Quarterly Research Summary April 2019
Please refer to pages 22 - 29 of this report for detailed disclosure and certification information
It should not be assumed that recommendations made in the future will be profitable or will equal the performance of the securities in this list Table of Contents
2019 Market & Economic Outlook – Q1 Update ...... 1 James D. Ragan, CFA, Director of WM Research
Focus List ...... 6 First Quarter Update ...... 7 Portfolio Overview ...... 8
Dividend Achievers ...... 9 First Quarter Update ...... 10 Portfolio Overview ...... 11
ESG Achievers ...... 12 First Quarter Update ...... 13 Portfolio Overview ...... 14
Income Opportunities ...... 15 First Quarter Update ...... 16 Portfolio Overview ...... 17
WM Research – Primary Coverage Summary ...... 18
U.S. Equities Performance Report ...... 19
International Equities Performance Report ...... 20
U.S. Economic Report ...... 21
Required Disclosures ...... 22 Wealth Management Research April 2019
2019 Market & Economic Outlook – Q1 Update James D. Ragan, CFA, Director of Research, Wealth Management Originally published 4/11/19
Outlook Summary: Equity markets rebounded strongly in 1Q 2019, as the S&P 500 index total return (includes dividends) of 13.6% was the best quarterly return since 3Q 2009 (9 ½ years) and followed the 4Q18 decline of 13.5%, which was the worst quarter since 3Q 2011. In 2019’s first quarter, the S&P 500 recovered most of its late 2018 decline and rallied 20.4% from the Christmas Eve lows of 12/24/18. We attribute the rapid “V- shaped” recovery to a major reversal in investor sentiment, caused primarily by a notable change in interest rate commentary from the U.S. Federal Reserve Bank (Fed), optimism on China trade negotiations, and a more measured outlook for U.S. economic growth in 2019. U.S. market gains were broad-based, as all 11 S&P 500 sectors were higher. The returns for both the Nasdaq Composite and Russell 2000 (small caps) exceeded the S&P 500, and both growth stocks and value stocks produced strong gains. Strength in U.S. equity markets pulled global returns higher as well, with double-digit quarterly equity returns in the majority of developed and emerging foreign markets. Markets rallied and sustained gains despite a persistent decline in S&P 500 earnings estimates, evidence of slowing economies in Europe and China, and a very flat U.S. interest rate yield curve, which briefly inverted in late-March when the 3-month Treasury yield traded above the 10-year Treasury yield. Entering the second quarter, U.S. economic data has improved and full-year earnings growth is expected; but market valuations have moved higher since year-end, and S&P 500 corporate earnings are expected to decline year-over-year for the first time in 11 quarters in 1Q. We believe that investors should temper near-term equity return expectations as uncertainty could lead to renewed volatility. We retain our overall positive outlook however, and we have modestly increased our S&P 500 fair value estimate to 2,950 from 2,900 as we look to earnings expectations over the next four quarters. We continue to stress the importance of managing equity portfolios that are diversified across sectors and to consider dividends as an important component of total return. S&P 500 Forward P/E Ratio (next 12 months) US 10-Year Treasury Yields 8% 28x Average
26x 7% 24x 6% 22x
20x 5% 18x 16.72x 4% 16x 15.71x 3.48% 14x 3% 12x 2.50% 2% 10x
8x 1% 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
Data source: FactSet as of 4/9/19
Our 2,950 S&P 500 price target represents a P/E of 17.1x current next 12-month (NTM) FactSet consensus EPS estimate of $172.44. The index currently trades at 16.7x that estimate, which is above the average S&P 500 P/E of 15.7x (in a range of 10x to 27x) since 2000. At year-end 2018, S&P 500 P/E was at 14.5x, its lowest valuation in five years. Typically, we associate lower S&P 500 P/E ratios with a downturn in earnings and/or economic activity, and often a fear of rising interest rates that could put the brakes on growth; in 1Q19, it was the former. Not only did the economic outlook weaken (soft December retail sales trends carried into January), but also consensus S&P 500 earnings estimates deteriorated from expected growth of 4% in January to an expected decline of 4% by late March. Meanwhile, long-term interest rates dropped in 1Q19 as the 10-year Treasury yield ended March at 2.42%, down from 2.68% on 12/31/18 and 3.23% in November 2018. This yield remains significantly below the 10-year average of 3.5% since 2000. We believe that low interest rates support higher equity valuations and, given our view for full-year 2019 earnings growth and U.S. GDP growth of 2.5%, a P/E multiple of 17x is appropriate. In the current environment, the potential for multiple expansion is limited so we believe that equity market gains from current levels will approximate earnings growth (up low to mid-single digit percentages) plus dividends.
1 Wealth Management Research April 2019
S&P 500 Sector Returns – 1Q19 & Full-Year 2018
25%
1Q19 2018 20% 19.4%
16.6% 16.6% 15.4% 15.3% 15% 13.6% 13.1% 11.2% 9.9% 10% 9.7% 7.9% 6.1% 4.7% 5%
0.5% 0% -0.5% -1.6%
-5% -5.6% -6.2%
-10% -11.2%
-15% -15.0% -14.7% -16.4% -16.4% -20% -20.5%
-25% Info Real Estate Industrials Energy Consumer Comm S&P 500 Consumer Utilities Materials Financial Health Care Technology Discretionary Services Staples Data source: FactSet as of 3/31/19
After the Fed announced a 25 basis points (bp) increase to its fed funds interest rate target on 12/19/18, the equity market sell-off accelerated and bottomed three trading days later on 12/24/18, reaching a decline of 19.8% from its late-September 2018 all-time high. This was the fourth fed rate increase of 2018, and put the fed funds target range at 2.25% to 2.50%. Equity market reaction was immediately negative because the Fed raised rates despite emerging “cross currents” that could limit global growth, and the Fed’s Summary of Economic Projections (often called the “dot plot”) still predicted two rate increases in 2019. Investors viewed the December outlook for future rate hikes as a potential policy mistake that could derail an economy that was already slowing. Fed Chair Jerome Powell quickly pivoted and began communicating a message that future rate hikes would be data-dependent and were not on a preset path. The FOMC held two meetings in 1Q19; the first ended on 1/30/19 with no rate hikes, and the second concluded on 3/20/19, also with no rate hikes. At the March meeting, the updated dot plot revealed a reduced outlook for 2019 GDP growth to 2.1% from 2.3% in December, and a year-end 2019 fed funds target of 2.4%, indicating revised expectations for no rate hikes in 2019. As the first quarter progressed, investors embraced the Fed’s dovish reversal and the threat of an additional series of rate hikes policy mistake has faded as a market risk. In fact, the fed funds futures market now is predicting the next Fed move is a fed funds rate reduction, with a 54% chance of at least 25bp cut by December. Federal Reserve "Dot Plot" as of 3/20/19 * 2019 2020 2021 U.S. GDP Growth 2.1% 1.9% 1.8% September projection 2.3% 2.0% 1.8% Unemployment Rate 3.7% 3.8% 3.9% September projection 3.5% 3.6% 3.8% Core PCE Inflation 2.0% 2.0% 2.0% September projection 2.0% 2.0% 2.0% Year-End fed funds rate 2.4% 2.6% 2.6% September projection 2.9% 3.1% 3.1% *reflects the median estimates from Federal Reserve Board members and Federal Reserve Bank presidents Data source: U.S. Federal Reserve The change in Fed policy led to lower rates across the yield curve as the 2-year Treasury yield dropped to 2.27% from 2.50% and the 10-year yield was 2.42% from 2.68%. Equity investors largely ignored a yield curve inversion at the short-end of the curve as 3-month Treasury yields moved above 10-year yields in late March (although at month’s end the spread was slightly positive again). A yield curve inversion between the 3-month vs.10-year and the 2-year vs. 10-year has historically preceded a U.S. recession by 12 to 18 months, but market gains often continue as yield curves flatten. Yields typically remain inverted for weeks or months; in this case, 10-year yields moved higher after a few days, perhaps due to modestly improving economic data. We continue to closely watch the 2-year vs. 10-year spread, which has remained positively sloped.
2 Wealth Management Research April 2019
U.S.10-Year Yield less 3-Month Yield Treasury Spread 6%
5%
4%
3%
2%
1%
0% 0.05%
-1%
-2% 1990 2000 2010
Data source: FactSet through 4/10/19 (recession periods shaded)
Other factors that eroded investor confidence in 4Q18 have improved as well, including a more constructive view of 2019 U.S. GDP growth potential, optimism regarding U.S. and China trade talks, and a dramatic rebound in oil prices. U.S. 4Q18 GDP growth was 2.2%, a downtick from 3Q18 and 2Q18 GDP growth 3.4% and 4.2%, respectively, but enough to deliver full-year GDP growth of 2.9% in 2018 compared to 2.2% in 2017. The main driver of GDP, consumer spending, grew 2.6% in 2018, vs. 2.5% growth in 2017, while business fixed investment surged 6.9% in 2018 after 2017’s 5.3% growth. Federal government expenditures grew 2.6%, up from 0.7% growth the year before. Consumer spending growth slowed in 4Q18, including disappointing holiday dales in December, and consumer contribution to 4Q GDP was the lowest since 2015. This caused investor fear to end the year, as consumer spending comprises 68% of U.S. GDP. First quarter GDP expectations were low, but data improved from January to March, driving expectations that the U.S. economy has momentum entering Q2. While the FactSet economist consensus for 1Q19 GDP is 1.6% (down from 2.1% in February), the Atlanta Fed GDP Now estimate for 1Q has risen to 2.3% from 0.3% in February. The Atlanta Fed number incorporates data only as reported, so its estimate reflects an improving trend since the beginning of the year. New jobs growth of 180,000 per month in 1Q slowed from a pace of 223,000 monthly in 4Q18, but average hourly earnings (wages) grew at least 3.2% year-over-year for the past eight consecutive months. We believe that GDP growth will moderate in 2019, but do not see evidence of a steep downturn or recession at this time. In our view consumer spending and business investment trends can drive 2019 GDP growth approaching 2.5%.
U.S. Consumer Confidence & Small Business Optimism U.S. Consumer Spending (PCE) - Quarterly Y/Y% 160 5%
140 4%
120 124.10 3% 2.57% 100 101.80 2%
80 1%
60 0%
40 -1%
20 Consumer Confidence Index, SA -2% NFIB Small Business Optimism Index, SA Recession Periods 0 -3% 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Data source: FactSet as of 3/31/19
3 Wealth Management Research April 2019
While several outstanding U.S. trade disputes remain unresolved, investor sentiment has improved due to progress on negotiations with China. Trade issues with China under the Trump Administration date back to 1Q18 when the U.S. imposed tariffs on Chinese imported solar cells, washing machines, steel and aluminum. The U.S. trade deficit in goods with China had ballooned to $376 billion (B) in 2017, comprising 47%of the U.S.’ total global trade deficit. Following unsuccessful trade talks in May 2018, the U.S. announced a new round of tariffs, 10% on $200B of imports, which were enacted in September. China retaliated, leading to threat of more tariffs and President Trump announced plans to raise the existing 10% tariffs to 25% in January 2019. Pessimism peaked in the fourth quarter, as investors correctly worried that a tariff-driven trade war could harm global GDP by raising costs and prices and lower capital investment as a corporate reaction to uncertainty. After a trade summit between President Trump and China President Xi in November, a 90-day tariff truce was agreed to, pushing out the 25% Trump tariff increase to at least 3/1/19. Talks continued in January and February with a U.S. delegation travelling to Beijing and a China delegation travelling to Washington D.C. On 2/24/19, President Trump extended the 3/1/19 deadline indefinitely after indicating significant negotiation progress and a potential trade deal by June. Optimism remains high as several news sources, and China officials, have reported that China is willing to address structural reform issues, including rules governing technology transfer, intellectual property protection, and cyber security enforcement. The President’s goal is to increase U.S. exports to China, which can be accomplished if China agrees to buy more U.S. goods and removes barriers to U.S. investment. This did not happen in 2018 however, as the China trade deficit in goods increased another 11% to $419B as imports increased 7%, while exports to China dropped 7%. This was at least partially attributed to a rising 2018 GDP growth rate in the U.S., and a decreasing GDP growth rate in China.
We continue to expect a positive outcome on trade, although uncertainty remains on a final deal with China. Will the existing 10% tariffs remain, and what will be the mechanism to keep all parties honest? In addition to China, disputes with Europe on trade are unresolved, and could escalate, especially now that Brexit appears to be delayed until 10/31/19. In addition, the U.S.-Mexico-Canada Agreement, negotiated last year, must still be ratified by Congress. The House of Representatives has indicated unhappiness with the agreement and does not appear likely to approve it in its current form. Many of these outstanding issues are potential risks for equity market investors but we believe that successful resolution is highly critical to President Trump’s reelection campaign, giving the Administration incentive to compromise if necessary.
U.S. oil prices have posted substantial gains in 2019, partially erasing fears that the late 2018 decline in oil was a precursor to a global recession. West Texas Intermediate (WTI) oil declined 38% in 4Q18 closing at oil $45.41 per barrel. Investor fear focused on potential for lower global oil demand while U.S. production was increasing and uncertain OPEC production cuts. In early 2019 however, the International Energy Agency (IEA) reported that 2018 global oil demand increased 1.3% and estimated 1.3% demand growth in 2019 as well. On the supply side, the IEA sees increased production from the U.S. (estimated 12.3 million barrels per day in 2019, up from 11.9 million barrels in 2018) offset by recently extended OPEC production cuts and limited supply from Venezuela and other geopolitically-impacted regions. This paints a healthy supply-demand picture in 2019, which has been embraced by investors and the price of WTI is back to $63.50 per barrel, up 40% in 2019.
