7 Big Ideas for 2007 - MS

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M O R G A N S T A N L E Y R E S E A R C H

February 1, 2007

Morgan Stanley does and seeks to do business with

companies covered in its research reports. As a result,investors should be aware that the firm may have a conflictof interest that could affect the objectivity of this report.Investors should consider this report as only a single factor in making their investment decision. [Customers of MorganStanley in the U.S. can receive independent, third-partyresearch on the company covered in this report, at no costto them, where such research is available. Customers canaccess this independent research atwww.morganstanley.com/equityresearch or can call 800-

624-2063 to request a copy of this research.]For analyst certification and other importantdisclosures, refer to Disclosure Section.

Henry H. McVeyChief US Investment [email protected]

Seven “Big Ideas” for 2007

US Portfolio Strategy

Research

North America

S a l e s

f o r c e U p

d a t e

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8/2/2019 7 Big Ideas for 2007 - MS



February 1, 2007US Portfolio Strategy

4Henry H. McVey (212) 761-7201 [email protected]

#2: Financials Exposed to International Growth, Demographics, and Capital Markets#3: Network Ubiquity

We Are in a Bull Market for Risk Transfer

Source: BIS, Morgan Stanley Research

Global Derivatives Markets:

Notional Amounts Oustanding ($Trillions)

-

50

100

150

200

250

300

350

400

450

500

1998 1999 2000 2001 2002 2003 2004 2005 2006

Exchange-Traded

OTC

Worldwide Handset Shipment(Millions)

162 168 173 180 187 190147 153 160 166 171 179

501647 734 799 849 901

0

200

400

600

8001,000

1,200

1,400

2005 2006e 2007e 2008e 2009e 2010e

Emerging Markets

North America

Western Europe

Network Ubiquity: Everyone’s Getting Connected

e = Morgan Stanley Research estimates. Source: Morgan Stanley Research

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#4: Pension Protection Act of 2006#5: Defendable American Brands With International Growth Opportunities

Raising Our Outlook for Defined Contribution Flows

e = Morgan Stanley Research estimates. Source: Dept of Labor — EBSA PrivatePension Plan Bulletin, Morgan Stanley Research

Talk About Tough Comparisons!

Note: China PCE converted at 1/25/07 exchange rate of 7.77 Renminbi/$.Source: Company data, China National Bureau of Statistics, Haver, MorganStanley Research

DC Net Inflows ($Billions): Morgan Stanley Forecast

11

5

3032

3735

33

15

1211

12

16

2006e 2007e 2008e 2009e 2010e 2011e 2012e

New

Old

Consumer Spending Comparison, 2005 ($Bn)

312

913

Wal-Mart Global Sales China Personal Consumption

Expenditures

Wal-Mart global sales

equivalent to more than

1/3 of China Total PCE!

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#6: Moderating Litigation Risk#7: The Long Cycle in Commodities

Amid Moderating Litigation Risk, Some SleepingGiants Are Beginning to Stir

Source: Factset, Morgan Stanley Research

S&P 100 Relative Performance vs. S&P 500

(12/31/95 = 0%)

1/30/07-2.5%

3/31/06

-4.6%

3/31/00

14.3%

-10%

-5%

0%

5%

10%

15%

95 96 97 98 99 00 01 02 03 04 05 06

Emerging Market Growth ProvidesLong-Term Opportunity

AUT

BEL

BRA

CAN

CHN

FRA

GER

IND

IRN

ITL

JPN

MEXRUS

ZAR

KOR

ESP

TKY

UKR

UK

US

0.00

0.01

0.02

0.03

0.04

0.05

0.06

0.07

0.08

0.09

0.10

0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000

PPP GDP per capita 2005 (US$)

O i l c o n s u m p t i o n p

e r u r b a n p e r s o n 2 0 0 5

( b a r r e l s p e r d a y )

Source: British Petroleum, EIU, Datastream, Morgan Stanley Research

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8/2/2019 7 Big Ideas for 2007 - MS





For the S&P 500 universe except the market cap chart.Source: Factset, Morgan Stanley Research.

Moderate Dividend Yielders Did Best

High Beta Outpaced Low Beta In January High EPS Revisions Continue To Work

Low Quality Stocks Are Outperforming

Moderate Growth Expectations Did Best

24.5

22.1

16.0

9.3

6.25.5

2.7 2.1 1.40.2

Highest

Earnings

Revisions

2nd Quinti le 3rd Quinti le 4th Quinti le Lowest

Earnings

Revisions

Total Return: 12/31/05 - 12/31/06

Total Return: 12/31/06 - 1/31/07

12.9

16.8 16.5 16.3 16.1

2.7 2.4 2.8 2.41.6

Highest 24

Mo Beta

2nd Quintile 3rd Quintile 4th Quintile Lowest 24

Mo Beta

Total Return: 12/31/05 - 12/31/06

Total Return: 12/31/06 - 1/31/07

10.1

14.317.1 16.6

12.9

24.5

12.7

2.3 2.1 2.92.0 2.7

1.43.2

A+ A A- B+ B B- C

S&P Common Stock Rating

Total Return: 12/31/05 - 12/31/06

Total Return: 12/31/06 - 1/31/0722.7

13.6

16.8

13.814.7

1.9 2.13.2 2.8

2.0

Highest Div

Yield

2nd Quinti le 3rd Quinti le 4th Quinti le No Div Yield

Total Return: 12/31/05 - 12/31/06

Total Return: 12/31/06 - 1/31/07

10.8

17.2

13.6

18.3 17.8

2.71.2

3.72.5

1.7

Highest

FY2/FY1

EPS Growth

2nd Quint ile 3rd Quint ile 4th Quint ile Lowest

FY2/FY1

EPS Growth

Total Return: 12/31/05 - 12/31/06

Total Return: 12/31/06 - 1/31/07

Small/Mid Caps Outperform In January

15.12

10.3

15.8

18.5

3.6

1.5 1.12.06

S&P Small Caps S&P Mid Caps S&P 500 S&P 100

Total Return: 12/31/05 - 12/31/06

Total Return: 12/31/06 - 1/31/07

Performance:What’s Working

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Other Important Disclosures

disseminates in the UK research that it has prepared, and approves solely for the purposes of section 21 of the Financial Services andMarkets Act 2000, research which has been prepared by any of its affiliates. Private U.K. investors should obtain the advice of their MorganStanley & Co. International Limited representative about the investments concerned. In Australia, this report, and any access to it, isintended only for "wholesale clients" within the meaning of the Australian Corporations Act.The trademarks and service marks contained herein are the property of their respective owners. Third-party data providers make no

warranties or representations of any kind relating to the accuracy, completeness, or timeliness of the data they provide and shall not haveliability for any damages of any kind relating to such data. The Global Industry Classification Standard ("GICS") was developed by and isthe exclusive property of MSCI and S&P.This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Morgan Stanley.Morgan Stanley research is disseminated and available primarily electronically, and, in some cases, in printed form.Additional information on recommended securities is available on request.

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7 Big Ideas for 2007 - MS

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