Date:____11/11/12___________

Analyst:_____Mu Zihao__________

CIF Sector Recommendation Report (Fall 2012)

Sector ___XLK_______________ Review Period___10/24/12 to 11/7/12__

Section (A) Sector Performance Review

Copy/paste “Sector Review Spreadsheet” (the entire spreadsheet) here

Review sector performance relative to the broad market (SP500) and explain why; Include a two-week (for the two-week window reviewed) price chart of the SPDR sector ETF and SP500 (on the same chart)

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From the two-week price chart, we can see that the sector ETF (XLK) is moving along with the SP500. Because of the high volatility of XLK, when the SP500 drops, XLK drops more drastic. This is why XLK dropped 0.65% more than SP500.

Highlight noteworthy headline news from the sector (company-, industry-, or sector- level news)

There are couple noteworthy headline news that influenced our sector.

1. Because of the disappointing financial results and the disappointment of the IPAD sales, Apple’s iPhone software and retail chiefs will leave next year.

2. Microsoft released their “own-brand tablet” – Microsoft surface and Windows 8. CEO of the Microsoft said Windows 8 is selling at a faster phase than Windows 7.

3. The stock market closed for two days because of Hurricane Sandy.

4. Facebook’s lockup period to prevent its employees from selling stock has ended which resulted its share drop 3.8% to $21.11.

5. Stock prices raised before the election results come out.

6. Amazon reported big net loss on its quarter report.

(news from reuters)

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Highlight the biggest (+) and the biggest (-) movers from the sector holdings during the review period. Are there notable reasons why the stocks had big moves (e.g., earnings surprises, etc)?

Computer Sciences Corp increased 16.6% in the two week review period. It is because of a cost-cutting program helped them to boost their profit forecast. (http://www.sfgate.com/business/bloomberg/article/U-S-Stocks-Advance-Ahead-of-Presidential-4013562.php)

Highlight the largest two holdings from the sector and note any headline news on the companies

The largest two holdings from the sector are Apple Inc. and Microsoft Corporation.

Headlines of these two companies has already been covered above.

Comment on short-term outlook of the sector (including noteworthy upcoming events)1. How the stock price will react to the increasing anxiety of fiscal cliff.

2. How the stock price will react to the result of the election.

3. Will the holiday season help two largest holdings of the sector ( Apple and Microsoft) and the sector as a whole to lift their stock price?

4. The result of lawsuit between Google and Microsoft.

5. The result of smart phone patent war between Apple and HTC.

Section (B) Sector Holding Updates

Company #1: Apple Inc (AAPL)

Date Recommended: 10/18/12

Date Re-evaluated: 11/11/12

Company Update

Briefly update what happened to the company the last two weeks (up through your re-evaluation date). This should include noteworthy headline news on the stock (e.g., earnings announcement, management’s comments on company outlook and/or strategic changes, changes in analyst recommendations or estimate revisions, new product launch, management turnover, legal or

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regulatory issues, merger/acquisition announcement, restructure announcement, news from major competitors, etc.)

1. On October 25th, Apple CFO says the demand for iphone 5 continues to ‘outstrip supply’. CFO also says average revenue per Apple store was $11.2 million.

2. On October 25th, Apple released its quarterly earnings. The result ($8.67 per share) fell short of expectations ($8.75 per share). In result, Apple’s stock price dropped 1.4 percent to $600.71.

3. On November 1st, High court judge in UK ordered Apple to re-write a statement on its website to acknowledge that Samsung did not infringe on its registered designs for tablet computers.

4. Because of the disappointing financial results and the disappointment of the IPAD sales, Apple’s iPhone software and retail chiefs will leave next year.

Relative Performance

Review relative performance of each sector holding, over the two-week review period, both relative to the SP500 and to the respective SPDR sector ETF. Relate your comments on relative performance to the updates discussed above

The price trend of Apple has a positive correlation to the technology sector and SP500, because of the high volatility, Apple had a more drastic pice change.

Most of the news of Apple from last two week were bearish, which is the main reason that Apple underperformed the technology sector and SP500.

