Finding The Next Apple

North America Equity Research
05 April 2012
Circle of Life
15 "Apples" not far from AAPL in TMT
Please join us for a conference call on Thursday, 4/5 at 12:00pm ET on Finding the Next AAPL in TMT. Joining us will be Mark Moskowitz, J.P. Morgan IT hardware analyst, Doug Anmuth, Internet analyst; Alexia Quadrani, Media analyst; and Paul Coster, Applied and Emerging Technologies analyst.. Dial-in details: 800-593-9988 (US); +1-312-470-7406 (outside US); Passcode: Strategy. Replay through 4/12: 888566-0438 (US); +203-369-3047 (outside US); Passcode: 4512. Replay available approximately one hour after the call ends. The S&P 500 has gained 12% YTD and reflects the favorable conditions at the start of the year (see 2012 to be year of contrarian optimism dated 1/6/12) given (i) a 60-yr high in equity risk premia; (ii) challenged active manager performance; and (iii) investors too defensive. The setup for 2Q is less favorable. After two back-to-back double-digit quarters, both investor positioning and economic momentum are at different reference points today (i) greater embracement of risk by investors; (ii) macro challenges are emerging such as China, European growth and gasoline. As a result, short-term risk/reward less asymmetrically favorable (particularly compared to the 1Q setup). We still see more positives than negative and therefore remain overall constructive for FY2012 and see this year playing out similarly to 2009 (postfinancial crisis period) (see Figure 1). History actually argues that market momentum tends to persist after two double-digit quarters79% of the time, the following quarter is positive (Figure 2) with Energy leading (Figure 3) most instances. Cyclicals tend to be mixed, and as we noted last week, we want to avoid "smoke-stack" groups right now. Active managers are having a decent start to 2012 (Figure 6). Worse than 2011 (18% are missing by 250bp vs. 14% at this time last year) but below the seasonal trend of 20% by March. Last year, the real tracking error took place after September 2011. Growth managers are doing particularly well, with 25% beating by 250bp and only 15% missing, or a net positive diffusion of 10%. Lets turn our attention to Apple (AAPL-OW). At 8% of the Russell 1000 Growth Index, the stock is simply exceeding ownership limits for many funds (Figure 7) and as a result, investors are asking where the next Apple is. Plus, other investors want to buy the next Apple to hold for the next few years. The company really hit its stride in the second half of its public history (Figure 10). We compiled the quantitative and qualitative characteristics of AAPL (Figure 12 and Figure 13). Among them are: (i) products that inspire a following; (ii) reputational excellence; (iii) lifestyle products that focus on what one can do with their services/products; (iv) culture of success; and (v) prodigious growth offset by (vi) attractive valuations and (vii) ability to return capital.
Portfolio Strategy Thomas J Lee, CFA

AC
(1-212) 622-6505 thomas.lee@jpmorgan.com
Daniel M McElligott
(1-212) 622-5598 daniel.m.mcelligott@jpmorgan.com
Katherine C Khor
(1-212) 622-0934 katherine.khor@jpmorgan.com J.P. Morgan Securities LLC
Mark Moskowitz
(1-415) 315-6704 mark.a.moskowitz@jpmorgan.com
Sterling Auty, CFA

(1-212) 622-6389 sterling.auty@jpmorgan.com
Alexia S. Quadrani
(1-212) 622-1896 alexia.quadrani@jpmorgan.com
Tien-tsin Huang, CFA

(1-212) 622-6632 tien-tsin.huang@jpmorgan.com
Philip Cusick, CFA

(1-212) 622-1444 philip.cusick@jpmorgan.com
John DiFucci
(1-212) 622-2341 john.s.difucci@jpmorgan.com
Rod Hall, CFA

(1-415) 315-6713 rod.b.hall@jpmorgan.com
Doug Anmuth
(1-212) 622-6571 douglas.anmuth@jpmorgan.com
Paul Coster, CFA

(1-212) 622-6425 paul.coster@jpmorgan.com
Christopher Blansett
(1-415) 315-6708 christopher.r.blansett@jpmorgan.com J.P. Morgan Securities LLC
See page 73 for analyst certification and important disclosures.

J.P. Morgan 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. www.morganmarkets.com
Thomas J Lee, CFA (1-212) 622-6505 thomas.lee@jpmorgan.com
North America Equity Research 05 April 2012
15 Stock Ideas: Our analysts identified 15 ideas that possess qualities similar to Apple within their addressable markets. Our 11 analysts identified 15 ideas based on a comprehensive comparison of qualitative (Figure 16) and quantitative characteristics (Figure 17) and their views are summarized in this report. These companies are different stages of their maturity (Figure 15). The tickers are: BRCM, VMW, NTAP, INTU, DIS, CMCSA, QCOM, ACN, QLIK, ANSS, TIBX, CREE, LNKD, AMZN, and TRMB.. J.P. Morgan Derivatives & Delta One Strategy has also created a basket for investors who would like to leverage the theme discussed in this report. The basket can be found on Bloomberg under ticker JPUSALTB Index. This basket should be considered separately from the basket we created in late February (JPUSAAPL), which focused purely on Technology stocks with a high price correlation to AAPL and did not take an in-depth fundamental approach like this weeks basket.
MARKET STRATEGY: 2Q altered risk/reward compared to 1Q

1Q was about contrarian optimism....
The S&P 500 has gained 12% YTD and the strong performance speaks to the favorable conditions at the start of the year, which we viewed as the basis for contrarian optimism (see 2012 to be year of contrarian optimism dated 1/6/12) then, we saw (i) a 60-yr high in equity risk premiums; (ii) challenged active manager performance; and (iii) investors too defensive. The setup for 2Q is less favorable.
But 2Q is starting with less favorable conditions

After two back-to-back double-digit quarters, both investor positioning and economic momentum are at different reference points today. By several measures, we have seen greater embracement of risk by investors (but not at any pivot). As for economic & macro, some challenges are emerging at this time. The key takeaway is that we do not see the current growth scares as thesis changers or at extremes, but they do make the short-term risk/reward less asymmetrically favorable (particularly compared to the 1Q setup). The first growth scare asserting itself is China and the potential for a hard landing. Adrian Mowat, JPMs EM strategist, asserts Forget the hard/soft landing debate as he sees a plethora of data pointing to contraction from passenger vehicle sales (-1.6%), steel production (-3.5%), residential sales (-13.5%), power demand (down m/m) as signs of a contraction. But Policy makers do have room to maneuver and thus, more a growth scare. The second short-term headwind is higher gasoline, which reached $3.92 recently, not far from the $3.985 high in 2011, when we saw weakness develop in consumer spending (granted, Japan quake, Europe, Arab spring were also dampers). If decade patterns hold, gasoline prices seasonally peak in April (most years) before declining so that this pressure will likely prove short term and fade by May/June. Lastly, we attended an investor meeting with Terry Belton, head of JPMs US fixed income strategy team, and one of our takeaways is that we will see an eventual rise in interest rates. The trigger is a move of the unemployment rate below 7%, leading to Fed tightening (Belton est. each 100bp of fed funds is 48bp on the 10yr). We looked at periods of rising rates since 1962, and the key takeaway is that Cyclicals outperform when rates begin to rise. Financials in the short term, surprisingly, do not perform well.
Plenty of positives and negatives in 2012but more positives

Bulls and bears can cite a litany of arguments for their view. But in our recent meetings, it seems most investors generally view this as a cyclical bull market, primarily fueled by easy monetary policy. And that relative value is primarily viewed through the lens that bonds are overpriced but stocks are not necessarily cheap. But take a look below, we see more reasons to be bullish than bearish:
Figure 1: Plenty of positives and negativesbut we think investors are FIXATED on the negatives Notable Positives 1. US equities are in a secular bull market, in our view Notable Negatives 1. China visibility is limited and region represents 1/3 global growth in 2012.
2. US Labor market expanding and set to add 2.5-3.0mm jobs in

2012, leading to an acceleration of household formation.
2. European sovereign markets while more stable than 2011 are

not demonstrating universal recovery.
3. US housing market is recovering and we expect starts to

increase in 2012.
3. US bank lending standards remain extremely high limiting

credit expansion in US mortgages
4. Bank capital positions are healthy. 5. Equity risk premia is still near 60-year highs and corporate
profits are at all-time highs.
4. US electoral outcome is still unclear 5. Global policy rates remain at emergency levels 6. Sovereign debt levels are high and will be for many years 7. US faces fiscal cliff in 2013 8. Brent crude oil prices surpassed 2011 highs and are going to
deliver a notable drag to many large countries (US, China, etc).
6. Global Central Banks are easing. 7. US corporates are sitting on a $3.7T mountain of cash and have
strong balance sheets and accelerating cash return in 2012.
8. Institutional investors are still underweight equities. 9. Both retail and institutional investor sentiment is still not
consistent with a secular bull market.
9. Investors continue to pull money out of equities--$300b since

2007
10. Credit markets remain healthy with strong demand and inflows. 11. Profit margins have not peaked and support further upside
revisions to earnings.
12. HY P/E is 14X vs. S&P 500 P/E of 12.7X--only second time in
history.
Source: J.P. Morgan
and history says 2Q should be positive (not explosive)

Two Consecutive Quarters of Double-Digit Gains on S&P 500
The S&P 500 has produced two consecutive quarters of double-digit gains (11%, 12% in 4Q/1Q). And the natural question is whether equities sustain such gains. Take a look at Figure 2 below. Of the 14 prior instances of two consecutive double-digit quarters, 11 of the 13 saw further gains in the following quarter, or 79% of the time. Meaning, based on historical precedent, 2Q12 is likely positive. In fact, this is also true in recent history. Take a look at 2009 and 2010 where after two consecutive double-digit quarters, the S&P 500 gained in the following quarter. The takeaway is that the S&P 500 is likely to further build on its recent gains.
Figure 2: Two consecutive quarters of double-digit gains suggest strong likelihood of further gains in 2Q12
Instances of S&P 500 being up > 10% for two consecutive quarters
+6Q +5Q +4Q +3Q

negative negative
-3% -14% 5% -6% -4% -3% 16% 12% 1897 -5% 23% 13% 1898 14% 22% 17% 1904 9% 29% 15% 11% 1914 1% 5% 4% 10% 14% 1921 -29% 10% 7% 5% 15% 10% 1928 -1% 11% 16% 13% 21% 1935 -2% 7% 19% 10% 1942 7% 4% 6% 12% 2% 11% 11% 1954 -3% 5% 0% 10% 11% 1958 -12% 14% 22% 1974
negative
-12% -8% 5% 13% 16% 1985 5% 5% 15% 15% 2009 0% 5% 10% 11% 12% 11%
2 consecutive double-digit quarters
+2Q +1Q 0Q -1Q
2010 Current
Source: J.P. Morgan and Bloomberg
Post 2 double-digit quarters, Energy outperforms, other Sectors are a coin-toss

But what to own today? One place to start is to look at history, in particular, the instances in the past 40-years where we saw consecutive double-digit quarters (Figure 3). There is no pronounced pattern (i.e., laggards to leaders, leaders stay leaders, etc); But Energy is the most consistent group. And like 75, 86, and 09, it has been a notable laggard in past 2 quarters.
Figure 3: Sector Perf in instances of S&P 500 being up > 10% for two consecutive quarters
Sector Perf in instances of S&P 500 being up > 10% for two consecutive quarters Buy Energy
1975 During 2 DoubleDigit Qtrs S&P 500 Abs Perf Cyclicals Materials Industrials Discretionary Technology Near-Cyclicals Energy Financials Defensives Staples HealthCare Telecom Utilities Cyclicals Near-Cyclicals Defensives -1% -9% -22% -4% 12% -5% -9% -2% -6% 2% 2% -1% -3% -1% 8% 11% -3% -1% 5% -9% 4% 12% 11% 6% -4% -4% -2% 6% -9% -14% -24% -16% 8% 6% -16% -1% 3% 0% 0% 3% -4% 0% -6% -10% 5% -10% 10% 3% -5% -2% 0% -2% -3% -1% 4% -2% -10% -5% -16% -19% 4% 3% -13% ?? ?? ?? ?? ?? ?? ?? -6% -3% 4% -9% -37% 19% 0% -4% -9% 21% -1% -8% 12% -7% 10% -3% -2% 7% ?? ?? 39% Following Qtr -12% 1986 During 2 DoubleDigit Qtrs 31% Following Qtr 5%
Buy Defensives
2009
Buy Cyclicals
2010 During 2 DoubleDigit Qtrs 32% Following Qtr 5%
Buy Energy
Current During 2 Following Qtr 5% DoubleDigit Qtrs 24% During 2 DoubleDigit Qtrs 22%
Cyclicals do badly
Following Qtr ??
17% 14% 20% -3%
-1% -3% 0% -1%
11% 3% 14% -7%
-5% -6% 2% -9%
17% 10% -2% 7%
4% 0% 2% 6%
26% 5% 6% 2%
-1% 3% -3% -2%
1% 5% 2% 7%
?? ?? ?? ??
Source: J.P. Morgan, Bloomberg, and Datastream
And active managers are having an average year

2012 has actually been a better year for active managers, particularly compared to 2011. As of 3/31, about 20% of large-cap managers are missing their benchmark by 250bp, while 17% are ahead by a similar amount. This is a decent performance and means that while there are fewer managers slightly behind, their plurality is small. And thus, the pressure to chase is small. Looking at Growth managers, specifically. This tells a story of managers ahead of their benchmarks. See below that 25% of Russell 1000 Growth funds are ahead (vs. 15% behind) and 19% of Russell 2000 Growth funds are ahead (vs. 13% behind). Again, less pressure for growth managers to chase. The opposite is true for Russell 1000 value managers. There we can see that significantly more are trailing.
Figure 4: YTD Active manager summary performance
Performance of mutual funds relative to their respective benchmarks
Relative Performance (2012 YTD) Missing % % Missing Missing by at least by at least 500bp 250bp 7% 6% 8% 7% 6% 5% 3% 5% 4% 9% 5% 11% 7% 20% 15% 26% 20% 19% 13% 13% 13% 15% 18% 15% 20% 18% Beating % Beating % Beating by at least by at least 250bp 500bp 11% 25% 16% 17% 15% 16% 19% 15% 18% 64% 17% 43% 24% 4% 9% 3% 6% 4% 7% 7% 5% 8% 55% 7% 29% 12%
Growth managers are doing better in 2012
Benchmark Large Cap Russell 1000 Russell 1000 Growth Russell 1000 Value Large Cap Total Small & Mid Cap Russell Midcap Growth Russell 2000 Russell 2000 Growth Russell Midcap Value Russell 2000 Value Russell 3000 Small & Mid Cap Total MSCI / Other All Funds
# of Funds 491 432 316 1,239 215 199 196 110 101 11 832 682 2,753
AUM ($b) $1,168 $861 $643 $2,672 $196 $191 $121 $118 $85 $14 $724 $608 $4,004
Value doing poorly
2012 is starting off on a better note than 2011.

