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Goldman 7 nov 2011

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  • 1. The Goldman Sachs Group, Inc. Goldman Sachs Research Where to Invest Now Record profits but cautious outlook November 7, 2011 David J. Kostin Chief US Equity Strategist Global ECS Research -- US Portfolio Strategy Goldman, Sachs & Co. 212-902-6781 david.kostin@gs.comThe Goldman Sachs Group, Inc. does and seeks to do business with companies covered in its research reports. As a result, investors should be awarethat 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 inmaking their investment decision.For RF Reg AC certification, see the end of the text. Other important disclosures follow the Reg AC certification, or go to www.gs.com/research/hedge.html. tifi ti th d f th t t Oth i t t di l f ll th R tifi ti t / h/h d ht lAnalysts employed by non-US affiliates are not registered/qualified as research analysts with FINRA in the U.S.
  • 2. US equity market outlook Record profits but cautious outlookIndex: We forecast 5% return to our 12-month S&P 500 target of 1300 • Economy: Faltering US economy growing by 1.8% in 2011 and 1.6% in 2012; low inflation; low interest rates. S % % f • Earnings: We forecast operating EPS of $96 in 2011 and $98 in 2012 (bottom-up consensus is $98 and $108). • Valuation: 1200 target in Dec. 2011 reflects forward P/E ratio of 12.2X. DDM supports our 12-month target of 1300.Risks: Economy, Margins, and Policy Economy Margins • Economy: US data remains weak. 9.3% jobless rate forecast for year-end 2012. • Margins: We forecast net margins will peak in 2011 and begin to decline in 2012. Consensus expects margins to rise. • Policy: In US, budget negotiations. In Europe, sovereign debt crisis. In Asia, policy responses to inflation.Sectors: Stay near benchmark given macro uncertainty and transitioning business cycle • Overweight: Information Technology, Consumer Staples, and Telecom Services • Underweight: Consumer Discretionary, Industrials, and MaterialsThemes: High “Quality” stocks; Dividend yield and growth; and Defensives 1. High “Quality”. 50 stocks with safe balance sheets, stable sales growth, and reliable earnings (<GSTHQUAL>). 2. Dividend Growth. Low rates suggest stocks with high dividend yields and growth will outperform (<GSTHDIVG>). 3. Defensives. 11 of 24 S&P 500 industry groups spanning 7 of 10 sectors have below average betas (<GSSBDEFS>). 3 D f i f i d t i f t h b l b t (<GSSBDEFS>) Note: The ability to trade baskets will depend upon market conditions, including liquidity and borrow constraints at the time of trade. Goldman Sachs Global ECS Research 2
  • 3. Goldman Sachs S&P 500 price targetsS&P 500 EPS to exceed prior peak and reach $96 in 2011 1700 110 09-Oct-07 2011 EPS 24-Mar-00 New Peak = 1565 above Peak P k = 1527 prior peak i k $98 100 $96 1500 S&P 500 90 Price $84 12-mo 1300 1300 Target 80 Jun-07 1250 6-mo S&P 500 EPS& 500 Price Target Peak EPS = $91 1200 70 2011 1100 Year-End Sep-00 Target Peak EPS = $57 Current 60 Mar 04 Mar-04 &P PS New Peak EPS SPX 1261 900 50 S&P 500 EPS 40 700 Goldman Sachs 09-Mar-09 Forecasts 30 Low = 678 500 20 c-96 c-97 c-98 c-99 c-00 c-01 c-02 c-03 c-04 c-05 c-06 c-07 c-08 c-09 c-10 c-11 c-12 c-13 c-14 Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec DecSource: Compustat, IDC via Factset, FirstCall and Goldman Sachs Global ECS Research. As of November 3, 2011.Goldman Sachs Global ECS Research 3
  • 4. Our US equity market forecasts and key assumptions 1. Global economic growth will equal 3.8% in 2011 and 3.5% in 2012. Our economists forecast a moderate recession in the Eurozone with negative real GDP growth in 4Q 2011 and 1Q 2012. Our outlook remains robust in Asia with China expanding by 9.1% in 2011 and 8.6% in 2012. p 2. US economic expansion will average 1.8% in 2011 and 1.6% in 2012. We estimate a 100 g bp shift in US GDP growth equates to about $5/share of S&P 500 EPS. Unemployment will remain high and end 2012 at 9.3%. 3. Inflation in 2012 as measured by core CPI and personal consumption expenditures (PCE) will remain contained at 1.7% and 1.5%, respectively. 4. Earnings per share (EPS) will grow by 14% in 2011 to $96 but expand by only 3% to $98 in 2012. Bottom-up consensus S&P EPS estimates are $98 and $108 respectively but have been revised modestly l b i d d tl lower d i th past t during the t two months. Th majority of th $10 gap th The j it f the between top-down and bottom-up EPS forecasts stems from different margin outlooks. 5. Profit margins will decline by 30 bp to 8.6% in 2012 from a peak of 8.9% in 2011. We estimate a 50 bp shift in profit margin equates to a $5/share reduction in earnings Bottom up earnings. Bottom-up analysts forecast margins will continue to expand and reach 9.5% in 2012.Goldman Sachs Global ECS Research 4
  • 5. Our US equity market forecasts and key assumptions((continued) ) 6. Valuation in the current uncertain economic environment is challenging. Our dividend discount model (DDM) anchors our 12 month target of 1300. Our uncertainty-based P/E multiple model 12-month uncertainty based suggests downside fair value of 9.4x bottom-up EPS, or roughly 1020. 7. Defensive sectors should outperform given the weak economic backdrop. We recommend investors overweight Consumer Staples, Telecom Services, and Information Technology; and Underweight g p gy g Consumer Discretionary, Industrials, and Materials. 8. Recommendation: Goldman Sachs US Portfolio Strategy baskets (Bloomberg ticker: <GSTH>) High Quality. High geopolitical and policy uncertainty, slow economic growth, and low bond yields favors stocks with safe balance sheets, stable revenue growth, and reliable earnings. Buy our sector- neutral basket of 50 high quality stocks. (<GSTHQUAL>). Dividend Growth. Low rates suggest stocks with high dividend yields and growth will outperform (<GSTHDIVG>). Defensives. 11 of 24 S&P 500 industry groups spanning 7 of 10 sectors have below average betas to the US economy (<GSSBDEFS>).Goldman Sachs Global ECS Research 5
  • 6. Goldman Sachs 3- and 12-month forecasts Forecasts Total Total Units Current 3m Return 12m Return Equities TOPIX level 739 800 9% 870 20 % Asia Pac Ex-Japan level 412 450 10 480 20 DJStoxx 600 level 242 255 6 275 18 S&P 500 level 1261 1200 (4) 1300 5 Ten Year Rates Euroland % 1.9 2.0 0% 2.3 (1)% US % 2.1 2.3 (1) 2.5 (2) Japan % 1.0 10 1.1 11 (1) 1.3 13 (2) Currencies Sterling / US Dollar £/$ 1.60 1.53 (4)% 1.76 10 % Euro / US Dollar EUR/$ 1.37 1.38 0 1.48 8 US Dollar / Yen $/¥ 78 77 (1) 74 (5) Energy WTI Crude Oil $/bbl 94.07 96.5 3% 116 23 % NYMEX Nat. Gas $/mmBtu 3.78 4.50 19 4.25 12 Brent Crude Oil $/bbl 111 112.5 2 122.5 11 Metals LME Copper $/mt 7915 8000 1% 9500 20 % London Gold $/troy oz 1765 1645 (7) 1860 5Source: FactSet and Goldman Sachs Global ECS Research. As of November 3, 2011.Goldman Sachs Global ECS Research 6
  • 7. Goldman Sachs Economics forecasts GDP growth of 3.5% for World, 1.6% for US, and 7.2% for BRICs , , 2011E and 2012E GDP Growth by country 2011E 2012E Goldman Goldman GS vs. Sachs S h Sachs C S h Consensus C Consensus China 9.1 % 8.6 8.5 % 10 bp Japan (0.6) 2.2 2.2 0 UK 1.0 10 1.3 13 1.5 15 (20) BRICs 7.4 7.2 7.4 (20) World 3.8 3.5 3.8 (30) USA 1.8 1.6 2.0 (40) Russia 4.2 3.5 4.0 (50) Euroland 1.6 0.1 0.6 (50) Brazil 3.3 3.0 3.9 (90) India 7.0 7.4 8.4 (100)Source: Blue Chip Economic Indicators, Consensus Economics and Goldman Sachs Global ECS Research. As of November 4, 2011.Goldman Sachs Global ECS Research 7
  • 8. Goldman Sachs forecasts US real GDP growth of 1.8% in 2011 and 1.6% in 2012 GS Economics and consensus quarterly GDP forecasts Goldman Sachs US Economics forecasts % Annual Change 5.0 % 2010A 2011E 2012E 4.5 % Real GDP 3.0% 1.8% 1.6% alized %) 4.0 % Consumer Spending 2.0 2.3 1.5 Total Fixed Investment 2.6 6.9 5.3 3.5 % Business Fixed Investment 4.4 44 9.0 90 5.7 57GDP Growth (qoq annua Goldman Sachs Consensus Residential Investment (4.3) (1.7) 3.7 3.0 % Economics Federal Government Spending 4.5 (1.6) (0.9) 2.5 % Exports of Goods and Services 11.3 6.6 1.4 2.0 % 3.9 3.8 Imports of Goods and Services 12.5 4.8 1.2 Inflation 1.5 % 2.5 2.5 2.5 Producer Price Index 4.2 6.1 2.8 2.3 G 1.0 % 2.0 2.0 Headline CPI 1.6 3.2 2.2 1.3 1.5 0.5 % Core CPI 1.0 1.7 1.7 0.4 0.5 Core PCE 1.4 1.5 1.5 0.0 % Unemployment Rate 9.6 9.0 9.2 Q1A Q2A Q3A Q4A Q1A Q2A Q3A Q4E Q1E Q2E Q3E Q4E Fed Funds Rate 0.2 0.1 0.1 2-year Treasury Rate 0.6 0.3 0.5 2010 2011 2012 10 year 10-year Treasury Rate 3.3 33 2.3 23 2.8 28 Source: Bloomberg and Goldman Sachs Global ECS Research. As of November 4, 2011. Goldman Sachs Global ECS Research 8