Equity markets face tangible risks over the balance of 2019, in our opinion, especially given the strong first quarter rally and an increase in valuations over the past three months. We identify two important market risks entering the second quarter; first is dramatically slowing earnings growth in the U.S. and next is slowing economic growth in many key international regions. S&P 500 quarterly earnings growth on a year-to-year (Y/Y) basis has been positive for 11 consecutive quarters, since 3Q 2016. 2018 earnings growth was boosted an estimated 7% by lowered corporate tax rates in the U.S., but even excluding tax reform, earnings growth would have been the strongest in several years. This created very difficult comparisons in 2019, and when added to slowing global growth, a stronger U.S. dollar abroad, and operating margins already near multi-year highs, earnings growth expectations will be modest. 1Q19 S&P 500 earnings are expected to decline 4%, and earnings growth is expected to resume in the second half of the year. A few companies have already reported first quarter results but the reporting cycle will peak over the next three weeks. Of importance for investors will be company guidance for the balance of 2019, prospects for revenue growth and margin expansion, and plans for capital investment in the face of trade uncertainty and slowing GDP growth. We expect companies to remain conservative over the near-term, as 2019 still has three quarters to go. In our view, this will limit the potential for upside surprises from company outlooks in April, and that is more likely mid-year. We believe that further equity market gains in 2019 and 2020 will correlate with earnings growth and dividends as investors will wait for visibility that earnings growth will, in fact, resume in the second half of the year
S&P 500 Earnings Growth (Y/Y, reported) 30% 25% 25% 26%
20% 15% 14% 13% 10% 9% 9% 9% 8% 6% 10% 5% 5% 3% 3% 1% 0% 2% 0% 0% -2% -3% -3% -4% -10% -7% *1Q19, 2Q19, 3Q19, and 4Q19 are FactSet -20% consensus estimates as of 4/3/19
Data source: FactSet, D.A. Davidson & Co., as of 4/3/19
4 Wealth Management Research April 2019
In early April, the International Monetary Fund (IMF) reduced its 2019 global GDP growth outlook to 3.3% from 3.5% in January and 3.7% in October 2018. Slower global growth becomes an increasing risk for U.S. investors as more than 33% of S&P 500 company revenue is generated outside the U.S. Due to evidence of weakness in Europe and slower early 2019 data in China, the IMF has adopted a conservative view on global growth despite comments that 3.3% growth remains a “reasonable” level and expectations for global growth to improve in the second half of 2019. The IMF reduced its 2019 U.S. forecast to +2.3% from +2.5%, Eurozone to +1.3% from +1.6% (including Germany to +0.8% from +1.3%), Latin America to +1.4% from +2.0%, and the Middle East to +1.5% from +2.4%; however, the outlook for China was increased by 0.1% to +6.3%. While we view continued deterioration of global GDP estimates as a risk for investors, we also note that expectations are very low, creating the potential for upside surprises if a few important regions stabilize or improve. China manufacturing data in March exceeded expectations. This is not yet a trend, but is encouraging given the potential for confidence levels in China to improve following a trade agreement with the U.S. In addition, the European Central Bank is responding to the Eurozone slowdown by pausing planned interest rate hikes and continuing to reinvest maturities from prior monetary stimulus. The apparent delay of Brexit until the fourth quarter of 2019 could also restore near-term business confidence in Europe creating another potential positive surprise.
According to FactSet estimates, eight of eleven S&P 500 sectors will report Y/Y earnings declines in 1Q. The three sectors expected to report earnings growth are Health Care (expected up 4%), Utilities (up 4%), and REITs (up 2%). The sectors with the largest expected earnings declines in 1Q are Energy (expected down 22%), Materials (down 13%), and Technology (down 11%). We advocate that long-term investors build portfolios of quality companies that are diversified broadly across sectors. Investors should monitor sector allocations vs. benchmarks and be aware of where sectors are overweight and underweight relative to their portfolio goals. Investors should look to rebalance positions based upon those goals, but rarely do we recommend being “all-in” or “all-out” of a sector. Our 2019 sector allocation recommendations, versus the S&P 500 index weight, are discussed below. S&P 500 Sector Recommendations - April 2019
S&P 500 Weight WM Research GICS Sector by Market Cap 2019 Outlook Notes Change Technology 21.3% marketweight diversify across sectors, consider value names Health Care 14.4% marketweight attractive valuations after lagging in Q1, poltical headwinds remain was underweight Financials 12.8% overweight low valuations, strong balance sheets, patience required Consumer Discretionary 10.1% marketweight consumer trends positive, but remain diversified Communications Services 10.2% marketweight be selective, some companies to face regulatory scrutiny Industrials 9.6% overweight attractive valuations, could rally on positive trade news Consumer Staples 7.2% underweight strong defensive appeal, global exposure limits upside Energy 5.4% overweight oil price recovery and supply/demand balance a positive was marketweight Utilities 3.3% marketweight strong defensive appeal, valuations rich Real Estate (REITs) 3.1% marketweight vulnerable to rising rates, but rates have remained low
Materials 2.7% marketweight vulnerable to global weakness, look for pricing power was overweight Data source: D.A. Davidson Wealth Management Research 4/11/19
Wealth Management Research Investment Cycle Gauge
Economic Indicator Earnings Indicator E quity Market Indicator (2019)
Bearish Neutral Bullish Bearish Neutral Bullish Bearish Neutral Bullish
Changes from prior Indicator: Changes from prior Indicator: Changes from prior Indicator: lower due to slowing growth, but remans above trend 1Q19 estimates negative, but growth to resume muted near-term gains expected after 1Q19 rally
Source data: D.A. Davidson & Co., as of 4/11/19
5 Wealth Management Research April 2019
Focus List Philosophy Quality Value Portfolio
The Focus List portfolio seeks long-term outperformance versus the S&P 500 through investment in stocks of quality companies trading at a discount to our estimate of fair value.
We identify quality companies by evaluating potential candidates for each of the following traits:
1) Industry Leadership: companies with durable competitive advantages and a track record of strong financial performance
2) Skilled Management: successful history of execution on near-term initiatives with a focus on enhancing shareholder value over the long-term
3) Resilient Profitability: ability to maintain or increase margins, revealing competitive advantages through pricing power, a lower cost structure, and/or scale
4) Balance Sheet Strength: provides stability and flexibility throughout the economic and industry business cycle
Those that meet criteria must also offer compelling risk/reward (value). We seek companies with discounted valuations relative to peers and/or the broad market, or those that trade at a reasonable price given our view of a strong competitive position or growth potential.
The Portfolio is constructed through equal-weighted investment in 18 to 22 stocks. We focus on large-cap companies, although mid-cap companies are considered, and we maintain diversity by business sector, while being flexible to overweight or underweight where we see opportunity.
We have a long-term investment horizon and seek a 3+ year holding period in each position. Stocks are removed from the Focus List if there is a detrimental or significant change in company or industry fundamentals, and/or if a stock exceeds our view of fair value.
6 Wealth Management Research April 2019
Quarterly Portfolio Letter Focus List First Quarter 2019 Recap
Focus List Portfolio Total Return Since Inception YTD 3 Mo. 1-year 3-year 5-year 10-year Cumulative Annualized
Focus List (Gross of Fees) 14.0% 14.0%4 3% 119.6% 3% 14.9%4 3% 6.0%7 6% 13.6%7 1% 252.1%11 6% 13.1% Focus List (Net of Fees) 13.3% 13.3% 6.9% 12.2% 3.4% 10.9% 174.0% 10.3% S&P 500 13.6% 13.6% 9.5% 13.5% 10.9% 15.9% 289.9% 14.2% Sources: D.A. Davidson & Co., FactSet
With the tailwind of a “V-shaped” market recovery, the Focus List portfolio achieved strong returns during the first quarter of 2019. Each of the 11 S&P 500 sectors rallied, and most finished with double-digit percentages gains. We are pleased with Focus List performance, particularly given that, broadly speaking, growth stocks continue to outperform their value counterparts. The Russell 1000 Growth index increased 16.1% (total return, gross of fees) in the first quarter compared to a 11.9% increase in the Russell 1000 Value index. We continue to believe the Focus List is best-positioned for outperformance in a market that favors value stocks.
While historically categorized in the growth bucket, we believe shares of Expedia (EXPE), originally added to the portfolio on 3/23/17, offer value that is hard to ignore. EXPE is an important partner for hotels in filling their nightly room capacity, especially in more difficult economic environments, and through its HomeAway and VRBO businesses, EXPE is helping individuals better monetize their condo and vacation rentals. EXPE shares have remained range-bound in recent years even as, from 2016 to 2018, EXPE grew adjusted EPS by 30% and free cash flow (FCF) by 35%, and we believe the outlook for profit growth remains very positive. EXPE’s financial performance is impressive, given that management has deepened its presence in international markets (particularly Europe and Asia) and accelerated its cloud infrastructure expenses, which will be beneficial to FCF over the long-term (requiring less recurring database capital expenditures). EXPE shares trade near parity with the S&P 500 on a forward price-to-earnings basis, and at a nearly 40% discount on price-to-FCF.
We made two changes to the portfolio on 4/8/19, after making no changes in the first quarter, and currently own 21 positions overall. We replaced Merck (MRK) with a new position in CVS Health (CVS), and replaced General Electric (GE) with a new position in A.O. Smith (AOS). The fundamental story for MRK remains intact, driven by ongoing market share gains for Keytruda; however, we think investors have already assumed many of its positive future opportunities. We see better risk/reward potential in CVS, where we believe market sentiment is overly negative as it is manages through a transition year in 2019 in all three of its segments (retail pharmacy, PBM, and health insurance). We are comforted by CVS’ steady FCF. GE, in our view, is taking the appropriate steps to stabilize its business, but the near-term cash flow situation remains bleak, and we feel more confident in building a position in AOS over both the short and long-term. AOS is a dominant player in the North America and China water heater market, which also has exciting growth opportunities in boilers and water treatment. AOS maintains a strong balance sheet, which allows it to make acquisitions, buyback shares, and grow its dividend.
Our portfolio companies announced three dividend raises during the first quarter. Intel (INTC) increased its quarterly payment by 5% in January. Recent addition Activision-Blizzard (ATVI) increased its annual payment by 9% in mid-February, alongside a new authorization to repurchase up to $1.5 billion shares; given a depressed valuation, we believe this to be a wise use of ATVI’s FCF. General Dynamics (GD) raised its dividend by 10% in early March, marking its 22nd consecutive year of dividend growth.
James D. Ragan, CFA Director of WM Research 206.389.4070 [email protected]
Brent P. Williams, CFA Senior Research Analyst 206.389.4076 [email protected]
*Focus List is offered to clients of D.A. Davidson & Co. through our Separate Account Management (SAM) and Unified Managed Account (UMA) programs. Net of fee returns are shown inclusive of a 2.45% annual management fee, the highest fee from those programs at any point during the portfolio’s track record. The fee shown does not reflect the current fee schedule for the SAM or UMA programs. Actual fees will vary and will not exceed the 2.45% used to calculate net of fee performance. 7 Wealth Management Research April 2019
Focus List Portfolio Quality Value Portfolio
Focus List Portfolio 3/29 Total Return EPS Estimates P/Earnings Ratios Yield Price YTD 3 Mo. 1 Mo. FY1 FY2 FY1 FY2 % Focus List (Gross of Fees) — 14.0% 14.0% 1.6% — — 17.8x 15.7x 2.3% Focus List (Net of Fees) 13.3% 13.3% 1.4% S&P 500 2,834.40 13.6% 13.6% 1.9% $167.69 $186.93 16.9x 15.2x 2.0%
Current Holdings as of 4/11/19 ‘18 Year -End or ‘19 Add Price 3/29 Total Return EPS Estimates P/Earnings Ratios Yield Ticker Date Price Price YTD 3 Mo. 1 Mo. FY1 FY2 FY1 FY2 %
Communication Services Activision Blizzard, Inc. ATVI 12/31 $46.57 $45.53 -1.4% -1.4% 8.9% $1.33 $1.54 34.2x 29.6x 0.8% Walt Disney Company DIS 12/31 $109.65 $111.03 1.3% 1.3% -1.6% $7.31 $7.57 15.2x 14.7x 1.6% Consumer Discretionary Chipotle Mexican Grill, Inc. CMG 12/31 $431.79 $710.31 64.5% 64.5% 16.9% $12.70 $16.06 55.9x 44.2x 0.0% Expedia Group, Inc. EXPE(A) 12/31 $112.65 $119.00 5.9% 5.9% -3.2% $6.69 $7.58 17.8x 15.7x 1.1% NIKE, Inc. Class B NKE 12/31 $74.14 $84.21 13.9% 13.9% -1.5% $2.79 $3.23 30.2x 26.1x 1.0% Consumer Staples Molson Coors Brewing Company Class B TAP 12/31 $56.16 $59.65 6.9% 6.9% -2.6% $4.99 $5.21 12.0x 11.4x 2.7% Energy Schlumberger NV SLB 12/31 $36.08 $43.57 22.1% 22.1% -1.1% $1.81 $2.60 24.1x 16.8x 4.6% Financials PNC Financial Services Group, Inc. PNC 12/31 $116.91 $122.66 5.7% 5.7% -2.7% $11.67 $12.75 10.5x 9.6x 3.1% Synchrony Financial SYF 12/31 $23.46 $31.90 36.9% 36.9% -2.2% $5.20 $4.52 6.1x 7.1x 2.6% Umpqua Holdings Corporation UMPQ(A) 12/31 $15.90 $16.50 5.1% 5.1% -8.1% $1.70 $1.80 9.7x 9.2x 5.1% Health Care Amgen Inc. AMGN 12/31 $194.67 $189.98 -1.7% -1.7% -0.1% $14.05 $14.55 13.5x 13.1x 3.1% CVS Health Corporation CVS 4/8 — — — — — $6.61 $7.51 8.2x 7.2x 3.7% Stryker Corporation SYK 12/31 $156.75 $197.52 26.3% 26.3% 5.1% $8.22 $8.99 24.0x 22.0x 1.1% Industrials A. O. Smith Corporation AOS (A) 4/8 — — — — — $2.70 $2.95 19.7x 18.1x 1.7% Deere & Company DE 12/31 $149.17 $159.84 7.7% 7.7% -2.1% $10.84 $12.01 14.7x 13.3x 1.9% General Dynamics Corporation GD 12/31 $157.21 $169.28 8.3% 8.3% -0.6% $11.62 $12.86 14.6x 13.2x 2.4% Information Technology Apple Inc. AAPL(A) 12/31 $157.74 $189.95 20.9% 20.9% 9.7% $10.54 $10.62 18.0x 17.9x 1.5% Intel Corporation INTC(A) 12/31 $46.93 $53.70 15.1% 15.1% 1.4% $4.62 $4.83 11.6x 11.1x 2.3% QUALCOMM Incorporated QCOM(A) 12/31 $56.91 $57.03 1.3% 1.3% 8.0% $3.91 $4.63 14.6x 12.3x 4.3% Materials Avery Dennison Corporation AVY 12/31 $89.83 $113.00 26.4% 26.4% 5.1% $6.55 $6.98 17.3x 16.2x 1.8% PPG Industries, Inc. PPG 12/31 $102.23 $112.87 10.9% 10.9% 0.8% $6.23 $7.08 18.1x 15.9x 1.7% A complete list of past specific recommendations can be found on pages 25-26
Annual Performance (total returns) 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Focus List (Gross of Fees) 44.3% 21.8% 0.9% 9.4% 33.6% 5.7% -17.3% 25.0% 14.10% -4.5% 14.0% Focus List (Net of Fees)* 40.9% 18.8% -1.5% 6.8% 30.4% 3.2% -19.3% 22.0% 11.30% -6.8% 13.3% S&P 500 26.5% 15.1% 2.1% 16.0% 32.4% 13.7% 1.4% 12.0% 21.80% -4.4% 13.6%
Since Inception Since Rolling Returns (annualized) and Since Inception 1-year 3-year 5-year 10-year Cumulative Annualized Inception Focus List Model Portfolio (Gross of Fees) 9.6% 14.9% 6.0% 13.6% 252.1% 13.1% Focus List Model Portfolio (Net of Fees)* 6.9% 12.2% 3.4% 10.9% 174.0% 10.3% S&P 500 9.5% 13.5% 10.9% 15.9% 289.9% 14.2%
For stocks added to the Focus List Model Portfolio in 2018, YTD total return is calculated from the date it was added through 3/29/19. All prices and return information reflect closing prices. *Focus List is offered to clients of D.A. Davidson & Co. through our Separate Account Management (SAM) and Unified Managed Account (UMA) programs. Net of fee returns are shown inclusive of a 2.45% annual management fee, the highest fee from those programs at any point during the portfolio’s track record. The fee shown does not reflect the current fee schedule for the SAM or UMA programs. Actual fees will vary and will not exceed the 2.45% used to calculate net of fee performance. Focus List is currently prepared by James Ragan, CFA and Brent Williams, CFA. Model Portfolio inception date for the Focus List is 12/31/2008. (A) D. A. Davidson & Co. makes a market in this security. Sources: D.A. Davidson & Co., Morningstar Equity Research, FactSet
8 Wealth Management Research April 2019
Dividend Achievers Philosophy High Quality Growth & Income Strategy
The D.A. Davidson & Co. Dividend Achievers Model Portfolio is made up of stocks that have a minimum 10-year history of consecutive dividend increases and have a positive outlook for future growth. We expect the overall dividend yield for the portfolio to be above the average market yield. The goal of the portfolio is to emphasize consistent income with a growth component while minimizing risk.
