Value-oriented Equity Investment Ideas for Sophisticated Investors

A Monthly Publication of BeyondProxy LLC  Subscribe at manualofideas.com

“If our efforts can further the goals of our members by giving them a discernible edge
over other market participants, we have succeeded.”

Investing In The Tradition of

Graham, Buffett, Klarman
Year IV, Volume I
January 31, 2011
LARGE CAP STOCKS:
HOW CHEAP ARE THEY?
When asked how he became so
successful, Buffett answered:
“We read hundreds and hundreds
of annual reports every year.”

Top Ideas In This Report
(Nasdaq: …………………
(NYSE: ……………………...
(NYSE: ……………………...
Also Inside
Editorial Commentary ………………. 5
MOI Performance Review ………….. 9
Superinvestor Update ………………12
Five Takes on Market Valuation ….. 13
Browsing for Large-Cap Ideas …… 18
Cheapest 20 DJIA Components …… 30
Exclusive VALUEx Insights ………..110
Favorite Value Screens ……………171
This Month’s Top Web Links …….. 179
About The Manual of Ideas
Our goal is to bring you investment
ideas that are compelling on the
basis of value versus price. In our
quest for value, we analyze the top
holdings of top fund managers. We
also use a proprietary methodology
to identify stocks that are not widely
followed by institutional investors.
Our research team has extensive
experience in industry and security
analysis, equity valuation, and
investment management. We bring a
“buy side” mindset to the idea
generation process, cutting across
industries and market capitalization
ranges in our search for compelling
equity investment opportunities.
► Five takes on U.S. equity market valuation
► Cheapest 20 DJIA components profiled and analyzed
► Proprietary selection of Top Three investment candidates
► Plus: Superinvestor holdings update
► Plus: Favorite stock screens for value investors
► Plus: Exclusive insights from VALUEx participants
Companies mentioned in this issue include
3M, Abbott Labs, Alcoa, Amazon.com, America Movil, American Express,
Anglo American, Anheuser-Busch, Apple, AstraZeneca, AT&T,
Australia and NZ, Banco Bradesco, Banco Santander, Bank of America,
Bank of Nova Scotia, Barclays, BASF, Bayer, Berkshire Hathaway,
BHP Billiton, BP, British Am. Tobacco, Canon, Caterpillar, Chevron,
China Life Insurance, China Mobile, China Telecom, Cisco Systems,
Citigroup, CNOOC, Co. Bebidas Americas, Coca-Cola, Comcast,
ConocoPhillips, Daimler, Ecopetrol, Eni, Exxon Mobil, Ford Motor,
General Electric, GlaxoSmithKline, Goldman Sachs, Google,
Hewlett-Packard, Home Depot, Honda, HSBC, IBM, Intel, Itau Unibanco,
Johnson & Johnson, JPMorgan Chase, Kraft Foods, McDonald’s, Merck,
Microsoft, Mitsubishi UFJ, Novartis, Novo Nordisk, NTT, NTT DoCoMo,
Occidental Petroleum, Oracle, PepsiCo, PetroChina, Petroleo Brasileiro,
Pfizer, Philip Morris, Procter & Gamble, Qualcomm, Roche,
Royal Bank of Canada, Royal Dutch Shell, SAP, Schlumberger, Siemens,
Sinopec, StatoilHydro, Suncor Energy, Taiwan Semiconductor, Telefonica,
The Travelers Companies, TOTAL, Toyota, UBS, Unilever, United
Technologies, UPS, Vale, Verizon, Visa, Volkswagen, Wal-Mart,
Walt Disney, Wells Fargo, Westpac Banking,, and more.
(analyzed companies are underlined)

Copyright Warning: It is a violation of federal copyright law to reproduce all or part of this publication for any purpose without the prior written consent of
BeyondProxy LLC. Email support@manualofideas.com if you wish to have multiple copies sent to you. © 2008-2011 by BeyondProxy LLC. All rights reserved.
 Value-oriented Equity Investment Ideas for Sophisticated Investors

