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  1. 1. Oppenheimer Asset Management Inc. 200 Park Avenue New York, NY 10166 Tel: 800-221-5588 Fax: 212-667-4959 INVESTMENT STRATEGY and RESEARCH A division of Oppenheimer Asset Management Inc. Brian G. Belski Chief Investment Strategist (212) 667-5961 brian.belski@opco.com Nicholas Roccanova, CFA Senior Investment Strategist (212) 667-5960 nicholas.roccanova@opco.com Mira Borisova, CFA Investment Strategist (212) 667-6364 mira.borisova@opco.com INVESTMENT STRATEGY US Strategy Weekly Dividends are Always a Worthwhile Strategy Investors keen to talk the talk, but are not walking the dividend walk With all that the market has endured, it seems that a majority of client conversations we have include some sort of dialogue regarding dividend paying stocks. Despite this apparent level of interest, investors appear to be focusing elsewhere as dividend strategies have struggled year-to-date. We continue to be surprised by this underperformance given the nature of our recent client conversations, but more important, since historical evidence suggests that this is the right type of environment for dividend investing. Dividend investing works longer term, but especially during volatile markets Our work shows that, during periods where market volatility is higher than normal and total returns are below average, dividend-paying stocks outperform non- paying stocks by more than 16% since 1980. This compares to an average underperformance of 5.6% for these stocks in all years since 1980. Income accounts for large portions of long-term performance Dividend income has accounted for nearly one-third of the annualized total return of the S&P 500 since the 1970s. As a result, we believe that investors who choose not to include these stocks within portfolios are putting themselves at a significant performance disadvantage. Identifying dividend opportunities By focusing solely on high current dividend yields investors could be missing potential recovery and/or dividend growth opportunities. That’s not to mention that high dividend yields by themselves are sometimes a signal that trouble may be on the horizon. Thus, our process focuses not only on growth in dividend payouts, but also on cash levels and earnings growth, as we have found that trends in these factors make dividend yields more believable. Sectors best positioned to increase dividends We believe the sectors most likely to increase dividend payments are the ones with the combination of highest cash levels, lowest expected long-term EPS growth relative to 2011 EPS expectations and relatively low current dividend payout rates. Based on our analysis, it appears that Discretionary, Energy, Industrials and Technology best fit these criteria. November 29, 2010 US Strategy – Recommended S&P 500 Sector Weightings Sector Opinion %Weight Consumer Discretionary OW 12% Consumer Staples MW 11% Energy MW 11% Financials MW 15% Health Care MW 11.5% Industrials OW 12% Information Technology OW 20% Materials MW 3.5% Telecom Services UW 2% Utilities UW 2% Source: Oppenheimer Asset Management Investment Strategy Group Key: Opinion: Investment Strategy Sector Opinion. UW: Underweight MW: Market Weight OW: Overweight Major Market Index Performance – Year to Date 0 5 10 15 20 SPX INDU COMP RUT SVX SGX Source: Oppenheimer Asset Management Investment Strategy Group Prices as of 11/26/10
  2. 2. 2 Dividends are always a worthwhile strategy By now readers of our reports are very familiar with our preferential stance toward dividend-paying stocks. In fact, we began highlighting this preference during the summer of 2009 as the market started to experience some volatility following its initial burst off the cyclical price trough in March 2009 (see US Strategy Weekly, “Dividend Consistency Matters,” dated July 13, 2009). The reason being is that dividend strategies tend to benefit portfolio performance during periods of market uncertainty, according to our analysis. For instance, dividends help to offset potential principal losses by providing a steady stream of income. In addition, companies that have a consistent