Although we may not have holdings in all sectors at all times, we maintain diversity across most economic sectors. While this can at times reduce the amount of the dividend yield, it will also reduce the overall risk profile to investors. We endeavor to minimize portfolio turnover in order to minimize potential capital gains liability.
We believe that companies with a long history of increasing their dividends have proven themselves able to successfully manage through changes in the economy and within their individual industries. Companies that have gained Dividend Achiever status tend to be large-cap, multi-national firms, and are generally leaders in their industries with strong, consistent management teams.
Market volatility has a significant impact on investors’ portfolios. We have found that the focus on rising income and low portfolio turnover taken by the D.A. Davidson Dividend Achievers Model Portfolio has enabled the portfolio to significantly outperform the market during down years, yet still provide reasonable returns during periods of higher market performance.
The stocks included in the portfolio are selected and supervised by members of D.A. Davidson’s Wealth Management Research and it is actively managed.
9 Wealth Management Research April 2019
Quarterly Portfolio Letter Dividend Achievers First Quarter 2019 Recap
Dividend Achievers Portfolio Total Return Since Inception YTD 3 Mo. 1-year 3-year 5-year 10-year Cumulative Annualized Dividend Achievers (Gross of Fees) 15.5% 15.5%4 3% 14.7%11 3% 10.4%4 3% 9.7%7 6% 14.8%7 1% 258.1%11 6% 9.9% Dividend Achievers (Net of Fees) 14.8% 14.8% 12.0% 7.8% 7.1% 12.1% 157.4% 7.3% S&P 500 13.6% 13.6% 9.5% 13.5% 10.9% 15.9% 215.7% 8.9% Sources: D.A. Davidson & Co., FactSet
After a volatile second half of the year during 2018, equity markets rebounded strongly in the first quarter. Investors quickly dismissed the fear of economic recession that only recently had been of chief concern and dominated the narrative in the financial media. It is important to note that this rapid narrative shift from contentment to fear and back again in such a short time does not mirror the business results of the underlying companies held in our Dividend Achievers portfolio.
In the context of our Dividend Achievers investment process, we seek to avoid investing in companies with the type of risk profile that leaves them financially vulnerable when the economy weakens. In fact, our mandate for consistent annual dividend growth makes it very difficult for these companies to be considered for investment. Assuming a company operates ethically and is not engaged in fraud, cash flow growth is not something a company can manipulate over an extended period. When paying a dividend, companies must send the actual cash back to investors from their corporate coffers. This growing cash flow can only be sourced sustainably from a growing business. Despite all the noise and fear in the media, our portfolio companies remain healthy in aggregate. Over the past three years, dividends paid as a percentage of free cash flow (cash generated by operations minus capital investment in the business) has declined slowly and steadily from 64% to 54% currently, implying improving financial flexibility.
Additionally, our portfolio has an average debt-total capital ratio of 46.2% versus 49.0% for the S&P 500. In times of greed, money flows almost effortlessly into more risky ventures as the marginal investor tries to mimic the returns of those around them who they perceive as achieving better results than they have achieved. In times of fear, this same investor is reluctant to part with their cash in order to avoid buying a stock that would lead to a short-term loss. These changes in liquidity can have a significant impact on stock prices of companies that are dependent on capital markets for funding. Companies with strong free cash flow typically are able to self-fund operations and access the debt markets out of strength rather than weakness. We are comfortable with the ability of Dividend Achievers to weather the storm successfully when volatility once again returns to the market.
In April, Novartis (NVS) completed the spinoff of its eye care business, Alcon (ALC) to shareholders. ALC has been a fully owned subsidiary of NVS since 2010. As ALC prepared to operate independently, it appears that increased attention from management has helped the segment to move beyond recent sales growth and profitability challenges. We view ALC as well positioned to succeed in global end markets with solid secular growth due to an aging population. ALC does not intend to pay a dividend until 2020 and we will not maintain a position in the portfolio. We will retain our holding in NVS, newly refocused on its Innovative Medicines segment and its industry-leading research and development capability to drive future returns.
James D. Ragan, CFA Director of WM Research 206.389.4070 [email protected]
Matthew G. Griffith, CFA Senior Research Analyst 206.389.4011 [email protected]
*Dividend Achievers is offered to clients of D.A. Davidson & Co. through our Separate Account Management (SAM) and Unified Managed Account (UMA) programs. Net of fee returns are shown inclusive of a 2.45% annual management fee, the highest fee from those programs at any point during the portfolio’s track record. The fee shown does not reflect the current fee schedule for the SAM or UMA programs. Actual fees will vary and will not exceed the 2.45% used to calculate net of fee performance. 10 Wealth Management Research April 2019
Dividend Achievers Portfolio High Quality Growth & Income Strategy
Dividend Achievers Portfolio 3/29 Total Return EPS Estimates P/Earnings Ratios Yield Price YTD 3 Mo. 1 Mo. FY1 FY2 FY1 FY2 % Dividend Achievers (Gross of Fees) — 15.5% 15.5% 3.9% — — — — 2.9% Dividend Achievers (Net of Fees) 14.8% 14.8% 3.7% S&P 500 2,834.40 13.6% 13.6% 1.9% $167.69 $186.93 16.9x 15.2x 2.0%
Current Holdings as of 4/11/19 ‘18 Year -End or Dividend Statistics # of '19 Add Price 3/29 Total Return Payout 10-Year Paid Yield Years Ticker Date Price Price YTD 3 Mo. 1 Mo. Ratio CAGR Increases Since %
Communication Services AT&T Inc. T (A) 12/31 $28.54 $31.36 11.7% 11.7% 0.8% 58.0% 2.3% 35 1881 6.5% Consumer Discretionary V.F. Corporation VFC 12/31 $71.34 $86.91 22.6% 22.6% 0.1% 65.0% 12.5% 46 1973 2.3% Consumer Staples Costco Wholesale Corporation COST 12/31 $203.71 $242.14 19.2% 19.2% 10.7% 33.4% 13.6% 14 2004 0.9% Kimberly-Clark Corporation KMB 12/31 $113.94 $123.90 9.7% 9.7% 7.0% 62.3% 5.7% 47 1935 3.3% Energy Exxon Mobil Corporation XOM 12/31 $68.19 $80.80 19.8% 19.8% 2.2% 68.9% 7.6% 36 1882 4.1% Financials Chubb Limited CB 12/31 $129.18 $140.08 9.0% 9.0% 5.2% 30.9% 10.3% 25 1993 2.1% Health Care Johnson & Johnson JNJ 12/31 $129.05 $139.79 9.0% 9.0% 2.3% 44.0% 7.0% 56 1944 2.6% Novartis AG NVS 12/31 $75.87 $85.00 14.4% 14.4% 7.6% 40.5% 5.8% 22 1996 3.4% Industrials Emerson Electric Co. EMR 12/31 $59.75 $68.47 15.4% 15.4% 0.5% 56.6% 4.7% 63 1947 2.9% 3M Company MMM 12/31 $190.54 $207.78 9.8% 9.8% 0.2% 55.1% 10.5% 61 1916 2.8% United Technologies Corporation UTX 12/31 $106.48 $128.89 21.8% 21.8% 2.6% 38.6% 7.7% 23 1936 2.3% Information Technology Automatic Data Processing, Inc. ADP 12/31 $131.12 $159.74 22.5% 22.5% 4.9% 69.8% 8.6% 44 1974 2.0% International Business Machines Corporation IBM 12/31 $113.67 $141.10 25.6% 25.6% 2.2% 45.5% 12.6% 23 1913 4.5% Microsoft Corporation MSFT (A) 12/31 $101.57 $117.94 16.6% 16.6% 5.3% 47.4% 14.1% 16 2003 1.6% Utilities NextEra Energy, Inc. NEE 12/31 $173.82 $193.32 12.0% 12.0% 3.0% 64.9% 9.6% 22 1945 2.6%
A complete list of past specific recommendations can be found on page 27
Annual Performance (total returns) 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Dividend Achievers (Gross of Fees) -18.6% 13.8% 17.3% 12.9% 13.7% 24.6% 10.3% 2.6% 12.1% 16.0% -4.3% 15.5% Dividend Achievers (Net of Fees)* -20.6% 11.0% 14.4% 10.2% 11.0% 21.6% 7.6% 0.1% 9.4% 13.2% -6.6% 14.8% S&P 500 -37.0% 26.5% 15.1% 2.1% 16.0% 32.4% 13.7% 1.4% 12.0% 21.8% -4.4% 13.6%
Since Inception Rolling Returns (annualized) and Since Inception 1-year 3-year 5-year 10-year Cumulative Annualized Dividend Achievers Model Portfolio (Gross of Fees) 14.7% 10.4% 9.7% 14.8% 258.1% 9.9% Dividend Achievers Model Portfolio (Net of Fees)* 12.0% 7.8% 7.1% 12.1% 157.4% 7.3% S&P 500 9.5% 13.5% 10.9% 15.9% 215.7% 8.9%
For stocks added to the Dividend Achievers Model Portfolio in 2018, YTD total return is calculated from the date it was added through 3/29/19. All prices and return information reflect closing prices *Dividend Achievers is offered to clients of D.A. Davidson & Co. through our Separate Account Management (SAM) and Unified Managed Account (UMA) programs. Net of fee returns are shown inclusive of a 2.45% annual management fee, the highest fee from those programs at any point during the portfolio’s track record. The fee shown does not reflect the current fee schedule for the SAM or UMA programs. Actual fees will vary and will not exceed the 2.45% used to calculate net of fee performance. Dividend Achievers is currently prepared by James Ragan, CFA and Matthew Griffith, CFA. Model Portfolio inception date for Dividend Achievers is 10/6/2005. (A) D. A. Davidson & Co. makes a market in this security. Sources: D.A. Davidson & Co., Morningstar Equity Research, FactSet 11 Wealth Management Research April 2019
ESG Achievers Philosophy Sustainable Investing Strategy
ESG Achievers seeks long-term outperformance relative to the S&P 500 through investment in stocks of high-quality companies that score favorably on Environmental, Social, and Governance (ESG) criteria.
D.A. Davidson has partnered with Sustainalytics, a global leader in ESG research, to evaluate the ESG characteristics of a broad universe of publicly-traded companies, mutual funds, and ETFs.
ESG Achievers is a concentrated equity portfolio constructed from a universe of companies with favorable ESG ratings relative to their industry peers. Our Wealth Management Research team utilizes Sustainalytics research on the 1,000 largest companies in the U.S. to create an investable universe consisting of companies in the top 25% of ESG ratings relative to their industry peers.
We invest in high quality companies, which we identify as those demonstrating industry leadership, skilled management, resilient profitability, and balance sheet strength.
The portfolio is constructed through equal-weighted investment in 18 to 22 stocks. We have a large-cap focus, but mid-cap companies can be considered. The portfolio is diversified by business sector, while maintaining flexibility to overweight or underweight where we see opportunity
ESG Achievers is a differentiated way to invest in ESG. Research is available for each position detailing both the investment and ESG rationale for its ownership in the portfolio
12 Wealth Management Research April 2019
Quarterly Portfolio Letter ESG Achievers First Quarter 2019 Recap
ESG Achievers Portfolio Total Return Since Inception YTD 3 Mo. Cumulative Annualized
ESG Achievers (Gross of Fees) 12.0% 12.0%4 3% 114.0% 6% — ESG Achievers (Net of Fees) 11.3% 11.3% 2.3% — S&P 500 13.6% 13.6% 2.1% — Sources: D.A. Davidson & Co., FactSet
In a strong quarter for the market, ESG Achievers lagged the S&P 500, though both absolute and relative performance remain solidly positive since the portfolio’s inception in July 2018. The primary detractor was our position in CVS Health (CVS), which declined following an outlook for its retail and pharmacy services segment in 2019 that failed to meet investor expectations. We continue to believe CVS is attractively positioned relative to its competition, with its focus on delivering health care to consumers at a lower cost. Financials were the top performing sector relative to the S&P 500, with our holding in S&P Global (SPGI) accounting for the majority of that gain.
