Feb 7 2011

US stocks resumed trading higher on Friday, Dow 12,092.15 +29.89 0.25%

even on the back of worse-than-expected
nonfarm payrolls data. Due to a rather
S&P 500 1,310.87 +3.77 0.29%
puzzling reading, the market seemed to Nasdaq 2,769.30 +15.42 0.56%
prefer in digesting other US economic data such as the ISM data which were both released
last week and managed to lift the market’s mood.

To review a bit, ISM for manufacturing sector was up from 58.5 to 60.8 in January, better
than the consensus of a drop to 58.0. ISM for non-manufacturing sector also beat the market
expectations of 57.2 as it recorded a rise from 57.1 to 59.4 in January. In addition, ADP
employment data which tracks the employment situation in the private sector has shown that
private sector added 187K jobs in January. Despite lower than December’s data, January’s
result beat the expectation of 140K jobs.

US Nonfarm Payrolls
600

400

200

0
K jobs

-200

-400

-600

-800

-1000
Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11
Period

Now what about the payrolls data itself? The result was puzzling as 36K jobs were added in
January. This is way below the consensus of 146K and below the December’s result of 121K.
Here’s what confusing: unemployment rate dropped from 9.4% to 9.0% during the same
period while the market expected a slight rise in unemployment rate to 9.5%. What
happened?
 Feb 7 2011
The answer could be that the payrolls data came from the establishment survey, which used
160,000 U.S. businesses as the source of the data. From there, net job growth was calculated
each month. Unemployment rate however, used a different kind of survey which is known as
the household survey. Household survey used around 60,000 households in the U.S. as the
source to know whether people are working. The last two months, the establishment survey
recorded a creation of 157,000 jobs, while the household survey reported a creation of
886,000 jobs. Which one is reliable, then? The household survey is less likely to be affected
by weather because it could be done by phone. The household survey also able to provide
small businesses data, of which could lead the development in the larger businesses.

So, which one to use? Apparently, the market chose to bypass the confusing data and look
forward to more earnings this week coming from CSCO, KFT, KO, and DIS.

Looking into the new week, the U.S. economic indicators to be released will feature the trade
balance, consumer sentiment, and also the jobless claims. Trade balance is seen worsening
from -$38.3 billion to -$40.0 billion while the University of Michigan Confidence index for
February is seen to edge higher from 74.2 to 75.5. Both will be released next Friday.

Corporate News
KFT led the table on Friday with 1.46% of gains, pushing its
MTD gains to 2.03% and its 12-month gains to 9.71%.
BA’s repeat delays of its 787 Dreamliner have triggered more
orders for its rival Airbus SAS’s A330 aircrafts. BA settled
0.56% higher on Friday at $71.38, but more similar news in the future would be a
potential drag to the stock which has recovered after its decline towards $69.00 recently.
BAC looks to strengthen its leading position in mortgage finance by announcing changes to
its Loan and Insurance business. The bank will improve its leading mortgage modification
programs for distressed homeowners while also resolving legacy mortgage issues. Another
step planned was the extension of home mortgage credit. BAC lost nearly 1% last Friday,
but still holds a 2.73% gains since the beginning of the month. Longer-term performance
still saw the stock losing over 14% of value compared to prior year level, however.
CSCO wants Inlet Technologies to boost its Videoscape TV platform’s capabilities. Inlet
Technologies will enable CSCO to deliver better video experience over any Internet
Protocol network. Inlet has been a leader of Adaptive Bit Rate digital media processing
platform. CSCO rose 0.64% on Friday, adding its MTD gains to 4.26% so far as it
struggles to close its 1-year losses. Compared to a year-ago, CSCO still underwater by
9.37%. CSCO will report its quarterly earnings on Wednesday. The consensus sees the
EPS to be at $0.35 per share, down from $0.40 per share reported at the same quarter a
year earlier.
DD continued to push higher on Friday, gaining 1.16% to add its MTD gains to 3.65%. DD
has been on the second spot in terms of 12-month basis, trailing CAT with 55.78% gains.
The stock remains solid so far in 2011, carving 5.31% gains YTD while CAT notched up
6.33% advance.
DIS also set to report its quarterly earnings next Tuesday. Analysts see the EPS to be at
$0.56 per share vs. $0.47 per share recorded in the same quarter 2010. DIS added
 Feb 7 2011
0.52% of gains on Friday as it stays firm with 4.73% of gains so far this February. DIS is
30.31% higher than a year ago.
HD planned to shut down its stores in Holland, Gentilly, Rocky Mount and Greenville due to
their inabilities to meet long-term financial returns targeted by the company. HD managed
to eke out 0.27% of gains on Friday, lifting its MTD performance from the red zone as it
recorded a 0.08% gains since the beginning of February. In 12-month terms, HD has
collected nearly 18% of gains.
INTC, which has been reinstated at NEUTRAL by BofA/ML, gained 0.51% on Friday,
upping its YTD tally to 3.09%.
JPM was hit by the accusation that the company was at the center of the Madoff case. The
stock suffered nearly 2% of losses on Friday, dragging its MTD gains to -0.78%. YTD
however, the bank still gains 5.12%. A proposal which could have large banks to pay
more for deposit insurance is also set for approval this week. This could put more dents to
banking stocks, including JPM.
KO was accused for having a misleading advertisement by National Consumers League.
The ad was said to have been claiming that the beverage is “nutritious”. The beverage
giant, who would report its quarterly report on Wednesday, settled Friday down 0.02%.
So far, KO fell 0.46% in February while its YTD losses have reached 4.88% currently.
Consequently, this year’s poor performance has slashed KO’s 12-month gains down to
18.66%. Seen to be posting net profit at $0.72 per share in the recent quarter, a better-
than-expected reading should be able to revive KO’s fortunes. Consensus EPS is seen at
$0.66 per share.
MRK’s PT has been lowered to $34 from $39 by Citigroup while maintaining its rating at
HOLD. Q4 results were the reason behind the downgrade. MRK ended at 0.03% down
from a day before.
VZ’s iPhone sales has been successful as the preorder stage had been closed out just within
17 hours since the company offered AAPL’s hottest gadgets which were at the hands of T
before recently re-started. VZ fell instead by 0.19% on Friday.
XOM stays at the top of the chart in terms of YTD performance, having
gained 13.89% since the beginning of 2011. The oil giant however, took
a mild hit on Friday as it fell 0.19%. XOM approached $84.00 last week,
boosted by strong quarterly earnings reported recently.