We have compared the performance of Russell 1000 managers against seasonal trends (tracking those trailing by 250bp). A couple of things stand out: First, 2012 is tracking in line with historical patterns as 18% are trailing, compared to 20% on average. 2012 is very similar to 2011, with perhaps only slightly a greater number of managers behind. Notice in 2011, that the massive slippage really took place between October 2011 and YE11at that time, every investor got too defensive.
Figure 5: 2011 month-by-month comparison (2011 vs. historical avg)
% missing by 250b
Figure 6: 2012 month-by-month comparison (2012 vs. historical avg)

% missing by 250b
2011 50 45 40 35 30 25 20 15 10 5 0
Historical Avg
Problems after Oct 11

48
2012 40 35 30 25 20 15 10 5 0 7 13 18
Historical Avg
47 37 40
42
14 7
14
18
22
22
25
Jan Feb Mar Apr May June Jul Aug Sep Oct Nov Dec
Jan Feb Mar Apr May June Jul Aug Sep Oct Nov Dec
Similar to 2011slightly worse
SECTOR STRATEGY: does the apple fall far from the Apple?
For many active manages, they have an Apple problem, even if they own the stock. With the stock up 48% YTD, on the heels of a 3-yr cumulative gain of 474%, Apple is not only the largest stock in the world, it represents a very large share of many indexes. Take a look at Figure 7 below. Apple is 4.5% of the S&P 500, but it is even larger share of these other indices. Why does it matter? It is 18% of the Nasdaq 100 and more pertinently, it is 8% of the Russell 1000 Growth benchmark (see Figure 7). Many funds have individual stock constraints of 5%--meaning an individual stock can only be 5% of the portfolio, due to concentration concerns. Even if the weight in the benchmark is larger. In other words, to own track Apple for a Russell 1000 Growth manager means to basically exceed concentration requirements. As a consequence, for those who own Apple. They probably do not own enough of it and thus, need to find other Apples to own.
Figure 7: Market weighting of Apple in various indices
% total
20.0% 18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0%
18.2%
11.7% 7.9% 4.5% 4.0%
S&P 500
Russell 1000
Russell 1000 Growth
Nasdaq 100
Nasdaq Composite
Source: J.P. Morgan.
Apples financial market dominance is a misperception

Maybe too much Ado about AAPL.There are bigger Apples in Europe and Asia
The S&P 500 is more diversified than other global indices on both market cap weighting and volume weighting. Based on market cap weighting, the top stock in the S&P 500 (AAPL) is only 4% of the index, well below the weightings of top stocks in other indices, such as Nestle in the SMI index or ENI SpA in the FTSEMIB index (see Figure 8). From a volume perspective, the top 10 stocks in the S&P 500 are also a much smaller impact than in other global indices. The top 10 stocks in the S&P 500 represent only 18% of trading volume (based on avg over past 6 months), well below the 4080% of volume that the top 10 stocks represent in other indices.
Figure 8: Weighting of Largest Stock in Index by Market Cap
Weighting of Largest Stock in Index by Market Cap
Figure 9: Weighting of Largest 10 Stocks in Index by Volume

Weighting of Largest 10 Stocks in Index by Volume
Nestle ENI SpA 25% 21% Samsung Vale Total HSBC SA 14% 11% 10% 9% 7% 6% Fast Retailing PetroSiemens China HSBC
AAPL much smaller than other indices
83% 76% 64% 55% 54% 50% 41% 36% 29%
AAPL much smaller than other indices
16% 15%
Total SA Apple 6% 4%
21% 20% 11%
SMI (Switzerland)
FTSE MIB (Italy)
Nikkei 225 (Japan)
CAC (France)
BOVESPA (Brazil)
Hang Seng (Hong Kong)
Shanghai (China)
DAX (Germany)
FTSE 100 (UK)
KOSPI (Korea)
Euro Stoxx 50 (Europe)
S&P 500 (US)
SMI (Switzerland)
FTSEMIB (Italy)
DAX (Germany)
CAC (France)
Euro Stoxx 50 (Europe)
BOVESPA (Brazil) Hang Seng (Hong Kong)
FTSE 100 (UK)
Nikkei 225 (Japan)
Source: J.P. Morgan and Bloomberg.
Source: J.P. Morgan and Bloomberg.
10
Shanghai (China)
KOSPI (Korea)
S&P 500 (US)
Apple price performance history shows transformation of company

The Apple story of the past few years belies a transformation of the company in the past decade (Moskowitz has written extensively about this). But this change is apparent in price history of Apple (Figure 10) below. Apple went through several phases in its public trading history: The last decade has seen remarkable consistency reflecting the transformation, product cycles, secular growth, and supply chain initiatives of Apple; The earliest stages of Apple were much rockier--note that in the first decade and a half of its public trading history, the stock had more down years than up years. And as shown on Figure 11, its price appreciation CAGR since its IPO at 19% is not substantially higher than the S&P 500 overall. Jobs iMac, iPod , iPhone
Figure 10: Annual price performance of Apple (relative to S&P 500)
Annual change since IPO. % performance relative to S&P 500
AAPL Rel Price Perf LT Avg
returns as CEO
transformation
Figure 11: AAPL and S&P 500 CAGR

AAPL and S&P 500 price perf CAGR
AAPL price 192% $1,000 130% 123%
S&P 500 CAGR 85% 75% Price Perf CAGR 65% 55% 45% 35% 25% 15% 5% -5% Since IPO
$1
AAPL CAGR
Post-IPO
165%
185% Controversial period (Sculley, transition) 8 of 15 yrs DOWN years.. 105% 69% LT Avg 34% 27%
79%
132%
AAPL YoY Rel Price Perf
120%
48%
Notable performance gap

45%
115% 65% 20% 15% -35% -85% 18%
$100 60% 23% 4% -11% -55% -58% -52% -68% -61% 40% 43% 26% $10 -18%
AAPL price (log scale)
29% 5% 1% -17% -40%
19% 8% 2% 0% 5yr
21%
-25%
-36%
10yr
3yr
-51%
Source: J.P. Morgan, Bloomberg, and Datastream
1/80 1/81 1/82 1/83 1/84 1/85 1/86 1/87 1/88 1/89 1/90 1/91 1/92 1/93 1/94 1/95 1/96 1/97 1/98 1/99 1/00 1/01 1/02 1/03 1/04 1/05 1/06 1/07 1/08 1/09 1/10 1/11 1/12
11
Apple: Qualitative Differentiators

Qualitative differentiators
There are many ways to identify what distinguishes Apple qualitatively. In fact, this has been well documented. We came across some commentary of a Ted Talk by Simon Sinek and found his extractions of what makes Apple unique very illustrative. We have summarized those 4 characteristics below:
Figure 12: Qualitative differentiators of Apple
Based on comments from a Ted Talk with Simon Sinek
Customer loyalty: Reputational excellence: Lifestyle products:
Products/services that inspire a following. Products are dependable. And meet customer expectations fully and beyond. Company always talks about challenging the status quo. Think differently. Does not make grand forecasts. They focus on what customers can do with the products. Not how they will take over the world The golden circle of why, how, when. Motivating and growing employee This is not something other companies can replicate, but Moskowitz has extensively written about Apple's investment in the supply chain.
Culture of success: Supply chain management:
Applying these to find the next Apple

We used the above as a qualitative template to identify the next Apples (talking to our analysts). Their ideas are summarized on Figure 14 to Figure 16. And those names reflect a combination of qualitative and quantitative characteristics.
12
Apple: Quantitative Differentiators

The quantitative summary of Apple is below. The obvious characteristic that stands out is Apples prodigious growth rates for both top line and earnings. Apples revenues have growth at 57% CAGR since 2010 and at 6X that of the Technology sector. The companys P/E and P/E to growth rate are well below that of the S&P 500 and Technology sector overall. In other words, the stock does not fully reflect its impressive growth rates. The company remains institutionally underowned. Only 73% of the shares are held by institutions compared to 88% for the S&P 500 overall and 85% for Technology. Finally, R&D surprisingly is not that high. This likely reflects the work Apple did on working with its supply chain partners, resulting in investment in that channel of production as a substitute for R&D. Or put another way, Apple is not as much of a "tech" company as its R&D belies.
Figure 13: Quantitative differentiators of Apple
AAPL Growth Revenue Growth CAGR ('10-'12E) Earnings Growth CAGR ('10-'12E) Investment Valuation R&D Spend as a % of Sales 2013 P/E (Current) PEG (2012 P/E vs 2013 Growth) Cash as a % of Assets ('10-'11) Cash as a % of Market Cap ('10-'11) Ownership Current Institutional Ownership 57% 72% 2% 10.4x 0.8x 31% 9% 73% Tech 10% 13% 13% 12.3x 1.1x 31% 20% 88% S&P500 ex-Fins 9% 9% 6% 11.8x 1.2x 14% 12% 85% Comments 6X that of Technology Margin ex pansion delivers lev erage Less on R&D, focus on products Low P/E Discount to growth Conservative Due to price rise Low ownership by institutions
Source: J.P. Morgan and FactSet.
13
Stock Strategy: 15 Next Apples

We have compiled a list of 15 ideas for companies that our analysts view as having secular growth opportunities, a strong market position, and attractive valuation, which make these equities attractive to own as the potential next "Apple." As we show on the next page, these companies are at various stages of maturity (see Figure 15). Figure 14 is a summary of the major characteristics of each company (the darker circle is better) both on qualitative and quantitative metrics. We have ranked them based on the overall score. But we emphasize the entire list is attractive.
14
Figure 14: Summary information of Next Apples

Qualitative and Quantitative metrics summary
Source: J.P. Morgan and FactSet
15
The stocks are arguably Apple at different stages

We placed the various ideas on the Apple scale (really the price chart) based on comparative size of the company and its growth prospects. This provides some context for where the idea sits on the spectrum. We are placing companies roughly in a quadrant based on their size and overall market they are addressing. And we are hardly forecasting that their pathway would match Apple.
Figure 15: At what stage is this company? Value shown is $ revs in billions
Apple stock price since IPO. Log scale
$1,000
Early Apple
Middle Apple
Modern Apple
ACN $29.3B
AAPL price
$100
QCOM $15.9B TIBX $1.0B CREE $1.0B BRCM $7.4B ANSS $0.7B INTU $4.1B VMW $3.8B NTAP $6.0B TRMB $1.6B QLIK $0.3B LNKD $0.5B
DIS $40.9b AMZN $48.1b
CMCSA $55.8b
$10
$1 '80 '81 '82 '83 '84 '85 '86 '87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11
Source: J.P. Morgan and FactSet
16
Comparative summary of the Next Apples

Qualitative Comparative Summary
Below is the qualitative summary of Apple based on the metrics that we discussed in earlier. Each analyst ranked their company based on their assessment of each characteristic.
Figure 16: QUALITATIVE Grid: the next Apples
17
Quantitative Comparative Summary

Below is the quantitative summary of Apple based on the metrics that we discussed in earlier. Each company was force ranked based on the attractiveness of that particular metric.
Figure 17: QUANTITATIVE Grid: the next Apples
18
Figure 18: Coverage List
NetApp NTAP Mark Moskowitz

Rating UW OW N UW UW N N UW
Ticker AAPL ARX BRCD DELL ELX EMC FIO HPQ IBM
Rating OW N UW OW UW OW N UW OW
Ticker LXK NTAP ORBK QLGC STEC STX WDC XRX
In IT Hardware, we highlight NetApp as another company developing its own unique legion of loyal customers and partners. The company continues to optimize enterprise storage environments in an elegant approach, one built upon a software-driven architecture. NetApp offers a singular operating system with a common dashboard of storage systems management features, which earn high marks from customers we speak to in the field. Overall, NetApps approach has resulted in a cleaner fit for its storage systems in server virtualization environments running on VMware. We believe that this dynamic has been an important reason behind NetApps major market share gains over the past three years, and it is similar to the common user interface attribute that has elevated Apple in mobile devices.
Figure 19: Price Performance NTAP

Trailing 1yr
Figure 20: Qualitative and Quantitative Summary NTAP

Full moon indicates more like AAPL; Empty moon indicates less like AAPL
Source: J.P. Morgan and Bloomberg Source: J.P. Morgan and Bloomberg
Back to NetApp, the storage competition currently offers disparate, less user-friendly system architectures. More recently, competitors such as EMC and Hewlett-Packard have been working to replicate the NetApp model of storage simplicity, i.e., a
19
common architecture across all price bands and workloads. We think it will take time, though, allowing NetApp to continue building out its legion of loyal customers over the next few years. Our conversations with NetApps storage partners and customers consistently indicate that the NetApp solutions are user-friendly and easy to manage. These differentiating attributes have helped NetApp overcome its higher-pricing structure for low-end and midrange systems versus competitive offerings, in our view. We point out that this relative premium in storage is similar to the premium price attached to Apples mobile devices. Despite the premium, customers continue to buy NetApp solutions, as there is less cost overage post-deployment. NetApp has had its fair share of growing pains recently. In the past 12 months, execution has been choppy, due in part to the companys increased exposure to more demanding enterprise customers. Historically, NetApp shipped standard storage configurations into the channel, requiring less post-sale customization. In contrast, more demanding enterprise customers require both initial deployment and post-deployment customization support, which we think has been causing some fulfillment issues at NetApp. Meanwhile, the company has struggled with keeping its product cycle refreshes on schedule and also monetizing prior acquisitions. Its 2003 acquisition of Spinnaker still has not ushered in a complete scale-out NAS clustering solution. Despite these challenges, we believe that NetApp possesses the technology and market position to continue achieving above-peer revenue and earnings growth over the next five years. Below, we present an overview of how NetApp scores on certain attributes (relative to its peers) that have been attached to leading companies, such as Apple. (Best = 1, Worst = 5) (i) Customer loyalty (Score = 1): NetApps easy-to-use software architecture has built a loyal following of customers over the past five years. The companys software-driven systems are easier to scale and manage relative to the competition, based on our conversations with partners and customers in the field. (ii) Reputational excellence (Score = 1): Despite some recent hiccups in product fulfillment, NetApps solutions continue to be regarded as the leading solution to support server virtualization environments. This attribute is important, as our recent CIO survey results indicate that server virtualization cycle has plenty of legs left. (iii) Lifestyle products (Score = NA): NetApp sells only to the enterprise, not the consumer. (iv) Culture of success (Score = 2): Employees and the channel love to work at NetApp. First, the company culture prides itself on being a Silicon Valley start-up that can compete with anyone. The companys practice of rewarding stock options to executives and rank-and-file also helps. NetApp also consistently ranks highly in lists of best places to work surveys. Lastly, the channel partners enjoy working with NetApp, as the company is more willing share the margin-rich post sale of services and support. (v) Potential to accelerate cash return to shareholders (Score = 3): On this topic, NetApp does not score as well. In our view, NetApp may have to use cash for acquisitions to fend off deeper pocketed EMC and Oracle over time in the data center. NetApp does possess a strong cash flow profile.
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Amazon AMZN Doug Anmuth

Ticker Rating AMZN OW AWAY OW EBAY N EXPE UW GOOG GRPN LNKD NFLX OW N OW N
Ticker Rating P OW PCLN OW QNST N RATE N RLOC TRIP YHOO ZNGA OW N N N
(Best = 1, Worst = 5) (i) Customer loyalty (Score = 1): Over the last 10+ years Amazon has done something we once thought was impossible onlinewin customer loyalty. The companys focus on price, selection, and convenience has enabled it to cut through a very crowded physical retail and ecommerce space to earn repeat customers. Amazon is driven by strong fulfillment capabilities and an easy to navigate front-end site, and the Amazon Prime membership program encourages repeat purchasing. Amazon has also virtually created the eReader and eBook market with the Kindle. (ii) Reputational excellence (Score = 2): Amazon has a strong reputation around shipping and fulfillment. Free Super Saver Shipping and Prime have helped Amazon differentiate versus other retailers. The companys 3rd-party business featuring vetted and reliable sellers also accounts for ~35% of units. Amazon is also increasingly shifting this business into its own warehouses through Fulfillment by Amazon.
Source: J.P. Morgan
Figure 22: Price Performance AMZN

Trailing 1yr
Figure 23: Qualitative and Quantitative Summary AMZN

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(iii) Lifestyle products (Score = 3): Amazon management runs the business on a very long term timeframe and is not afraid to make near-term investments to drive long-term share gains. Amazon has challenged the status quo by pioneering online commerce, shifting from books/media to other general merchandise, launching the Kindle eReader and eBooks, and launching AWS, Amazons cloud services. (iv) Culture of success (Score = 4): Amazon employees think and operate the business for the long-term. The business is run in a very lean way. Managements focus is on long-term share gains and FCF generation. (v) Potential to accelerate cash return to shareholders (Score = 5): Potential is there with an estimated $8B of cash on the BS at the end of 1Q12, but we would not expect major capital returns. Amazon strategically buys shares, but I would not expect a dividend or bigger return given the competitive nature of the space and Amazons desire to continuously innovate to gain share.
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LinkedIn LNKD Doug Anmuth