In April, we removed Merck (MRK) from the ESG Achievers portfolio. It had been a holding since the portfolio’s inception in July 2018. In our view, consensus estimates for revenue for Keytruda, its blockbuster cancer treatment, price in a very favorable outcome for the drug despite it being very early in its life cycle. Consensus estimates for 2024 show Keytruda revenue at $17.5B, which would account for 34% of total revenue and indicate that high expectations for market share gains are already largely priced into the stock. From a risk/reward standpoint, we have a more favorable view of Amgen (AMGN), with which we replaced MRK. AMGN is one of the largest and most diversified biotechnology companies in the world. Management has a strong commitment to research and development and we are optimistic regarding its pipeline across its six different therapeutic areas. We expect the company will continue to generate healthy annual earnings and cash flow growth.
Data privacy and security is an increasingly important issue as communication and commerce in the digital realm grow exponentially. Historically, the focus has been on protecting personally identifiable information. Though the misappropriation of this data can be disruptive to individuals (with examples being fraudulent credit card transactions or identity theft), over the past several years there is increasing evidence that personal data can also be aggregated in ways that negatively impact society as a whole. A recent example of the broader impact is the misuse of Facebook (FB) data by research firm Cambridge Analytica. Sustainalytics, our ESG research partner, sees this area as an opportunity for companies to evolve their offerings and use privacy as a driver of competitive advantage1. The firms that embrace this trend and design user privacy and data security into both hardware and software offerings will differentiate their products from the competition. Microsoft (MSFT) is a holding in ESG Achievers that has exposure to this material risk and manages it effectively. In the opinion of Sustainalytics, MSFT effectively integrates data protection into its software development process via its Microsoft Privacy Standard, a framework with detailed technical guidance on how to incorporate data security into its products and services. Sustainalytics ranks MSFT in the 95th percentile relative to its Software & Services peers and is a leader in the Social category, which is where risk mitigation for data privacy issues is evaluated.
1 Sustainalytics, “10 for 2019: Systemic Risks Loom Large”
Matthew G. Griffith, CFA Senior Research Analyst 206.389.4011 [email protected]
Brent P. Williams, CFA Senior Research Analyst 206.389.4076 [email protected]
*ESG Achievers is offered to clients of D.A. Davidson & Co. through our Separate Account Management (SAM) and Unified Managed Account (UMA) programs. Net of fee returns are shown inclusive of a 2.45% annual management fee, the highest fee from those programs at any point during the portfolio’s track record. The fee shown does not reflect the current fee schedule for the SAM or UMA programs. Actual fees will vary and will not exceed the 2.45% used to calculate net of fee performance. 13 Wealth Management Research April 2019
ESG Achievers Portfolio Sustainable Investing Strategy
ESG Achievers Portfolio 3/29 Total Return Yield Price YTD 3 Mo. 1 Mo. % ESG Achievers (Gross of Fees) — 12.0% 12.0% 2.3% 3.2% ESG Achievers (Net of Fees)** 11.3% 11.3% 2.1% S&P 500 2,834.40 13.6% 13.6% 1.9% 2.0% Current Holdings as of 4/11/19 ‘18 Year-End or Sustainalytics '19 Add Price 3/29 Total Return Yield Peer-Relative Ticker Date Price Price YTD 3-Mo. 1 Mo. % ESG Percentile Score*** Communication Services Walt Disney Company DIS 12/31 $116.86 $111.03 5.3% 1.3% -1.6% 1.6% 82 AT&T Inc. T (A) 12/31 $31.75 $31.36 2.9% 11.7% 0.8% 6.5% 65 Consumer Discretionary Target Corporation TGT 12/31 $80.66 $80.26 1.3% 22.5% 10.5% 3.2% 67 V.F. Corporation VFC 12/31 $88.69 $86.91 2.0% 22.6% 0.1% 2.3% 79 Consumer Staples Kimberly-Clark Corporation KMB 12/31 $121.34 $123.90 -2.1% 9.7% 7.0% 3.3% 85 Financials Invesco Ltd. IVZ 12/31 $20.30 $19.31 5.1% 17.2% -0.2% 6.2% 83 Prudential Financial, Inc. PRU 12/31 $97.26 $91.88 5.9% 13.9% -4.1% 4.4% 91 S&P Global, Inc. SPGI 12/31 $214.81 $210.55 2.0% 24.2% 5.1% 1.1% 94 Health Care Amgen Inc. AMGN 4/8 — — — — — 3.1% 83 CVS Health Corporation CVS 12/31 $53.72 $53.93 0.5% -17.1% -6.7% 3.7% 66 Johnson & Johnson JNJ 12/31 $135.57 $139.79 -3.0% 9.0% 2.3% 2.6% 97 Industrials 3M Company MMM 12/31 $211.96 $207.78 2.0% 9.8% 0.2% 2.8% 88 United Parcel Service, Inc. Class B UPS 12/31 $112.91 $111.74 1.0% 15.6% 1.4% 3.4% 81 Information Technology International Business Machines Corporation IBM 12/31 $142.11 $141.10 0.7% 25.6% 2.2% 4.5% 95 Intel Corporation INTC (A) 12/31 $55.32 $53.70 3.6% 15.1% 1.4% 2.3% 100 Microsoft Corporation MSFT (A) 12/31 $119.28 $117.94 1.5% 16.6% 5.3% 1.6% 95 QUALCOMM Incorporated QCOM (A) 12/31 $57.44 $57.03 0.7% 1.3% 8.0% 4.3% 82 Materials Linde plc LIN 12/31 $182.90 $175.93 4.0% 13.3% 2.1% 2.0% — Real Estate HCP, Inc. HCP 12/31 $30.79 $31.30 -1.6% 13.4% 1.7% 4.7% 78 Utilities American Water Works Company, Inc. AWK 12/31 $104.57 $104.26 0.3% 15.4% 2.6% 1.7% 67 A complete list of past specific recommendations can be found on page 28
Annual Performance (total returns) 2018* 2019 ESG Achievers (Gross of Fees) -7.7% 12.0% ESG Achievers (Net of Fees)** -7.9% 11.3% S&P 500 -10.2% 13.6%
Since Inception Rolling Returns (annualized) and Since Inception 1-year 3-year 5-year 10-year Cumulative Annualized ESG Achievers Model Portfolio (Gross of Fees) ------4.0% — ESG Achievers Model Portfolio (Net of Fees)** ------2.3% — S&P 500 ------2.1% — * 2018 returns are since portfolio inception on 7/31/2018 For stocks added to the ESG Achievers Model Portfolio in 2018, YTD total return is calculated from the date it was added through 3/29/19. All prices and return information reflect closing prices. **ESG Achievers is offered to clients of D.A. Davidson & Co. through our Separate Account Management (SAM) and Unified Managed Account (UMA) programs. Net of fee returns are shown inclusive of a 2.45% annual management fee, the highest fee from those programs at any point during the portfolio’s track record. The fee shown does not reflect the current fee schedule for the SAM or UMA programs. Actual fees will vary and will not exceed the 2.45% used to calculate net of fee performance. ***The Sustainalytics Peer Relative ESG Percentile Score is a ranking from 0% to 100% relative to the company’s respective peer group. A score greater than 50 represents companies that rank in the top 50th percentile of their peer group ESG Achievers is currently prepared by Matthew Griffith, CFA and Brent Williams, CFA. Model Portfolio inception date for the ESG Achievers is 7/31/2018. (A) D. A. Davidson & Co. makes a market in this security. Sources: D.A. Davidson & Co., Morningstar Equity Research, FactSet
14 Wealth Management Research April 2019
Income Opportunities Philosophy Attractive Income Securities
Income Opportunities is for investors seeking equity income securities with a high level of sustainable income or potential for strong income growth relative to the S&P 500 index. We look for income as a primary attribute with a secondary consideration of capital appreciation.
Dividend (or distribution) yields for selected securities will generally be above that of the S&P 500 Index. Income Opportunities may include common stocks and real estate investment trust (REIT) shares. Our Income Opportunities universe is defined as the top 33% (by yield) of dividend payers of public companies listed on U.S. exchanges with a market capitalization above $2 billion. Income Opportunities will typically hold from 14 to 18 equally weighted positions.
We view potential Income Opportunities selections as quality companies exhibiting the following traits:
• Industry Leadership: exhibiting competitive advantages driving potential for long term growth
• Skilled Management: a well-defined strategy, including demonstrated ability to execute in near term for long-term benefit, and capital allocation plan
• Durable Cash Flows: to fund debt service, capital spending, and sustainable or growing dividends
• Balance Sheet Strength: assets and liabilities (debt) must be supported by core operations and growth strategy
A note on the potential impact of rising interest rates: higher-yielding securities may be vulnerable in a rising interest rate environment, as the security price will often move inversely with rates; i.e. as interest rates rise, the security price may fall. In some instances, we may mitigate this risk by identifying securities with cash flow and growth characteristics that may be more favorable in a rising rate environment.
15 Wealth Management Research April 2019
Quarterly Portfolio Letter Income Opportunities First Quarter 2019 Recap
Income Opportunities Total Return Since Inception YTD 3 Mo. 1-year 3-year Cumulative Annualized Income Opportunities (Gross of Fees) 16.1% 16.1%4 3% 16.8%11 3% 8.6%4 3% 13.5%11 6% 3.3% Income Opportunities (Net of Fees) 15.4% 15.4% 13.9% 6.0% 2.9% 0.7% S&P 500 13.6% 13.6% 9.5% 13.5% 45.9% 10.1% Sources: D.A. Davidson & Co., FactSet
Income Opportunities’ total return was 16.1% in the first quarter compared to 13.7% for the S&P 500. The portfolio ended 1Q19 with 15 positions after adding three new positions, and removing three others. Sector weighting and individual stock performance within sectors drove performance in Consumer Discretionary, Energy, Health Care, and Materials; REIT gains were balanced, and Utilities and Financials lagged. No S&P 500 sectors were negative in 1Q19, but our two recent Financials sector additions Invesco (IVZ) and Huntington Bancshares (HBAN) declined since their addition, which we view as opportunistic. Income Opportunities performance benefitted from rebounding oil prices (WTI price per barrel increased 32% in 1Q19) and ongoing financial and operating improvement of the midstream energy group. As of 3/31/19, Income Opportunities had representation from seven S&P 500 sectors. The portfolio yield was 4.7%, ranging from 3.2% to 8.1%.
1Q19 portfolio changes were driven by a refined investment process, our effort to increase quality, improve diversification, and select new positions from the top 33% (by yield) of U.S.-traded dividend paying common stocks and REITs with at least $2 billion market capitalization. We seek companies with cash flow attributes that can support above-average income. Portfolio additions in 1Q19 were Kinder Morgan (KMI) on 1/9/19, Huntington Bancshares (HBAN) on 1/30/19, and Invesco (IVZ) on 3/21/19. We removed Enterprise Products Partners (EPD), Tortoise Midstream Energy Fund (NTG), and NorthWestern Energy (NWE).
Kinder Morgan is one of North America’s largest midstream energy companies with a presence in every major U.S. market. We believe KMI’s current $0.80 per share dividend (4% yield) and planned 20% increase to $1.00 (expected with the 1Q19 results) will be well covered by current and estimated cash flows. We are favorable on the midstream energy space, which is well below 2014 peaks, and specifically on KMI, which operates critical assets that are vital in North America’s supply and demand needs.
Huntington Bancshares is a leading regional bank that serves eight states in America’s Heartland (OH, MI, IL, WI, PA, IN, WV, KY) with commercial, consumer, and mortgage banking, auto, RV, marine, and equipment financing, and investment, trust, brokerage, and insurance services. HBAN’s capital priorities include funding organic growth, the cash dividend, share repurchases and selective acquisitions. We believe HBAN shares are undervalued and trade at an attractive 4.2% dividend yield.
Invesco ranked as the 18th largest asset manager in 2018 and the fourth largest ETF issuer through its Powershares brand. Investment management capabilities include with active and passive strategies across a broad range of asset classes, investment styles, and geographies. As of 2/28/19, IVZ had $946 billion of assets under management (AUM). A pending acquisition of Oppenheimer Funds is expected to close in 2Q19, and would add $239 billion to AUM. IVZ has generated free cash flow above its dividend for more than 20 years and has increased its dividend each year since 2009. As of 4/10/19, IVZ’s dividend yield was 5.8%.
