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Transcript of Goldman 7 nov 2011
The Goldman Sachs Group, Inc.
Goldman Sachs Research
Where to Invest NowRecord profits but cautious outlookRecord profits but cautious outlook
November 7, 2011
David J. Kostin Chief US Equity Strategist Global ECS Research -- US Portfolio Strategy
The Goldman Sachs Group, Inc. 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 conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
F R AC tifi ti th d f th t t Oth i t t di l f ll th R AC tifi ti t / h/h d ht l
Goldman, Sachs & Co. 212-902-6781 [email protected]
For Reg AC certification, see the end of the text. Other important disclosures follow the Reg AC certification, or go to www.gs.com/research/hedge.html.
Analysts employed by non-US affiliates are not registered/qualified as research analysts with FINRA in the U.S.
US equity market outlookRecord profits but cautious outlook
Index: We forecast 5% return to our 12-month S&P 500 target of 1300S % % f• Economy: Faltering US economy growing by 1.8% in 2011 and 1.6% in 2012; low inflation; low interest rates.
• Earnings: We forecast operating EPS of $96 in 2011 and $98 in 2012 (bottom-up consensus is $98 and $108).
• Valuation: 1200 target in Dec. 2011 reflects forward P/E ratio of 12.2X. DDM supports our 12-month target of 1300.
Risks: Economy Margins and PolicyRisks: Economy, Margins, and Policy• Economy: US data remains weak. 9.3% jobless rate forecast for year-end 2012.
• Margins: We forecast net margins will peak in 2011 and begin to decline in 2012. Consensus expects margins to rise.
• Policy: In US, budget negotiations. In Europe, sovereign debt crisis. In Asia, policy responses to inflation.
Sectors: Stay near benchmark given macro uncertainty and transitioning business cycle • Overweight: Information Technology, Consumer Staples, and Telecom Services
• Underweight: Consumer Discretionary, Industrials, and Materials
Themes: High “Quality” stocks; Dividend yield and growth; and Defensives1. High “Quality”. 50 stocks with safe balance sheets, stable sales growth, and reliable earnings (<GSTHQUAL>).
2. Dividend Growth. Low rates suggest stocks with high dividend yields and growth will outperform (<GSTHDIVG>).
3 D f i 11 f 24 S&P 500 i d t i 7 f 10 t h b l b t (<GSSBDEFS>)
Goldman Sachs Global ECS Research 2
3. Defensives. 11 of 24 S&P 500 industry groups spanning 7 of 10 sectors have below average betas (<GSSBDEFS>).
Note: The ability to trade baskets will depend upon market conditions, including liquidity and borrow constraints at the time of trade.
Goldman Sachs S&P 500 price targetsS&P 500 EPS to exceed prior peak and reach $96 in 2011
1101700
24-Mar-00 P k 1527
09-Oct-07 New Peak = 1565
2011 EPS abovei k $98
80
90
100
1300
1500S&P 500
Price
Peak = 1527 prior peak$96
130012-moTarget
$98
$84
60
70
80
1100
1300
S&P 500 EP
&P
500
Pric
e
Sep-00 Peak EPS = $57 Mar-04
Jun-07 Peak EPS = $91
1250
Target
Current
6-moTarget
12002011
Year-EndTarget
40
50
700
900
PSS&
S&P 500EPS
Mar 04 New Peak EPS SPX
1261
20
30
500
700
c-96
c-97
c-98
c-99
c-00
c-01
c-02
c-03
c-04
c-05
c-06
c-07
c-08
c-09
c-10
c-11
c-12
c-13
c-14
Goldman SachsForecasts09-Mar-09
Low = 678
Goldman Sachs Global ECS Research 3
Source: Compustat, IDC via Factset, FirstCall and Goldman Sachs Global ECS Research. As of November 3, 2011.
Dec
Dec
Dec
Dec
Dec
Dec
Dec
Dec
Dec
Dec
Dec
Dec
Dec
Dec
Dec
Dec
Dec
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Dec
Our US equity market forecasts and key assumptions
1. Global economic growth will equal 3.8% in 2011 and 3.5% in 2012. Our economists forecast a moderate recession in the Eurozone with negative real GDP growth in 4Q 2011forecast a moderate recession in the Eurozone with negative real GDP growth in 4Q 2011 and 1Q 2012. Our outlook remains robust in Asia with China expanding by 9.1% in 2011 and 8.6% in 2012.
2. US economic expansion will average 1.8% in 2011 and 1.6% in 2012. We estimate a 100 p gbp shift in US GDP growth equates to about $5/share of S&P 500 EPS. Unemployment will remain high and end 2012 at 9.3%.
3. Inflation in 2012 as measured by core CPI and personal consumption expenditures (PCE) will remain contained at 1.7% and 1.5%, respectively.
4. Earnings per share (EPS) will grow by 14% in 2011 to $96 but expand by only 3% to $98 in 2012. Bottom-up consensus S&P EPS estimates are $98 and $108 respectively but have b i d d tl l d i th t t th Th j it f th $10been revised modestly lower during the past two months. The majority of the $10 gap between top-down and bottom-up EPS forecasts stems from different margin outlooks.
5. Profit margins will decline by 30 bp to 8.6% in 2012 from a peak of 8.9% in 2011. We estimate a 50 bp shift in profit margin equates to a $5/share reduction in earnings Bottom up
Goldman Sachs Global ECS Research 4
estimate a 50 bp shift in profit margin equates to a $5/share reduction in earnings. Bottom-up analysts forecast margins will continue to expand and reach 9.5% in 2012.
Our US equity market forecasts and key assumptions
(continued)( )
6. Valuation in the current uncertain economic environment is challenging. Our dividend discount model (DDM) anchors our 12-month target of 1300. Our uncertainty-based P/E multiple modelmodel (DDM) anchors our 12 month target of 1300. Our uncertainty based P/E multiple model suggests downside fair value of 9.4x bottom-up EPS, or roughly 1020.
7. Defensive sectors should outperform given the weak economic backdrop. We recommend investors overweight Consumer Staples, Telecom Services, and Information Technology; and Underweight g p gy gConsumer Discretionary, Industrials, and Materials.
8. Recommendation: Goldman Sachs US Portfolio Strategy baskets (Bloomberg ticker: <GSTH>)
High Quality. High geopolitical and policy uncertainty, slow economic growth, and low bond yields favors stocks with safe balance sheets, stable revenue growth, and reliable earnings. Buy our sector-neutral basket of 50 high quality stocks. (<GSTHQUAL>).
Dividend Growth. Low rates suggest stocks with high dividend yields and growth will outperformDividend Growth. Low rates suggest stocks with high dividend yields and growth will outperform (<GSTHDIVG>).
Defensives. 11 of 24 S&P 500 industry groups spanning 7 of 10 sectors have below average betas to the US economy (<GSSBDEFS>).
Goldman Sachs Global ECS Research 5
Goldman Sachs 3- and 12-month forecasts
ForecastsTotal Total
Units Current 3m Return 12m ReturnUnits Current 3m Return 12m ReturnEquities
TOPIX level 739 800 9 % 870 20 %Asia Pac Ex-Japan level 412 450 10 480 20DJStoxx 600 level 242 255 6 275 18S&P 500 level 1261 1200 (4) 1300 5
Ten Year RatesEuroland % 1.9 2.0 0 % 2.3 (1)%US % 2.1 2.3 (1) 2.5 (2)Japan % 1 0 1 1 (1) 1 3 (2)Japan % 1.0 1.1 (1) 1.3 (2)
CurrenciesSterling / US Dollar £/$ 1.60 1.53 (4)% 1.76 10 %Euro / US Dollar EUR/$ 1.37 1.38 0 1.48 8US Dollar / Yen $/¥ 78 77 (1) 74 (5)
EnergyWTI Crude Oil $/bbl 94.07 96.5 3 % 116 23 %NYMEX Nat. Gas $/mmBtu 3.78 4.50 19 4.25 12Brent Crude Oil $/bbl 111 112.5 2 122.5 11
Metals
Goldman Sachs Global ECS Research 6
Source: FactSet and Goldman Sachs Global ECS Research. As of November 3, 2011.
MetalsLME Copper $/mt 7915 8000 1 % 9500 20 %London Gold $/troy oz 1765 1645 (7) 1860 5
Goldman Sachs Economics forecasts GDP growth
of 3.5% for World, 1.6% for US, and 7.2% for BRICs, ,
2011E and 2012E GDP Growth by country2011E and 2012E GDP Growth by country
2011E 2012EGoldman Goldman GS vs.
S h S h C CSachs Sachs Consensus Consensus
China 9.1 % 8.6 8.5 % 10 bp
Japan (0.6) 2.2 2.2 0
UK 1 0 1 3 1 5 (20)UK 1.0 1.3 1.5 (20)
BRICs 7.4 7.2 7.4 (20)
World 3.8 3.5 3.8 (30)
USA 1.8 1.6 2.0 (40)
Russia 4.2 3.5 4.0 (50)
Euroland 1.6 0.1 0.6 (50)
Brazil 3.3 3.0 3.9 (90)
Goldman Sachs Global ECS Research 7
Source: Blue Chip Economic Indicators, Consensus Economics and Goldman Sachs Global ECS Research. As of November 4, 2011.
India 7.0 7.4 8.4 (100)
Goldman Sachs forecasts US real GDP growth of
1.8% in 2011 and 1.6% in 2012
Goldman Sachs US Economics forecastsGS Economics and consensus quarterly GDP forecasts
% Annual Change2010A 2011E 2012E
Real GDP 3.0% 1.8% 1.6%Consumer Spending 2.0 2.3 1.5Total Fixed Investment 2.6 6.9 5.3
Business Fixed Investment 4 4 9 0 5 73.5 %
4.0 %
4.5 %
5.0 %
aliz
ed %
)
Business Fixed Investment 4.4 9.0 5.7Residential Investment (4.3) (1.7) 3.7
Federal Government Spending 4.5 (1.6) (0.9)Exports of Goods and Services 11.3 6.6 1.4Imports of Goods and Services 12.5 4.8 1.2
InflationProducer Price Index 4.2 6.1 2.8
3.9 3.8
2.5 2.3 2.5 2.5 1.5 %
2.0 %
2.5 %
3.0 %
3.5 %
Gro
wth
(qoq
ann
ua Goldman SachsEconomics
Consensus
Headline CPI 1.6 3.2 2.2Core CPI 1.0 1.7 1.7Core PCE 1.4 1.5 1.5
Unemployment Rate 9.6 9.0 9.2Fed Funds Rate 0.2 0.1 0.12-year Treasury Rate 0.6 0.3 0.510-year Treasury Rate 3 3 2 3 2 8
2.3
0.4
1.3 2.0
0.5
1.5 2.0
0.0 %
0.5 %
1.0 %
Q1A Q2A Q3A Q4A Q1A Q2A Q3A Q4E Q1E Q2E Q3E Q4E
GDP
G
2010 2011 2012 10 year Treasury Rate 3.3 2.3 2.82010 2011 2012
Goldman Sachs Global ECS Research 8
Source: Bloomberg and Goldman Sachs Global ECS Research. As of November 4, 2011.
