Ascendere Weekly Ranking Update -- January 7, 2011 -- Cardinal Health and Marathon Oil Stand Out

8/8/2019 Ascendere Weekly Ranking Update -- January 7, 2011 -- Cardinal Health and Marathon Oil Stand Out

1/19

Ascendere Associates LLC January 7, 2011J. Stephen Castellano Page 1 [email protected]

Ascendere Associates LLC www.ascenderellc.com

J. Stephen Castellano [email protected]

Ascendere Weekly Ranking Update: January 7, 2011Every week, we include in this report a list of the highest quality and lowest quality stocks as defined by four key factors: 1) Relative Value; 2) Operating

Momentum; 3) Analyst Revision Momentum; and 4) Fundamental Quality. At the end of each month, we take roughly 1/3 of the stocks on this list to construct

our various long/short andlong-only model portfolios based on real trade data. But as you can read below, there are several other ways to use this data.

This week 63 stocks make the "high-quality" list versus 65 last week, with 9 additions and 11 deletions. 29 stocks make the "low-quality" list in line with 29 last

week, with5 additions and 4 deletions. There are three very interesting new "high-quality" names this week, including Cardinal Health, Inc. (CAH),

ConocoPhilips (COP) and Marathon Oil Corporation (MRO).

Three ways to use this newsletter:1) Build your own hedge fund

Use data in this report at discretion or as an enhancement to our model portfolio strategy newsletter.

2) Anticipate sell side research ratings changesIt is not uncommon tofind these stocks presaging changes to sell side price targets

, ratings or conviction lists.

3) Generate relevant long-term ideas for further studyBuy and hold still does work. We do the heavy lifting and find you "high-quality" stocks; you provide the incremental research time and effort.

Examples of just a few recent sell side actions that we have presaged since December 31, 2010 1/7/2011 -- T. Rowe Price Group, Inc. (TROW) -- Deutsche Bank raises price target to $65 from $58. 1/7/2011 -- East West Bancorp Inc. (EWBC) -- Goldman Sachs initiated with a Buy rating and $24.50 price target. 1/7/2011 -- Freeport McMoRan Copper & Gold Inc. (FCX) -- Canaccord upgrades to Buy from Hold, raising target to $135 from $98. 1/6/2011 -- PNC Financial Services Group Inc (PNC) -- UBS names the stock a short-term Buy. Nomura initiates coverage of the stock with a Buy rating

and $73 target..
http://www.ascenderellc.com/http://www.ascenderellc.com/mailto:[email protected]:[email protected]://covestor.com/ascendere-associates/systematic-long-onlyhttp://covestor.com/ascendere-associates/systematic-long-onlyhttp://covestor.com/ascendere-associates/systematic-long-onlyhttp://ascenderellc.com/2010/11/21/getting-in-before-sell-side-institutions-follow/http://ascenderellc.com/2010/11/21/getting-in-before-sell-side-institutions-follow/http://ascenderellc.com/2010/11/21/getting-in-before-sell-side-institutions-follow/http://www.ascenderellc.com/http://ascenderellc.com/2010/11/21/getting-in-before-sell-side-institutions-follow/http://covestor.com/ascendere-associates/systematic-long-onlymailto:[email protected]://www.ascenderellc.com/


2/19


Highlighted Stock Ideas

We define quality as relative to four key factors:

1) Relative Value;2) Operating Momentum;3) Analyst Revision Momentum; and4) Fundamental Quality.

Rankings can be somewhat volatile as companies file additional financial data and as relative valuations change; this is especially true during earnings season.

Much of the volatility is noise, which is why frequent rebalancing based on the latest rankings can actually hurt performance.

About 1/3 of these stocks make it to our model portfolios that turnover monthly, but we think some of these stock ideas could work well with average 12-month

holding periods as well.

Our opinion is based on a backtest we conducted back to 12/31/2004 through 9/30/2010, which showed that 12-month returns from stocks on refined list

averaged about 11%, with the highest 12-month returns averaging +95% and the lowest 12-month returns averaging -42%. Deeper fundamental analysis ofstocks on this list might reveal some of the stronger, longer-term ideas.


3/19


"High-Quality" Stocks

This week 64 stocks make the "high-quality" list versus 67 last week, with 5 additions and 8 deletions. 30 stocks make the "low-quality" list, down from 33 last

week, with 1 additions and 4 deletions. There are two very interesting new "high-quality" names this week, including Bed Bath & Beyond, Inc. (BBBY) and Dover

Corp. (DOV). Below are a few additional screens that have shown anecdotal promise but have not been backtested:

High-Five List (5,5,5,5)

New: None

Staying: TRW Automotive Holdings Corp. (TRW), Freeport McMoran Copper & Gold (FCX).

Off: None

High Growth and Borderline Reasonable Value (3,4,5,x)

Stocks attaining high scores in every category are no necessarily the best performers from a stock perspective. We have noticed that a number of GARP

(growth-at-a-reasonable-price) stocks that score 3 for Relative Value, 4 for Operating Momentum and 5 for Analyst Revisions tend to do extremely well. This

may be because the market is anticipating accelerating improvements relative to historical fundamentals.

New: Lear Corp. (LEA)

Staying: Fossil, Inc. (FOSL), Donaldson Company, Inc. (DCI), Parker Hannifin Corporation (PH), Westlake Chemical Corp. (WLK), Huntsman Corporation (HUN).

