 billion. tion to consider some radical changes in order to survive in
the Presidential election of 2012. (While such a switch is un-
• Yahoo owns 40% of private AliBaba through two assets: conventional, this move can be accomplished as the twenty-
fifth amendment sets out that the majorities in both houses of
• A call option on Chinese search via Microsoft joint venture. Congress would have to confirm Vice President Clinton and
Based on the value of Baidu, if Yahoo gets a 10% share of Secretary of State Biden would only have to be confirmed by
$50 billion Chinese search market the value is $5 billion - the Senate.)

38
The other benefits to the switcheroo: “The first thing we do, let’s kill all the lawyers.”
• Hillary Clinton would have almost a year and a half of experi- -- William Shakespeare, Henry VI, Part 2
ence and credibility in the Vice President’s office.
Increased hostilities between the Republicans and Democrats
• She would be well-prepared to campaign for a Democratic become a challenge to the market and to the economic recov-
ticket. ery next year. As the 2012 election moves closer, President
Obama reverses his seemingly newly minted centrist views, as
• An Obama/Clinton ticket would be viewed by many as un- newly appointed Vice President Hillary Clinton becomes the
beatable. Clinton is a relentless campaigner and she would administration’s pit bull against the Republican opposition.
be a far more effect drawer of votes than Biden. (Consider
how many votes Obama and Clinton combined received in “The day the Fed came into being in 1913 may have been
the 2008 Presidential primary campaign.) the beginning of the end, but the powers it caused took a
long time to become a serious issue and a concern for the
• Clinton will be seen as very capable of deflecting the average Americans.”
women’s vote from Sarah Palin in 2012. -- Ron Paul, “End of the Fed”
• Clinton still likely harbors dreams of the White House. She On the other side of the pew, as Chairman of the Subcommit-
would immediately become the overwhelming favorite to gar- tee on Domestic Monetary Policy, Congressman Ron Paul’s
ner the Democratic Party’s Presidential nomination in 2016. fervent criticism of monetary policy and the lack of transpar-
She will only be 69 years old at that time. ency of the Fed leads to further friction between the parties.
• On experience alone, Clinton would be considered far more “’Refudiate,’ ‘misunderestimate,’ ‘wee-wee’d up.’ English is a
qualified than most of the other Republicans now being con- living language. Shakespeare liked to coin new words, too.
sidered (e.g., Bobby Jindal, Mitt Romney and Tim Pawlenty) Got to celebrate it!’”
-- Sarah Palin
• Fears of former President interference in the White House
have dissipated. Bill Clinton has stayed out of the limelight Sarah Palin, who can see the 2012 Presidential election from
and has been discreet with regard to his private life. her home in Alaska, continues her barbs against the opposi-
tion party and holds a large lead to be her party’s Presidential
Position: Long PIO, PHO, CGW, MSFT and YHOO; short candidate in early 2011, but continued verbal and nonverbal
BEN, TROW, WDR, K, KFT, GIS, DRI, MCD, YUM, EAT blunders and policy errors coupled with an announcement
Number 1
and RT that she has separated from her husband causes Palin to
announce that she will not run on the Republican ticket. Mas-
Surprise No. 7: Partisan politics cuts into business and con- sachusetts’ Mitt Romney, Wisconsin’s Paul Ryan and South
sumer confidence and economic growth in the last half Dakota’s John Thune emerge as the leading Republican Presi-
of 2011. dential candidates by year-end 2011.
The resulting bickering yields little progress on deficit reduc-

