JPMorgan Apple Slideshow

North America Equity Research February 24, 2012
US Equity Strategy FLASH

Too Early to Fade on AAPL. A Cyclical Sector unto Itself and Still Underowned
Portfolio Strategy
Thomas J. Lee, CFA AC (1-212) 622-6505 thomas.lee@jpmorgan.com Bloomberg JPMA TLEE<GO> J.P. Morgan Securities LLC Daniel M. McElligott (1-212) 622-5598 daniel.m.mcelligott@jpmorgan.com J.P. Morgan Securities LLC Katherine C. Khor (1-212) 622-0934 katherine.khor@jpmorgan.com J.P. Morgan Securities LLC
IT Hardware
Mark MoskowitzAC (1-415) 315-6704 mark.a.moskowitz@jpmorgan.com J.P. Morgan Securities LLC Anthony Luscri (1-415) 315-6702 anthony.s.luscri@jpmorgan.com J.P. Morgan Securities LLC Mike Kim (1-415) 315-6755 mike.j.kim@jpmorgan.com J.P. Morgan Securities LLC
See the end pages of this presentation for analyst certification and important disclosures, including non-US analyst disclosures. J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
Outline
Overview: Given upturn in global growth, Cyclicals are leading
Apple Focus #1: A Sector unto itself
Apple Focus #2: Top 10 driver of earnings
Apple Focus #3: Superior comparative fundamentals
Apple Focus #4: Still underowned
Apple Focus #5: Reaching "fair value" implies 30pts of S&P 500 upside, or half of points gain to YE
16 Technology Stock Ideas Highly Correlated with Apple
Fundamental case for Apple: Still Catalysts: Mark Moskowitz

2

Cyclicals and Near-Cyclicals have been the leaders in the market over the past five months, outperforming as the macro environment has improved. Since early October, when the S&P 500 troughed at 1099, global growth prospects improved: (i) the US labor and housing markets have improved; (ii) the risk of a tail event in Europe has diminished; and (iii) China is moving to easing.
Note outperformance of Cyclicals below with 530bp since Octobers low and 330bp YTD. The best performing Sectors within this have been Financials and Technology.
Relative Price Performance of S&P 500 Sectors

% chg
Since October low

Absolute Rank Sector S&P 500 Cyclicals 1 2 3 4 Materials Industrials Technology Discretionary Near-Cyclicals Financials Energy Defensives HealthCare Staples Telecom Utilities Perf 23.9% 29.2% 32.2% 31.4% 26.6% 26.5% 30.8% 30.9% 30.7% 10.5% 16.7% 11.8% 7.6% 5.9% Relative Perf 5.3% 8.3% 7.5% 2.7% 2.6% 6.9% 7.0% 6.8% -13.4% -7.2% -12.2% -16.4% -18.0% Rank Sector S&P 500
2012 YTD
Absolute Perf 8.3% 11.6% 14.1% 12.2% 10.1% 9.7% 10.4% 13.4% 7.5% 0.0% 3.4% 0.7% -0.7% -3.4% Relative Perf 3.3% 5.8% 3.9% 1.8% 1.4% 2.1% 5.1% -0.9% -8.3% -4.9% -7.7% -9.1% -11.8%
1 2
Cyclicals and Near-Cyclicals have been the clear leaders since the October low, as macro conditions have strengthened over the past five months.
Cyclicals 1 2 3 4 Technology Materials Industrials Discretionary Near-Cyclicals Financials Energy Defensives HealthCare Staples Telecom Utilities
Technology and Financials have been the clear leaders YTD.
1 2
1 2 3 4
1 2 3 4
Source: J.P. Morgan and FactSet

Macro scenario for Europe, China, and US housing favor Cyclicals outperformance
Investors still need to re-allocate into equities, particularly Cyclicals and Financials. Consider the scenarios listed below. In each case, US equities are the consistently most attractive, and within US equities, there is a Cyclical bias. But this was not the positioning of investors at the end of 2011--then, risk aversion was so high, being Defensive was the consensus call.
European outlook has been stabilizing recently, with recent developments on Greece showing a more coordinated and
effective effort in the region to resolve the sovereign debt crisis.

Chinas monetary policy has shifted from containing inflation to selective easing in order to promote economic growth. The US Housing market likely bottomed in mid-2011, as evidenced by sharp improvement in housing starts and
homebuilder sentiment.
Macro Scenario Suggests Outperformance for Cyclicals
J.P. Morgan Strategy view on asset class and sectors to own under certain macro conditions
What asset class to own?

US Treasuries Gold Corp bonds Other fixed inc High-yield US equities Euro equities EM equities High-yield US equities Euro equities EM equities High-yield US equities Euro equities EM equities
What sector to own?

Cyclicals Near-Cyclicals (Energy/ Financials) Defensives
European outlook stabilizes
China eases
US Treasuries Gold Corp bonds Other fixed inc
Investors need to be positioned in Cyclicals and Near-Cyclicals in order to outperform under likely macro scenarios.
US housing bottomed in mid-2011
US Treasuries Gold Corp bonds Other fixed inc
Source: J.P. Morgan
US equities likely to outperform under all three projected macro scenarios. 4

Data show Cyclicals are Underowned Active Managers should buy Cyclicals on dips
Below we have summarized the sector weightings of Russell 1000 funds, with an underweight or overweight defined as being 100bp difference compared to the comparable weighting in the Russell 1000. There are some notable conclusions.
50% of funds with data available are UW Cyclicals. Of these funds that are UW Cyclicals, 15% are missing their benchmark
by 250bp YTD, much worse than the 9% of overall Russell 1000 funds that are missing by 250bp YTD. Clearly, being UW Cyclicals is not an effective strategy so far in 2012.
Those funds OW Cyclicals (which is only 35% of funds based on AUM), have outperformed their benchmark by 60bp YTD,
which is 110bp better than the average performance of those funds UW Cyclicals.
The key takeaway is that 50% of funds are UW Cyclicals, and it is these Funds that we believe should make the
rotation into Cyclicals, given the improving macro momentum.