Off: Dover Corp. (DOV) (3,4,4,4), Magna International Inc. (MGA) (2,4,5,5)

Super Growth and High Quality (2,5,5,5 or 1,5,5,5)

Stocks that maintain the highest possible rankings for every factor but relative value may be well on their way to super growth. Stocks that have previously on

our screens but were removed at much lower stock price levels because of poor relative value include Netflix, Inc. (NFLX), Chipotle Mexican Grill, Inc. Co (CMG)and Apple Inc. (AAPL).

New: IMAX Corporation (IMAX) (2,5,5,5)

Staying: : United Therapeutics Corp. (UTHR), 51job Inc. (JOBS), Cognex Corp. (CGNX), OmniVision Technologies Inc. (OVTI),.

Off: 3D Systems Corp. (TDSC) (1,1,x,x), WebMD Health Corp. (WBMD) (1,5,4,5), Ford Motor Co. (F) (1,5,4,5)


4/19


Cardinal Health, Inc. (CAH)

The company is a $13.5b market cap drug and health care product distribution company, one of the few healthcare companies that have appeared on our list

and so it gets our attention. The stock is trading at 14.7x calendar 2012E EPS of $2.64 and pays a 1.9% dividend yield. The stock $2.7b cash on its balance sheet,

offsetting $2.1b in debt. We have always liked competitor McKesson (MCK) as a strong long-term holding, so it is particularly interesting that CAH is now

appearing back on our "high quality" list shortly prior to MCK, which ranks lower for operating momentum and analyst revision momentum and is trading at ansmall discount to CAH on a PE basis. Cardinal, McKesson and Amerisource Bergen (ABC) are the top three distributors that are expected to benefit from rising

volumes of generic drug. On October 28, Cardinal reported its fiscal first quarter ended September 30. November 11 it announced plans to purchase Kinray, Inc.

a New York City retail drug distributor for $1.3b and a few weeks later it announced plans to purchase a distributor in China for $470m. These follows the closed

purchase of Healthcare Solutions Holdings this past July for $517m. It looks like Cardinal may have regained some of the momentum it lost prior to the spinoff of

its non-core operations in August 2009. It is definitely worth a deeper look. The company is presenting at the J.P. Morgan healthcare conference on January 11;

past presentations including its most recent financial results slide are available on itswebsite.

ConcocoPhilips (COP) and Marathon Oil Corporation (MRO)

Our screens only pick up companies that have a strong and consistent track record in a variety of fundamental metrics. As a result, it is not often that we find

many cyclical companies on our screens. When these companies do appear, we would pay very close attention because industry fundamentals and good

stewardship can lead to further gains. COP and MRO are large-cap integrated Oil and Gas companies, with market caps of $98.6b and $27.4b, respectively. COP

pays a 3.1% dividend yield and MRO a 2.6% yield. Marathon is trading at a slight discount to Conoco and demonstrates better analyst revision momentum, so

we would concentrate our efforts on this idea first. Forecast ROIC for COP looks like it is set to remain in the mid single digits while MRO is forecast to hit the

low double digits next year. While COP looks relatively undervalued and fundamentals are improving, MRO looks like it has more momentum so we could focus

on this name in particular.

Investors looking for large cap energy names should start with these two. Small cap services company RPC, Inc. (RES) still looks attractive on our screens, but a

recent oil services sell off has sent the stock below our $2.5b cut off .
http://ir.cardinalhealth.com/phoenix.zhtml?c=105735&p=irol-audioArchiveshttp://ir.cardinalhealth.com/phoenix.zhtml?c=105735&p=irol-audioArchiveshttp://ir.cardinalhealth.com/phoenix.zhtml?c=105735&p=irol-audioArchiveshttp://ir.cardinalhealth.com/phoenix.zhtml?c=105735&p=irol-audioArchives


5/19


Cardinal Health, Inc.

NYSE:CAH

Healthcare

Healthcare Distributors

Ascendere Ranking Price 01/07/11 38.80 Cash (2,712) EV/LTM EBITDA 7.7Shares 349 Debt 2,140 Price/Book 2.6

Market Cap 13,540 Other (0)

5 = Best Rank Enterprise Value 12,967

Relative Value 3

Operating Momentum 4 CY1 Consensus EPS Est. 2.36$ CY1 PE 16.4 Total Capital 7,379$

Analyst Revisions Mom 4 CY2 Consensus EPS Est. 2.64$ CY2 PE 14.7 Debt/Capital -8%

Fundamental Quality 5 Latest Annualized Dividend 0.78$ Div Yield 1.9% Debt/Enterprise Value 17%

Source: Capital IQ data and estimates , and Ascendere Associates LLC data and estimates.