Sputtering labor market means unemployment rate
will remain above 9% through year-end 2012g y
U l t t tl b 9%W k i t ll th Unemployment rate currently above 9%Weak private payrolls growth
10
11
12
Unemployment RateGoldman
Sachs
Forecasts
200
400
usan
ds)
Private Payrolls+2.6 Million Cumulative
6
7
8
9
ploy
men
t Rat
e (%
)
Consensus
(400)
(200)
0
rivat
e Pa
yrol
ls (
Thou
2
3
4
5
90 92 94 96 98 00 02 04 06 08 10 12 14
Unem
p(1,000)
(800)
(600)
0 2 3 4 5 6 7 8 9 0 2
Chan
ge in
P
-8.8 Million Cumulative
Jan-
9
Jan-
9
Jan-
9
Jan-
9
Jan-
9
Jan-
0
Jan-
0
Jan-
0
Jan-
0
Jan-
0
Jan-
1
Jan-
1
Jan-
1
2000
2001
200 2
2003
2004
2005
2006
2007
2008
2009
2010
2011
201 2
Goldman Sachs Global ECS Research 9
Source: Department of Labor, Bureau of Labor Statistics, and Goldman Sachs Global ECS Research. As of November 2, 2011.
Consumer confidence back to March 2009 low;
ISM level now 50.8, down from 61.4 peak in February, p y
Weak consumer sentiment consistent ISM above 50Weak consumer sentiment consistent
with contraction in final sales
110
1207.5 Percent change, year ago Index
ISM above 50
(indicating expansion) for 27 months
90100
80
90
100
110
0 0
2.5
5.0
60
70
80
25
50
75
US ISM
yoy
chan
ge
ISM level, rhs
50
60
70
80
(5.0)
(2.5)
0.0
Real Domestic Final Sales (lhs)40
50
(25)
0
level
US
ISM
y
ISM momentum(yoy change, lhs)
40
50
(7.5)
1985
1988
1991
1994
1997
2000
2003
2006
2009
2012
Real Domestic Final Sales (lhs)Universityof Michigan Consumer Sentiment (rhs) 30(50)
Jan-
08
Apr
-08
Jul-0
8
Oct
-08
Jan-
09
Apr
-09
Jul-0
9
Oct
-09
Jan-
10
Apr
-10
Jul-1
0
Oct
-10
Jan-
11
Apr
-11
Jul-1
1
Oct
-11
Jan-
12
Goldman Sachs Global ECS Research 10
Source: ISM, BEA, US Treasury, University of Michigan and Goldman Sachs Global ECS Research. As of November 1, 2011.
US housing prices are 32% below peak
S&P/Case-Shiller 20-City Composite Home-Price Index Current Δ from Δ fromCity Level High Low
180
200
220207
City Level High LowLas Vegas 95 60 % 0 %Phoenix 99 57 0Miami 140 50 1Tampa 128 47 0Detroit 72 44 7San Francisco 132 40 9
140
160
180
32% from High
141
141
San Diego 152 40 5Los Angeles 167 39 4Minneapolis 113 35 2Composite 20 141 32 0Chicago 116 32 2Seattle 135 29 0
100
120
n-00
n-01
n-02
n-03
n-04
n-05
n-06
n-07
n-08
n-09
n-10
n-11
n-12
141Portland 133 28 0Washington DC 184 27 8Atlanta 100 27 0New York 167 23 2Cleveland 99 20 0Charlotte 111 17 1Boston 153 15 3
Jan
Jan
Jan
Jan
Jan
Jan
Jan
Jan
Jan
Jan
Jan
Jan
Jan Boston 153 15 3
Denver 123 12 0Dallas 114 9 0
Goldman Sachs Global ECS Research 11
Source: Standard & Poor’s, Fiserve, and Goldman Sachs Global ECS Research. As of October 25, 2011.
Another “jobless” US economic recovery
11
12
11
12
N f E l tRecoveries:
8
9
10
11
8
9
10
11
on (p
ct p
ts) 1954 - 1982
200119912009 Current Cycle
Nonfarm EmploymentRecoveries:
4
5
6
7
4
5
6
7
end
of re
cces
i y
End of Recession(June 2009 in
0
1
2
3
0
1
2
3
Cha
nge
from
e (June 2009 in current cycle)
(2)
(1)
(2)
(1)
-12 -6 0 +6 +12 +18 +24 +30 +36
C
Months from End of Recession
Goldman Sachs Global ECS Research 12
Source: Bureau of Labor and Statistics and Goldman Sachs Global ECS Research. As of October 31, 2011.
Stagnation: 93 episodes of long-lasting (6+ years) of
sub-par GDP per capita growth during last 150 yearsp p p g g y
100%
22
5662
70%
80%
90%
OECD1950-2010
10+
2862
40%
50%
60%OECD
8-9
43 26
3120%
30%
40%
Non-OECD
1900-19506-7
11
31
0%
10%
… By duration (years) … By epoch … By region
OECD
1800-1900
Goldman Sachs Global ECS Research 13
Source: Barro-UrsuaMacro data and Goldman Sachs Global ECS Research. As of September 28, 2011.
Recent GDP per capita growth trend in US is
currently following the typical stagnation pathy g yp g p
120t-1=100
110
Mean + 1SD
Japan
100
Japan(1992-2003)
Mean
90US
(2008-12E)
MeanStagnation Path
Mean - 1SD
80
90 (2008-12E)
StagnationBegins
Goldman Sachs Global ECS Research 14
Source: Barro-Ursua data and Goldman Sachs Global ECS Research. As of November 4, 2011.
80t-5 t-4 t-3 t-2 t-1 t t+1 t+2 t+3 t+4 t+5 t+6 t+7 t+8 t+9
Path of real total equity returns during 43 economic
stagnations in OECD countries since 1950g
US path (2008-12E) is currently following Japan experience (1993-2003) t-1=100
160
180
Mean Equity
Mean Stagnation
+ 1SD
120
140
q yReturn (+9.4%)
Mean StagnationReturn (+7.1%)
80
100US
(2008-12E)
60
80
StagnationBegins
Japan(1992-2003)
Mean Stagnation
- 1SD
Goldman Sachs Global ECS Research 15
Source: Barro-Ursua data and Goldman Sachs Global ECS Research. As of October 19, 2011.
40t-5 t-4 t-3 t-2 t-1 t t+1 t+2 t+3 t+4 t+5 t+6 t+7 t+8 t+9
( )1SD
S&P 500 sales, margins and EPS forecasts Goldman Sachs top-down vs. consensus bottom-upp p
Top-down Bottom-UpGS Forecast ConsensusGS Forecast Consensus
2010 2011E 2012E 2011E 2012ES&P 500 ex-Financials and Utilities
Sales Per Share $785 $861 $903 $870 $916Y/Y growth 10 % 5 % 11 % 5 %Y/Y growth 10 % 5 % 11 % 5 %Y/Y growth ex- Energy 7 4 8 5
Profit Margin 8.5% 8.9% 8.6% 9.0% 9.5%
EPS $67 $77 $78 $79 $87Y/Y growth 15% 1% 17% 10%
Utilities EPS $3 $3 $3 $3 $3Financials EPS 14 16 17 16 18
S&P 500 EPS $84 $96 $98 $98 $108Y/Y growth 14% 3% 17% 11%
Goldman Sachs Global ECS Research 16
Source: Compustat, FirstCall, I/B/E/S, and Goldman Sachs Global ECS Research. As of October 31, 2011.
Decomposition of S&P 500 earnings estimates
We forecast operating EPS of $96 in 2011 and $98 in 2012
Contribution to EPS Annual earnings growth ratesGS Top-Down EPS Bottom-Up GS Top-Down Bottom-Up
2010A 2011E 2012E 2011E 2012E 2011E 2012E 2011E 2012E
Information Technology $15 $18 $18 $18 $21 19 % 1 % 19 % 15 %
Energ 10 14 14 15 15 35 3 40 5Energy 10 14 14 15 15 35 3 40 5
Health Care 11 12 12 12 13 10 4 11 9
Consumer Staples 9 9 10 9 10 7 6 6 8
Industrials 8 9 9 10 11 11 1 16 14
Consumer Discretionary 8 8 8 9 10 2 (6) 10 9
Utilities 3 3 3 3 3 2 (1) 2 (1)
Materials 3 3 3 4 4 27 (15) 34 11
Telecom Services 2 2 3 2 2 (2) 17 (2) 8Telecom Services 2 2 3 2 2 (2) 17 (2) 8
S&P 500 ex-Financials 70 80 81 82 90 14 1 17 10
Financials 14 16 17 16 18 15 10 18 15
S&P 500 Operating EPS $84 $96 $98 $98 $108 14 % 3 % 17 % 11 %
Goldman Sachs Global ECS Research 17
Numbers may not add due to rounding.
Source: Compustat, FirstCall, and Goldman Sachs Global ECS Research. As of October 27, 2011.
Goldman Sachs top-down and consensus bottom-up
2011 and 2012 EPS estimates
115
110
Shar
e
$106
Consensus2012E EPS
$108
100
105
arni
ngs
Per S
Goldman Sachs2012E EPS
$106
$102$104
Consensus2011E EPS $98
95
100
S&P
500
E
Goldman Sachs2011E EPS
$96
2011E EPS$98 $98
90
31-D
ec
31-J
an
28-F
eb
31-M
ar
30-A
pr
31-M
ay
30-J
un
31-J
ul
31-A
ug
30-S
ep
31-O
ct
30-N
ov
31-D
ec
2011E EPS
Goldman Sachs Global ECS Research 18
Source: Compustat, FirstCall, and Goldman Sachs Global ECS Research. As of October 27, 2011.