James D. Ragan, CFA Director of WM Research 206.389.4070 [email protected]
Douglas C. Christopher, CFA Senior Research Analyst 213.244.9338 [email protected]
*Net of fee returns are shown inclusive of a 2.45% annual management fee. Income Opportunities is not currently available on a D.A. Davidson Separate Account Management (SAM) or Unified Management Account (UMA) platform, but performance is tracked in an actual model portfolio account. The fee used in calculations represents the highest fee from D.A. Davidson managed accounts since the establishment of WM Research model strategies in 2005. The fee shown does not reflect the current fee schedule for the SAM or UMA programs. Actual fees will vary and will not exceed the 2.45% used to calculate net of fee performance. 16 Wealth Management Research April 2019
Income Opportunities A Select List of Attractive Income Securities
Income Opportunities List 03/29 Total Return Yield Price YTD 3 Mo. 1 Mo. % Income Opportunities (Gross of Fees) — 16.1% 16.1% 0.6% 4.9% Income Opportunities (Net of Fees) 15.4% 15.4% 0.4% S&P 500 2,834.40 13.6% 13.6% 1.9% 2.0% Current Holdings as of 4/11/19 ‘18 Year-End or '19 Add Price 03/29 Total Return Yield Ticker Date Price Price YTD 3 Mo. 1 Mo. % Consumer Discretionary Hanesbrands Inc. HBI 12/31 $12.53 $17.88 43.8% 43.8% -3.8% 3.4% Leggett & Platt, Incorporated LEG 12/31 $35.84 $42.22 18.8% 18.8% -6.2% 3.6% Target Corporation TGT 12/31 $66.09 $80.26 22.5% 22.5% 10.5% 3.2% Energy Enbridge Inc. ENB 12/31 $31.08 $36.26 18.5% 18.5% -2.0% 6.1% Kinder Morgan Inc Class P KMI 1/8 $17.14 $20.01 18.0% 31.5% 4.4% 4.0% Occidental Petroleum Corporation OXY 12/31 $61.38 $66.20 9.2% 9.2% 1.3% 4.7% Financials Huntington Bancshares Incorporated HBAN (A) 1/30 $13.49 $12.68 -5.0% 7.5% -11.1% 4.4% Invesco Ltd. IVZ 3/21 $19.79 $19.31 -2.4% — — 6.2% Health Care GlaxoSmithKline plc GSK 12/31 $38.21 $41.79 11.0% 11.0% 3.5% 4.9% Materials International Paper Company IP (A) 12/31 $40.36 $46.27 15.8% 15.8% 1.0% 4.3% Real Estate City Office REIT, Inc. CIO (A) 12/31 $10.25 $11.31 12.6% 12.6% 2.8% 8.3% HCP, Inc. HCP 12/31 $27.93 $31.30 13.4% 13.4% 1.7% 4.7% LTC Properties, Inc. LTC 12/31 $41.68 $45.80 11.3% 11.3% 3.5% 5.0% W. P. Carey Inc. WPC 12/31 $65.34 $78.33 21.5% 21.5% 7.4% 5.3% Utilities Duke Energy Corporation DUK 12/31 $86.30 $90.00 5.4% 5.4% 0.4% 4.1%
A complete list of past specific recommendations can be found on page 29
Since Annual Performance (total returns) 2015 2016 2017 2018 2019 Inception Income Opportunities (Gross of Fees) -17.1% 21.8% 4.3% -7.1% 16.1% Income Opportunities (Net of Fees) -18.6% 18.9% 1.7% -9.4% 15.4% S&P 500 1.4% 12.0% 21.8% -4.4% 13.6%
Since Inception Since Rolling Returns (annualized) and Since Inception 1-year 3-year Cumulative Annualized Inception Income Opportunities (Gross of Fees) 16.8% 8.6% 13.5% 3.3% Income Opportunities (Net of Fees) 13.9% 6.0% 2.9% 0.7% S&P 500 9.5% 13.5% 45.9% 10.1%
For stocks added to the Income Opportunities in 2018, YTD total return is calculated from the date it was added through 3/29/19. All prices and return information reflect closing prices *Net of fee returns are shown inclusive of a 2.45% annual management fee. Income Opportunities is not currently available on a D.A. Davidson Separate Account Management (SAM) or Unified Management Account (UMA) platform, but performance is tracked in an actual model portfolio account. The fee used in calculations represents the highest fee from D.A. Davidson managed accounts since the establishment of WM Research model strategies in 2005. The fee shown does not reflect the current fee schedule for the SAM or UMA programs. Actual fees will vary and will not exceed the 2.45% used to calculate net of fee performance. Income Opportunities is currently prepared by James Ragan, CFA and Doug Christopher, CFA. Model Portfolio inception date for Income Opportunities is 4/22/2015. (A) D. A. Davidson & Co. makes a market in this security. Sources: D.A. Davidson & Co., FactSet, Morningstar Equity Research
17 Wealth Management Research April 2019
WM Research – Primary Coverage Summary
Price Market Cap Price Rating Sector Style Yield (4/11/19) (MM) Target
Douglas A. Christopher, CFA • [email protected] • (213) 244-9338
Healthcare Trust of America, Inc. Class A HTA $28.51 $5,852 NEUTRAL $27.00 Real Estate Income/Total Return 4.3% Kinder Morgan Inc Class P KMI $19.92 $45,091 BUY/ADD $26.00 Energy Income/Total Return 4.0% Leggett & Platt, Incorporated LEG $43.21 $5,670 BUY/ADD $55.00 Consumer Discretionary Mid-Cap Value 3.5% LTC Properties, Inc. LTC $46.21 $1,835 BUY/ADD $48.00 Real Estate Income/Total Return 4.9% NorthWestern Corporation NWE $69.93 $3,525 NEUTRAL $60.00 Utilities Income/Total Return 3.3% Occidental Petroleum Corporation OXY $67.18 $50,242 BUY/ADD $88.00 Energy Large-Cap Growth 4.6% PepsiCo, Inc. PEP $121.67 $170,859 BUY/ADD $126.00 Consumer Staples Income/ Total Return 3.0% Target Corporation TGT $80.45 $41,539 BUY/ADD $100.00 Consumer Discretionary Large-Cap Value 3.2% W. P. Carey Inc. WPC $78.86 $13,396 BUY/ADD $90.00 Real Estate Mid-Cap Value 5.2%
James D. Ragan, CFA • [email protected] • (206) 389-4070
Alphabet Inc. Class A GOOGL $1,209.59 $362,103 BUY/ADD $750.00 Communication Services Large-Cap Growth 0.0% Caterpillar Inc. CAT $138.87 $79,926 NEUTRAL $153.00 Industrials Large-Cap Growth 2.5% General Electric Company GE $9.12 $79,432 BUY/ADD $12.00 Industrials Large-Cap Value 0.4% Home Depot, Inc. HD $201.48 $222,180 NEUTRAL $204.00 Consumer Discretionary Large-Cap Growth 2.7% Intel Corporation INTC (A) $55.80 $251,026 BUY/ADD $64.00 Information Technology Large-Cap Value 2.3% Microsoft Corporation MSFT (A) $120.33 $923,197 BUY/ADD $122.00 Information Technology Large-Cap Growth 1.5% Nordstrom, Inc. JWN $43.86 $6,798 BUY/ADD $66.00 Consumer Discretionary Large-Cap Growth 3.4% QUALCOMM Incorporated QCOM (A) $55.90 $67,656 BUY/ADD $75.00 Information Technology Large-Cap Growth 4.4%
Matt G. Griffith, CFA • [email protected] • (206) 389-4011
Avery Dennison Corporation AVY $114.35 $9,602 BUY/ADD $139.00 Materials Mid-Cap Value 1.8% Deere & Company DE $160.16 $51,010 BUY/ADD $204.00 Industrials Large-Cap Value 1.9% Walt Disney Company DIS $116.60 $209,603 BUY/ADD $137.00 Communication Services Large-Cap Value 1.5% PNC Financial Services Group, Inc. PNC $128.72 $58,389 BUY/ADD $167.00 Financials Large-Cap Value 3.0%
Brent P. Williams, CFA • [email protected] • (206) 389-4076
Costco Wholesale Corporation COST $241.24 $106,117 BUY/ADD $251.00 Consumer Staples Large-Cap Growth 0.9% General Dynamics Corporation GD $171.43 $49,504 BUY/ADD $240.00 Industrials Large-Cap Value 2.4% Molson Coors Brewing Company Class B TAP $60.07 $11,785 BUY/ADD $83.00 Consumer Staples Large-Cap Value 2.7% PPG Industries, Inc. PPG $114.52 $27,038 BUY/ADD $128.00 Materials Large-Cap Value 1.7% Stryker Corporation SYK $195.33 $72,878.60 BUY/ADD $216.00 Health Care Large-Cap Growth 1.1% Zoetis, Inc. Class A ZTS $101.06 $48,422.60 NEUTRAL $96.00 Health Care Large-Cap Growth 0.6%
(A) D. A. Davidson & Co. makes a market in this security. Rating and pricing information as of April 11, 2019. For a copy of the full referenced report for companies mentioned, please contact your D.A. Davidson & Co. representative or call 206-389-8000. 18 Wealth Management Research April 2019
U.S. Equities Performance Report
Current March Q1 2019 2019 1 Year 5 Year 10 Year % Off 52 Week U.S. Equity Markets Level % Return % Return % Return % Return % Return % Return High Low S&P 500 2,834.40 1.9% 13.6% 13.6% 9.5% 10.9% 15.9% 3.3% 20.6% DJ Industrial Average 25,928.68 0.2% 11.8% 11.8% 10.1% 12.2% 16.0% 3.4% 19.0% NASDAQ Composite Index 7,729.32 2.7% 16.8% 16.8% 10.6% 14.3% 18.9% 4.7% 24.8% Russell 2000 1,539.74 -2.1% 14.6% 14.6% 2.1% 7.1% 15.4% 11.5% 21.5% Russell 2500 619.77 -0.8% 15.8% 15.8% 4.5% 7.8% 16.2% 8.0% 22.8%
Sector March Q1 2019 2019 1 Year 5 Year 10 Year % Off 52 Week S&P 500 Sectors Weight % % Return % Return % Return % Return % Return % Return High Low
Consumer Discretionary 10.1% 4.1% 15.7% 15.7% 13.2% 13.6% 21.1% 4.1% 24.6% Consumer Staples 7.3% 4.1% 12.0% 12.0% 10.5% 8.6% 13.5% 0.7% 15.9% Energy 5.4% 2.1% 16.4% 16.4% 1.3% -2.8% 6.4% 15.5% 22.9% Financials 12.7% -2.6% 8.6% 8.6% -4.7% 9.4% 15.7% 10.9% 15.3% Health Care 14.6% 0.5% 6.6% 6.6% 14.9% 11.3% 16.4% 4.0% 15.3% Industrials 9.5% -1.1% 17.2% 17.2% 3.2% 9.4% 17.2% 5.7% 24.6% Information Technology 21.2% 4.8% 19.9% 19.9% 15.4% 18.7% 20.0% 2.5% 28.5% Materials 2.6% 1.2% 10.3% 10.3% -0.4% 5.3% 12.4% 8.9% 17.1% Real Estate 3.1% 4.9% 17.5% 17.5% 21.0% 10.8% 20.3% 0.1% 21.0% Telecommunications Services 10.1% 2.4% 14.0% 14.0% 7.8% 5.2% 9.7% 2.2% 20.5% Utilities 3.3% 2.9% 10.8% 10.8% 19.3% 10.9% 12.9% 1.3% 21.0%
Current March Q1 2019 2019 1 Year 5 Year 10 Year % Off 52 Week Growth & Value Level % Return % Return % Return % Return % Return % Return High Low
Russell 1000 Growth 1,521.19 2.8% 16.1% 16.1% 12.7% 13.5% 17.5% 3.2% 24.4% S&P Mid Cap 400 Growth 888.81 0.6% 14.9% 14.9% 1.7% 8.8% 16.6% 7.7% 21.7% Russell 2000 Growth 997.04 -1.4% 17.1% 17.1% 3.9% 8.4% 16.5% 10.8% 25.7% Russell 1000 Value 1,216.10 0.6% 11.9% 11.9% 5.7% 7.7% 14.5% 4.2% 17.7% S&P Mid Cap 400 Value 628.01 -1.8% 14.0% 14.0% 3.6% 7.5% 15.8% 7.7% 20.2% Russell 2000 Value 1,791.01 -2.9% 11.9% 11.9% 0.2% 5.6% 14.1% 12.6% 17.3%
Current March Q1 2019 2019 1 Year 5 Year 10 Year % Off 52 Week
Commodity Markets Level % Return % Return % Return % Return % Return % Return High Low
S&P GSCI Spot Index 434.13 1.6% 15.0% 15.0% -3.0% -12.6% -3.4% 13.6% 18.2% Crude Oil ($/bbl) 60.14 5.1% 32.4% 32.4% -7.4% -10.0% 1.9% 21.3% 41.4% Natural Gas ($/btu) 2.66 -5.3% -6.6% -6.6% -2.6% -9.5% -3.4% 45.0% 4.4% Gasoline RBOB ($/gal) 1.88 7.4% 44.6% 44.6% -6.8% -8.4% 2.9% 17.1% 51.9% Gold ($/ozt) 1,298.50 -1.3% 1.3% 1.3% -2.2% 0.2% 3.5% 4.5% 9.7% Silver ($/ozt) 15.11 -3.4% -2.8% -2.8% -7.1% -5.2% 1.5% 12.5% 8.1% High Grade Copper ($/lbs) 2.94 -0.4% 11.6% 11.6% -3.0% -0.6% 4.8% 11.0% 14.7% Corn (CBT $/bu) 3.57 -3.8% -4.9% -4.9% -8.1% -6.6% -1.3% 12.7% 3.9% Wheat ($/bu) 4.58 -0.4% -9.0% -9.0% 1.5% -8.1% -1.5% 21.0% 6.8%
Current March Q1 2019 2019 1 Year 5 Year 10 Year % Off 52 Week
Currency Markets Level % Return % Return % Return % Return % Return % Return High Low
EU Euro (€/$) 1.123 -1.4% -1.8% -1.8% -8.7% -4.0% -1.7% 9.3% 0.0% Japanese Yen ($/¥) 110.685 -0.6% 0.9% 0.9% 4.1% 1.5% 1.1% 3.0% 4.2% UK Sterling (£/$) 1.303 -2.0% 2.3% 2.3% -7.1% -4.8% -0.9% 9.1% 4.0% Australian Dollar (AUD/$) 0.710 -0.2% 0.9% 0.9% -7.4% -5.2% 0.2% 8.8% 1.5% Canadian Dollar ($/CAD) 1.336 1.4% -2.2% -2.2% 3.6% 3.9% 0.6% 2.2% 6.3% Swiss Franc ($/CHF) 0.996 0.0% 1.0% 1.0% 4.0% 2.4% -1.3% 1.5% 4.3%
Notes: Data as reported through March 29, 2019. Returns include dividends re-invested. 5-year and 10-year returns annualized. Sources: FactSet Prices, Standard & Poor’s, Russell Investments
19 Wealth Management Research April 2019
International Equities Performance Report