(Best = 1, Worst = 5) (i) Customer loyalty (Score = 2): Strong user base among corporate enterprises and consumer users. More than 9200 enterprises and 100M+ users. LinkedIn has strong network effects driven by social dynamics and Internet trends. LNKD has established itself as the leading career network. (ii) Reputational excellence (Score = 1): Strong reputation with corporate customers who place high value on LinkedIn's broad network and deep information. High ROI for enterprises. (iii) Lifestyle products (Score = 4): Not lifestyle products, but challenging the status quo by disrupting the traditional job placement and recruitment market. Conservatively run and investing for the long-term. (iv) Culture of success (Score = 3): Strong management team with leadership and vision in the Internet space. (v) Potential to accelerate cash return to shareholders (Score 5): Unlikely given early stage nature of company and significant growth opportunity ahead.
Figure 24: Price Performance LNKD
Trailing 1yr
Figure 25: Qualitative and Quantitative Summary LNKD

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Disney DIS Alexia Quadrani

Ticker Rating DIS OW DISCA N GCI N HHS N IPG OW MNI N NYT N

Source: J.P. Morgan
Ticker Rating OMC OW SNI N SSP OW TWX OW VCI OW VIAb OW WPP.L N
These grades are relative to Disneys peers (TWX, VIAB, CBS, etc): (Best = 1, Worst = 5) (i) Customer loyalty (Score = 1): Theme parks (Walt Disney World and others around the world, Disneyland Shanghai in development), movies/characters (animated classics, Pixar), ESPN. (ii) Reputational excellence (Score = 1): All three areas mentioned above are unrivaled (iii) Lifestyle products (Score = 2): Not so much challenging the status quo, but clear leadership that has been maintained. (iv) Culture of success (Score = 2): High level of creativity instilled in the business (Parks developers are known as Imagineers), Pixar is leader in animation, ESPN holds an ongoing dominance and is the highest valued cable network by far. (v) Potential to accelerate cash return to shareholders (Score = 2): Company is working through a peak capex year in F2012 (Sep YE) due to several major Parks attractions opening, after which capex should come down meaningfully to allow accelerated return of cash to shareholder, mostly through buybacks.
Figure 28: Qualitative and Quantitative Summary DIS
Figure 27: Price Performance DIS

Trailing 1yr
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Comcast CMCSA Phil Cusick

(Best = 1, Worst = 5) (i) Customer loyalty (Score = 2): Comcast has 22m video subscribers of which almost 11m take advanced services (such as HD or DVR service) and the company has 18m high speed internet subscribers, which is quickly becoming a necessity in the modern home. Comcast also owns 51% of NBCUniversal which has premium cable network, broadcast, film and theme park properties with a loyal following. (ii) Reputational excellence (Score = 3): The company has an excellent service record and is continuously trying to improve its product and service offerings to its customers. (iii) Lifestyle products (Score =3): Comcast has been innovative it trying to extend delivering entertainment services through various platforms and integrating its offerings into the everyday life of the consumer. The companys Streampix offering could have a substantial impact on how subscribers consume media.
Ticker Rating AMT OW CCI N CHTR OW CLWR N CMCSA OW CTL OW CVC UW DISH N DTV OW FTR N LEAP OW
Source: J.P. Morgan
Ticker Rating NTLS OW PCS OW S N SBAC T N TDS N TWC N USM UW VZ N WIN N
Figure 30: Price Performance CMCSA

Trailing 1yr
Figure 31: Qualitative and Quantitative Summary CMCSA

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(iv) Culture of success (Score = 2): Comcast continues to lead the cable and media space with its aggressive culture and leadership. (v) Potential to accelerate cash return to shareholders (Score = 1): We expect the company to repurchase $3.0b in stock in 2012 and issue dividends of $1.7b for a combined cash return to shareholders of $3.7bn in 2012, up 42% y/y. We could see upside if the cable business performs better than expected.
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Figure 32: Coverage List (part 1)
Trimble TRMB Paul Coster

Searching for the Next Apple. In Applied & Emerging Technologies, we highlight Trimble as a company developing some Apple-like characteristics, not least the potential for this electronic equipment company to post growth for many years to come. Trimble designs, manufactures and sells equipment that is used in engineering and construction, field agriculture, asset management and tracking, mining and exploration. The company is often equated with the GPS industry, however in recent years, a slew of hardware, software and service acquisitions re-positions the company as a full life-cycle IT-based solutions provider for the industry verticals that the company services. Trimbles vision is to achieve the connected construction site, the connected farm, the connected mobile enterprise.. As an analogy, Trimble is beginning to do for engineering, mining, construction, and agriculture, what SAP and Oracle did for the manufacturing industry with increasingly broad-scope ERP systems in the 1990s. We think this is a powerful value proposition.
Figure 34: Qualitative and Quantitative Summary TRMB
Ticker Rating ACTG OW AVID OW COMV CSTR N CUB N DBD DGI DLB DTSI N OW OW N
Ticker Rating ELON N ELT OW ENOC N ESE N FLIR UW FN GEOY GRMN IRBT OW N UW UW
Source: J.P. Morgan
Figure 33: Price Performance TRMB

Trailing 1yr
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Figure 35: Coverage List (part 2)
Ticker ITRI LOGI NCR NICE OVTI PLT RLD RMBS RPXC
Rating OW UW OW OW N N OW N OW
Ticker Rating SYNA N TASR N TNAV N TRMB OW TSYS N TTMI VRNT ZBRA ZIP N OW OW OW
Consider the Tekla acquisition, one of dozens of acquisitions that Trimble has made in the last few years. Tekla develops software products for use by architecture, engineering, construction, government and utilities customers, to design and construct large concrete and steel infrastructure projects and buildings, to manage workflow, assets, contractors and staff during the project and to commission the building or infrastructure for use. Combining this Tekla software with Trimbles traditional GPS-based equipment used for precision control of machinery, or to manage the supply of concrete and other supplies to the project, in realtime, provides a holistic efficiency-oriented solution for industries that have typically been slow to adopt information technology. The company claims that its technology can improve efficiency by 30%, reduce fuel use and emissions by 30%. At the 2011 JPMorgan TMT conference, Trimbles CEO, Steve Berglund, suggested that Trimbles growth could endure for decades to come. Though we expect nothing less than supreme self-confidence from the typical CEO, we feel he makes a good case for Trimble to follow an Apple-like trajectory owing to the magnitude of the problems that the firm is trying to solve; megatrends relating to infrastructure, affluence and technology. In short, we live in an increasingly urbanized, over-populated, resource-constrained world, characterized by housing shortages, escalating energy consumption, transportation congestion, and episodic food crises. Trimbles solutions address many of these challenges by improving the speed with which infrastructure projects are executed, improving the yield from farmland, and optimizing asset utilization. We expect the company to continuously expand the scope of its solutions (e.g. new sensor technologies, 3D modeling, SaaS), principally through acquisition. (Best = 1, Worst = 5) (i) Customer Loyalty (Score = 2). Trimbles technology is an industry-standard in engineering and construction, surveying, and in agricultural field solutions. Trimble Dimensions, the firms international user conference, is now in its 6th year; last year it attracted nearly 3000 participants from more than 60 countries. The firm was founded over 30 years ago and has offices in 21 countries. (ii) Reputational excellence (Score = 2). One measure of the firms reputation is the fact that it has entered into two JVs with Caterpillar, one of which utilizes the Caterpillar dealer network to distribute Trimble product. In 2011 Trimble was awarded a Blanket Purchase Agreement (BPA) by the Federal GSA, meaning fleet management services can be provided to 75 US federal agencies. Two Chinese government agencies have formed JVs with Trimble: CASIC-IT and CREEC. Hilti Group entered into a JV with Trimble in 2010. (iii) Lifestyle products (Score = 4). We will abuse this category by using it as an excuse to reflect upon the role that Trimbles products play in the building of roads, railways, airports, buildings, in the extraction and transport of energy, in improving crop yields, and in optimizing the allocation and movement of mobile workers and equipment. (iv) Culture of success (Score = 2). Trimble has grown at a 15% CAGR since 2000, and experienced only one significant down year (-15% in 2009). The company is very focused on operating margins, with the CEO expressing the intention of achieving 15% operating margins, even during down-cycles. Trimbles corporate culture embraces frugality; there are many paths to success. Looking forward the company aspires to 15-17% CAGR revenue growth, and over 20% operating margins in the next 5 years.
Source: J.P. Morgan
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(v) Potential to accelerate cash return to shareholders (Score = 5). But not now. Trimble exited 2011 with record EBITDA margins of over 25%, and the firm generated $240 million of cash flow from operations (normalized free cash flow of just over $200 million). Trimble is however firmly committee to growth at this point in the firms history, and investors should expect at least 5% of y/y growth to originate in acquisitions. In this context, Trimble exited 2011 with net debt of $410 million. The company does execute share buy-backs but these have typically done little for the stock. We dont expect significant cash to be returned to investors in the next 5 years.
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Qualcomm QCOM Rod Hall

Ticker Rating APKT N CIEN N CSCO OW FFIV N GLW UW INFN N JNPR N

Source: J.P. Morgan
Ticker Rating MITL N MMI N QCOM OW RIMM N RVBD OW TLAB UW
I would say that there is a huge amount of growth still go in smartphones and QCOM is very well tied to that. (Best = 1, Worst = 5) (i) Customer Loyalty (Score = 5). Loyalty doesn't matter much for the royalty business where they make 2/3 of their earnings. (ii) Reputational excellence (Score = 1). Very solid product reputation on chips, again doesn't matter for royalties (iii) Lifestyle products (Score = 4). (iv) Culture of success (Score = 2). (v) Potential to accelerate cash return to shareholders (Score = 2). It spins off plenty of cash but thy still think of themselves as a growth company. Returns probably depend on intl cash repatriation.
Figure 38: Qualitative and Quantitative Summary QCOM
Figure 37: Price Performance QCOM

Trailing 1yr
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Accenture ACN Tien-Tsin Huang

(Best = 1, Worst = 5) (i) Customer loyalty (Score = 1): ACN has strong relationship with its customers; the company wins a lot of contracts on sole-sourced basis (competitors are not even invited to bid). Many clients identify ACN as a partner, instead of as a vendor. More than 100 clients contribute $100M+ in annual revenue for the company. (ii) Reputational excellence (Score = 2): The companys one of the most diversified IT services firms offering a full suite of IT services including consulting, systems integration and outsourcing. The company also has a global delivery network of more than 160k spread across the world at various low cost locations. The biggest advantage to clients is the tight integration of various services and delivery locations. (iii) Lifestyle products (Score = 3): Although not as much applicable given the nature of the business, ACN is nimble and early to identify the changing industry trends and offer solutions/services that their clients demand. The company built and expanded its offshore delivery network organically and has more employees at low cost locations than most offshore firms.
Figure 41: Qualitative and Quantitative Summary ACN
Ticker Rating ACN OW ADP N BR OW CSC UW CTSH OW EXLS OW FIS FISV FLT G GDOT N N OW OW OW
Ticker Rating GPN OW HPY N MA OW MGI N PAY OW PAYX UW V WNS WU WXS OW UW OW N
Source: J.P. Morgan
Figure 40: Price Performance ACN

Trailing 1yr
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(iv) Culture of success (Score = 1): The company focuses a lot on preserving its culture- First, ACN does not pursue any large acquisitions which might dilute its culture. ACN roots as a pure play consulting company with partnership model resulted in an army of senior partners that own a lot of stake in the company. ACN spends a lot in training its employee- spent $800M in FY11. The company pays a mix of variable and fixed compensation to motivate its employees. (v) Potential to accelerate cash return to shareholders (Score = 1): The company has more than $5.5B in cash and no debt (net cash is 12% of market cap). Since they do not do large acquisitions and have no debt, ACN is focused on returning cash to shareholders. The company intends to return $3B in dividends and buybacks this year (7% of market cap) including 2% in dividends. ACNs dividend per share has increased by 220% over the last three years.
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Broadcom BRCM Harlan Sur

(Best = 1, Worst = 5) (i) Customer loyalty (Score = 1): Broadcom is the number one supplier in enteprise networking, broadband, and mobile connectivity semiconductors. Their leadership in digital signal processing, mixed signal/ feature/functionality integration, and best-in-class performance has driven their success in the markets in which they compete. Their tier-1 customer base (Apple, Cisco, and Samsung for example) is a reflection of their success. Apple, for example, uses Broadcom silicon in every product they sell (iPad, iPhone, macbook air, etc) and is a reflection of the loyalty and long-standing relationship that Broadcom has fostered over the past decade with Apple. (ii) Reputational excellence (Score = 1): Similar to (i), their market segment leadership and tier-1 customer base which includes some of the most demanding customers (Apple and Samsung) is a reflection of Broadcoms ability to execute, its customer service/support, and its ability to provide customers with a set of products that fits their requirements now AND, more importantly, for future generations of customer platforms.
Figure 44: Qualitative and Quantitative Summary BRCM
Ticker Rating BRCM OW CAVM OW ENTR N FSL OW IMI OW LSI N MLNX N

Source: J.P. Morgan
Ticker Rating MRVL OW MU N NVDA N NXPI N PMCS N SNDK N
Figure 43: Price Performance BRCM

Trailing 1yr
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(iii) Lifestyle products (Score = 1): The companys leadership in mobile connectivity through an integrated solution (WiFi, Bluetooth, FM, GPS) was challenged several years back by competitors who were selling discrete solutions. The market thought is would be technically difficult and too cost prohibitive for Broadcom to be successful with an integrated solution. Fast forward to today where Broadcom is now the number one supplier of mobile connectivity solutions to the smartphone and tablet markets (70%+ market share) and biggest differentiator is their integrated solution where they have a three generation lead over their nearest competitors. Today, Broadcoms platform approach (supplying as much of the silicon and software) is a key competitive differentiator and many successful semiconductor companies (like Qualcomm), have adopted a similar approach. (iv) Culture of success (Score =1): Broadcom is based on a culture of A) engineering excellence and B) operational, strategic, and technical execution. Tthe company has a very different product development model (central engineering team with each of the business units pulling shared resources from the central team) which has driven fast-time-to-market versus competitors. The company also has a solid development infrastructure in place to re-use much of the developed IP across multiple divisions. The central engineering model also creates an atmosphere of sharing and collaboration. (v) Potential to accelerate cash return to shareholders (Score = 2): should continue to generate 15-20% of cashflow from ops (as a perc of revenue) and expect increasing dividends over time..
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VMware VMW John DiFucci

Ticker Rating AVG OW BMC N CA OW CARB OW CRM N CTXS LOGM MSFT ORCL UW OW N OW
Ticker Rating PRO N QLIK OW QSFT OW RHT UW SWI OW SYMC TIBX TLEO VMW OW OW N N
(i) Customer Loyalty (Score = 1): The leading server virtualization vendor in the world with maintenance renewal rates of 95% or more. (ii) Reputational Excellence (Score = 1): VMware is writing the definition of what virtualization is and what it can mean going forward. (iii) Lifestyle Products (Score = 5): This is not really applicable, since the user of VMware products is an IT professional. However, VMware products do reduce real estate, power, and cooling requirements, which not only save money, but contribute to a green environment. (iv) Culture of Success (Score = 2): VMware is expanding its offerings from core server virtualization, to systems management, application development, and end-user virtualization. (v) Potential to accelerate cash return to shareholders (Score = 2): VMware is growing significantly, and is spending in order to capture a material market in front of it, but it still has close to a 40% free cash flow margin (excluding acquisitions).
Figure 47: Qualitative and Quantitative Summary VMW
Source: J.P. Morgan
Figure 46: Price Performance VMW

Trailing 1yr
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TIBCO TIBX John DiFucci