Upgrades & Downgrades

Rating PT
Code House Date
Prv Current Prv Current
INTC BofA/ML 4-Feb Neutral Neutral - -
MRK Goldman Sachs 4-Feb Neutral Neutral $37.00 $37.00
MRK Citigroup 4-Feb Hold Hold $39.00 $34.00
 Feb 7 2011

Earnings Calendar
Date Code Company Period Est Prv Time
8-Feb DIS Walt Disney Co. Q1 2011 0.56 0.47 4:01 PM
9-Feb CSCO Cisco Systems, Inc. Q2 2011 0.35 0.40 AMC
9-Feb KO Coca-Cola Co. Q4 2010 0.72 0.66 BMO
10-Feb KFT Kraft Foods Inc. Q4 2010 0.46 0.48 4:00 PM

Technical focus: CSCO

Resistances 22.41 22.53 22.79 23.23 23.68 24.21

Supports 21.78 21.57 21.40 21.23 21.02 20.69
Outlook Positive
Strategy Buy +/- $21.57, PT $23.23, risk < $21.02
 Feb 7 2011

Dow 30 - Feb 4th 2011

KFT 1.46% 1 MSFT 0.43% 11 KO -0.02% 21
DD 1.16% 2 MMM 0.39% 12 MRK -0.03% 22
PG 1.13% 3 UTX 0.36% 13 T -0.07% 23
PFE 0.68% 4 MCD 0.30% 14 XOM -0.19% 24
CAT 0.67% 5 IBM 0.29% 15 VZ -0.19% 25
AXP 0.67% 6 TRV 0.28% 16 CVX -0.21% 26
CSCO 0.64% 7 HD 0.27% 17 AA -0.41% 27
BA 0.56% 8 HPQ 0.23% 18 GE -0.92% 28
DIS 0.52% 9 WMT 0.20% 19 BAC -0.97% 29
INTC 0.51% 10 JNJ 0.07% 20 JPM -1.91% 30

Dow 30 - Month-to-Date - Feb 4th 2011

PFE 5.93% 1 CVX 2.30% 11 AXP 1.01% 21
DIS 4.73% 2 GE 2.09% 12 PG 0.76% 22
CSCO 4.26% 3 TRV 2.04% 13 MCD 0.52% 23
BA 4.08% 4 KFT 2.03% 14 MMM 0.42% 24
HPQ 3.81% 5 VZ 1.94% 15 MSFT 0.14% 25
DD 3.65% 6 JNJ 1.79% 16 HD 0.08% 26
AA 3.44% 7 T 1.64% 17 WMT -0.07% 27
XOM 3.22% 8 UTX 1.50% 18 KO -0.46% 28
BAC 2.73% 9 IBM 1.23% 19 JPM -0.78% 29
CAT 2.66% 10 INTC 1.03% 20 MRK -0.84% 30