Price Charts

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Insert a price chart of the stock for the most recent three months. You should include on the same chart (1) the SPDR sector ETF, (2) and the SP500 prices for the same period

Insert a price chart of the stock for the most recent one year. You should include on the same chart (1) the SPDR sector ETF, (2) and the SP500 prices for the same period

Valuations Analysis

Original Analysis

Copy/paste P/E (TTM), P/S (TTM), P/B (MRQ), P/CF (TTM) of the stock, the industry, and the sector from “ratio analysis” section of the original stock recommendation report (from CIF website, “reports” tab)

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Ratio Analysis

Company Industry Sector

P/E (TTM) 15.07 12.31 19.74P/S (TTM) 4.04 1.07 3.57P/B (MRQ) 5.38 2.20 3.72P/CF (TTM) 13.98 10.92 13.31

Re-evaluation Analysis

Copy/paste the requested valuation multiples from http://www.reuters.com/ , “Financials” tab

Briefly discuss the changes

We can see that in the new set of datas, all the valuation ratios dropped below or closer to industry average. This is a bullish sign for the stock. The stock got cheaper. Base on this comparison, we should definitely hold the stock. Historical Surprises

Original Analysis

Copy/paste “Historical Surprises” Table from the original stock recommendation report (from CIF website, “reports” tab)

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HISTORICAL SURPRISES Sales and Profit Figures in US Dollar (USD) Earnings and Dividend Figures in US Dollar (USD) 8 Estimates vs Actual Estimate Actual Difference Surprise % SALES (in millions) Quarter Ending Jun-12 37215.90 35023.00 2192.88 5.89Quarter Ending Mar-12 36808.00 39186.00 2377.95 6.46Quarter Ending Dec-11 39062.50 46333.00 7270.46 18.61Quarter Ending Sep-11 29685.50 28270.00 1415.55 4.77Quarter Ending Jun-11 24960.80 28571.00 3610.20 14.46Earnings (per share) Quarter Ending Jun-12 10.39 9.32 1.07 10.29Quarter Ending Mar-12 10.04 12.30 2.26 22.55Quarter Ending Dec-11 10.16 13.87 3.71 36.46Quarter Ending Sep-11 7.39 7.05 0.34 4.54Quarter Ending Jun-11 5.84 7.79 1.95 33.44

Re-evaluation Analysis

Copy/Paste the “Historical Surprises” Table from http://www.reuters.com/ , “Analysts” tab (include both revenue and earnings; make note that revenues might be in “millions”)Briefly discuss the changes

Historical SurprisesSales and Profit Figures in US Dollar (USD)Earnings and Dividend Figures in US Dollar (USD)

Estimates vs Actual Estimate Actual Difference Surprise %SALES (in millions)Quarter Ending Sep-12 35802.70 35966.00 163.30 0.46Quarter Ending Jun-12 37215.90 35023.00 2192.88 5.89Quarter Ending Mar-12 36808.00 39186.00 2377.95 6.46Quarter Ending Dec-11 39062.50 46333.00 7270.46 18.61Quarter Ending Sep-11 29685.50 28270.00 1415.55 4.77Earnings (per share)Quarter Ending Sep-12 8.75 8.67 0.08 0.91Quarter Ending Jun-12 10.39 9.32 1.07 10.29Quarter Ending Mar-12 10.04 12.30 2.26 22.55Quarter Ending Dec-11 10.16 13.87 3.71 36.46Quarter Ending Sep-11 7.39 7.05 0.34 4.54

Compare to the original report, the new result included the new quarter ending result for September 2012. In the quarter ending result of September 2012, the actual revenue result

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exceeded the estimate by 0.46% while the actual earnings per share fell short of the estimate by0.91%.Consensus Estimates

Original Analysis

Copy/paste “Consensus Estimates Analysis” Table from the original stock recommendation report (from CIF website, “reports” tab)

Re-Evaluation Analysis

Copy/paste the “Consensus Estimates Analysis” Table from http://www.reuters.com/, “Analysts” tab (include both revenue and earnings)

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Briefly discuss the changes

Consensus Estimates AnalysisSales and Profit Figures in US Dollar (USD)Earnings and Dividend Figures in US Dollar (USD)