Cardinal Health, Inc. Esti ma te Estima te Esti ma te Estima te Esti ma te

NYSE:CAH 12/31/11 9/30/11 6/30/11 3/31/11 12/31/10 9/30/10 6/30/10 3/31/10 12/31/09 9/30/09

NOPLAT 1,036 1,004 989 964 946 936 841 952 936 799

Economic Charge 383 388 391 393 398 402 408 491 538 500

Economic Profit 653 617 598 571 548 534 433 461 398 299

Sequential growth 6% 3% 5% 4% 2% 23% -6% 16% 33% 234%

NOPLAT 1,036 1,004 989 964 946 936 841 952 936 799

Operating Capital 6,373 6,443 6,493 6,527 6,614 6,676 6,449 6,923 7,691 7,938

ROIC (NOPLAT / Operating C 16.0% 15.3% 15.1% 14.5% 13.8% 13.1% 10.0% 9.9% 8.6% 6.7%

Sequential growth 4% 2% 4% 5% 5% 31% 1% 15% 28% -3%

# EBIT Forecasts 7 7 15 16 16

EBIAT Trailing 12 months 1,021 990 992 960 931 915 543 590 613 600

Depreciation 274 273 272 264 265 257 254 251 236 245

Capital Spending, recurring (252) (252) (254) (308) (302) (281) (256) (359) (358) (388)

Working Capital Investment 219 212 20 82 592 729 7,010 2,442 2,053 1,557

Free cash flow to the entity 1,262 1,223 1,031 999 1,486 1,620 7,551 2,925 2,544 2,014

Source: Capital IQ data and estimates, A scendere As sociates data and estimates.


6/19


Cardinal Health, Inc. Price 38.8CAH NTM EPS 2.54$

Healthcare NTM PE 15.3

Healthcare Distributors R/R 0.4 to 1

Max up to ten years Three years One year One year historically implied target range

01/08/01 to 01/10/11 01/14/08 to 01/10/11 01/11/10 to 01/10/11 NTM EPS Target 38.80$

Max PE 31.7 06/18/01 Max PE 31.7 06/18/01 Max PE 16.0 01/18/10 Max EPS 2.69$ 43$ 11%

Average PE 17.2 Average PE 17.2 Average PE 14.4 Average EPS 2.54$ 37$ -6%

Min PE 7.9 12/01/08 Min PE 7.9 12/01/08 Min PE 12.3 08/30/10 Min EPS 2.36$ 29$ -25%

Source: Capital IQ data and estimates, As cendere As sociates data and estimates.

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Price / Earnings (NTM) vs. Stock Price

P/E Average +1 St. Dev. -1 St. Dev. Stock Price


7/19


ConocoPhillips

NYSE:COP

Energy

Integrated Oil and Gas

Ascendere Ranking Price 01/07/11 67.11 Cash (10,862) EV/LTM EBITDA 4.7Shares 1,469 Debt 28,779 Price/Book 1.4

Market Cap 98,600 Other 556


Relative Value 5


Analyst Revisions Mom 4 CY2 Consensus EPS Est. 6.40$ CY2 PE 10.5 Debt/Capital 18%


Source: Capital IQ data and estimates, and Ascendere Associates LLC data and estimates.

ConocoPhillips Estimate Estimate Estimate Estimate Estimate

NYSE:COP 12/31/11 9/30/11 6/30/11 3/31/11 12/31/10 9/30/10 6/30/10 3/31/10 12/31/09 9/30/09

NOPLAT 7,494 7,324 6,956 6,790 6,686 6,336 10,563 6,804 5,073 (30,096)

Economic Charge 8,544 8,534 8,518 8,492 8,450 8,387 8,901 9,853 9,943 9,411

Economic Profit (1,049) (1,210) (1,562) (1,703) (1,764) (2,051) 1,662 (3,049) (4,870) (39,507)

Sequential growth -13% -23% -8% -3% -14% -223% -155% -37% -88% 13%

NOPLAT 7,494 7,324 6,956 6,790 6,686 6,336 10,563 6,804 5,073 (30,096)


ROIC (NOPLAT / Operating 6.4% 6.3% 5.9% 5.7% 5.5% 5.1% 8.4% 5.4% 4.0% -23.0%

Sequential growth 2% 6% 4% 3% 8% -39% 56% 33% -118% 20%


EBIAT Trailing 12 months 9,923 9,694 9,152 9,233 8,850 7,971 7,231 5,406 4,339 7,295

Depreciation 11,581 11,060 10,318 11,284 10,953 10,835 10,834 9,383 9,295 9,168

Capital Spending, recurring (12,841) (13,143) (12,207) (10,989) (9,833) (9,056) (9,363) (10,026) (10,861) (16,740)

Working Capital Investment (37) 60 596 (35) (366) 268 556 69 (427) (1,383)

Free cash flow to the entity 8,626 7,671 7,858 9,493 9,604 10,018 9,258 4,832 2,346 (1,660)

Source: Capital IQ data and estimates, Asc endere Associates data and es timates.


8/19


ConocoPhillips Price 67.11COP NTM EPS 6.18$

Energy NTM PE 10.9

Integrated Oil and Gas R/R 0.7 to 1




Average PE 9.3 Average PE 9.3 Average PE 8.9 Average EPS 6.18$ 55$ -18%


Source: Capital IQ data and estimates, Ascendere Assoc iates data and estimates.

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9/19


Marathon Oil Corporation

NYSE:MRO

Energy

Integrated Oil and Gas

Ascendere Ranking Price 01/07/11 38.63 Cash (1,643) EV/LTM EBITDA 4.5Shares 710 Debt 7,942 Price/Book 1.2

Market Cap 27,424 Other -


Relative Value 5


Analyst Revisions Mom 5 CY2 Consensus EPS Est. 4.33$ CY2 PE 8.9 Debt/Capital 20%


Source: Capital IQ data and estimates , and Ascendere Associates LLC data and estimates.

