The Best 25 Stocks for 2015

Ascendere Associates LLC December 31, 2014 J. Stephen Castellano Page 1 [email protected]

Ascendere Associates LLC Innovative Long/Short Equity Research

Model Portfolio Monthly Update: December 31, 2014 There are limitations inherent in our theoretical model results, particularly with the fact that such results do not represent actual trading and they may not reflect the impact material economic and market factors might have had on our decision making if we were actually managing client money. Please see additional disclaimers and disclosures at the back of this report. We highlight stocks that demonstrate solid growth at a reasonable price (GARP). Stocks selected for our model portfolio strategies all rank highly for the following metrics, with an emphasis on proxies for cash flow growth and ROIC:

Relative Value

Operating Momentum

Analyst Revision Momentum

Fundamental Quality Page 2 contains rebalancing actions for our long-only model portfolio. Page 3 contains rebalancing actions for our short-only model portfolio. Target and stop prices, as well as updated return data, to be provided in our daily reports that will follow.


Commentary Long model, 1-year holding period We update the model portfolio on a monthly basis but it also works well for longer holding periods. A model long portfolio held for one year (updated as of 12/31/13 and held through 12/31/2014) returned 15.67% for the year versus 11.43% for the S&P 500, excluding dividends. The average dividend yield for the model portfolio averaged approximately 1.58% versus 1.92% for the S&P 500. 17 of the 26 stocks outperformed the S&P 500 (excluding dividends). The best performing stock for the year was American Airlines Group (AAL), up 112%. The worst performing was Nu Skin Enterprises (NUS), down 68.4%. The Sharpe Ratio for the 1yr long-only model portfolio was 1.05 compared to 1.00 for the S&P 500, indicating a slightly better risk/reward profile compared to the index. Please see the back of the report for additional return data. Core long model, rebalanced monthly The Core long model portfolio that was rebalanced monthly returned 12.81% in 2014 versus 11.43% for the S&P 500, excluding dividends. Since its 3/31/2009 inception, this model has returned 151.5% versus 102.8% for the S&P 500. Sharpe Ratio since inception is 1.04 versus 1.07 for the index. Opportunistic long model, rebalanced monthly The Opportunistic long model portfolio is composed of the same stocks of the Core model, but will occasionally move into a 100% cash position at certain volatility and portfolio return triggers. The purpose of this strategy is to trade return potential for reduced volatility. This model returned 5.81% for the year and 135.6% since its 3/31/2009 inception. The Sharpe Ratio since inception is 1.21. Dollar Neutral model portfolio, rebalanced monthly A model portfolio that begins each month at an assumed 100% long position offset by a 100% short portfolio returned 23.78% for the year. This model benefited greatly by volatility in late 2014, which greatly enhanced short portfolio returns. The Sharpe Ratio for this dollar neutral model is 1.26 since its 3/31/2009 inception.


Long Model Portfolio -- Rebalancing Actions

12/31/2014 Rebalancing

Core and Opportunistic Long Portfolio:

25 stocks in the model portfolio = 4.00% weight per position

Close Position Hold/Rebalance Open Position

FMC Technologies, Inc. FTI Cablevision Systems CorporationCVC Skechers USA Inc. SKX

Synchrony Financial SYF Pilgrim's Pride Corporation PPC Intercontinental Hotels Group plc IHG

SunTrust Banks, Inc. STI StanCorp Financial Group Inc. SFG Lowe's Companies Inc. LOW

Kirby Corporation KEX VCA Inc. WOOF Cracker Barrel Old Country Store, Inc. CBRL

Manhattan Associates, Inc. MANH Robert Half International Inc. RHI CVS Health Corporation CVS

MAXIMUS, Inc. MMS Southwest Airlines Co. LUV PrivateBancorp, Inc. PVTD

Brocade Communications Systems, Inc.BRCD Micron Technology, Inc. MU Omega Healthcare Investors Inc. OHI

RF Micro Devices Inc. CDW Flextronics International Ltd. FLEX HEALTHSOUTH Corp. HLS