  • 9. Sputtering labor market means unemployment rate will remain above 9% through y g year-end 2012 Weak i t W k private payrolls growth ll th Unemployment rate currently above 9% U l t t tl b 400 12 +2.6 Million Forecasts Private Payrolls Cumulative 11 Unemployment Rate usands) 200 Goldman 10 SachsChange in Private Payrolls (Thou 0 ployment Rate (%) 9 8 Consensus (200) 7 (400) 6 Unemp 5 (600) -8.8 Million Cumulative 4 (800) 3 2 (1,000) 90 92 94 96 98 00 02 04 06 08 10 12 14 Jan-9 Jan-9 Jan-9 Jan-9 Jan-9 Jan-0 Jan-0 Jan-0 Jan-0 Jan-0 Jan-1 Jan-1 Jan-1 2000 0 2001 2002 2 2003 3 2004 4 2005 5 2006 6 2007 7 2008 8 2009 9 2010 0 2011 2012 2 Source: Department of Labor, Bureau of Labor Statistics, and Goldman Sachs Global ECS Research. As of November 2, 2011. Goldman Sachs Global ECS Research 9
  • 10. Consumer confidence back to March 2009 low; ISM level now 50.8, down from 61.4 peak in February , p y Weak consumer sentiment consistent ISM above 50 with contraction in final sales (indicating expansion) for 27 monthsPercent change, year ago Index7.5 120 100 90 1105.0 75 80 100 US ISM yoy change2.5 50 70 US ISM level 90 ISM level, rhs 25 600.000 80 y 70 0 50(2.5) 60 ISM momentum (25) (yoy change, lhs) 40(5.0) Real Domestic Final Sales (lhs) 50 University of Michigan Consumer Sentiment (rhs) (50) 30 Apr-08 Oct-08 Apr-09 Oct-09 Apr-10 Oct-10 Apr-11 Oct-11(7.5) 40 Jul-08 Jul-09 Jul-10 Jul-11 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 Source: ISM, BEA, US Treasury, University of Michigan and Goldman Sachs Global ECS Research. As of November 1, 2011. Goldman Sachs Global ECS Research 10
  • 11. US housing prices are 32% below peak S&P/Case-Shiller 20-City Composite Home-Price Index Current Δ from Δ from City Level High Low220 Las Vegas 95 60 % 0% 207 Phoenix 99 57 0 Miami 140 50 1200 Tampa 128 47 0 Detroit 72 44 7180 San Francisco 132 40 9 San Diego 152 40 5 Los Angeles 167 39 4160 32% from Minneapolis 113 35 2 High Composite 20 141 32 0 141 Chicago 116 32 2140 141 Seattle 135 29 0 Portland 133 28 0120 Washington DC 184 27 8 Atlanta 100 27 0 New York 167 23 2100 Cleveland 99 20 0 n-00 n-01 n-02 n-03 n-04 n-05 n-06 n-07 n-08 n-09 n-10 n-11 n-12 Charlotte 111 17 1 Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Boston 153 15 3 Denver 123 12 0 Dallas 114 9 0Source: Standard & Poor’s, Fiserve, and Goldman Sachs Global ECS Research. As of October 25, 2011. Goldman Sachs Global ECS Research 11
  • 12. Another “jobless” US economic recovery 12 12 11 Recoveries: 11 Nonfarm E N f Employment l t Change from end of reccesion (pct pts) 10 1954 - 1982 10 9 2001 9 8 1991 8 2009 Current Cycle y 7 7 6 6 5 5 4 End of Recession 4 (June 2009 in e 3 current cycle) 3 2 2 1 1 0 0 C (1) (1) (2) (2) -12 -6 0 +6 +12 +18 +24 +30 +36 Months from End of RecessionSource: Bureau of Labor and Statistics and Goldman Sachs Global ECS Research. As of October 31, 2011.Goldman Sachs Global ECS Research 12
  • 13. Stagnation: 93 episodes of long-lasting (6+ years) ofsub-par GDP per capita growth during last 150 y p p p g g years 100% 90% 22 10+ 80% 1950-2010 70% 56 62 OECD 28 8-9 60% 50% 40% 30% 26 43 6-7 1900-1950 20% Non- 31 OECD 10% 11 1800-1900 0% … By duration (years) … By epoch … By regionSource: Barro-UrsuaMacro data and Goldman Sachs Global ECS Research. As of September 28, 2011.Goldman Sachs Global ECS Research 13
  • 14. Recent GDP per capita growth trend in US is currently following the typical stagnation p y g yp g path t-1=100 120 Mean + 1SD 110 Japan (1992-2003) 100 Mean Stagnation Path US Mean - 1SD 90 (2008-12E) Stagnation Begins 80 t-5 t-4 t-3 t-2 t-1 t t+1 t+2 t+3 t+4 t+5 t+6 t+7 t+8 t+9Source: Barro-Ursua data and Goldman Sachs Global ECS Research. As of November 4, 2011.Goldman Sachs Global ECS Research 14
  • 15. Path of real total equity returns during 43 economicstagnations in OECD countries since 1950 g US path (2008-12E) is currently following Japan experience (1993-2003) t-1=100 180 Mean Stagnation 160 + 1SD Mean Equity q y Return (+9.4%) 140 Mean Stagnation Return (+7.1%) 120 US 100 (2008-12E) 80 Stagnation 60 Begins Mean Stagnation Japan - 1SD (1992-2003) ( ) 40 t-5 t-4 t-3 t-2 t-1 t t+1 t+2 t+3 t+4 t+5 t+6 t+7 t+8 t+9Source: Barro-Ursua data and Goldman Sachs Global ECS Research. As of October 19, 2011.Goldman Sachs Global ECS Research 15
  • 16. S&P 500 sales, margins and EPS forecastsGoldman Sachs top-down vs. consensus bottom-up p p Top-down Bottom-Up GS Forecast Consensus 2010 2011E 2012E 2011E 2012E S&P 500 ex-Financials and Utilities Sales Per Share $785 $861 $903 $870 $916 Y/Y growth 10 % 5% 11 % 5% Y/Y growth ex- Energy 7 4 8 5 Profit Margin 8.5% 8.9% 8.6% 9.0% 9.5% EPS $67 $77 $78 $79 $87 Y/Y growth 15% 1% 17% 10% Utilities EPS $3 $3 $3 $3 $3 Financials EPS 14 16 17 16 18 S&P 500 EPS $84 $96 $98 $98 $108 Y/Y growth 14% 3% 17% 11%Source: Compustat, FirstCall, I/B/E/S, and Goldman Sachs Global ECS Research. As of October 31, 2011.Goldman Sachs Global ECS Research 16
  • 17. Decomposition of S&P 500 earnings estimatesWe forecast operating EPS of $96 in 2011 and $98 in 2012 Contribution to EPS Annual earnings growth rates GS Top-Down EPS Bottom-Up GS Top-Down Bottom-Up 2010A 2011E 2012E 2011E 2012E 2011E 2012E 2011E 2012E Information Technology $15 $18 $18 $18 $21 19 % 1% 19 % 15 % Energy Energ 10 14 14 15 15 35 3 40 5 Health Care 11 12 12 12 13 10 4 11 9 Consumer Staples 9 9 10 9 10 7 6 6 8 Industrials 8 9 9 10 11 11 1 16 14 Consumer Discretionary 8 8 8 9 10 2 (6) 10 9 Utilities 3 3 3 3 3 2 (1) 2 (1) Materials 3 3 3 4 4 27 (15) 34 11 Telecom Services 2 2 3 2 2 (2) 17 (2) 8 S&P 500 ex-Financials 70 80 81 82 90 14 1 17 10 Financials 14 16 17 16 18 15 10 18 15 S&P 500 Operating EPS $84 $96 $98 $98 $108 14 % 3% 17 % 11 % Numbers may not add due to rounding. Source: Compustat, FirstCall, and Goldman Sachs Global ECS Research. As of October 27, 2011. Goldman Sachs Global ECS Research 17
  • 18. Goldman Sachs top-down and consensus bottom-up2011 and 2012 EPS estimates 115 Consensus 2012E EPS S&P 500 Earnings Per Share 110 $108 S $106 105 $104 $102 Goldman Sachs Consensus 2012E EPS 100 2011E EPS $98 $98 95 $96 Goldman Sachs 2011E EPS 90 30-Nov 28-Feb 31-Oct 31-Jul 31-Jan 31-Mar 30-Jun 31-May 30-Apr 31-Dec 31-Dec 31-Aug 30-SepSource: Compustat, FirstCall, and Goldman Sachs Global ECS Research. As of October 27, 2011.Goldman Sachs Global ECS Research 18
  • 19. 3Q results: 13% year/year sales growth, 37 bp marginexpansion, and 18% EPS growth; Apple is key driver! p , g ; pp y 3QE 2011 Bottom-up Consensus EPS Sales Margin $/Share Growth $/Share Growth Level Change Energy $4.12 65 % $44 33 % 9.4 % 182 bp Materials 0.83 25 10 13 8.0 76 Financials 4.41 22 NM NM NM NM Industrials 2.56 2 56 16 31 10 8.4 84 46 Consumer Discretionary 2.23 12 32 6 6.9 34 Info Tech 4.36 11 27 11 16.0 5 Consumer Staples 2.38 6 37 11 6.5 (27) Utilities 1.12 4 NM NM NM NM Telecom Services 0.58 4 8 1 6.9 18 Health Care 2.85 2 32 9 8.9 (66) S&P 500 $25.45 18 % ex. Financials and Utilities 19.92 18 $221 13 % 9.0 % 37 bp Apple (APPL) pp ( ) $ $0.73 53 % $ $3 38 % 23.4 % 223 bp p Excluding Apple S&P 500 $24.72 17 % ex. Financials and Utilities 19.19 17 $218 13 % 8.8 % 31 bp Info Tech 3.64 3 64 6 24 8 15.0 15 0 (37) Source: Compustat, FirstCall, I/B/E/S, Bloomberg, and Goldman Sachs Global ECS Research. As of November 4, 2011. Goldman Sachs Global ECS Research 19