dividend track record tend to be less volatile than those without one. However, as market volatility quickly subsided following the summer of 2009 we found it difficult to convince investors that a dividend focus was a worthwhile strategy, in our view. This year has been a different story. With all that the market has endured, it seems that every client conversation we have includes some sort of dividend- paying stock discussion. Despite this apparent level of interest, investors appear to be focusing elsewhere as dividend strategies have struggled year-to-date. As Chart 1 illustrates, the total return of all S&P 500 companies that pay a dividend is 7.8% compared to 11.6% for non-dividend payers and 8.6% for the overall index. We continue to be surprised by this underperformance given the nature of our recent client conversations, but more important, since historical evidence suggests that this is the right type of environment for dividend investing. For instance, we found that in years where market volatility is higher than normal and total returns are below average dividend-paying stocks outperform non-paying stocks by more than 16% since 1980. This compares to an average underperformance of 5.6% for these stocks in all years since 1980. Remember income accounts for a large part of long-term performance True, dividend strategies tend to work best during periods of heightened market volatility, but they are also very important for any investor with a long-term focus. For instance, dividend income has accounted for about one-third of the annualized total return of the S&P 500 since the 1970s. Thus, we believe that investors who choose not to include these stocks within portfolios are putting themselves at a significant performance disadvantage. Therefore, we continue to recommend that investors dedicate a healthy portion of their equity portfolio toward dividend-paying stocks. Chart 1: Dividends Are An Important Part Of Long Term Equity Returns 0 1,000 2,000 3,000 4,000 5,000 6,000 1/70 1/74 1/78 1/82 1/86 1/90 1/94 1/98 1/02 1/06 1/10 S&P 500 Total Return Index S&P 500 Price Index Compounded Annual Growth S&P 500 Total Return: 10.1% S&P 500 Price Return: 6.7% Source: OAM Investment Strategy Group. We continue to recommend that investors devote a healthy portion of their equity portfolios toward dividend-paying stocks… …since our analysis suggests that this is the right market environment for these strategies. However, dividend investing is a proven long term strategy. INVESTMENT STRATEGY
  3. 3. 3 Indentifying dividend opportunities Identifying successful investment opportunities is always a challenging task, but as we discuss below, we believe that several current market factors make identifying attractive dividend opportunities a little easier. Dividend focus should combine yield, growth and quality characteristics While dividend yield is a primary factor in considering dividend opportunities, we believe it is important for investors to consider other factors as well. By focusing solely on high current dividend yields investors could be missing potential recovery and/or dividend growth opportunities. That’s not to mention that high dividend yields by themselves are sometimes a signal that trouble may be on the horizon (e.g., dividend cuts). For a more complete analysis, we focus not only on growth in dividend payouts, but also on cash levels and earnings growth, as we have found that trends in these factors make dividend yields more believable. Our work shows that this strategy tends to produce superior risk adjusted returns. To illustrate this point, we considered the following portfolios and compared their historical performance trends to the overall market, all dividend payers and non- dividend payers: 1. High quality dividend yield – stocks with dividend yields greater than the market and S&P quality rating of A- or better; 2. Consistent dividend growth – companies that have increased dividend payment in each of the prior ten years; and 3. High quality dividend yield and growth – a combination of #1 and #2. As you can see from Chart 2, each dividend strategy has produced higher