39
tion. Nor does the rancor allow for an advancement of much- as structural domestic unemployment issues plague the jobs
needed and focused legislation geared toward reversing the market), and the continued low level of business confidence
continued weak jobs market. (reinforced by increased animosity between the Republicans
and Democrats) exacerbates an already weak jobs market and
The yield on the 10-year U.S. note, despite a stuttering retards capital-spending plans.
economic recovery visible by third quarter 2011, rises to over
4.25%, as the bond vigilantes take control of the markets. The Despite the current unambiguous signs of an improving do-
rate rise serves to put a further dent in the U.S. housing mar- mestic economy, as the year progresses the growing expecta-
ket, which continues to be plagued by an avalanche of unsold tion of consistently improving economic growth and a self-sus-
home inventory into the market as the mortgage putback issue taining recovery is adversely influenced by continued blows to
is slowly resolved. confidence from Washington, D.C., serving to contribute to a
more uneven path of economic growth than the bulls envision.
During the second half of the year, housing stocks crater and
the financial sector’s shares erase the (sector-leading) gains With traditional economic analysis again failing to accurately
made in late 2010 and early 2011. predict the path of economic growth (as it did in 2008-
2009), behavioral economic analysis, linking psychology to
Surprise No. 8: The market moves sideways during 2011. the business cycle, gains popularity. Yale’s Dr. Robert Shiller
While the general consensus forecast is for a rise of about and former Fed Chairman Dr. Alan Greenspan write books on
10% to 15% for the S&P 500 in 2011, the index ends up behavioral economics that become the No. 1 and No. 2 books
exactly where it closes the year in 2010. A flat year is a fairly on the New York Times nonfiction best-seller list.
rare occurrence. Since 1900, there have only been six times
when the averages recorded a year-over-year price change of The sideways market of 2011 will prove to be a good year
less than 3% (plus or minus); 2011 will mark the seventh time. for opportunistic traders but a poor one for the buy-and-hold
crowd as neither the bulls nor the bears will be rejoicing next
Neither a borrower nor a lender be; Christmas.
For loan oft loses both itself and friend,
And borrowing dulls the edge of husbandry. Surprise No. 9: The Price of Gold Plummets By Over $250/
-- William Shakespeare, Hamlet oz. in a Four Week Period in 2011 and Is Among The Worst
Asset Classes of the New Year. The Commodity Experiences
With a return profile reminiscent of the sideways markets of Wild Volatility in Price (On 5-10 occasions the price has a
1953 (-0.80%), 1960 (-0.74%) and 1994 (+1.19%), the se- $75/$100 daily price change) - Briefly Trading Under $1050/
Number 1
nior averages also exhibit one of the least volatile and narrow oz During the Year- And Ending the Year Between $1100-
price ranges ever. The S&P 500 never falls below 1150 and $1200/oz.
never rises above 1300, as the tension between the cyclical
tailwind of monetary ease (and the cyclical economic recov- By means of background the price of gold has risen from
ery it brings) are offset by numerous nontraditional secular about $250/oz eleven years ago to about $1370/oz today -
challenges (e.g., fiscal imbalances in the U.S. and Europe; a compounding at over a 16% rate annually. As a result, invest-
persistently high unemployment rate that fails to decline much, ing in gold has become the sine qua non for hedge hoggers

40
and other institutional investors - and in due course gold has God doesn’t exist. The believer can’t convince the atheist, and
become a favored investment among individual investors. the atheist can’t convince the believer. It’s incredibly simple:
My surprise is that next year the price of Gold becomes the either you believe in God or you don’t. Well, that’s exactly the
modern day equivalent of Hans Christian Andersen’s The way I think it is with gold. Either you’re a believer or you’re not.
Emperor’s New Clothes, a short tale about two weavers who
promise an Emperor a new suit of clothes that are invisible to What we do know is that gold is valued in an auction market
those unfit for their positions, stupid, or incompetent. When based on the price where buyers (“the believers”) and sellers
the Emperor parades before his subjects in his new clothes, a (“the atheists”) meet.
child cries out, “But he isn’t wearing anything at all!”
With an inability to gauge gold’s intrinsic value - wide price
With a finite supply, gold has historically been viewed as a swings remain possible. And wide price swings are what I
tangible asset that increases in value during uncertain (and expect in 2011.
inflationary) times. No wonder it has become such a desirable
asset class following the Great Decession and credit crisis of There are numerous catalysts that can contribute to a surpris-
2008-09. Gold bugs remind the non believers that for thou- ing weakness in the price of gold in the upcoming year. But
sands of years gold has been a store of value and, given the most likely, a large drop in the price of gold might simply be
current state of the world’s financial system, gold is the best the result in a swing in sentiment that can be induced by a
house in a bad neighborhood of asset classes. number of factors (or maybe even sentiment that the emperor
(and gold investors/traders aren’t wearing anything at all!) :
But, gold, if not THE, then among the most crowded trade, is
viewed now as a commodity for all seasons - during inflation, • Investors might grow increasingly comfortable in a self sus-
deflation, low or high economic growth. taining, inflation-free worldwide economic recovery.
• Interest rates could ratchet higher, providing competition for
There is a body of thought that gold holds little value - that it non-income producing assets (like gold).
is only a shiny metal (with limited industrial value ) that throws • The world stock markets could surprise to the upside - re-
off no income or cash flow (and, as such, its value can not be ducing investors’ interest in real assets (like gold).
determined or analyzed with any precision based on interest • The U.S. government might (astonishingly) address the
rates or any other measure). Those non believers compare the deficit.
dizzying price of gold to the unsustainable rise in comic book
prices (and other collectibles) in the early 1990s, internet In addition, there are numerous cautionary and anecdotal
stock prices in early 2000 or to home prices in 2006-07. signs that are reminiscent of prior unsustainable asset class
Number 1
cycles or bubbles:
Here is how Oaktree Management’s Howard Marks draws
a colorful parallel between gold and religion, over the past (1) Macro Funds, like those managed by John Paulsen have
weekend in his always thoughtful commentary on the markets: outsized weightings in gold or even have established dedi-
cated gold hedge funds.
My view is simple and starts with the observation that gold is
a lot like religion. No one can prove that God exists . . . or that (2) On Okeechobee Blvd. in West Palm Beach, hand held