  • 20. Goldman Sachs 2012 US GDP growth forecastrelative to consensus Distribution of 2012 US GDP forecasts 10 2012 US GDP F Forecasts t Consensus n=51 2.0% 8 ts Number of Forecast 6 4 r Goldman Sachs 1.6% 2 0 0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8 2.0 2.2 2.4 2.6 2.8 3.0 3.2 2012 GDP Growth (%)Source: Blue Chip Economic Indicators, and Goldman Sachs Global ECS Research. Consensus estimates as of October 10, 2011.Goldman Sachs Global ECS Research 20
  • 21. Sensitivity of 2012 S&P 500 earnings estimate toUS GDP growth (100 bp ≈ $5/share) g ( p $ ) Sensitivity of 2012 EPS forecast to US GDP growth 2012 US GDP (1.4)% (0.4)% 0.6 % 1.6 % 2.6 % 3.6 % (3)% (2)% (1)% 0 1% 2% 3.3 % 83 88 93 98 103 108 2011 US GDP P 2.8 84 89 93 98 103 108 2.3 84 89 93 98 103 108 1.8 84 89 94 98 103 108 98 1 1.3 13 84 89 94 103 108 0.8 84 89 94 98 103 108 0.3 84 89 93 98 103 108Source: Goldman Sachs Global ECS Research. As of November 4, 2011.Goldman Sachs Global ECS Research 21
  • 22. We forecast margins will peak in 2011 and decline in2012 while consensus expects margins will keep rising p g p g S&P 500 net profit margins 11% 2012 10% S&P 500 Net Profit Margin Bottom-up Consensus (trailing four quarters) Forecast 9.5 9% 8.6 86 8.9 8% 7% 6% 5.9 Goldman Sachs 5% Portfolio Strategy 4.7 47 4% Forecast 3.8 3% c-79 c-81 c-83 c-85 c-87 c-89 c-91 c-93 c-95 c-97 c-99 c-01 c-03 c-05 c-07 c-09 c-11 c-13 c-15 Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec Source: Compustat and Goldman Sachs Global ECS Research. As of October 27, 2011. Goldman Sachs Global ECS Research 22
  • 23. Sensitivity of 2012 S&P 500 earnings estimate tosales and margin assumptions (50 bp ≈ $ g p ( p $5/share) ) Sensitivity of 2012 EPS forecast to sales growth and margin 2012 Profit Margin 6.6 % 7.1 % 7.6 % 8.1 % 8.6 % 9.1 % 9.6 % 10.1 % 10.6 % 7.9 % 82 87 91 96 101 105 110 115 119 owth 6.9 81 86 91 95 100 104 109 114 118 201 Sales Gro 5.9 59 81 85 90 95 99 104 108 113 117 4.9 80 85 89 94 98 103 107 112 116 3.9 80 84 89 93 98 102 107 111 116 2.9 79 84 88 92 97 101 106 110 115 12 1.9 79 83 87 92 96 101 105 109 114 0.9 78 82 87 91 95 100 104 108 113Source: Goldman Sachs Global ECS Research. As of October 31, 2011.Goldman Sachs Global ECS Research 23
  • 24. Decomposition of S&P 500 net margin estimates We forecast 2012 margin contraction in six sectors g Net Margin Annual margin expansion GS Top-Down Margin Bottom-up GS Top-Down Bottom-Up 2011E 2012E 2011E 2012E 2011E 2012E 2011E 2012E Telecom Services 6.8 % 7.9 % 6.6 % 6.9 % (7)bp 110 bp (27)bp 25 bp Health Care 9.4 9.5 9.4 10.2 27 11 26 76 Consumer Staples 6.4 6.4 6.4 6.6 (3) (3) (11) 29 Industrials 7.9 7.7 8.0 8.6 25 (20) 37 57 Consumer Discretionary 6.4 5.9 6.9 7.1 (15) (50) 29 22 Information Technology 16.7 16.2 16.7 17.7 87 (55) 92 92 Energy 8.8 8.2 9.0 8.8 83 (60) 106 (20) Materials 8.7 7.3 8.8 9.2 125 (145) 135 42 S&P 500 Net Margin 8.9 % 8.6 % 9.0 % 9.5 % 41 bp (31)bp 51 bp 42 bpSource: Compustat, FirstCall, I/B/E/S and Goldman Sachs Global ECS Research. As of October 31, 2011.. Goldman Sachs Global ECS Research 24
  • 25. Information Technology & Consumer Discretionary margins are particularly elevated relative to history g p y y Information Technology net profit margin Consumer Discretionary net profit margin20% 9% Bottom-up Consensus 2012 Bottom-up Consensus18% Info Tech 17.8 8% Consumer Discretionary 2012 Forecast Forecast Net Profit Margin Net Profit Margin 7.216% 16.2 7%14% 6% 5.912% 5%10% 4%8% 3%6% Goldman Sachs % 2%4% Portfolio Strategy Goldman Sachs Forecast 1% Portfolio Strategy2% Forecast0% 0% Dec-79 Dec-84 Dec-89 Dec-94 Dec-99 Dec-04 Dec-09 Dec-14 Dec-19 Dec-79 Dec-84 Dec-89 Dec-94 Dec-99 Dec-04 Dec-09 Dec-14 D D D D D D D D D D D D D D D D D Source: Compustat, I/B/E/S, FirstCall and Goldman Sachs Global ECS Research. Goldman Sachs Global ECS Research 25
  • 26. Five approaches to S&P 500 fair value P/E multiple Implied Year-End 2011 Fair Value P/E Price Methodology Multiple Level Upside US Portfolio Strategy DDM 12.2X 1200 (5) Uncertainty-based Model 9.4 1020 (19) Top-down P/E Regression 13.1 1420 13 Fed Model 14.3 1540 22 Cyclically Adjusted P/E 16.7 16 7 1250 (1)Source: Goldman Sachs Global ECS Research. As of November 3, 2011.Goldman Sachs Global ECS Research 26
  • 27. We believe the sharp October rally reflected a drop in the cost of equity rather than better fundamentals q yS&P 500 cost of equity = ERP + 10-year Treasury yield Sensitivity of P/E to cost of equity and inflation 2011 Year-End Fair Value 9.2 Cost of Equity 9.0% 2011 Cost of Equity 9.0 1,200 8.2 % 8.3 % 8.4 % 8.5 % 8.6 % 8.7 % 8.8 % 8.9 % 9.0 % 1.5 % 1253 1222 1192 1163 1135 1108 1083 1058 1033 8.8 1.6 1281 1249 1218 1188 1160 1132 1105 1079 1055 1.7 1102 Long-term core inflation 1310 1277 1245 1214 1185 1156 1129 1076 1.8 1341 1306 1273 1241 1211 1181 1153 1125 1099 8.6 1.9 1372 1336 1302 1269 1238 1207 1178 1149 1122 2.0 1405 1368 1332 1298 1266 1234 1204 1174 1146 8.4 8.4% 2.1 1439 1400 1364 1328 1294 1262 1230 1200 1171 m 2.2 22 1474 1434 1396 1360 1324 1291 1258 1227 1196 8.2 2.3 1510 1469 1430 1392 1355 1320 1287 1254 1223 2.4 1548 1506 1465 1425 1388 1351 1316 1283 1251 8.0 2.5 1588 1543 1501 1460 1421 1383 1347 1312 1279 31-Oct 30-Nov 31-Jul 31-Aug 30-Sep 30-Jun 2.6 1629 1583 1539 1496 1456 1417 1379 1343 1309 2.7 1671 1624 1578 1534 1492 1451 1412 1375 1339 Note: We estimate the equity risk premium (ERP) using our DDM framework to model expected future cash flows. We solve for the cost of equity that implies the market is at ‘fair value’ and then deduct the 10-year US Treasury. Source: IDC via FactSet, and Goldman Sachs Global ECS Research. As of October 27, 2011. Goldman Sachs Global ECS Research 27
  • 28. P/E multiple based on uncertainty metrics High uncertainty represents a headwind for valuation g y p Uncertainty metrics explain Current uncertainty range is actual P/E multiple wider than normal 27 24 25 Actual P/E 22 ate 23 S&P 500 forward P/E estima 20S&P 500 P/E (NTM) 21 18 19 Predicted P/E 17 16 5 15 14 13 11.8 12 10.5X 11 95% conf idence range 9.4 10 9.4X 9 r-square = 0.56 Uncertainty-based P/E estimate 8.3X 7 8 Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14 Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14 Source: Goldman Sachs Global ECS Research. As of October 10, 2011. Goldman Sachs Global ECS Research 28
  • 29. S&P 500 currently trades near the 80-year averagecyclically-adjusted operating P/E ratio of 16.7x y y j p g 50 45 Cyclically Adjusted C S&P 500 P/E Ratio 40 (10-year average trailing EPS) 35 cally-Adjusted P/E Current P (31-Oct) 30 As Reported 21.2x 25 As Reported 80 year Operating 20 avg = 17 6x 17.6x 17.2x Cyclic 15 Operating 80 10 year avg = 16 7x 16.7x 9-Mar-09 9.9x 5 1932 16-Aug-82 5.1x 6.2x 0 1929 1934 1939 1944 1949 1954 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025Note: Traditional Shiller series uses As Reported EPS. GS series uses Operating EPS when available (1988 – Present).Source: Compustat, Robert Shiller and Goldman Sachs Global ECS Research. As of October 31, 2011.Goldman Sachs Global ECS Research 29
  • 30. Strongest balance sheets in history as non-Financialfirms hold $1.2 trillion in cash equal to 11% of assets $ q 13% Cash to Assets S&P 500 Cash / Assets 11.1% 12% (ex-Financials) Oct-11 11% 10% % Cash / Assets 9% 8% h 7% 6% 5% 4% Recession 3% 1978 8 1982 2 1986 6 1990 0 1994 4 1998 8 2002 2 2006 6 2010 0 2014 4Source: Compustat and Goldman Sachs Global ECS Research. As October 31, 2011.Goldman Sachs Global ECS Research 30
  • 31. Households own 54% and Pension Funds own 17% ofUS equities; ETFs now own more than Hedge Funds q ; g100% 90% Share of US Corporate Equity Market 80% Households 33% 70% 54% 60% Mutual Funds 21% 50% 40% Pension Funds 8% Government 17% 30% Retirement Funds 8% International Investors 13% 20% Hedge Funds 3% 10% ETFs 4% Other 9% 0% 1945 1948 1951 1954 1957 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011Source: Federal Reserve, Lionshare via FactSet, and Goldman Sachs Global ECS Research.Goldman Sachs Global ECS Research 31