average annual total returns than the S&P 500. Interestingly, non dividend payers have managed to produce the highest average annual total returns. We believe this is part of the reason why investors frequently ignore dividend strategies since companies that pay no dividends are often the ones with the greater growth potential. However, as Chart 3 illustrates, dividend strategies tend to produce the best returns when volatility is factored in. In fact, our analysis suggests that a high quality dividend yield and growth approach is the most effective strategy from a risk adjusted return perspective. Chart 2: Average Annual Total Return Since 1980 Chart 3: Risk Adjusted Return Ratio 12.6% 13.2% 18.8% 16.3% 15.9% 17.6% 10% 11% 12% 13% 14% 15% 16% 17% 18% 19% 20% S&P 500 Dividend Payers Dividend Non Payers High Quality Dividend Yield Consistent Dividend Growth High Quality Dividend Yield & Growth 0.72 0.79 0.57 1.09 0.77 1.25 0.5 0.6 0.7 0.8 0.9 1.0 1.1 1.2 1.3 S&P 500 Dividend Payers Dividend Non Payers High Quality Dividend Yield Consistent Dividend Growth High Quality Dividend Yield & Growth Source: OAM Investment Strategy Group. Source: OAM Investment Strategy Group. The current market environment makes identifying dividend opportunities a little easier… …but we believe investors should narrow their focus on high quality dividend yield and growth stocks. INVESTMENT STRATEGY
  4. 4. 4 Low payout rates, waning earnings growth and high cash levels warrant higher dividends Dividend payout rates are very low compared to historical norms. True, the recession forced many companies to make difficult decisions regarding their dividend policies. However, even prior to the recession companies appeared to be putting less emphasis on dividends since payout rates had been slowly declining for nearly 20 years (Chart 4). In addition, the impressive earnings growth over the past several years is likely to cool off as the economic recovery matures raising the prospect of muted equity market returns in the coming years. Therefore, investors will probably demand more in the way of dividends to earn a return on their investments. Fortunately, companies are in excellent shape to deliver on these potential demands. As we have mentioned time and time again, corporate balance sheets appear to be in outstanding shape. In fact, as Chart 5 illustrates, cash levels remain at historically high levels and equally important is the fact that companies appear to be managing that cash very well judging by the multi-year expansion in free cash flow levels. We believe all of these factors taken together warrant higher dividend payments in the coming years and it appears companies have already begun to act (Chart 6). Chart 5: Corporate Cash Levels Are Very Healthy 0% 2% 4% 6% 8% 10% 12% 14% 3Q79 1Q82 3Q84 1Q87 3Q89 1Q92 3Q94 1Q97 3Q99 1Q02 3Q04 1Q07 3Q09 -$1.00 -$0.50 $0.00 $0.50 $1.00 $1.50 $2.00 Cash % Assets FCF per Share Source: OAM Investment Strategy Group. Chart 6: Companies are Increasing Dividends Again Positive Dividend Actions for Prior 12 Months (initiations plus increases) 0 100 200 300 400 500 600 12/73 12/76 12/79 12/82 12/85 12/88 12/91 12/94 12/97 12/00 12/03 12/06 12/09 Source: OAM Investment Strategy Group. Chart 4: Current Dividend Payout Rates Are Very Low Compared to Historical Norms S&P 500 Dividend Payout Rate 20% 25% 30% 35% 40% 45% 50% 55% 60% 65% 70% 10/49 10/61 10/73 10/85 10/97 10/09 Dividend Payout Rate Long Term Average Source: OAM Investment Strategy Group. We think it is only a matter of time before investors begin demanding dividend increases. INVESTMENT STRATEGY
