BASIC MATERIALSRyan Shelley   Bill McCarran   ThaoTruong
AGENDA   Current Holding   Sub-Industries   Sector Leaders   Materials Outlook   Deere & Co (DE)   Alcoa (AA)   SPD...
Current Holdings   Alcoa (AA)                 Purchase:XXX     Purchased 9/14/11        8/31/11:XXX     283 shares @ $1...
Sub Industries   Chemicals     The Chemicals Industry in the Materials Sector includes producers of       commodity, div...
Sector Leaders   Du Pont            10.71%   Monsanto           10.18%   FreePort-McMoran   8.82%   Praxiar           ...
Macro Overview   GDP Q4 2.8%   ISM manufacturing :    54.1   Durable Goods: +1.7%   China Q4 GDP 9.2%       PMI 50.5...
JOHN DEERE
DE Overview   Headquarters (Founded) Moline, IL. (1837)   Market Cap $34.8 billion   Industry Farm and construction mac...
Agriculture 2012 Outlook                                         Monthly U.S. agricultural exports                        ...
Holding Rationale   Need for Agricultural output Increase Globally   Long-term macroeconomic tailwind in BRIC-    countr...
Recent News   2/7/2012 USDA To Release New Long-Term Agricultural    Projections   2/7/2012 Farmers Plan Biggest U.S. Cr...
Performance   Q4 results and initial 2012 over-expectations
Financial Performance   Trailing-12-Month Revenue $32.0 billion   Return on Equity 42.81%   Cash/Debt $3.7 billion / $2...
Cont’GROWTH RATES %                 COMPANY    INDUSTRY   S&P 500Sales (Qtr vs yr ago qtr)         19.6      24.3      11....
Financials           Market    Q Rv    Gross Stock      Cap     Growth   Margin   EPS    P/E 5 yr PEG   P/S    Beta   ROE ...
Potential Risks   Highly leveraged   Weaken economic sentiments   EU credits issues   China residential construction r...
Alcoa- (AA)
Recommendation   Sell, Sell, Sell!
Business Overview Worlds leading alumina & aluminum  producer Operating in 31 countries    Revenue by Segment Verticall...
Financials   Market Cap- 11.36B   P/E- 19.51   PEG-1.03   P/B- 0.8   P/S- 0.5   Sitting on nearly $2 billion of Liqu...
Recent News   Alcoa Attended the Superbowl   Australia Aluminum Smelter   European and China Uncertainty
Original Investment Rationale   Exposure to Aluminum     Potential              global growth driving up prices     Alu...
Sell Rationale   Time horizon too long   We’ve made our money back   Macroeconomy     China   and Europe uncertainty ...
As a Future Investment   Why Aluminum     S&D driving up prices-China     Demand from emerging markets     Substitutio...
Alcoa Summary   Solid fundamentals and production processes    undermined (pun intended) by Economic    uncertainty and A...
SPDR Gold TrustGLD: $167.33     Beta: .11NAV: $167.07     Inst own: 42%Mkt Cap: 71.46 B 1 GLD= 1/10 an ounce
Who Holds gold   1. U.S. - $418 billion            4. Italy $ 126.12 billion   2. Germany $174.7                 5. Fr...
Gold as an investment1. Inflation2. Economic uncertainty3. Political uncertainty4. Portfolio diversification  Weak Curren...
Gold Supply   2011: 2%                      Recycle                                     d     Driven   by recycled      ...
Gold Demand   2011: +6%   Investment driven: 33% yoy   Central Banks buying
Central Banks  Central   Banks purchases were up 200%    Signaling            concerns about weak currency    WGC predi...
Today’s World Global debt crisis Devalue vs Default            Debt/GD   10yr                                P         b...
Global MS vs Gold   Loose Global Monetary Policies     QE programs: US, JAPAN, UK     ECB LTRO to inject liquidity
Gold and MS
United States   US Debt at 100% GDP                     Graph: Monetary policy &   Fed promises low int rates and possib...
Dollar Index & Gold   Weak dollar performance
US Real Interest Rates   Gold inverse    relationship with real    int rates   10 yr yield: 2%       Real int rate: -.2...
ECB   ECB initiates LTRO    3   yr loans at 1%
Europe Crisis          Gold coin: “Heads I win, Tails you lose”   Bond Purchases       Currency break      No Resolution  ...
