Student managed investment fund

Operations Community Banking The Community Banking segment offers a line of diversified financial products and services for consumers and small businesses, including checking and savings

Investment Fund

Menlo College

Table of Contents

Introduction 1

Fund Objective 2

Fund Structure 2

Research Resources 3

Valuation Models 4

Economic Overview and Sector Analysis 5

Financials 6

Information Technology 6

Healthcare 6

Consumer Discretionary 7

Consumer Staples 7

Industrials 8

Energy 8

Utilities 8

Telecommunication Services 9

Materials 9

Fund Allocation 9

Fund Performance 11

Signature 15

Appendix A: Individual Stock Reports 17

Wells Fargo 19

JPMorgan Chase & Co 29

Morgan Stanley 39

Red Hat Inc 49

Alphabet Inc 61

Cognizant Technology Solutions 71

Texas Instruments 81

Pfizer 91

Cerner 101

Jazz Pharmaceuticals 112

Amazon Inc 121

Netflix Inc 129

The Hershey Company 135

Reynolds American 147

The Coca-Cola Company 159

Southwest Airlines 171

Boeing 178

General Electric 187

Exxon Mobile 195

Southern Company 205

AT&T 215

T-Mobile 223

Menlo College, Atherton CA 94027

Introduction

We would like to announce the creation of the spring 2016 student managed investment fund

at Menlo College Our active portfolio is already outperforming the benchmark index S&P 500

in the short duration of its existence It is expected to significantly outperform over the 3 to 5 year time horizon due to a Sharpe Ratio of 1.09 as compared to 0.57 for S&P 500

Figure1: Performance Since Inception

As a class, four teams were responsible for the functional areas of Administration,

Economics, Research, and Accounting The fund construction process began mid-January and

has resulted in a well-diversified portfolio using a mix of traditional and modern portfolio

theories The traditional portfolio theory allowed us to use a mixture of different sectors

consisting of Consumer Discretionary, Health, Consumer Staples, Industrials, Financial & IT, Energy, Telecom and Utilities The modern portfolio theory allowed us to use a scientific

approach to assigning weights to individual stocks with in their sectors The student investment fund class has turned out to be an excellent experience for all of us In just a few months we have been able to witness firsthand the volatility of the market, in our gains and losses

Fund Objective

To outperform the S&P 500 over the 3-5 year time horizon

Fund Structure

Our fundamental rationale was to create a college endowment fund with a favorable

risk-adjusted return profile To construct an “optimal” portfolio, we went through three major steps

• We used Fidelity’s recommended portfolio weights on the different sectors as a base for determining appropriate weights for each sector After that, we used the following

guidelines, largely borrowed from S&P 500, to select potential stocks:

- Our portfolio will only include large cap companies ( > 5.6B Market Cap)

- The maximum weight allocation on a single stock will be 7%.


- We will only be using companies based in the United States within our portfolio

- The companies that we choose must have had a positive earnings accumulated

over the past 4 quarters.


- The investment horizon that we decided for this fund will be a 3 to 5 years

- Our budget consists of 10 Million dollars (hypothetical) to invest in the whole

portfolio 


- We have decided to leave 40% in cash in order to capitalize on attractive future

opportunities, which in the meantime, will be invested in treasury bills

• After assigning weights to the industries, we made our stock picks using Fundamental Analysis This involved both qualitative and quantitative analysis The analysis included analysts’ reports and recommendations, ratio analysis using financial statements over the past five years as well as the comparison with the industry averages This process was followed by stock valuation (intrinsic value) using a variable dividend growth rate model

to find a mix of securities, in which their associated alphas and systematic risks generate the best possible risk-expected return profile from active management We use Sharpe Ratio as the portfolio measurement tool relative to S&P 500 The Sharpe Ratio reflects the ratio of total excess returns over the risk free rate to the total risk (or standard

deviation) of returns

Research Resources

The formulation of our portfolio is the result of the aggregation and analysis of widely used company information and data points The goal of this course is to create an investment vehicle The age-old adage that states “garbage in, gives you garbage out” has weighed heavily

in the evaluation and selection of our data sources, and provided the foundation on which each stock analysis relies That being said, we have utilized the resources available to us provided by Menlo College and those with which we are able to access free of charge

Our resource selection process required evaluating each source independently after first canvassing databases linked to the Menlo College Library page, then utilizing providers sourced from financial articles and investment manager presentations After the short-list of approved sources had been formed, we proceeded to check all available data points that would meet our ratio analysis and stock valuation criteria Once the list was vetted, we worked with the Menlo College Library Webmaster to create our own course research page which contained all pertinent sources for our class The page can be accessed through this link:

Investments website We originally used this resource to gather our sector weight analysis information when setting our benchmark comparison, and also to gather industry averages for specific financial ratios This tool was also useful in locating public companies that met our vetting criteria

All of the resources listed above were very informative and free besides the Mergent subscription, which is available through Menlo College In the future, the Student Investment Fund Analysts would benefit from access to the Bloomberg Terminal

(http://www.bloomberg.com/professional/hardware/) as well as paid access to YCharts

(https://ycharts.com/) Both of those providers are highly-regarded and widely used within the financial services sector By gaining access to these databases the students would not only

become adept at gathering, disseminating, and analyzing the data but proficiency in Bloomberg would also position them favorably after graduation Throughout the growth of the Student Investment Fund, there will be continued evaluation and additions to this list of resources and the suggestions