CDW Corporation CDW Texas Instruments Inc. TXN Alexion Pharmaceuticals, Inc. ALXN

TE Connectivity Ltd. TEL Skyworks Solutions Inc. SWKS MAXIMUS, Inc. MMS

Anixter International Inc. AXE Union Pacific Corporation UNP

F5 Networks, Inc. FFIV General Dynamics Corporation GD

Lam Research Corporation LRCX Broadridge Financial Solutions, Inc. BR

Autohome Inc. ATHM

Source: Ascendere Associates LLC YY Inc. YY


Short Model Portfolio -- Rebalancing Actions When the market anticipates an improving economy from low price levels, low-quality stocks will at times out-perform high-quality stocks as the expected improvements in fundamentals are discounted from a relatively more depressed price level.

12/31/2014 Rebalancing

Core and Opportunistic Short Portfolio:

17 stocks in the model portfolio = 5.88% weight per position

Close Position Hold/Rebalance Open Short Sale

The Priceline Group Inc. PCLN TripAdvisor Inc. TRIP Melco Crown Entertainment Limited MPEL

General Motors Company GM Phillips 66 PSX Liberty Broadband Corporation LBRD.K

Dish Network Corp. DISH Golar LNG Ltd. GLNG Medidata Solutions, Inc. MDSO

SINA Corporation SINA Memorial Resource Development Corp.MRD NOW Inc. DNOW

Carpenter Technology Corp. CRS ING Groep N.V. ING

Agrium Inc. AGU Credit Suisse Group AG CS

Salix Pharmaceuticals Ltd. SLXP

3D Systems Corporation DDD

Qlik Technologies, Inc. QLIK

CRH plc CRH

Axiall Corporation AXLL

The Mosaic Company MOS

Source: Ascendere Associates LLC Allegheny Technologies Inc. ATI


Return Data

Core & Opportunistic Long Model MTDTheoretical Longs Stopped Out on 8/4/2011 close for a -12.33% loss11/30/2014 to 12/31/2014

Target/ Date+1

Sector Company Ticker 11/30/2014 12/31/2014 Performance Stop Date Sell Price Return

Information Technology RF Micro Devices Inc. RFMD 14.61 16.59 13.55%

Information Technology Skyworks Solutions Inc. SWKS 67.47 72.71 7.77%

Financials SunTrust Banks Inc. STI 39.29 41.90 6.64%

Financials StanCorp Financial Group Inc. SFG 66.10 69.86 5.69%

Information Technology Brocade Communications Systems, Inc.BRCD 11.31 11.84 4.69%

Information Technology MAXIMUS Inc. MMS 52.39 54.84 4.68%

Health Care VCA Antech Inc. WOOF 47.33 48.77 3.04%

Information Technology Manhattan Associates, Inc. MANH 39.56 40.72 2.93%

Industrials Robert Half International Inc. RHI 56.79 58.38 2.80%

Financials Synchrony Financial SYF 29.01 29.75 2.55%

Information Technology Anixter International Inc. AXE 86.90 88.46 1.80%

Consumer Discretionary Cablevision Systems Corp. CVC 20.32 20.64 1.57%

Consumer Staples Pilgrim's Pride Corporation PPC 32.30 32.79 1.52%

Industrials Southwest Airlines Co. LUV 41.82 42.32 1.20%

Information Technology F5 Networks Inc. FFIV 129.19 130.47 0.99%

Information Technology Flextronics International Ltd. FLEX 11.09 11.18 0.81%

Information Technology CDW Corp. CDWC 35.08 35.17 0.26%

Information Technology Tyco Electronics, Ltd. TEL 64.20 63.25 -1.48%

Information Technology Texas Instruments Inc. TXN 54.42 53.47 -1.75%

Energy FMC Technologies, Inc. FTI 47.77 46.84 -1.95%

Information Technology Micron Technology Inc. MU 35.95 35.01 -2.61%

Information Technology LAM Research Corp. LRCX 82.64 79.34 -3.99%

Industrials Kirby Corp. KEX 96.14 80.74 -16.02%


Core & Opportunistic Short Model MTDTheoretical shorts hit target 8/4/2011 for 14.84% gain11/30/2014 to 12/31/2014