  5. 5. 5 Sectors best positioned to increase dividends From our perspective, the sectors most likely to increase dividend payments are the ones with the combination of highest cash levels, lowest expected long-term EPS growth relative to 2011 EPS expectations and relatively low current dividend payout rates. Based on our analysis, it appears that Discretionary, Energy, Industrials and Technology best fit these criteria (Table 1). Table 1: S&P 500 Sector Attributes Sector Cash % Assets 2011 EPS Growth Expected Long Term Growth Dividend Payout S&P 500 12.5 18.4 10.0 33.5 Consumer Discretionary 9.7 17.4 12.3 23.8 Consumer Staples 6.2 10.2 8.9 48.3 Energy 5.4 21.3 10.9 25.9 Financials 13.8 43.0 8.4 43.2 Health Care 17.8 9.4 6.9 37.9 Industrials 8.3 20.1 12.0 35.6 Information Technology 28.0 11.0 12.5 13.1 Materials 6.4 33.9 9.7 29.6 Telecom 2.6 6.2 7.0 67.0 Utilities 3.0 1.1 21.6 73.1 Source: OAM Investment Strategy Group, First Call. Screening for high quality dividend yield and growth opportunities Table 2 below is a list of S&P 1,500 stocks (ranked by preference) screened using the following parameters: 1. Dividend yield greater than the market; 2. Dividend increases in each of the prior 10 years; 3. S&P quality rating of A- or greater; and 4. Free cash flow yield greater than dividend yield. Table 2: High Quality Dividend Yield and Growth Screen Rank Ticker Company Name Dividend Yield Free Cash Flow Yield S&P Rating Market Value Price OpCo Rating 1 HSC Harsco Corp. 3.6 8.4 A $1,865 $24.27 NR 2 STR Questar Corp. 3.3 12.7 A- $2,979 $16.90 NR 3 CINF Cincinnati Financial Corp. 5.4 6.2 A $4,789 $29.96 NR 3 VFC VF Corp. 3.0 8.8 A $7,193 $83.82 NR 5 ABT Abbott Laboratories 3.7 6.4 A $79,240 $46.80 NR 6 HCBK Hudson City Bancorp Inc. 5.2 5.8 A $6,135 $11.38 NR 7 CB Chubb Corp. 2.6 10.8 A $18,250 $56.81 O 7 CFR Cullen/Frost Bankers Inc. 3.3 6.4 A $3,182 $54.05 P 7 PNY Piedmont Natural Gas Co. 3.8 5.8 A $2,127 $29.66 NR 10 MDT Medtronic Inc. 2.6 7.9 A $38,023 $33.84 O 10 TFX Teleflex Inc. 2.6 8.0 A- $2,226 $51.91 NR 12 JNJ Johnson & Johnson 3.4 5.7 A+ $175,376 $62.38 NR 12 TMP Tompkins Financial Corp. 3.5 5.5 A $318 $38.78 NR 14 GD General Dynamics Corp. 2.5 8.2 A+ $25,911 $67.12 O 15 AFL AFLAC Inc. 2.3 24.3 A $26,314 $51.55 NR 15 CBSH Commerce Bancshares Inc. 2.5 8.5 A- $2,734 $37.59 NR 17 OMI Owens & Minor Inc. 2.5 8.3 A $1,804 $28.91 NR 18 GPC Genuine Parts Co. 3.4 4.1 A $7,543 $48.53 NR 18 HCC HCC Insurance Holdings Inc. 2.1 13.1 A $3,050 $28.06 O 20 SFG StanCorp Financial Group Inc. 2.0 16.5 A $2,005 $42.15 NR 21 ABM ABM Industries Inc. 2.3 7.6 A- $1,060 $23.37 NR 22 ADP Automatic Data Processing Inc. 3.2 3.9 A $21,856 $45.48 P 22 WABC Westamerica Bancorp 2.9 4.2 A- $1,458 $49.62 NR 24 CL Colgate-Palmolive Co. 2.7 3.8 A+ $37,480 $77.39 P 24 ITW Illinois Tool Works Inc. 2.9 3.1 A $23,010 $47.13 NR When searching for dividend opportunities investors should not solely focus on yield. Instead, they should search for companies with a consistent dividend growth track record and cash flow to support future dividend growth. INVESTMENT STRATEGY
  6. 6. 6 Table 2 (continued): High Quality Dividend Yield and Growth Screen Rank Ticker Company Name Dividend Yield Free Cash Flow Yield S&P Rating Market Value Price OpCo Rating 24 LLTC Linear Technology Corp. 2.8 3.8 A- $7,234 $32.96 P 24 WAG Walgreen Co. 2.1 6.7 A+ $32,971 $33.68 NR 28 PII Polaris Industries Inc. 2.2 6.1 A- $2,364 $73.69 NR 29 EMR Emerson Electric Co. 2.5 4.2 A+ $41,307 $55.60 P 30 BRC Brady Corp. (Cl A) 2.3 5.5 A- $1,618 $31.07 NR 31 PNR Pentair Inc. 2.3 4.2 A $3,230 $33.11 P 32 UTX United Technologies Corp. 2.3 5.1 A+ $69,467 $75.28 O 33 MMM 3M Co. 2.5 3.7 A+ $60,060 $84.40 NR 33 XOM Exxon Mobil Corp. 2.6 2.7 A+ $338,452 $69.23 P 33 RLI RLI Corp. 2.0 5.8 A $949 $58.02 P 36 WMT Wal-Mart Stores Inc. 2.3 4.6 A+ $108,345 $53.74 NR 37 LOW Lowe's Cos. 2.0 5.5 A- $29,932 $22.24 O 38 MKC McCormick & Co. Inc. 2.4 2.5 A+ $5,892 $44.27 NR 39 DOV Dover Corp. 2.0 4.0 A- $9,912 $55.71 NR 40 CAT Caterpillar Inc. 2.1 2.3 A+ $49,555 $84.13 NR Source: Oppenheimer Asset Management Investment Strategy Group. Prices as of 11/26/2010 Rating Key, according to Oppenheimer & Co. Inc. Equity Research: O: Outperform P: Perform U: Underperform NR: Not rated by Oppenheimer & Co. Inc. Equity Research INVESTMENT STRATEGY