Valuation Models

The portfolio consists of both dividend and non-dividend stocks For dividend paying stocks we used the variable dividend growth model with the five-year analysts forecasted growth rates over the next five years and a lower growth rate thereafter, to value each stock and

determine the intrinsic value The cost of equity capital was calculated using CAPM with the risk premium of 7.5% and the beta calculated individually for each security using monthly returns over past five years For the non-dividend paying stocks, we used a discounted free cash flow model with variable growth rates as mentioned above Weighted Average Cost of Capital

(WACC) was used as the discount rate to value the firms The intrinsic stock value was

calculated by dividing the market value of equity by the number of shares outstanding

Economic Overview and Sector Analysis

The economic performance of the sectors that compose the majority of our portfolio has been steadily increasing over the past five years as depicted in the chart below In contrast to this trend we agree with Fidelity’s forecast of US entering the Mid-Cycle phase of the business cycle which is accompanied by a slowdown We position our portfolio to benefit from this phase

Source: Yahoo Finance

Source: Fidelity

possibility of the banking consolidation as is historically prevalent after financial crisis and in a declining business cycle There are many risk factors when looking at the financial sector The Fed's decision on interest rates could affect banks earnings Without the opportunity to improve income with the help of higher rates, banks could face stagnant or narrower margins and weaker earnings It is because of this uncertainty that we decided to go underweight

Information Technology

Within the information technology sector there is great potential for growth Those

companies in the services, Internet, and software areas that can meet consumer demand for Internet services and e-commerce support should continue to experience revenue growth These companies stand to benefit from the popularity of social media and mobile communications In the corporate market, technology spending will likely remain steady in the megatrend areas of cloud computing with companies relying on remote servers instead of maintaining them on site, and software as a service where software applications are centralized on the Internet Big data is also an important growth trend, delivering real-time analytics that help a customer better

understand his or her business A major threat or risk in this sector is the trend of high valuations Rising valuations could lead to many companies being overvalued Our fund will have to closely monitor the companies within our fund In aggregate, Wall Street analysts are forecasting

approximately 10% earnings growth for the technology sector in 2016 We decided to go slightly underweight in our portfolio because of the sectors historical underperformance in a declining business cycle

Healthcare

For our portfolio we see great potential in the healthcare sector The overall health sector in

2016 is anticipated to experience an 8.4% year-over-year increase in operating earnings per share

in comparison to the S&P 500's estimated EPS increase of 7.4% Driving performance in the healthcare sector are three powerful long-term trends with favorable implications for revenue growth First, the global population is aging Second, the emerging middle class in developing countries is having a growing impact on the market Third, a tremendous innovation wave is

candidates have made comments regarding pharmaceutical companies and their prescription prices After evaluating the benefits and the risks we decided to go overweight.

Consumer Discretionary

This sector is strongly correlated with the business cycle Due to this that we were very selective in our choice of stocks With the growth of online retail, consumers have gained the ability to identify and purchase goods based purely on obtaining the lowest price, free shipping

or corporate rewards incentives, which creates a strong brand allegiance It is for this reason that

we have decided to go market weight While these are some positives in the sector there are some risks An economic downturn would lead to a decline in stock prices within the sector Also during historical Fed interest rate tightening cycles, consumer discretionary stocks have underperformed compared to the wider equity market These are some opportunities and risk that face our portfolio when looking to the future.

Consumer Staples

Consumer Staples has fared well in the past year despite challenges it has faced at the macroeconomic level An example of this is the depreciation of foreign currencies to the dollar, which results in slower earnings growth for domestic staples companies that earn some of their profits overseas This is a problem that could affect this sector along with others such as

economic slowdown in China and other emerging markets Sales growth in emerging markets remains stronger than domestic markets, allowing well established brands to capitalize in these markets in the long-term The population and income continues to increase in these markets such

as in China, Indonesia and Brazil As incomes continue to increase over the coming decades, the growth potential for many staples companies in emerging markets remains a massive

opportunity The profits of companies in consumer staples are likely to be more stable than those

in the other sectors during a poor performing economy However, there are some risk to

consider; for example, one risk is the constant shift of consumer taste and spending habits With these changes comes the risk that companies do not adapt to consumers wants, leading to a decline in earnings Due to significant global risks faced by the sector, have decided to go

underweight.

Energy

The energy sector is broken into two main sections: energy equipment and services and oil, gas and consumable fuels The main reasons why Energy is a good investment is, the late-cycle rotation strategy, exposure to the new technologies, and allows for good diversification For the purpose of this portfolio it is important to invest in companies that are in the late-cycle of the sector performance However, it should be noted that the energy sector has performed the worst out of all the sectors in the past year The main issue that has been caused by the decline in the oil prices Oil prices are expected to stay low in the future which will hurt the energy sector long- term as well By buying into these energy companies at historically low prices we will be able to see great gains in the long term, when oil prices bounce back within our horizon The main risk

to the energy sector is what OPEC plans to due regarding oil prices One major event to look at will be Iran’s oil production now that sanctions have been lifted It is because of this

overproduction that we feel that oil prices will stay low for the long term This will negatively affect the energy sector which is why we decided to go underweight in our portfolio.