Marathon Oil Corporati Estimate Estimate Estimate Estimate Estimate

NYSE:MRO 12/31/11 9/30/11 6/30/11 3/31/11 12/31/10 9/30/10 6/30/10 3/31/10 12/31/09 9/30/09

NOPLAT 4,085 3,895 3,664 3,744 2,931 2,666 3,478 2,612 1,907 1,195

Economic Charge 2,451 2,442 2,429 2,409 2,382 2,331 2,266 2,441 2,458 2,542

Economic Profit 1,634 1,453 1,235 1,336 550 335 1,212 171 (551) (1,347)

Sequential growth 12% 18% -8% 143% 64% -72% 610% -131% -59% -301%

NOPLAT 4,085 3,895 3,664 3,744 2,931 2,666 3,478 2,612 1,907 1,195


ROIC (NOPLAT / Operating 11.2% 10.8% 10.3% 10.7% 8.4% 7.7% 9.9% 7.4% 5.4% 3.4%

Sequential growth 4% 5% -4% 26% 10% -23% 34% 38% 59% -64%


EBIAT Trailing 12 months 2,826 2,693 2,592 2,757 2,193 1,826 1,538 870 1,064 694

Depreciation 3,440 3,354 3,212 3,046 3,316 3,174 3,039 3,046 2,623 2,604

Capit al Spending, recurring (4, 922) (5,253) (5,100) (4,975) (5,049) (5,515) (5,928) (6,392) (6,630) (6,676)

Working Capital Investment 436 218 (442) (604) (698) (463) (45) (71) 18 (62)

Free cash flow to the entity 1,779 1,012 262 223 (237) (979) (1,395) (2,547) (2,925) (3,440)

Source: Capital IQ data and estimates, As cendere As sociates data and es timates.


10/19


Marathon Oil Corporatio Price 38.63MRO NTM EPS 4.46$

Energy NTM PE 8.7

Integrated Oil and Gas R/R 1.6 to 1




Average PE 9.3 Average PE 9.3 Average PE 8.6 Average EPS 4.46$ 39$ 0%


Source: Capital IQ data and estimates, Asc endere Ass ociates data and estimates.

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11/19


Data


12/19


"High-Quality" Stocks (part 1 of 2)

High Quality Stocks

January 7, 2011 January 7, 2011

Sector Base Long Portfolio Ticker

Market

Cap Price 1yr Beta

1yr

Volatility

Annualized

3-Month

Volatility

Relative

Value

Operating

Momentum

Analyst

Revisions

Momentum

Fundament

al Quality

Consumer Discre tionary TRW Automoti ve Hol di ngs Cor TRW 6,783 56.15 1.90 44.0% 29.8% 5 5 5 5

Consumer Discretionary Autoliv, Inc. ALV 7,097 80.00 1.48 30.8% 24.6% 4 5 4 4

Consumer Discretionary Ross Stores Inc. ROST 7,615 63.95 0.67 22.8% 21.8% 5 4 5 5

Consumer Discretionary AutoZone Inc. AZO 10,977 250.67 0.23 14.7% 15.9% 5 4 5 5

Consumer Discretionary Macy's, Inc. M 9,871 23.31 1.35 37.9% 27.6% 4 4 4 4

Consumer Discretionary Advance Auto Parts Inc. AAP 5,201 61.88 0.07 22.9% 20.4% 5 4 4 5

Consumer Discretionary Williams-Sonoma Inc. WSM 3,596 34.21 1.30 38.6% 35.3% 4 4 4 5

Consumer Discretionary Limited Brands, Inc. LTD 9,251 28.68 1.08 29.7% 30.7% 4 4 4 5

Consumer Discretionary Dollar Tree, Inc. DLTR 6,488 51.81 0.06 21.9% 23.3% 4 3 4 5

Consumer Discretionary Lear Corp. LEA 5,375 105.80 1.32 32.2% 21.5% 3 4 5 5

Consumer Discretionary Fossil, Inc. FOSL 4,677 71.90 1.59 38.5% 28.8% 3 4 5 4

Consumer Discretionary Bed Bath & Beyond, Inc. BBBY 12,388 48.63 1.14 26.8% 20.4% 4 3 5 5Consumer Discretionary Sally Beauty Holdings Inc. SBH 2,550 13.93 1.14 35.6% 35.6% 4 3 4 5

Consumer Discretionary Tractor Supply Company TSCO 3,433 47.09 1.18 26.9% 22.7% 4 3 4 4

Consumer Discretionary Starbucks Corporation SBUX 24,293 32.78 1.11 24.8% 25.3% 3 3 4 5

Consumer Staples Tyson Foods Inc. TSN 6,385 16.93 0.62 28.2% 32.4% 5 5 4 5

Consumer Staples Hormel Foods Corp. HRL 6,615 49.69 0.24 12.4% 12.1% 4 4 5 5

Consumer Staples Herbalife Ltd. HLF 4,099 69.19 1.08 27.6% 19.8% 5 3 4 5

Consumer Staples Smithfield Foods Inc. SFD 3,226 19.43 0.84 37.2% 34.9% 3 5 4 4

Energy China Petroleum & Chemical C SNP 102,968 99.04 0.71 24.2% 30.2% 5 5 5 4

Energy ConocoPhillips COP 98,600 67.11 1.26 25.9% 17.1% 5 3 4 5

Energy Marathon Oil Corporation MRO 27,424 38.63 0.95 23.7% 20.9% 5 3 5 4

Financials CIT Group, Inc. CIT 9,526 47.57 1.04 32.4% 25.5% 5 5 5 5

Financials Sumitomo Mitsui Financial Gro SMFG 48,940 7.01 0.79 26.4% 29.1% 5 5 5 4