  7. 7. 7 Performance Statistics Major US Indices Index 1W 1M 3M 6M 12M YTD DJ Industrial Average -0.1 0.5 10.2 10.4 6.9 7.3 DJ Transportation 0.1 3.0 16.6 12.5 22.8 19.0 DJ Utilities -0.7 -1.9 0.7 9.4 3.5 -0.7 NASDAQ 100 0.9 1.3 20.2 16.3 20.1 15.8 NASDAQ Composite 0.7 1.3 17.7 12.3 16.5 11.7 Russell 1000 -0.7 1.0 12.5 9.6 8.6 7.7 Russell 1000 Growth 0.0 2.0 15.9 13.3 11.6 10.0 Russell 1000 Value -1.3 0.0 9.1 5.9 5.7 5.5 Russell 2000 1.2 4.0 18.8 10.7 23.7 17.2 S&P 500 -0.9 0.6 11.7 9.2 7.1 6.7 S&P 500/Citigroup Growth -0.3 1.4 15.1 13.3 9.3 8.7 S&P 500/Citigroup Value -1.4 -0.1 8.5 5.3 5.1 4.7 S&P Mid Cap 400 1.1 3.9 17.0 12.7 23.2 18.3 S&P Small Cap 600 1.5 4.4 18.0 10.3 24.6 17.2 Source: Oppenheimer Asset Management Investment Strategy Group, Prices as of 11/26/10 S&P 500 GICS Sectors Sector 1W 1M 3M 6M 12M YTD Consumer Discretionary 0.4 3.6 18.7 12.6 24.9 21.9 Consumer Staples -1.1 -0.1 7.0 9.0 5.1 7.4 Energy -1.7 4.8 18.7 17.1 4.4 8.0 Financials -2.5 -0.9 5.3 -1.5 -1.4 0.3 Health Care -1.3 -2.0 7.1 6.2 -1.8 -2.4 Industrials -0.3 0.9 13.1 9.6 15.2 15.6 Information Technology 0.4 0.2 17.4 11.5 10.2 5.8 Materials -1.0 1.2 13.9 16.6 7.9 8.3 Telecommunications Services -1.0 -0.3 7.1 17.8 8.7 5.3 Utilities -1.0 -2.8 -0.8 7.5 2.9 -1.4 Source: Oppenheimer Asset Management Investment Strategy Group, Prices as of 11/26/10 S&P 500 - Top & Bottom 10 Performing Industries, Trailing Week Top 10 1W 1M 3M 6M 12M YTD Internet & Catalog Retail 5.5 5.9 37.6 51.8 39.6 38.9 Real Estate Management & Development 2.9 4.0 15.7 20.5 69.6 40.6 Multiline Retail 2.5 7.8 19.5 8.0 19.1 19.8 Computers & Peripherals 2.1 2.1 24.5 13.2 22.0 17.8 Distributors 2.0 2.8 13.0 19.5 33.0 27.8 Trading Companies & Distributors 1.9 4.9 17.5 15.6 35.0 30.3 Semiconductors & Semiconductor Equipment 1.4 5.7 20.9 8.7 16.2 6.7 Specialty Retail 1.2 5.2 18.2 2.4 15.0 14.3 Textiles & Apparel & Luxury Goods 1.2 8.1 28.8 22.4 35.3 34.0 Leisure Equipment & Products 1.1 8.0 19.5 15.0 37.3 33.5 Bottom 10 1W 1M 3M 6M 12M YTD Diversified Financial Services -3.9 -1.2 1.0 -10.9 -13.5 -9.0 Commercial Banks -3.1 0.2 6.6 -9.3 -0.5 3.2 Building Products -2.8 0.5 0.4 -19.7 -23.9 -22.4 Capital Markets -2.6 1.5 12.8 6.1 -3.5 -4.6 Household Products -2.4 -1.1 2.8 1.2 -2.8 0.5 Metals & Mining -2.4 2.9 16.4 15.4 9.7 9.2 Insurance -2.2 -3.4 4.2 5.7 5.5 6.6 Construction Materials -2.0 7.0 0.7 -23.2 -22.5 -26.4 Oil Gas & Consumable Fuels -1.8 4.0 15.8 13.5 1.3 5.4 Industrial Conglomerates -1.7 -2.7 6.4 -1.4 -0.2 3.5 Source: Oppenheimer Asset Management Investment Strategy Group, Prices as of 11/26/10 Recent US Strategy Topics Date US Strategy Weekly 11/15/2010 Finding Value Within Value 11/8/2010 Repositioning Industrials 11/1/2010 Upgrading Energy to Market Weight 10/25/2010 Midterm Elections and the Market 10/18/2010 Stockpickers Capitalize on Recent Strength 10/11/2010 Stocks Are Still a Viable Investment 10/4/2010 Discussing the Impact of Additional QE 9/27/2010 Not All Beta is Created Equal 9/20/2010 Notes from the Road: Earnings Revisions 9/7/2010 Tempering Our Tone, But We Remain Bullish 8/23/2010 This Remains a Value Oriented Market 8/16/2010 What’s Wrong With Technology? 8/9/2010 2Q10 Earnings Update 8/2/2010 Still Overweight Discretionary 7/26/2010 Are We Range Bound? 7/19/2010 Sentiment Extremes and Market Performance 7/12/2010 Don’t Miss the End of the Buyers Strike 6/28/2010 Reviewing our 2010 Investment Themes 6/21/2010 Dividends and Buybacks Are Increasing 6/14/2010 Pictures to Ponder 6/7/2010 Easing the Anxiety Aids the Recovery 5/24/2010 The Bear Finally Growls 5/17/2010 Leading Indicators Are Not Peaking 5/10/2010 The US is a Cure for the Greek Tragedy 5/03/2010 The Great Valuation Debate 4/26/2010 Don’t Forget About Dividends 4/19/2010 Our Thoughts on Small Cap Outperformance 4/12/2010 Sector Changes: OK to Get More Cyclical 4/5/2010 Reluctant Bull Market Still Charging Ahead 3/29/2010 Strategies for A Stock Pickers Market 3/15/2010 This Is Still A Stock Pickers Market 3/8/2010 Investment Reluctance Can Be Very Costly 3/1/2010 Market Poised for M&A Revival 2/22/2010 Homebuilder Bounce Still Early 2/16/2010 Tech Off to a Slow Start 2/8/2010 Revisiting Dividend Strategies 2/1/2010 Risks to Our Market Outlook 1/25/2010 Time to Move From Bonds Into Stocks 1/19/2010 Maintaining Our Value Preference 1/11/2010 So What if the Fed Raises Rates? 1/4/2010 A Differentiated Bull in 2010 12/14/2009 Anatomy of a Bull Market 11/30/2009 Q3 Earnings Review 11/16/2009 Consumer Discretionary Selectivity 11/9/2009 Preparing Portfolios for Economic Growth 11/2/2009 Don’t Fret About Job Losses or the Fed 10/26/2009 Our Thoughts on the Recent Gold Rush US Strategy Special Report 5/27/2010 Reactions Create Opportunities 5/24/2010 Fear Factor, Russian Redux? 12/7/2009 2010 Market Outlook US Strategy Monthly 10/6/2010 October Chartbook INVESTMENT STRATEGY