Utilities

The utilities sector encompasses companies that produce and deliver energy resources to consumers The utilities sector is an income oriented investment market that historically has a strong return Dividend yield historically has been one of the most important drivers of total return for the utilities sector The utilities sector currently offers an average dividend yield of

to the success and stability of the sector

Telecommunication Services

This sector includes two industries: Diversified Telecommunication Services and Wireless Telecommunication Services, and represents 2.5% within the S&P 500 Index total market cap Within this sector wireless carriers and cable carriers continue to fight for customers and market share Carriers are increasingly turning to content as a way of differentiating their services With demand for data growing, cell towers are still a key link in the wireless capacity chain There are some major risks facing the market coming up in 2016 The first risk is the large spectrum

auctioning that will be going on in 2016 by The Federal Communications Commission These auctions could lead to companies overspending, which would constrain their balance sheets The other risk are the new accounting standards that will be going into effect for the wireless

subscriptions These new standards could have an impact on revenue and earnings growth When looking at the business cycle the sector constantly outperforms the market when in the late stages

or recession It is because of this that we decided to go overweight in this sector for our portfolio

Materials

The materials sector is a sector that tends to do really well when the economy is recovering and companies start refilling their inventory The sector performs the best at economic expansion but declines as it approaches a peak in the cycle Given the mid cycle phase forecast we have eliminated this sector

Fund Allocation

After evaluating current economic patterns, we collectively decided on a cash position of 40% This allowed us to invest six million dollars towards equity securities with four million on reserve to allocate towards high performing stocks Using the S&P 500 as a benchmark, we disbursed cash amongst each of the various sectors as recommended

Figure 2: Changes in Sector Allocation

Figure 2 shows our overall allocation of funds You will notice that there is little movement amongst each sector This is primarily due to the following three factors:

• Conservative beta of 1.08

• Short investment period of less than two months

• No reallocation of cash reserves into equity securities

Going forward we recommend employing more cash as the markets unfold and valuations

become attractive

Although our portfolio was created on February 26, 2016 we can already see our

portfolio beating the S&P 500 Figure 3 shows performance since the fund’s very first trade As

of Week 7, The Student Investment Fund had a return of 7.79% return, making it the first time our fund has outperformed the S&P 500 The stock market had a terrible start to the year, with the S&P 500 falling about 10% in the first two months of 2016 With that said, we believe our fund was created at a key period in the market; not only was our fund created when the market was low, but also when we noticed that the market was recovering, which has resulted in such prosperous performance

It is important that our fund continues to mimic the index and perform as well as it has Due to our conservative Beta of 1.08, our decision to hold 40% in cash, and current performance

of our fund, we have the flexibility of buying or selling shares as we actively manage our

portfolio An important aspect of our Student Investment Fund is actively managing the fund throughout the investment time horizon Thus, we have created an “alert” in order to flag when a stock’s individual weight increases or decreases by 1% from our finalized weights Figure 4 shows how the current weights have shifted in comparison to our beginning weights per sector

Menlo College, Class of 2016

Luis Antonio Bergas Vilardell

Menlo College, Class of 2017

Baltazar Perez-Soto Portfolio Economist

Menlo College, Class of 2016

James Perris Portfolio Economist

Menlo College, Class of 2017

Ryan Bernard Portfolio Researcher

Menlo College, Class of 2016

Jayme Garbo Portfolio Researcher

Menlo College, Class of 2016

Ashley Black Portfolio Researcher

Menlo College, Class of 2016

5 Year Stock Analysis

Source: Yahoo Finance

Exchange NYSE Yahoo Finance Raw Beta (April 26, 2016) 0.985639 Current Price (April 26, 2016) $50.07 Yahoo Finance Adjusted Beta (April 26, 2016) 0.877577

52 Week High (April 26, 2016) $52.07 Shares Outstanding 5.08M

52 Week Low (April 26, 2016) $44.50 Market Cap (Q4 closing date) $256,580M Prior Year EPS $4.17 Projected 12 Month Dividend Yield (YF) 3.07% Forward P/E (Yahoo Finance) 11.08 Fiscal Year Ends December 31, 2015

Highlights (As of April 26, 2016)

• Wells Fargo faces ongoing mortgage probes despite

recent FHA settlement

• Completes Acquisition of GE Capital’s North

Americas Distribution Finance

• Wells Fargo insurance announces new structure

Investment Rationale (As of April 26, 2016)

• Steady increasing in EPS

• Strongest Commercial Bank in the Industry

• $12 Billion allowance for loan losses

Operations

Community Banking The Community Banking segment offers a line of diversified financial products and services for consumers and small businesses, including checking and savings accounts, credit and debit cards, and auto, student and small business lending Its products also include investment, insurance and trust services in around 39 states and District of Columbia and mortgage and home equity loans in all around 50 states and District of Columbia through its Regional Banking and Wells Fargo Home Lending business units The Community Banking segment also includes the results of its Corporate Treasury activities net of allocations in support of the other operating segments and results of investments in its affiliated venture capital partnerships Wholesale Banking

The Wholesale Banking segment provides financial solutions to businesses across the United States and globally Its products and business segments include Middle Market Commercial Banking, Government and Institutional Banking, Corporate Banking, Commercial Real Estate, Treasury Management, Wells Fargo Capital Finance, Insurance, International, Real Estate Capital Markets, Commercial Mortgage Servicing, Corporate Trust, Equipment Finance, Wells Fargo Securities, Principal Investments, Asset Backed Finance and Asset Management Wealth, and Brokerage and Retirement

The Wealth, and Brokerage and Retirement segment provides a range of financial advisory services Wealth Management provides clients with a range of wealth management solutions, including financial planning, private banking, credit, investment management and fiduciary services Abbot Downing, a Wells Fargo business, provides wealth management services to families and individuals, as well as endowments and foundations Brokerage serves customers' advisory, brokerage and financial needs in the United States Retirement provides institutional retirement and trust services for businesses and reinsurance services for the life insurance industry