Financials Canadian Imperial Bank of ComCM 30,563 77.90 0.93 25.9% 19.7% 4 5 5 4

Financials PNC Financial Services Group I PNC 32,568 61.94 1.43 33.1% 24.9% 4 4 4 4

Financials New York Community Bancorp NYB 8,115 18.63 0.71 20.7% 15.5% 3 5 4 5

Financials Bank of Montreal BMO 33,266 58.72 0.87 25.5% 24.0% 4 4 4 4

Financials Waddell & Reed Financial Inc. WDR 3,010 35.25 1.74 36.4% 27.7% 4 3 5 4

Financials Brookfield Properties Corporat BPO 8,652 17.22 1.22 27.7% 22.2% 4 3 4 5

Financials Franklin Resources Inc. BEN 25,018 111.69 1.34 28.0% 22.0% 4 3 5 5

Financials T. Rowe Price Group, Inc. TROW 16,573 64.63 1.37 26.1% 23.1% 3 3 4 4


13/19


"High-Quality" Stocks (part 2 of 2)

High Quality Stocks



Market

Cap Price 1yr Beta

1yr

Volatility

Annualized

3-Month

Volatility

Relative

Value

Operating

Momentum

Analyst

Revisions

Momentum

Fundament

al Quality

Financials M&T Bank Corp. MTB 10,364 86.82 1.05 33.3% 22.8% 3 3 5 5

Financials BOK Financial Corp. BOKF 3,607 52.98 0.96 25.5% 22.7% 3 3 5 4

Healthcare Cardinal Health, Inc. CAH 13,540 38.80 0.50 20.0% 20.7% 3 4 4 5

Healthcare Biogen Idec Inc. BIIB 16,057 67.38 0.48 19.4% 18.0% 4 4 4 4

Industrials United Continental Holdings, I UAL 8,498 25.95 1.66 53.8% 37.3% 5 5 4 4

Industrials Nordson Corporation NDSN 3,113 91.62 1.43 31.5% 25.2% 5 5 5 4

Industrials Avery Dennison Corporation AVY 4,424 40.98 1.37 33.9% 20.6% 4 4 4 4

Industrials Union Pacific Corporation UNP 46,938 95.18 1.26 25.3% 19.3% 4 4 4 4

Industrials CSX Corp. CSX 25,366 67.79 1.50 30.3% 19.8% 4 4 4 4

Industrials W.W. Grainger, Inc. GWW 9,158 132.60 1.01 22.5% 16.8% 4 3 4 5

Industrials Donaldson Company, Inc. DCI 4,457 58.28 1.09 24.1% 20.5% 3 4 5 4Industrials Dover Corp. DOV 10,720 57.39 1.56 31.9% 19.8% 3 4 4 4

Industrials Parker Hannifin Corporation PH 13,883 86.05 1.40 28.7% 20.2% 3 4 5 4

Industrials MSC Industrial Direct Co. Inc. MSM 3,847 60.67 1.19 25.6% 21.3% 3 3 4 4

Industrials Canadian National Railway Co CNI 31,111 67.54 0.84 23.6% 18.5% 3 3 5 5

Information Technology Lam Research Corporation LRCX 5,805 47.20 1.28 34.1% 30.1% 5 5 4 5

Information Technology Varian Semiconductor EquipmeVSEA 2,768 37.42 1.34 35.3% 30.3% 4 4 4 4

Information Technology Tyco Electronics, Ltd. TEL 15,631 35.23 1.19 29.0% 22.6% 4 4 5 4

Information Technology Avnet Inc. AVT 4,992 32.85 1.51 31.3% 23.3% 4 3 5 4

Information Technology Taiwan Semiconductor ManufaTSM 64,051 13.07 0.77 22.2% 24.0% 5 3 5 4

Information Technology Altera Corp. ALTR 11,315 36.20 1.05 28.3% 23.5% 4 4 4 5

Information Technology STMicroelectronics NV STM 9,567 10.86 1.19 33.0% 30.9% 3 3 5 5

Materials Freeport-McMoRan Copper & GFCX 55,328 117.47 2.14 46.5% 34.4% 5 5 5 5

Materials LyondellBasell Industries AF S. LYB 19,545 34.62 1.28 0.0% 27.7% 4 5 5 5

Materials Westlake Chemical Corp. WLK 2,813 42.50 2.39 50.6% 30.3% 3 4 5 5

Materials Sappi Limited SPP 2,641 5.16 0.69 39.0% 29.8% 4 3 5 4

Materials Albemarle Corp. ALB 5,007 54.68 1.46 31.7% 19.2% 3 4 4 5

Materials Sigma-Aldrich Corporation SIAL 7,864 64.83 1.12 23.6% 17.2% 3 3 4 4

Materials Huntsman Corporation HUN 3,826 16.18 1.51 40.2% 33.5% 3 4 5 4

Materials EI DuPont de Nemours & Co. DD 45,426 49.76 1.35 26.4% 17.1% 3 3 4 5

Telecommunication Services Vivo Participacoes S.A. VIV 17,954 34.02 0.64 36.1% 26.9% 3 5 5 5