Table of Contents
EDITORIAL COMMENTARY ..........................................................................5
THE MANUAL OF IDEAS PERFORMANCE REVIEW ..................................9
SUPERINVESTOR HOLDINGS UPDATE ................................................... 12
VIEW FROM THE TOP: FIVE TAKES ON MARKET VALUATION ............ 13
TOBIN’S Q............................................................................................................................. 14
SHILLER’S TEN-YEAR TRAILING P/E ........................................................................................ 15
U.S. EQUITY MARKET CAPITALIZATION TO GDP....................................................................... 16
S&P EARNINGS YIELD VERSUS INTEREST RATES ..................................................................... 16
DOW JONES INDUSTRIALS IN TERMS OF GOLD ......................................................................... 17

BROWSING FOR POTENTIAL LARGE CAP OPPORTUNITIES ............... 18

LARGEST 100 COMPANIES (BY MARKET VALUE), SORTED BY FORWARD P/E ............................... 18
LARGEST 100 COMPANIES TRADING AT <= 12X FORWARD P/E ................................................. 20
“MAGIC FORMULA,” BASED ON TRAILING OPERATING INCOME (MV > $5 BILLION)........................ 22
“MAGIC FORMULA,” BASED ON THIS YEAR’S EPS ESTIMATES (MV > $5 BILLION) ........................ 23
“MAGIC FORMULA,” BASED ON NEXT YEAR’S EPS ESTIMATES (MV > $5 BILLION) ....................... 24
VALUE WITH CATALYST: CHEAP REPURCHASERS OF STOCK (MV > $5 BILLION).......................... 25
PROFITABLE DIVIDEND PAYORS WITH DECENT BALANCE SHEETS (MV > $5 BILLION) .................. 26
DEEP VALUE: LOTS OF REVENUE, LOW ENTERPRISE VALUE (MV > $5 BILLION) ......................... 27
DEEP VALUE: NEGLECTED GROSS PROFITEERS (MV > $5 BILLION) ........................................... 28
ACTIVIST TARGETS: POTENTIAL SALES OR RECAPITALIZATIONS (MV > $5 BILLION)..................... 29

CHEAPEST 20 MEMBERS OF DOW JONES INDUSTRIAL AVERAGE ... 30

ALCOA (AA) – CAPITAL WORLD .............................................................................................. 30
AMERICAN EXPRESS (AXP) – BARES, BERKSHIRE, MARKEL ..................................................... 34
AT&T (T) – CAP RE, T ROWE................................................................................................. 38
BANK OF AMERICA (BAC) – APPALOOSA, BRK, CHOU, BRAVE WARRIOR, FAIRHOLME, PAULSON 42
CHEVRON (CVX) – BP CAPITAL, FPA ..................................................................................... 46
CISCO SYSTEMS (CSCO) – APPALOOSA, CENTAUR, EDINBURGH, GLENVIEW, PENNANT ............ 50
EXXON MOBIL (XOM) – BRK, KLEINHEINZ, MARKEL, PENNANT, VIKING ..................................... 54
GENERAL ELECTRIC (GE) – BRK, EDINBURGH, FAIRHOLME, MARKEL ....................................... 58
HEWLETT-PACKARD (HPQ) – APPALOOSA, FPA, GLENVIEW, MAVERICK, SHUMWAY .................. 62
IBM (IBM) – CAPITAL W ORLD, MARKEL, T ROWE .................................................................... 66
INTEL (INTC) – APPALOOSA, EDINBURGH, MARKEL .................................................................. 70
JOHNSON & JOHNSON (JNJ) – APPALOOSA, BRK, FAIRFAX, FPA, MARKEL, WEST COAST ......... 74
JPMORGAN (JPM) – BLUE RIDGE, CASTLE POINT, KLEINHEINZ, LONE PINE, PAULSON, VIKING ... 78
KRAFT FOODS (KFT) – BRK, EAGLE, FAIRFAX, FPA, PERSHING SQUARE, WEST COAST ............ 82
MERCK (MRK) – APPALOOSA, FAIRFAX................................................................................... 86
MICROSOFT (MSFT) – APPALOOSA, BARES, BLUE RIDGE, FPA, GREENLIGHT, MARKEL, W EITZ.. 90
PFIZER (PFE) – BLUE RIDGE, FPA, GREENLIGHT, KLEINHEINZ, MAVERICK, PAULSON, PENNANT 94
TRAVELERS (TRV) – FPA, GREENLIGHT, SOUTHEASTERN........................................................ 98
WAL-MART (WMT) – BRK, EAGLE, FAIRFAX, FPA, KLEINHEINZ, MARKEL, WEITZ .................... 102
WALT DISNEY (DIS) – CHILDREN’S, SOUTHEASTERN .............................................................. 106