Management

CEO John Stumpf became chairman for Wells Fargo & Company in January 2010 He was named chief executive officer in June 2007, elected to Wells Fargo’s Board of Directors in June 2006, and served as president from August 2005 to November 2015

Timothy (Tim) J Sloan became President and Chief Operating Officer in November 2015 and

is responsible for the operations of the company's four main business groups: Community Banking, Consumer Lending, Wealth and Investment Management and Wholesale Banking In his continuing role as head of Wholesale Banking, he oversees Asset Backed Finance, Business Banking, Capital Finance, Capital Markets, Commercial Banking, Commercial Real Estate, Corporate Banking, Equipment Finance, Insurance, International, Investment Banking and Treasury Management groups Tim serves on the Wells Fargo Operating and Management Committees and is based in San Francisco

CRO Senior Executive Vice President and Chief Risk Officer Michael J Loughlin oversees all risk-taking activities at Wells Fargo, including credit, market, operational, compliance, information security (including cyber risk), and financial crimes risk management He is also involved in issues such as liquidity, capital, profit planning, and compensation As the leader of the Corporate Risk group, which includes 4,000 team members, he serves on the Wells Fargo Operating and Management Committees and is based in San Francisco

Wealth Investments Management David Carroll leads Wealth and Investment Management (WIM) at Wells Fargo Approximately 36,000 team members in this unit provide a full range of personalized wealth management, investment, and retirement products and services to clients across U.S.-based businesses Through its sub-brands — Wells Fargo Advisors, The Private Bank, Abbot Downing, Wells Fargo Institutional Retirement & Trust, and Wells Fargo Asset Management

— WIM delivers financial planning, private banking, credit, investment management, and fiduciary services to high-net-worth and ultra-high-net-worth individuals and families It also serves customers’ brokerage needs, supplies retirement and trust services to institutional clients, and provides investment management capabilities to global institutional clients through separate accounts and the Wells Fargo Advantage Funds WIM manages and administers $1.6 trillion in client assets, including $173 billion in deposits, and holds $61 billion in loans

Source: Wells Fargo Website

Industry Overview and Competitive Positioning

Source: Yahoo Finance

Competitive Position within Industry

Wells Fargo’s (WFC) broad operation level strategy over the long run can be described by two words—slow and steady It doesn’t take many risks Wells Fargo is the antithesis of glamorous investment banks like Goldman Sachs Events after the sub-prime crisis have shown that boring could be attractive for investors In the last five years, Wells Fargo outperformed its competitors like Bank of America (BAC) and Citibank (C) However, some of smaller banks that accept deposits—like U.S Bank and Capital One—have done better than Wells Fargo Wells Fargo (WFC) has a really strong positioning in the Financial Sector It is the strongest company when compared with others Companies Such as Bank of America (BAC) and Citigroup (C) are all far below Wells Fargo (WFC) in their stock performance When looking into these competitors their performance has been relatively poor Although the earnings per share that Citigroup (C) handed out in this first quarter increased a considerable amount Wells Fargo (WFC) kept their earnings per share of $1.06 dollars which was identical to the year prior The fact that Wells Fargo (WFC) has kept giving steady EPS is a good indicator of the financial stability that it has The diversification of Wells Fargo (WFC) and the operations of the different departments has given it a great advantage over its competitors

Profit Margin

Dividend Yield

Source: Yahoo Finance

One of the biggest advantages that Wells Fargo has going for them is that they are one of the companies that have the biggest market capitalization at $251.65 Billion Between Bank of America (BAC) and Citigroup (C), Wells Fargo (WFC) is the only commercial bank in the industry it the lowest negative YTD Return We have to keep in mind that the current status of the market is not very favorable for the financial institutions within the financial sector and even though it does have a negative YTD Return it is the company with the lowest negative return Wells Fargo’s profit margin is the second highest in comparison with its competitors This is a good indicator that amongst the Banking Industry Wells Fargo (WFC) is one of the soundest investments we could possibly make

Investment Summary

Wells Fargo (WFC) is Company that is ahead of their competitors Their Stock Performance appears to be promising due to the fact that it is a lot less volatile than Bank of America (BAC) and Citigroup (C) Its large market capitalization, the steady increase of the Earnings Per Share, and the reliability of the increasing dividends will make it a good investment in our portfolio Wells Fargo (WFC) is a company that that has a tremendous amount of diversification that will allow it to be one of the safest investment within the Banking Industry

Valuation

As you can observe from the table Wells Fargo’s (WFC) Dividend Growth Rate is tremendously high At 35.26% it is one of the highest within its industry When choosing which dividend model to use we used 4 approaches These calculations were the ROE, EPS, Dividends and the analyst growth rate formula Well Fargo’s ROE has been increasing on a steady rate in the past 5 years This steady increase makes it a very attractive company within the banking

2014 This small decline should not cause any panic because the companies earning history is

a solid one and it predicts that the earnings for the year of 2016 will only increase

Cash Flow

Wells Fargo’s (WFC) cash flows from operating activities have been positive in the last few years If this trend continues Wells Fargo is going to have a good amount of cash that it can allocate into different investments in order to create more revenue

Balance Sheet & Financing

Over the last few years Wells Fargo’s (WFC) assets have been growing at a steady rate In

2014 Wells Fargo’s assets were at 1,687,155M were as in the year 2015 the total assets were at 1,787,632M As you can observe for this as to many of the other sections of this report Wells Fargo’s increases are steady and growing

Investment Risk

Commodity Risk

Like many other banks the commodity risk that Wells Fargo has is considerably big Banks have various investments in different portfolios that will affect how they perform on their revenues in Commodities were to take a hit Wells Fargo (WFC) would suffer a huge loss in various Investments that it takes part in