  • 32. Global oil demand growth outpacing supply; Our 2012 Brent forecast is 23% above futures market Oil demand growth vs non-OPEC supply growth vs. Our forecast is 23% above futures market 150 4.0 3.5 140 DemandAnnual growth (barrels y/y) 3.0 Brent 130 GS Forecast Dec-12E Crude s 2.5 25 $125 120 2.0 $/Barrel 1.5 110 Futures 1.0 $102 100 0.5 0.0 90 (0.5) Non-OPEC supply 80 (1.0) 70 (1.5) 2E 3E 4E 5E 002 003 004 005 006 007 008 009 010 011 2012 2013 2014 2015 60 20 20 20 20 20 20 20 20 20 20 Apr-10 Oct-10 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Jul-10 Jul-11 Jul-12 Jan-10 Jan-11 Jan-12 Jan-13 Source: Bloomberg, Compustat, and Goldman Sachs Global ECS Research. Goldman Sachs Global ECS Research 32
  • 33. Commodity inflation in Industrial Metals and EnergyWe forecast Brent will average $120/barrel in 2012 Price Change Forecast Prices Forecast Price Changes Units 19-Oct-11 y/y 3m 6m 12m 3m 6m 12m Industrial Metals (average change) (15)% 7% 14 % 24 % LME Copper $/mt 7210 (13) 8000 9000 9500 11 25 32 LME Zinc $/mt 1838 (22) 2050 2200 2400 12 20 31 LME Aluminum $/mt 2182 (7) 2300 2400 2650 5 10 21 LME Nickel $/mt 18800 (20) 18500 19000 21000 (2) 1 12 Energy (average change) 22 % 10 % 15 % 23 % UK NBP Nat. Gas p p/th 63 35 66 66 88 5 5 39 WTI Crude Oil $/bbl 86 7 97 107 116 12 24 35 NYMEX Nat. Gas $/mmBtu 3.59 2 4.50 4.25 4.25 25 19 19 Brent Crude Oil $/bbl 108 34 113 120 123 4 11 13 RBOB Gasoline $/gal 2.67 30 2.80 3.12 2.99 5 17 12 Precious Metals (average change) 29 % (7)% (2)% 5% London Gold $/troy oz 1647 23 1645 1730 1860 (0) 5 13 London Silver $/troy oz 32.0 35 27.5 28.9 31.1 (14) (10) (3) Agriculture (average change) 8% 2% (0)% (4)% CBOT Soybean cent/bu 1225 4 1260 1300 1300 3 6 6 CME Lean Hog cent/lb 90 32 95 95 95 5 5 5 NYBOT Cocoa $/mt 2603 (5) 2700 2700 2700 4 4 4 NYBOT Cotton cent/lb 100 (10) 100 100 100 0 0 0 CME Live Cattle cent/lb 121 22 120 130 120 (1) 7 (1) CBOT Wheat cent/bu 620 (8) 640 650 600 3 5 (3) NYBOT Sugar cent/lb 27 (5) 28 24 24 4 (11) (11) CBOT Corn cent/bu 639 17 615 615 550 (4) (4) (14) NYBOT Coffee cent/lb 236 24 235 200 175 (0) (15) (26) Overall Average: 11 % 3% 7% 12 % Source: FactSet and Goldman Sachs Global ECS Research. As of October 19, 2011. Goldman Sachs Global ECS Research 33
  • 34. US Portfolio Strategy recommended sector weightings g g Sector Weightings Total Goldman Sachs Current GS GS Return Recommended S&P 500 Overweight / Alpha Sectors YTD Sector Weightings Weight Underweight YTD Information Technology 5% 20 % 200 bp (3)bp Consumer St l C Staples 8 Overweight 11 200 0 Telecom Services 1 3 100 (3) Financials (14) 14 0 (5) Energy 4 13 0 6 Neutral Health Care 8 11 0 (10) Utilities 15 4 0 (23) Materials (8) 4 (100) 3 Industrials (3) Underweight 11 (200) (3) Consumer Discretionary 5 11 (200) (6) S&P 500 1% 100 % 0 bp (45)bpSector weightings last rebalanced on September 14, 2011.Source: FactSet and Goldman Sachs Global ECS Research. As of October 31, 2011.Goldman Sachs Global ECS Research 34
  • 35. Large-cap core mutual funds sector distributions 40% Average Fund Weight 35% S&P Weight Goldman Sachs Weighting g g 30% 25% 20% 75th %ile 15% 10% 5% 25th %ile 0% Information Consumer Telecom Consumer -5% Technology Staples Services Financials Energy Health Care Utilities Materials Discretionary Industrials S&P Weight 19.7 11.1 3.0 14.0 12.3 11.5 3.7 3.6 10.7 10.6 -10% 10% Average Mutual Fund Weight 19.1 10.9 2.2 12.4 12.3 13.0 1.9 4.4 12.3 11.5 Goldman Sachs 21.7 13.1 4.0 14.0 12.3 11.5 3.7 2.6 8.7 8.6 WeightingGoldman Sachs vs S&P 500Overweight/(Underweight) 200 bp 200 bp 100 bp 0 bp 0 bp 0 bp 0 bp (100) bp (200) bp (200) bpPercent difference OW/(UW) 10 % 18 % 33 % 0% 0% 0% 0% (28)% (19)% (19)% Overweight / UnderweightSource: Lionshares, Lipper, and Goldman Sachs Global ECS Research. As of October 31, 2011.Goldman Sachs Global ECS Research 35
  • 36. Sector absolute valuation and historical relative valuation versus S&P 500Aggregate valuation metrics for S&P 500 and sectors Standard deviation vs 10-year history (Z-Score) vs. EV/ EV/ Price/ FCF PEG Median EV/ EV/ Price/ FCF PEG NTM Sales EBITDA Book Yield P/E Ratio Z-Score Sales EBITDA Book Yield Ratio P/E S&P 500 (1.0) (1.6) (1.3) (1.6) (1.6) (1.8) (1.6)S&P 500 1.4x 7.4x 2.1x 6.9 % 1.0x 12.1x Financials NM NM (1.6) NM (0.8) (0.9) (0.9)Telecommunication Services 1.8 6.0 1.8 9.6 2.3 17.3Consumer DiC Discretionary ti 1.3 13 7.5 75 3.0 30 6.3 63 0.9 09 14.4 14 4 Health Care (1.4) (1 4) (0.8) (0 8) (0.9) (0 9) (0.9) (0 9) (0.6) (0 6) 2.6 26 (0.9) (0 9)Consumer Staples 1.2 9.3 3.4 5.6 1.5 14.4 Information Technology (0.3) (1.1) 0.9 (0.8) (1.1) (0.6) (0.7)Utilities NM 7.8 1.6 2.7 4.3 14.2 Energy (0.3) (0.2) 0.1 (0.3) 0.7 (0.6) (0.2)Industrials 1.5 9.1 2.6 6.9 0.8 12.6 Materials 0.4 (0.4) 0.9 0.6 0.1 0.1 0.2Information Technology 2.1 7.8 3.5 7.9 0.9 12.3 Consumer Discretionary 2.6 0.6 2.5 0.1 0.0 (0.5) 0.4Materials 1.3 6.8 2.5 6.2 1.1 12.1 Industrials (1.2) 0.4 1.3 1.4 0.6 (1.9) 0.5Health Care 1.2 7.5 2.4 8.5 1.3 11.2 Telecommunication Services (0.3) 1.8 1.0 0.3 3.7 1.4 1.2Energy 1.0 5.2 2.0 6.4 0.8 10.5 Utilities NM 1.4 0.6 (0.1) 1.7 4.6 1.4Financials NM NM 1.0 NM 0.9 10.0 Consumer Staples 2.0 2.0 (0.2) 2.0 1.6 2.0 2.0 Based on bottom-up consensus valuation, as of November 3, 2011. Source: Compustat, FirstCall, via FactSet, and Goldman Sachs Global ECS Research. Goldman Sachs Global ECS Research 36
  • 37. S&P 500 foreign revenues by region and sector Non-US sales account for 31% of S&P 500 revenues Revenues by region for the S&P 500 2010 S&P 500 foreign revenues by sector Other 12% Foreign Revenues ($ Billions) Sales Other EMEA Sector Total Foreign Exposure 7% Information Technology $897 $513 57 % Materials 319 153 48 Asia & Pacific ex. Energy 1,233 553 45 Japan Industrials 1,014 388 38 5% Consumer Staples 1,411 390 28 Western Europe Consumer Discretionary 1,201 306 25 3% Financials 1,253 268 21 U.S. 69% Other Americas Health Care 1,102 219 20 2% Utilities 336 17 5 Japan Telecom Services 296 6 2 1% S&P 500 (sales weighted) $9,061 $2,812 31 % South America 1%Source: Company 10-K filings, FactSet, and Goldman Sachs Global ECS Research.Goldman Sachs Global ECS Research 37
  • 38. Sector, intra-sector, and stock return correlations establish record high in 2011 g 1.0 0.9 Average sector correlation 0.91 0.8 0.72 Avera Correlation 0.7 0.6 0.5 age 0.4 0.3 0.2 0.1 Average stock correlation g 0.0 Dec-89 Dec-90 Dec-91 Dec-92 Dec-93 Dec-94 Dec-95 Dec-96 Dec-97 Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13Source: Goldman Sachs Global ECS Research. As of October 27, 2011.Goldman Sachs Global ECS Research 38
  • 39. In October, 2/3 of S&P 500 returns fell between 3% and 23% creating an opportunity set of 20% g pp y 50 pp) S&P 500 1-Month +/- 1 Standard Deviation Spread in Returns (p 45 Return Dispersion 40 35 30 Since 1980 opportunity set 25 averages 17 pp 20 15 10 5 S 0 Dec-80 Dec-82 Dec-84 Dec-86 Dec-88 Dec-90 Dec-92 Dec-94 Dec-96 Dec-98 Dec-00 Dec-02 Dec-04 Dec-06 Dec-08 Dec-10 Dec-12Source: Compustat, IDC via FactSet, and Goldman Sachs Global ECS Research. As of October 31, 2011.Goldman Sachs Global ECS Research 39
  • 40. 2011 YTD distribution of hedge fund and mutual fund performance p 15 S&P 500: 14 Avg MF: 0% 13 -2% 2% 12 11 2011 YTD 10 as of 21-Oct Mutual M l (SPX = 1238) 9 % of Funds Funds 8 7 6 5 4 Hedge Avg HF: 3 Funds -2% 2% 2 1 0 <-24 < 24 -20 20 -16 16 -12 12 -8 8 -4 4 0 4 8 12 16 >20 2011 YTD Return (%)Source: Compustat, Lipper, FactSet, Goldman Sachs Asset Management, and Goldman Sachs Global ECS Research. As of October 21, 2011.. Goldman Sachs Global ECS Research 40
  • 41. Goldman Sachs US Portfolio Strategy BasketsBloomberg <GSTH> g Thematic Baskets Sector Baskets Bloomberg Bloomberg <GSTH1> <GSTH2> Macroeconomic Cyclicals GSTHBETA GSSBCYCL GSTHINTL GSTHAINT Defensives GSTHBRIC GSSBDEFS GSTHWEUR Global Fundamental GSSBGLBL GSTHQUAL GSTHREVG Domestic GSTHGROE GSSBDOMS GSTHOPHI GSTHOPLO Global Cyclicals GSTHSBAL GSSBGCYC GSTHWBAL Domestic Cyclical Hedge Fund GSSBDCYC GSTHHVIP GSTHHFHI Global Defensive GSTHHFSL GSSBGDEF Valuation Domestic D f D ti Defensive i GSTHDIVG GSSBDDEF GSTHSHRP GSTHSVLU Permission to our GS Portfolio Strategy Baskets GSTHAVLU To receive access to the Goldman Sachs US Portfolio Strategy <GSTH> Bloomberg page, GSTHGARP please follow the directions below: 1. Please go to your Bloomberg terminal and type IAM <go>. 2. 2 Take a screen shot of the page page. 3. Send the attachment and an email to your Goldman Sachs salesperson requesting access to the US Portfolio Strategy Bloomberg <GSTH> page . Source: Bloomberg and Goldman Sachs Research.Goldman Sachs Global ECS Research 41