3Q results: 13% year/year sales growth, 37 bp margin
expansion, and 18% EPS growth; Apple is key driver!p , g ; pp y
3QE 2011 Bottom-up ConsensusEPS Sales MarginEPS Sales Margin
$/Share Growth $/Share Growth Level ChangeEnergy $4.12 65 % $44 33 % 9.4 % 182 bpMaterials 0.83 25 10 13 8.0 76Financials 4.41 22 NM NM NM NMIndustrials 2 56 16 31 10 8 4 46Industrials 2.56 16 31 10 8.4 46Consumer Discretionary 2.23 12 32 6 6.9 34Info Tech 4.36 11 27 11 16.0 5Consumer Staples 2.38 6 37 11 6.5 (27)Utilities 1.12 4 NM NM NM NMTelecom Services 0.58 4 8 1 6.9 18Telecom Services 0.58 4 8 1 6.9 18Health Care 2.85 2 32 9 8.9 (66)S&P 500 $25.45 18 %
ex. Financials and Utilities 19.92 18 $221 13 % 9.0 % 37 bp
Apple (APPL) $0.73 53 % $3 38 % 23.4 % 223 bppp ( ) $ $ p
Excluding Apple
S&P 500 $24.72 17 %ex. Financials and Utilities 19.19 17 $218 13 % 8.8 % 31 bp
Info Tech 3 64 6 24 8 15 0 (37)
Goldman Sachs Global ECS Research 19
Source: Compustat, FirstCall, I/B/E/S, Bloomberg, and Goldman Sachs Global ECS Research. As of November 4, 2011.
Info Tech 3.64 6 24 8 15.0 (37)
Goldman Sachs 2012 US GDP growth forecast
relative to consensus
Distribution of 2012 US GDP forecasts10
2012 US GDP F t
8
ts
2012 US GDP Forecastsn=51 Consensus
2.0%
6
r of F
orec
ast
2
4
Num
ber Goldman
Sachs1.6%
00.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8 2.0 2.2 2.4 2.6 2.8 3.0 3.2
Goldman Sachs Global ECS Research 20Source: Blue Chip Economic Indicators, and Goldman Sachs Global ECS Research. Consensus estimates as of October 10, 2011.
2012 GDP Growth (%)
Sensitivity of 2012 S&P 500 earnings estimate to
US GDP growth (100 bp ≈ $5/share)g ( p $ )
Sensitivity of 2012 EPS forecast toUS GDP growth
2012 US GDP2012 US GDP(1.4)% (0.4)% 0.6 % 1.6 % 2.6 % 3.6 %(3)% (2)% (1)% 0 1% 2%
3.3 % 83 88 93 98 103 108
P 2.8 84 89 93 98 103 1082.3 84 89 93 98 103 1081.8 84 89 94 98 103 1081 3 84 89 94 98 103 1081 U
S G
DP
1.3 84 89 94 98 103 1080.8 84 89 94 98 103 1080.3 84 89 93 98 103 108
2011
Goldman Sachs Global ECS Research 21
Source: Goldman Sachs Global ECS Research. As of November 4, 2011.
We forecast margins will peak in 2011 and decline in
2012 while consensus expects margins will keep risingp g p g
S&P 500 net profit margins
11%
9%
10%
11%
S&P 500 Net Profit Margin(trailing four quarters)
Bottom-up ConsensusForecast
2012
8 6
9.5
7%
8%8.9 8.6
5%
6%Goldman Sachs
Portfolio Strategy
5.9
4 7
3%
4%
c-79
c-81
c-83
c-85
c-87
c-89
c-91
c-93
c-95
c-97
c-99
c-01
c-03
c-05
c-07
c-09
c-11
c-13
c-15
Forecast3.8
4.7
Goldman Sachs Global ECS Research 22
Source: Compustat and Goldman Sachs Global ECS Research. As of October 27, 2011.
Dec
Dec
Dec
Dec
Dec
Dec
Dec
Dec
Dec
Dec
Dec
Dec
Dec
Dec
Dec
Dec
Dec
Dec
Dec
Sensitivity of 2012 S&P 500 earnings estimate to
sales and margin assumptions (50 bp ≈ $5/share)g p ( p $ )
Sensitivity of 2012 EPS forecast toSensitivity of 2012 EPS forecast tosales growth and margin
2012 Profit Margin
6.6 % 7.1 % 7.6 % 8.1 % 8.6 % 9.1 % 9.6 % 10.1 % 10.6 %
7.9 % 82 87 91 96 101 105 110 115 1196.9 81 86 91 95 100 104 109 114 1185 9 81 85 90 95 99 104 108 113 117ow
th
5.9 81 85 90 95 99 104 108 113 1174.9 80 85 89 94 98 103 107 112 1163.9 80 84 89 93 98 102 107 111 1162.9 79 84 88 92 97 101 106 110 115
12 S
ales
Gro
1.9 79 83 87 92 96 101 105 109 1140.9 78 82 87 91 95 100 104 108 113
201
Goldman Sachs Global ECS Research 23
Source: Goldman Sachs Global ECS Research. As of October 31, 2011.
Decomposition of S&P 500 net margin estimates
We forecast 2012 margin contraction in six sectorsg
Net Margin Annual margin expansionNet Margin Annual margin expansionGS Top-Down Margin Bottom-up GS Top-Down Bottom-Up
2011E 2012E 2011E 2012E 2011E 2012E 2011E 2012E
Telecom Services 6.8 % 7.9 % 6.6 % 6.9 % (7)bp 110 bp (27)bp 25 bp
Health Care 9.4 9.5 9.4 10.2 27 11 26 76
Consumer Staples 6.4 6.4 6.4 6.6 (3) (3) (11) 29
Industrials 7.9 7.7 8.0 8.6 25 (20) 37 57
Consumer Discretionary 6.4 5.9 6.9 7.1 (15) (50) 29 22
Information Technology 16.7 16.2 16.7 17.7 87 (55) 92 92
Energy 8.8 8.2 9.0 8.8 83 (60) 106 (20)
Materials 8.7 7.3 8.8 9.2 125 (145) 135 42
S&P 500 Net Margin 8.9 % 8.6 % 9.0 % 9.5 % 41 bp (31)bp 51 bp 42 bpS&P 500 Net Margin 8.9 % 8.6 % 9.0 % 9.5 % 41 bp (31)bp 51 bp 42 bp
Goldman Sachs Global ECS Research 24
Source: Compustat, FirstCall, I/B/E/S and Goldman Sachs Global ECS Research. As of October 31, 2011.
.
Information Technology & Consumer Discretionary
margins are particularly elevated relative to historyg p y y
InformationTechnology net profit margin Consumer Discretionary net profit marginInformation Technology net profit margin Consumer Discretionary net profit margin
6%
7%
8%
9%
Consumer DiscretionaryNet Profit Margin
Bottom-up ConsensusForecast
7.2 2012
14%
16%
18%
20%
Info TechNet Profit Margin
Bottom-up ConsensusForecast
16.2
17.8 2012
%
3%
4%
5%
6% 5.9
6%
8%
10%
12%
Goldman Sachs
0%
1%
2%
Dec
-79
Dec
-84
Dec
-89
Dec
-94
Dec
-99
Dec
-04
Dec
-09
Dec
-14
Dec
-19
Goldman SachsPortfolio Strategy
Forecast0%
2%
4%
Dec
-79
Dec
-84
Dec
-89
Dec
-94
Dec
-99
Dec
-04
Dec
-09
Dec
-14
Goldman SachsPortfolio Strategy
Forecast
D D D D D D D D DD D D D D D D D
Goldman Sachs Global ECS Research 25
Source: Compustat, I/B/E/S, FirstCall and Goldman Sachs Global ECS Research.
Five approaches to S&P 500 fair value P/E multiple
Implied Year-End 2011 Fair ValueP/E Price
Methodology Multiple Level UpsideMethodology Multiple Level Upside
US Portfolio Strategy DDM 12.2X 1200 (5)
Uncertainty-based Model 9.4 1020 (19)
Top-down P/E Regression 13.1 1420 13
Fed Model 14.3 1540 22
Cyclically Adjusted P/E 16 7 1250 (1)Cyclically Adjusted P/E 16.7 1250 (1)
Goldman Sachs Global ECS Research 26
Source: Goldman Sachs Global ECS Research. As of November 3, 2011.
We believe the sharp October rally reflected a drop
in the cost of equity rather than better fundamentals q y
S&P 500 cost of equity = ERP + 10-yearTreasury yield Sensitivity of P/E to cost of equity and inflationS&P 500 cost of equity = ERP + 10-year Treasury yield Sensitivity of P/E to cost of equity and inflation
2011 Year-End Fair Value
2011 Cost of Equity1,200 8.2 % 8.3 % 8.4 % 8.5 % 8.6 % 8.7 % 8.8 % 8.9 % 9.0 %
1.5 % 1253 1222 1192 1163 1135 1108 1083 1058 1033
9.0
9.2
Cost of Equity 9.0%
1.6 1281 1249 1218 1188 1160 1132 1105 1079 1055
1.7 1310 1277 1245 1214 1185 1156 1129 1102 1076
1.8 1341 1306 1273 1241 1211 1181 1153 1125 1099
1.9 1372 1336 1302 1269 1238 1207 1178 1149 1122
2.0 1405 1368 1332 1298 1266 1234 1204 1174 1146
2.1 1439 1400 1364 1328 1294 1262 1230 1200 1171
2 2 1474 1434 1396 1360 1324 1291 1258 1227 1196m c
ore
infla
tion
8.4
8.6
8.8
8.4%2.2 1474 1434 1396 1360 1324 1291 1258 1227 1196
2.3 1510 1469 1430 1392 1355 1320 1287 1254 1223
2.4 1548 1506 1465 1425 1388 1351 1316 1283 1251
2.5 1588 1543 1501 1460 1421 1383 1347 1312 1279
2.6 1629 1583 1539 1496 1456 1417 1379 1343 1309
2.7 1671 1624 1578 1534 1492 1451 1412 1375 1339Lo
ng-te
rm
8.0
8.2
30-J
un
31-J
ul
31-A
ug
30-S
ep
31-O
ct
30-N
ov
Goldman Sachs Global ECS Research 27
Note: We estimate the equity risk premium (ERP) using our DDM framework to model expected future cash flows.
We solve for the cost of equity that implies the market is at ‘fair value’ and then deduct the 10-year US Treasury.
Source: IDC via FactSet, and Goldman Sachs Global ECS Research. As of October 27, 2011.
P/E multiple based on uncertainty metricsHigh uncertainty represents a headwind for valuationg y p
Uncertainty metrics explain Current uncertainty range is
actual P/E multiple
22
24
ate23
25
27
Actual P/E
wider than normal
16
18
20
500
forw
ard
P/E
estim
a
15
17
19
21
S&P
500
P/E
(NTM
)
Predicted P/E
10
12
14
S&P
5
95% conf idence range
Uncertainty-based P/E estimate8.3X
9.4X
10.5X
9.4
11.8
9
11
13
15
r-square = 0.56
8
Jan-
92
Jan-
94
Jan-
96
Jan-
98
Jan-
00
Jan-
02
Jan-
04
Jan-
06
Jan-
08
Jan-
10
Jan-
12
Jan-
14
7
Jan-
92
Jan-
94
Jan-
96
Jan-
98
Jan-
00
Jan-
02
Jan-
04
Jan-
06
Jan-
08
Jan-
10
Jan-
12
Jan-
14
Goldman Sachs Global ECS Research 28
Source: Goldman Sachs Global ECS Research. As of October 10, 2011.