(i) Customer Loyalty (Score = 1): The last remaining pure-play integration software company with maintenance renewal rates easily in excess of 90%. (ii) Reputational Excellence (Score = 1): The standard for low latency messaging has parlayed that success into the broader integration software, application development, grid computing, social networking, and analytics spaces. TIBCOs solutions were built for the future in mind more than ten years ago. The future has caught up with TIBCO. (iii) Lifestyle Products (Score = 5): This is not really applicable, since the user of TIBCO products is an IT professional. (iv) Culture of Success (Score = 2): TIBCO has been through many trials and tribulations, not dissimilar to Apple in its youth, but has continued to persevere through the tireless determination and confidence of its founder and leader. (v) Potential to accelerate cash return to shareholders (Score = 3): Generates free cash flow at greater than 20% margin, with 35% growth a year ago. Has reduced share count by greater than 20% over the last five years through share repurchases.
Figure 48: Price Performance TIBX
Trailing 1yr
Figure 49: Qualitative and Quantitative Summary TIBX

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QLIK Technologies QLIK John DiFucci

(i) Customer Loyalty (Score = 2): QlikTechs strategy to land and expand yields increased loyalty based on products that simply get used more once they are initiated. (ii) Reputational Excellence (Score = 1): QlikTech provides a new approach to the age old problem of analytics, and it does it through the unique leveraging of recent advances in computing technology. (iii) Lifestyle Products (Score = 3): Ease of use spawns increased use, which is an important tenant of QlikTechs success in the enterprise. (iv) Culture of Success (Score = 2): A unique culture that values the employee as an agent of change to change the world. (v) Potential to accelerate cash return to shareholders (Score = 4): This is a relatively young company looking to continue its rapid expansion, so it is not looking to return cash to shareholders at this time, but once it builds mass and attains a steady state growth rate, it can pull back on spending and should generate significant cash flow.
Figure 50: Price Performance QLIK
Trailing 1yr
Figure 51: Qualitative and Quantitative Summary QLIK

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ANSYS ANSS Sterling Auty

Ticker ADSK ADVS AKAM ANSS AZPN BLKB C DNS CHKP CMVT Rtg OW UW N N OW N OW N N Ticker CSGS DOX EQIX FTNT GWRE IMPV INTU MOTR NSR Rtg N N OW N OW OW OW N N Ticker PMTC ROVI SNPS SSNC VRSN WBSN Rtg OW OW OW N UW
(Best = 1, Worst = 5) (i) Customer Loyalty (Score = 1): In the design engineering field there are dedicated simulation engineers that live and breathe this technology. Making it easier, this is starting to expand out to the basic design engineer. (ii) Reputational Excellence (Score = 1): When Japan went through the tragedy last year, there was an increase in demand for Ansys solutions to simulate outcomes and what could happen in other regions to reactors with various natural and unnatural events. (iii) Lifestyle Products (Score = 3): The company is trying to change how products are designed fundamentally. Instead of starting with a drawing, just outline the parameters of what you want the part/product to do and let the software solve for the design.
WWWW OW
Source: J.P. Morgan
Figure 53: Price Performance ANSS

Trailing 1yr
Figure 54: Qualitative and Quantitative Summary ANSS

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(iv) Culture of Success (Score = 2):- Turnover is lower than industry average and employees love working there. Now they are in Pittsburgh not silicon valley so less competition. (v) Potential to accelerate cash return to shareholders (Score = 3): have a share repurchase program, but does not stand out, but good cash flow and could at some point decide to support a dividend.
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Intuit INTU Sterling Auty

(i) Customer Loyalty (Score = 1): TurboTax and QuickBooks have a very loyal following. Once on them it is a community. QuickBooks has 6M businesses that run on it, and you can search online and find forums dedicated to the solution. (ii) Reputational Excellence (Score = 1): Taxes for people, and the financials for small business are a sensitive matter to users they demand accuracy and dependability; so, the growth is a testament. (iii) Lifestyle Products (Score = 1): Company is building off of its tradition with Quicken for personal finance and has Mint.com to manage finances from any device. In India, they have a mobile solution for farmers to help lock in market prices. (iv) Culture of Success (Score = 1): Best company in coverage at hiring, developing, promoting and inspiring talent. They are very GE like (Welch era) in this approach. (v) Potential to accelerate cash return to shareholders (Score = 2): Currently pays a 1% dividend yield, and they grow that moderately. As the economy heats up small business creation kicks in and demand should accelerate that could provide a foundation to do even more.
Figure 55: Price Performance INTU
Trailing 1yr
Figure 56: Qualitative and Quantitative Summary INTU

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Cree CREE Chris Blansett

Ticker Rating AMAT N BWEN N CREE OW FSLR UW KLAC N LRCX N NVLS N

Source: J.P. Morgan
Ticker Rating PLAB N RBCN OW SPWR UW VECO OW WFR UW
One of the things that separates Cree and most of the companies under coverage from Apple is the dependency on B2B sales. Even though we believe Cree could have a multi-year positive outlook, the lack of direct sales to consumers and the general diversification of product requirements for LED and LED based lighting applications means its unlikely to be a big winner in all of them. We think there could be a number of Cree like LED lighting companies over the next 5 years, and I do think Cree will be a significant benefactor of the adoption of LED based lighting technology. (Best = 1, Worst = 5) (i) Customer Loyalty (Score = 4) (ii) Reputational Excellence (Score = 5) (iii) Lifestyle Products (Score = 5) (iv) Culture of Success (Score = n/a): No Idea, Cree is a black box (v) Potential to accelerate cash return to shareholders (Score = 3)
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Figure 58: Price Performance CREE

Trailing 1yr
Figure 59: Qualitative and Quantitative Summary CREE

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Circle of Life Metrics show slightly slower momentum

Figure 61: % Change Since 3/9/12
Financials Technology Health Care Staples Discretionary S&P 500 Industrials Materials Utilities Telecom Energy 5.5% 4.1% 3.3% 2.4% 2.3% 2.3% 1.4% 0.6% 0.1% -0.8% -3.1% -8%
Source: FactSet.
Our subjective ranking of the 10 economic sectors based on fundamentals, credit profile, valuation, investor flow, and analyst ratings is below. The net change column on the right of the table shows the accumulated delta compared to the last Circle of Life publication for each of the 10 sectors, and the net change row at the bottom shows the accumulated delta for each of the metrics. Overall, our Circle of Life metrics showed slowing momentum this month, with a net -3 decline overall for the ten sectors based on our ranking system. The main driver of the weakening was price performance, however, rather than any of the fundamental criteria such as sales or earnings revisions, suggesting that the weaker momentum is likely a short-term impact.
Figure 60: Overall Subjective Ranking of Ten Economic Sectors
Fundamental, Technical, and Sentiment Metrics (Relative to S&P 500)
-3%
2%
7%
Sectors
Industrials Technology Energy M aterials HealthCare Discretionary Financials Telecom Staples
Strategy Rating
OW OW OW OW OW OW OW N UW UW
Price Perf
Price/50d mav g
Sales Rev ision
Sales Momentum
Earnings Rev ision
Earnings Momentum
JULI Spreads
FC Mean Rating
Short Interest
ETF Fund Flow s
P/10Yr EPS
Composite Net Score Change G from N G N from G N N N N N N N N -3 -2 -1 -1 -1 -1 +2 +1
N G
N from U U
G G N G G from N G N G G G G +1 G
N G G G U N U N N N N
G G N U N N N U N N N
G G G G G G N from G N N N G -1
N N G G N N G N N N N
N G N from G N from G N N G N N N N -2
G N N N G from N N N G G N N +1 N
G G N G N G N G from N N U from N N
G N G N G U G N G U N
N from G G from N U from N N from U N G G N U U U N from G
U from N U from N U N -3 N from G -1 N N from U +1 U +2
Reading the Table The overall rankings, as shown earlier, should be viewed as a conviction measure, separate but generally consistent with our Strategy ratings.
Utilities 10 Sectors 10 Sectors Cyclicals Cyclicals Defensives Defensives Near-Cyclicals Near-Cyclicals
N from G -1
N +0
U from N U from N -1 G -1 -2 N from U +1
G +1 N
G +1
N -1
G -1
G -1
N -2
Source: J.P. Morgan. G=Good, N=Neutral, U=Unattractive.
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Below is a timeline for the change in the 11 metrics followed by our Circle of Life model, broken down by Cyclicals, NearCyclicals, and Defensives.
Figure 62: Circle of Life Metrics Monthly Changes Cyclicals, Near-Cyclicals, and Defensives
Cyclicals: Materials, Industrials, Discretionary, & Tech 4/11 Price Performance Price/50d mavg Sales Revision Sales Momentum Earnings Revision Earnings Momentum JULI Spreads FC Mean Rating Short Interest ETF Fund Flows P/10Yr EPS Total Delta Composite Score
Near-Cyclicals: Energy & Financials 4/11 5/11 +1 6/11 -1 +1 10/11 -1 1/12 +1 -1 -1 -1 3/12 +2 -1 4/12 -1 +1 -1
Defensives: Staples, HealthCare, Telecom, & Utilitiees 4/11 +4 +1 +1 -1 +1 -1 +1 +1 -1 +1 -1 +2 -1 -1 -1 +1 +1 +1 -1 +1 -6 0.3 0.2 -4 0.1 -1 0.1 -2 -2 5/11 6/11 +2 +1 +1 10/11 1/12 -3 -1 -1 3/12 4/12 -1 -2 +1
5/11 -2
6/11 -1 +4
10/11 +1 -3
1/12 -2
3/12 -2
4/12 +2
-1 +2
-3
+1
+2
-1
-1
+1 -1
+1
+1
-1 -1 -1 -1
+3
-3 +1 -1
+1
-1
-1
+1
+1
+1
-1 +1 +1 -2 +1 +1 -2 0.4 0.4 +2 0.5 +1 0.6 -3 0.5 -2 0.4 -1 0.3 +3 0.4 -2 0.3 +6 0.2 +5 0.3 +3 0.3 +2 +1 -1 -2
-1
-1 +1 0.6 -3 0.5 0.5 +2 0.6
+1 -4 0.4
44
Circle of Life Metrics Monthly Changes

Figure 63: Circle of Life Metrics Monthly Changes Sectors
Materials 6/11 Price Performance Price/50d mavg Sales Revision Sales Momentum Earnings Revision Earnings Momentum JULI Spreads FC Mean Rating Short Interest ETF Fund Flows P/10Yr EPS Total Delta Composite Score 1 0.7 -1 0.6 -1 0.4 0 0.4 -1 0.3 -1 0.6
Staples 1/12 3/12 4/12 6/11 10/11 1/12 3/12 4/12
Industrials 10/11 1/12 3/12 4/12 6/11 10/11 1/12 3/12 4/12
Discretionary 6/11 10/11 1/12 3/12 4/12
Technology 6/11 10/11 1/12 3/12 4/12
Energy 6/11 10/11 1/12 3/12 4/12
0 0.6
0 0.6
-2 0.5
1 0.5
0 0.3
1 0.4
-1 0.3
-1 0.2
0 0.2
0 0.5
Telecom
2 0.6
-2 0.5
1 0.5
0 0.5
-1 0.7
Utilities
-1 0.6
-1 0.5
0 0.5
-1 0.5
Financials 6/11 Price Performance Price/50d mavg Sales Revision Sales Momentum Earnings Revision Earnings Momentum JULI Spreads FC Mean Rating Short Interest ETF Fund Flows P/10Yr EPS Total Delta Composite Score -2 0.3 -1 0.2 0 0.0 3 0.3 -1 0.2 10/11
HealthCare 6/11 10/11 1/12 3/12 4/12
6/11
10/11
1/12
3/12
4/12
6/11
10/11
1/12
3/12
4/12
2 0.5 0 0.5 -1 0.4
-1 0.3 -2 0.1 1 0.5 -2 0.4
-2 0.1
-1 0.0
2 0.2
1 0.5
-1 0.5
-2 0.3
-1 0.2
0 0.2
-1 (0.2)
3 0.1
-1 0.0
-1 (0.1)
-1 (0.2)
45
Figure 64: Circle of Life

Subjective Based on JPM Strategy Views The Circle of Life: Macro The macro picture has been strong recently, with initial jobless claims continuing their downward trend to ~350k, ISM remaining steady above 50, and payrolls gaining momentum.
Peaking
Banks Tech Hardware & Equip Media Dvrsfed Financials Technology Financials Industrials Insurance Capital Goods Autos & Components Semiconductors & Equip Consumer Durables & Apparel
Later-stage Overweight
Early-stage Underweight
High Grade
Credit HG bond spreads have tightened to 191bp from vs. 219bp in late January. HY yields have risen slightly recently to 7.5%.
Discretionary
TIPS EM GDP Oil ISM Treasuries
Auto sales
Recovery
Equity The S&P 500 has risen 3.2% over the past month. Cyclicals have outperformed over the past month, rising by 2.7% vs. a 2.5% rise for Defensives and 1.7% rise for NearCyclicals
CMBS ABX, ABS, CDOs HY/Lev Loans RMBS
US GDP Retail sales Jobs Dollar Housing Euro GDP HealthCare
Breaking Down
Materials Pharma Biotech & Life Sciences Utilities Staples Telecom Utilities Food & Staples Retailing Transportation
Agency MBS Munis
Retailing Software & Svcs
Energy
Consumer Svcs HH & Personal Products Materials
Early-stage Overweight
Real Estate Health Care Equip & Svcs
Food Beverage & Tobacco Energy Commercial & Prof Svcs Telecom Services
Later-stage Underweight
Bottoming
Source: J.P. Morgan estimates.
46
Quarterly Price Performance