14/19


"Low-Quality" Stocks

Low-Quality Stocks

January 7, 2011 May 14, 2010

Sector Base Short Portfolio

Market

Cap Price 1yr Beta

1yr

Volatility

Annualized

3-Month

Volatility

Relative

Value

Operating

Momentum

Analyst

Revisions

Momentum

Fundament

al Quality

Consumer Discre tionary Dre amWorks Animati on SKG In D WA 2,504 29.72 0.70 33.1% 23.8% 1 1 1 2

Consumer Discretionary Harley-Davidson, Inc. HOG 8,597 36.50 2.15 43.9% 27.4% 1 1 2 1

Energy Range Resources Corporation RRC 7,343 45.87 1.41 39.8% 28.5% 1 2 1 2

Energy Enerplus Corporation ERF 5,588 31.29 1.02 27.4% 24.3% 2 2 1 1

Energy Compagnie Gnrale de GophCGV 4,478 29.45 1.76 52.5% 47.2% 2 1 1 1

Energy EOG Resources, Inc. EOG 23,944 94.26 1.06 31.2% 28.1% 2 1 1 1

Energy Tidewater Inc. TDW 2,822 54.91 1.29 29.0% 22.2% 2 1 1 1

Energy Massey Energy Co. MEE 5,730 56.11 2.61 61.5% 36.7% 1 1 1 1

Energy Pride International Inc. PDE 5,644 32.12 1.76 39.5% 27.4% 1 1 1 1

Energy Regency Energy Partners LP RGNC 3,787 27.60 0.74 26.2% 15.9% 1 1 2 1

Financials TD AMERITRADE Holding Corpo AMTD 11,272 19.65 0.95 24.3% 18.9% 2 1 1 1

Financials BB & T Corp. BBT 18,266 26.33 1.09 31.0% 30.3% 2 1 2 1

Financials Banco Santander (Brasil) S.A. BSBR 50,132 12.93 1.33 40.4% 33.0% 2 1 1 1

Financials ProLogis PLD 8,171 14.36 1.70 40.3% 30.2% 1 1 1 1

Financials KB Financial Group, Inc. KB 18,140 52.80 1.19 37.6% 33.9% 1 2 1 2

Healthcare Alere Inc. ALR 3,258 38.40 0.60 33.4% 22.0% 2 2 2 2

Healthcare Covance Inc. CVD 3,264 50.33 0.75 40.0% 25.2% 2 1 1 2

Healthcare Qiagen NV QGEN 4,498 19.32 0.69 23.6% 23.5% 1 1 1 1

Healthcare Genzyme Corp. GENZ 18,489 71.39 0.58 29.6% 8.9% 1 1 1 1

Industrials Bucyrus International Inc. BUCY 7,290 89.98 2.08 55.9% 57.3% 2 1 2 1

Information Technology Equinix, Inc. EQIX 3,779 82.17 0.93 44.2% 26.8% 2 2 1 1

Information Technology Genpact Ltd. G 3,332 15.10 0.96 29.6% 28.9% 2 2 1 1Information Technology Concur Technologies, Inc. CNQR 2,805 53.53 1.01 27.0% 23.6% 1 1 1 2

Informati on Technol ogy Al li ance Data Systems Corporat ADS 3,702 71.20 1.39 34.2% 25.3% 1 1 2 1

Materials Martin Marietta Materials Inc. MLM 3,716 81.62 1.01 28.1% 25.5% 2 1 1 1

Materials CEMEX, S.A.B. de C.V. CX 10,762 10.76 2.00 43.9% 35.3% 2 1 1 1

Materials Randgold Resources Ltd. GOLD 7,228 79.31 0.62 31.5% 26.8% 1 1 1 1

Materials Harmony Gold Mining Co. Ltd. HMY 4,986 11.50 0.55 34.9% 35.0% 1 1 1 1

Utilities TransAlta Corp. TAC 4,710 21.36 0.77 24.9% 16.3% 1 1 2 1


15/19


New to the "High-Quality" List Relative to Last Week

Leaving the "High-Quality" List Relative to Last Week

High Quality Stocks



Market

Cap Price 1yr Beta

1yr

Volatility

Annualized

3-Month

Volatility

Relative

Value

Operating

Momentum

Analyst

Revisions

Momentum

Fundament

al Quality

Consumer Discretionary Ross Stores Inc. ROST 7,615 63.95 0.67 22.8% 21.8% 5 4 5 5

Consumer Staples Smithfield Foods Inc. SFD 3,226 19.43 0.84 37.2% 34.9% 3 5 4 4

Energy ConocoPhillips COP 98,600 67.11 1.26 25.9% 17.1% 5 3 4 5

Energy Marathon Oil Corporation MRO 27,424 38.63 0.95 23.7% 20.9% 5 3 5 4

Financials New York Community Bancorp NYB 8,115 18.63 0.71 20.7% 15.5% 3 5 4 5

Financials Brookfield Properties Corporat BPO 8,652 17.22 1.22 27.7% 22.2% 4 3 4 5

Healthcare Cardinal Health, Inc. CAH 13,540 38.80 0.50 20.0% 20.7% 3 4 4 5

Industrials CSX Corp. CSX 25,366 67.79 1.50 30.3% 19.8% 4 4 4 4

Industrials MSC Industrial Direct Co. Inc. MSM 3,847 60.67 1.19 25.6% 21.3% 3 3 4 4