41
placards that used to advertise condominiums and single fam- of the Largest Hedge Funds and Mutual Funds and To Several
ily for sale (during the housing bubble) have been replaced by West Coast-based Technology Companies.
hand held signs advertising “We Buy Gold,” On this well This Surprise is an extension of Surprise #13 from last year’s
populated street, gold exchange stores have replaced the om- 20 Surprises for 2010. Insider trading charges expand.
nipresent realtor and cell phone stores of the last speculative The SEC alleges, in a broad-ranging sting, the existence of
cycle. (WE BUY GOLD, SELLYOUR UNWANTED GOLD, extensive exchange of information that goes well beyond
GET CASH NOW FOR YOUR GOLD are names of a few of Galleon’s Silicon Valley executive connections. Several well-
the retail outlets). known long-only mutual funds are implicated in the sting,
which reveals that they have consistently received privileged
(3) Gold is even being dispensed in an ATM machine in the information from some of the largest public companies over
Town Center Mall in Boca Raton, Florida and at a hotel in Abu the past decade.
Dhabi.
The next SEC target is directed at some of the world’s largest
(4) The company that dispenses the gold is PMX Communi- tech companies - including one of the leading manufacturers
ties - a Boca Raton Florida based company listed on the pink of flash memory cards, one of the largest contract manu-
sheets. According to a recent release the ATM gold dispens- facturers and a big producer of integrated circuits. A high
ing machines now operate in twelve locations around the profile very senior executive in one of these companies is
world. implicated and is forced out of his position.

(5) My spam emails normally consist of viagra and penis With the depth of the investigations moving towards the cen-
enlargement solicitations - but, over the last few months it has ter of some of the largest hedge and mutual funds, many of
been substantially populated by offers to buy gold. the more active traders are temporarily in “lock down”mode as
the hedge fund community’s trading activity freezes up.
My guess is, that among my twenty Surprises for 2011, none
receives such an uproar and negative response than the New York Stock Exchange volume and price volatility dries up.
surprising “death” of gold as an asset class. (As such, I have (See Surprise No. 8- The Sideways Market).
purposely made gold the 2011 Surprise #9 -- as a reference
to the loop of “number nine” featured in the Beatles White The Fox Business Network closes because of lack of interest.
Album Revolution recording which fueled rumors about Paul
McCartney’s death after it was reported that it sounded like CNBC reduces its live broadcasting schedule and resorts to
“turn me on, dead man” when played backwards). paid programming before 6AM and after 8PM.
Number 1

In and of itself, an adverse response to this surprise (which I Particularly hard hit is Greenwich, Connecticut- the home of
expect) might provide evidence that a sharp drop in the price many of the biggest hedge hoggers who are alleged to have
of gold will not be a surprise at all. committed insider trading violations. The residential real estate
market in Greenwich collapses. Ken Langone personally un-
Surprise No.10: The SEC’s Insider Trading Case Expands derwrites The Robin Hood Foundation in 2011.
Dramatically - Reaching Far Further Into the Canyons of Some