Dow 30 - YTD Feb 4th 2011

XOM 13.89% 1 CVX 6.42% 11 AXP 2.10% 21
HPQ 12.66% 2 CAT 6.33% 12 VZ 1.48% 22
GE 12.41% 3 DD 5.31% 13 MSFT -0.50% 23
IBM 11.75% 4 JPM 5.12% 14 KFT -1.02% 24
AA 11.37% 5 HD 4.96% 15 PG -1.12% 25
PFE 10.22% 6 UTX 4.83% 16 JNJ -1.63% 26
BA 9.38% 7 WMT 3.89% 17 MCD -3.53% 27
CSCO 9.00% 8 INTC 3.09% 18 T -4.80% 28
DIS 8.53% 9 TRV 3.05% 19 KO -4.88% 29
BAC 7.12% 10 MMM 2.31% 20 MRK -8.74% 30
 Feb 7 2011

Dow 30 - Trailing Twelve Months (TTM) - Feb 4th 2011

CAT 74.57% 1 KO 18.66% 11 JPM 6.24% 21
DD 55.78% 2 HD 17.95% 12 INTC 5.60% 22
CVX 34.32% 3 MCD 15.97% 13 WMT 3.62% 23
DIS 30.31% 4 AXP 14.74% 14 PG 0.52% 24
IBM 28.97% 5 BA 13.01% 15 MSFT -3.14% 25
AA 28.87% 6 T 12.74% 16 JNJ -3.43% 26
XOM 28.12% 7 MMM 10.16% 17 HPQ -6.62% 27
GE 28.02% 8 PFE 9.97% 18 CSCO -9.37% 28
VZ 25.51% 9 KFT 9.71% 19 MRK -10.82% 29
UTX 20.20% 10 TRV 9.17% 20 BAC -14.23% 30

US Economic Calendar
Date Time Report Period Actual Forecast Previous
31-Jan 8:30 AM Personal income Dec 0.4% 0.4% 0.4%
31-Jan 8:30 AM Consumer spending Dec 0.7% 0.6% 0.3%
31-Jan 8:30 AM Core PCE price index Dec 0.0% 0.1% 0.1%
31-Jan 9:45 AM Chicago PMI Jan 68.8% 65.0% 66.8%
1-Feb 10:00 AM ISM Jan 60.8% 58.5% 58.5%
1-Feb 10:00 AM Construction spending Dec -2.5% 0.1% -0.2%
1-Feb - Vehicle sales Jan 12.6 mio 12.5 mio 12.5 mio
2-Feb 8:15 AM ADP employment Jan 187K - 247K
3-Feb 8:30 AM Jobless claims 1/29/2011 415K 418K 454K
3-Feb 8:30 AM Productivity 4Q 2.6% 2.2% 2.3%
3-Feb 10:00 AM ISM non-manufacturing Jan 59.4% 57.3% 57.1%
3-Feb 10:00 AM Factory orders Dec 0.2% -0.4% 0.7%
4-Feb 8:30 AM Nonfarm payrolls Jan 36K 140K 103K
4-Feb 8:30 AM Unemployment rate Jan 9.0% 9.5% 9.4%
4-Feb 8:30 AM Average hourly earnings Jan 0.4% 0.2% 0.1%
 Feb 7 2011

US Economic Calendar
Date Time Report Period Actual Forecast Previous
7-Feb 3:00 PM Consumer credit Dec - - $1.4 bln
8-Feb 10:00 AM Job openings Dec - - 3.25 mln
10-Feb 8:30 AM Jobless claims 5-Feb - 420K 415K
10-Feb 10:00 AM Wholesale inventories Dec - - -0.2%
10-Feb 2:00 PM Federal budget Jan - - -$43 bln
11-Feb 8:30 AM Trade balance Dec - -$42 bln -$38.3 bln
11-Feb 9:55 AM Consumer sentiment Feb - 75.5 74.2

Disclaimer: This report is provided for information purposes only. It is not an offer to sell or to buy any
securities. This report has been prepared based on sources believed to be reliable, but there is no
assurance or guarantee regarding its completeness & and accuracy. The author accepts no responsibility or
liability arising from any use of the report.