  8. 8. 8 Important Disclosures and Certifications The research provided in this report is based on strategic analysis provided by Oppenheimer Asset Management Inc., a nonmember affiliate of Oppenheimer & Co. Inc. Strategic analysis is based on fundamental, macroeconomic and quantitative data to provide investment analysis with respect to U.S. securities markets. Strategic analysis may offer a view that is inconsistent with technical analysis generated by Oppenheimer Asset Management Inc. The author of this report also provides model portfolios to Oppenheimer Asset Management Inc. Securities mentioned in these reports may or may not be included in such model portfolios. The report is not intended to provide personal investment advice. Securities and other financial instruments discussed in this report or recommended or sold by Oppenheimer & Co. Inc. are not insured by the Federal Deposit Insurance Corporate and are not deposits or obligations of any insured depositary institution. Investments involve numerous risks including market risk, counterparty default risk and liquidity risk. Securities and other financial investments at times may be difficult to value or sell. The value of financial instruments may fluctuate, and investors may lose their entire principal investment. Analyst Certification - The author certifies that this research report accurately states his/her personal views about the subject securities, which are reflected in the substance of this report. The author certifies that no part of his/her compensation was, is, or will be directly or indirectly related to the specific recommendations or views contained in this research report. Potential Conflicts of Interest: Strategic analysts employed by Oppenheimer Asset Management Inc. are compensated from revenues generated by the firm. Oppenheimer Asset Management Inc. generally prohibits any research analyst and any member of his or her household from executing trades in the securities of a company that such research analyst covers. Additionally, Oppenheimer Asset Management Inc. generally prohibits any research analyst from serving as an officer, director or advisory board member of a company that such analyst covers. In addition to 1% ownership positions in covered companies that are required to be specifically disclosed in this report, Oppenheimer & Co. Inc. may have a long position of less than 1% or a short position or deal as principal in the securities discussed herein, related securities or in options, futures or other derivative instruments based thereon. Recipients of this report are advised that any or all of the foregoing arrangements, as well as more specific disclosures set forth below, may at times give rise to potential conflicts of interest. Third Party Research Disclosure Oppenheimer & Co. Inc. has a research sharing agreement with Oppenheimer Asset Management Inc. to provide third-party research services to Oppenheimer & Co. Inc. customers. Oppenheimer & Co. Inc. does not guarantee that the information supplied is accurate, complete or timely, nor does Oppenheimer & Co. Inc. make any warranties with regard to the research product or the results obtained from its use. Oppenheimer & Co. Inc. has no control over or input with respect to Oppenheimer Asset Management Inc. research opinions. Oppenheimer Asset Management Inc. is a non-member affiliate of Oppenheimer & Co. Inc. Company Specific Disclosures Oppenheimer & Co. Inc. makes a market in the securities of HCBK, CBSH, ADP, and CINF. Other Disclosures This report is issued and approved by Oppenheimer Asset Management Inc, a registered investment advisor, to its affiliate Oppenheimer & Co. Inc., a member of all Principal Exchanges, and SIPC. This report may be further distributed by Oppenheimer & Co. Inc., for informational purposes only, to its institutional and retail investor clients. This report does not constitute an offer or solicitation to buy or sell any securities discussed herein in any jurisdiction where such offer or solicitation would be prohibited. The securities mentioned in this report may not be suitable for all types of investors. This report does not take into account the investment objectives, financial situation or specific needs of any particular client of Oppenheimer & Co. Inc. Recipients should consider this report as only a single factor in making an investment decision INVESTMENT STRATEGY