# of Estimates Mean High Low1 YearAgo

SALES (in millions)Quarter Ending Dec-12 44 54502.40 59553.00 51710.00 44104.50Quarter Ending Mar-13 43 47567.60 53473.00 43878.70 36439.00Year Ending Sep-12 52 156274.00 158582.00 152300.00 --Year Ending Sep-13 54 193517.00 221052.00 178504.00 160575.00Year Ending Sep-14 39 222979.00 250478.00 199559.00 171128.00Earnings (per share)Quarter Ending Dec-12 44 13.39 16.00 11.53 10.79Quarter Ending Mar-13 46 12.46 14.98 10.44 8.91Year Ending Sep-12 56 44.29 46.29 43.48 --Year Ending Sep-13 55 50.10 63.50 43.63 38.84Year Ending Sep-14 41 58.66 68.69 51.62 42.50LT Growth Rate (%) 12 20.86 35.00 15.00 18.62

Compare to the original analysis, the re-evaluation analysis has about 5 more estimates. Except for quarter ending of March 2013, the mean of revenue had a slightly decrease. Long term growth rate and the earnings per share decreased for all estimate period.

Estimate Revision Analysis

Original Analysis (MM/DD/YYYY)

Copy/paste “Estimates Revision Summary” Table from the original stock recommendation report (from CIF website, “reports” tab)

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Re-Evaluation Analysis

Copy/paste the “Estimates Revisions Summary” Table from http://www.reuters.com/, “Analysts” tab (include both revenue and earnings)

Briefly discuss the changes

Estimates Revisions Summary

Last Week Last 4 WeeksNumber Of Revisions: Up Down Up Down

RevenueQuarter Ending Dec-12 2 0 13 24

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Quarter Ending Mar-13 1 1 18 17Year Ending Sep-12 -- -- -- --Year Ending Sep-13 1 1 20 27Year Ending Sep-14 1 0 9 10EarningsQuarter Ending Dec-12 3 0 1 37Quarter Ending Mar-13 0 2 6 31Year Ending Sep-12 -- -- -- --Year Ending Sep-13 2 1 2 47Year Ending Sep-14 1 0 4 15Compare to the original data, the new data of last week shows a shift to upward revisions for revenue and earnings in quarter ending December 2012. I think its mainly because of the confidence of ipad and iphone sales in the holiday season. The data also shows a shift to downwards revision for revenue and earnings for revenue and earnings in the rest of the future estimates. I think its because of the uncertainty of the new CEO’s capability to lead the company due to recent poor performance.Analysts’ Recommendations

Original Analysis

Copy/paste “Analyst Recommendations and Revisions” Table from the original stock recommendation report (from CIF website, “reports” tab)Original analysis is not available.

Re-Evaluation Analysis

Copy/paste the “Analyst Recommendations and Revisions” Table from http://www.reuters.com/, “Analysts” tab (include both revenue and earnings)

Briefly discuss the changes

Analyst Recommendations and Revisions

1-5 Linear Scale Current1 Month

Ago2 Month

Ago3 Month

Ago(1) BUY 27 27 27 27(2) OUTPERFORM 23 22 21 21(3) HOLD 5 4 4 5(4) UNDERPERFORM 1 1 1 1(5) SELL 1 1 1 1No Opinion 0 0 0 0

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Mean Rating 1.70 1.67 1.67 1.69

The original data is not available. Based on the new data, we can see Apple has a really low mean rating (1.7), which is a bullish sign. Although there is one vote in both underperform and sell, there are much more votes on buy and outperform.

Company #2-?: Oracle (ORCL) 10/18/12 11/11/12

Repeat the above for Company #2, and all other sector holdings in CIF. Company Update

Briefly update what happened to the company the last two weeks (up through your re-evaluation date). This should include noteworthy headline news on the stock (e.g., earnings announcement, management’s comments on company outlook and/or strategic changes, changes in analyst recommendations or estimate revisions, new product launch, management turnover, legal or regulatory issues, merger/acquisition announcement, restructure announcement, news from major competitors, etc.)