  • 42. US Portfolio Strategy current thematic investment recommendations Investment Recommendation (<Bloomberg Ticker>)High "Quality" Stocks with strong balance sheets, stable sales growth, stable earnings, stableStocks prices, high ROE, and large equity capitalization should outperform <GSTHQUAL>.High Dividend Low interest rates suggest stocks with high dividend yields and growth will outperformGrowth <GSTHDIVG>.Defensives 11 of 24 S&P 500 industry groups spanning 7 of 10 sectors have below average betas to the US economy <GSSBDEFS>.Source: Goldman Sachs Global ECS Research.Goldman Sachs Global ECS Research 42
  • 43. Our recommended US Portfolio Strategy baskets: High Quality, Dividend Growth, DefensivesBold indicates overlap between baskets.(1) The exhibit shows the 23 companies with greater than 1% weight in the 222-constituent Defensives Basket (Bloomberg ticker <GSSBDEFS>.Source: Bloomberg and Goldman Sachs Global ECS Research. Goldman Sachs Global ECS Research 43
  • 44. US Portfolio Strategy thematic basket performance ( (see Bloomberg <GSTH>) g ) High Quality <GSTHQUAL> 180 Indexed 160 Performance Quality Basket 140 120 100 80 S&P 500 60 40 Jul-07 Jul-08 Jul-09 Jul-10 Jul-11 an-07 an-08 an-09 an-10 an-11 an-12 Ja Ja Ja Ja Ja Ja J J J J J120 Dividend Growth <GSTHDIVG> 115 Defensives <GSSBDEFS>115 110110 105105 Relative Performance100 Long GSTHDIVG / 100 Relative Performance Short SPX Long GSSBDEFS /95 Short SPX Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 95 Jan-11 Jan-12 Jul-10 Jul-11 Oct-10 Oct-11 Apr-10 Apr-11 Source: FactSet and Goldman Sachs Global ECS Research. As of October 31, 2011. Goldman Sachs Global ECS Research 44
  • 45. High Quality basket <GSTHQUAL> 10-Year Historical 10-Year Historical Market Altman EBIT Sales 5th %ile Average Quality Market Altman EBIT Sales 5th %ile Average Quality Company Ticker Cap ($B) Z-Score (a) Downside Sortino (b) Drawdown ROE Score (c) Company Ticker Cap ($B) Z-Score (a) Downside Sortino (b) Drawdown ROE Score (c)Consumer Discretionary Industrials TJX Companies Inc. TJX $21 7.0 3.6 236 (9)% 43 % 89 C.H. Robinson Worldwide CHRW $12 15.8 0.0 3 (9)% 29 % 88 Coach, Inc. COH 16 13.1 4.0 73 (9) 43 87 General Dynamics GD 21 2.9 2.5 10 (9) 20 86 Yum! Brands, Inc YUM 23 4.5 1.2 4 (8) 97 86 United Technologies U it d T h l i UTX 65 3.1 31 2.0 20 2 (5) 23 84 Amazon.com AMZN 80 9.1 3.7 MAX (17) 47 83 Danaher Corp. DHR 24 3.4 3.7 3 (6) 16 82 NIKE Inc. NKE 34 8.5 1.4 4 (8) 22 82 3M Company MMM 53 5.1 5.4 1 (6) 32 68 Basket Median $23 8.5 4 38 (9)% 43 % 86 Basket Median $24 3.4 3 3 (6)% 23 % 84 Sector Median 8 3.5 11 2 (11) 17 50 Sector Median 9 3.3 10 1 (9) 18 48Consumer Staples Information Technology PepsiCo Inc. PEP $96 3.2 0.7 5 (5)% 35 % 89 Cognizant Tech Solutions CTSH $20 16.4 0.0 MAX (12)% 25 % 93 Walgreen Co. WAG 30 5.7 0.0 MAX (10) 17 88 Intuit, Inc. INTU 15 6.0 1.2 4 (12) 17 82 Colgate-Palmolive CL 44 6.7 1.0 4 (6) 137 84 Oracle Corp. ORCL 119 4.7 3.0 3 (9) 31 82 Coca-Cola Co. KO 150 4.4 0.9 3 (6) 32 81 eBay Inc. EBAY 36 5.3 4.3 18 (11) 12 79 Wal-Mart Stores WMT 93 4.1 3.6 29 (7) 21 78 QUALCOMM Inc. QCOM 85 7.5 7.4 6 (10) 16 78 Kellogg Co. K 93 4.1 3.6 29 (7) 21 78 Microsoft Corp. MSFT 196 4.8 6.2 3 (9) 31 75 Accenture ACN 36 5.5 12.0 2 (8) 74 72 Basket Median $93 4.2 1 5 (7)% 27 % 82 Citrix Systems CTXS 10 7.3 8.6 3 (17) 14 63 Sector Median 12 3.5 6 2 (8) 23 60 Adobe Systems ADBE 13 4.9 13.0 1 (11) 23 62Energy Dell Inc. DELL 24 3.7 11.8 1 (12) 54 61 National Oilwell Varco NOV $25 3.9 9.4 3 (10)% 12 % 85 Basket Median $30 5.4 7 3 (11)% 24 % 77 Cameron International Corp CAM 11 3.9 11.0 4 (12) 16 83 Sector Median 9 4.5 20 1 (12) 16 48 Baker Hughes BHI 22 3.3 21.6 2 (9) 14 75 ConocoPhillips COP 88 2.7 25.4 2 (5) 16 74 Materials Occidental Petroleum OXY 64 3.8 23.0 2 (6) 23 73 Ecolab Inc. ECL $12 5.1 3.4 6 (8)% 23 % 94 Schlumberger Ltd. SLB 64 3.8 23.0 2 (6) 23 73 Praxair, Inc. PX 30 3.7 2.1 1 (5) 24 82 Basket Median $45 3.8 22 2 (8)% 16 % 74 Basket Median $21 4.4 3 4 (7)% 24 % 88 Sector Median 12 2.5 29 1 (10) 17 44 Sector Median 8 2.9 18 1 (11) 19 47Financials Telecommunication Services Simon Property Group, Inc SPG $33 NM 2.5 19 (9)% 15 % 87 CenturyLink CTL $20 1.4 4.1 7 (8)% 10 % 72 Wells Fargo WFC 134 NM 9.3 3 (7) 17 81 Basket Median $20 1.4 4 7 (8)% 10 % 72 AFLAC Inc. AFL 18 NM 7.4 9 (10) ( ) 18 81 Sector Median 14 1.2 12 5 2 (9) 12 52 Vornado Realty VNO 14 NM 12.2 2 (10) 11 66 State Street Corp. STT 16 NM 3.9 1 (11) 16 65 Utilities Boston Properties BXP 13 NM 11.1 1 (9) 14 63 Southern Co. SO $36 NM 1.4 2 (6)% 15 % 88 JPMorgan Chase & Co. JPM 126 NM 16.4 1 (5) 11 62 Consolidated Edison ED 16 NM 5.2 1 (7) 10 67 Basket Median $18 NM 9 2 (9)% 15 % 66 Basket Median $26 NM 3 1 (6)% 12 % 77 Sector Median 10 NM 22 1 (10) 11 50 Sector Median 9 NM 10 0 (6) 12 48Health Care St Jude Medical STJ $12 4.1 0.3 MAX (9)% 23 % 89 High Quality <GSTHQUAL> Median $30 4.7 4 3 (9)% 22 % 81 Stryker Corp. y p SYK 16 5.7 0.0 16 ( ) (9) 22 85 S&P 500 M di Median 10 3.4 34 12 1 (10) 16 50 Gilead Sciences GILD 31 5.1 1.1 37 (9) 39 82 Intuitive Surgical ISRG 15 27.5 0.0 MAX (18) 8 82 Medtronic Inc. MDT 35 3.4 0.6 15 (7) 26 79 Amgen AMGN 35 3.4 0.6 15 (7) 26 79 Basket Median $23 4.6 0 15 (9)% 24 % 82 Source: FactSet, Compustat, Goldman Sachs Research estimates and Goldman Sachs Global ECS Research. Sector Median 12 3.9 4 8 (10) 22 59 As of October 6, 2011. Goldman Sachs Global ECS Research 45
  • 46. Dividend Growth basket<GSTHDIVG> 2012E 2012E Cash Cash Market Ann. 2010-2012 Return on Market Ann. 2010-2012 Return on Price Cap Payout Dividend Cash Price Cap Payout Dividend CashCompany Name Ticker Sector 31-Oct-11 ($ bil) Ratio CAGR Invested Company Name Ticker Sector 31-Oct-11 ($ bil) Ratio CAGR InvestedAT&T Inc. T Telecom Services $29.31 $174 72 % 2% 6.0 % Harris Corp. HRS Info Tech $37.75 $5 21 % 12 % 3.1 %Lockheed Martin LMT Industrials 75.90 21 49 25 5.4 Xerox Corp. XRX Info Tech 8.18 11 15 19 2.9Verizon Communications VZ Telecom Services 36.98 105 81 3 5.5 Johnson Controls JCI Cons. Discretionary 32.93 22 22 30 2.8Dow Chemical DOW Materials 27.88 33 36 47 4.7 Comcast Corp. CMCSA Cons. Discretionary 23.45 64 25 26 2.6Philip Morris Intl PM Consumer Staples 69.87 123 62 15 4.6 Computer Sciences Corp. CSC Info Tech 31.46 5 19 36 2.9Pfizer Inc. PFE Health Care 19.26 150 37 11 4.6 Microsoft Corp. p MSFT Info Tech 26.63 199 28 23 3.1General Electric GE Industrials 16.71 177 39 24 4.2 Lowes Cos. LOW Cons. Discretionary 21.02 26 33 24 2.9ConocoPhillips COP Energy 69.65 96 32 14 4.0 Medtronic Inc. MDT Health Care 34.74 37 27 8 2.9Spectra Energy SE Energy 28.63 19 62 6 3.9 Walgreen Co. WAG Consumer Staples 33.20 30 31 26 3.0Eaton Corp. ETN Industrials 44.82 15 31 22 3.6 Applied Materials AMAT Info Tech 12.32 16 39 9 2.6JPMorgan Chase JPM Financials 34.76 136 22 155 3.7 U.S. Bancorp USB Financials 25.59 49 20 87 2.7Darden Restaurants DRI Cons. Discretionary 47.88 6 43 26 3.8 Occidental Petroleum OXY Energy 92.94 76 23 17 2.2Carnival Corp Corp. CCL Cons. Cons Discretionary 35.21 35 21 16 37 73 3.4 34 Freeport-McMoRan Cp & Gld FCX Materials 40.26 40 26 38 23 50 2.5 25Williams Cos. WMB Energy 30.11 18 52 46 3.4 CSX Corp. CSX Industrials 22.21 24 26 29 2.4BlackRock Inc. BLK Financials 157.79 16 46 24 3.9 Exxon Mobil Corp. XOM Energy 78.09 380 22 6 2.5Intel Corp. INTC Info Tech 24.54 129 33 20 3.7 Accenture ACN Info Tech 60.26 39 35 31 2.4Sempra Energy SRE Utilities 53.73 13 43 14 3.8 Becton Dickinson BDX Health Care 78.23 17 27 11 2.4Abbott Laboratories ABT Health Care 53.87 84 38 9 3.8 Murphy Oil Corp. MUR Energy 55.37 11 22 6 2.1Johnson & Johnson JNJ Health Care 64.39 176 45 7 3.8 St. Jude Medical STJ Health Care 39.00 13 24 NM 2.4Safeway Inc.S f I SWY Consumer St l C Staples 19.37 19 37 7 32 20 3.4 34 International Bus. Machines I t ti lB M hi IBM Info T h I f Tech 184.63 184 63 220 21 15 1.8 18Weyerhaeuser WY Financials 17.98 10 141 163 3.3Dr Pepper Snapple Group DPS Consumer Staples 37.45 8 45 25 3.7ONEOK Inc. OKE Utilities 76.05 8 65 17 3.3Public Storage PSA Financials 129.05 18 64 16 3.2Iron Mountain IRM Industrials 30.93 6 73 69 3.5Molson Coors Brewing TAP Consumer Staples 42.34 7 36 14 3.3KLA-Tencor Corp. KLAC Info Tech 47.09 8 43 32 3.0Chevron Corp. CVX Energy 105.05 210 24 9 3.2PNC Financial Svc. Gp. PNC Financials 53.71 28 23 101 3.0 Dividend Growth <GSTHDIVG> Average $63 39% 31 % 3.4 %Simon Property Group SPG Financials 128.44 38 51 19 2.9 S&P 500 Equal-Weighted Average 1253 23 26 16 2.0 Source: Bloomberg, IDC via FactSet, and Goldman Sachs Global ECS Research. As of October 31, 2011.Goldman Sachs Global ECS Research 46