  9. 9. 9 and should not rely solely on investment recommendations contained herein, if any, as a substitution for the exercise of independent judgment of the merits and risks of investments. The analyst writing the report is not a person or company with actual, implied or apparent authority to act on behalf of any issuer mentioned in the report. Before making an investment decision with respect to any security recommended in this report, the recipient should consider whether such recommendation is appropriate given the recipient's particular investment needs, objectives and financial circumstances. We recommend that investors independently evaluate particular investments and strategies, and encourage investors to seek the advice of a financial advisor. Oppenheimer Asset Management Inc. will not treat non-client recipients as its clients solely by virtue of their receiving this report. Past performance is not a guarantee of future results, and no representation or warranty, express or implied, is made regarding future performance of any security mentioned in this report. The price of the securities mentioned in this report and the income they produce may fluctuate and/or be adversely affected by exchange rates, and investors may realize losses on investments in such securities, including the loss of investment principal. Oppenheimer Asset Management Inc. accepts no liability for any loss arising from the use of information contained in this report. All information, opinions and statistical data contained in this report were obtained or derived from public sources believed to be reliable, but Oppenheimer Asset Management Inc. does not represent that any such information, opinion or statistical data is accurate or complete (with the exception of information contained in the Important Disclosures section of this report provided by Oppenheimer Asset Management Inc. or individual research analysts), and they should not be relied upon as such. All estimates, opinions and recommendations expressed herein constitute judgments as of the date of this report and are subject to change without notice. Nothing in this report constitutes legal, accounting or tax advice. Since the levels and bases of taxation can change, any reference in this report to the impact of taxation should not be construed as offering tax advice on the tax consequences of investments. As with any investment having potential tax implications, clients should consult with their own independent tax adviser. This report may provide addresses of, or contain hyperlinks to, Internet web sites. Oppenheimer Asset Management Inc. has not reviewed the linked Internet web site of any third party and takes no responsibility for the contents thereof. Each such address or hyperlink is provided solely for the recipient's convenience and information, and the content of linked third party web sites is not in any way incorporated into this document. Recipients who choose to access such third-party web sites or follow such hyperlinks do so at their own risk. The S&P 500 Index is an unmanaged value-weighted index of 500 common stocks that is generally considered representative of the U.S. stock market. The S&P 500 index figures do not reflect any fees, expenses or taxes. This report or any portion hereof may not be reprinted, sold, or redistributed without the written consent of Oppenheimer Asset Management Inc. Copyright © Oppenheimer Asset Management Inc. 2010. INVESTMENT STRATEGY

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