1. “Java middleware vendor Thought filed suit against Oracle on Oct.31, claiming that WebLogic Server and other Oracle products infringe at a massive scale on a number of patents it holds. “ (by Chris Kanaracus)

2. On October 26th, Oracle released Oracle Solaris—the first clod operating system for enterprise-scale infrastructure.

Relative Performance

Review relative performance of each sector holding, over the two-week review period, both relative to the SP500 and to the respective SPDR sector ETF. Relate your comments on relative performance to the updates discussed above

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From the chart, we can see that Oracle is moving together with the Sector and SP500.

Price Charts. Because of the notable amount of the negative news of couple big companies in the sector which dragged down the average, Oracle outperformed the sector and SP500.

Insert a price chart of the stock for the most recent three months. You should include on the same chart (1) the SPDR sector ETF, (2) and the SP500 prices for the same period

Insert a price chart of the stock for the most recent one year. You should include on the same chart (1) the SPDR sector ETF, (2) and the SP500 prices for the same period

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Valuations Analysis

Original Analysis

Copy/paste P/E (TTM), P/S (TTM), P/B (MRQ), P/CF (TTM) of the stock, the industry, and the sector from “ratio analysis” section of the original stock recommendation report (from CIF website, “reports” tab)

Ratio Analysis

Company Industry Sector

P/E (TTM) 15.15 28.53 19.74P/S (TTM) 3.99 3.14 3.57P/B (MRQ) 3.41 4.35 3.72P/CF (TTM) 11.23 15.43 13.31

Re-evaluation Analysis

Copy/paste the requested valuation multiples from http://www.reuters.com/ , “Financials” tab

Briefly discuss the changes

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Compare the new datas to the old datas, we can see a slight increase. I do not think the degree of movement is significant enough to treat it as a sign. Most of the valuation ratios are way below the industry and sector average, which I think is enough of a reason for us to keep holding the stock.

Historical Surprises

Original Analysis

Copy/paste “Historical Surprises” Table from the original stock recommendation report (from CIF website, “reports” tab)

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Re-evaluation Analysis

Copy/Paste the “Historical Surprises” Table from http://www.reuters.com/ , “Analysts” tab (include both revenue and earnings; make note that revenues might be in “millions”)Briefly discuss the changes

Historical SurprisesSales and Profit Figures in US Dollar (USD)Earnings and Dividend Figures in US Dollar (USD)

Estimates vs Actual Estimate Actual Difference Surprise %SALES (in millions)Quarter Ending Aug-12 8419.30 8209.00 210.30 2.50Quarter Ending May-12 10890.40 10950.00 59.61 0.55

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Quarter Ending Feb-12 9023.73 9062.00 38.27 0.42Quarter Ending Nov-11 9228.34 8811.00 417.34 4.52Quarter Ending Aug-11 8353.85 8398.00 44.15 0.53Earnings (per share)Quarter Ending Aug-12 0.53 0.53 0.00 0.11Quarter Ending May-12 0.78 0.82 0.04 4.91Quarter Ending Feb-12 0.56 0.62 0.06 10.56Quarter Ending Nov-11 0.57 0.54 0.03 5.25Quarter Ending Aug-11 0.46 0.48 0.02 3.31

The new datas are exactly the same with the original datas. Consensus Estimates

Original Analysis

Copy/paste “Consensus Estimates Analysis” Table from the original stock recommendation report (from CIF website, “reports” tab)

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Re-Evaluation Analysis

Copy/paste the “Consensus Estimates Analysis” Table from http://www.reuters.com/, “Analysts” tab (include both revenue and earnings)

Consensus Estimates AnalysisSales and Profit Figures in US Dollar (USD)Earnings and Dividend Figures in US Dollar (USD)

# of Estimates Mean High Low1 YearAgo

SALES (in millions)Quarter Ending Nov-12 34 9027.07 9316.00 8836.00 9930.63Quarter Ending Feb-13 34 9466.04 9752.00 9128.00 10188.80Year Ending May-12 38 37209.40 38887.00 36971.00 --Year Ending May-13 37 38296.70 38987.00 37765.00 41475.10Year Ending May-14 38 40818.70 42262.00 38919.00 43951.20Earnings (per share)Quarter Ending Nov-12 36 0.61 0.63 0.59 0.61Quarter Ending Feb-13 36 0.66 0.69 0.62 0.64Year Ending May-12 40 2.42 2.45 2.34 --Year Ending May-13 39 2.65 2.74 2.53 2.64Year Ending May-14 39 2.91 3.11 2.56 2.90LT Growth Rate (%) 15 11.92 20.00 5.00 13.13

Briefly discuss the changes

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There is a slightly decrease in the revenue estimates and longterm growth rate. The earnings per share remains the same. Overall, the change is not significant enough to treat it as a sign of either bullish or bearish.