Target/ Date+1

Sector Company Ticker 11/30/2014 12/31/2014 Performance Stop Date Sell Price Return

Energy Memorial Resource Development Corp.MRD 21.60 18.03 -16.53% 12/4/2014 18.12$ -16.11%

Energy Golar LNG Ltd. GLNG 41.52 36.47 -12.16% 12/15/2014 31.44$ -24.28%

Financials ING Groep NV ING 14.60 12.97 -11.16% 12/12/2014 12.97$ -11.16%

Consumer Discretionary Dish Network Corp. DISH 79.41 72.89 -8.21% 12/8/2014 71.44$ -10.04%

Information Technology 3D Systems Corp. DDD 35.28 32.87 -6.83% 12/15/2014 30.05$ -14.82%

Financials Credit Suisse Group CS 26.67 25.08 -5.96% 12/15/2014 24.84$ -6.86%

Materials Agrium Inc. AGU 97.42 94.72 -2.77%

Materials Carpenter Technology Corp. CRS 50.42 49.25 -2.32%

Materials Axiall Corporation AXLL 43.28 42.47 -1.87% 12/16/2014 38.47$ -11.11%

Energy Phillips 66 PSX 73.02 71.70 -1.81% 12/15/2014 67.04$ -8.19%

Consumer Discretionary Priceline.com Inc. PCLN 1,160.19 1,140.21 -1.72% 12/16/2014 1,075.34$ -7.31%

Information Technology Sina Corp. SINA 37.95 37.41 -1.42%

Materials Mosaic Co. MOS 45.77 45.65 -0.26%

Information Technology Qlik Technologies, Inc. QLIK 30.83 30.89 0.19%

Consumer Discretionary TripAdvisor LLC TRIP 73.65 74.66 1.37%

Materials CRH plc CRH 23.41 24.01 2.56%

Materials Allegheny Technologies Inc. ATI 33.69 34.77 3.21%

Consumer Discretionary General Motors Company GM 33.43 34.91 4.43%

Health Care Salix Pharmaceuticals Ltd. SLXP 102.69 114.94 11.93%


* Return figures are calculated using cumulative simple returns. This table represents returns of several theoretical portfolios that do not assume any costs. This table is not to be construed as advertising for any investment service. Real portfolios that attempt to exactly replicate these theoretical strategies will generate lower returns relative to these models due to slippage, transaction costs, tax expenses and other costs. There are limitations inherent in our theoretical results, particularly with the fact that such results do not represent actual trading and they may not reflect the impact material economic and market factors might have had on our decision making if we were actually managing client money. We do our best to provide accurate information, but do not guarantee this. Please see additional disclosures and disclaimers.

Theoretical Model Portfolio* 12/31/14 MTD YTD

Since

03/31/09 Sharpe

Simple Returns (No Compounding)

Stock Targets Core Model

Long -0.44% 1.68% 12.81% 151.5% 1.04

Short 0.12% -4.86% -12.56% 73.4% 0.56

Core Long/Short -0.56% 6.53% 25.37% 78.0% 0.77

Stock Targets and Opportunistic Model

Portfolio Targets Long -0.44% 1.68% 5.81% 135.6% 1.21

Short 0.00% -8.66% -17.97% 19.5% 0.10

Opportunistic Long/Short -0.44% 10.33% 23.78% 116.1% 1.26

Stock Targets and Opportunistic Model III

Portfolio Targets Long Stocks -0.44% 1.68% 5.81% 135.6% 1.21

Long Inverse ETF ^SH 0.00% 0.10% -11.55% -77.0% (1.04)