  • 47. Defensives basket<GSSBDEFS> Stocks above 1% weight in the Defensives Basket <GSSBDEFS> Basket B k t Company Ticker Sector Industry Group Weight International Bus. Machines IBM Information Technology Software & Services 4.3 % Microsoft Corp. MSFT Information Technology Software & Services 3.8 Procter & Gamble PG Consumer Staples Household & Personal Products 3.5 Johnson & Johnson JNJ Health Care Pharmaceuticals Biotechnology & Life Sciences 3.4 AT&T Inc. T Telecommunication Services Telecommunication Services 3.3 Pfizer Inc. PFE Health Care Pharmaceuticals Biotechnology & Life Sciences 3.0 Coca-Cola Co. KO Consumer Staples Food Beverage & Tobacco 3.0 Google Inc. GOOG Information Technology Software & Services 2.9 Oracle Corp. ORCL Information Technology Software & Services 2.5 Philip Morris Intl PM Consumer Staples Food Beverage & Tobacco 2.5 Wal-Mart Stores WMT Consumer Staples Food & Staples Retailing 2.2 Verizon Communications VZ Telecommunication Services Telecommunication Services 2.0 Merck & Co Inc MRK Health Care Pharmaceuticals Biotechnology & Life Sciences 2.0 PepsiCo Inc. PEP Consumer Staples Food Beverage & Tobacco 1.9 McDonalds Corp. MCD Consumer Discretionary Consumer Services 1.9 Abbott Laboratories ABT Health Care Pharmaceuticals Biotechnology & Life Sciences gy 1.6 Amazon.com AMZN Consumer Discretionary Retailing 1.4 Kraft Foods KFT Consumer Staples Food Beverage & Tobacco 1.2 Home Depot HD Consumer Discretionary Retailing 1.2 Altria Group MO Consumer Staples Food Beverage & Tobacco 1.1 Bristol-Myers Squibb BMY Health Care Pharmaceuticals Biotechnology & Life Sciences 1.1 Amgen Inc. Inc AMGN Health Care Pharmaceuticals Biotechnology & Life Sciences 1.0 UnitedHealth Group UNH Health Care Health Care Equipment & Services 1.0 Total 51.6 % Source: Compustat, FactSet, and Goldman Sachs Global ECS Research. As of October 27, 2011.Goldman Sachs Global ECS Research 47
  • 48. Growth and valuation for US Portfolio Strategythematic and sector Bloomberg baskets g EPS Growth Sales Growth Beta 2010E - 2011E - 2010E - 2011E - Profit P/E Expd. Dividend Bloomberg Price vs 2011E 2012E 2011E 2012E Margin Mult. ROE Yield Ticker 3-Nov-11 SP500 (%) (%) (%) (%) 2011 NTM NTM (%) FUNDAMENTAL BASKETS High Quality GSTHQUAL 116.19 1.0 13 % 10 % 12 % 7% 14 % 14.5x 24 % 1.9 % ROE Growth GSTHGROE 98.94 1.1 17 13 10 6 10 12.4 20 1.6 High Revenue Growth GSTHREVG 97.03 1.1 22 18 20 15 14 17.7 16 0.7 High Operating Leverage GSTHOPHI 182.80 1.2 22 14 11 5 8 13.1 17 1.1 Low Operating Leverage GSTHOPLO 160.68 1.0 11 14 10 6 13 15.3 22 0.5 Strong Balance Sheet GSTHSBAL 129.26 1.1 19 17 18 12 14 18.2 26 0.3 Weak Balance Sheet GSTHWBAL 124.63 1.2 10 12 7 4 9 13.0 14 1.3 VALUATION BASKETS Dividend Growth GSTHDIVG 113.27 1.0 12 % 7% 9% 3% 10 % 11.2x 18 % 2.9 % High Sharpe Ratio GSTHSHRP 131.98 1.2 12 10 11 6 10 11.1 16 1.3 "Super-value" GSTHSVLU 102.25 1.1 7 8 6 4 9 10.1 16 2.0 "Anti-value" GSTHAVLU 123.40 1.0 14 13 10 7 11 17.7 21 1.3 GARP GSTHGARP 139.69 1.1 12 12 9 6 15 12.7 23 1.0 MACROECONOMIC BASKETS BRICs Sales GSTHBRIC 170.41 1.2 13 % 12 % 15 % 6% 14 % 13.5x 17 % 0.9 % International Sales GSTHINTL 128.70 1.1 13 12 13 6 14 13.9 21 1.5 Domestic Sales GSTHAINT 90.23 1.0 10 10 9 6 8 12.7 17 1.9 Western Europe Sales GSTHWEUR 188.30 1.2 13 14 15 7 8 13.8 16 0.6 Dual Beta GSTHBETA 96.36 1.4 24 16 13 7 8 11.9 14 0.2 HEDGE FUND BASKETS Hedge Fund "VIP" List GSTHHVIP 92.48 1.2 15 % 13 % 17 % 6% 12 % 12.1x 18 % 0.8 % High Hedge Fund Concentration GSTHHFHI 90.81 1.1 12 14 4 4 7 15.0 11 0.0 Low Hedge Fund Concentration GSTHHFSL 114.38 114 38 0.9 09 4 7 9 3 10 15.2 15 2 18 2.7 27 SECTOR BASKETS Defensives GSSBDEFS 114.18 0.9 8% 10 % 7% 5% 10 % 13.9x 19 % 1.8 % Cyclicals GSSBCYCL 102.12 1.2 16 12 11 6 10 12.8 15 1.8 Global GSSBGLBL 111.92 1.2 13 11 10 6 11 13.9 20 1.4 Domestic GSSBDOMS 99.89 1.0 9 11 7 5 7 13.0 14 2.1 Global Cyclicals GSSBGCYC 109.90 1.3 17 12 12 6 10 13.6 19 1.4 Global Defensives GSSBGDEF 114.38 0.9 8 10 9 5 14 14.1 24 1.4 Domestic Cyclicals GSSBDCYC 89.15 1.1 14 12 8 6 9 12.0 11 2.1 Domestic Defensives GSSBDDEF 113.74 0.9 7 10 6 5 6 13.7 16 2.1 S&P 500 1,261 1.0 17 % 11 % 11 % 5% 9 % 12.1x 17 % 2.2 % Source: Compustat, FirstCall , I/B/E/S, S&P 500 Average 1.1 11 12 12 7 12 14.3 20 1.9 FactSet, and Goldman Sachs Global S&P 500 Median 1.1 11 11 9 6 10 13.4 18 1.8 ECS Research.Goldman Sachs Global ECS Research 48
  • 49. Equity Basket DisclosureThe Securities Division of the firm may have been consulted as to the variouscomponents of the baskets of securities discussed in this report prior to their launch;however, none of this research, the conclusions expressed herein, nor the timing ofh f thi h th l i dh i th ti i fthis report was shared with the Securities Division.Goldman Sachs Global ECS Research 49
  • 50. Analyst CertificationI, David J. Kostin, hereby certify that all of the views expressed in this report accurately reflect my personal views aboutthe subject company or companies and its or their securities. I also certify that no part of my compensation was, is, or willbe, directly or indirectly, related to the specific recommendations or views expressed in this report.Goldman Sachs Global ECS Research 50
  • 51. Rating and pricing informationRating and pricing informationAbbott Laboratories (N/A, $52.70), Accenture Plc (B/N, $57.02), Adobe Systems Inc. (S/N, $25.84), Aflac Incorporated (N/A, $38.97), Altria Group, Inc. (N/N, $27.80),Amazon.com Inc. (CS, $235.48), Amgen Inc. ( ( ,$ ), g (S/N, $57.09), Applied Materials, Inc. ( ,$ ), pp , (S/C, $10.98), AT&T Inc. (N/N, $28.77), Baker Hughes Inc. ( , $53.23), Becton ,$ ), ( ,$ ), g (CS, $ ),Dickinson & Co. (N/A, $73.42), BlackRock, Inc. (B/N, $153.06), Boston Properties, Inc. (N/N, $88.86), Bristol-Myers Squibb Company (B/A, $32.96), C.H. RobinsonWorldwide, Inc. (CS, $73.35), Cameron International Corp. (CS, $47.76), Carnival Corp. (B/N, $32.90), CenturyLink Inc. (B/N, $33.52), Chevron Corp. (N/A, $97.60),Citrix Systems Inc. (N/N, $61.19), Coach, Inc. (N/N, $59.29), The Coca-Cola Company (B/A, $66.80), Cognizant Technology Solutions (B/N, $67.48), Colgate-PalmoliveCompany (CS, $90.35), Comcast Corp. (B/A, $22.98), Computer Sciences Corp. (S/N, $29.82), ConocoPhillips (N/A, $67.02), Consolidated Edison, Inc. (S/N, $56.76),CSX Corporation (CS, $20.85), Danaher Corp. (N/N, $44.15), Darden Restaurants, Inc. (CS, $45.91), Dell Inc. (S/N, $16.18), Dow Chemical Company (N/N, $26.40), DrPepper Snapple Group (S/A, $38.94), Eaton Corp. (B/N, $40.49), eBay Inc. (CS, $32.83), Ecolab Inc. (NR, $52.25), Exxon Mobil Corp. (B/A, $76.27), Freeport-McMoRanCopper & Gold (B/N, $35.45), General Dynamics Corp. (N/C, $61.48), General Electric Co. (B/N, $16.14), Gilead Sciences Inc. (B/N, $39.70), Google Inc. ( ( ) y ( ) ( ) ( ) g (N/N,$543.18), Harris Corporation (N/C, $36.16), The Home Depot, Inc. (N/N, $34.71), Intel Corp. (S/N, $22.99), International Business Machines (B/N, $185.00), Intuit, Inc.