© 2008-2011 by BeyondProxy LLC. All rights reserved. SUBSCRIBE TODAY! www.manualofideas.com January 31, 2011 – Page 3 of 182
 Value-oriented Equity Investment Ideas for Sophisticated Investors

EXCLUSIVE INSIGHTS FROM VALUEX PARTICIPANTS ...................... 110

ETHAN BERG, G4 ................................................................................................................ 110
PHILIP BEST, ARGOS INVESTMENT MANAGERS ...................................................................... 113
JAMES BRADFORD, PRIVATE INVESTOR ................................................................................. 114
DAVID COYNE, SETANTA ASSET MANAGEMENT ...................................................................... 115
SHAI DARDASHTI, DARDASHTI CAPITAL MANAGEMENT ........................................................... 119
SIMON DENISON-SMITH, METROPOLIS CAPITAL ..................................................................... 120
DR. CHRISTOPHER DETWEILER, PRIVATE INVESTOR............................................................... 122
TIM DU TOIT, EUROSHARELAB .............................................................................................. 123
CHRISTIAN ECK, UBS .......................................................................................................... 127
ORI EYAL, EMERGING VALUE CAPITAL MANAGEMENT ............................................................. 127
DON FITZGERALD, TOCQUEVILLE FINANCE ............................................................................ 132
MASSIMO FUGGETTA, HORATIUS .......................................................................................... 134
BENEDIKT GERMANIER, PRIVATE INVESTOR ........................................................................... 135
PABLO GONZALEZ, ABACO CAPITAL ...................................................................................... 136
DR. OLAF HEIN, SPARTA AG ................................................................................................ 137
MARKUS HENZ, WÜTHRICH, HENZ & CO................................................................................ 139
ROBERT KARAS, SCHOELLERBANK (UNICREDIT GROUP) ........................................................ 139
ANDREAS LECHNER, PRIVATE INVESTOR ............................................................................... 141
SÉBASTIEN LEMONNIER, TOCQUEVILLE FINANCE.................................................................... 141
KAUSHAL MAJMUDAR, THE RIDGEWOOD GROUP.................................................................... 143
PAUL MCNULTY, SETANTA ASSET MANAGEMENT ................................................................... 144
WILLIAM O’CHEE, HIMALAYA CONSULTING ............................................................................ 146
BERNARD PEPERSTRAETE, NGN CAPITAL ............................................................................. 147
MATTHIAS RIECHERT, PRIVATE INVESTOR ............................................................................. 150
STEPHEN ROSEMAN, THESIS FUND MANAGEMENT ................................................................. 151
MARC SAINT JOHN W EBB, ARGOS INVESTMENT MANAGERS ................................................... 152
YUSUF SAMAD, BELFIELD CAPITAL ........................................................................................ 153
RAHUL SARAOGI, ATYANT CAPITAL ....................................................................................... 155
BENJAMIN SCHMITT, VARUS FUND ........................................................................................ 156
ALAN SCHRAM, W ELLCAP PARTNERS .................................................................................... 157
ANDREAS SCHWEITZER, PRIVATE INVESTOR .......................................................................... 159
KEVIN SLEMP, PRIVATE INVESTOR ........................................................................................ 159
GUY SPIER, AQUAMARINE CAPITAL MANAGEMENT ................................................................. 161
CHRISTOPH STAHL, PRIVATE INVESTOR ................................................................................ 161
ARMIN STRACKE, CITIGROUP................................................................................................ 162
JOSH TARASOFF, GREENLEA LANE CAPITAL MANAGEMENT .................................................... 163
PAOLO TRAMONTANA, KRAEMER, SCHWAB ........................................................................... 165
CARTER VENKAT, PRIVATE INVESTOR ................................................................................... 167
JACOB WOLINSKY, VALUE ADVISORY .................................................................................... 168
PETER WÜTHRICH, WÜTHRICH, HENZ & CO........................................................................... 170