Exchange Rate Risk

Changes in interest rates and financial market values could reduce their net interest income and earnings, including as a result of recognizing losses or OTTI on the securities that they hold in their portfolio or trade for their customers Wells Fargo’s (WFC) net interest income is the interest they earn on loans, debt securities and other assets they hold less the interest they pay

on their deposits, long-term and short-term debt, and other liabilities Net interest income is a measure of both their net interest margin – the difference between the yield they earn on their assets and the interest rate they pay for deposits and their other sources of funding – and the amount of earning assets they hold Changes in either their net interest margin or the amount

or mix of earning assets they hold could affect their net interest income and their earnings Changes in interest rates can affect their net interest margin Although the yield they earn on their assets and their funding costs tend to move in the same direction in response to changes

Acquisition Risk

Acquisition risk is not a huge area that Wells Fargo has to be concerned about Due to the fact that it is one of the industry's leading Banks it does not have to worry about being acquired by another company

Market Risk

As one of the largest lenders in the U.S and a provider of financial products and services to consumers and businesses across the U.S and internationally, their financial results have been, and will continue to be, materially affected by general economic conditions, particularly unemployment levels and home prices in the U.S., and a deterioration in economic conditions

or in the financial markets may materially adversely affect their lending and other businesses and their financial results and condition They generate revenue from the interest and fees they charge on the loans and other products and services they sell, and a substantial amount of their revenue and earnings comes from the net interest income and fee income that they earn from their consumer and commercial lending and banking businesses, including their mortgage banking business where they currently are the largest mortgage originator in the U.S These businesses have been, and will continue to be, materially affected by the state of the U.S economy, particularly unemployment levels and home prices Although the U.S economy has continued to gradually improve from the depressed levels of 2008 and early 2009, economic growth has been slow and uneven In addition, the negative effects and continued uncertainty stemming from U.S fiscal and political matters, including concerns about deficit levels, taxes and U.S debt ratings, have impacted and may continue to impact the continuing global economic recovery Moreover, geopolitical matters, including international political unrest or disturbances, as well as continued concerns over energy prices and global economic difficulties, may impact the stability of financial markets and the global economy A prolonged period of slow growth in the global economy, particularly in the U.S., or any deterioration in general economic conditions and/or the financial markets resulting from the above matters or any other events or factors that may disrupt or dampen the global economic recovery, could materially adversely affect their financial results and condition

Regulatory Risk

Enacted legislation and regulation, including the Dodd- Frank Act, as well as future legislation and/or regulation, could require us to change certain of their business practices, reduce their revenue and earnings, impose additional costs on us or otherwise adversely affect their business operations and/or competitive position Their parent company, their subsidiary banks and many

of their nonbank subsidiaries such as those related to their brokerage and mutual fund businesses, are subject to significant and extensive regulation under state and federal laws in the U.S., as well as the applicable laws of the various jurisdictions outside of the U.S where

a significant amount of new legislation and regulation in the U.S and abroad, as well as heightened expectations and scrutiny of financial services companies from banking regulators These laws and regulations may affect the manner in which they do business and the products and services that they provide, affect or restrict their ability to compete in their current businesses or their ability to enter into or acquire new businesses, reduce or limit their revenue

in businesses or impose additional fees, assessments or taxes on us, intensify the regulatory supervision of us and the financial services industry, and adversely affect their business operations or have other negative consequences In addition, greater government oversight and scrutiny of financial services companies has increased their operational and compliance costs

as they must continue to devote substantial resources to enhancing their procedures and controls and meeting heightened regulatory standards and expectations Any failure to meet regulatory standards or expectations could result in fees, penalties, or restrictions on their ability to engage

in certain business activities On July 21, 2010, the Dodd-Frank Act, the most significant financial reform legislation since the 1930s, became law The Dodd-Frank Act, among other things, (i) established the Financial Stability Oversight Council to monitor systemic risk posed

by financial firms and imposes additional and enhanced FRB regulations, including capital and liquidity requirements, on certain large, interconnected bank holding companies such as Wells Fargo and systemically significant nonbanking firms intended to promote financial stability; (ii) creates a liquidation framework for the resolution of covered financial companies, the costs

of which would be paid through assessments on surviving covered financial companies; (iii) makes significant changes to the structure of bank and bank holding company regulation and activities in a variety of areas, including prohibiting proprietary trading and private fund investment activities, subject to certain exceptions; (iv) creates a new framework for the regulation of over-the-counter derivatives and new regulations for the securitization market and strengthens the regulatory oversight of securities and capital markets by the SEC; (v) established the Consumer Financial Protection Bureau (CFPB) within the FRB, which has sweeping powers to administer and enforce a new federal regulatory framework of consumer financial regulation; (vi) may limit the existing pre-emption of state laws with respect to the application of such laws to national banks, makes federal pre-emption no longer applicable to operating subsidiaries of national banks, and gives state authorities, under certain circumstances, the ability to enforce state laws and federal consumer regulations against national banks; (vii) provides for increased regulation of residential mortgage activities; (viii) revised the FDIC's assessment base for deposit insurance by changing from an assessment base defined by deposit liabilities to a risk-based system based on total assets; (ix) permitted banks

to pay interest on business checking accounts beginning on July 1, 2011; (x) authorized the FRB under the Durbin Amendment to adopt regulations that limit debit card interchange fees received by debit card issuers; and (xi) includes several corporate governance and executive compensation provisions and requirements, including mandating an advisory stockholder vote

on executive compensation The Dodd-Frank Act and many of its provisions became effective

in July 2010 and July 2011 However, a number of its provisions still require final rulemaking

or additional guidance and interpretation by regulatory authorities or will be implemented over time Accordingly, in many respects the ultimate impact of the Dodd-Frank Act and its effects

on the U.S financial system and the Company still remain uncertain Nevertheless, the Frank Act, including current and future rules implementing its provisions and the interpretation