Current March Q1 2019 2019 1 Year 5 Year 10 Year % Off 52 Week Regions Level % Return % Return % Return % Return % Return % Return High Low MSCI BRIC 322.76 2.5% 14.0% 14.0% -3.3% 6.6% 8.8% 6.9% 18.0% MSCI EAFE 1,875.43 0.7% 10.1% 10.1% -3.1% 2.8% 9.5% 9.3% 11.2% MSCI EMEA 251.92 -1.3% 5.6% 5.6% -10.1% -1.3% 6.4% 13.9% 9.8% MSCI Emerging Markets 1,058.13 0.9% 10.0% 10.0% -6.9% 4.1% 9.3% 10.6% 13.2% MSCI Euro 1,087.45 0.0% 9.9% 9.9% -7.0% 1.4% 8.4% 13.7% 12.0% MSCI Europe 1,635.23 0.7% 11.0% 11.0% -3.1% 1.6% 9.6% 9.9% 13.0% MSCI Far East 3,377.60 0.8% 8.0% 8.0% -5.0% 6.3% 8.9% 10.2% 11.1% MSCI Frontier Markets 548.19 1.2% 6.9% 6.9% -14.7% 0.9% 7.9% 17.5% 7.7% MSCI G7 Index 1,921.82 1.4% 12.8% 12.8% 5.2% 8.1% 13.4% 4.5% 17.6% MSCI North America 2,848.86 1.7% 14.0% 14.0% 9.2% 10.2% 15.4% 3.3% 20.8% MSCI Pacific 2,629.41 0.8% 8.7% 8.7% -3.1% 5.2% 9.3% 9.2% 11.4% MSCI Pan-Euro 1,134.62 1.0% 10.9% 10.9% -2.2% 1.4% 9.3% 9.3% 12.7% MSCI The World Index 2,107.74 1.4% 12.6% 12.6% 4.7% 7.4% 13.0% 4.2% 16.9%
Current March Q1 2019 2019 1 Year 5 Year 10 Year % Off 52 Week
Countries Level % Return % Return % Return % Return % Return % Return High Low
Argentina 2,013.08 -8.5% -2.0% -2.0% -48.9% -0.2% 8.6% 49.7% 13.2% Australia 784.78 0.6% 11.4% 11.4% 4.7% 1.7% 10.4% 7.1% 12.4% Austria 1,163.32 -3.0% 8.6% 8.6% -22.6% 1.2% 5.3% 26.5% 11.0% Belgium 1,505.33 3.2% 16.2% 16.2% -14.6% 2.1% 11.9% 17.8% 18.0% Brazil 2,080.58 -3.8% 8.2% 8.2% -3.9% 2.0% 5.0% 9.7% 33.3% Canada 1,662.49 -0.6% 15.6% 15.6% 3.9% 1.7% 8.4% 5.4% 18.8% China 82.85 2.4% 17.7% 17.7% -6.1% 9.7% 10.1% 13.0% 22.3% Finland 530.04 -1.3% 8.4% 8.4% -2.4% 5.7% 9.7% 10.7% 9.1% France 1,829.77 0.5% 10.8% 10.8% -2.8% 3.7% 9.6% 10.0% 14.0% Germany 1,919.45 -1.4% 7.0% 7.0% -13.1% -0.1% 9.4% 19.1% 8.2% Greece 20.73 1.0% 12.8% 12.8% -23.4% -30.7% -21.4% 35.0% 14.9% Hong Kong 12,719.59 1.3% 15.6% 15.6% 8.0% 9.9% 13.9% 0.7% 24.2% India 595.77 9.2% 7.2% 7.2% 6.8% 7.9% 11.6% 2.1% 22.2% Indonesia 846.41 0.6% 4.3% 4.3% 2.5% 3.5% 14.1% 4.7% 24.9% Ireland 172.71 0.2% 11.6% 11.6% -11.3% -0.6% 6.9% 18.5% 14.1% Israel 197.88 -1.0% 10.1% 10.1% 10.2% -1.3% 2.9% 10.7% 14.5% Italy 262.01 2.0% 14.7% 14.7% -9.7% -1.8% 4.5% 19.0% 15.9% Japan 3,101.74 0.7% 6.8% 6.8% -6.8% 6.0% 8.2% 11.6% 10.5% Korea 448.63 -3.0% 5.0% 5.0% -16.1% 2.8% 10.7% 20.4% 8.5% Mexico 4,632.66 0.3% 5.6% 5.6% -11.4% -5.0% 6.9% 20.3% 15.8% Netherlands 3,092.39 1.1% 13.6% 13.6% -1.8% 6.2% 12.9% 7.5% 16.1% New Zealand 156.01 6.2% 16.9% 16.9% 18.6% 5.9% 15.2% 0.0% 21.6% Norway 2,446.67 -1.7% 7.2% 7.2% -3.3% -0.6% 9.3% 14.7% 10.0% Portugal 66.67 1.8% 10.2% 10.2% -3.8% -5.6% 0.4% 12.4% 14.1% Russia 639.79 0.9% 12.2% 12.2% 3.0% 4.4% 8.7% 4.2% 16.1% Singapore 3,818.45 0.6% 6.2% 6.2% -6.3% 2.5% 11.1% 15.3% 9.9% South Africa 462.06 -1.6% 4.6% 4.6% -17.5% -0.7% 7.9% 22.0% 14.5% Spain 423.36 -1.6% 7.1% 7.1% -8.2% -2.4% 4.8% 14.3% 9.1% Sweden 6,985.95 0.4% 7.9% 7.9% -3.9% 0.4% 12.7% 10.7% 9.9% Switzerland 5,491.44 2.6% 13.5% 13.5% 8.5% 3.7% 11.9% 0.1% 15.8% United Kingdom 1,139.14 1.1% 11.9% 11.9% 0.0% 0.7% 9.3% 10.5% 13.5% USA 2,701.54 1.8% 13.9% 13.9% 9.5% 10.8% 15.9% 3.2% 20.9%
Notes: Data as reported through March 29, 2019. Returns include dividends re-invested. 5-year and 10-year returns annualized. Returns are in U.S. dollars. Sources: FactSet Prices, MSCI Barra 20 Wealth Management Research April 2019
U.S. Economic Report
Last Q1 2019 Q4 2018 Q3 2018 Q2 2018 Q1 2018 Interest Rates Reported Level Level Level Level Level Fed Funds Target Rate (%) 2.500 2.500 2.500 2.250 2.000 1.750 10-Year Treasury Yield (%) 2.42 2.42 2.68 3.05 2.85 2.74 10-Year – 2-Year U.S. Treasury Spread (bps) 14.96 14.96 18.36 24.74 32.61 47.62 3-Month USD LIBOR (%) 2.60 2.60 2.81 2.40 2.34 2.31 TED Spread (bps) 24.98 24.98 40.26 24.59 45.08 61.93 S&P 500 Consensus Next 12 Months EPS 172.32 172.32 173.13 172.55 167.43 159.91
Last Q1 2019 Q4 2018 Q3 2018 Q2 2018 Q1 2018 Government Finance Reported Level Level Level Level Level Current Account Balance (bil. $) -134.38 - -134.38 -126.60 -103.57 -123.92 Current Account Balance as % of GDP -2.58 - -2.58 -2.45 -2.03 -2.47 Federal Government Debt (bil. $, AR) 17,865.03 - 17,865.03 17,753.96 17,458.85 17,162.34 Federal Governmentt Debt (Y/Y %) 7.58 - 7.58 7.26 7.29 6.77
Last Q1 2019 Q4 2018 Q3 2018 Q2 2018 Q1 2018 Employment Reported Level Level Level Level Level Average Hourly Earnings (Y/Y %) 3.20 3.20 3.34 2.98 2.93 2.80 Average Hourly Earnings – inflation adjusted (Y/Y %) 1.47 1.47 1.55 0.75 0.06 0.38 Change in Nonfarm Employment (M/M, thousands of 196.00 196.00 227.00 108.00 262.00 182.00 persons) Civilian Unemployment Rate (%) 3.80 3.80 3.90 3.70 4.00 4.00 Initial Unemployment Claims (thousands of claims) 204.00 204.00 221.00 218.00 229.00 -
Last Q1 2019 Q4 2018 Q3 2018 Q2 2018 Q1 2018 Housing & Construction Reported Level Level Level Level Level Building Permits (millions of units, SAAR) 1.291 - 1.326 1.270 1.292 1.377 Housing Starts (millions of units, SAAR) 1.162 - 1.140 1.237 1.177 1.327 New Home Sales (millions of units, SAAR) 0.667 - 0.588 0.609 0.612 0.672 Private Residential Construction Put in Place (Y/Y %) -3.44 - -2.96 0.10 5.66 4.43 S&P/Case-Shiller Home Price Index (20 City, Y/Y %) 3.58 - 4.14 5.17 6.30 6.73
Last Q1 2019 Q4 2018 Q3 2018 Q2 2018 Q1 2018 Inflation Reported Level Level Level Level Level Consumer Price Index (Y/Y %, NSA) 1.86 1.86 1.95 2.27 2.85 2.36 Core CPI (Y/Y %, NSA) 2.04 2.04 2.21 2.18 2.24 2.10 Producer Price Index (Y/Y %, NSA) 2.17 2.17 2.55 2.73 3.28 2.94 Core PPI (Y/Y %, NSA) 2.04 2.04 2.82 3.13 2.75 2.86 Personal Consumption Expenditures (Y/Y %, NSA) - - 1.76 1.99 2.28 2.07 Core PCE (Y/Y %, NSA) - - 1.95 1.96 1.95 1.96
Last Q1 2019 Q4 2018 Q3 2018 Q2 2018 Q1 2018 Personal Income & Spending Reported Level Level Level Level Level Household Net Worth (bil. $) 104,329 - 104,329 108,059 106,226 104,427 Household Net Worth (Y/Y %) 0.82 - 0.82 7.07 7.44 7.36 Personal Income (Y/Y %, SAAR) 4.19 - 5.00 4.32 4.62 4.32 Personal Savings Rate (%) - - 7.70 6.40 6.50 7.20
Last Q1 2019 Q4 2018 Q3 2018 Q2 2018 Q1 2018 Production Reported Level Level Level Level Level Capacity Utilization (%) 79.13 - 79.42 79.25 78.55 78.19 Industrial Production (Y/Y %, SA) 3.59 - 3.72 5.41 3.43 3.78 Real GDP Growth (Q/Q %, SAAR) 2.20 - 2.20 3.40 4.20 2.20
Last Q1 2019 Q4 2018 Q3 2018 Q2 2018 Q1 2018 Retail Sales Reported Level Level Level Level Level Consumer Credit (bil. $, Q/Q change) 56.02 - 56.02 65.88 28.46 31.40 Retail Sales (Y/Y %, SA) 2.07 - 1.21 3.64 5.81 5.23 Retail Sales ex. Motor Vehicles (Y/Y %, SA) 1.97 - 0.83 4.85 6.66 5.30 Total Unit Vehicle Sales (millions of units) 17.48 17.48 17.49 17.43 17.23 17.23
Last Q1 2019 Q4 2018 Q3 2018 Q2 2018 Q1 2018 Survey Data Reported Level Level Level Level Level Consumer Confidence (Conference Board, 1985=100) 124.10 124.10 126.60 135.30 127.10 127.00 ISM Manufacturing Report (%) 55.30 55.30 54.30 59.50 60.00 59.30 ISM Non-Manufacturing Report (%) 56.10 56.10 58.00 60.80 58.70 58.70 Leading Economic Indicators Index (M/M %) 0.18 - -0.09 0.54 0.55 0.28
Notes: Data as reported through March 29, 2019. BPS is basis points. AR is annual rate. SA is seasonally adjusted rate. SAAR is seasonally adjusted annual rate. Sources: FactSet 21 Wealth Management Research April 2019
Required Disclosures
D.A. Davidson & Co. expects to receive, or intends to seek, compensation for investment banking services from the companies mentioned in this report in the next three months.
D.A. Davidson & Co. is a full service investment firm that provides both brokerage and investment banking services. The analysts identified in this report will receive compensation that is based upon (among other factors) D.A. Davidson & Co.’s investment banking revenue. D.A. Davidson & Co.’s analysts, however, are not directly compensated for involvement in specific investment banking transactions.
James Ragan, the analyst who prepared this report, or his immediate family owns an investment position in: AAPL, COST, GE, GOOGL, IBM, INTC, MSFT, PAA, QCOM, SLB, T
Doug Christopher, the analyst who prepared this report, or his immediate family owns an investment position in: EPD, ENB, HBI, KMI
Matt Griffith, the analyst who prepared this report, or his immediate family owns an investment position in: ADP, COST, CVS, DE, DIS, PNC, VFC
Brent Williams, the analyst who prepared this report, or his immediate family owns an investment position in: ATVI, CMG, EXPE, QCOM, SLB, SYF, UMPQ
The following disclosures apply to stocks mentioned in this report if and as indicated:
(A) D.A. Davidson & Co. was making a market in this company’s securities at the time this report was published.
The analysts identified in this report attest that (i) all the views expressed accurately reflect their personal views about the common stock of the subject company, and (ii) no part of their compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in the report.
Ratings Information: Buy/Add - Security appears undervalued based on our current view of valuation measures, expectations, and its risk profile. Neutral - Security appears fairly valued based on our current view of valuation measures, expectations, and its risk profile. Sell/Reduce - Security appears over-valued based on our current view of valuation measures, expectations, and its risk profile.
Rating Distribution (as of 3/31/2019) Coverage Universe Distribution Investment Banking Distribution azbycx IR WMR Combined IR WMR Combined BUY/ADD (Buy) 59% 83% 60% 10% 4% 9% NEUTRAL (Hold) 40% 17% 39% 5% 0% 5% SELL/REDUCE (Sell) 1% 0% 1% 0% 0% 0% WMR denotes Wealth Management Research; IR denotes Institutional Research whose rating scale is Buy, Neutral, Underperform. Investment Banking Distribution denotes companies from whom D.A. Davidson & Co. has received compensation in the last 12 months.
Price targets are an evaluation of price potential over the next 12-18 months based upon assessment of future earnings and cash flow, comparable company valuations, growth prospects and other financial criteria. Certain risks may impede achievement of these price targets including, but not limited to, broader market and macroeconomic fluctuations and unforeseen changes in the subject company’s fundamentals or business trends.
Focus List Securities Selection and Publication Process:
Focus List (the “Portfolio”) is prepared by James Ragan and Brent Williams of D.A. Davidson & Co. Wealth Management Research (WMR). To be eligible for addition to the Portfolio, securities must be covered by D.A. Davidson & Co. WMR, Institutional Research, or Morningstar Equity Research. Eligible securities are common stocks and exchange traded funds (ETFs). Common stocks must be rated an equivalent “Buy” from D.A. Davidson & Co. WMR or Institutional Research, or 3 stars or higher by Morningstar at the time the security is added to the Portfolio. Other than Mr. Ragan and Mr. Williams, D.A. Davidson & Co. analysts who publish WMR or Institutional Research are not involved in the management of the Portfolio.