50% of Russell 1000 Funds Are Underweight Cyclicals
Shaded rows indicate a Cyclical Tilt Strategy; OW (UW) defined as fund having weighting of sector that is 100bp greater (less) than weighting in Russell 1000
Fund Sample Size YTD Perf % of Total Total AUM of Funds Avg YTD Relative Total Return 0.0% 0.6% -0.5% 0.2% -0.1% -0.9% 0.5%
% of Funds Beating & Missing Diffusion (% % Funds % Funds missing beating by by 250bp 9% 4% 15% 9% 11% 27% 4% 250bp 8% 14% 5% 12% 10% 2% 13% beating minus % missing) -1% 10% -10% 3% -1% -25% 9%
Funds that are OW Cyclicals are outperforming by 110bp relative to funds that are UW Cyclicals.
Category All Funds Funds OW Cyclicals Funds UW Cyclicals Funds OW Near-Cyclicals Funds UW Near-Cyclicals Funds OW Defensives Funds UW Defensives
Funds
AUM
$417,548 100% $146,130 35% $207,344 50% $67,896 16% $194,559 47% $54,459 13% $210,785 50%
50% of funds are UW Cyclicals.
Source: J.P. Morgan and Bloomberg. Based on funds which reported holdings as of Nov, Dec, or Jan.

As for Sector weightings: 61% of Large-Cap Funds are UW Technology
We also zoomed in more closely on the four Cyclical sectors to determine what is driving the UW positions by active managers.
Technology has the least amount of funds OW the sector of all of the Cyclicals, with only 16% of funds OW Technology. The differential in performance between OW Technology and UW Technology is the greatest, with funds OW Technology
outperforming funds UW Technology by 70bp YTD.

61% of fund managers are UW Technology, a strikingly high level given the strong performance of YTD.
61% of Funds are Underweight Technology
Shaded rows indicate a Cyclical Tilt Strategy; OW (UW) defined as fund having weighting of sector that is 100bp greater (less) than weighting in Russell 1000
Fund Sample Size YTD Perf % of Total Category All Funds Funds OW Industrials Funds UW Industrials Funds OW Discretionary Funds UW Discretionary Funds OW Materials Funds UW Materials Total AUM of Funds Funds AUM $417,548 100% $220,100 53% $64,016 15% $163,445 39% $71,401 17% $126,286 30% $66,340 16% $64,839 16% $253,054 61% Avg YTD Relative Total Return 0.0% 0.2% 0.1% 0.1% 0.2% 0.3% 0.0% 0.5% -0.2%
% of Funds Beating & Missing Diffusion (% % Funds % Funds missing beating by by 250bp 250bp 9% 9% 14% 8% 13% 13% 11% 5% 13% 8% 13% 8% 10% 13% 17% 8% 8% 10% beating minus % missing) -1% 4% -5% 2% 0% 4% -2% 3% -3%
2) The differential in performance between OW and UW Tech is greatest for Technology at 70bp.
1) Of all Cyclicals, fund managers are least OW Technology at only 16% of funds.
Funds OW Technology Funds UW Technology
Source: J.P. Morgan and Bloomberg. Based on funds which reported holdings as of Nov, Dec, or Jan.
3) 61% of funds are UW Technology, an extremely high level given the outperformance of Technology YTD.
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Outline

7

In understanding the mechanics of continuing Cyclical outperformance, we looked at the key players that will likely be driving the rally further. We ranked the top 10 Cyclical stocks in terms of weighting in the S&P 500. AAPL, with 3.7%, is the largest single stock by weighting, and its influence on the markets has been generating significant buzz.
To put the sheer magnitude of AAPLs weighting in the S&P 500 in perspective, we have compared AAPLs weighting
against the 65 GICs Level 3 Industries and the 10 Sectors. When ranked as an Industry, AAPL is the 6th largest Industry by weighting.
As a Sector, AAPL is larger than Materials, Utilities, and Telecom.
Weighting of AAPL in S&P 500 vs. Cyclical stocks, Sectors, and Industries
% of S&P 500 market cap
If AAPL were
a Cyclical Stock
AAPL is the largest single 1 stock in the S&P 2 500. 3
4 5 6 7 8 9 10 Rank Cyclical Stocks Apple Inc. Microsoft Corp. General Electric Co. Google Inc. Cl A Oracle Corp. Intel Corp. Cisco Systems Inc. QUALCOMM Inc. McDonald's Corp. Top 10 Cycl Stocks All Cyclical Stocks
an Industry
Rank Industry 1 2 3 4 Pharmaceuticals Computers & Peripherals Software IT Services Apple Inc. Insurance Food & Staples Retailing Media Top 10 Weighting 5.7% 5.2% 4.2% 3.8% 3.7% 3.4% 3.1% 2.8% 44.9%
Rank 1 2 3 4 5 6 7 8 9 10 11
a Sector
Weighting Technology Financials Energy Staples Health Care Discretionary Inustrials Apple Inc. Materials Utilities Telecom 20.2% 14.2% 11.9% 11.5% 11.2% 10.8% 10.6% 3.7% 3.6% 3.4% 2.6%
Weighting 3.7% 2.1% 1.6% 1.3% 1.2% 1.1% 0.9% 0.8% 0.8% 15.3% 45.2%
Oil Gas & Consumable Fuels 9.8%
International Business Machines Corp. 1.8%
AAPL is 5 basically an 6 industry by 7 itself.

8 9 10
Diversified Financial Services 3.0%
AAPL is basically a sector by itself, and is larger than 3 of the 10 Sectors.

AAPL has been a top contributor to the S&P 500 point gain since Oct low and YTD, even when compared to overall sectors and industries
At the stock level, AAPL has been the #1 driver (out of 500 stocks) of the S&P 500's rally both since the October low and
YTD, contributing 14 points to the rally since October (37% rise for AAPL) and 11 points to the YTD rally (27% rise for AAPL). This large contribution is widely known at this point, however
AAPLs contribution to the rally is also significant even when compared to aggregated industries. Out of the 65 GICS
Level 3 industries, AAPL would be the 2nd-ranked industry since October and 1st-ranked industry YTD based on point contribution to the S&P 500's rally. Think about that, AAPL has contributed more to the S&P 500 rally YTD than any of the 65 industries.
If we view AAPL as its own sector, it is still a meaningful contributor. AAPL has contributed more points to S&P 500 rally
since October than three sectors (Materials, Utilities, and Telecom). YTD, AAPLs contribution is even greater, with AAPLs point-gain contribution ranking higher than six sectors (Energy, Materials, HealthCare, Staples, Telecom, and Utilities).
Contribution to S&P 500 point gain
S&P 500 points
Since October low