(CS, $51.18), Intuitive Surgical, Inc. (N/N, $385.35), J.P. Morgan Chase & Co. (B/A, $32.30), Johnson & Johnson (N/A, $63.96), Johnson Controls, Inc. (N/A, $30.14),Kellogg Company (N/A, $54.22), KLA-Tencor (S/C, $42.91), Kraft Foods Inc. (NR, $34.40), Lockheed Martin Corp. (N/C, $76.32), Lowes Companies, Inc. (N/N, $20.53),McDonalds Corp. (B/N, $89.34), Medtronic, Inc. (N/N, $33.23), Merck & Co., Inc. (N/A, $31.93), Microsoft Corp. (N/N, $27.00), Molson Coors Brewing Co. (N/A, $42.01),Murphy Oil Corp. (N/A, $50.24), National Oilwell Varco (CS, $62.74), Nike, Inc. (N/N, $89.85), Occidental Petroleum Corp. (B/A, $80.89), ONEOK, Inc. (N/N, $70.57),Oracle Corp. (B/N, $30.93), PepsiCo, Inc. (N/A, $60.95), Pfizer Inc. (B/A, $18.85), Philip Morris International Inc. (B/N, $65.30), PNC Financial Services (N/A, $49.90),Praxair Inc. (N/N, $100.86), Procter & Gamble Company (CS, $64.57), Public Storage, Inc. (N/N, $112.08), QUALCOMM, Inc. (B/N, $51.65), Safeway Inc. (S/N, $17.46),Schlumberger, Ltd. (CS, $66.82), Sempra Energy (N/N, $51.78), Simon Property Group (B/N, $112.84), Spectra Energy Corp. (N/N, $25.94), St. Jude Medical, Inc. (N/N,$37.89), State Street Corp. (B/N, $33.10), Stryker Corp. (B/N, $50.10), The Southern Company (S/N, $42.68), 3M Company (N/N, $76.42), The TJX Companies, Inc.(B/N, $58.07), U.S. Bancorp (N/A, $23.88), United Technologies Corp. (NR, $73.74), UnitedHealth Group (N/A, $46.64), Verizon Communications (B/N, $36.50), VornadoRealty Trust (N/N, $73.30), Wal-Mart Stores, Inc. (N/N, $54.72), Walgreen Company (B/N, $33.79), Wells Fargo & Company (B/A, $26.05), Weyerhaeuser Co. (CS,$16.79), The Williams Companies, Inc. (NR, $26.41), Xerox Corp. (N/N, $7.43) and Yum! Brands, Inc. (S/N, $51.88).Goldman Sachs Global ECS Research 51
  • 52. Disclosure AppendixNovember 7, 2011N b 7
  • 53. Disclosure AppendixCoverage group(s) of stocks by primary analyst(s)There are no coverage groups associated with the analyst(s).Th i t d ith th l t( )Company-specific regulatory disclosuresThere are no company-specific regulatory di lTh ifi l t disclosuresGoldman Sachs Global ECS Research 53
  • 54. Disclosure Appendix Distribution of ratings/investment banking relationships Goldman Sachs Investment Research global coverage universe Rating Di t ib ti R ti Distribution Investment Banking R l ti I t t B ki Relationships hi Buy Hold Sell Buy Hold Sell Global 31% 55% 14% 50% 43% 36% As of October 1, 2011, Goldman Sachs Global Investment Research had investment ratings on 3,198 equity securities. Goldman Sachs assigns stocks as Buys and Sells on various regional Investment Lists; stocks not so assigned are deemed Neutral. Such assignments equate to Buy, Hold and Sell for the purposes of the above disclosure required by NASD/NYSE rules. See Ratings, Coverage groups and view s and related definitions below . Price target and rating history chart(s) Compendium report: please see disclosures at http://www.gs.com/research/hedge.html. Disclosures applicable to the companies included in this compendium can be found in the latest relevant published research.Goldman Sachs Global ECS Research 54
  • 55. Disclosure AppendixRegulatory disclosuresDisclosures required by United States laws and regulationsSee company-specific regulatory disclosures above for any of the following disclosures required as to companies referred to in this report: manager or co-manager in a pendingtransaction; 1% or other ownership; compensation for certain services; types of client relationships; managed/co-managed public offerings in prior periods; directorships; for equitysecurities, market making and/or specialist role. Goldman Sachs usually makes a market in fixed income securities of issuers discussed in this report and usually deals as a principal inthese securities.The following are additional required disclosures: Ownership and material conflicts of interest: Goldman Sachs policy prohibits its analysts, professionals reporting to analysts andmembers of their households from owning securities of any company in the analysts area of coverage. Analyst compensation: Analysts are paid in part based on the profitability ofGoldman Sachs, which includes investment banking revenues. Analyst as officer or director: Goldman Sachs policy prohibits its analysts, persons reporting to analysts or membersof their households from serving as an officer, director, advisory board member or employee of any company in the analysts area of coverage. Non-U.S. Analysts: Non-U.S. analystsmay not be associated persons of Goldman Sachs & Co. and therefore may not be subject to NASD Rule 2711/NYSE Rules 472 restrictions on communications with subject company,public appearances and trading securities held by the analysts. Distribution of ratings: See the distribution of ratings disclosure above. Price chart: See the price chart, with changesof ratings and price targets in prior periods, above, or, if electronic format or if with respect to multiple companies which are the subject of this report, on the Goldman Sachs website athttp://www.gs.com/research/hedge.html.Additional disclosures required under the laws and regulations of jurisdictions other than the United StatesThe following disclosures are those required by the jurisdiction indicated, except to the extent already made above pursuant to United States laws and regulations. Australia: Thisresearch, and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. Brazil: Disclosure information in relation to CVMInstruction 483 is available at http://www.gs.com/worldwide/brazil/gir/index.html. Where applicable, the Brazil-registered analyst primarily responsible for the content of this researchreport, as defined in Article 16 of CVM Instruction 483, is the first author named at the beginning of this report, unless indicated otherwise at the end of the text. Canada: GoldmanSachs & Co. has approved of, and agreed to take responsibility for, this research in Canada if and to the extent it relates to equity securities of Canadian issuers. Analysts mayconduct site visits but are prohibited from accepting payment or reimbursement by the company of travel expenses for such visits. Hong Kong: Further information on the securities ofcovered companies referred to in this research may be obtained on request from Goldman Sachs (Asia) L.L.C. India: Further information on the subject company or companiesreferred to in this research may be obtained from Goldman Sachs (India) Securities Private Limited; Japan: See below. 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A copy of these risks warnings, and a glossary of certain financial termsused in this report, are available from Goldman Sachs International on request.European Union: Disclosure information in relation to Article 4 (1) (d) and Article 6 (2) of the European Commission Directive 2003/126/EC is available athttp://www.gs.com/client_services/global_investment_research/europeanpolicy.htmlhttp://www.gs.com/client services/global investment research/europeanpolicy.html which states the European Policy for Managing Conflicts of Interest in Connection with InvestmentResearch.Japan: Goldman Sachs Japan Co., Ltd. is a Financial Instrument Dealer under the Financial Instrument and Exchange Law, registered with the Kanto Financial Bureau (RegistrationNo. 69), and is a member of Japan Securities Dealers Association (JSDA) and Financial Futures Association of Japan (FFAJ). Sales and purchase of equities are subject tocommission pre-determined with clients plus consumption tax. 