January 7, 2011

Sector Off the long idea list Ticker Market Cap Price 1yr Beta

1yr

Volatility

Annualized

3-Month

Volatility

Relative

Value

Operating

Momentum

Analyst

Revisions

Momentum

Fundamental

Quality

Consumer Discretionary Magna International , Inc. MGA 14,421 59.71 0.45 32.5% 28.8% 2 4 5 5

Energy RPC Inc. RES 2,484 16.77 1.54 51.7% 52.1% 4 5 5 5

Energy Ultrapar Holdings Inc. UGP 5,371 63.5 0.54 22.8% 21.5% 4 4 1 5

Financials Ares Capital Corporation ARCC 3,216 16.7 1.28 29.6% 19.6% 5 5 3 4

Financials East West Bancorp, Inc. EWBC 2,990 20.205 1.64 40.3% 28.0% 5 5 2 5

Financials Banco Santander-Chile SAN 16,049 87.42 0.75 26.2% 23.6% 5 4 1 5

Financials Mitsubishi UFJ Financial Gr MTU 75,589 5.31 0.72 23.2% 25.5% 3 5 1 4

Financials Banco de Chile BCH 12,275 89.97 0.59 27.9% 24.2% 5 3 1 5

Industrials Nidec Corp. NJ 14,692 26.2 0.75 24.4% 27.1% 3 5 1 4

Information Technology Analog Devices Inc. ADI 11,226 37.59 0.97 26.7% 19.6% 4 3 3 5

Information Technology Microchip Technology Inc. MCHP 0.92 21.4% 18.8% 3 4 3 5


16/19


New to the "Low-Quality" List Relative to Last Week

Moving Off the "Low-Quality" List Relative to Last Week

Low-Quality Stocks

January 7, 2011 May 14, 2010

Sector Base Short Portfolio

Market

Cap Price 1yr Beta

1yr

Volatility

Annualized

3-Month

Volatility

Relative

Value

Operating

Momentum

Analyst

Revisions

Momentum

Fundament

al Quality

Consume r Discre ti onary Dre amWorks Ani mation SKG In D WA 2,504 29.72 0.70 33.1% 23.8% 1 1 1 2

Energy Enerplus Corporation ERF 5,588 31.29 1.02 27.4% 24.3% 2 2 1 1

Energy Massey Energy Co. MEE 5,730 56.11 2.61 61.5% 36.7% 1 1 1 1

Financials BB & T Corp. BBT 18,266 26.33 1.09 31.0% 30.3% 2 1 2 1

Financials Banco Santander (Brasil) S.A. BSBR 50,132 12.93 1.33 40.4% 33.0% 2 1 1 1

January 7, 2011

Sector Off the short idea list Ticker Market Cap Price 1yr Beta

1yr

Volatility

Annualized

3-Month

Volatility

Relative

Value

Operating

Momentum

Analyst

Revisions

Momentum

Fundamental

Quality

Energy TransCanada Corp. TRP 25,816 37.13 0.57 19.6% 15.4% 2 2 3 1

Energy Weatherford International WFT 16,586 22.37 1.96 46.3% 33.3% 1 1 2 1

Healthcare Express Scripts Inc. ESRX 29,646 56.25 0.79 25.1% 22.9% 2 1 1 2Materials Packaging Corp. of America PKG 2,821 27.51 1.31 31.4% 22.9% 2 1 2 1

Materials Monsanto Co. MON 38,530 71.79 0.90 35.7% 26.8% 2 2 5 1


17/19


METHODOLOGYAscendere Associates LLC quantitative research is based on several factors, including: 1) operating momentum 2) fundamental quality 3) analyst revision

momentum; and 4) relative value. A number of these factors are overweighted on what we consider proxies for cash flow growth and return on invested capital.

In our opinion these factors provide a good reflection of a company's value relative to other companies in its sector. Daily return data of our backtests are

available to paying subscribers upon request. Ascendere currently sources raw financial data from Capital IQ.

In our opinion, cash flow growth and return on invested capital are the key drivers of any stock's valuation. By focusing on various proxies for these data pointsand other factors such as relative value, we have been able to generate some terrific investment ideas and avoid some significant value traps over our career in

sell side and buy side equity research.

For those interested in learning more about determining a company's value as it relates to ROIC, we recommend reading McKinsey & Company's "Valuation:

Measuring and Managing the Value of Companies" or "The Value Sphere: The Corporate Executives' Handbook for Creating and Retaining Shareholder Wealth."

We also find the newsletters produced byMichael Mauboussin, the Chief Investment Strategist at Legg Mason Capital Management, an excellent source of