The Portfolio seeks long-term outperformance versus the broad market through investment in stocks of quality companies. Mr. Ragan and Mr. Williams identify quality by evaluating potential candidates for industry leadership, skilled management, resilient profitability, and balance sheet strength, and investments must offer compelling risk/reward (value) in the opinion of Mr. Ragan and Mr. Williams. The Portfolio is diversified by industry sector, although Mr. Ragan and Mr. Williams maintain flexibility to overweight or underweight in sectors where they view opportunity. In order to minimize turnover, maintain tax efficiency, and allow time for an investment thesis to develop, the Portfolio seeks a multi-year holding period in each position. Given the Portfolio’s longer-term investment horizon compared to that of the primary coverage source, the Portfolio may continue to maintain a position in a security if its rating is lowered to the equivalent of “Hold” or “Neutral.” Securities are removed from the Portfolio if the primary coverage source rating is lowered to an equivalent of “Sell,” if there is a detrimental or significant change in company or industry fundamentals, and/or if a security exceeds Mr. Ragan and Mr. Williams’ view of fair value.
22 Wealth Management Research April 2019
Required Disclosures
Dividend Achievers Securities Selection and Publication Process:
Dividend Achievers is prepared by James Ragan and Matt Griffith of D.A. Davidson & Co. Wealth Management Research (WMR). To be eligible for inclusion in Dividend Achievers, securities must be covered by D.A. Davidson & Co.’s WMR, Institutional Research, or Morningstar Equity Research (the “Research Universe”). Other than Mr. Ragan and Mr. Griffith, D.A. Davidson & Co. analysts who publish WMR or Institutional Research are not involved in the preparation of Dividend Achievers.
Of all the eligible securities from the Research Universe, those ultimately selected for inclusion in Dividend Achievers will have a minimum 10- year history of consecutive dividend increases and, in the opinion of Mr. Ragan and Mr. Griffith, have a positive outlook for future growth. The overall dividend yield for Dividend Achievers is expected to be above the average market yield. Dividend Achievers may not have holdings in all sectors at all times, but Mr. Ragan and Mr. Griffith strive to maintain diversity across most economic sectors. Securities may be removed from Dividend Achievers if the underlying company fails to sustain its record of consecutive annual dividend increases or if there is a significant change in company fundamentals. Changes to Dividend Achievers may also be prompted by Mr. Ragan and Mr. Griffith’s views of the risk/reward profile offered by individual securities.
ESG Achievers Securities Selection and Publication Process:
ESG Achievers is prepared by Matt Griffith and Brent Williams of D.A. Davidson & Co.’s Wealth Management Research (WMR). To be eligible for addition to ESG Achievers, securities must be covered by WMR, D.A. Davidson & Co.’s Institutional Research, or Morningstar Equity Research (the “Research Universe”). Other than Mr. Griffith and Mr. Williams, D.A. Davidson & Co. analysts who publish WMR or Institutional Research are not involved in the preparation of ESG Achievers.
Of all the eligible securities from the Research Universe, those ultimately selected for inclusion will have an ESG score from Sustainalytics that ranks in the top quartile (top 25%) of its industry, when compared to a company’s peers at the time of addition to ESG Achievers. Sustainalytics’ ESG Ratings measure how well companies proactively manage the Environmental, Social and Governance issues that are the most material to their business. While ESG Achievers may not have holdings in all sectors at all times, Mr. Griffith and Mr. Williams strive to maintain diversity across most economic sectors. Securities may be removed from ESG Achievers if there is a material change in company or industry fundamentals, a deterioration of ESG ranking relative to industry peers as measured by Sustainalytics, and/or if Mr. Griffith and Mr. Williams view the risk/reward profile as unattractive.
Part of this publication may contain Sustainalytics proprietary information that may not be reproduced, used, disseminated, modified nor published in any manner without the express written consent of Sustainalytics. Nothing contained in this publication shall be construed as to make a representation or warranty, express or implied, regarding the advisability to invest in or include companies in investable universes and/or portfolios. The information is provided "as is" and, therefore Sustainalytics assumes no responsibility for errors or omissions. Sustainalytics cannot be held liable for damage arising from the use of this publication or information contained herein in any manner whatsoever. Sustainalytics is an independent entity and is unaffiliated with D.A. Davidson.
Income Opportunities Securities Selection and Publication Process:
Income Opportunities is prepared by James Ragan and Doug Christopher of D.A. Davidson & Co.’s Wealth Management Research (WMR). To be eligible for addition to Income Opportunities, securities must be covered by D.A. Davidson & Co. WMR, Institutional Research, or Morningstar Equity Research. Eligible securities are common stocks and real estate investment trust (REIT) shares. Common stocks must be rated an equivalent “Buy” from D.A. Davidson & Co. WMR or Institutional Research, or 3 stars or higher by Morningstar at the time the security is added to Income Opportunities. Other than Mr. Ragan and Mr. Christopher, D.A. Davidson & Co. analysts who publish WMR or Institutional Research are not involved in the management of Income Opportunities. New securities selected from the WM Research-defined universe must have a market value of at least $2 billion and be in the top third of dividend-paying U.S. equities at the time of inclusion. Securities selected for inclusion represent those believed by Mr. Ragan and Mr. Christopher to represent their most timely high-yield ideas at the time added to Income Opportunities. In order to minimize turnover, maintain tax efficiency, and allow time for an investment thesis to develop, Income Opportunities may have a longer-term investment horizon for a position compared to that of the primary coverage source, and may continue to maintain a position in a security if its rating is lowered to the equivalent of “Hold” or “Neutral.” Securities are removed from Income Opportunities if the primary coverage source rating is lowered to an equivalent of “Sell,” if there is a detrimental or significant change in company or industry fundamentals, and/or Mr. Ragan and Mr. Christopher determine that the security is no longer timely. Important Notice: The purchase of MLPs and some Mortgage REITs in an IRA, qualified plan, or Charitable Remainder Trust may trigger an IRS 990-T filing if the MLP/Mortgage REIT generates $1,000 or more of Unrelated Business Taxable Income (“UBTI”). UBTI is reported by an MLP on its annual form K-1. This is provided for informational purposes only and does not constitute tax advice. D.A. Davidson & Co. does not provide tax advice and investors should consult with their tax professional before investing.
23 Wealth Management Research April 2019
Required Disclosures
Other Disclosures: The information contained herein has been obtained by sources we consider reliable, but is not guaranteed and we are not soliciting any action based upon it. Any opinions expressed are based on our interpretation of data available to us at the time of the original publication of the report. Assumptions, opinions, and estimates constitute our judgment as of the date of this report and are subject to change without notice. Investors must bear in mind that inherent in investments are the risks of fluctuating prices and the uncertainties of dividends, rates of return and yield, as well as broader market and macroeconomic fluctuations and unforeseen changes in the fundamentals or business trends affecting the securities referred to in this report. Investors should also remember that past performance is not indicative of future performance and D.A. Davidson & Co. makes no guarantee, express or implied, as to future performance. The information is not intended to be used as the primary basis of investment decisions. Because of individual client requirements, it should not be construed as advice designed to meet the particular investment needs of any investor. It is not a representation by us, or an offer, or the solicitation of an offer, to sell or buy any security. Further, a security described in a report may not be eligible for solicitation in the states in which a client resides. D.A. Davidson & Co. does not provide tax advice and investors should consult with their tax professional before investing. Further information and elaboration is available upon request.
Performance Representation Disclosure: Past performance is not a guarantee of future results and Davidson provides no guarantee regarding the performance of your accounts. As noted above the portfolio performance presented “Net of Fees,” means the performance reflects the deduction of applicable account fees. Account returns presented “Gross of Fees” do not reflect the deduction of fees. Wealth Management Research model portfolio returns shown are the actual returns of the single model portfolio representative account held for each portfolio. Actual client account performance will vary depending on the timing of investment allocations and other transaction as well as the actual fees and other expenses incurred in a client’s account. Please see the Net of Fees disclosure above. Performance information reflects time-weighted rates of return, which measures the compounded rate of growth excluding the inflow or outflow of funds in portfolio. Total returns reflect transaction costs, market appreciation or depreciation and the reinvestment of capital gains, dividends, interest and other income. Yield reflects the current estimated annual income divided by the current market value of the security as of the closing date of this Report. Estimated Annual Income and Yield are estimates, and the actual income and yield might be lower or higher than the estimated amounts. Yield reflects only the income generated by an investment and does not reflect changes in the security’s price, which may fluctuate. Benchmark Disclosure: Indices or benchmarks are included to provide a reference point when comparing the performance of a portfolio or strategy. A benchmark is an unmanaged index or combination of indices, and does not include any advisory fees, transaction costs or other charges that would be incurred in connection with an actual investment or portfolio. The S&P 500 index was selected as the most appropriate benchmark based on the portfolio’s investment objective and strategy but will include different holdings, and a different allocation in individual securities, industries or sectors. Investors cannot invest directly into a benchmark or index. The S&P 500 is a market cap weighted index that is designed to measure the US large-cap equity performance. The index is composed of the 500 leading publically traded US companies based on size, liquidity, industry, and profitability criteria. Income Opportunities’ sector allocation may vary significantly from the sector allocation of the S&P 500. It may also own stocks with a smaller market capitalization than the constituents of the S&P 500. Given these factors, Income Opportunities returns are likely to vary from and have higher volatility than those of the S&P 500 index.
For a copy of the most recent reports containing all required disclosure information for covered companies referenced in this report, please contact your D.A. Davidson & Co. representative or call 206-389-8000.
24 Wealth Management Research April 2019
Focus List Portfolio Past Specific Recommendation Disclosures
Buy Sell Price Focus List Ticker Date Price Date Price 4/11