Change since October low Price at October low $375 1,099 Price Now $515 1,362 Contribution to S&P 500 Point Delta 14 263 Rank of Contribution to S&P 500 Point Delta Rank out Rank out Rank out of 500 of 66 of 11 Stocks Industries Sectors 1 2 8 YTD Change Price at Start of 2012 $405 1,258 Price Now $515 1,362
2012 YTD
Rank of Contribution to S&P 500 Point Delta Contribution to S&P 500 Point Delta 11 105 Rank out Rank out Rank out of 500 of 66 of 11 Stocks Industries Sectors 1 1 5
Apple Inc. S&P 500
Delta % chg $140 37% 263 24%
Apple Inc. S&P 500
Delta % chg $110 27% 105 8%
Source: J.P. Morgan and FactSet. Note: Ranking excludes AAPL from the Computer & Peripherals industry and from the Technology sector in order to avoid double-counting the impact of AAPL.
AAPL has contributed more points to the S&P 500s rally YTD than any other industry.
Outline

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AAPL and other outliers have meaningful effect on 4Q11
As we discussed two weeks ago, there has been frequent discussion about the outsized role Apples (AAPL-OW) results have had on S&P 500 earnings overall.
AAPLs earnings growth in 4Q11 of 121% contributed 3.5% of the 8.0% YoY earnings for the S&P 500. In other words, 44%
of the S&P 500's earnings growth in 4Q11 came from AAPL.

Apple is not the only stock having a disproportionate impact on the S&P 500 results, however. In 4Q11, the Top 10 stocks
accounted for 7.3% of the S&P 500s 8.0% EPS growth (or $1.65 of the $1.80 YoY increase in 4Q11 EPS), or 92% of earnings growth.
Top 10 Positive Contributors to YoY Delta in 4Q11 EPS
Revenue and Net Income $ in mm
Contribution to S&P 500 EPS Contr to S&P 500 EPS Rank Ticker Name 1 2 3 4 5 6 7 8 9 10 4Q10 4Q11 $1.45 $0.12 $0.18 $0.30 $0.43 $0.17 $0.08 $0.18 $0.17 $3.69 Delta % chg $0.79 121% $0.36 $0.09 113% $0.08 $0.08 40% 22% Growth 3.5% 1.6% 0.4% 0.4% 0.3% 0.3% 0.2% 0.2% 0.2% 0.2% 7.3% 8.0% AAPL Apple Inc. $0.65 AIG American International Group Inc. -$0.24 BAC COP WFC CAT ALL OXY IBM SLB Bank of America Corp. ConocoPhillips Wells Fargo & Co. Caterpillar Inc. Allstate Corp. $0.08 $0.21 $0.35 $0.11 $0.03
Revenue Contr to S&P 500 Rev Growth 0.9% -0.4% 0.1% 0.4% 0.0% 0.2% 0.0% 0.0% 0.0% 0.1% 1.3% 7.8%
$0.07 62% $0.05 181% $0.04 $0.05 $0.04 $1.65 $1.80 29% 8% 30% 81% 8%
Occidental Petroleum Corp. $0.14 Schlumberger Ltd. Sub-Total S&P 500 $0.13 $2.03
AAPL contributed 3.5% of the S&P 500s 8.0% YoY earnings growth in 4Q11, or 44% of the indexs total earnings growth.
International Business Machines Corp. $0.57 $0.62
$22.55 $24.35
11

Contribution of outliers to earnings growth in 2011 is not extraordinary in a historical context
To put the contribution to earnings growth of outliers in 2011 in perspective, we looked at the historical contribution to earnings growth from the top 10 stocks relative to overall S&P 500 earnings growth.
The top 10 outliers have contributed 16% to earnings growth on average over the past 20 years.
Given that overall S&P 500 earnings growth has been only 7-10% on average over the past 20 years, the implication is that
earnings growth overall would actually be flat or negative without the boost provided by the top 10 stocks. This subset of 490 stocks from the S&P 500 has actually seen NEGATIVE 3.3% earnings growth on average over the past 20 years.
Contribution to S&P 500 Earnings Growth from Top 10 Stocks
%; Top 10 stocks based on contribution to YoY delta in S&P 500 net income
75.7%
Top 10 Stocks LT Avg
S&P 500 Earnings Growth Excluding Top 10 Stocks

Since 1990; Top 10 and Bottom 10 stocks based on contribution to YoY delta in S&P 500 net income
22.9% 22.5% 29.2% 2008 -69.1%
-3.7%
S&P 500 excl Top 10

14.6% 9.0%
5.8%
LT Avg
13.9% 13.8%
8.4%
2.9%
41.1%
46.2%
-1.9%
1.9%
Top 10 stocks have historically contributed 16% of S&P 500 earnings growth
-13.8%
-17.9%
13.0%
13.8%
11.8%
10.8%
9.7%
10.0%
10.1%
7.4%
6.9%
8.3%
6.7%
8.9%
5.6%
6.1%
5.4%
4.3%
6.5%
-27.1%
17.0%
17.4%
LT Avg 16.0%
-14.9%
LT Avg -3.3%
-6.2%
4.2%
S&P 500 earnings growth is negative on avg without the boost from the top 10 stocks
1991 1993 1994 1996 1997 1999 2000
1990 1992 1995 1998
but in 2011, EPS was still positive at 7.5% even without the top 10 stocks..
2010 2011
2009
-62.8%
2002
2003
2004
2005
1991
1992
1993
1994
1997
1998
1999
2000
2002
2003
2004
2005
2008
2009
2010
but in 2011, top 10 stocks contributed 6.5% to S&P 500 earnings growth, implying that outliers were less of a driver.
Source: J.P. Morgan and FactSet Source: J.P. Morgan and FactSet
2011
1990
1995
1996
2001
2006
2007
12
2007
2001
2006
7.5%
Outline

13

There is a strong fundamental case supporting AAPL, with sales growth, EPS growth, ROE, and P/E all currently attractive for AAPL. The stock also ranks extremely well on these metrics compared to all S&P 500 stocks, industries, and sectors.
AAPL has the 6th strongest 2012 Sales Growth (out of 500 stocks) with 45% growth. Ranked as both an Industry" and as
a Sector, AAPL's 2012 Sales Growth outpaces all 65 GICS Level 3 Industries and all 10 Sectors.
At 56%, AAPLs 2012 EPS Growth outpaces 471 other stocks in the S&P 500, and when measured against the 65
Industries, it is ranked 5th strongest. On a Sector level, AAPL has the second strongest 2012 EPS Growth, behind Telecom.
In terms of ROE, AAPL is ranked 28th among the 500 constituents of the S&P 500, and 3rd among the 65 Industries.
Ranked among Sectors, AAPL has the strongest ROE.