Dodd-of those rules, could result in a loss Dodd-of revenue, require us to change certain Dodd-of their business practices, limit their ability to pursue certain business opportunities, increase their capital requirements and impose additional assessments and costs on us and otherwise adversely affect their business operations and have other negative consequences Their consumer businesses, including their mortgage, credit card and other consumer lending and non-lending businesses,

Credit Risk

The improvement in the U.S economy as well as higher home prices contributed to their strengthened credit performance and allowed us to release amounts from their allowance for credit losses, however there is no guarantee they will have allowance releases in the future If unemployment levels worsen or if home prices fall they would expect to incur elevated charge-offs and provision expense from increases in their allowance for credit losses These conditions may adversely affect not only consumer loan performance but also commercial and CRE loans, especially for those business borrowers that rely on the health of industries that may experience deteriorating economic conditions The ability of these and other borrowers to repay their loans may deteriorate, causing us, as one of the largest commercial and CRE lenders in the U.S., to incur significantly higher credit losses In addition, weak or deteriorating economic condition

2015, approximately 26% of their revenue was fee income, which included trust and investment fees, card fees and other fees They earn fee income from managing assets for others and providing brokerage and other investment advisory and wealth management services Because investment management fees are often based on the value of assets under management, a fall

in the market prices of those assets could reduce their fee income Changes in stock market prices could affect the trading activity of investors, reducing commissions and other fees they earn from their brokerage business The U.S stock market experienced all- time highs in 2015, but also experienced significant volatility and there is no guarantee that high price levels will continue Poor economic conditions and volatile or unstable financial markets also can negatively affect their debt and equity underwriting and advisory businesses, as well as their trading and venture capital businesses Any deterioration in global financial markets and economies, including as a result of any international political unrest or disturbances, may adversely affect the revenues and earnings of their international operations, particularly their global financial institution and correspondent banking services

Source: SEC EDGAR

Cash & Equivalents $243,413.00 $241,144.00 $207,911.00 $125,289.00 $39,552.00 Gross Property Plant & Equip $19,721.00 $19,206.00 $19,228.00 $18,657.00 $18,333.00 Accumulated Depreciation $11,017.00 $10,463.00 $10,072.00 $9,229.00 $8,802.00 Net Property Plant & Equip $8,704.00 $8,743.00 $9,156.00 $9,428.00 $9,531.00

Fed Funds Sold & Secs Purch $45,828.00 $36,856.00 $25,801.00 $33,884.00 $24,255.00

Gross Loan Portfolio $916,559.00 $862,551.00 $825,799.00 $799,574.00 $769,631.00

Total Deposits $1,223,312.00 $1,168,310.00 $1,079,177.00 $1,002,835.00 $920,070.00 Fed Funds Purch & Secs Sold $82,948.00 $51,052.00 $36,263.00 $34,973.00 $31,038.00

Total Liabilities $1,594,634.00 $1,502,761.00 $1,356,873.00 $1,265,414.00 $1,173,626.00

Preferred Share Capital $22,214.00 $19,213.00 $16,267.00 $12,883.00 $11,431.00 Additional Paid-In Capital $60,714.00 $60,537.00 $60,296.00 $59,802.00 $55,957.00

Adjustments from Inc to Cash $(44,292.00) $(24,233.00) $(10,701.00) $(55,291.00) $(31,976.00)

Change in Working Capital $35,788.00 $18,154.00 $46,118.00 $94,463.00 $29,430.00 Cash Flow from Operations $14,772.00 $17,529.00 $57,641.00 $58,540.00 $13,665.00 Change in Investments $(39,425.00) $(43,231.00) $(42,348.00) $166.00 $(45,555.00)

Change in FFS & SP $(11,866.00) $(41,778.00) $(78,184.00) $(92,946.00) $36,270.00 Other Investing Cash Flows $(55,941.00) $(43,197.00) $(32,960.00) $(42,788.00) $(25,406.00)

Cash Flow from Investing $(107,235.00) $(128,380.00) $(153,492.00) $(139,890.00) $(35,044.00)

Payment of Dividends $(8,826.00) $(8,143.00) $(6,970.00) $(5,457.00) $(3,381.00)

Change in Deposits $54,867.00 $89,133.00 $76,342.00 $82,762.00 $72,128.00 Other Financing Cash Flows $49,508.00 $33,859.00 $24,254.00 $6,689.00 $(45,432.00)

Cash Flow from Financing $92,003.00 $110,503.00 $93,910.00 $83,770.00 $24,775.00

Cash & Equivalents $243,413.00 $241,144.00 $207,911.00 $125,289.00 $39,552.00 Gross Property Plant & Equip $19,721.00 $19,206.00 $19,228.00 $18,657.00 $18,333.00 Accumulated Depreciation $11,017.00 $10,463.00 $10,072.00 $9,229.00 $8,802.00 Net Property Plant & Equip $8,704.00 $8,743.00 $9,156.00 $9,428.00 $9,531.00

Fed Funds Sold & Secs Purch $45,828.00 $36,856.00 $25,801.00 $33,884.00 $24,255.00