Estimate Revision Analysis

Original Analysis (MM/DD/YYYY)

Copy/paste “Estimates Revision Summary” Table from the original stock recommendation report (from CIF website, “reports” tab)

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Re-Evaluation Analysis

Copy/paste the “Estimates Revisions Summary” Table from http://www.reuters.com/, “Analysts” tab (include both revenue and earnings)

Estimates Revisions Summary

Last Week Last 4 WeeksNumber Of Revisions: Up Down Up Down

RevenueQuarter Ending Nov-12 0 0 0 1Quarter Ending Feb-13 0 0 0 1Year Ending May-12 -- -- -- --Year Ending May-13 0 0 0 1Year Ending May-14 0 0 2 1EarningsQuarter Ending Nov-12 0 0 0 0Quarter Ending Feb-13 0 0 0 0Year Ending May-12 -- -- -- --Year Ending May-13 0 0 0 0Year Ending May-14 0 0 1 0

Briefly discuss the changesFrom the new data, we can see that analysts are not making any projections. I think its because the lack of big news of the company. Analysts’ Recommendations

Original Analysis

Copy/paste “Analyst Recommendations and Revisions” Table from the original stock recommendation report (from CIF website, “reports” tab)

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Re-Evaluation Analysis

Copy/paste the “Analyst Recommendations and Revisions” Table from http://www.reuters.com/, “Analysts” tab (include both revenue and earnings)

Briefly discuss the changes

Analyst Recommendations and Revisions

1-5 Linear Scale Current1 Month

Ago2 Month

Ago3 Month

Ago(1) BUY 10 12 14 13(2) OUTPERFORM 19 18 18 18(3) HOLD 14 15 12 12(4) UNDERPERFORM 0 0 0 0(5) SELL 0 0 0 0No Opinion 0 0 0 0

Mean Rating 2.09 2.07 1.95 1.98

The new data seems a little more bearish compare to the old data. One of the analyst did not make recommendation in the new data. The mean rating increased by 0.02 but I do not think the change is significant enough to treat it as a sign.

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Section (C) Sector Recommendations

You will make recommendations on whether CIF should continue to own its sector holdings

Provide your views on the sector. Are you bullish, bearish or neutral on the sector, and why?

Discuss whether you recommend CIF to (1) stay put with its current sector holdings, or (2) sell out of the sector, and why? Base on my analysis, I think we should keep holding these two stock. I am neutral on the future performance of the sector, but I think there is a sign that Apple will perform better in the holiday season. I also think Oracle will keep performing well (with a low volatility) if there’s nothing big happen. Section (D) Sector Holding Recommendations

Based on your analysis, are there stocks CIF currently owns from your sector you would recommend to:

1. Sell and why?

2. Adjust “target price” and why? If you recommend an adjustment, you must suggest a new “target price”

3. Adjust “stop-loss price” and why? If you recommend an adjustment, you must suggest a new “stop-loss price”

Provide your recommendations in the following table

Company Name Ticker Symbol

Date Recommended

Date Re-evaluated

Recommendation(Explain Why)

SellAdjust “Target Price”

Adjust “Stop-

loss Price”

Apple AAPL Oct 18, 2012 Nov 11, 2012 no no $ 458.55

Oracle ORCL Oct 18, 2012 Nov 11, 2012 no no no

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I do not see a reason we should sell either of these two stocks. Apple seems to dropped to the rock bottom already and it shows a sign of outperform in the holiday season. The stop lose price is in a safe distance from the current price for Oracle. I recommend to change the stop loss price for Apple to $458.55. The current stop-loss price is too close to the current price. For such a volatile stock, we need to keep the stop-loss price at least 15% lower from current price which is $458.55.

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