S&P 500 currently trades near the 80-year average
cyclically-adjusted operating P/E ratio of 16.7xy y j p g
45
50
C
35
40
45
P/E
Current
Cyclically AdjustedS&P 500 P/E Ratio
(10-year average trailing EPS)
20
25
30
cally
-Adj
uste
d P Current
(31-Oct)
Operating17.2x
As Reported80 year
avg = 17 6x
As Reported21.2x
10
15
20
Cyc
lic
17.2xavg = 17.6x
9-Mar-09
Operating 80 year
avg = 16 7x
0
5
1929
1934
1939
1944
1949
1954
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
2020
2025
16-Aug-826.2x
19325.1x
9-Mar-099.9x
avg 16.7x
Goldman Sachs Global ECS Research 29
Note: Traditional Shiller series uses As Reported EPS. GS series uses Operating EPS when available (1988 – Present).
Source: Compustat, Robert Shiller and Goldman Sachs Global ECS Research. As of October 31, 2011.
Strongest balance sheets in history as non-Financial
firms hold $1.2 trillion in cash equal to 11% of assets$ q
13%S&P 500 Cash / Assets Cash to Assets
10%
11%
12%S&P 500 Cash / Assets
(ex-Financials)11.1% Oct-11
8%
9%
10%
h / A
sset
s
5%
6%
7%
% C
ash
3%
4%
5%
8 2 6 0 4 8 2 6 0 4
Recession
Goldman Sachs Global ECS Research 30
Source: Compustat and Goldman Sachs Global ECS Research. As October 31, 2011.
1978
1982
1986
1990
1994
1998
2002
2006
2010
2014
Households own 54% and Pension Funds own 17% of
US equities; ETFs now own more than Hedge Fundsq ; g
100%
70%
80%
90%
Households 33%
Share ofUS Corporate Equity Market
54%
50%
60% Mutual Funds 21%
20%
30%
40% Pension Funds 8%
Government Retirement Funds 8%
International Investors 13%
17%
0%
10%
1945
1948
1951
1954
1957
1960
1963
1966
1969
1972
1975
1978
1981
1984
1987
1990
1993
1996
1999
2002
2005
2008
2011
ETFs 4%Hedge Funds 3%
Other 9%
Goldman Sachs Global ECS Research 31
Source: Federal Reserve, Lionshare via FactSet, and Goldman Sachs Global ECS Research.
Global oil demand growth outpacing supply;
Our 2012 Brent forecast is 23% above futures market
Oil demand growth vs non-OPEC supply growth Our forecast is 23% above futures marketOil demand growth vs. non-OPEC supply growth
2 53.0 3.5 4.0
s y/
y) Demand
Our forecast is 23% above futures market
130
140
150
Brent Crude Dec-12E
$125GS Forecast
0.5 1.0 1.5 2.0 2.5
gro
wth
(ba
rrel
s
100
110
120
$/Ba
rrel
$125
$102
Futures
(1.5)(1.0)(0.5)0.0
002
003
004
005
006
007
008
009
010
011 2E 3E 4E 5E
Ann
ual
Non-OPEC supply
60
70
80
90
20 20 20 20 20 20 20 20 20 20 2012
2013
2014
2015 60
Jan-
10
Apr
-10
Jul-1
0
Oct
-10
Jan-
11
Apr
-11
Jul-1
1
Oct
-11
Jan-
12
Apr
-12
Jul-1
2
Oct
-12
Jan-
13
Apr
-13
Goldman Sachs Global ECS Research 32
Source: Bloomberg, Compustat, and Goldman Sachs Global ECS Research.
Commodity inflation in Industrial Metals and Energy We forecast Brent will average $120/barrel in 2012
Price Change Forecast Prices Forecast Price ChangesUnits 19-Oct-11 y/y 3m 6m 12m 3m 6m 12m
Industrial Metals (average change) (15)% 7 % 14 % 24 %LME Copper $/mt 7210 (13) 8000 9000 9500 11 25 32 LME Copper $/mt 7210 (13) 8000 9000 9500 11 25 32
LME Zinc $/mt 1838 (22) 2050 2200 2400 12 20 31 LME Aluminum $/mt 2182 (7) 2300 2400 2650 5 10 21 LME Nickel $/mt 18800 (20) 18500 19000 21000 (2) 1 12
Energy (average change) 22 % 10 % 15 % 23 % UK NBP Nat. Gas p/th 63 35 66 66 88 5 5 39p WTI Crude Oil $/bbl 86 7 97 107 116 12 24 35 NYMEX Nat. Gas $/mmBtu 3.59 2 4.50 4.25 4.25 25 19 19 Brent Crude Oil $/bbl 108 34 113 120 123 4 11 13 RBOB Gasoline $/gal 2.67 30 2.80 3.12 2.99 5 17 12
Precious Metals (average change) 29 % (7)% (2)% 5 % London Gold $/troy oz 1647 23 1645 1730 1860 (0) 5 13 London Silver $/troy oz 32.0 35 27.5 28.9 31.1 (14) (10) (3)
Agriculture (average change) 8 % 2 % (0)% (4)% CBOT Soybean cent/bu 1225 4 1260 1300 1300 3 6 6 CME Lean Hog cent/lb 90 32 95 95 95 5 5 5
NYBOT Cocoa $/mt 2603 (5) 2700 2700 2700 4 4 4 NYBOT Cocoa $/mt 2603 (5) 2700 2700 2700 4 4 4 NYBOT Cotton cent/lb 100 (10) 100 100 100 0 0 0 CME Live Cattle cent/lb 121 22 120 130 120 (1) 7 (1) CBOT Wheat cent/bu 620 (8) 640 650 600 3 5 (3) NYBOT Sugar cent/lb 27 (5) 28 24 24 4 (11) (11) CBOT Corn cent/bu 639 17 615 615 550 (4) (4) (14)
Goldman Sachs Global ECS Research 33
Source: FactSet and Goldman Sachs Global ECS Research. As of October 19, 2011.
NYBOT Coffee cent/lb 236 24 235 200 175 (0) (15) (26)
Overall Average: 11 % 3 % 7 % 12 %
US Portfolio Strategy recommended sector
weightingsg g
Sector Weightings
Total Goldman Sachs Current GS GSReturn Recommended S&P 500 Overweight / Alpha
Sectors YTD Sector Weightings Weight Underweight YTDInformation Technology 5 % 20 % 200 bp (3)bpC St l 8 11 200 0OverweightConsumer Staples 8 11 200 0Telecom Services 1 3 100 (3)
Financials (14) 14 0 (5)Energy 4 13 0 6
Overweight
NeutralHealth Care 8 11 0 (10)Utilities 15 4 0 (23)
Materials (8) 4 (100) 3Industrials (3) 11 (200) (3)
Neutral
UnderweightIndustrials (3) 11 (200) (3)Consumer Discretionary 5 11 (200) (6)
S&P 500 1 % 100 % 0 bp (45)bp
Underweight
Goldman Sachs Global ECS Research 34
Sector weightings last rebalanced on September 14, 2011.
Source: FactSet and Goldman Sachs Global ECS Research. As of October 31, 2011.
Large-cap core mutual funds sector distributions
35%
40%
Average Fund WeightS&P WeightGoldman Sachs Weighting
20%
25%
30%
g g
75th %ile
5%
10%
15%
75th %ile
25th %ile
-10%
-5%
0%
Information Technology
Consumer Staples
Telecom Services Financials Energy Health Care Utilities Materials
Consumer Discretionary Industrials
S&P Weight 19.7 11.1 3.0 14.0 12.3 11.5 3.7 3.6 10.7 10.610%
Average Mutual Fund Weight 19.1 10.9 2.2 12.4 12.3 13.0 1.9 4.4 12.3 11.5
Goldman Sachs Weighting 21.7 13.1 4.0 14.0 12.3 11.5 3.7 2.6 8.7 8.6
Goldman Sachs vs S&P 500Overweight/(Underweight) 200 bp 200 bp 100 bp 0 bp 0 bp 0 bp 0 bp (100) bp (200) bp (200) bp
Goldman Sachs Global ECS Research 35Source: Lionshares, Lipper, and Goldman Sachs Global ECS Research. As of October 31, 2011.
Percent difference OW/(UW) 10 % 18 % 33 % 0 % 0 % 0 % 0 % (28)% (19)% (19)%
Overweight / Underweight
Sector absolute valuation and historical relative
valuation versus S&P 500
Aggregate valuation metrics for S&P 500 and sectors Standard deviation vs 10-year history (Z-Score)Aggregate valuation metrics for S&P 500 and sectors Standard deviation vs. 10-year history (Z-Score)
EV/ Sales
EV/ EBITDA
Price/ Book
FCF Yield
PEG Ratio
NTM P/E
S&P 500 1.4x 7.4x 2.1x 6.9 % 1.0x 12.1xTelecommunication Services 1.8 6.0 1.8 9.6 2.3 17.3C Di ti 1 3 7 5 3 0 6 3 0 9 14 4
EV/ Sales
EV/ EBITDA
Price/ Book
FCF Yield P/E
PEG Ratio
Median Z-Score
S&P 500 (1.0) (1.6) (1.3) (1.6) (1.6) (1.8) (1.6)Financials NM NM (1.6) NM (0.8) (0.9) (0.9)Health Care (1 4) (0 8) (0 9) (0 9) (0 6) 2 6 (0 9)Consumer Discretionary 1.3 7.5 3.0 6.3 0.9 14.4
Consumer Staples 1.2 9.3 3.4 5.6 1.5 14.4Utilities NM 7.8 1.6 2.7 4.3 14.2Industrials 1.5 9.1 2.6 6.9 0.8 12.6Information Technology 2.1 7.8 3.5 7.9 0.9 12.3Materials 1.3 6.8 2.5 6.2 1.1 12.1
Health Care (1.4) (0.8) (0.9) (0.9) (0.6) 2.6 (0.9)Information Technology (0.3) (1.1) 0.9 (0.8) (1.1) (0.6) (0.7)Energy (0.3) (0.2) 0.1 (0.3) 0.7 (0.6) (0.2)Materials 0.4 (0.4) 0.9 0.6 0.1 0.1 0.2Consumer Discretionary 2.6 0.6 2.5 0.1 0.0 (0.5) 0.4Industrials (1.2) 0.4 1.3 1.4 0.6 (1.9) 0.5
Health Care 1.2 7.5 2.4 8.5 1.3 11.2Energy 1.0 5.2 2.0 6.4 0.8 10.5Financials NM NM 1.0 NM 0.9 10.0
Telecommunication Services (0.3) 1.8 1.0 0.3 3.7 1.4 1.2Utilities NM 1.4 0.6 (0.1) 1.7 4.6 1.4Consumer Staples 2.0 2.0 (0.2) 2.0 1.6 2.0 2.0
Goldman Sachs Global ECS Research 36
Based on bottom-up consensus valuation, as of November 3, 2011.