Japan   Debt-GDP: 220%       10yr yield .98%   60% debt to roll over in next 5 yrs   More borrowing     April: $566 b...
Political   US gov, Eu gov, Iran vs gold
Portfolio Diversification   Risk management     Low  Volitility     Low Correlation     Superior risk adjusted      re...
Gold Performance charts
Risks   Stronger economy no QE3   Strong Dollar   India demand   CME Margin Hikes   Further correction
Highlights   Physical Demand > supply   China and India   Miners quit hedges   Global MS outpacing gold prices     Mo...
ETF VS MINING   Cutting out the middle man   Geographical & Political risks     Africa   High Energy Cost     Hurting...
Recommendations   Option 1:     HOLD  DEERE     SELL ALCOA     BUY SPDR GLD   Option 2:     HOLD   DE & AA
Q&A
Fear   Correlation to VIX
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  • Bought 131 shares more over break @
  • Soybean, Cotton: chinaCorn, Wheat: Japanhttp://www.ers.usda.gov/Data/FATUS/#monthly (0.4%: 75.3 million acres)
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    1. 1. BASIC MATERIALSRyan Shelley Bill McCarran ThaoTruong
    2. 2. AGENDA Current Holding Sub-Industries Sector Leaders Materials Outlook Deere & Co (DE) Alcoa (AA) SPDR Gold Trust (GLD) Recommendations Q&A
    3. 3. Current Holdings Alcoa (AA) Purchase:XXX  Purchased 9/14/11 8/31/11:XXX  283 shares @ $11.73 YTD: XXX Deere & co (DE) Purchase:XXX  Purchased Feb 25th 20118/31/11:XXX  25 Shares @ $90.49 YTD: XXX S&P Basic Materials Weighting: 3.7% Atkins Basic Materials Weighting: 5.3%
    4. 4. Sub Industries Chemicals  The Chemicals Industry in the Materials Sector includes producers of commodity, diversified, fertilizers, agricultural, and specialty chemicals. It also includes manufacturers of industrial gases Construction Materials ()  The Construction Materials Industry in the Materials Sector includes manufacturers of construction materials including sand, clay, gypsum, lime, aggregates, cement, concrete, and bricks. Other finished or semi-finished building materials are classified in the Building Products industry Containers & Packaging  The Containers and Packaging Industry in the Materials Sector includes manufacturers of metal, glass, or plastic containers (including corks and caps), and manufacturers of paper and cardboard containers and packaging Metals & Mining  The Metals and Mining Industry in the Materials Sector includes producers of aluminum and related products; companies engaged in diversified metals and mining production or extraction of gold, precious metals, minerals and related products; and producers of iron, steel and related products Paper & Forest Products  The Paper and Forest Products Industry in the Materials Sector includes manufacturers of timber, related wood products, and all grades of paper. It includes manufacturers of lumber for the building industry, and excludes
    5. 5. Sector Leaders Du Pont 10.71% Monsanto 10.18% FreePort-McMoran 8.82% Praxiar 7.96% Newmont Mining 7.88% Dow Chemicals 4.82% Air Prods & Chem 4.49% Mosaic Co 4.24% PPG Ind Inc 3.50% EcoLab 3.32%
    6. 6. Macro Overview GDP Q4 2.8% ISM manufacturing : 54.1 Durable Goods: +1.7% China Q4 GDP 9.2%  PMI 50.5 Baltic Dry Index Eyes on Europe’s QE3? Trade Deficit widening
    7. 7. JOHN DEERE
    8. 8. DE Overview Headquarters (Founded) Moline, IL. (1837) Market Cap $34.8 billion Industry Farm and construction machinery Operation Profit by Segment Revenue by Geography 16% Agriculture & Turf 8% 9% Construction & 22% US & Canada Forestry Outside Financial 75% Other Services 70%