42
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Case for Investing in U.S. in 2011

13 Stock Picks for 2011

10 Best Dow Dividend Stocks for 2011

Cantor Fitzgerald’s Pado, though, points out that U.S. corpo-

“That’s what has been lacking in the valuation of the market,”

Banyan Partners’ Pavlik says the dollar will continue to rally

“You’ll see an initial negative reaction in the overall market

Meanwhile, Dearborn Partners’ Nolte expects that economi-

“The next bubble is rumored to be in farms,” he says. “But

Nolte goes a step further and suggests the impact of politics

Sector: Industrials Sub-Industry: Aerospace & Defense Source: S&P

RETURN ON EQUITY (%) Volume in Millions

13.89 16.67 18.37 HIGHLIGHTS

PEER GROUP ANALYSIS INDUSTRY ANALYSIS

PCP meeting strategic objectives.

PEER GROUP: Aerospace & Defense

BA BOEING CO 64.61 47,397 13.89 65,693.00 3,411.00

COL ROCKWELL COLLINS INC 57.90 9,082 16.45 4,673.00 561.00

GR GD GENERAL DYNAMICS CORP 68.89 26,023 10.60 31,763.00 2,509.00

PCP PRECISION CASTPARTS CORP 140.41 20,025 21.24 5,780.60 960.10

GD NOC NORTHROP GRUMMAN CORP 63.61 18,573 9.52 35,075.00 2,090.00

PCP RTN RAYTHEON CO 45.87 16,722 9.66 25,281.00 1,885.00

COMPANY DESCRIPTION STOCK-AT-A-GLANCE

BOEING CO Income out of 5 stars 4.5

Consensus EPS Estimates² ($) FINANCIAL ANALYSIS

RATINGS HISTORY VALUATION

Price/Projected Earnings 1 2 3 4 5 Price to Earnings/Growth 1 2 3 4 5

CLIFFS NATURAL RESOURCES INC

Sector: Materials Sub-Industry: Steel Source: S&P

STOCK PERFORMANCE (%) 50

P/E COMPARISON RECOMMENDATION

CLIFFS NATURAL RESOURCES INC

PEER GROUP ANALYSIS INDUSTRY ANALYSIS

exporting materials worth over $26 billion annually.

PEER GROUP: Metals & Mining

CLIFFS NATURAL RESOURCES INC

COMPANY DESCRIPTION STOCK-AT-A-GLANCE

Efficiency out of 5 stars 5.0

Price volatility out of 5 stars 2.0

Solvency out of 5 stars 4.0

Income out of 5 stars 3.5

THESTREET.COM RATINGS RESEARCH METHODOLOGY

CLIFFS NATURAL RESOURCES INC

Consensus EPS Estimates² ($) FINANCIAL ANALYSIS

CLIFFS NATURAL RESOURCES INC

RATINGS HISTORY VALUATION

Price/Projected Earnings 1 2 3 4 5 Price to Earnings/Growth 1 2 3 4 5

RATINGS DEFINITIONS & Price/Book 1 2 3 4 5 Earnings Growth 1 2 3 4 5

13 Stock Picks for 2011 • by Glen Bradford • 12/13/10 - 06:00 AM EST

I’d take half of it, and buy up entire companies at these

Disclosure: Glen and his investors hold long positions in all

13 Stock Picks for 2011 • by Glen Bradford • 12/13/10 - 06:00 AM EST

TELESTONE TECHNOLOGIES CORP

Sector: Technology Sub-Industry: Communications Equipment Source: S&P

RETURN ON EQUITY (%) Volume in Millions

TELESTONE TECHNOLOGIES CORP

PEER GROUP ANALYSIS INDUSTRY ANALYSIS

TSTC PEER GROUP: Communications Equipment

TSTC TELESTONE TECHNOLOGIES CO 10.95 134 6.48 103.81 17.82

CNTF CHINA TECHFAITH WIRELESS-ADR 3.88 170 9.24 255.12 21.56

CNTF OPXT OPNEXT INC 1.60 144 NM 318.09 -67.57