Source: Compustat, FirstCall, via FactSet, and Goldman Sachs Global ECS Research.
S&P 500 foreign revenues by region and sectorNon-US sales account for 31% of S&P 500 revenues
Revenues by region for the S&P 500 2010 S&P 500 foreign revenues by sectorRevenues by region for the S&P 500 2010 S&P 500 foreign revenues by sector
Other12%
Other EMEA7%
ForeignRevenues ($ Billions) Sales
Sector Total Foreign ExposureInformation Technology $897 $513 57 %7%
Asia & Pacific ex. Japan
5%
Western Europe3%
Information Technology $897 $513 57 %Materials 319 153 48Energy 1,233 553 45Industrials 1,014 388 38Consumer Staples 1,411 390 28Consumer Discretionary 1,201 306 25Financials 1,253 268 21
Other Americas2%
Japan1%
South America1%
U.S.69%
Financials 1,253 268 21Health Care 1,102 219 20Utilities 336 17 5Telecom Services 296 6 2
S&P 500 (sales weighted) $9,061 $2,812 31 %
Goldman Sachs Global ECS Research 37
Source: Company 10-K filings, FactSet, and Goldman Sachs Global ECS Research.
Sector, intra-sector, and stock return correlations
establish record high in 2011g
1.0
0.7
0.8
0.9
1.0
on
Average sector correlation 0.91
0.72
0.4
0.5
0.6
age
Cor
rela
ti
0.1
0.2
0.3
Aver
a
Average stock correlation0.0
Dec
-89
Dec
-90
Dec
-91
Dec
-92
Dec
-93
Dec
-94
Dec
-95
Dec
-96
Dec
-97
Dec
-98
Dec
-99
Dec
-00
Dec
-01
Dec
-02
Dec
-03
Dec
-04
Dec
-05
Dec
-06
Dec
-07
Dec
-08
Dec
-09
Dec
-10
Dec
-11
Dec
-12
Dec
-13
g
Goldman Sachs Global ECS Research 38
Source: Goldman Sachs Global ECS Research. As of October 27, 2011.
In October, 2/3 of S&P 500 returns fell between
3% and 23% creating an opportunity set of 20% g pp y
50
pp)
S&P 500 1-Month
35
40
45
in R
etur
ns (
p S&P 500 1-Month Return Dispersion
20
25
30
iatio
n Sp
read
Since 1980 opportunity set averages 17 pp
5
10
15
Stan
dard
Dev
0
5
Dec
-80
Dec
-82
Dec
-84
Dec
-86
Dec
-88
Dec
-90
Dec
-92
Dec
-94
Dec
-96
Dec
-98
Dec
-00
Dec
-02
Dec
-04
Dec
-06
Dec
-08
Dec
-10
Dec
-12
+/-1
S
Goldman Sachs Global ECS Research 39
Source: Compustat, IDC via FactSet, and Goldman Sachs Global ECS Research. As of October 31, 2011.
2011 YTD distribution of hedge fund and mutual
fund performance p
1314 15
Avg MF: 2%
S&P 500:0%
10 11 12 13 -2%
M l
2011 YTD as of 21-Oct
67 8 9
% o
f Fun
ds
Mutual Funds
(SPX = 1238)
3 4 5 6 %
Avg HF:2%
Hedge Funds
0 1 2
< 24 20 16 12 8 4 0 4 8 12 16 >20
-2%
Goldman Sachs Global ECS Research 40
Source: Compustat, Lipper, FactSet, Goldman Sachs Asset Management, and Goldman Sachs Global ECS Research. As of October 21, 2011.
.
<-24 -20 -16 -12 -8 -4 0 4 8 12 16 >202011 YTD Return (%)
Goldman Sachs US Portfolio Strategy BasketsBloomberg <GSTH>g
Bloomberg<GSTH2>
Bloomberg<GSTH1>
Thematic Baskets Sector Baskets
<GSTH2>Cyclicals
GSSBCYCL
DefensivesGSSBDEFS
Global
MacroeconomicGSTHBETAGSTHINTLGSTHAINTGSTHBRIC
GSTHWEUR
GlobalGSSBGLBL
DomesticGSSBDOMS
Global CyclicalsGSSBGCYC
FundamentalGSTHQUALGSTHREVGGSTHGROEGSTHOPHIGSTHOPLOGSTHSBALGSTHWBAL
GSSBGCYC
Domestic CyclicalGSSBDCYC
Global DefensiveGSSBGDEF
D ti D f i
GSTHWBAL
Hedge FundGSTHHVIPGSTHHFHIGSTHHFSL
Valuation
Permission to our GS Portfolio Strategy Baskets
To receive access to the Goldman Sachs US Portfolio Strategy <GSTH> Bloomberg page,
please follow the directions below:
1. Please go to your Bloomberg terminal and type IAM <go>.
2 Take a screen shot of the page
Domestic DefensiveGSSBDDEF
ValuationGSTHDIVGGSTHSHRPGSTHSVLUGSTHAVLUGSTHGARP
Goldman Sachs Global ECS Research 41
Source: Bloomberg and Goldman Sachs Research.
2. Take a screen shot of the page.
3. Send the attachment and an email to your Goldman Sachs salesperson requesting access to
the US Portfolio Strategy Bloomberg <GSTH> page .
US Portfolio Strategy current thematic investment
recommendations
Investment Recommendation (<Bloomberg Ticker>)
High "Quality" Stocks
Stocks with strong balance sheets, stable sales growth, stable earnings, stable prices, high ROE, and large equity capitalization should outperform <GSTHQUAL>.
High DividendGrowth
Low interest rates suggest stocks with high dividend yields and growth will outperform <GSTHDIVG>.
Defensives 11 of 24 S&P 500 industry groups spanning 7 of 10 sectors have below averageDefensives 11 of 24 S&P 500 industry groups spanning 7 of 10 sectors have below average betas to the US economy <GSSBDEFS>.
Goldman Sachs Global ECS Research 42Source: Goldman Sachs Global ECS Research.
Our recommended US Portfolio Strategy baskets:
High Quality, Dividend Growth, Defensives
Goldman Sachs Global ECS Research 43
Bold indicates overlap between baskets.
(1) The exhibit shows the 23 companies with greater than 1% weight in the 222-constituent Defensives Basket (Bloomberg ticker <GSSBDEFS>.
Source: Bloomberg and Goldman Sachs Global ECS Research.
US Portfolio Strategy thematic basket performance
(see Bloomberg <GSTH>)( g )
High Quality <GSTHQUAL>
160
180 Indexed Performance
100
120
140
Quality Basket
40
60
80 an
-07
Jul-0
7
an-0
8
Jul-0
8
an-0
9
Jul-0
9
an-1
0
Jul-1
0
an-1
1
Jul-1
1
an-1
2
S&P 500
Dividend Growth <GSTHDIVG> Defensives <GSSBDEFS>
Ja J Ja J Ja J Ja J Ja J Ja
115
120
110
115
100
105
110
Relative PerformanceLong GSTHDIVG /
Short SPX100
105
Relative PerformanceLong GSSBDEFS /
Goldman Sachs Global ECS Research 44Source: FactSet and Goldman Sachs Global ECS Research. As of October 31, 2011.