Figure 65: Sector Quarterly Price Performance
Shaded box highlights performance of sector, Bold/Italics highlights S&P 500 performance
Materials 1Q11 16% 8% 5% 5% 4% 4% 4% 3% 3% 2% 2% 2Q11 7% 5% 4% 3% 1% 0% -1% -1% -2% -5% -6% 3Q11 0% -5% -8% -9% -11% -13% -14% -21% -22% -23% -25% 4Q11 18% 16% 15% 12% 11% 10% 9% 9% 8% 7% 6% QTD 22% 21% 15% 12% 10% 10% 8% 4% 3% 1% -3% Industrials 1Q11 16% 8% 5% 5% 4% 4% 4% 3% 3% 2% 2% Staples 3Q11 0% -5% -8% -9% -11% -13% -14% -21% -22% -23% -25% 4Q11 18% 16% 15% 12% 11% 10% 9% 9% 8% 7% 6% QTD 22% 21% 15% 12% 10% 10% 8% 4% 3% 1% -3% 1Q11 16% 8% 5% 5% 4% 4% 4% 3% 3% 2% 2% 2Q11 7% 5% 4% 3% 1% 0% -1% -1% -2% -5% -6% 3Q11 0% -5% -8% -9% -11% -13% -14% -21% -22% -23% -25% 4Q11 18% 16% 15% 12% 11% 10% 9% 9% 8% 7% 6% QTD 22% 21% 15% 12% 10% 10% 8% 4% 3% 1% -3% 2Q11 7% 5% 4% 3% 1% 0% -1% -1% -2% -5% -6% 3Q11 0% -5% -8% -9% -11% -13% -14% -21% -22% -23% -25% 4Q11 18% 16% 15% 12% 11% 10% 9% 9% 8% 7% 6% QTD 22% 21% 15% 12% 10% 10% 8% 4% 3% 1% -3% Discretionary 1Q11 16% 8% 5% 5% 4% 4% 4% 3% 3% 2% 2% 2Q11 7% 5% 4% 3% 1% 0% -1% -1% -2% -5% -6% 3Q11 0% -5% -8% -9% -11% -13% -14% -21% -22% -23% -25% 4Q11 18% 16% 15% 12% 11% 10% 9% 9% 8% 7% 6% QTD 22% 21% 15% 12% 10% 10% 8% 4% 3% 1% -3% T echnology 1Q11 16% 8% 5% 5% 4% 4% 4% 3% 3% 2% 2% T elecom 3Q11 0% -5% -8% -9% -11% -13% -14% -21% -22% -23% -25% 4Q11 18% 16% 15% 12% 11% 10% 9% 9% 8% 7% 6% QTD 22% 21% 15% 12% 10% 10% 8% 4% 3% 1% -3% 1Q11 16% 8% 5% 5% 4% 4% 4% 3% 3% 2% 2% 2Q11 7% 5% 4% 3% 1% 0% -1% -1% -2% -5% -6% 3Q11 0% -5% -8% -9% -11% -13% -14% -21% -22% -23% -25% 4Q11 18% 16% 15% 12% 11% 10% 9% 9% 8% 7% 6% QTD 22% 21% 15% 12% 10% 10% 8% 4% 3% 1% -3% 2Q11 7% 5% 4% 3% 1% 0% -1% -1% -2% -5% -6% 3Q11 0% -5% -8% -9% -11% -13% -14% -21% -22% -23% -25% 4Q11 18% 16% 15% 12% 11% 10% 9% 9% 8% 7% 6% QTD 22% 21% 15% 12% 10% 10% 8% 4% 3% 1% -3% Energy 1Q11 16% 8% 5% 5% 4% 4% 4% 3% 3% 2% 2% Utilities 1Q11 16% 8% 5% 5% 4% 4% 4% 3% 3% 2% 2% 2Q11 7% 5% 4% 3% 1% 0% -1% -1% -2% -5% -6% 3Q11 0% -5% -8% -9% -11% -13% -14% -21% -22% -23% -25% 4Q11 18% 16% 15% 12% 11% 10% 9% 9% 8% 7% 6% QTD 22% 21% 15% 12% 10% 10% 8% 4% 3% 1% -3% 2Q11 7% 5% 4% 3% 1% 0% -1% -1% -2% -5% -6% 3Q11 0% -5% -8% -9% -11% -13% -14% -21% -22% -23% -25% 4Q11 18% 16% 15% 12% 11% 10% 9% 9% 8% 7% 6% QTD 22% 21% 15% 12% 10% 10% 8% 4% 3% 1% -3%
Financials 1Q11 16% 8% 5% 5% 4% 4% 4% 3% 3% 2% 2% 2Q11 7% 5% 4% 3% 1% 0% -1% -1% -2% -5% -6%
HealthCare 1Q11 16% 8% 5% 5% 4% 4% 4% 3% 3% 2% 2% 2Q11 7% 5% 4% 3% 1% 0% -1% -1% -2% -5% -6%
47
Update on Stocks for the 4th Year of Bull Market Trade Idea
We are keeping our Stocks for the 4th Year of Bull Market trade open this month. As a reminder, we identified stocks that look well-positioned to outperform in the 4th year of the bull market. We identified 10 stocks using the following criteria: (i) Stock is in one of the top 4 sectors, namely Industrials, Financials, Energy, and Technology; (ii) Stock is in 3 or more of the current bestperforming styles (Less Liked, High Div Yield, Lower Beta, High Quality, Large Cap, and High FCF Yield); (iii) Rated Overweight by J.P. Morgan; and (iv) Upside to J.P. Morgan target price.
Figure 66: 10 Stocks for the 4th Year of Bull Market
Initiated on 03/08/2012
03/08/2012 04/04/2012 (Open Trade): Stocks for 4th Year of Bull Mkt Name Bank of America Corp. AFLAC Inc. Validus Holdings Ltd. General Electric Co. Enterprise Products Partners L.P. ACE Ltd. International Business Machines Corp. General Dy namics Corp. Health Care REIT Inc. Annaly Capital Management Inc. Stock Ticker BAC AFL VR GE EPD ACE IBM GD HCN NLY OW OW OW OW OW OW OW OW OW OW JPM Rating Current as of 03/08/12 OW OW OW OW OW OW OW OW OW OW 3/08/12 $8.06 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 4/04/12 $9.20 $1,141 $1,006 $1,028 $1,037 $977 $1,027 $1,031 $1,009 $993 $975 Sub-Total S&P 500 Long: 10 Stocks for the 4th Year of Bull Mkt Trade vs. S&P 500
Source: J.P. Morgan and FactSet. Note: The table above shows the performance of a hypothetical trade assuming an investor bought and sold all the stocks shown on the dates shown.
Trade Initiated Date Price
$ Value
As of 04/04/2012 Date Price
$ Value
Profit (Loss) $ Chg % Chg $141 $6 $28 $37 ($23) $27 $31 $9 ($7) ($25) $224 $242 $224 ($18) 14.1% 0.6% 2.8% 3.7% -2.3% 2.7% 3.1% 0.9% -0.7% -2.5% 2.2% 2.4% 2.2% -0.2%
3/08/12 $44.76 3/08/12 $30.17 3/08/12 $19.03 3/08/12 $51.49 3/08/12 $71.49 3/08/12 $199.81 3/08/12 $72.01 3/08/12 $53.93 3/08/12 $16.15
4/04/12 $45.04 4/04/12 $31.01 4/04/12 $19.74 4/04/12 $50.28 4/04/12 $73.43 4/04/12 $206.05 4/04/12 $72.63 4/04/12 $53.55 4/04/12 $15.74
SP50
3/08/12 3/08/12
1,366
$10,000 $10,000
4/04/12 4/04/12
1,399
$10,242 $10,224
48
Update on Financials Top Ideas from J.P. Morgan Fundamental Analysts

We are keeping our Financials Top Ideas trade open this month. As a reminder, we aggregated the top stock ideas from each of J.P. Morgans fundamental equity analysts in the Financials space (see Best Equity Near-Term Ideas dated 1/24/12 for full write-ups of these analysts views on these stocks).
Figure 67: 7 Financials Top Ideas Stocks

01/26/2012 04/04/2012 (Open Trade): Financials T op Ideas Name Citigroup Inc. Allstate Corp. Och-Ziff Capital Management Group LLC. Zions Bancorporation Prudential Financial Inc. Apollo Investment Corp. SL Green Realty Corp. Stock Ticker C ALL OZM ZION PRU AINV SLG N OW OW OW OW OW OW JPM Rating Current as of 01/26/12 OW OW OW OW OW OW OW 1/26/12 $30.38 1/26/12 $29.15 1/26/12 $9.90 1/26/12 $16.58 1/26/12 $55.59 1/26/12 $7.53 1/26/12 $73.82 $1,429 $1,429 $1,429 $1,429 $1,429 $1,429 $1,429 4/04/12 $35.04 4/04/12 $32.62 4/04/12 $9.65 4/04/12 $21.08 4/04/12 $62.82 4/04/12 $7.34 4/04/12 $75.35 $1,648 $1,599 $1,392 $1,816 $1,614 $1,393 $1,458 Sub-Total S&P 500 SP50 Long: 7 Financials Top Ideas from JPM Fundamental Analysts Trade vs. S&P 500
Trade Initiated Date Price
$ Value
As of 04/04/2012 Date Price
$ Value
Profit (Loss) $ Chg % Chg $219 $170 ($36) $388 $186 ($36) $30 $920 $611 $920 $309 15.3% 11.9% -2.5% 27.1% 13.0% -2.5% 2.1% 9.2% 6.1% 9.2% 3.1%
1/26/12 1/26/12
1,318
$10,000 $10,000
4/04/12 4/04/12
1,399
$10,611 $10,920
49
Update on Cyclical Cocktail Stocks Trade Idea

We are keeping our Cyclical Cocktail Stocks trade open this month. As a reminder, this trade identified stocks in industry groups and styles that worked in both 98 and 08, or in offensive styles that have led since the start of the year. Specifically, we identified 26 stocks using the following criteria: In one of the following Industry Groups: Semiconductors, Consumer Svcs, Software & Svcs, Tech Hardware & Equip, Retailing, or Diversified Financials; In at least three of the following Styles: High P/B (>3.37x), More Liked (FC Mean Rating <2.00), High Beta (>1.69), Low Momentum (Price/200D MAVG < 80%), Low Price (<$13.85), Small Mkt Cap (<$1.2b), or Low Quality (S&P Stock Rating >= 21); and Rated Overweight by J.P. Morgan.
50
Figure 68: 26 Cyclical Cocktail Stocks

10/20/2011 04/04/2012 (Open Trade): 26 Cyclical Cocktail Stocks JPM Rating Name Rubicon Technology Inc. RealD Inc. Office Depot Inc. Veeco Instruments Inc. ShoreTel Inc. Bank of America Corp. MGM Resorts International Pinnacle Entertainment Inc. Stray er Education Inc. Och-Ziff Capital Management Group LLC. OmniVision Technologies Inc. Verint Sy stems Inc. Orient Express Hotels Ltd. Investment Technology Group Inc. American Capital Ltd. DineEquity Inc. Gaylord Entertainment Co. Las Vegas Sands Corp. LogMeIn Inc. Aeroflex Holding Corp Monoty pe Imaging Holdings Inc. Cadence Design Systems Inc. ON Semiconductor Corp. Cardtronics Inc. Motricity Inc. KKR & Co. L.P. Stock Ticker RBCN RLD ODP VECO SHOR BAC MGM PNK STRA OZM OVTI VRNT OEH ITG ACAS DIN GET LVS LOGM ARX TYPE CDNS ONNN CATM MOTR KKR OW OW OW OW OW N OW OW OW OW OW N OW OW N OW OW OW OW N OW OW OW OW OW Current as of 10/20/11 OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW 10/20/11 $9.70 $385 $385 $385 $385 $385 $385 $385 $385 $385 $385 $385 $385 $385 $385 $385 $385 $385 $385 $385 $385 $385 $385 $385 $385 $385 $385 4/04/12 $9.67 $383 $481 $592 $402 $379 $547 $521 $395 $399 $371 $457 $430 $491 $397 $490 $430 $569 $527 $383 $412 $443 $456 $490 $411 $303 $484 Sub-Total S&P 500 Long: 26 Cy clical Cocktail Stocks Trade vs. S&P 500 SP50 10/20/11 10/20/11 1,215 $10,000 $10,000 4/04/12 4/04/12 1,399 $11,510 $11,643 ($1) $97 $208 $17 ($6) $162 $136 $10 $15 ($13) $73 $45 $106 $12 $106 $45 $184 $142 ($1) $27 $59 $72 $105 $27 ($82) $100 $1,643 $1,510 $1,643 $132 -0.3% 25.1% 54.0% 4.5% -1.5% 42.2% 35.4% 2.7% 3.8% -3.5% 18.9% 11.7% 27.5% 3.2% 27.5% 11.8% 47.8% 36.9% -0.3% 7.1% 15.3% 18.7% 27.3% 7.0% -21.3% 25.9% 16.4% 15.1% 16.4% 1.3% 10/20/11 $10.10 10/20/11 $2.15 10/20/11 $26.04 10/20/11 10/20/11 $5.48 $6.47 4/04/12 $12.64 4/04/12 $3.31 4/04/12 $27.20 4/04/12 4/04/12 $5.40 $9.20 Trade Initiated Date Price $ Value As of 04/04/2012 Date Price $ Value Profit (Loss) $ Chg % Chg
10/20/11 $10.01 10/20/11 $11.25 10/20/11 $85.32 10/20/11 $10.00 10/20/11 $16.77 10/20/11 $27.50 10/20/11 $7.88 10/20/11 $11.06 10/20/11 $6.77 10/20/11 $43.24 10/20/11 $20.90 10/20/11 $41.76 10/20/11 $34.92 10/20/11 $10.19 10/20/11 $12.77 10/20/11 10/20/11 10/20/11 $9.91 $6.73 $1.78
4/04/12 $13.55 4/04/12 $11.55 4/04/12 $88.54 4/04/12 $9.65 4/04/12 $19.94 4/04/12 $30.72 4/04/12 $10.05 4/04/12 $11.41 4/04/12 $8.63 4/04/12 $48.33 4/04/12 $30.90 4/04/12 $57.17 4/04/12 $34.80 4/04/12 $10.91 4/04/12 $14.72 4/04/12 $11.76 4/04/12 4/04/12 $8.57 $1.40 4/04/12 $25.23 4/04/12 $14.73
10/20/11 $23.59 10/20/11 $11.70
51
Update on Cyclicals Summer Bounce Trade Idea

We are keeping our Cyclicals Summer Bounce trade open this month. As a reminder, this trade identified Cyclicals stocks that were likely to outperform over the next few months as stocks were expected to rebound last summer led by Cyclicals. Specifically, we used the following criteria: 1) stock is in a Cyclical sector (Technology, Materials, Industrials, Discretionary); 2) Price < 50D MAVG; 3) RSI < 33; 4) rated Overweight by J.P. Morgan; 5) upside to J.P. Morgan target price; 6) market cap > $3B; and 7) P/B < 2.0x.
Figure 69: 13 Stocks for a Summer Bounce Led by Cyclicals
6/16/2011 04/04/2012 (Open Trade): 13 Summer of Cyclicals Stocks JPM Rating Name ManpowerGroup Nucor Corp. Alcoa Inc. Staples Inc. Royal Caribbean Cruises Ltd. CA Inc. Textron Inc. Jacobs Engineering Group Inc. Sy nopsy s Inc. Mohawk Industries Inc. Ingersoll-Rand Plc General Electric Co. Republic Serv ices Inc. Stock Ticker MAN NUE AA SPLS RCL CA TXT JEC SNPS MHK IR GE RSG Current OW OW OW OW N OW N OW OW N OW OW N as of 6/16/11 OW OW OW OW OW OW OW OW OW OW OW OW OW Trade Initiated Date Price $ Value $769 $769 $769 $769 $769 $769 $769 $769 $769 $769 $769 $769 $769 As of 04/04/2012 Date Price $ Value $676 $821 $510 $821 $640 $979 $1,012 $821 $941 $885 $727 $823 $773 Sub-Total S&P 500 Long: 13 Summer of Cyclicals Stocks Trade vs. S&P 500
Profit (Loss) $ Chg ($93) $51 ($259) $52 ($129) $209 $243 $52 $172 $115 ($43) $54 $4 $429 $1,036 $429 ($607) % Chg -12.1% 6.7% -33.7% 6.8% -16.8% 27.2% 31.6% 6.8% 22.3% 15.0% -5.5% 7.0% 0.5% 4.3% 10.4% 4.3% -6.1%
6/16/11 $52.60 6/16/11 $39.46 6/16/11 $14.79 6/16/11 $15.05 6/16/11 $33.70 6/16/11 $21.35 6/16/11 $21.57 6/16/11 $41.14 6/16/11 $24.91 6/16/11 $57.91 6/16/11 $43.63 6/16/11 $18.44 6/16/11 $30.29
4/04/12 $46.21 4/04/12 $42.10 4/04/12 $9.81 4/04/12 $16.07 4/04/12 $28.03 4/04/12 $27.16 4/04/12 $28.38 4/04/12 $43.93 4/04/12 $30.47 4/04/12 $66.60 4/04/12 $41.21 4/04/12 $19.74 4/04/12 $30.45
SP50
6/16/11 6/16/11
1,268
$10,000 $10,000
4/04/12 4/04/12
1,399
$11,036 $10,429
52
Update on HealthCare Trade Idea