APPLs 2012 P/E of 12.0x makes it the 130th cheapest stock in the S&P 500, roughly within the top quartile of cheapest
stocks. Compared to the 65 GICS Level 3 Industries, it is the 16th cheapest, which would again put it in the top quartile. On the Sector level, AAPL is more expensive than only 2 Sectors: Financials (10.8x) and Energy (11.3x).
The main takeaway is that AAPL has a strong fundamental case supporting it from several perspectives, which is likely to
help support a continued rally in the stock and thus a continued rally for Cyclicals.
The Attractiveness of AAPL across 4 Metrics
If AAPL was a Stock Rank among 500 (Quartile) 6, (1) 29, (1) 28, (1) 130, (2) Industry Rank among 66 1 5 3 16 Sector Rank among 11 1 2 1 3
Sales growth at 45%, EPS growth at 56%, ROE at 42%, and P/E at 12.0x are all extremely attractive for AAPL currently.
2012 Sales Growth 2012 EPS Growth ROE P/E (2012) (rank 1 = cheapest)
Current Value 45% 56% 42% 12.0x
AAPL is top ranked relative to the 10 sectors on sales growth, EPS growth, ROE, and P/E.
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Outline

15

We compiled a similar analysis to the earlier analysis looking at large-cap mutual fund sector weightings, but instead zoomed in further on the weighting of AAPL within large-cap mutual funds.
40% of large-cap funds do not have AAPL as a top position. Surprisingly, 40% of large-cap funds do not have AAPL as
one of their top 10 positions, despite the stock being the largest stock in the Russell 1000. These 112 funds without a large position in AAPL are also underperforming their benchmark by 60bp YTD. On the other hand, the 60% of funds that do have AAPL as a top 10 holding are underperforming their benchmark by a much smaller margin of only 10bp. Thus, funds that have a large position in AAPL have outperformed those funds without a large position in AAPL by 50bp YTD.
For the funds that have a significant OW position in AAPL (at least 75bp greater weighting within the fund than AAPL's
weighting within the Russell 1000), these funds are actually outperforming by 30bp on average YTD. Thus, being OW AAPL has been a driver of outperformance for mutual funds YTD.
The key takeaway from this analysis is that funds that hold a position in AAPL have seen better performance YTD, and
funds that hold a significant position in AAPL have seen even better performance. Given that we expect further outperformance for Cyclicals such as AAPL over the next several months, this trend of outperformance for funds holding AAPL is likely to continue.
AAPL contribution to Russell 1000 Mutual Funds
AUM in $mm
Fund Sample Size Total
YTD Perf Median YTD Median YTD Relative Total Return Total Return 7.9% -0.2% 8.5% 7.6% 7.8% 8.0% 8.1% 7.6% 0.3% -0.6% -0.4% -0.2% -0.1% -0.6%
% Funds Beating & Missing % Funds % Funds missing beating by by 250bp 250bp 8% 8% 9% 0% 0% 5% 4% 14% 9% 2% 7% 7% 6% 10%
Category All Funds Funds OW AAPL by at least 75bp Fund OW AAPL by 25bp-75bp Funds OW AAPL by 0bp-25bp Funds OW AAPL AAPL in Top 10 Holdings AAPL not in Top 10 Holdings
# of Funds 282 78 45 15 138 170 112
% of All Funds 100% 28% 16% 5% 49% 60% 40%
AUM of % of Total Funds AUM $498,085 100% $132,755 $102,508 $17,863 $253,126 $393,832 $104,253 27% 21% 4% 51% 79% 21%
Mutual funds that are OW AAPL (vs. weighting in Russell 1000) are outperforming their benchmark so far YTD.
40% of funds do not have AAPL as a top 10 position, despite AAPL being the largest stock in the Russell 1000.
Having a large position in AAPL has led to 50bp of relative performance YTD (-10bp minus -60bp). 16
Source: J.P. Morgan and Bloomberg. Note: Data above on weighting of AAPL focuses on funds that had AAPL in the top 10 holdings within the fund, as these funds disclosed this data more easily.

Institutional Ownership of AAPL low, leaving room for increased ownership
Currently, only 72% of AAPLs shares are held by institutional investors.
This is 415bp below the 77% institutional ownership of the S&P 500, meaning Institutional Investors are more UW
AAPL than they are the S&P 500 in general. To compound the UW AAPL effect here, Institutional Ownership of AAPL is actually 500bp below that of the Technology sector, suggesting room for institutional investors to increase their position in AAPL over the coming months.
As a Sector: % of Market Cap Held by Institutional Investors Relative to the S&P 500
% of company market cap, relative to S&P 500 % institutional ownership
Relative % Institutional Ownership

694bp 527bp 440bp
113bp
Absolute % Institutional Ownership

83%
82%
81%
AAPL is UW by 500bp relative to the Technology sector.

72%
59bp
47bp
78%
77%
77%
77% 73% 72%

66%
AAPL is under-owned by institutional investors compared to the S&P 500.

Discretionary HealthCare Technology
Industrials
-385bp -415bp -465bp -1019bp
59%
Discretionary
HealthCare
Financials
Materials
Industrials
S&P 500
Staples
AAPL
Financials
Materials
Telecom
Utilities
Energy
17
Energy
-1782bp
Telecom
Tech
Staples
AAPL
Utilities
Outline

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Apple Focus #5: Reaching "fair value" implies 30pts of S&P 500 upside, or half of the points gain into YE
Apple is potentially one of the larger drivers of points gains into YE (to reach 1430, or 70 points from here). The other being Financials.
For starters, every $100 increase in AAPLs price adds 10 points to the S&P 500. On a valuation basis, if AAPLs relative P/E shifts to 164% of the S&P 500 P/E (which is the historical avg relative P/E for
AAPL since 2005), this would represent 74% upside for AAPL, and add 38 points to the S&P 500, or a 2.8% rise for the overall index.
Using analyst target prices as another scenario, if AAPL were to rise to the price target of $625 from Mark Moskowitz, J.P.
Morgans IT Hardware analyst, this would represent 21% upside for AAPL, which would add 11 points to the S&P 500, or 0.8% upside for the overall index.
Theoretical Impact on AAPL and S&P 500 under different scenarios
Market Cap in $mm; Drivers are shaded
Driver Calculation Implied Methodology Price 1 Each $100 change in AAPL Valuation 2 Trade to Historical Relative P/E of 164% Trades to Historical Relative PEG of 39%
Historical AAPL P/E relativ e to SPX P/E (since 2005) Historical AAPL PEG relativ e to SPX PEG (since 2005) 39% 164% AAPL's P/E rises to 20.9x to reach 164% Rel P/E to the S&P's P/E of 12.7x AAPL's PEG ratio rises to 0.6 from 0.4 to reach the Historical Av erage Relativ e PEG ratio of 39% (S&P 500 currently has a 1.65 PEG ratio)
24%= 39%* 0.4/1 .65 0.4=0.6
A $100 increase in AAPL price adds 10 points to the S&P 500