95
Dec
-06
Jun-
07
Dec
-07
Jun-
08
Dec
-08
Jun-
09
Dec
-09
Jun-
10
Dec
-10
Jun-
11
Dec
-11
Short SPX
95
Apr-
10
Jul-1
0
Oct
-10
Jan-
11
Apr-
11
Jul-1
1
Oct
-11
Jan-
12
Long GSSBDEFS /Short SPX
High Quality basket
<GSTHQUAL>
10-Year HistoricalMarket Altman EBIT Sales 5th %ile Average Quality
Company Ticker Cap ($B) Z-Score (a) Downside Sortino (b) Drawdown ROE Score (c)Consumer Discretionary
TJX Companies Inc. TJX $21 7.0 3.6 236 (9)% 43 % 89Coach, Inc. COH 16 13.1 4.0 73 (9) 43 87
10-Year HistoricalMarket Altman EBIT Sales 5th %ile Average Quality
Company Ticker Cap ($B) Z-Score (a) Downside Sortino (b) Drawdown ROE Score (c)Industrials
C.H. Robinson Worldwide CHRW $12 15.8 0.0 3 (9)% 29 % 88General Dynamics GD 21 2.9 2.5 10 (9) 20 86U it d T h l i UTX 65 3 1 2 0 2 (5) 23 84Yum! Brands, Inc YUM 23 4.5 1.2 4 (8) 97 86
Amazon.com AMZN 80 9.1 3.7 MAX (17) 47 83NIKE Inc. NKE 34 8.5 1.4 4 (8) 22 82
Basket Median $23 8.5 4 38 (9)% 43 % 86Sector Median 8 3.5 11 2 (11) 17 50
Consumer StaplesPepsiCo Inc. PEP $96 3.2 0.7 5 (5)% 35 % 89Walgreen Co. WAG 30 5.7 0.0 MAX (10) 17 88Colgate-Palmolive CL 44 6.7 1.0 4 (6) 137 84
United Technologies UTX 65 3.1 2.0 2 (5) 23 84Danaher Corp. DHR 24 3.4 3.7 3 (6) 16 823M Company MMM 53 5.1 5.4 1 (6) 32 68
Basket Median $24 3.4 3 3 (6)% 23 % 84Sector Median 9 3.3 10 1 (9) 18 48
Information TechnologyCognizant Tech Solutions CTSH $20 16.4 0.0 MAX (12)% 25 % 93Intuit, Inc. INTU 15 6.0 1.2 4 (12) 17 82Oracle Corp. ORCL 119 4.7 3.0 3 (9) 31 82
Coca-Cola Co. KO 150 4.4 0.9 3 (6) 32 81Wal-Mart Stores WMT 93 4.1 3.6 29 (7) 21 78Kellogg Co. K 93 4.1 3.6 29 (7) 21 78
Basket Median $93 4.2 1 5 (7)% 27 % 82Sector Median 12 3.5 6 2 (8) 23 60
EnergyNational Oilwell Varco NOV $25 3.9 9.4 3 (10)% 12 % 85Cameron International Corp CAM 11 3.9 11.0 4 (12) 16 83Baker Hughes BHI 22 3.3 21.6 2 (9) 14 75
eBay Inc. EBAY 36 5.3 4.3 18 (11) 12 79QUALCOMM Inc. QCOM 85 7.5 7.4 6 (10) 16 78Microsoft Corp. MSFT 196 4.8 6.2 3 (9) 31 75Accenture ACN 36 5.5 12.0 2 (8) 74 72Citrix Systems CTXS 10 7.3 8.6 3 (17) 14 63Adobe Systems ADBE 13 4.9 13.0 1 (11) 23 62Dell Inc. DELL 24 3.7 11.8 1 (12) 54 61
Basket Median $30 5.4 7 3 (11)% 24 % 77Sector Median 9 4.5 20 1 (12) 16 48
ConocoPhillips COP 88 2.7 25.4 2 (5) 16 74Occidental Petroleum OXY 64 3.8 23.0 2 (6) 23 73Schlumberger Ltd. SLB 64 3.8 23.0 2 (6) 23 73
Basket Median $45 3.8 22 2 (8)% 16 % 74Sector Median 12 2.5 29 1 (10) 17 44
FinancialsSimon Property Group, Inc SPG $33 NM 2.5 19 (9)% 15 % 87Wells Fargo WFC 134 NM 9.3 3 (7) 17 81AFLAC Inc. AFL 18 NM 7.4 9 (10) 18 81
MaterialsEcolab Inc. ECL $12 5.1 3.4 6 (8)% 23 % 94Praxair, Inc. PX 30 3.7 2.1 1 (5) 24 82
Basket Median $21 4.4 3 4 (7)% 24 % 88Sector Median 8 2.9 18 1 (11) 19 47
Telecommunication ServicesCenturyLink CTL $20 1.4 4.1 7 (8)% 10 % 72
Basket Median $20 1.4 4 7 (8)% 10 % 72Sector Median 14 1 2 5 2 (9) 12 52( )
Vornado Realty VNO 14 NM 12.2 2 (10) 11 66State Street Corp. STT 16 NM 3.9 1 (11) 16 65Boston Properties BXP 13 NM 11.1 1 (9) 14 63JPMorgan Chase & Co. JPM 126 NM 16.4 1 (5) 11 62
Basket Median $18 NM 9 2 (9)% 15 % 66Sector Median 10 NM 22 1 (10) 11 50
Health CareSt Jude Medical STJ $12 4.1 0.3 MAX (9)% 23 % 89Stryker Corp. SYK 16 5.7 0.0 16 (9) 22 85
Sector Median 14 1.2 5 2 (9) 12 52Utilities
Southern Co. SO $36 NM 1.4 2 (6)% 15 % 88Consolidated Edison ED 16 NM 5.2 1 (7) 10 67
Basket Median $26 NM 3 1 (6)% 12 % 77Sector Median 9 NM 10 0 (6) 12 48
High Quality <GSTHQUAL> Median $30 4.7 4 3 (9)% 22 % 81S&P 500 M di 10 3 4 12 1 (10) 16 50
Goldman Sachs Global ECS Research 45
Source: FactSet, Compustat, Goldman Sachs Research estimates and Goldman Sachs Global ECS Research.
As of October 6, 2011.
y p ( )Gilead Sciences GILD 31 5.1 1.1 37 (9) 39 82Intuitive Surgical ISRG 15 27.5 0.0 MAX (18) 8 82Medtronic Inc. MDT 35 3.4 0.6 15 (7) 26 79Amgen AMGN 35 3.4 0.6 15 (7) 26 79
Basket Median $23 4.6 0 15 (9)% 24 % 82Sector Median 12 3.9 4 8 (10) 22 59
S&P 500 Median 10 3.4 12 1 (10) 16 50
Dividend Growth basket
<GSTHDIVG>
2012E 2012E
Cash Cash
Market Ann. 2010-2012 Return on Market Ann. 2010-2012 Return on
Price Cap Payout Dividend Cash Price Cap Payout Dividend Cash
Company Name Ticker Sector 31-Oct-11 ($ bil) Ratio CAGR Invested Company Name Ticker Sector 31-Oct-11 ($ bil) Ratio CAGR Invested
AT&T Inc. T Telecom Services $29.31 $174 72 % 2 % 6.0 % Harris Corp. HRS Info Tech $37.75 $5 21 % 12 % 3.1 %
Lockheed Martin LMT Industrials 75.90 21 49 25 5.4 Xerox Corp. XRX Info Tech 8.18 11 15 19 2.9
Verizon Communications VZ Telecom Services 36.98 105 81 3 5.5 Johnson Controls JCI Cons. Discretionary 32.93 22 22 30 2.8
Dow Chemical DOW Materials 27.88 33 36 47 4.7 Comcast Corp. CMCSA Cons. Discretionary 23.45 64 25 26 2.6
Philip Morris Intl PM Consumer Staples 69.87 123 62 15 4.6 Computer Sciences Corp. CSC Info Tech 31.46 5 19 36 2.9
Pfizer Inc. PFE Health Care 19.26 150 37 11 4.6 Microsoft Corp. MSFT Info Tech 26.63 199 28 23 3.1p
General Electric GE Industrials 16.71 177 39 24 4.2 Lowe's Cos. LOW Cons. Discretionary 21.02 26 33 24 2.9
ConocoPhillips COP Energy 69.65 96 32 14 4.0 Medtronic Inc. MDT Health Care 34.74 37 27 8 2.9
Spectra Energy SE Energy 28.63 19 62 6 3.9 Walgreen Co. WAG Consumer Staples 33.20 30 31 26 3.0
Eaton Corp. ETN Industrials 44.82 15 31 22 3.6 Applied Materials AMAT Info Tech 12.32 16 39 9 2.6
JPMorgan Chase JPM Financials 34.76 136 22 155 3.7 U.S. Bancorp USB Financials 25.59 49 20 87 2.7
Darden Restaurants DRI Cons. Discretionary 47.88 6 43 26 3.8 Occidental Petroleum OXY Energy 92.94 76 23 17 2.2
Carnival Corp CCL Cons Discretionary 35 21 16 37 73 3 4 Freeport-McMoRan Cp & Gld FCX Materials 40 26 38 23 50 2 5Carnival Corp. CCL Cons. Discretionary 35.21 16 37 73 3.4 Freeport-McMoRan Cp & Gld FCX Materials 40.26 38 23 50 2.5
Williams Cos. WMB Energy 30.11 18 52 46 3.4 CSX Corp. CSX Industrials 22.21 24 26 29 2.4
BlackRock Inc. BLK Financials 157.79 16 46 24 3.9 Exxon Mobil Corp. XOM Energy 78.09 380 22 6 2.5
Intel Corp. INTC Info Tech 24.54 129 33 20 3.7 Accenture ACN Info Tech 60.26 39 35 31 2.4
Sempra Energy SRE Utilities 53.73 13 43 14 3.8 Becton Dickinson BDX Health Care 78.23 17 27 11 2.4
Abbott Laboratories ABT Health Care 53.87 84 38 9 3.8 Murphy Oil Corp. MUR Energy 55.37 11 22 6 2.1
Johnson & Johnson JNJ Health Care 64.39 176 45 7 3.8 St. Jude Medical STJ Health Care 39.00 13 24 NM 2.4
S f I SWY C St l 19 37 7 32 20 3 4 I t ti l B M hi IBM I f T h 184 63 220 21 15 1 8Safeway Inc. SWY Consumer Staples 19.37 7 32 20 3.4 International Bus. Machines IBM Info Tech 184.63 220 21 15 1.8
Weyerhaeuser WY Financials 17.98 10 141 163 3.3
Dr Pepper Snapple Group DPS Consumer Staples 37.45 8 45 25 3.7
ONEOK Inc. OKE Utilities 76.05 8 65 17 3.3
Public Storage PSA Financials 129.05 18 64 16 3.2
Iron Mountain IRM Industrials 30.93 6 73 69 3.5
Molson Coors Brewing TAP Consumer Staples 42.34 7 36 14 3.3
Goldman Sachs Global ECS Research 46
Source: Bloomberg, IDC via FactSet, and Goldman Sachs Global ECS Research. As of October 31, 2011.
KLA-Tencor Corp. KLAC Info Tech 47.09 8 43 32 3.0
Chevron Corp. CVX Energy 105.05 210 24 9 3.2
PNC Financial Svc. Gp. PNC Financials 53.71 28 23 101 3.0 Dividend Growth <GSTHDIVG> Average $63 39% 31 % 3.4 %
Simon Property Group SPG Financials 128.44 38 51 19 2.9 S&P 500 Equal-Weighted Average 1253 23 26 16 2.0
Defensives basket
<GSSBDEFS>
Stocks above 1% weight in the Defensives Basket <GSSBDEFS>
B k tBasketCompany Ticker Sector Industry Group WeightInternational Bus. Machines IBM Information Technology Software & Services 4.3 %Microsoft Corp. MSFT Information Technology Software & Services 3.8Procter & Gamble PG Consumer Staples Household & Personal Products 3.5Johnson & Johnson JNJ Health Care Pharmaceuticals Biotechnology & Life Sciences 3.4AT&T Inc. T Telecommunication Services Telecommunication Services 3.3Pfizer Inc. PFE Health Care Pharmaceuticals Biotechnology & Life Sciences 3.0Coca-Cola Co. KO Consumer Staples Food Beverage & Tobacco 3.0Google Inc. GOOG Information Technology Software & Services 2.9Oracle Corp. ORCL Information Technology Software & Services 2.5Philip Morris Intl PM Consumer Staples Food Beverage & Tobacco 2.5Wal-Mart Stores WMT Consumer Staples Food & Staples Retailing 2.2Verizon Communications VZ Telecommunication Services Telecommunication Services 2.0Merck & Co Inc MRK Health Care Pharmaceuticals Biotechnology & Life Sciences 2.0PepsiCo Inc. PEP Consumer Staples Food Beverage & Tobacco 1.9McDonald's Corp. MCD Consumer Discretionary Consumer Services 1.9Abbott Laboratories ABT Health Care Pharmaceuticals Biotechnology & Life Sciences 1.6gyAmazon.com AMZN Consumer Discretionary Retailing 1.4Kraft Foods KFT Consumer Staples Food Beverage & Tobacco 1.2Home Depot HD Consumer Discretionary Retailing 1.2Altria Group MO Consumer Staples Food Beverage & Tobacco 1.1Bristol-Myers Squibb BMY Health Care Pharmaceuticals Biotechnology & Life Sciences 1.1Amgen Inc AMGN Health Care Pharmaceuticals Biotechnology & Life Sciences 1.0
Goldman Sachs Global ECS Research 47
Source: Compustat, FactSet, and Goldman Sachs Global ECS Research. As of October 27, 2011.