We are keeping our HealthCare trade open this month. As a reminder, this trade identified 18 top HealthCare stock ideas from J.P. Morgans fundamental research analysts.
Figure 70: 18 HealthCare Top Ideas from J.P. Morgan Analysts
5/12/2011 04/04/2012 (Open Trade): 18 HealthCare Top Ideas Name Dendreon Corp. United Therapeutics Corp. Allscripts Healthcare Solutions Inc. Pfizer Inc. Mylan Inc. McKesson Corp. Ex press Scripts Holding Co Life Technologies Corp. Cigna Corporation Accretiv e Health Inc. Covidien PLC Gilead Sciences Inc. St. Jude Medical Inc. WellPoint Inc. Illumina Inc. Onyx Pharmaceuticals Inc. UnitedHealth Group Inc. Alkermes PLC Stock Ticker DNDN UTHR MDRX PFE MYL MCK ESRX LIFE CI AH COV GILD STJ WLP ILMN ONXX UNH ALKS OW N N OW OW OW OW OW OW OW OW OW OW OW OW JPM Rating Current as of 5/12/11 OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW OW 5/12/11 $37.80 5/12/11 $67.40 5/12/11 $20.31 5/12/11 $20.89 5/12/11 $24.09 5/12/11 $85.02 5/12/11 $59.79 5/12/11 $56.35 5/12/11 $48.05 5/12/11 $26.36 5/12/11 $56.13 5/12/11 $41.29 5/12/11 $52.17 5/12/11 $80.00 5/12/11 $75.23 5/12/11 $43.60 5/12/11 $50.08 5/12/11 $17.02 $556 $556 $556 $556 $556 $556 $556 $556 $556 $556 $556 $556 $556 $556 $556 $556 $556 $556 4/04/12 $10.26 4/04/12 $45.23 4/04/12 $16.39 4/04/12 $22.39 4/04/12 $23.16 4/04/12 $87.89 4/04/12 $56.88 4/04/12 $47.51 4/04/12 $48.80 4/04/12 $20.02 4/04/12 $53.82 4/04/12 $47.19 4/04/12 $41.67 4/04/12 $72.12 4/04/12 $52.28 4/04/12 $39.28 4/04/12 $59.06 4/04/12 $18.47 $151 $373 $448 $595 $534 $574 $529 $468 $564 $422 $533 $635 $444 $501 $386 $501 $655 $603 Sub-Total S&P 500 Long: 18 HealthCare Top Ideas Trade vs. S&P 500 SP50 5/12/11 5/12/11 1,349 $10,000 $10,000 4/04/12 4/04/12 1,399 $10,373 $8,916 ($405) ($183) ($107) $40 ($21) $19 ($27) ($87) $9 ($134) ($23) $79 ($112) ($55) ($169) ($55) $100 $47 ($1,084) $373 ($1,084) ($1,457) -72.9% -32.9% -19.3% 7.2% -3.9% 3.4% -4.9% -15.7% 1.6% -24.1% -4.1% 14.3% -20.1% -9.8% -30.5% -9.9% 17.9% 8.5% -10.8% 3.7% -10.8% -14.6% Trade Initiated Date Price $ Value As of 04/04/2012 Date Price $ Value Profit (Loss) $ Chg % Chg
53
Figure 71: Circle of Life Trades Since Launch of Publication

Performance of trades
Publication Dates Pair Trade Re-Cap Long/Short Performance Short REL Perf vs S&P 500 Long REL Perf vs S&P 500 Sector rating changes
Trade Open 3/8/2012 -
Trade Close Open Open Open
Long Short Sector Long: 10 Stocks for 4th Year of Bull Market Long: 7 Financials Top Ideas Long: 26 Cyclical Cocktail Stock Ideas
Perf
+ or -
% chg 2.2% 9.2% 16.4%
Upgrade/ Downgrade
Sector
2.2% x +100.0% 9.2% x +100.0% 16.4% x +100.0%
-0.2% 3.1% 1.3% Upgrade Discretionary N ---> OW
1/26/2012 10/20/2011 12/9/2011 6/16/2011 5/12/2011 -
Open Open
Long: 13 Summer of Cy clicals Stocks Long: 18 HealthCare Top Ideas Long: 18 Stocks post-Oil spike Avoid: 6 Stocks post-Oil spike
4.3% x +100.0% -10.8% x +100.0% -4.8% x +100.0% -3.6% x -100.0%
4.3% -10.8% -4.8% 3.6% -13.4% -8.9% 15.7% 26.3% 3.7% -12.0% 4.2% 11.4% 5.8% 60.0%
-6.1% -14.6% -0.4% 8.0% -6.3% -17.6% 2.9% 3.7% -1.3% -7.8% 4.8% 3.3% 5.0% 39.6% Downgrade Energy OW ---> N Upgrade Energy N ---> OW Upgrade Downgrade HealthCare Discretionary N ---> OW OW ---> N
3/31/2011 - 6/16/2011
2/3/2011
- 10/20/2011
Long: 15 Street Momentum Ideas Long: 5 Energy Top Ideas Long: 25 Stocks Attractive on Circle of Life Metrics Long: 19 Stocks Correlated with Res. Constr. or Inv entory Long 25 Clobbered Stocks with FCF Yld > BY Long 25 Employment Demographics Stocks Long 23 Price Target Upgrade Stocks Long 24 Correction Stocks Long 19 Financials Stocks Long 25 Pro-Cyclical Stocks
-13.4% x +100.0% -8.9% x +100.0% 15.7% x +100.0% 26.3% x +100.0% 3.7% x +100.0% -12.0% x +100.0% 4.2% x +100.0% 11.4% x +100.0% 5.8% x +100.0% 60.0% x +100.0%
11/11/2010 - 1/26/2012 10/7/2010 2/3/2011
8/19/2010 - 1/26/2012 6/3/2010 - 10/7/2010
4/22/2010 - 10/7/2010 3/25/2010 - 10/7/2010 2/11/2010 - 3/25/2010 1/14/2010 - 10/7/2010 11/19/2009 - 1/26/2012
Source: J.P. Morgan and FactSet. Note: The table above shows the performance of hypothetical trades assuming an investor bought and sold on the dates shown above, according to the trade parameters highlighted in each of our past Circle of Life reports. 54
Figure 72: Circle of Life Trades Since Launch of Publication (Continued)

Performance of trades
Publication Dates Pair Trade Re-Cap Long/Short Performance Short REL Perf vs S&P 500 Long REL Perf vs S&P 500 Sector rating changes
Trade Open 12/11/2009
Trade Close
Long Short Sector
Perf
+ or -
% chg
Upgrade/ Downgrade Upgrade
Sector Health Care UW ---> N
10/22/2009 - 11/19/2009 9/18/2009 - 10/22/2009 8/5/2009 7/1/2009 6/25/2009 6/4/2009 7/1/2009 - 1/14/2010 8/5/2009
Long 25 High Debt Stocks Long 26 Cyclical Stocks for the Next Leg of the Recovery Long Top 15 Energy Stks (Composite Score) Long 15 Top Smoke Stackey Industries
-2.0% x +100.0% -1.4% x +100.0% 28.8% x +100.0% 14.7% x +100.0%
-2.0% -1.4% 28.8% 14.7%
-2.2% -3.7% 14.2% 6.1% Upgrade Upgrade Industrials Materials N ---> OW N ---> OW Upgrade Downgrade Energy Health Care N ---> OW N ---> UW
Long 6 Sub-Industries Short 5 Sub-Industries Long Consumer Ideas Short Consumer Ideas Long Discretionary Short Staples Materials Industrials Short Utilities Materials Short Telecom Svcs Health Care Short Energy
-1.9% x +100.0% -6.6% x -100.0% -0.3% x +100.0% -1.2% x -100.0% 4.5% x +100.0% 8.0% x -100.0% 12.6% x +100.0% 18.2% x +100.0% 2.4% x -100.0% 8.0% x +100.0% 8.4% x -100.0% 0.0% x +100.0% -7.3% x -100.0%
-1.9% 6.6% -0.3% 1.2% 4.5% -8.0% 12.6% 18.2% -2.4% 8.0% -8.4% 0.0% 7.3%
0.1% 4.6% -8.2% 9.1% -3.4% -0.1% 1.7% 7.3% 8.6% 6.9% -7.3% 8.3% -1.1% Upgrade Downgrade Upgrade Downgrade Materials Telecom Health Care Energy UW ---> N OW ---> N N ---> OW N ---> UW Upgrade Downgrade Industrials Health Care UW ---> N OW ---> N Upgrade Energy UW ---> N
4/29/2009 -
6/4/2009
4/29/2009 -
6/4/2009
3/30/2009 - 4/29/2009
Long Long
2/19/2009 - 3/30/2009
Long
1/16/2009 - 2/19/2009
Long
Source: J.P. Morgan and FactSet. Note: The table above shows the performance of hypothetical trades assuming an investor bought and sold on the dates shown above, according to the trade parameters highlighted in each of our past Circle of Life reports. 55
Sector Comparative
Relative Price Performance Price vs. 50-Day Moving Avg Monthly Relative Sales Revision Relative Sales Growth (vs. S&P 500) Monthly Relative Earnings Revision Relative Earnings Momentum JULI Spreads (Relative to All Industries Average) First Call Mean Rating (Relative to S&P 500) Short Interest (Relative to S&P 500) ETF Fund Flows Price/10-Yr EPS (Relative to S&P 500)
Sector Comparative
56
Trailing One-Month Relative Price Performance Sectors

Figure 73: Energy
Recession Trailing 1-mos Relative Perf. MAVG past 12mos
Figure 74: Materials

Figure 75: Industrials

Figure 76: Technology

20% 15% 10% 5% 0% -5% -10% -15% 12/05 12/06 12/07 12/08 12/09 12/10 12/11
N from G
10% 5% 0% -5% -10% 12/05
U from N
7% 2% -3% -8% 12/05
10% 5% 0% -5% -10% 12/05
12/06
12/07
12/08
12/09
12/10
12/11
12/06
12/07
12/08
12/09
12/10
12/11
12/06
12/07
12/08
12/09
12/10
12/11
Figure 77: Staples

Figure 78: Health Care

Figure 79: Telecom

Figure 80: Utilities

15% 10% 5% 0% -5%
10% 5% 0% -5% -10% 12/05
U from N
8% 3% -2% -7% -12% 12/05
15% 10% 5% 0% -5%
12/06
12/07
12/08
12/09
12/10
12/11
12/06
12/07
12/08
12/09
12/10
12/11
-10% 12/05
12/06
12/07
12/08
12/09
12/10
12/11
-10% 12/05
12/06
12/07
12/08
12/09
12/10
12/11
Figure 81: Discretionary

Relative Price Performance: Trailing one-month price performance of sector minus trailing one-month price performance of S&P 500.
Figure 82: Financials

10% 5% 0% -5% -10% 12/05
15% 10% 5% 0% -5% -10% -15%
12/06
12/07
12/08
12/09
12/10
12/11
-20% 12/05
12/06
12/07
12/08
12/09
12/10
12/11
Source: J.P. Morgan and Datastream.
57
Price vs. 50-Day Moving Avg Sectors (best is low and rising)
Figure 83: Energy
% of stocks above mavg
G from N

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 8/02
Caution Zone
N from U

N from U

U
80%
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 8/02
Caution Zone
57%
Buy Zone
23%
Buy Zone
8/03
8/04
8/05
8/06
8/07
8/08
8/09
8/10
8/11
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 8/02
Caution Zone
59%
Buy Zone
8/03
8/04
8/05
8/06
8/07
8/08
8/09
8/10
8/11
8/03
8/04
8/05
8/06
8/07
8/08
8/09
8/10
8/11
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 8/02
Caution Zone
Buy Zone
8/03
8/04
8/05
8/06
8/07
8/08
8/09
8/10
8/11
Figure 87: Staples

U from N
86%

Figure 89: Telecom

U
88% 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 8/02
Caution Zone
N from G

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 8/02
Caution Zone
Buy Zone
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 8/02
Caution Zone
43%
Buy Zone
Buy Zone
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 8/02
Caution Zone
50%
Buy Zone
8/03
8/04
8/05
8/06
8/07
8/08
8/09
8/10
8/11
8/03
8/04
8/05
8/06
8/07
8/08
8/09
8/10
8/11
8/03
8/04
8/05
8/06
8/07
8/08
8/09
8/10
8/11
8/03
8/04
8/05
8/06
8/07
8/08
8/09
8/10
8/11

Price Momentum: % of stocks in sector above 50-day moving average.
U
78%

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 8/02
Caution Zone
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 8/02
Caution Zone
84%
Buy Zone
Buy Zone
8/03
8/04
8/05
8/06
8/07
8/08
8/09
8/10
8/11
8/03
8/04
8/05
8/06
8/07
8/08
8/09
8/10
8/11
58
Monthly Sales Revision Sectors

Figure 93: Energy
20.0% 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% -15.0% -20.0% -25.0% 8/06 8/07 8/08

6.0% 4.0% 2.0% 0.0% -2.0% -4.0% -6.0% -8.0% -10.0% 8/06

3.0% 2.0% 1.0% 0.0% -1.0%

6.0% 4.0% 2.0% 0.0% -2.0%
N: Mixed revisions
8/09 8/10 8/11
G: Consistently positive
8/07 8/08 8/09 8/10 8/11
-2.0% -3.0% -4.0% -5.0% 8/06
8/07 8/08 8/09 8/10 8/11
-4.0% -6.0% -8.0% 8/06
G: Upward revisions continue

8/07 8/08 8/09 8/10 8/11
Figure 97: Staples

2.5% 2.0% 1.5% 1.0% 0.5% 0.0% -0.5% -1.0% -1.5% -2.0% 8/06

6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% 8/06 8/07 8/08 8/09 8/10 8/11
Figure 99: Telecom

6.0% 4.0% 2.0% 0.0% -2.0% 8/06 8/07 8/08 8/09 8/10 8/11

G: Consistently Positive
4.5% 3.5% 2.5% 1.5% 0.5% -0.5% -1.5% -2.5% 8/06 8/07 8/08 8/09 8/10 8/11
G from N: Positive
G: Positive revisions recently
8/07
8/08
8/09
8/10
8/11
Sales Revisions: Change in sales NTM (current vs. one month ago) divided by sector sales (one month ago). Based on bottom-up consensus sales of current S&P 500 constituents.

5.0% 3.0% 1.0% -1.0% -3.0% -5.0% 8/06 8/07 8/08 8/09 8/10 8/11

15.0% 10.0% 5.0% 0.0% -5.0% -10.0% -15.0% 8/06 8/07 8/08
N: Mixed revisions
8/09
8/10
8/11
Source: J.P. Morgan and Datastream. Change in Sales (NTM) as compared to one month ago divided by total sales of the sector.
59
Relative Sales Growth (vs. S&P 500) Sectors (best if tail is rising)
Figure 103: Energy
40% 30% 20% 10% 0% -10% -20% -30% 7/07 6/08 5/09 4/10 3/11 2/12 1/13 3.8%

12% 8% 4% 0% -4% -8% -12% -16% 7/07 6/08 5/09 4/10 3/11 2/12 1/13 5.3%

8% 4% 0%

5.7%
10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% 7/07
G: Positive growth
N: Trend turning positive
G: Improving growth
6.0%
G: Positive
-4% -8% 7/07 6/08 5/09 4/10 3/11 2/12 1/13
6/08
5/09
4/10
3/11
2/12
1/13
Figure 107: Staples

12% 8% 4% 0% -4% -8% 7/07 6/08 5/09 4/10 3/11 2/12 1/13

16%
Figure 109: Telecom

U: Negative
30% 20% 10%

N: Momentum turning positive
8% 4% 0% -4% 4.1%
N
3.2%
12% 8% 4% 0% -4% -8% 7/07 6/08 5/09 4/10
-0.4%
0% -10% 7/07 6/08 5/09 4/10 3/11 2/12
2.4%
-8% -12%
N: Improving momentum
7/07 6/08 5/09 4/10 3/11 2/12 1/13
3/11
2/12
1/13
1/13
Relative Sales Growth NTM: Sales growth NTM of sector less sales growth NTM of S&P 500. Based on bottom-up results of current S&P 500 constituents. Historical data reflect actual growth. Dashed line reflects First Call bottom-up consensus. Up or down trend of line is most important indicator for determining sector momentum.

4% 2% 0% -2% -4% -6% -8% -10% 7/07 6/08 5/09 4/10 3/11 2/12 1/13

3.4% 30% 20% 10% 0% -10% -20% -30% 7/07 6/08 5/09 4/10 3/11 2/12 1/13 -21.4%
N: Outlook for consumer improving
U: Negative
60
Monthly Earnings Revision Sectors

Figure 113: Energy
2.0% 1.0% 0.0% -1.0% -2.0% -3.0% -4.0% -5.0% 8/06 8/07 8/08 8/09 8/10 8/11

1.5% 1.0% 0.5% 0.0% -0.5% -1.0% -1.5% -2.0% -2.5% -3.0% 8/06 8/07 8/08 8/09

1.0% 0.5% 0.0% -0.5%

0.8% 0.4% 0.0% -0.4%
N: Mixed revisions recently
-1.0% -1.5% -2.0% 8/10 8/11 8/06
G: Positive revisions recently

8/07 8/08 8/09 8/10 8/11
-0.8% -1.2% 8/06 8/07 8/08
8/09
8/10
8/11
Figure 117: Staples

0.3% 0.2% 0.1% 0.0% -0.1% -0.2% -0.3% -0.4% 8/06 8/07 8/08 8/09 8/10 8/11

0.5% 0.4% 0.3% 0.2% 0.1% 0.0%
Figure 119: Telecom

1.2% 0.8% 0.4% 0.0% -0.4% -0.8% -1.2% -1.6% -2.0%

0.6% 0.4% 0.2% 0.0% -0.2%
-0.1% -0.2% -0.3% 8/06 8/07 8/08 8/09 8/10 8/11
-0.4% -0.6% -0.8%
N: Mixed revisions
8/06 8/07 8/08 8/09 8/10 8/11
8/06
8/07
8/08
8/09
8/10
8/11
Earnings Revisions: Change in net income NTM (current vs. one month ago) divided by sector market cap. Based on bottom-up consensus net income of current S&P 500 constituents.