AAPL Price Implied % S&P 500 Price Implied %
Description
$100 Delta in AAPL price
Value
$100
Description
AAPL trades $10 higher than the current price
Current Value Delta $513 $523 $100
Current Value Delta Chg $513 $613 $100 19%
Current Value Delta Chg 1,358 1,368 10 1%
94%
164% 6951bp
$513
$893
$380 74%
1,358
1,396
38
3%
24%
39%
1476bp
$513
$829
$316 62%
1,358
1,389
32
2%
Moving to historical average adds 32-39 points to the S&P 500, or half of the projected gains of the S&P 500 into YE.
$112 $513 $625 $112 22% 1,358 1,369 11 1%
Analyst Target 4 Moskowitz's Price Target

Target Price Set by JPM Analy st $625 AAPL's Price rises to Moskow tiz's $625 price target
$513
$625
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AAPL is currently undervalued on both absolute and relative P/E
AAPL at its current valuation is undervalued on both an absolute P/E (12.0x vs. 12.7x S&P 500) and a relative P/E (94% vs. historical average of 164%). We plotted the NTM P/E of both the S&P 500 and AAPL below and looked at the discount or premium of AAPL relative to the market:
While AAPL has historically traded at a premium to the S&P 500, this relationship has become dislocated recently with
AAPL now trading at similar multiples despite its strong growth rate.
On a relative P/E basis, at 94%, AAPL is now trading at a 7000bp discount to its historical long term average of 164%.
Absolute NTM P/E for S&P 500 and AAPL

NTM, since 2005
Relative NTM P/E for AAPL

NTM, since 2005
SPX NTM P/E
AAPL NTM P/E
Rel AAPL NTM P/E
Long Term Avg
50.0x 45.0x 40.0x 35.0x 30.0x 25.0x 20.0x 15.0x 10.0x 5.0x
300%
but now trading at similar multiples despite its still strong growth rate. AAPL used to trade at a big premium
250% 200%
Long Term Avg 164%
150%
2/24/12 12.7x 2/24/12 12.0x 100% 50%
7000bps cheaper than historical avg 2/24/12

94%
0.0x 1/05 7/05 1/06 7/06 1/07 7/07 1/08 7/08 1/09 7/09 1/10 7/10 1/11 7/11 1/12
0%
1/05 7/05 1/06 7/06 1/07 7/07 1/08 7/08 1/09 7/09 1/10 7/10 1/11 7/11 1/12
Source: J.P. Morgan, FactSet, Bloomberg
20
And similarly, PEG ratios also indicate that AAPL is trading at a discount
To further advance the point that AAPL is currently undervalued, consider its absolute PEG and relative PEG ratios:
Historically, AAPLs PEG ratio has been at similar multiples or at a premium to the S&P 500. However, at current
valuations, AAPL is undervalued relative to the S&P 500 on a PEG ratio basis.
When we consider AAPLs relative PEG ratio, (PEG of AAPL relative to PEG of S&P 500), AAPL is currently trading
1500bps below its historical average.

Any move from this point to return to fair value can potentially lead to 30 points of upside for the S&P500, which is half the
points needed to drive us closer towards out 1430 YE Target.
Absolute NTM PEG Ratio for S&P 500 and AAPL

NTM, since 2005
Relative PEG for AAPL

NTM, since 2005
SPX PEG
AAPL PEG 2/24/12 1.65
Rel PEG
Long Term Average
3.00
2.00 1.00
150%
100% 50%
Long Term Average 39%
0.00
-1.00 -2.00
2/24/12 0.40
0%
(50%) (100%)
AAPL is undervalued on a Rel PEG basis by 2/24/12 1500bps 24%
AAPL is undervalued on PEG ratio
-3.00
1/05 7/05 1/06 7/06 1/07 7/07 1/08 7/08 1/09 7/09 1/10 7/10 1/11 7/11 1/12
(150%)
1/05 7/05 1/06 7/06 1/07 7/07 1/08 7/08 1/09 7/09 1/10 7/10 1/11 7/11 1/12
21
Outline

22

We compiled a list of 16 stocks, based on names highly correlated to Apple. We thought about compiling a list of companies in the Apple value chain, made up of component suppliers and beneficiaries of the end markets, but this ended up identifying a lot of foreign corporations. Instead, we asked our derivatives team to identify stocks highly correlated to Apple and we further narrowed this using the following criteria:
(i) Stocks in the Technology sector; (ii) 1-year historical correlation to Apple stock > 55%; (iii) 2012 P/E ratio <15.0x;
(iv) Rated Overweight or Neutral by J.P. Morgan; and (v) Market Value >$1bn.
These 16 stocks have an average 60% 1yr historical correlation to Apple stock, an implied upside to J.P. Morgan analysts
target prices of 8%, and a 2012 average P/E of 11.7x.