Gross Loan Portfolio $916,559.00 $862,551.00 $825,799.00 $799,574.00 $769,631.00

Total Deposits $1,223,312.00 $1,168,310.00 $1,079,177.00 $1,002,835.00 $920,070.00 Fed Funds Purch & Secs Sold $82,948.00 $51,052.00 $36,263.00 $34,973.00 $31,038.00

Total Liabilities $1,594,634.00 $1,502,761.00 $1,356,873.00 $1,265,414.00 $1,173,626.00

Preferred Share Capital $22,214.00 $19,213.00 $16,267.00 $12,883.00 $11,431.00 Additional Paid-In Capital $60,714.00 $60,537.00 $60,296.00 $59,802.00 $55,957.00

Source: Yahoo Finance

5 Year Stock Analysis

Source: Yahoo Finance

Current Price (April 26, 2016) $60.48 Yahoo Finance Adjusted Beta (April 26, 2016) 1.67

52 Week High (April 26, 2016) $70.61 Shares Outstanding 3.66B

52 Week Low (April 26, 2016) $50.07 Market Cap (Q4 closing date) $221.54B Prior Year EPS 6.00 Projected 12 Month Dividend Yield (YF) 3.00% Forward P/E (Yahoo Finance) 9.46 Fiscal Year Ends December 31, 2015

Highlights (As of April 26, 2016)

• Company growth is organic

• Chase Private Client has grown in 5 years to more

than 2,500 offices which manage investments and

deposits of $190 billion

• Lost value in the 2015 fiscal year to “London Whale”

scandal

Investment Rationale (As of April 26, 2016)

• Consumer and commercial loans are underwritten with better standards

• Large amount of scandals have riddled the company the last couple of years

JP Morgan Chase & Co

Consumer & Community Banking The Company’s Consumer & Community Banking (CCB) segment serves consumers and businesses through personal service at bank branches and through ATMs, online, mobile and telephone banking CCB is organized into Consumer & Business Banking, Mortgage Banking and Card & Merchant Services Consumer & Business Banking offers deposit and investment products and services to consumers, and lending, deposit, and cash management and payment solutions to small businesses Mortgage Banking includes mortgage origination and servicing activities, as well as portfolios comprising residential mortgages and home equity loans Card issues credit cards to consumers and small businesses, provides payment services to corporate and public sector clients through its commercial card products, offers payment processing services to merchants, and provides auto and student loan services

Corporate & Investment Bank The Company's Corporate & Investment Bank (CIB) segment, comprising Banking and Markets & Investor Services, offers investment banking, market-making, prime brokerage, and treasury and securities products and services to corporations, investors, financial institutions, and Government and municipal entities Within Banking, the CIB offers a range

of investment banking products and services in capital markets, including advising on corporate strategy and structure, capital-raising in equity and debt markets, as well as loan origination and syndication Banking services also includes Treasury Services, which includes transaction services, comprising primarily of cash management and liquidity solutions, and trade finance products The Markets & Investor Services segment of the CIB is engaged in cash securities and derivative instruments, and also offers risk management solutions, prime brokerage and research Markets & Investor Services also includes the Securities Services business, which includes custody, fund accounting and administration, and securities lending products sold principally to asset managers, insurance companies and public and private investment funds

Commercial Banking The Company's Commercial Banking (CB) segment delivers industry knowledge, local expertise and service to the United States and the United States multinational clients, including corporations, municipalities, financial institutions and non-profit entities CB

in markets throughout the world Asset Management offers investment management across asset classes, including equities, fixed income, alternatives and money market funds It offers multi-asset investment management, providing solutions for a range of clients' investment needs For Global Wealth Management clients, AM also provides retirement products and services, brokerage and banking services, including trusts and estates, loans, mortgages and deposits

Management

The Board of Director of JPMorgan Chase & Co currently has 11 members Linda Bammann, James Bell, Crandall Bowles, Stephen Burke, James Crown, Jamie Dimon (Chairman), Timothy Flynn, Laban Jackson Jr., Michael Neal, Lee Raymond, and William Weldon

The Operating Committee of JPMorgan Chase & Co currently is lead by Chairman and Chief Executive Officer Jamie Dimon Its members include: Ashley Bacon, Chief Risk Officer; John Dunnelly, Head of Human Resources; Mary Callahan Erdoes, Asset Management CEO; Stacy Friedman, General Counsel; Marianne Lake, Chief Financial Officer; Douglas Petno, Commercial Banking CEO; Daniel Pinto, Corporate & Investment Bank CEO; Gordon Smith, Consumer & Community Banking CEO; Mathew Zames, Chief Operating Officer

Other notable Corporate Officers are: Joseph Evangelisti, Corporate Communications; Anthony Horan, Secretary; Mark O’Donovan, Controller; James Vallone, General Auditor; Sarah Youngwood, Investor Relations

Source: Reuters, JPMorgan Chase & Co.