Amgen Inc. AMGN Health Care Pharmaceuticals Biotechnology & Life Sciences 1.0UnitedHealth Group UNH Health Care Health Care Equipment & Services 1.0
Total 51.6 %
Growth and valuation for US Portfolio Strategy
thematic and sector Bloomberg basketsg
EPS Growth Sales GrowthBeta 2010E - 2011E - 2010E - 2011E - Profit P/E Expd. Dividend
Bloomberg Price vs 2011E 2012E 2011E 2012E Margin Mult. ROE YieldTicker 3-Nov-11 SP500 (%) (%) (%) (%) 2011 NTM NTM (%)
FUNDAMENTAL BASKETSHigh Quality GSTHQUAL 116.19 1.0 13 % 10 % 12 % 7 % 14 % 14.5x 24 % 1.9 %ROE Growth GSTHGROE 98.94 1.1 17 13 10 6 10 12.4 20 1.6High Revenue Growth GSTHREVG 97.03 1.1 22 18 20 15 14 17.7 16 0.7High Operating Leverage GSTHOPHI 182.80 1.2 22 14 11 5 8 13.1 17 1.1Low Operating Leverage GSTHOPLO 160.68 1.0 11 14 10 6 13 15.3 22 0.5Strong Balance Sheet GSTHSBAL 129.26 1.1 19 17 18 12 14 18.2 26 0.3Weak Balance Sheet GSTHWBAL 124.63 1.2 10 12 7 4 9 13.0 14 1.3
VALUATION BASKETSVALUATION BASKETSDividend Growth GSTHDIVG 113.27 1.0 12 % 7 % 9 % 3 % 10 % 11.2x 18 % 2.9 %High Sharpe Ratio GSTHSHRP 131.98 1.2 12 10 11 6 10 11.1 16 1.3"Super-value" GSTHSVLU 102.25 1.1 7 8 6 4 9 10.1 16 2.0"Anti-value" GSTHAVLU 123.40 1.0 14 13 10 7 11 17.7 21 1.3GARP GSTHGARP 139.69 1.1 12 12 9 6 15 12.7 23 1.0
MACROECONOMIC BASKETSBRICs Sales GSTHBRIC 170.41 1.2 13 % 12 % 15 % 6 % 14 % 13.5x 17 % 0.9 %International Sales GSTHINTL 128.70 1.1 13 12 13 6 14 13.9 21 1.5Domestic Sales GSTHAINT 90.23 1.0 10 10 9 6 8 12.7 17 1.9Western Europe Sales GSTHWEUR 188.30 1.2 13 14 15 7 8 13.8 16 0.6Dual Beta GSTHBETA 96.36 1.4 24 16 13 7 8 11.9 14 0.2
HEDGE FUND BASKETSHedge Fund "VIP" List GSTHHVIP 92.48 1.2 15 % 13 % 17 % 6 % 12 % 12.1x 18 % 0.8 %High Hedge Fund Concentration GSTHHFHI 90.81 1.1 12 14 4 4 7 15.0 11 0.0Low Hedge Fund Concentration GSTHHFSL 114 38 0 9 4 7 9 3 10 15 2 18 2 7Low Hedge Fund Concentration GSTHHFSL 114.38 0.9 4 7 9 3 10 15.2 18 2.7
SECTOR BASKETSDefensives GSSBDEFS 114.18 0.9 8 % 10 % 7 % 5 % 10 % 13.9x 19 % 1.8 %Cyclicals GSSBCYCL 102.12 1.2 16 12 11 6 10 12.8 15 1.8Global GSSBGLBL 111.92 1.2 13 11 10 6 11 13.9 20 1.4Domestic GSSBDOMS 99.89 1.0 9 11 7 5 7 13.0 14 2.1Global Cyclicals GSSBGCYC 109.90 1.3 17 12 12 6 10 13.6 19 1.4Global Defensives GSSBGDEF 114.38 0.9 8 10 9 5 14 14.1 24 1.4
Goldman Sachs Global ECS Research 48
Source: Compustat, FirstCall , I/B/E/S,
FactSet, and Goldman Sachs Global
ECS Research.
Domestic Cyclicals GSSBDCYC 89.15 1.1 14 12 8 6 9 12.0 11 2.1Domestic Defensives GSSBDDEF 113.74 0.9 7 10 6 5 6 13.7 16 2.1
S&P 500 1,261 1.0 17 % 11 % 11 % 5 % 9 % 12.1x 17 % 2.2 %S&P 500 Average 1.1 11 12 12 7 12 14.3 20 1.9S&P 500 Median 1.1 11 11 9 6 10 13.4 18 1.8
Equity Basket Disclosure
The Securities Division of the firm may have been consulted as to the various
components of the baskets of securities discussed in this report prior to their launch;
h f thi h th l i d h i th ti i fhowever, none of this research, the conclusions expressed herein, nor the timing of
this report was shared with the Securities Division.
Goldman Sachs Global ECS Research 49
Analyst Certification
I, David J. Kostin, hereby certify that all of the views expressed in this report accurately reflect my personal views about the subject company or companies and its or their securities. I also certify that no part of my compensation was, is, or willbe, directly or indirectly, related to the specific recommendations or views expressed in this report.
Goldman Sachs Global ECS Research 50
Rating and pricing information
Rating and pricing information
Abbott Laboratories (N/A, $52.70), Accenture Plc (B/N, $57.02), Adobe Systems Inc. (S/N, $25.84), Aflac Incorporated (N/A, $38.97), Altria Group, Inc. (N/N, $27.80), Amazon.com Inc. (CS, $235.48), Amgen Inc. (S/N, $57.09), Applied Materials, Inc. (S/C, $10.98), AT&T Inc. (N/N, $28.77), Baker Hughes Inc. (CS, $53.23), Becton ( , $ ), g ( , $ ), pp , ( , $ ), ( , $ ), g ( , $ ),Dickinson & Co. (N/A, $73.42), BlackRock, Inc. (B/N, $153.06), Boston Properties, Inc. (N/N, $88.86), Bristol-Myers Squibb Company (B/A, $32.96), C.H. Robinson Worldwide, Inc. (CS, $73.35), Cameron International Corp. (CS, $47.76), Carnival Corp. (B/N, $32.90), CenturyLink Inc. (B/N, $33.52), Chevron Corp. (N/A, $97.60), Citrix Systems Inc. (N/N, $61.19), Coach, Inc. (N/N, $59.29), The Coca-Cola Company (B/A, $66.80), Cognizant Technology Solutions (B/N, $67.48), Colgate-Palmolive Company (CS, $90.35), Comcast Corp. (B/A, $22.98), Computer Sciences Corp. (S/N, $29.82), ConocoPhillips (N/A, $67.02), Consolidated Edison, Inc. (S/N, $56.76), CSX Corporation (CS, $20.85), Danaher Corp. (N/N, $44.15), Darden Restaurants, Inc. (CS, $45.91), Dell Inc. (S/N, $16.18), Dow Chemical Company (N/N, $26.40), Dr Pepper Snapple Group (S/A, $38.94), Eaton Corp. (B/N, $40.49), eBay Inc. (CS, $32.83), Ecolab Inc. (NR, $52.25), Exxon Mobil Corp. (B/A, $76.27), Freeport-McMoRan Copper & Gold (B/N, $35.45), General Dynamics Corp. (N/C, $61.48), General Electric Co. (B/N, $16.14), Gilead Sciences Inc. (B/N, $39.70), Google Inc. (N/N, ( ) y ( ) ( ) ( ) g ($543.18), Harris Corporation (N/C, $36.16), The Home Depot, Inc. (N/N, $34.71), Intel Corp. (S/N, $22.99), International Business Machines (B/N, $185.00), Intuit, Inc. (CS, $51.18), Intuitive Surgical, Inc. (N/N, $385.35), J.P. Morgan Chase & Co. (B/A, $32.30), Johnson & Johnson (N/A, $63.96), Johnson Controls, Inc. (N/A, $30.14), Kellogg Company (N/A, $54.22), KLA-Tencor (S/C, $42.91), Kraft Foods Inc. (NR, $34.40), Lockheed Martin Corp. (N/C, $76.32), Lowe's Companies, Inc. (N/N, $20.53), McDonald's Corp. (B/N, $89.34), Medtronic, Inc. (N/N, $33.23), Merck & Co., Inc. (N/A, $31.93), Microsoft Corp. (N/N, $27.00), Molson Coors Brewing Co. (N/A, $42.01), Murphy Oil Corp. (N/A, $50.24), National Oilwell Varco (CS, $62.74), Nike, Inc. (N/N, $89.85), Occidental Petroleum Corp. (B/A, $80.89), ONEOK, Inc. (N/N, $70.57), Oracle Corp. (B/N, $30.93), PepsiCo, Inc. (N/A, $60.95), Pfizer Inc. (B/A, $18.85), Philip Morris International Inc. (B/N, $65.30), PNC Financial Services (N/A, $49.90), Praxair Inc. (N/N, $100.86), Procter & Gamble Company (CS, $64.57), Public Storage, Inc. (N/N, $112.08), QUALCOMM, Inc. (B/N, $51.65), Safeway Inc. (S/N, $17.46), Schlumberger, Ltd. (CS, $66.82), Sempra Energy (N/N, $51.78), Simon Property Group (B/N, $112.84), Spectra Energy Corp. (N/N, $25.94), St. Jude Medical, Inc. (N/N, $37.89), State Street Corp. (B/N, $33.10), Stryker Corp. (B/N, $50.10), The Southern Company (S/N, $42.68), 3M Company (N/N, $76.42), The TJX Companies, Inc. (B/N, $58.07), U.S. Bancorp (N/A, $23.88), United Technologies Corp. (NR, $73.74), UnitedHealth Group (N/A, $46.64), Verizon Communications (B/N, $36.50), Vornado Realty Trust (N/N, $73.30), Wal-Mart Stores, Inc. (N/N, $54.72), Walgreen Company (B/N, $33.79), Wells Fargo & Company (B/A, $26.05), Weyerhaeuser Co. (CS, $16.79), The Williams Companies, Inc. (NR, $26.41), Xerox Corp. (N/N, $7.43) and Yum! Brands, Inc. (S/N, $51.88).
Goldman Sachs Global ECS Research 51
Disclosure Appendix
N b 7 2011November 7, 2011
Disclosure Appendix
Coverage group(s) of stocks by primary analyst(s)
Th i t d ith th l t( )There are no coverage groups associated with the analyst(s).