Opportunistic Long/Short III -0.44% 1.77% -5.74% 58.7% 0.67

S&P 500 Index -0.60% -0.32% 11.43% 102.76% 1.07


Return Data 1-year holding period

Buy-and-hold 1-year portfolio12/31/2013 to 12/31/2014

Sector Industry Company Ticker 12/31/2013 12/31/2014 Performance

Industrials Airlines American Airlines Group Inc. AAL 25.25 53.63 112.4%

Information Technology Semiconductors NXP Semiconductors NV NXPI 45.93 76.40 66.3%

Consumer Discretionary Specialty Stores Signet Jewelers Limited SIG 78.70 131.57 67.2%

Consumer Discretionary Apparel, Accessories and Luxury GoodsHanesbrands Inc. HBI 70.27 111.62 58.8%

Health Care Healthcare Facilities VCA Antech Inc. WOOF 31.36 48.77 55.5%

Information Technology Computer Storage and Peripherals SanDisk Corp. SNDK 70.54 97.98 38.9%

Consumer Discretionary Apparel Retail Foot Locker Inc. FL 41.44 56.18 35.6%

Financials Specialized REITs Omega Healthcare Investors Inc. OHI 29.80 39.07 31.1%

Industrials Aerospace and Defense Huntington Ingalls Industries, Inc. HII 90.01 112.46 24.9%

Information Technology Data Processing and Outsourced ServicesFleetCor Technologies, Inc. FLT 117.17 148.71 26.9%

Health Care Life Sciences Tools and Services Parexel International Corp. PRXL 45.18 55.56 23.0%

Consumer Discretionary Department Stores Dillard's Inc. DDS 97.21 125.18 28.8%

Materials Paper Packaging Packaging Corp. of America PKG 63.28 78.05 23.3%

Financials Specialized REITs Entertainment Properties Trust EPR 49.16 57.63 17.2%

Health Care Biotechnology United Therapeutics Corp. UTHR 113.08 129.49 14.5%

Financials Asset Management and Custody BanksSEI Investments Co. SEIC 34.73 40.04 15.3%

Industrials Building Products Lennox International Inc. LII 85.06 95.07 11.8%

Consumer Discretionary Casinos and Gaming Bally Technologies, Inc. BYI 78.45 83.27 6.1%

Information Technology Data Processing and Outsourced ServicesPaychex Inc. PAYX 45.53 46.17 1.4%

Healthcare Biotechnology Grifols, S.A. GRFS 36.12 33.99 -5.9%

Energy Oil and Gas Refining and Marketing Western Refining Inc. WNR 42.41 37.78 -10.9%

Financials Property and Casualty Insurance Old Republic International Corp. ORI 17.27 14.63 -15.3%

Industrials Industrial Machinery Flowserve Corp. FLS 78.83 59.83 -24.1%

Energy Oil and Gas Equipment and Services Oceaneering International, Inc. OII 78.88 58.81 -25.4%

Consumer Discretionary Home Improvement Retail Lumber Liquidators, Inc. LL 102.89 66.31 -35.6%

Consumer Staples Personal Products Nu Skin Enterprises Inc. NUS 138.22 43.70 -68.4%