1.0% 0.5% 0.0% -0.5% -1.0% -1.5% 8/06 8/07 8/08 8/09 8/10 8/11

2.0% 1.0% 0.0% -1.0%
N: Mixed revisions
-2.0% -3.0% 8/06 8/07 8/08 8/09
8/10
8/11
Source: J.P. Morgan and Datastream. Change in Net Income (NTM) as compared to one month ago divided by market cap.
61
Relative Earnings Momentum Sectors (best if tail is rising)

Figure 123: Energy
6% 4% 2% 0% -2% -4% -6% -8% -10% 7/07 6/08 5/09 4/10 3/11 2/12 1/13 0.6%

6% 4% 2% 0% 0.2%

6% 4% 2% 0% -2% -4% -6% 7/07 6/08 5/09 4/10 3/11 2/12 1/13 0.7%

8% 6% 4% 2% 0% -2% -4% -6% 7/07 6/08 5/09 4/10 3/11 2/12 1/13 1.4%
G: Positive
G: In positive territory
G: Positive growth
-2% -4% -6% 7/07 6/08 5/09 4/10 3/11 2/12 1/13
G: Strong in near term
Figure 127: Staples

6% 4% 2% 0% -2% -4% -6% 7/07 6/08 5/09 4/10 3/11 2/12 1/13 0.3%

6% 4% 2% 0% -2% -4% -6% 7/07 6/08 5/09 4/10 3/11 2/12 1/13 -0.1%
Figure 129: Telecom

6% 4% 2% 0% -2% 0.0%

6% 4% 2% 0% -2% -4%
1/13
-0.3%
N: Flat earnings momentum
G: Positive
-4% -6% 7/07 6/08 5/09

4/10 3/11 2/12

7/07 6/08 5/09 4/10 3/11 2/12 1/13
-6%
Relative Earnings Momentum: Contribution of growth by sector to S&P 500 EPS. Change in net income (NTM vs. year ago) divided by S&P 500 net income. Based on bottom-up results of current S&P 500 constituents. Historical data reflect actual growth. Dashed line reflects First Call bottom-up consensus.

6% 4% 2% 0% -2% -4% -6% 7/07 6/08 5/09 4/10 3/11 2/12 1/13 0.5%

15% 10% 5% 0% -5% -10% -15% -20% 7/07 6/08 5/09 4/10 3/11 2/12 1/13 2.3%
G: Positive
N from G: Flat earnings momentum
Source: J.P. Morgan and Datastream. Area portion of the chart is actual relative earnings and the line is based on consensus NTM.
62
JULI Spreads (Relative to All Industries Averages) Sectors (best is high and narrowing)
Figure 133: Energy
250 150 50 (50) (150) (250) '03 '05
Energy

250

Widening

Widening
G: Tightening
G: Tightening
250 150 50 (50)
250 150 50 (50)
Widening
Widening
150 50 (50)
Narrowing
Narrowing
(150) '07
Avg
(150) (250) '07

Avg
Narrowing
(150) '07
Avg
Narrowing
'09
'11
1 STD
(250) '03 '05

Materials
'09
1 STD
'11
'03
'05
Industrials
'09
1 STD
'11
(250) '03 '05

Technology
'07
Avg
'09
'11
1 STD
Figure 137: Staples

250 150 50 (50) (150) (250) '03 '05
Staples

250
Widening
Figure 139: Telecom

Widening

Widening
250 150 50 (50)
150 50 (50)
N: Spreads stable
250 150 50 (50)
N: Spreads stable
Widening
Narrowing
(150) (250)
Narrowing
(150)
'07
Avg
Narrowing
(150) (250) '07

Avg
Narrowing
'07
Avg
'09
1 STD
'11
'03
'05
HealthCare
'09
'11
1 STD
(250) '03 '05

Telecom
'09
1 STD
'11
'03
'05
Utilities
'07
Avg
'09
1 STD
'11
Relative JULI Spreads: Calculated as spread of sector less avg. spread of ten sectors. A figure above zero means sector has higher yields (relative). When line is falling, it means spreads are tightening on a relative basis.

250 150 50 (50) (150) (250) '03 '05
Discretionary

Widening
250 150 50 (50)
Widening
Narrowing
(150)
'07
Avg
Narrowing
'09
'11
1 STD
(250) '03 '05

Financials
'07
Avg
'09
1 STD
'11
63
First Call Mean Rating (Relative to S&P 500) Sectors (best is low and rising)
Figure 143: Energy
Recession Avg Rel Rating LT Avg 1 Std Dev



(0.55) (0.30) (0.05) 0.20 0.45

Less Liked
More Liked
(0.55) (0.30) (0.05)

N from G: Upgrades peaking
More Liked
(0.55) (0.30) (0.05) 0.20

LessN: Liked
More Liked
(0.55) (0.30) (0.05)
More Liked
N from G: Upgrades flattening
0.20 0.45
Less Liked
Flat recently
0.20 0.45
0.45
Less Liked
6/97 8/99 10/0112/03 2/06 4/08 6/10
6/97 8/99 10/0112/03 2/06 4/08 6/10
6/97 8/99 10/0112/03 2/06 4/08 6/10
6/97 8/99 10/0112/03 2/06 4/08 6/10
Figure 147: Staples


Figure 149: Telecom


(0.55) (0.30) (0.05) 0.20 0.45
N: Downgraded too much
More Liked
(0.55) (0.30) (0.05)
More Liked
(0.55) (0.30) (0.05)
N: Flat recently
More Liked
(0.55) (0.30) (0.05)

N: Flat recently
More Liked
Less Liked
0.20 0.45
N:Less recently Flat

Liked
0.20 0.45
Less Liked
0.20 0.45
Less Liked
6/97 8/99 10/0112/03 2/06 4/08 6/10

Relative FC Mean Rating: Bottom-up FC mean rating of Street for sector less S&P 500 overall. Negative "relative" value means Street has more Buys on sector vs. S&P 500. When line is rising, it means Street is upgrading.
6/97 8/99 10/0112/03 2/06 4/08 6/10
6/97 8/99 10/0112/03 2/06 4/08 6/10
6/97 8/99 10/0112/03 2/06 4/08 6/10


(0.55) (0.30) (0.05) 0.20 0.45

Less Liked
More Liked
(0.55) (0.30) (0.05)
G: Upgrades recently
More Liked
N: Leveled off
0.20 0.45
Less Liked
6/97 8/99 10/01 12/03 2/06 4/08 6/10

Source: J.P. Morgan and FactSet. 64
6/97 8/99 10/0112/03 2/06 4/08 6/10
Short Interest (Relative to S&P 500) Sectors (best is high and falling)
Figure 153: Energy
Energy LT Avg 1 Std Dev

Materials LT Avg 1 Std Dev

Industrials LT Avg 1 Std Dev

Technology LT Avg
1 Std Dev
0.5% -0.5%
1.5% 1.0%
N: Volatile recently
-0.1% -0.6%
N: Volatile recently
0.4% -0.1% -0.6% 12/02
0.5% 0.0% 12/08 12/10 -0.5% 12/02
G: High short interest
-1.5% 12/02
12/04
12/06
12/04
12/06
12/08
12/10
-1.1% 12/02
12/04
12/06
12/08
12/10
12/04
12/06
12/08
12/10
Figure 157: Staples

Staples LT Avg 1 Std Dev

Health Care LT Avg 1 Std Dev
Figure 159: Telecom

Telecom LT Avg 1 Std Dev

Utilities LT Avg 1 Std Dev
0.0%
-0.4% -0.9% -1.4% 12/02

G
0.4% -0.6% -1.6% 12/02
1.0% 0.0%
G: Declining recently
-0.5% -1.0% -1.5% 12/02

G from N N: In line with S&P 500
12/04
12/06
12/08
12/10
12/04
12/06
12/08
12/10
12/04
12/06
12/08
12/10
-1.0% 12/02
12/04
12/06
12/08
12/10
Relative Short Interest: Calculated as sector short interest (as % shares outstanding) less average for S&P 500. Calculated bi-weekly. At extremes, we see short interest as a useful potential contrarian indicator, i.e., if relative short interest is high, we see the sector as vulnerable to any disappointments.

3.0% 2.0% 1.0% 0.0% 12/02
Discretionary N: Has declined significantly LT Avg 1 Std Dev

Financials LT Avg 1 Std Dev
1.3% 0.3% -0.8% 12/02
N: Has declined significantly
12/04
12/06
12/08
12/10
12/04
12/06
12/08
12/10
Source: J.P. Morgan and FactSet. Note: Calculated as shares sold short as % of shares outstanding in each sector minus shares sold short as % of shares outstanding for S&P 500.
65
ETF Fund Flows Sectors

Figure 163: Energy
$5,000 $4,000 $3,000 $2,000 $1,000 $0 -$1,000 -$2,000 3/08 7/08 11/08 3/09 7/09 11/09 3/10 7/10 11/10 3/11 7/11 11/11 3/12
Energy

$600 $400 $200 $0 -$200 -$400 -$600 -$800 -$1,000 3/08 7/08 11/08 3/09 7/09 11/09 3/10 7/10 11/10 3/11 7/11 11/11 3/12
Materials

$1,500 $1,000 $500 $0
Industrials

$1,200 $1,000 $800 $600 $400 $200 $0 -$200 -$400 -$600 -$800
G: Inflows recentlyTechnology
N: Mixed flows recently
G: Inflows recently
-$500 -$1,000
G: Inflows recently
3/08 7/08 11/08 3/09 7/09 11/09 3/10 7/10 11/10 3/11 7/11 11/11 3/12
3/08 7/08 11/08 3/09 7/09 11/09 3/10 7/10 11/10 3/11 7/11 11/11 3/12
Figure 167: Staples

$1,500 $1,000 $500 $0 -$500 -$1,000 -$1,500 3/08 7/08 11/08 3/09 7/09 11/09 3/10 7/10 11/10 3/11 7/11 11/11 3/12
Figure 168: HealthCare

Staples
Figure 169: Telecom

HealthCare

Telecom
$800 $600 $400 $200 $0 -$200 -$400 -$600 -$800 -$1,000 -$1,200
$150 $100 $50 $0
$2,000 $1,500 $1,000 $500 $0
Utilities
U from N: Outflows recently

3/08 7/08 11/08 3/09 7/09 11/09 3/10 7/10 11/10 3/11 7/11 11/11 3/12
-$50 -$100 -$150
G from N: Inflows recently

3/08 7/08 11/08 3/09 7/09 11/09 3/10 7/10 11/10 3/11 7/11 11/11 3/12
-$500 -$1,000 3/08 7/08 11/08 3/09 7/09 11/09 3/10 7/10 11/10 3/11 7/11 11/11 3/12
ETF Fund Flows: Monthly fund flows for five largest ETFs (based on AUM) in each sector.

$1,000 $800 $600 $400 $200 $0 -$200 -$400 -$600 -$800
Discretionary

$7,000 $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $0 -$1,000 -$2,000 -$3,000
Financials
3/08 7/08 11/08 3/09 7/09 11/09 3/10 7/10 11/10 3/11 7/11 11/11 3/12
3/08 7/08 11/08 3/09 7/09 11/09 3/10 7/10 11/10 3/11 7/11 11/11 3/12
Source: J.P. Morgan and EPFR Global.
66
Relative Price/10-Yr EPS (# std dev from long-term avg) Sectors (best if low and rising)
Figure 173: Energy
4.00 2.00 0.00 -2.00 -4.00 '84 '88 '92 '96 '00 '04 '08 '12
Recession # Std Dev from LT Avg STD+1 STD-1

4.00 2.00 0.00 -2.00 -4.00 '84 '88 '92 '96 '00 '04 '08 '12

4.00 2.00 0.00 -2.00 -4.00 '84 '88 '92 '96 '00 '04 '08 '12
Recession

STD-1
G: Attractive level STD+1 # Std Dev from LT Avg
G: Attractive level
4.00 2.00 0.00 -2.00 -4.00
Recession
N: Has declined significantly
N: At long-term average
# Std Dev from LT Avg
STD+1
STD-1
'84
'88
'92
'96
'00
'04
'08
'12
Figure 177: Staples

4.00 2.00 0.00 -2.00 -4.00 '84 '88 '92 '96 '00 '04 '08 '12

4.00 2.00 0.00 -2.00 -4.00 '84 '88 '92 '96 '00 '04 '08 '12
Recession # Std Dev from LT Avg
Figure 179: Telecom

G: Below longSTD+1 term average
STD-1

STD+1 STD-1
4.00 2.00 0.00 -2.00 -4.00
Recession
4.00 2.00 0.00
Recession
STD+1
STD-1
U: Coming off extreme levels
N
'84 '88 '92 '96 '00 '04 '08 '12
-2.00 -4.00 '84 '88 '92 '96 '00 '04 '08 '12
Relative P/10-Yr EPS # std dev from long-term avg: Relative P/10yr EPS calculated as sector P/10-yr EPS divided by S&P 500 P/10-yr EPS. The line shown in charts is current value minus long-term avg divided by long-term standard deviation. The lower the line, the greater the relative discount.