J.P. Morgan Derivatives & Delta One Strategy has also created a basket for investors who would like to leverage this
theme. The basket can be found on Bloomberg under ticker JPUSAAPL Index.
16 Technology Stocks Highly Correlated with AAPL
Priced as of 02/22/2012
JPM Coverage Ticker NCR VSH DELL CA Current Price $21.58 $12.57 $17.15 $26.93 $46.52 $9.04 $12.90 $8.33 $30.77 $61.32 $39.56 $25.69 $7.14 Market Cap $3,401 $1,807 $30,810 $13,078 $1,853 $4,066 $16,696 $4,694 $5,266 $2,377 $9,294 $5,383 $4,976 JPM Rtg JPM Analyst OW Paul Coster, CFA OW Steven J. O'Brien OW Mark Moskowitz OW John DiFucci OW Paul Coster, CFA OW Doug Anmuth OW Christopher Danely N Christopher Blansett OW Mark Moskowitz N Harlan Sur N Sterling Auty, CFA N Tien-tsin Huang, CFA N Mark Moskowitz OW Steven J. O'Brien N Christopher Danely N Christopher Danely Target Implied Price Upside $27.00 $15.50 $21.00 $32.00 $52.50 $686.00 $10.00 $14.00 $210.00 $9.00 $33.00 $61.00 $39.00 $25.00 $25.00 $6.00 25% 23% 22% 19% 13% 13% 11% 9% 8% 8% 7% -1% -1% -3% -6% -16% 8%
ValuationAAPL Correlation 2012 P/E 9.0x 12.8x 8.2x 10.8x 12.1x 14.3x 14.1x 13.5x 13.0x 14.4x 11.7x 14.4x 6.9x 10.0x 11.1x 11.0x 11.7x 1yr 67% 59% 62% 55% 58% 64% 65% 57% 61% 62% 68% 59% 58% 56% 60% 57% 60% 5yr 49% 54% 54% 48% 43% 65% 55% 51% 57% 42% 37% 33% 52% 50% 53% 46% 49%
Name 1 NCR Corp. 2 Vishay Intertechnology Inc. 3 Dell Inc. 4 CA Inc. 5 Itron Inc. 6 Google Inc. Cl A 7 ON Semiconductor Corp. 8 Applied Materials Inc. 10 LSI Corp. 11 Amdocs Ltd. 12 Wright Express Corp. 13 Western Digital Corp. 14 Jabil Circuit Inc. 15 Intel Corp. 16 Advanced Micro Devices Inc. Average
Source: J.P. Morgan estimates and FactSet.
Sub-Industry Computer Hardware Electronic Components Computer Hardware Systems Software Internet Software & Services Semiconductors Semiconductor Equipment Semiconductors IT Consulting & Other Services Computer Storage & Peripherals Semiconductors Semiconductors
Electronic Equipment & Instruments ITRI ONNN AMAT IBM LSI DOX WDC INTC AMD
GOOG $607.94 $156,825
9 International Business Machines Corp. Consulting & Other Services IT
$193.87 $224,889
Data Processing & Outsourced Services WXS Electronic Manufacturing Services JBL
$26.73 $136,109
23
Outline

24
Fundamental case for Apple: Still Catalysts

In Its Own Orbit: Low Penetration Rates and Social Networking Enablement to Sustain High-Growth
With Apple (AAPL, $516.39), we reiterate our Overweight rating and Dec-12 price target of $625. The stock remains on the J.P. Morgan Analyst Focus List. Although the stock is trading north of $500, we think that there is substantial appreciation potential from current levels. In our view, the best part of Apples risk-reward profile is that plenty more upside potential exists, likely elevating Apple's revenue and earnings growth to a completely new orbit. In other words, Apple is in a league of its own.
Apple continues to disrupt the tech playing field. With its optimized smartphone, tablet, and notebook PC form factors,
complemented by its iTunes/App Store ecosystem, the company single-handily has disrupted the technology playing field. The supply chain has been impacted, and there also has been a splintering of the Wintel and Android-based camps. As a result, we expect many industry participants to be left scrambling to restore relevance in the next few years.
Low penetration rates to sustain high-growth stature. Apples penetration rates in its end markets and customer
verticals have plenty of upside, in our view. For example, in smartphones, Apples global market share is 19%, versus 30% in the U.S. In PCs, Apples global market share is 5%, versus 11% in the U.S. As Apple begins to drive another halo-effect with the iPhone and iPad in China and later in Latin America, we believe Apple device sales stand to exhibit a series of growth spurts. Plus, there is still the relatively untapped opportunity of the enterprise.
Social media/networking enablement is a long-term tailwind. We believe that Apples portfolio of feature rich devices
should be a lead beneficiary of the social media/networking adoption curve. In our view, Apple's devices enable users to easily access and participate in social media/networking experiences. While other device vendors stand to benefit as well, we believe that Apple's devices should lead the charge, given ease-of-use, reliability, and Apples common user interface.
Dividend could create a scarcity issue. We believe that the initiation of a dividend program could create a scarcity issue
with respect to Apple shares. Reason being, Apple is under-owned institutionally. Apple is the largest stock in the Russell 1000, but 40% of mutual funds indexed to the Russell 1000 do not have Apple as a top 10 holding. Plus, in the event of a dividend initiation, many income-based funds would be forced to scramble to build positions, likely creating a scarcity issue.
25

Investment Thesis
With Apple, we reiterate our Overweight rating and Dec-12 price target of $625. The stock remains on the J.P. Morgan Analyst Focus List. Although the stock is trading north of $500, we think that there is substantial appreciation potential from current levels. In our view, the best part of Apples risk-reward profile is that plenty more upside potential exists, likely elevating Apple's revenue and earnings growth to a completely new orbit. In other words, Apple is in a league of its own. Key growth drivers include 1) Apples low market penetration rates in tablets, PCs, China, and the enterprise, 2) the relative growth prospects of its key end markets versus other tech segments, and 3) Apples role in enabling the social media/networking adoption curve. In total, we believe that these drivers can sustain the relative outperformance of Apple's operating model and stock, as illustrated in the below figure.
Apple Stock Price Performance versus Large Cap Tech and Broader Market Indices
January 3, 2007 to February 22, 2012
700
600
500
400
300
200
100
0 Jan-07
Sep-07
Jun-08
Mar-09
Dec-09
Sep-10
May-11
Feb-12
Apple
Large Cap
NASDAQ
S&P 500
Note: Large Cap index includes: AAPL, EMC, DELL, HPQ, IBM, LXK, NTAP, and XRX. Source: Bloomberg.
26

Apple continues to disrupt the technology playing field
In our view, Apple has become the leader of the mobility age from a device and content perspective. With its optimized smartphone, tablet, and notebook PC form factors, complemented by its iTunes/App Store ecosystem, the company singlehandily has disrupted the technology playing field. The supply chain has been impacted, and there also has been a splintering of the Wintel and Android-based camps. As a result, we expect many industry participants to be left scrambling to restore relevance in the next few years. It is no secret that a tenacious focus on both innovation and design has helped Apple cement its leadership in offering userfriendly, content-driven device experiences. A critical driver to Apples success has been the company's focus on owning the hardware and software platforms. Plus, the company steadily has become tightly integrated with the supply chain, due to 1) its above-market growth attributes and 2) strategic investments in the capital equipment footprints of key suppliers. All of these factors have combined to propel Apples growth trajectory relative to its end markets. As the below table illustrates (Table 1), the company has delivered above-peer growth in smartphones, tablets, and Mac.
Table 1: Apple Segment Unit Growth Rates vs. Broader Tech Segments
Annual percentage growth based on calendar year units
2007 iPhone Smartphone mkt growth % iPad Tablet market growth % Mac PC market growth % 37.3% 14.3% -53.6%
2008 269.2% 26.1%
2009 83.6% 11.5%
2010 89.2% 73.4%
2011 96.1% 53.5% 173.8% 228.1%
2012E 38.3% 43.2% 44.8% 55.2% 16.3% -1.4%
2013E 17.6% 32.2% 27.1% 33.5% 16.0% NA
27.8% 10.7%
13.2% 5.5%
28.5% 13.8%
23.3% 0.5%
Source: Company reports and J.P. Morgan estimates.
27