FAVORITE STOCK SCREENS FOR VALUE INVESTORS ...................... 171

“MAGIC FORMULA,” BASED ON TRAILING OPERATING INCOME ................................................. 171
“MAGIC FORMULA,” BASED ON THIS YEAR’S EPS ESTIMATES ................................................. 172
“MAGIC FORMULA,” BASED ON NEXT YEAR’S EPS ESTIMATES ................................................ 173
VALUE WITH CATALYST: CHEAP REPURCHASERS OF STOCK ................................................... 174
PROFITABLE DIVIDEND PAYORS WITH DECENT BALANCE SHEETS............................................ 175
DEEP VALUE: LOTS OF REVENUE, LOW ENTERPRISE VALUE ................................................... 176
DEEP VALUE: NEGLECTED GROSS PROFITEERS .................................................................... 177
ACTIVIST TARGETS: POTENTIAL SALES, LIQUIDATIONS OR RECAPS ......................................... 178

THIS MONTH’S TOP 10 WEB LINKS ....................................................... 179

© 2008-2011 by BeyondProxy LLC. All rights reserved. SUBSCRIBE TODAY! www.manualofideas.com January 31, 2011 – Page 4 of 182

About THE MANUAL OF IDEAS
© 2009-‘10 by BeyondProxy LLC. All rights reserved.
All content is protected by U.S. and international
copyright laws and is the property of BeyondProxy and
any third-party providers of such content. The U.S.
Copyright Act imposes liability of up to $150,000 for
each act of willful infringement of a copyright.
THE MANUAL OF IDEAS is published monthly by
BeyondProxy. Subscribers may download content to their
computer and store and print materials for their individual
use only. Any other reproduction, transmission, display or
editing of the content by any means, mechanical or
electronic, without the prior written permission of
BeyondProxy is strictly prohibited.
Terms of use: Use of this newsletter and its content is
governed by the Terms of Use described in detail at
www.manualofideas.com. See a summary of key terms
below.
Contact information: For all customer service,
subscription or other inquiries, please visit
www.manualofideas.com, or contact us at BeyondProxy,
427 N Tatnall St #27878, Wilmington, DE 19801-2230;
telephone: 415-412-8059.
Editor-in-chief: John Mihaljevic, CFA.
Annual subscription price: $1,285.
To subscribe, visit www.manualofideas.com/pmr.html
General Publication Information and Terms of
Use
THE MANUAL OF IDEAS is published by BeyondProxy. Use
of this newsletter and its content is governed by the Terms
of Use described in detail at
www.manualofideas.com/terms.html. For your
convenience, a summary of certain key policies,
disclosures and disclaimers is reproduced below. This
summary is meant in no way to limit or otherwise
circumscribe the full scope and effect of the complete
Terms of Use.
No Investment Advice
This newsletter is not an offer to sell or the solicitation of
an offer to buy any security in any jurisdiction where such
an offer or solicitation would be illegal. This newsletter is
distributed for informational purposes only and should not
© 2008-2011 by BeyondProxy LLC. All rights reserved. SUBSCRIBE TODAY! www.manualofideas.com
Value-oriented Equity Investment Ideas for Sophisticated Investors
be construed as investment advice or a recommendation
to sell or buy any security or other investment, or
undertake any investment strategy. It does not constitute a
general or personal recommendation or take into account
the particular investment objectives, financial situations,
or needs of individual investors. The price and value of
securities referred to in this newsletter will fluctuate. Past
performance is not a guide to future performance, future
returns are not guaranteed, and a loss of all of the original
capital invested in a security discussed in this newsletter
may occur. Certain transactions, including those involving
futures, options, and other derivatives, give rise to
substantial risk and are not suitable for all investors.
Disclaimers
There are no warranties, expressed or implied, as to the
accuracy, completeness, or results obtained from any
information set forth in this newsletter. BeyondProxy will
not be liable to you or anyone else for any loss or injury
resulting directly or indirectly from the use of the
information contained in this newsletter, caused in whole
or in part by its negligence in compiling, interpreting,
reporting or delivering the content in this newsletter.
Related Persons
BeyondProxy’s officers, directors, employees and/or
principals (collectively “Related Persons”) may have
positions in and may, from time to time, make purchases
or sales of the securities or other investments discussed or
evaluated in this newsletter.
John Mihaljevic, Chairman of BeyondProxy, is also a
principal of Mihaljevic Capital Management LLC
(“MCM”), which serves as the general partner of a private
investment partnership. MCM may purchase or sell
securities and financial instruments discussed in this
newsletter on behalf of the investment partnership or
other accounts it manages.
It is the policy of MCM and all Related Persons to allow a
full trading day to elapse after the publication of this
newsletter before purchases or sales of any securities or
financial instruments discussed herein are made.
Compensation
BeyondProxy receives compensation in connection with
the publication of this newsletter only in the form of
subscription fees charged to subscribers and reproduction
or re-dissemination fees charged to subscribers or others
interested in the newsletter content.
January 31, 2011 – Page 180 of 182
 The Manual of Ideas research team is gratified to have won high praise for our
investment idea generation process and analytical work.