4.00 2.00 0.00 -2.00 -4.00 '84 '88 '92 '96 '00 '04 '08 '12
Recession # Std Dev from LT Avg

STD+1 STD-1
U: Expensive
4.00 2.00 0.00 -2.00 -4.00
Recession
STD+1
STD-1
G: Extreme low
'84
'88
'92
'96
'00
'04
'08
'12
67
US Equity Strategy Recent Publications

US Strategy
Growth Scares Emerge about China, Europe and US; Short-Term Headwinds, But Not Thesis Changers; 28 Ideas 03/29/12 Est. $670b Excess Cash on Balance Sheets, Apple's $10b Dividend Only a Start; 28 Ideas 03/27/12 Why are pullbacks so shallow? Stick with Financials and Cyclicals. 17 ideas. 03/15/12 Circle of Life: Despite ST Headwinds, Upside to 1430 YE Target; Macro and History Favor Industrals, Financials, Tech & Energy; 10 Ideas 03/09/12 Mostly Positive Developments This Week, Including Taking Out 2011 Highs. But Watch Transports and Materials. 20 Ideas 03/02/12 Too Early to Fade on AAPL - A Cyclical Sector unto Itself and Still Underowned 02/24/12 Investors Need to Get Cyclical. 42% of Funds UW Cyclicals. 21 Ideas 02/17/12 S&P 500 Always Had Outliers Like AAPL. Focus on Laggards Within Leaders. 24 Ideas 02/10/12 4 More Considerations for a "Pause" - Use to Add Cyclicals/Financials; 20 Ideas 02/02/12 Circle of Life: 6 Signs of a Healthy Market; History Shows Pause After 20% Rally...Expect Further Cyclical Rotation 01/26/12 History Shows High Equity Risk Premiums = Strong Equity Gains Despite Weak GDP; 30 Ideas 01/19/12 4Q11 Preview: A Tough Earnings Season, But Some Positives; Raising FY11E to $98, FY12E Still $105; 9 Stock Ideas for 4Q EPS 01/12/12 2012 to be year of "contrarian optimism" plus update on active mgr performance 01/6/12
Special Reports
SLIDES: See Cyclical Summer (S&P 500 rally led by Cyclicals) plus S&P 500 1475 by YE11 7/7/11 Housing Food Chain: Part III: Six key metrics point to housing improving in mid-/late2011. 18 ideas 4/8/11 2011 Outlook: YE 2011 Target 1425; Raise '11E EPS to $94 from $91; Introduce '12E EPS of $102 12/10/10 US Equity Strategy Slide Deck: July 2010 : 10 Reasons to remain long equities: S&P 500 YE Target of 1300 7/15/10 Positive on Housing Food Chain: Homebuilders most attractive, but also Mortgage Insurers, Suppliers, Timber. 12 Ideas 4/9/10
3PointsTV Video
(Click the links below for 3PointsTV and to view the required video, click on the PLAYLIST option in the video screen.) Short term headwinds emerge into 2Q with China and oil 03/30/12 At least $670b in excess corp cashsee more divs 03/23/12 Bull enters its 4th year. Stick with Cyclicals/Financials. 03/09/12 Good news this week but watch transports and materials 03/02/12 Too early to fade AAPL. A sector unto itself. 02/24/12 Bullish fundamentals strengthening even as pause expected 02/17/12 AAPL is not unusual outliers have driven S&P 500 02/10/12 With pause anticipated, rotate into Cyclicals/Financials 02/03/12 Signs of a healthy marketbut first a pause 01/27/12 Global risk on makes this different from 2011 01/20/12
68
Derivatives & Delta One Strategy Adam RuddAC

(1-212) 272-1215 adam.ch.rudd@jpmorgan.com
The J.P.Morgan Apple-Like Tech Basket

Basket Methodology and Composition
The J.P. Morgan Apple-Like Tech Basket, JPUSALTB <Index> on Bloomberg, comprises 15 US listed stocks highlighted in this note. The basket comprises stocks that are perceived to have qualitative characteristics that are similar to Apple. The basket is equally weighted, but with the constraint that no stock should require more than 10% of its average daily volume to be traded (based on a basket size of $50 million). The sector and capitalization breakdown and the current composition of the basket are shown in the figures below.
Figure 183: Sector and Capitalization Breakdown of the J.P. Morgan Apple-Like Tech Basket JPUSALTB <Index>, as of April 3, 2012(close).
Retail, 7% Media, 14% Tech, 59%
Marko Kolanovic
AC
(1-212) 272-1438 Marko.kolanovic@jpmorgan.com
J.P. Morgan Securities LLC
Basket Details
Bloomberg Ticker Benchmark Number of Components Weighting Scheme
JPUSALTB<Index> SPX Index 15 Equally weighted
Industrials, 20%
Bloomberg subscribers can use the ticker JPUSALTB to access tracking information on a basket created by the J.P. Morgan Delta One desk to leverage the theme discussed in this report. Over time, the performance of JPUSALTB could diverge from returns quoted in this report, because of differences in methodology. J.P. Morgan Research does not provide research coverage of this basket and investors should not expect continuous analysis or additional reports relating to it. For information on JPUSALTB, please contact your J.P. Morgan salesperson or the Delta One Desk.
Market Cap < $10bn, 37%
Market Cap > $30bn, 42%
Market Cap $10bn-$30bn, 21%

Source: J.P. Morgan Derivatives & Delta One Strategy, S&P, Bloomberg.
69
Figure 184: Composition of the J.P. Morgan Apple-Like Tech Basket JPUSALTB <Index>, as of April 3, 2012 (close) Ticker Name Sector Analyst Wgt(% ) Mkt. Cap ($Bn) ADV ($M) QCOM US Qualcomm Technology Rod Hall 7% 114.0 773.3 AMZN US Amazon Retail Doug Anmuth 7% 88.3 1,023.7 CMCSA US Comcast Media Phil Cusick 7% 79.0 342.3 DIS US Walt Disney Co Media Alexia Quadrani 7% 76.9 372.4 VMW US Vmware Inc-Class A Technology John DiFucci 7% 47.7 153.1 ACN US Accenture Industrial Goods & Services Tien-Tsin Huang 7% 45.4 227.4 BRCM US Broadcom Technology Harlan Sur 7% 20.5 310.0 INTU US Intuit Technology Sterling Auty 7% 17.5 118.2 NTAP US Netapp Technology Mark Moskowitz 7% 16.2 271.5 LNKD US Linkedin Industrial Goods & Services Doug Anmuth 7% 9.8 372.8 TIBX US Tibco Software Inc Technology John DiFucci 7% 5.2 92.1 CREE US Cree Technology Chris Blansett 7% 3.4 77.7 TRMB US Trimble Navigation Industrial Goods & Services Paul Coster 6% 6.7 31.5 QLIK US Qlik Technologies Inc Technology John DiFucci 6% 2.7 33.6 ANSS US Ansys Technology Sterling Auty 4% 6.0 21.4
Source: J.P. Morgan Derivatives & Delta One Strategy, Bloomberg.
Basket Performance
The following charts show the hypothetical price performance of the J.P. Morgan US Apple-Like Tech Basket over the last year. The realized volatility, beta and correlation of this basket vs. that of the S&P 500 Index are also shown in the charts below. The J.P. Morgan US Apple-Like Tech Basket would have returned ~7.6% compared to a ~8.6% return for the S&P 500 index and ~83% return for Apple. The basket would have had a beta of ~1.2, and a ~90% correlation to S&P 500 index. The recent 3M realized volatility of the basket would have been ~17.2%, compared to ~9.5% for the S&P 500 index and ~25.5% for Apple. The basket price returns are also ~+62% correlated with daily changes in Apple. The beta of basket daily returns with daily changes in Apple is ~0.69.
Figure 185: Price Performance of the J.P. Morgan US Apple-like Tech Figure 186: Daily Returns of the J.P. Morgan US Apple-like Tech Basket and S&P 500 Index (over the past year) Basket vs. Daily changes in the S&P 500 Index
110 105 100 95 90 85 80 75 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12
Apple-Like Tech Basket S&P 500
8% 6% Basket Daily Returrn 4% 2% 0% -2% -4% -6% -8% -10% -10% -5% 0% 5% S&P 500 Daily Return 10% y = 1.18x R = 81%
Source: J.P. Morgan Derivatives & Delta One Strategy, Bloomberg. Note: All price performance excludes commissions and fees. Past Performance is not indicative of future returns.
Source: J.P. Morgan Derivatives & Delta One Strategy, Bloomberg. Note: All price performance excludes commissions and fees. Past Performance is not indicative of future returns.
70
Figure 187: 3M Realized Volatility of the J.P. Morgan US Apple-Like Figure 188: Dividend Yield of the J.P. Morgan US Apple-Like Tech Tech Basket vs. S&P 500 Index Basket vs. S&P 500 Index 50% Apple-Like Tech Basket dividend yield Apple-Like Tech Basket 3-month volatility 3.0% 45% S&P 500 dividend yield S&P 500 3-month volatility 40% 2.5% 35% 2.0% 30% 25% 1.5% 20% 1.0% 15% 10% 0.5% 5% 0% 0.0% Oct-09 Apr-10 Oct-10 Apr-11 Oct-11 Apr-12 Oct-09 Apr-10 Oct-10 Apr-11 Oct-11 Apr-12
Source: J.P. Morgan Derivatives & Delta One Strategy, Bloomberg. Note: All price performance excludes commissions and fees. Past Performance is not indicative of future returns. Source: J.P. Morgan Derivatives & Delta One Strategy, Bloomberg. Note: All price performance excludes commissions and fees. Past Performance is not indicative of future returns.
71
Additional Basket Methodology

In order to keep the basket relevant to the investment theme, J.P. Morgan reserves the right to review the following at any time: Basket methodology. This is to ensure the rules of the basket remain relevant following any structural changes to the theme. This may include ensuring that the sector exposure of the basket remains broadly consistent with the investment theme. Basket change implementation. J.P. Morgan will consider extending the implementation of changes to the basket composition from one trading session to any period up to five trading sessions in the event that a material increase in the liquidity or capacity of the basket is required to minimize market impact. Corporate actions may affect the J.P. Morgan US Rising Treasury Yield Basket. The composition of a custom basket is typically adjusted in the following manner: Cash Merger. The divisor is adjusted, and we remove the merging company from the basket on the day of merger and redistribute gains into remaining companies according to recalculated market cap weights of surviving constituents in the basket. Stock Merger. If the acquirer is a member of the basket, then the weight allocated to the acquired will transfer to the surviving entity on the close of the last day it trades. If the acquirer is not a part of the basket, then proceeds (losses) from the acquired company will be redistributed to the surviving basket constituents based on the recalculated weighting on the close of its last trading day. Spinoffs. The spinoff company and parent will be included in the basket, and both the spinoff and parent company weights will be readjusted according to new market capitalizations after the spinoff date. Tender Offers and Share Buybacks. The company remains in the basket and its weight is adjusted according to the impact the tender/buyback has on the stocks market value. Delisting/Insolvency/Bankruptcy. The company is removed from the basket as of the close of the last trading day, and the proceeds (losses) will be redistributed into remaining companies according to re-calculated weights of remaining companies in the basket. If a stock trades on pink sheets it will not be included in the basket.
72
Companies Recommended in This Report (all prices in this report as of market close on 04 April 2012) ANSYS, Inc. (ANSS/$64.41/Neutral), Accenture plc (ACN/$64.44/Overweight), Amazon.com (AMZN/$193.99/Overweight), Broadcom Corporation (BRCM/$37.54/Overweight), Comcast (CMCSA/$29.32/Overweight), Cree (CREE/$29.56/Overweight), Disney (DIS/$42.93/Overweight), Intuit (INTU/$59.38/Overweight), LinkedIn Corp (LNKD/$99.38/Overweight), NetApp (NTAP/$44.71/Overweight), QUALCOMM (QCOM/$67.39/Overweight), Qlik Technologies Inc. (QLIK/$31.66/Overweight), TIBCO Software Inc (TIBX/$31.45/Overweight), Trimble Navigation (TRMB/$54.08/Overweight), VMware (VMW/$112.97/Neutral)
Disclosures This report is a product of the research department's Global Equity Derivatives and Delta One Strategy group. Views expressed may differ from the views of the research analysts covering stocks or sectors mentioned in this report. Structured securities, options, futures and other derivatives are complex instruments, may involve a high degree of risk, and may be appropriate investments only for sophisticated investors who are capable of understanding and assuming the risks involved. Because of the importance of tax considerations to many option transactions, the investor considering options should consult with his/her tax advisor as to how taxes affect the outcome of contemplated option transactions. Analyst Certification: The research analyst(s) denoted by an AC on the cover of this report certifies (or, where multiple research analysts are primarily responsible for this report, the research analyst denoted by an AC on the cover or within the document individually certifies, with respect to each security or issuer that the research analyst covers in this research) that: (1) all of the views expressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of any of the research analyst's compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report.
Important Disclosures
Company-Specific Disclosures: Important disclosures, including price charts, are available for compendium reports and all J.P. Morgan covered companies by visiting https://mm.jpmorgan.com/disclosures/company, calling 1-800-477-0406, or emailing research.disclosure.inquiries@jpmorgan.com with your request. Explanation of Equity Research Ratings and Analyst(s) Coverage Universe: J.P. Morgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform the average total return of the stocks in the analyst's (or the analyst's team's) coverage universe.] Neutral [Over the next six to twelve months, we expect this stock will perform in line with the average total return of the stocks in the analyst's (or the analyst's team's) coverage universe.] Underweight [Over the next six to twelve months, we expect this stock will underperform the average total return of the stocks in the analyst's (or the analyst's team's) coverage universe.] In our Asia (ex-Australia) and UK small- and mid-cap equity research, each stocks expected total return is compared to the expected total return of a benchmark country market index, not to those analysts coverage universe. If it does not appear in the Important Disclosures section of this report, the certifying analysts coverage universe can be found on J.P. Morgans research website, www.morganmarkets.com. J.P. Morgan Equity Research Ratings Distribution, as of April 3, 2012
J.P. Morgan Global Equity Research Coverage IB clients* JPMS Equity Research Coverage IB clients* Overweight (buy) 45% 51% 43% 70% Neutral (hold) 43% 45% 48% 61% Underweight (sell) 12% 34% 9% 53%
*Percentage of investment banking clients in each rating category. For purposes only of FINRA/NYSE ratings distribution rules, our Overweight rating falls into a buy rating category; our Neutral rating falls into a hold rating category; and our Underweight rating falls into a sell rating category.
Equity Valuation and Risks: For valuation methodology and risks associated with covered companies or price targets for covered companies, please see the most recent company-specific research report at http://www.morganmarkets.com , contact the primary analyst or your J.P. Morgan representative, or email research.disclosure.inquiries@jpmorgan.com. Equity Analysts' Compensation: The equity research analysts responsible for the preparation of this report receive compensation based upon various factors, including the quality and accuracy of research, client feedback, competitive factors, and overall firm revenues, which include revenues from, among other business units, Institutional Equities and Investment Banking.
73
Other Disclosures
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Copyright 2012 JPMorgan Chase & Co. All rights reserved. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of J.P. Morgan. #$J&098$#*P
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Finding The Next Apple

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North America Equity Research

Portfolio Strategy Thomas J Lee, CFA

(1-212) 622-6505 thomas.lee@jpmorgan.com

Sterling Auty, CFA

Tien-tsin Huang, CFA

Philip Cusick, CFA

Rod Hall, CFA

Paul Coster, CFA

See page 73 for analyst certification and important disclosures.

Thomas J Lee, CFA (1-212) 622-6505 thomas.lee@jpmorgan.com

North America Equity Research 05 April 2012

Thomas J Lee, CFA (1-212) 622-6505 thomas.lee@jpmorgan.com

North America Equity Research 05 April 2012

MARKET STRATEGY: 2Q altered risk/reward compared to 1Q

But 2Q is starting with less favorable conditions

Thomas J Lee, CFA (1-212) 622-6505 thomas.lee@jpmorgan.com

North America Equity Research 05 April 2012

Plenty of positives and negatives in 2012but more positives

2. US Labor market expanding and set to add 2.5-3.0mm jobs in

2. European sovereign markets while more stable than 2011 are

3. US housing market is recovering and we expect starts to

3. US bank lending standards remain extremely high limiting

9. Investors continue to pull money out of equities--$300b since

Thomas J Lee, CFA (1-212) 622-6505 thomas.lee@jpmorgan.com

North America Equity Research 05 April 2012

and history says 2Q should be positive (not explosive)

+6Q +5Q +4Q +3Q

2 consecutive double-digit quarters

+2Q +1Q 0Q -1Q

Source: J.P. Morgan and Bloomberg

Thomas J Lee, CFA (1-212) 622-6505 thomas.lee@jpmorgan.com

North America Equity Research 05 April 2012

Post 2 double-digit quarters, Energy outperforms, other Sectors are a coin-toss

17% 14% 20% -3%

-1% -3% 0% -1%

11% 3% 14% -7%

-5% -6% 2% -9%

17% 10% -2% 7%

-1% 3% -3% -2%

Source: J.P. Morgan, Bloomberg, and Datastream

Thomas J Lee, CFA (1-212) 622-6505 thomas.lee@jpmorgan.com

North America Equity Research 05 April 2012

And active managers are having an average year

Growth managers are doing better in 2012

Value doing poorly

Thomas J Lee, CFA (1-212) 622-6505 thomas.lee@jpmorgan.com

North America Equity Research 05 April 2012

2012 is starting off on a better note than 2011.

Figure 6: 2012 month-by-month comparison (2012 vs. historical avg)

Problems after Oct 11

Similar to 2011slightly worse

Thomas J Lee, CFA (1-212) 622-6505 thomas.lee@jpmorgan.com

North America Equity Research 05 April 2012

11.7% 7.9% 4.5% 4.0%

Russell 1000 Growth

Source: J.P. Morgan.

Thomas J Lee, CFA (1-212) 622-6505 thomas.lee@jpmorgan.com

North America Equity Research 05 April 2012

Apples financial market dominance is a misperception

Figure 9: Weighting of Largest 10 Stocks in Index by Volume

AAPL much smaller than other indices

83% 76% 64% 55% 54% 50% 41% 36% 29%

AAPL much smaller than other indices