information as it relates to determining the value of companies.
http://rcm.amazon.com/e/cm?lt1=_blank&bc1=000000&IS2=1&bg1=FFFFFF&fc1=000000&lc1=0000FF&t=reflectionone-20&o=1&p=8&l=as1&m=amazon&f=ifr&md=10FE9736YVPPT7A0FBG2&asins=0470424702http://rcm.amazon.com/e/cm?lt1=_blank&bc1=000000&IS2=1&bg1=FFFFFF&fc1=000000&lc1=0000FF&t=reflectionone-20&o=1&p=8&l=as1&m=amazon&f=ifr&md=10FE9736YVPPT7A0FBG2&asins=0470424702http://rcm.amazon.com/e/cm?lt1=_blank&bc1=000000&IS2=1&bg1=FFFFFF&fc1=000000&lc1=0000FF&t=reflectionone-20&o=1&p=8&l=as1&m=amazon&f=ifr&md=10FE9736YVPPT7A0FBG2&asins=0470424702http://rcm.amazon.com/e/cm?lt1=_blank&bc1=000000&IS2=1&bg1=FFFFFF&fc1=000000&lc1=0000FF&t=reflectionone-20&o=1&p=8&l=as1&m=amazon&f=ifr&md=10FE9736YVPPT7A0FBG2&asins=0470424702http://rcm.amazon.com/e/cm?lt1=_blank&bc1=000000&IS2=1&bg1=FFFFFF&fc1=000000&lc1=0000FF&t=reflectionone-20&o=1&p=8&l=as1&m=amazon&f=ifr&md=10FE9736YVPPT7A0FBG2&asins=9814277967http://rcm.amazon.com/e/cm?lt1=_blank&bc1=000000&IS2=1&bg1=FFFFFF&fc1=000000&lc1=0000FF&t=reflectionone-20&o=1&p=8&l=as1&m=amazon&f=ifr&md=10FE9736YVPPT7A0FBG2&asins=9814277967http://rcm.amazon.com/e/cm?lt1=_blank&bc1=000000&IS2=1&bg1=FFFFFF&fc1=000000&lc1=0000FF&t=reflectionone-20&o=1&p=8&l=as1&m=amazon&f=ifr&md=10FE9736YVPPT7A0FBG2&asins=9814277967http://lmcm.com/differentiated_thinking/tlf_archive.aspxhttp://lmcm.com/differentiated_thinking/tlf_archive.aspxhttp://lmcm.com/differentiated_thinking/tlf_archive.aspxhttp://lmcm.com/differentiated_thinking/tlf_archive.aspxhttp://rcm.amazon.com/e/cm?lt1=_blank&bc1=000000&IS2=1&bg1=FFFFFF&fc1=000000&lc1=0000FF&t=reflectionone-20&o=1&p=8&l=as1&m=amazon&f=ifr&md=10FE9736YVPPT7A0FBG2&asins=9814277967http://rcm.amazon.com/e/cm?lt1=_blank&bc1=000000&IS2=1&bg1=FFFFFF&fc1=000000&lc1=0000FF&t=reflectionone-20&o=1&p=8&l=as1&m=amazon&f=ifr&md=10FE9736YVPPT7A0FBG2&asins=0470424702http://rcm.amazon.com/e/cm?lt1=_blank&bc1=000000&IS2=1&bg1=FFFFFF&fc1=000000&lc1=0000FF&t=reflectionone-20&o=1&p=8&l=as1&m=amazon&f=ifr&md=10FE9736YVPPT7A0FBG2&asins=0470424702


18/19


DISCLOSURESAscendere is in the business of providing equity research and related consulting services to investors and their advisors. The equity research it provides includes

basic quantitative model portfolios and more detailed fundamental research with respect to individual stocks. In addition, the firm manages stock portfolios for

itself and clients.

Ascendere does not rate stocks on any scale, but does offer individual stock commentary and valuation opinions. With regard to Ascendere's portfolio

strategies, "long" or "high-quality" baskets should generally be considered buys, unless otherwise noted. Stocks in our "short" or "low-quality" baskets shouldgenerally be considered sells, unless otherwise noted. While exceptions may occasionally occur, typically stocks in the high-quality basket are expected to

outperform the S&P 500 over a month's time and stocks in the low-quality basket are expected to underperform. A more relevant benchmark would comprise

of all stocks and ADRs that trade on major U.S. stock exchanges with a market cap above $2 billion.

Ascendere adheres to professional standards and abides by codes of ethics that put the interests of clients ahead of its own. The following are specific

disclosures made by Ascendere:

1) Ascendere may have a financial interest in the companies referred to in this report ("the Companies"). The research analyst covering the Companies

and members of the analyst's immediate family have a financial interest in one or more of the Companies.

2) Ascendere generates revenue from research subscription revenue and portfolio management fees. At any given time it may be long or short any of

the Companies.

3) Ascendere does not make a market in the securities of any of the Companies.

4) Ascendere has not received compensation from the Companies.

5) Ascendere has not managed or co-managed a public offering for any of the Companies.

6) Neither Ascendere nor any of its officers or any family member of the covering analyst serve as an officer, director or advisory board member of any

of the Companies.

7) Neither Ascendere nor any of its officers or any family member of the covering analyst beneficially own 1% or more of any class of securities of any of

the Companies.

8) The covering analyst certifies that this report accurately reflects such analyst's personal views.


19/19


DISCLAIMERSThis report is intended for informational purposes only and does not constitute a recommendation, or an offer, to buy or sell any securities or related financial

instruments. The report is not intended to be in furtherance of the specific investment objectives, financial situation, or particular needs of any individual

recipient. The information contained herein accurately reflects the opinion of Ascendere at the time the report was released. The opinions of Ascendere are

subject to change at any time without notice and without obligation or notification. The officers, affiliates or family members of Ascendere Associates may hold

positions in the securities of the Companies. No warranty is made as to the accuracy of the information contained herein. This information is intended for the

sole use of clients of Ascendere. Any other use, distribution or reproduction is strictly prohibited. Investing in stocks includes a high degree of risk, including therisk of total loss.

Documents

Ascendere Weekly Ranking Update -- January 7, 2011 -- Cardinal Health and Marathon Oil Stand Out