“I highly recommend MOI — the thoroughness of the product coupled with the quality
of the content makes it an invaluable tool for the serious investor.”
—TIM DAVIS, MANAGING DIRECTOR, BLUESTEM ASSET MANAGEMENT

“We do similar work ourselves.”

—GLENN GREENBERG, MANAGING DIRECTOR, BRAVE WARRIOR CAPITAL

“The Manual of Ideas is a tremendous effort and very well put together.”
—MOHNISH PABRAI, MANAGING PARTNER, PABRAI INVESTMENT FUNDS

“Outstanding.”
—JONATHAN HELLER, CFA, EDITOR, CHEAP STOCKS

“Your reports provide serious investors with a plethora of bargain stocks and sound
advice. I highly recommend them.”
—MIGUEL BARBOSA, EDITOR, SIMOLEON SENSE

“Very impressive.”
—SHAI DARDASHTI, MANAGING PARTNER, DARDASHTI CAPITAL MANAGEMENT

“It’s little surprise MOI is a winner. When you start with superior stock screening and
combine it with good judgment, you put yourself in a great position to outperform.”
—MARKO VUCEMILOVIC, FOUNDER AND MANAGING DIRECTOR, ALKAR GLOBAL

“This is the best institutional-quality equity research to come along in a long time. It
not only unearths companies with compelling risk-reward profiles but also analyzes
them with a clear understanding of business economics and competitive dynamics.”
—PAVEL SAVOR, ASSISTANT PROFESSOR OF FINANCE, THE WHARTON SCHOOL

“I am (as always) impressed with your work.”

—MARK SPROULE, SCOPIA CAPITAL

“Keep up the great work, you are quickly becoming one of my must-read sources.”
—CORY JANSSEN, FOUNDER, INVESTOPEDIA.COM

FIND OUT WHAT THE BUZZ IS ABOUT.

WWW.MANUALOFIDEAS.COM
 Subscription Form
Publisher: BeyondProxy LLC

For faster enrollment, subscribe online at www.manualofideas.com

To Do: Please print this form and fill in the following information legibly and completely.

Mail the completed form (and payment) to: BeyondProxy LLC

427 N Tatnall St #27878
Wilmington, DE 19801-2230
Your Information:
Name: ________________________________________________________________________________

Firm: _________________________________________________________________________________

Mailing Address: ________________________________________________________________________

City: ____________________________________________ State (if applicable): __________________

ZIP / Postal Code: __________________ Country: __________________________________________

Email: ________________________________________________________________________________

How Did You Hear About Us? _____________________________________________________

Your Subscription:

Primary Subscriber: 1 ∗ $ 1,285 = $ 1,285

The Manual of Ideas
*
One Year (12 monthly issues) Additional Users: ∗ $ 585 = $

*
Total $
Same company only.

Payment Information:
 Check enclosed (make payable to “BeyondProxy LLC”)
 Email me an electronic invoice payable by credit card via Google Checkout

Confirmation:
We will confirm by email the receipt of your request and welcome you to The Manual of Ideas. Thanks!
Questions about your order? Email us at subscribe@manualofideas.com.