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  • 56. Disclosure AppendixRatings, coverage groups and views and related definitionsBuy (B), Neutral (N), Sell (S) – Analysts recommend stocks as Buys or Sells for inclusion on various regional Investment Lists. Being assigned a Buy or Sell on an Investment List isdetermined by a stock’s return potential relative to its coverage group as described below. Any stock not assigned as a Buy or a Sell on an Investment List is deemed Neutral. Eachregional I i l Investment Review C t tR i Committee manages various regional I itt i i l Investment Lists t a global guideline of 25% 35% of stocks as B and 10% 15% of stocks as S ll h t t Li t to l b l id li f 25%-35% f t k Buy d 10%-15% f t k Sell; however, th thedistribution of Buys and Sells in any particular coverage group may vary as determined by the regional Investment Review Committee. Regional Conviction Buy and Sell lists representinvestment recommendations focused on either the size of the potential return or the likelihood of the realization of the return.Return potential represents the price differential between the current share price and the price target expected during the time horizon associated with the price target. Price targetsare required for all covered stocks. The return potential, price target and associated time horizon are stated in each report adding or reiterating an Investment List membership.Coverage groups and views: A list of all stocks in each coverage group is available by primary analyst, stock and coverage group at http://www.gs.com/research/hedge.html. Theanalyst assigns one of the following coverage views which represents the analyst’s investment outlook on the coverage group relative to the group’s historical fundamentals and/orvaluation Attractive (A) The investment outlook over the following 12 months is favorable relative to the coverage groups historical fundamentals and/or valuation. Neutral (N) Thevaluation. (A). group s valuation (N).investment outlook over the following 12 months is neutral relative to the coverage groups historical fundamentals and/or valuation. Cautious (C). The investment outlook over thefollowing 12 months is unfavorable relative to the coverage groups historical fundamentals and/or valuation.Not Rated (NR). The investment rating and target price have been removed pursuant to Goldman Sachs policy when Goldman Sachs is acting in an advisory capacity in a merger orstrategic transaction involving this company and in certain other circumstances. Rating Suspended (RS). Goldman Sachs Research has suspended the investment rating and pricetarget for this stock, because there is not a sufficient fundamental basis for determining, or there are legal, regulatory or policy constraints around publishing, an investment rating ortarget. The previous investment rating and price target, if any, are no longer in effect for this stock and should not be relied upon. Coverage Suspended (CS). Goldman Sachs hassuspended coverage of this company. Not Covered (NC). Goldman Sachs does not cover this company. Not Available or Not Applicable (NA). The information is not available fordisplay or is not applicable. Not Meaningful (NM). The information is not meaningful and is therefore excluded.Global product; distributing entitiesThe Global Investment Research Division of Goldman Sachs produces and distributes research products for clients of Goldman Sachs, and pursuant to certain contractualarrangements, on a global basis. Analysts based in Goldman Sachs offices around the world produce equity research on industries and companies, and research on macroeconomics,currencies,currencies commodities and portfolio strategy strategy.This research is disseminated in Australia by Goldman Sachs & Partners Australia Pty Ltd (ABN 21 006 797 897) on behalf of Goldman Sachs; in Brazil by Goldman Sachs do BrasilBanco Múltiplo S.A.; in Canada by Goldman Sachs & Co. regarding Canadian equities and by Goldman Sachs & Co. (all other research); in Hong Kong by Goldman Sachs (Asia)L.L.C.; in India by Goldman Sachs (India) Securities Private Ltd.; in Japan by Goldman Sachs Japan Co., Ltd.; in the Republic of Korea by Goldman Sachs (Asia) L.L.C., Seoul Branch;in New Zealand by Goldman Sachs & Partners New Zealand Limited on behalf of Goldman Sachs; in Russia by OOO Goldman Sachs; in Singapore by Goldman Sachs (Singapore)Pte. (Company Number: 198602165W); and in the United States of America by Goldman Sachs & Co. Goldman Sachs International has approved this research in connection with itsdistribution in the United Kingdom and European Union.European Union: Goldman Sachs International, authorised and regulated by the Financial Services Authority, has approved this research in connection with its distribution in the p , g y y, ppEuropean Union and United Kingdom; Goldman Sachs & Co. oHG, regulated by the Bundesanstalt für Finanzdienstleistungsaufsicht, may also distribute research in Germany.Goldman Sachs Global ECS Research 56
  • 57. Disclosure AppendixGeneral disclosuresThis research is for our clients only. Other than disclosures relating to Goldman Sachs, this research is based on current public information that we consider reliable, but we do notrepresent it is accurate or complete, and it should not be relied on as such. We seek to update our research as appropriate, but various regulations may prevent us from doing so.Other thOth than certain industry reports published on a periodic b i th l t i i d t t bli h d i di basis, the large majority of reports are published at i j it f t bli h d t irregular i t l intervals as appropriate i th analysts j d l i t in the l t judgment. tGoldman Sachs conducts a global full-service, integrated investment banking, investment management, and brokerage business. We have investment banking and other businessrelationships with a substantial percentage of the companies covered by our Global Investment Research Division. Goldman Sachs & Co., the United States broker dealer, is amember of SIPC (http://www.sipc.org).Our salespeople, traders, and other professionals may provide oral or written market commentary or trading strategies to our clients and our proprietary trading desks that reflectopinions that are contrary to the opinions expressed in this research. Our asset management area, our proprietary trading desks and investing businesses may make investmentdecisions that are inconsistent with the recommendations or views expressed in this research.We and our affiliates, officers, directors, and employees, excluding equity and credit analysts, will from time to time have long or short positions in, act as principal in, and buy or sell,the securities or derivatives, if any, referred to in this research.This research is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. It does not constitute apersonal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Clients should consider whether any advice orrecommendation in this research is suitable for their particular circumstances and, if appropriate, seek professional advice, including tax advice. The price and value of investmentsreferred to in this research and the income from them may fluctuate. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of originalcapital may occur. Fluctuations in exchange rates could have adverse effects on the value or price of, or income derived from, certain investments.Certain transactions, including thC t i t ti i l di those i involving f t l i futures, options, and other d i ti ti d th derivatives, give rise t substantial risk and are not suitable f all i i i to b t ti l i k d t it bl for ll investors. I t Investors should review current t h ld i toptions disclosure documents which are available from Goldman Sachs sales representatives or at http://www.theocc.com/about/publications/character-risks.jsp. Transactions costmay be significant in option strategies calling for multiple purchase and sales of options such as spreads. Supporting documentation will be supplied upon request.All research reports are disseminated and available to all clients simultaneously through electronic publication to our internal client websites. Not all research content is redistributed toour clients or available to third-party aggregators, nor is Goldman Sachs responsible for the redistribution of our research by third party aggregators. For all research available on aparticular stock, please contact your sales representative or go to http://360.gs.com.Disclosure information is also available at http://www.gs.com/research/hedge.html or from Research Compliance, 200 West Street, New York, NY 10282.Copyright 2011 Goldman Sachs.No part of this material may be (i) copied, photocopied or duplicated in any form by any means or (ii) redistributed without the prior written consentof The Goldman Sachs Group, IncGoldman Sachs Global ECS Research 57