Plus, as the two tables below illustrate, Apples overall revenue and earnings growth trajectories and how they have outpaced the large cap technology peers by a wide margin. We expect these trend-lines to continue in Apples favor.
Table 2: Revenue Growth YoY - Apple versus Technology Peer Group
Annual revenue growth percentage
Apple Amazon Cisco Dell EMC Google HP IBM Microsoft Oracle RIM Samsung Peer Group Avg. (Ex. Apple)
2007 35% 39% 18% 6% 19% 13% 8% 26% 24% 90% 14%
2008 40% 29% 5% 0% 12% 0% 5% 7% 17% 88% -9%
2009 20% 28% -10% -13% -6% 9% -10% -8% -5% -2% 51% 22% -1%
2010 63% 40% 19% 16% 21% 24% 9% 4% 14% 39% 29% 18% 16%
2011 68% 41% 6% 1% 18% 29% -2% 7% 8% 14% 8% 3% 7%
2012E 27% 29% 7% 1% 10% 18% -2% 1% 7% 4% -12% 18% 7%
2013E 15% 27% 7% 4% 9% 17% 2% 4% 8% 8% -1% 7% 8%
CAGR 37% 33% 7% 2% 12% 19% 1% 3% 9% 14% 31% 10% 7%
Table 3: Non-GAAP EPS Growth YoY - Apple versus Technology Peer Group
Annual non-GAAP EPS growth percentage
Apple Amazon Cisco Dell EMC Google HP IBM Microsoft Oracle RIM Samsung Peer Group Avg. (Ex. Apple)
2007 67% 134% 23% 15% 32% 34% 18% 50% 32% 88% -7%
2008 62% 30% 2% 10% 3% 10% 25% 1% 22% 73% -48%
2009 37% 47% -13% -28% -17% 19% 4% 13% -4% 7% 24% 69% 35%
2010 75% 20% 19% 52% 51% 28% 22% 16% 31% 27% 45% 89% 56%
2011 96% -20% 6% 34% 21% 22% -9% 15% 17% 21% -11% -12% -1%
2012E 27% -4% 15% 1% 16% 15% -7% 11% 2% 3% -45% 35% 21%
2013E 11% 44% 15% 10% 17% 18% 5% 11% 15% 12% 5% 11% 13%
CAGR 51% 29% 9% 11% 16% 20% 8% 15% 15% 17% 17% 11% 23%
Source: Company reports, J.P. Morgan estimates and Bloomberg.
28

Below, we also present the trend-line of Apples margin expansion during the company's major revenue growth phase. The key message is that with Apple, revenue growth does not come at the expense of profit growth, and we do not expect this approach to change.
Table 4: Apple Operating Metrics The Trends Tell the Story of Profitable Growth
%, based on calendar year
2007 Revenue growth % Gross margin % Operating margin % EPS growth % 34.8% 33.5% 18.9% 66.6%
2008 39.6% 36.7% 23.7% 61.9%
2009 19.9% 40.9% 28.6% 37.3%
2010 63.3% 38.8% 28.2% 74.8%
2011 67.6% 42.4% 33.9% 96.0%
2012E 27.2% 43.1% 34.4% 26.6%
2013E 14.8% 42.5% 33.8% 11.4%
Source: Company reports, J.P. Morgan estimates and Bloomberg.
29

Low penetration rates to sustain high-growth stature
We believe that Apple can continue to outgrow its technology peers beyond the near term. The companys penetration rates in its end markets and customer verticals have plenty of upside, in our view. For example, in smartphones, Apples global market share is 19%, versus 30% in the U.S (Table 5). In PCs, Apples global market share is 5%, versus 11% in the U.S. As Apple begins to drive another halo-effect with the iPhone and iPad in China and later in Latin America, we believe Apple device sales stand to exhibit a series of growth spurts.
In China and other parts of Asia, it is important to note that the company is just getting started. China alone represents 20% of global tech spending. There is also India, and after that, we expect Latin America to be a focal point in coming years due to the economic expansion of that region, as affirmed by the future Olympics and World Cup selections. Plus, there is still the relatively untapped opportunity of the enterprise for all geographies. Recently, General Electric and Halliburton announced ongoing initiatives or plans to use more Apple devices, which we think could set the stage for greater sales of Macs in addition to iPhones and iPads.
In smartphones, Apple has enjoyed a meaningful rise in global market share based on units. While we do not have explicit market share for revenue, we estimate that the $200-plus premium in subsidy rates attached to the iPhone versus competitive smartphones has enabled Apple to possess revenue share more than 2 times that of its unit market share.
Table 5: Apple Worldwide Smartphone Market Share
Percentage based on total units
2008 Global smartphone market share U.S. smartphone market share Asia-Pacific smartphone market share
Source: Gartner.
2009 14.4% 24.4% 7.6%
2010 15.6% 22.9% 12.9%
2011 18.9% 30.1% 14.6%
8.2% 19.0% 2.8%
Table 6: Apple PC Market Share Summary

Percentage based on total units
2007 Global PC market share U.S. PC market share Asia-Pacific PC market share
Source: Gartner.
2008 3.4% 8.4% 0.9%
2009 3.6% 8.2% 1.0%
2010 4.1% 9.1% 1.6%
2011 5.0% 11.2% 2.5%
2.9% 6.8% 0.8%
30

Valuation
Our price target is derived from a weighted blend of EV/EBITDA and P/E scenarios utilizing historical peak/trough multiples. With Apple, we think it is time for the value stock valuation multiples to be re-rated higher. Our revenue and EPS growth estimates position Apple as the lone star in large cap tech. Currently, Apple trades at 11.6x our C2012 EPS estimate, versus the peer group average of 12.1x. In our view, Apple is trading like a distressed value stock and not as the high-growth story in large cap tech. We expect Apple to continue outperforming on both top- and bottom-line growth metrics relative to the peers as the companys rapid growth phenomena of the iPhone and iPad intensify. Plus, do not forget about the Mac business, we think that the companys incremental market penetration opportunities can help the Mac become a major contributor to overall company growth in the coming years.
Table 7: Apple Inc. P&L Scenarios
$ in millions, except per share data, C2012
Worst Case $147,017 15.0% $42,635 29.0% 500 $43,135 $10,875 25.2% $33.97 -3.2% 950 $3,250 $45,885 31.2% Base Case $162,579 27.2% $55,941 34.4% 500 $56,441 $14,229 25.2% $44.45 26.6% 950 $3,250 $59,191 36.4% Best Case $171,946 34.5% $65,340 38.0% 500 $65,840 $16,599 25.2% $51.86 47.7% 950 $3,250 $68,590 39.9%
Table 8: Apple Inc. EV/EBITDA