Company-specific regulatory disclosures
Th ifi l t di lThere are no company-specific regulatory disclosures
Goldman Sachs Global ECS Research 53
Disclosure Appendix
Distribution of ratings/investment banking relationships
Goldman Sachs Investment Research global coverage universe
R ti Di t ib ti I t t B ki R l ti hiRating Distribution Investment Banking Relationships
Global
Buy Hold Sell
31% 55% 14%
Buy Hold Sell
50% 43% 36%
As of October 1, 2011, Goldman Sachs Global Investment Research had investment ratings on 3,198 equity securities. GoldmanSachs assigns stocks as Buys and Sells on various regional Investment Lists; stocks not so assigned are deemed Neutral.Sachs assigns stocks as Buys and Sells on various regional Investment Lists; stocks not so assigned are deemed Neutral. Such assignments equate to Buy, Hold and Sell for the purposes of the above disclosure required by NASD/NYSE rules. See 'Ratings, Coverage groups and view s and related definitions' below .
Price target and rating history chart(s)
Compendium report: please see disclosures at http://www.gs.com/research/hedge.html. Disclosures applicable to the companies included in this compendium can be found in the latest relevant published research.
Goldman Sachs Global ECS Research 54
Disclosure Appendix
Regulatory disclosures
Disclosures required by United States laws and regulationsSee company-specific regulatory disclosures above for any of the following disclosures required as to companies referred to in this report: manager or co-manager in a pendingSee company-specific regulatory disclosures above for any of the following disclosures required as to companies referred to in this report: manager or co-manager in a pending transaction; 1% or other ownership; compensation for certain services; types of client relationships; managed/co-managed public offerings in prior periods; directorships; for equity securities, market making and/or specialist role. Goldman Sachs usually makes a market in fixed income securities of issuers discussed in this report and usually deals as a principal in these securities.
The following are additional required disclosures: Ownership and material conflicts of interest: Goldman Sachs policy prohibits its analysts, professionals reporting to analysts and members of their households from owning securities of any company in the analyst's area of coverage. Analyst compensation: Analysts are paid in part based on the profitability of Goldman Sachs, which includes investment banking revenues. Analyst as officer or director: Goldman Sachs policy prohibits its analysts, persons reporting to analysts or members of their households from serving as an officer, director, advisory board member or employee of any company in the analyst's area of coverage. Non-U.S. Analysts: Non-U.S. analysts may not be associated persons of Goldman Sachs & Co. and therefore may not be subject to NASD Rule 2711/NYSE Rules 472 restrictions on communications with subject company, public appearances and trading securities held by the analysts. Distribution of ratings: See the distribution of ratings disclosure above. Price chart: See the price chart, with changes of ratings and price targets in prior periods, above, or, if electronic format or if with respect to multiple companies which are the subject of this report, on the Goldman Sachs website at http://www.gs.com/research/hedge.html.
Additional disclosures required under the laws and regulations of jurisdictions other than the United StatesThe following disclosures are those required by the jurisdiction indicated, except to the extent already made above pursuant to United States laws and regulations. Australia: This research, and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. Brazil: Disclosure information in relation to CVM Instruction 483 is available at http://www.gs.com/worldwide/brazil/gir/index.html. Where applicable, the Brazil-registered analyst primarily responsible for the content of this research report, as defined in Article 16 of CVM Instruction 483, is the first author named at the beginning of this report, unless indicated otherwise at the end of the text. Canada: Goldman Sachs & Co. has approved of, and agreed to take responsibility for, this research in Canada if and to the extent it relates to equity securities of Canadian issuers. Analysts may conduct site visits but are prohibited from accepting payment or reimbursement by the company of travel expenses for such visits. Hong Kong: Further information on the securities of covered companies referred to in this research may be obtained on request from Goldman Sachs (Asia) L.L.C. India: Further information on the subject company or companies referred to in this research may be obtained from Goldman Sachs (India) Securities Private Limited; Japan: See below. Korea: Further information on the subject company or companies referred to in this research may be obtained from Goldman Sachs (Asia) L.L.C., Seoul Branch. Russia: Research reports distributed in the Russian Federation are not advertising as defined in the Russian legislation, but are information and analysis not having product promotion as their main purpose and do not provide appraisal within the meaning of the Russian legislation on appraisal activity. Singapore: Further information on the covered companies referred to in this research may be obtained from Goldman Sachs (Singapore) Pte. (Company Number: 198602165W). Taiwan: This material is for reference only and must not be reprinted without permission. Investors should carefully consider their own investment risk. Investment results are the responsibility of the individual investor. United Kingdom: Persons who would be categorized as retail clients in the United Kingdom, as such term is defined in the rules of the Financial Services Authority, should read this research in conjunction with prior Goldman Sachs research on the covered companies referred to herein and should refer to the risk warnings that have been sent to them by Goldman Sachs International. A copy of these risks warnings, and a glossary of certain financial terms used in this report, are available from Goldman Sachs International on request.
European Union: Disclosure information in relation to Article 4 (1) (d) and Article 6 (2) of the European Commission Directive 2003/126/EC is available at http://www.gs.com/client services/global investment research/europeanpolicy.html which states the European Policy for Managing Conflicts of Interest in Connection with Investment
Goldman Sachs Global ECS Research 55
http://www.gs.com/client_services/global_investment_research/europeanpolicy.html which states the European Policy for Managing Conflicts of Interest in Connection with Investment Research.
Japan: Goldman Sachs Japan Co., Ltd. is a Financial Instrument Dealer under the Financial Instrument and Exchange Law, registered with the Kanto Financial Bureau (Registration No. 69), and is a member of Japan Securities Dealers Association (JSDA) and Financial Futures Association of Japan (FFAJ). Sales and purchase of equities are subject to commission pre-determined with clients plus consumption tax. See company-specific disclosures as to any applicable disclosures required by Japanese stock exchanges, the Japanese Securities Dealers Association or the Japanese Securities Finance Company.
Disclosure Appendix
Ratings, coverage groups and views and related definitionsBuy (B), Neutral (N), Sell (S) – Analysts recommend stocks as Buys or Sells for inclusion on various regional Investment Lists. Being assigned a Buy or Sell on an Investment List is determined by a stock’s return potential relative to its coverage group as described below. Any stock not assigned as a Buy or a Sell on an Investment List is deemed Neutral. Each
i l I t t R i C itt i i l I t t Li t t l b l id li f 25% 35% f t k B d 10% 15% f t k S ll h thregional Investment Review Committee manages various regional Investment Lists to a global guideline of 25%-35% of stocks as Buy and 10%-15% of stocks as Sell; however, the distribution of Buys and Sells in any particular coverage group may vary as determined by the regional Investment Review Committee. Regional Conviction Buy and Sell lists represent investment recommendations focused on either the size of the potential return or the likelihood of the realization of the return.
Return potential represents the price differential between the current share price and the price target expected during the time horizon associated with the price target. Price targets are required for all covered stocks. The return potential, price target and associated time horizon are stated in each report adding or reiterating an Investment List membership.
Coverage groups and views: A list of all stocks in each coverage group is available by primary analyst, stock and coverage group at http://www.gs.com/research/hedge.html. The analyst assigns one of the following coverage views which represents the analyst’s investment outlook on the coverage group relative to the group’s historical fundamentals and/or valuation Attractive (A) The investment outlook over the following 12 months is favorable relative to the coverage group's historical fundamentals and/or valuation Neutral (N) Thevaluation. Attractive (A). The investment outlook over the following 12 months is favorable relative to the coverage group s historical fundamentals and/or valuation. Neutral (N). The investment outlook over the following 12 months is neutral relative to the coverage group's historical fundamentals and/or valuation. Cautious (C). The investment outlook over the following 12 months is unfavorable relative to the coverage group's historical fundamentals and/or valuation.
Not Rated (NR). The investment rating and target price have been removed pursuant to Goldman Sachs policy when Goldman Sachs is acting in an advisory capacity in a merger or strategic transaction involving this company and in certain other circumstances. Rating Suspended (RS). Goldman Sachs Research has suspended the investment rating and price target for this stock, because there is not a sufficient fundamental basis for determining, or there are legal, regulatory or policy constraints around publishing, an investment rating or target. The previous investment rating and price target, if any, are no longer in effect for this stock and should not be relied upon. Coverage Suspended (CS). Goldman Sachs has suspended coverage of this company. Not Covered (NC). Goldman Sachs does not cover this company. Not Available or Not Applicable (NA). The information is not available for display or is not applicable. Not Meaningful (NM). The information is not meaningful and is therefore excluded.
Global product; distributing entitiesThe Global Investment Research Division of Goldman Sachs produces and distributes research products for clients of Goldman Sachs, and pursuant to certain contractual arrangements, on a global basis. Analysts based in Goldman Sachs offices around the world produce equity research on industries and companies, and research on macroeconomics, currencies commodities and portfolio strategycurrencies, commodities and portfolio strategy.
This research is disseminated in Australia by Goldman Sachs & Partners Australia Pty Ltd (ABN 21 006 797 897) on behalf of Goldman Sachs; in Brazil by Goldman Sachs do Brasil Banco Múltiplo S.A.; in Canada by Goldman Sachs & Co. regarding Canadian equities and by Goldman Sachs & Co. (all other research); in Hong Kong by Goldman Sachs (Asia) L.L.C.; in India by Goldman Sachs (India) Securities Private Ltd.; in Japan by Goldman Sachs Japan Co., Ltd.; in the Republic of Korea by Goldman Sachs (Asia) L.L.C., Seoul Branch; in New Zealand by Goldman Sachs & Partners New Zealand Limited on behalf of Goldman Sachs; in Russia by OOO Goldman Sachs; in Singapore by Goldman Sachs (Singapore) Pte. (Company Number: 198602165W); and in the United States of America by Goldman Sachs & Co. Goldman Sachs International has approved this research in connection with its distribution in the United Kingdom and European Union.
European Union: Goldman Sachs International, authorised and regulated by the Financial Services Authority, has approved this research in connection with its distribution in the
Goldman Sachs Global ECS Research 56
p , g y y, ppEuropean Union and United Kingdom; Goldman Sachs & Co. oHG, regulated by the Bundesanstalt für Finanzdienstleistungsaufsicht, may also distribute research in Germany.
Disclosure Appendix
General disclosuresThis research is for our clients only. Other than disclosures relating to Goldman Sachs, this research is based on current public information that we consider reliable, but we do not represent it is accurate or complete, and it should not be relied on as such. We seek to update our research as appropriate, but various regulations may prevent us from doing so. Oth th t i i d t t bli h d i di b i th l j it f t bli h d t i l i t l i t i th l t' j d tOther than certain industry reports published on a periodic basis, the large majority of reports are published at irregular intervals as appropriate in the analyst's judgment.
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