DISCLOSURES Ascendere is in the business of providing equity research and related consulting services to investors and their advisors. The equity research it provides includes basic quantitative model portfolios and more detailed fundamental research with respect to individual stocks. In addition, the firm manages stock portfolios for itself and clients. Ascendere does not rate stocks on any scale, but does offer individual stock commentary and valuation opinions. With regard to Ascendere's portfolio strategies, "long" or "high-quality" baskets should generally be considered buys, unless otherwise noted. Stocks in our "short" or "low-quality" baskets should generally be considered sells, unless otherwise noted. While exceptions may occasionally occur, typically stocks in the high-quality basket are expected to outperform the S&P 500 over a month's time and stocks in the low-quality basket are expected to underperform. A more relevant benchmark would comprise of all stocks and ADRs that trade on major U.S. stock exchanges with a market cap above $2 billion. Ascendere adheres to professional standards and abides by codes of ethics that put the interests of clients ahead of its own. The following are specific disclosures made by Ascendere: 1) Ascendere may have a financial interest in the companies referred to in this report ("the Companies"). The research analyst covering the Companies and members of the analyst's immediate family have a financial interest in one or more of the Companies. 2) Ascendere generates revenue from research subscription revenue and portfolio management fees. At any given time it may be long or short any of the Companies. 3) Ascendere does not make a market in the securities of any of the Companies. 4) Ascendere has not received compensation from the Companies. 5) Ascendere has not managed or co-managed a public offering for any of the Companies. 6) Neither Ascendere nor any of its officers or any family member of the covering analyst serve as an officer, director or advisory board member of any of the Companies. 7) Neither Ascendere nor any of its officers or any family member of the covering analyst beneficially own 1% or more of any class of securities of any of the Companies. DISCLAIMERS This report is intended for informational purposes only and does not constitute a recommendation, or an offer, to buy or sell any securities or related financial instruments. The report is not intended to be in furtherance of the specific investment objectives, financial situation, or particular needs of any individual recipient. Investment decisions should be based on an individual's own goals, time horizon and tolerance for risk. The information contained herein accurately reflects the opinion of Ascendere at the time the report was released. The opinions of Ascendere are subject to change at any time without notice and without obligation or notification. The officers, affiliates or family members of Ascendere Associates may hold positions in the securities of the Companies. No warranty is made as to the accuracy of the information contained herein. The views and opinions expressed in the market commentary reflect the opinions of the author and may be based upon information obtained from third-party sources believed to be reliable but not guaranteed. These opinions are subject to change at any time based upon market or other conditions. Ascendere disclaims any responsibility to update such views. This information is intended for the sole use of clients of Ascendere. Any other use, distribution or reproduction is strictly prohibited. Investing in stocks includes a high degree of risk, including the risk of total loss. This is for informational purposes only and is not intended to constitute a current or past recommendation, investment advice of any kind, or a solicitation of an offer to buy or sell any securities or investment services. All information, opinions and estimates are current as of original distribution by author and are subject to change at any time without notice. Any companies, securities and/or markets referenced are solely for illustrative purposes. Past performance is not indicative of future performance, and no representation or warranty, express or implied, is made regarding future performance. For Investment Professional use only. NOT FOR FURTHER DISTRIBUTION. Any dissemination or copying of this commentary is strictly prohibited.


J. Stephen Castellano founded Ascendere Associates LLC to provide innovative equity research and investment advisory services that blends fundamental and quantitative approaches. In general, our approach is quite simple -- we believe that return on invested capital and long-term earnings growth are key to stock valuation. More specifically, we use powerful and unique financial models that combine publicly available data, consensus estimates and our own inputs to generate consistent and actionable stock recommendations.

Among the services that Ascendere provides are: 1) detailed custom equity research analysis; 2) valuation scenario analysis studies; 3) supply /demand studies; 4) long and short stock idea generation; 5) portfolio feedback; 6) detailed fundamental financial modeling services; and 7) additional analytical consulting services. Additional information is available at www.ascenderellc.com. Mr. Castellano has over 15 years of experience in equity research and related consulting work. At PaineWebber, Warburg Dillon Read and Credit Lyonnais Securities he developed fundamental equity valuation models and conducted in-depth research on the steel and telecom services industries. At Boston Private Value Investors, he developed quantitative models for stock idea generation and also provided general fundamental equity research coverage. Steve received a MBA from the F. W. Olin School of Business at Babson College (2005) and a BA from Oberlin College (1993). Mr. Castellano's career history is highlighted below:

Startup Ecommerce Company (2013-Present)

Ascendere Associates, LLC (2009-Present)

Boston Private Value Investors , Equity Research, Equity Research Analyst (2005-2009)

Pyramid Research, Contract Consultant, Telecom Services (2002-2003)

Credit Lyonnais Securities (USA), Equity Research, Telecom Services, Vice President (2000-2001)

Warburg Dillon Read, Equity Research, Telecom Services, Research Associate (1999-2000)

PaineWebber, Equity Research, Steel and Nonferrous Metals, Research Associate, Editor (1995-1999)

The Best 25 Stocks for 2015

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