    9. 9. Agriculture 2012 Outlook Monthly U.S. agricultural exports $ billion 14• Excess Supply, crop 2008 12 2009 10 2010 8 price 2012 are projected 6 4 2011 2012 OCT JAN APR JUL to decrease Fiscal years Monthly U.S. agricultural imports• Farm Profits and $ billion 12 2008 exports are forecast at 10 8 2009 2010 all times high and 6 4 2011 2012 continue to grow OCT JAN APR JUL Fiscal years• Global food cost 2011 down 11% while US farm income up 28%• Forecast: Farm corn
    10. 10. Holding Rationale Need for Agricultural output Increase Globally Long-term macroeconomic tailwind in BRIC- countries Low used-inventory, machinery has high resell value Geographically diversified Operations and manufacturing efficiency Corn-based ethanol as an alternative form of fuel in the U.S. Repurchase activity
    11. 11. Recent News 2/7/2012 USDA To Release New Long-Term Agricultural Projections 2/7/2012 Farmers Plan Biggest U.S. Crop Boost Since 1984, Led by Corn: Commodities 2/2/2012 Blackrock Favors Seed, Machinery Makers Over Food as Investment 2/2/2012 John Deere Sponsors National Ag Day to Celebrate American Agriculture 1/26/2012 John Deer Marks the Company’s 175th Anniversary 11/15/2011 U.S. Farm Exports Reach Record $137.4 Billion on China Buys 11/10/2011 Deere & Company Announces Additional Investments in Russia
    12. 12. Performance Q4 results and initial 2012 over-expectations
    13. 13. Financial Performance Trailing-12-Month Revenue $32.0 billion Return on Equity 42.81% Cash/Debt $3.7 billion / $26.7 billion Dividend Yield 1.9% Next Earnings Date: Feb 15, 2012 Estimated growth FY 2012: +17.30 Est. Q4 2011: 1.44 2011 EPS: 6.44  Actual: 1.62 2012e EPS: 7.84  Surprise: 12.4% 2013e EPS: 8.38 Favorable currency-translation impact of about 3 percent
    14. 14. Cont’GROWTH RATES % COMPANY INDUSTRY S&P 500Sales (Qtr vs yr ago qtr) 19.6 24.3 11.7Net Income (Qtr vs yr ago qtr) 46.5 42.1 14.4Sales (5-Year Annual Avg.) 7.65 6.34 7.75Net Income (5-Year Annual Avg.) 14.01 8.99 7.64Dividends (5-Year Annual Avg.) 14.27 7.3 5.09Yahoo Target Price $93Morningstar Target $113.40
    15. 15. Financials Market Q Rv Gross Stock Cap Growth Margin EPS P/E 5 yr PEG P/S Beta ROE DE 35.72B 0.196 0.2916 6.63 13.33 0.84 1.1 1.63 0.428 AGCO 5.14B 0.267 0.1972 3.92 13.5 0.84 0.59 2 0.448 CAT 73.73B 0.346 0.2616 7.4 15.4 0.44 1.19 2 0.403 CNH 10.44B 0.243 0.2376 3.91 11.13 0.8 0.52 2.89 0.121Industry 1.79B 0.195 0.2916 4.32 10.6 0.84 0.72 0.204
    16. 16. Potential Risks Highly leveraged Weaken economic sentiments EU credits issues China residential construction risks USDA pointed to higher-than-expected inventory levels for most crops
    17. 17. Alcoa- (AA)
    18. 18. Recommendation Sell, Sell, Sell!
    19. 19. Business Overview Worlds leading alumina & aluminum producer Operating in 31 countries Revenue by Segment Vertically integrated Other Revenue by Region 7% Engineered Alumina Products 20% Asia 17% 16% US 50%Flat Rolled 25% Aluminum Europe 38% 27%
    20. 20. Financials Market Cap- 11.36B P/E- 19.51 PEG-1.03 P/B- 0.8 P/S- 0.5 Sitting on nearly $2 billion of Liquid Assets Dividend-$0.03 Beta 2.02
    21. 21. Recent News Alcoa Attended the Superbowl Australia Aluminum Smelter European and China Uncertainty
    22. 22. Original Investment Rationale Exposure to Aluminum  Potential global growth driving up prices  Alum continues to replace other metals Alcoa  Market leader  Trending down the cost curve  Healthy balance sheet
    23. 23. Sell Rationale Time horizon too long We’ve made our money back Macroeconomy  China and Europe uncertainty Smelter restarts and new entrants Competitive expansion for Alumina Aluminum Supply
    24. 24. As a Future Investment Why Aluminum  S&D driving up prices-China  Demand from emerging markets  Substitution factor Why Alcoa  Largest global provider for a pure play-Rio  Globally diverse w/ growing pos in China  Exposed to up and downstream  Stronger margins  Strong balance Sheet