Industry Overview and Competitive Positioning

The financial services industry has experienced consolidation and convergence in recent years, as financial institutions involved in a broad range of financial products and services have merged and, in some cases, failed This is expected to continue Consolidation could result in competitors of JPMorgan Chase gaining greater capital and other resources, such as a broader range of products and services and geographic diversity It is likely that competition

JP Morgan Chase & Co

Source: JPMorgan Chase & Co

Competitive Position within Industry

JPMorgan Chase and its subsidiaries and affiliates operate in a highly competitive environment Competitors include other banks, brokerage firms, investment banking companies, merchant banks, hedge funds, commodity trading companies, private equity firms, insurance companies, mutual fund companies, investment managers, credit card companies, mortgage banking companies, trust companies, securities processing companies, automobile financing companies, leasing companies, e-commerce and other Internet-based companies, and a variety of other financial services and advisory companies JPMorgan Chase’s businesses generally compete on the basis of the quality and range of their products and services, transaction execution, innovation and price

Source: JPMorgan Chase & Co

Comparable

YTD Return

Dividend Yeild

Industry Average $ 98,564,085.30 142.76 0 0.176 3.28

JP Morgan Chase & Co JPM $ 60.48 $ 221.977 0.97 0 27.24% 2.42% Goldman Sachs GS 153.9 -0.1326 64.57 8.93 0 0.17986 2.6 Bank of America Corporation BAC $ 13.79 $ 142.390 0.59 0 20.02% 0.57% Citygroup Inc C $ 43.54 $ 128.261 0.62 0 24.90% 50.00%

a hurt industry For the last five years, JPMorgan has been steadily increasing their dividends

to a little over half a dollar per share paid every quarter in order to entice investors In 2016, JPMorgan expects to continue steady growth company growth, but with a stronger loan growth JPMorgan expects to see higher growth within it’s Commercial Banking (CB) division

Valuation

JPMorgan Chase & Co.’s stocks paying a substantial and predictable dividend, a Dividend Cash Flow (DCF) was used to further analyze the stock Within the calculations, four growth rate calculations were the primary analysis for JPMorgan’s investment opportunity: Dividend, Earnings per Share, Return on Equity, and the Analyst’s growth rate JPMorgan has a final growth rate of 11.00% This growth rate was used in calculating the CAPM for the reqired rate of return of 15.03 and P0 of $62.11

D0 Dividend EPS ROE Analyst Long

Term Beta Risk Free rs (CAPM)

Intrinsic Value

Current Price

Investment Risk

Regulatory Risk

JPMorgan Chase is subject to extensive and comprehensive regulation under federal and state laws in the U.S and the laws of the various jurisdictions outside the U.S in which the Firm does business The financial services industry has experienced and continues to experience an unprecedented increase in regulations and supervision, both in the U.S and globally, and the cumulative effect of all of the new and proposed legislation and regulations on the Firm’s business, operations and profitability remains uncertain

The recent legislative and regulatory developments, could result in a significant loss of revenue for the Firm, impose additional compliance and other costs on the Firm or otherwise reduce the Firm’s profitability, limit the products and services that the Firm offers or its ability to pursue business opportunities in which it might otherwise consider engaging, require the Firm to dispose of or curtail certain businesses, affect the value of assets that the Firm holds, require the Firm to increase its prices and therefore reduce demand for its products, or otherwise adversely affect the Firm’s businesses

Market Risk

JPMorgan Chase’s businesses are materially affected by economic and market conditions, including the liquidity of the global financial markets; the level and volatility of debt and equity prices, interest rates, currency and commodities prices (including oil prices) and other market indices; investor, consumer and business sentiment; events that reduce confidence in the financial markets; inflation and unemployment; the availability and cost of capital and credit; the economic effects of natural disasters, health emergencies or pandemics, severe weather conditions, outbreaks of hostilities, terrorism or other geopolitical instabilities; monetary policies and actions taken by the Federal Reserve and other central banks; and the health of the U.S and global economies

In the Firm’s underwriting and advisory businesses, the revenue that the Firm receives, as well as the willingness of other financial institutions and investors to participate in loan syndications or underwritings managed by the Firm

The Firm generally maintains market-making positions in the fixed income, currency, commodities, credit and equity markets to facilitate client demand and provide liquidity to

JP Morgan Chase & Co

Credit Risk

The Firm routinely executes transactions with counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks, mutual and hedge funds, investment managers and other institutional clients These transactions expose the Firm to credit risk and, in some cases, disputes and litigation in the event of a default by the counterparty or client

Liquidity Risk

JPMorgan Chase’s liquidity is critical to its ability to operate its businesses Potential conditions that could impair the Firm’s liquidity include markets that become illiquid or are otherwise experiencing disruption, unforeseen cash or capital requirements (including commitments that may be triggered to special purpose entities (“SPEs”) or other entities), difficulty in selling or inability to sell assets, default by a CCP or other counterparty, unforeseen outflows of cash or collateral, and lack of market or customer confidence in the Firm or financial markets in general

Legal Risk

JPMorgan Chase is named as a defendant or is otherwise involved in various legal proceedings, including class actions and other litigation or disputes with third parties Actions currently pending against the Firm may result in judgments, settlements, fines, penalties or other results adverse to the Firm, which could materially and adversely affect the Firm’s business, financial condition or results of operations, or cause serious harm to the Firm’s reputation As a participant in the financial services industry, it is likely that the Firm will continue to experience a high level of litigation related to its businesses and operations

Other Business Risk

JPMorgan Chase’s businesses and earnings are affected by the fiscal and other policies that are adopted by various U.S and non-U.S regulatory authorities and agencies The Federal Reserve regulates the supply of money and credit in the U.S and its policies determine in large part the cost of funds for lending and investing in the U.S and the return earned on those loans and investments Changes in Federal Reserve policies (as well as the fiscal and monetary policies of non-U.S central banks or regulatory authorities and agencies, such as

“pegging” the exchange rate of their currency to the currencies of others) are beyond the Firm’s control and may be difficult to predict, and consequently, unanticipated changes in these policies could have a negative impact on the Firm’s activities and results of operations

Source: SEC EDGAR