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Financials Sector Stock Presentation

Financials Sector Stock Presentation. -John Reik- -Jeff Liu-. Sector Recommendations. Increase SIM portfolio’s financial sector weight by 147 basis points to bring in line with S&P 500

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Financials Sector Stock Presentation

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  1. Financials Sector Stock Presentation -John Reik- -Jeff Liu-

  2. Sector Recommendations • Increase SIM portfolio’s financial sector weight by 147 basis points to bring in line with S&P 500 • Look for opportunities in P&C insurance companies, asset managers, brokers, investment bankers, and exchanges • Exercise caution with banks, real estate, and credit card companies

  3. Stock Recommendations • Sell Mastercard (MA) • [409 basis points] • Sell Biomed Realty Trust (BMR) • [377 basis points] • Buy Goldman Sachs Group (GS) • [433 basis points] • Buy Reinsurance Group of America (RGA) • [500 basis points]

  4. Current SIM Holdings vs. Proposed SIM Holdings Current: Proposed: 20.71% 22.18%

  5. Mastercard (MA) • Business Analysis • Risks: • Increased competition • Visa & Discover IPOs • Legal & Regulatory Issues ($1b or $7/share) • Slowing revenue, earnings, and operating margin growth rates • Opportunities: • Expansion in overseas markets • New initiatives (e.g. PayPass) • Increased use of non-cash transactions

  6. Mastercard (MA) • Financial Analysis: • MA’s effectiveness ratios are below average • MA seems to be valued too high on a P/E, P/S, and PEG basis

  7. Mastercard (MA) • Valuation: • Current Stock Price: $104.06 • DCF Target Price: $101.07 • Potential downside: 2.9% • Absolute: • Near all time highs in P/E and P/B • Relative to S&P 500: • expensive • Relative to AXP: • Expensive (based on P/E)

  8. Goldman Sachs (GS) • Business Analysis • Investment banking segment: Booming market for equity IPOs, M&As, share buybacks, etc. • High investor confidence equates to high inflows for asset management and brokerage services • Risks: • Decrease in business/consumer confidence • Less investment banking/trading activity • Increasing interest rates or widening of credit spreads

  9. Goldman Sachs (GS) • Financial Analysis • GS seems to be outperforming its competitors • However, the stock is still cheap on a P/E, PEG, and P/S basis

  10. Goldman Sachs (GS) • Valuation: • Current Price: $214.00 • DCF Target Price: $269.12 • 25.8% potential upside • Absolute: • P/B ratio near 5-year HI • P/E ratio about average • Relative to S&P: • cheap on a P/E basis • In-line on a P/B basis • Relative to Industry: • Cheap on a P/E basis • Expensive on P/B basis

  11. Biomed Realty Trust (BMR) • Business Analysis • Major revenue drivers: • The mortgage rate, affects both company’s financial cost and customer demand. • Over all economy--GDP (on a lag basis); employment numbers, and the well-being of biotechnology and pharmaceutical companies. • The prices of utility, taxes and insurance are crucial to the companies’ operating expenses. • Potential risks: • The rate hiked by FED to 5.25% over the past year will take full effect on the real estate market in 2007. • The severe correction of the current over-valued real estate industry as a whole • Tenants in the life science industry face high levels of regulation, expense and uncertainty • specific improvements required for our life science tenants • The geographic concentration of our properties in Boston and California • limited operating history as a REIT and as a public company

  12. Biomed Realty Trust (BMR) • Financial Analysis:

  13. Biomed Realty Trust (BMR) • Valuation: • Current Price: $29.70 • DCF Target Price: $31.08 • Potential upside 4.6% • Absolute: • About average in P/E and P/B • Relative to S&P: • About average in P/E and P/B • Relative to Sector: • A little below average in P/E and P/B

  14. Biomed Realty Trust (BMR)

  15. Reinsurance Group of America (RGA) • Business Analysis • Major revenue drivers: • The increasing life and retirement product need for baby boomers. • The Company has arms-length direct policies and reinsurance agreements with MetLife and certain of its subsidiaries. Consolidation and Reorganization: the coinsurance agreement with Allianz Life provided $278.0 billion in reinsurance in force • Growing market potential in Asia. (Percentage of company revenue 8.1% (02),9.8% (03),11.9% (04). 13% (05) • Potential risks: • Adverse changes in mortality, morbidity or claims experience • Inflation & Interest Rate Risk • General economic conditions affecting the demand for insurance and reinsurance • Exchange rates fluctuations • Changes in laws, regulations, and accounting standards applicable • Risks inherent in risk management and investment strategy

  16. Reinsurance Group of America (RGA) • Financial Analysis:

  17. Reinsurance Group of America (RGA) • Valuation • Current Price: $58.87 • DCF Target Price: $77.82 • Potential upside 32.2% • Absolute: • About average in P/E and P/B • Relative to S&P: • A little above average in P/E and P/B • Relative to Industry: • Below average in P/E and P/B

  18. Reinsurance Group of America (RGA)

  19. Technical Analysis

  20. Review of Recommendations • Increase SIM portfolio’s exposure to financial sector by 147 basis points • Sell Mastercard (MA) [409bps] and Biomed Realty Trust (BMR) [377bps] • Buy Goldman Sachs (GS) [433bps] and Reinsurance Group of America (RGA) [500bps]

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