    25. 25. Alcoa Summary Solid fundamentals and production processes undermined (pun intended) by Economic uncertainty and Aluminum Prices Dead money  Get out while we’ve got most of our money back  No growth in our investment horizon Still consider as a future investment  Consider buy around $12
    26. 26. SPDR Gold TrustGLD: $167.33 Beta: .11NAV: $167.07 Inst own: 42%Mkt Cap: 71.46 B 1 GLD= 1/10 an ounce
    27. 27. Who Holds gold 1. U.S. - $418 billion  4. Italy $ 126.12 billion 2. Germany $174.7  5. France $125.28 billion billion  6. SPDR Gold ETF 3. IMF $144.76 billion $64.53 billion World Gold Holdings CBs 12% 20% Jewlery 18% Investments 50% Industrial
    28. 28. Gold as an investment1. Inflation2. Economic uncertainty3. Political uncertainty4. Portfolio diversification Weak Currencies Low interest rates Fear
    29. 29. Gold Supply 2011: 2% Recycle d  Driven by recycled 40% Mining 60% China 14% Australia 10% US 9% Africa 8% Russia 8%
    30. 30. Gold Demand 2011: +6% Investment driven: 33% yoy Central Banks buying
    31. 31. Central Banks  Central Banks purchases were up 200%  Signaling concerns about weak currency  WGC predicts purchases to continue for 2012  Negative Real rates: continue to diversify to Metals  Gold as % of foreign reserves Brazil .5%  Developed nations: 70% Russi 8.2%  China: moving from Treasuries to a Gold. +30% YoY India 8.5% China 1.6% Japan 3%
    32. 32. Today’s World Global debt crisis Devalue vs Default Debt/GD 10yr P bond1. Devalue: Greece 140% 25.11%  Target Int rates Italy 119% 7.26%  Increase MS  Weak currency Ireland 96% 7.88%2. Default: US 93% 1.95%  Ugly Spain 60% 5.77% Portug 180% 15.22% al
    33. 33. Global MS vs Gold Loose Global Monetary Policies  QE programs: US, JAPAN, UK  ECB LTRO to inject liquidity
    34. 34. Gold and MS
    35. 35. United States US Debt at 100% GDP Graph: Monetary policy & Fed promises low int rates and possible stocks QE3 •Rates low to mid 2013 •Operation Twist Operation twist •US $ iquidity Stocks P/B: 2.05 •ECB LTRO •China stimulus •Rates low to mid 2014
    36. 36. Dollar Index & Gold Weak dollar performance
    37. 37. US Real Interest Rates Gold inverse relationship with real int rates 10 yr yield: 2%  Real int rate: -.2% Fed promise to keep rates low Limited downside risk
    38. 38. ECB ECB initiates LTRO 3 yr loans at 1%
    39. 39. Europe Crisis Gold coin: “Heads I win, Tails you lose” Bond Purchases Currency break No Resolution upEst $2.5 Trillions Faith Greece returns disappearsItaly+France+Greece to Drachma $5 Trillion Debt outstanding Capital controls3,4 times Feds QE Gold as currency?
    40. 40. Japan Debt-GDP: 220%  10yr yield .98% 60% debt to roll over in next 5 yrs More borrowing  April: $566 bill to fund budget  2011 first trade deficit Sustainable? What’s the Trigger  S&P warn of a downgrade  Europe default: Greece, Portugal?
    41. 41. Political US gov, Eu gov, Iran vs gold
    42. 42. Portfolio Diversification Risk management  Low Volitility  Low Correlation  Superior risk adjusted return
    43. 43. Gold Performance charts
    44. 44. Risks Stronger economy no QE3 Strong Dollar India demand CME Margin Hikes Further correction
    45. 45. Highlights Physical Demand > supply China and India Miners quit hedges Global MS outpacing gold prices  Monetizing Debt  More to liquidity to come Falling Real interest rates Political stand still: EU, US Diversification benefits
    46. 46. ETF VS MINING Cutting out the middle man Geographical & Political risks  Africa High Energy Cost  Hurting Margins Top 4 Miners coming up empty handed  More $ chasing less GoldGraph??????? Vs mining
    47. 47. Recommendations Option 1:  HOLD DEERE  SELL ALCOA  BUY SPDR GLD Option 2:  HOLD DE & AA
    48. 48. Q&A
    49. 49. Fear Correlation to VIX

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