$ in millions, except per share data, C2012
Worst Case 8.5x $390,026 ($133,762) $523,788 $551.62 20% $597.44 Base Case 7.5x $443,934 ($133,762) $577,696 $608.39 60% Best Case 6.5x $445,834 ($133,762) $579,596 $610.40 20%
Sales Y/Y growth % Operating profit % of sales Interest/other inc. (exp.) Pre-tax income Income taxes Tax rate EPS Y/Y growth % Diluted shares D&A EBITDA % of sales
EV/EBITDA multiple Implied enterprise value Net debt Implied market cap Implied stock price Probability Average stock price
Source: J.P. Morgan estimates. Note: Base case represents current J.P. Morgan estimates.
Table 9: Apple Inc. Forward P/E

P/E Multiple Implied stock price Probability Average stock price Worst Case 16.5x $560.58 20% $652.23 Base Case 15.0x $666.82 60% Best Case 13.5x $700.08 20%
Table 10: Apple Inc. Blended Price Target

EV/EBITDA P/E Average stock price
Source: J.P. Morgan estimates.
Price $597.44 $652.23 $625.00
Weight 50% 50%
31

Risks to Rating and Price Target
Macroeconomic and secular conditions
We assume that Apple possesses partial buffers to any shocks in the macroeconomic environment or the ASP challenges in the PC or smartphones markets. Should incremental weakness blunt end market demand more than expected or slow Apples International and retail store expansion, then our view and estimates could be at risk.
Competitive dynamics
We assume that Apple will continue to outgrow the market in smartphones, tablets, and PCs. Should competitive responses in these three segments disrupt Apples business, then our view could be at risk to the downside.
Gross margin
Our view assumes that Apples gross margin profile hovers near the 39-40% threshold as component pricing eases and manufacturing yields on newer products improve. Should these dynamics not manifest, then our view and estimates could have risk to the downside.
Rate of new product cycles

We expect Apple to sustain its rigid cycle of new product refreshes. Should the company begin to slow in its technology improvements and frequency of refreshes, the companys image as a provider for leading-edge solutions could take a hit. In such a case, we fear that investors could begin to lose interest in the story.
32
Disclosures
Important Disclosures
Market Maker: JPMS makes a market in the stock of Apple Inc.. Client: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients: Apple Inc.. Client/Non-Investment Banking, Securities-Related: J.P. Morgan currently has, or had within the past 12 months, the
following company(ies) as clients, and the services provided were non-investment-banking, securities-related: Apple Inc..
Non-Investment Banking Compensation: J.P. Morgan has received compensation in the past 12 months for products or
services other than investment banking from Apple Inc.. Company-Specific Disclosures: Important disclosures, including price charts, are available for compendium reports and all J.P. Morgancovered companies by visiting https://mm.jpmorgan.com/disclosures/company, calling 1-800-477-0406, or emailing research.disclosure.inquiries@jpmorgan.com with your request.
33
Disclosures
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34
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North America Equity Research February 24, 2012

US Equity Strategy FLASH

Overview: Given upturn in global growth, Cyclicals are leading

Apple Focus #1: A Sector unto itself

Apple Focus #2: Top 10 driver of earnings

Apple Focus #3: Superior comparative fundamentals

Apple Focus #4: Still underowned

16 Technology Stock Ideas Highly Correlated with Apple

Fundamental case for Apple: Still Catalysts: Mark Moskowitz

Overview: Given upturn in global growth, Cyclicals are leading

Relative Price Performance of S&P 500 Sectors

Since October low

Technology and Financials have been the clear leaders YTD.

Source: J.P. Morgan and FactSet

Overview: Given upturn in global growth, Cyclicals are leading

effective effort in the region to resolve the sovereign debt crisis.

What asset class to own?

What sector to own?

European outlook stabilizes

US Treasuries Gold Corp bonds Other fixed inc

Cyclicals Near-Cyclicals (Energy/ Financials) Defensives

US housing bottomed in mid-2011

US Treasuries Gold Corp bonds Other fixed inc

Cyclicals Near-Cyclicals (Energy/ Financials) Defensives

Source: J.P. Morgan

US equities likely to outperform under all three projected macro scenarios. 4

Overview: Given upturn in global growth, Cyclicals are leading

rotation into Cyclicals, given the improving macro momentum.

50% of funds are UW Cyclicals.

Overview: Given upturn in global growth, Cyclicals are leading

outperforming funds UW Technology by 70bp YTD.

Funds OW Technology Funds UW Technology

Overview: Given upturn in global growth, Cyclicals are leading

Apple Focus #1: A Sector unto itself

Apple Focus #2: Top 10 driver of earnings

Apple Focus #3: Superior comparative fundamentals

Apple Focus #4: Still underowned

16 Technology Stock Ideas Highly Correlated with Apple

Fundamental case for Apple: Still Catalysts: Mark Moskowitz

Apple Focus #1: A Sector unto itself

Oil Gas & Consumable Fuels 9.8%

International Business Machines Corp. 1.8%

AAPL is 5 basically an 6 industry by 7 itself.

Diversified Financial Services 3.0%

AAPL is basically a sector by itself, and is larger than 3 of the 10 Sectors.

Apple Focus #1: A Sector unto itself

Since October low

Apple Inc. S&P 500

Delta % chg $140 37% 263 24%

Apple Inc. S&P 500

Delta % chg $110 27% 105 8%

Overview: Given upturn in global growth, Cyclicals are leading

Apple Focus #1: A Sector unto itself

Apple Focus #2: Top 10 driver of earnings

Apple Focus #3: Superior comparative fundamentals

Apple Focus #4: Still underowned

16 Technology Stock Ideas Highly Correlated with Apple

Fundamental case for Apple: Still Catalysts: Mark Moskowitz

Apple Focus #2: Top 10 driver of earnings

of the S&P 500's earnings growth in 4Q11 came from AAPL.

International Business Machines Corp. $0.57 $0.62

Source: J.P. Morgan and FactSet

Apple Focus #2: Top 10 driver of earnings