Consumer Discretionary/Staples Mike Becher Mike Becher Julie Berens Julie Berens Beth Blue Beth Blue Sanaata Brown Sanaata Brown Brian Creek Brian Creek Mick Kozlowski Mick Kozlowski

Industry/Sector Overview Due to cyclicality of the economy we suggest: Due to cyclicality of the economy we suggest: –Overweight Consumer Discretionary –Underweight Consumer Staples

Recommendation Buy: Wal-Mart 0%  1.73% Buy: Wal-Mart 0%  1.73% Buy: Harley Davidson 0%  1.21% Buy: Harley Davidson 0%  1.21% Trim: Altria 1.56% .95% Trim: Altria 1.56% .95% Trim: McDonald’s 6.58%  3.25% Trim: McDonald’s 6.58%  3.25% –Overall, Consumer stocks decrease by 1% of portfolio value.

Wal-Mart Business Analysis Catalysts: Catalysts: Wal-Mart’s Business PlanWal-Mart’s Business Plan  Move into rural areas  Supply Chain Management Purchasing PowerPurchasing Power Economies of scaleEconomies of scale SizeSize  Market capitalization

Wal-Mart Financial Analysis Net Income is increasing Free cash flows are increasing by a greater percent than net income

Wal-Mart Financial Analysis ROE is stable Margins are also stable

Wal-Mart Financial Analysis Earnings estimate revisions are stable

Wal-Mart

Wal-Mart Valuation Analysis Both are trending upward

Wal-Mart Recommendation Buy: Wal-Mart 0%  1.73% Buy: Wal-Mart 0%  1.73% Risks: Risks: –Future growth is already priced into stock –International growth may not be successful –May over-diversify their product offerings

Harley Davidson Business Analysis Catalysts: Returns Have Been Increasing and are Projected to ContinueReturns Have Been Increasing and are Projected to Continue High Long-Term Growth Rate EstimatesHigh Long-Term Growth Rate Estimates Mid-life Crisis & Early Retirees (excess cash)Mid-life Crisis & Early Retirees (excess cash)

Harley Davidson Financial Analysis Income Increasing by 33%!!! Free Cash Flow Increasing by 47%!!!! Increased Capital Expenditures

Harley Davidson Financial Analysis Margins have been increasing since 1995 ROE continues to rise

Harley Davidson Financial Analysis Earnings estimates revised to increase 18.72% for 2003

Harley Davidson

Harley Davidson Valuation Analysis Both graphs are trending upward and are off their highs

Harley Davidson Recommendation Buy: Harley Davidson 0%  1.21% Buy: Harley Davidson 0%  1.21% Risks: Risks: –If economy does not recover, sales volume may decline –Money could be spent on a new trend

Altria Business Analysis Catalysts: Catalysts: Pending Future LitigationPending Future Litigation Decrease in Earnings ProjectionsDecrease in Earnings Projections Decrease in Domestic SalesDecrease in Domestic Sales  Pressure from Generics  Fewer New Addicts

Altria Financial Analysis Strong Cash Flows from Operations Losses Due to Litigation  Future Implications

Altria Financial Analysis Strong ROE Due to Leveraged Position Over 70% of Non-Current assets (including good will) are funded by LTD Over 112% of Productive assets (not including good will) funded by LTD Accounting Adjustment Due to Litigation  One Time Expense?

Altria Financial Analysis Earnings revisions have decreased each quarter

Altria

Altria Valuation Analysis Historically Inexpensive Relative to Consumer Staples due to unpredictability of litigation

Altria Recommendation Trim: Altria 1.56% .95% (market weight) Trim: Altria 1.56% .95% (market weight) –See what happens next quarter Risks: Risks: –Favorable Lawsuit Rulings –Foreign Expansion Opportunities

McDonald’s Business Analysis Catalysts: 1. Current growth expected to continue due to new menu items and extended hours 2. Dividend increase and stock repurchase planned for fall Stock is currently undervalued

McDonald’s Financial Analysis Decrease in 2002 net income and free cash flows not indicative of current and future performance

McDonald’s

McDonald’s Financial Analysis First quarter 2003 analytics outperformed 2002

McDonald’s Financial Analysis Since beginning of 2003, revisions estimates have remained steady

McDonald’s Valuation Analysis Stock is currently undervalued

McDonald’s Recommendation Trim: 6.58%  3.25% Trim: 6.58%  3.25% Risks: Risks: –Growth due to company’s revitalizations could be short-lived –Foreign sales could continue to weaken

Recommendation Buy: Wal-Mart 0%  1.73% Buy: Wal-Mart 0%  1.73% Buy: Harley Davidson 0%  1.21% Buy: Harley Davidson 0%  1.21% Trim: Altria 1.56% .95% Trim: Altria 1.56% .95% Trim: McDonald’s 6.58%  3.25% Trim: McDonald’s 6.58%  3.25% –Overall, Consumer stocks decrease by 1% of portfolio value.