A. O. Smith Corporation AOS (A) 04/08/19 $55.21 — — $54.19 Activision Blizzard, Inc. ATVI 11/13/18 $52.67 — — $47.86 Amgen Inc. AMGN 11/27/18 $192.30 — — $193.89 Apple Inc. AAPL (A) 09/25/15 $115.41 — — $200.62 Avery Dennison Corporation AVY 03/02/17 $81.20 — — $113.76 Chipotle Mexican Grill, Inc. CMG 04/20/16 $456.53 — — $718.85 CVS Health Corporation CVS 04/09/19 $54.15 — — $53.87 Deere & Company DE 09/07/16 $84.19 — — $158.63 Expedia Group, Inc. EXPE (A) 03/23/17 $127.58 — — $124.16 General Dynamics Corporation GD 01/11/18 $206.03 — — $169.37 Intel Corporation INTC (A) 01/02/09 $14.51 — — $55.75 Molson Coors Brewing Company Class B TAP 06/27/18 $67.94 — — $59.40 NIKE, Inc. Class B NKE 11/07/17 $55.57 — — $84.88 PNC Financial Services Group, Inc. PNC 09/30/16 $90.53 — — $127.29 PPG Industries, Inc. PPG 07/31/17 $105.48 — — $114.90 QUALCOMM Incorporated QCOM (A) 07/29/14 $75.67 — — $56.33 Schlumberger NV SLB 03/16/16 $73.37 — — $45.55 Stryker Corporation SYK 02/18/16 $97.08 — — $196.14 Synchrony Financial SYF 01/15/16 $27.58 — — $32.55 Umpqua Holdings Corporation UMPQ (A) 10/02/13 $16.32 — — $17.38 Walt Disney Company DIS 01/11/18 $109.79 — — $117.16 General Electric Company GE 07/11/08 $27.66 04/08/19 $9.28 $9.16 Merck & Co., Inc. MRK 12/31/15 $52.78 04/08/19 $81.04 $80.82 Express Scripts Holding Company1 ESRX 10/01/13 $62.03 11/27/18 $98.78 — Nordstrom, Inc. JWN 03/12/14 $62.15 11/13/18 $64.16 $44.94 Zoetis, Inc. Class A ZTS 11/14/16 $49.96 05/01/18 $83.67 $101.33 KBR, Inc. KBR (A) 04/07/14 $26.53 11/01/17 $19.52 $19.88 Dollar General Corporation DG 09/07/16 $71.98 09/07/17 $75.23 $121.81 Church & Dwight Co., Inc. CHD 02/15/17 $48.81 07/31/17 $53.38 $73.22 Harley-Davidson, Inc. HOG 04/02/15 $60.25 03/23/17 $60.50 $39.33 United Natural Foods, Inc. UNFI 06/16/15 $61.21 02/15/17 $45.23 $13.49 International Paper Company IP (A) 03/17/11 $25.45 01/31/17 $56.54 $46.93 Tutor Perini Corporation TPC (A) 08/05/11 $14.08 11/15/16 $29.23 $18.95 Dick's Sporting Goods, Inc. DKS 11/13/14 $48.24 09/23/16 $61.17 $41.18 V.F. Corporation VFC 03/01/13 $40.12 09/06/16 $59.55 $89.35 Marketo Inc.2 N.A. 03/31/15 $26.10 06/01/16 $35.11 — Exelon Corporation EXC 11/27/12 $29.83 04/14/16 $34.86 $49.56 Capital One Financial Corporation COF 09/02/15 $75.06 01/15/16 $62.79 $85.63 Potash Corp of Saskatchewan3 N.A. 12/30/14 $35.60 12/29/15 $17.99 — Triumph Group, Inc. TGI 06/11/14 $70.24 12/23/15 $33.47 $22.04 eBay Inc. EBAY (A) 01/03/14 $22.46 07/21/15 $28.18 $37.72 PayPal Holdings Inc4 PYPL 07/20/15 N.A. 07/21/15 $40.54 $107.51 National Oilwell Varco, Inc. NOV 05/20/13 $63.32 05/21/15 $50.36 $28.68 Devon Energy Corporation DVN 09/05/12 $57.48 04/09/15 $64.96 $31.40 Schnitzer Steel Industries, Inc. Class A SCHN 07/23/13 $26.50 12/30/14 $23.15 $25.95 Oracle Corporation ORCL (A) 05/21/10 $22.01 08/27/14 $41.48 $53.97 Western Union Company WU 01/25/13 $13.57 07/29/14 $17.55 $19.37 Veritiv Corp.5 VRTV 07/02/14 N.A. 07/16/14 $36.61 $27.43 NOW Inc.6 DNOW 06/02/14 N.A. 06/03/14 $34.61 $14.90 Vanguard FTSE Emerging Markets ETF VWO 10/18/12 $42.35 04/07/14 $40.91 $43.97 Greenbrier Companies, Inc. GBX 08/04/11 $16.38 11/05/13 $31.37 $33.14 Charles Schwab Corporation SCHW 03/18/11 $17.79 10/02/13 $21.21 $44.27 Teva Pharmaceutical Industries Limited TEVA 05/26/10 $54.96 10/01/13 $37.83 $14.66 Sponsored ADR Johnson Controls International plc JCI 11/02/12 $24.59 07/18/13 $37.46 $35.82 Total SA Sponsored ADR Class B TOT 02/24/09 $47.80 05/20/13 $50.74 $56.78
Sources: D.A. Davidson & Co., FactSet
25 Wealth Management Research April 2019
Focus List Portfolio Past Specific Recommendation Disclosures
Buy Sell Price Focus List Ticker Date Price Date Price 4/11
SPDR Gold Trust GLD 01/02/09 $86.12 04/11/13 $151.45 $123.53 Coinstar Inc.7 N.A. 07/13/09 $25.22 01/08/13 $49.19 — Titanium Metals Corp.8 N.A. 04/12/12 $13.77 11/12/12 $16.46 — iShares MSCI Emerging Markets ETF EEM 01/04/10 $42.48 10/18/12 $42.06 $44.52 QUALCOMM Incorporated QCOM (A) 03/17/11 $52.61 10/10/12 $59.92 $56.33 Toyota Motor Corp. Sponsored ADR TM 03/22/11 $82.67 10/10/12 $74.88 $122.18 Windstream Holdings, Inc. WIN 08/04/11 $92.49 09/13/12 $84.11 $0.31 Staples Inc.9 N.A. 09/02/10 $18.68 08/23/12 $11.10 — Apple Inc. AAPL (A) 03/17/11 $48.33 02/15/12 $36.13 $200.62 Visa Inc. Class A V 12/29/10 $17.65 02/02/12 $26.38 $158.56 Bristol-Myers Squibb Company BMY 01/02/09 $23.22 10/06/11 $32.39 $45.89 Cisco Systems, Inc. CSCO (A) 05/26/10 $23.53 02/10/11 $19.05 $55.82 QUALCOMM Incorporated QCOM (A) 05/06/10 $37.47 02/10/11 $56.93 $56.33 Plum Creek Timber Company, Inc.10 PCL 05/21/10 $34.69 02/01/11 $41.00 — Exxon Mobil Corporation XOM 01/04/10 $68.78 01/24/11 $79.10 $81.56 KBR, Inc. KBR (A) 01/02/09 $15.26 12/15/10 $29.84 $19.88 Verizon Communications Inc. VZ 10/12/09 $27.09 12/15/10 $34.74 $58.61 Frontier Communications Corporation Class B11 FTR 07/02/10 N.A. 09/08/10 $117.90 $2.48 Gilead Sciences, Inc. GILD 01/04/10 $21.67 07/21/10 $15.97 $67.40 iShares iBoxx $ Investment Grade Corporate LQD 01/02/09 $101.59 05/07/10 $105.21 $119.21 Bond ETF Transocean Ltd. RIG 01/02/09 $49.13 04/29/10 $79.25 $8.86 Financial Select Sector SPDR Fund XLF 01/02/09 $9.96 04/07/10 $13.37 $26.49 Plum Creek Timber Company, Inc.10 PCL 07/13/09 $28.77 04/07/10 $39.87 — Family Dollar Stores Inc.12 N.A. 10/06/09 $28.38 03/10/10 $35.63 — Cadence Design Systems, Inc. CDNS (A) 01/02/09 $3.55 10/16/09 $8.06 $64.47 Coca-Cola Company KO 01/02/09 $22.62 10/12/09 $27.57 $46.64 Caterpillar Inc. CAT 02/24/09 $25.05 09/18/09 $53.50 $137.53 Starbucks Corporation SBUX 01/02/09 $4.75 07/13/09 $6.96 $75.48
Sources: D.A. Davidson & Co., FactSet 1 Company was acquired by Cigna (CI) 2 Company was acquired by Vista Equity Partners LLC (private) 3 Now trades as Nutrien Ltd. (NTR) 4 Spin off from Ebay Inc. (EBAY) 5 Spin off from Internation Paper Company (IP) 6 Spin off from National Oilwell Varco, Inc. (NOV) 7 Company was acquired by Apollo Global Management, LLC (APO) 8 Company was acquired by Precision Castparts Corp., which was then acquired by Berkshire Hathaway Inc. (BRK.B) 9 Company was acquired by Sycamore Partners (private) 10 Company was acquired by Weyerhaesuer Co. (WY) 11 Spin off from Verizaon Communications Inc. (VZ)
12 Company acquired by Dollar Tree, Inc. (DLTR)
26 Wealth Management Research April 2019
Dividend Achievers Portfolio Past Specific Recommendation Disclosures
Buy Sell Price Dividend Achievers Ticker Date Price Date Price 4/11
3M Company MMM 04/27/18 $196.77 — — $213.53 AT&T Inc. T (A) 11/01/05 $23.67 — — $32.20 Automatic Data Processing, Inc. ADP 12/29/08 $33.21 — — $161.67 Chubb Limited CB 09/04/15 $100.28 — — $137.99 Costco Wholesale Corporation COST 11/21/18 $221.44 — — $241.24 Emerson Electric Co. EMR 11/01/05 $35.16 — — $71.46 Exxon Mobil Corporation XOM 06/12/09 $73.55 — — $81.95 International Business Machines Corporation IBM 02/07/14 $176.35 — — $143.78 Johnson & Johnson JNJ 12/29/08 $57.60 — — $135.21 Kimberly-Clark Corporation KMB 12/29/08 $49.41 — — $122.57 Microsoft Corporation MSFT (A) 02/24/15 $44.14 — — $120.33 NextEra Energy, Inc. NEE 08/14/09 $56.46 — — $190.04 Novartis AG Sponsored ADR NVS 12/13/12 $63.12 — — $81.87 United Technologies Corporation UTX 12/29/08 $50.63 — — $132.82 V.F. Corporation VFC 11/17/16 $56.09 — — $89.30 Alcon Inc. 1 ALC 04/09/19 N.A. 04/11/19 $55.69 $55.60 CVS Health Corporation CVS 02/19/16 $96.84 11/21/18 $75.81 $52.69 Procter & Gamble Company PG 11/01/05 $55.40 04/27/18 $72.41 $104.75 Genuine Parts Company GPC 11/13/09 $36.65 11/17/16 $94.57 $112.58 McDonald's Corporation MCD 12/31/08 $61.91 02/19/16 $116.93 $188.88 Chubb Corp.2 N.A. 09/03/08 $48.12 09/04/15 $119.84 — Realty Income Corporation O (A) 11/05/07 $27.82 02/24/15 $50.82 $71.40 Halyard Health Inc.3 N.A. 11/03/14 $16.33 11/11/14 $35.27 $44.14 CDK Global Inc.4 CDK 10/01/14 N.A. 10/02/14 $29.57 $58.84 C.H. Robinson Worldwide, Inc. CHRW 03/26/13 $58.84 02/07/14 $53.00 $89.67 PPG Industries, Inc. PPG 12/29/08 $19.41 03/26/13 $67.14 $114.52 Abbott Laboratories ABT 03/01/10 $26.05 12/13/12 $31.23 $78.51 Eli Lilly and Company LLY 11/01/05 $49.94 03/01/10 $34.37 $125.15 International Business Machines Corporation IBM 12/29/08 $80.60 11/13/09 $127.13 $143.78 MDU Resources Group Inc MDU 11/01/05 $21.59 08/14/09 $19.96 $25.75 Chevron Corporation CVX 11/01/05 $57.50 06/12/09 $71.40 $125.99 Nordstrom, Inc. JWN 12/29/08 $11.42 12/31/08 $13.28 $43.86 Abbott Laboratories ABT 11/01/05 $20.53 12/29/08 $24.75 $78.51 Air Products and Chemicals, Inc. APD 11/01/05 $53.18 12/29/08 $43.84 $193.55 Altria Group Inc MO 11/01/05 $17.25 12/29/08 $15.03 $55.98 Arthur J. Gallagher & Co. AJG 11/01/05 $29.39 12/29/08 $24.64 $79.67 Consolidated Edison, Inc. ED 11/01/05 $45.18 12/29/08 $38.01 $84.47 Diebold Nixdorf Incorporated DBD (A) 11/01/05 $35.96 12/29/08 $26.80 $12.53 Stanley Black & Decker, Inc. SWK 11/01/05 $47.88 12/29/08 $31.89 $144.38 Bank of America Corp BAC 11/01/05 $43.44 09/03/08 $32.58 $29.07 Freddie Mac FMCC 11/01/05 $61.29 07/10/08 $7.99 $2.57 Philip Morris International Inc.5 PM 03/31/08 N.A. 05/12/08 $52.14 $85.51 Citigroup Inc. C 11/01/05 $453.90 11/02/07 $365.89 $65.91 Kraft Foods, Inc.6 N.A. 04/02/07 $26.61 08/01/07 $32.15 $49.67
Sources: D.A. Davidson & Co., FactSet 1 Spin off from Novartis AG Sponsored ADR (NVS) 2 Chubb Corp. was acquired by ACE Limited (ACE) 3 Spin off from Kimberly-Clark Corporation (KMB), now traded as Avanos Medical, Inc. (AVNS) 4 Spin off from Automatic Data Processing, Inc. (ADP) 5 Spin off from Altria Group Inc (MO) 6 Spin off from Altria Group Inc (MO), now traded as Mondelez International, Inc. (MDLZ)
27 Wealth Management Research April 2019
ESG Achievers Portfolio Past Specific Recommendation Disclosures
Buy Sell Price ESG Achievers Ticker Date Price Date Price 4/11
3M Company MMM 07/31/18 $212.32 — — $212.11 American Water Works Company, Inc. AWK 07/31/18 $88.25 — — $104.03 Amgen Inc. AMGN 04/05/19 195.00 — — $193.89 AT&T Inc. T (A) 07/31/18 $31.97 — — $31.88 CVS Health Corporation CVS 07/31/18 $64.86 — — $53.87 HCP, Inc. HCP 07/31/18 $25.90 — — $30.97 Intel Corporation INTC (A) 07/31/18 $48.10 — — $55.75 International Business Machines Corporation IBM 07/31/18 $144.93 — — $143.02 Invesco Ltd. IVZ 07/31/18 $26.99 — — $20.79 Johnson & Johnson JNJ 07/31/18 $132.52 — — $135.58 Kimberly-Clark Corporation KMB 07/31/18 $113.86 — — $121.66 Linde plc1 LIN 10/31/18 $163.46 — — $181.02 Microsoft Corporation MSFT (A) 07/31/18 $106.08 — — $120.19 Prudential Financial, Inc. PRU 07/31/18 $100.91 — — $98.39 QUALCOMM Incorporated QCOM (A) 07/31/18 $64.09 — — $56.33 S&P Global, Inc. SPGI 07/31/18 $200.44 — — $212.68 Target Corporation TGT 07/31/18 $80.68 — — $80.75 United Parcel Service, Inc. Class B UPS 07/31/18 $119.89 — — $113.08 V.F. Corporation VFC 10/22/18 $77.55 — — $89.35 Walt Disney Company DIS 07/31/18 $113.56 — — $117.16 Merck & Co., Inc. MRK 07/31/18 $65.87 04/08/19 $80.89 $80.82 Praxair Inc.2 N.A. 07/31/18 $167.50 10/31/18 $163.46 —
Sources: D.A. Davidson & Co., FactSet 1 Received following the merger of Praxair Inc. and Linde AG
2 Merged with Linde AG
28 Wealth Management Research April 2019
Income Opportunities Past Specific Recommendation Disclosures
Buy Sell Price Income Opportunities Ticker Date Price Date Price 4/11
City Office REIT, Inc. CIO (A) 04/22/15 $13.18 — — $11.32 Duke Energy Corporation DUK 01/12/16 $70.96 — — $90.26 Enbridge Inc.1 ENB 02/27/17 $41.65 — — $37.17 GlaxoSmithKline plc Sponsored ADR GSK 04/22/15 $46.71 — — $40.94 Hanesbrands Inc. HBI 03/15/17 $19.99 — — $18.32 HCP, Inc. HCP 06/16/16 $31.68 — — $30.87 International Paper Company IP (A) 11/01/18 $45.41 — — $47.06 Kinder Morgan Inc Class P KMI 01/09/19 $17.12 — — $19.92 Leggett & Platt, Incorporated LEG 08/23/18 $45.40 — — $43.21 LTC Properties, Inc. LTC 04/22/15 $44.38 — — $46.21 Occidental Petroleum Corporation OXY 04/22/15 $79.58 — — $67.18 Target Corporation TGT 08/14/17 $55.75 — — $80.45 W. P. Carey Inc. WPC 01/31/17 $61.44 — — $78.86 Huntington Bancshares Incorporated HBAN (A) 01/30/19 $13.51 — — $13.35 Invesco Ltd. IVZ 03/21/19 $19.59 — — $20.85 NorthWestern Corporation NWE 10/12/16 $54.67 02/15/19 $65.38 $69.93 Enterprise Products Partners L.P. EPD 12/29/15 $25.10 01/09/19 $27.54 $29.33 Tortoise Midstream Energy Fund Inc NTG 01/23/18 $20.51 01/09/19 $13.98 $14.21 BlackRock TCP Capital Corp. TCPC 04/22/15 $16.17 08/23/18 $14.66 $14.30 Oaktree Capital Group, LLC Class A OAK 04/22/15 $52.53 11/20/17 $42.27 $49.96 Plains All American Pipeline, L.P. PAA 04/22/15 $51.25 08/11/17 $20.52 $24.56 Kinder Morgan Inc Class P KMI 04/22/15 $43.85 03/15/17 $21.25 $19.92 Spectra Energy Corp.2 N.A. 04/22/15 $37.65 02/27/17 $40.68 — Quality Care Properties, Inc.3 QCP 11/01/16 $16.25 11/17/16 $14.29 — Healthcare Trust of America, Inc. Class A HTA 04/22/15 $27.24 07/11/16 $32.62 $28.51 Parkway Properties Inc.4 N.A. 04/22/15 $16.78 05/13/16 $17.10 — California Resources Corp.5 CRC 03/24/16 N.A. 04/26/16 $4.10 $28.67 Energy Transfer Partners6 N.A. 04/22/15 $54.63 12/29/15 $33.35 — CVR Partners, LP UAN 04/22/15 $13.79 11/25/15 $8.59 $3.75 Baxter International Inc. BAX 04/22/15 $38.16 07/28/15 $37.69 $79.83 Baxalta Inc.7 N.A. 07/01/15 $32.32 07/08/15 $31.74 —
Sources: D.A. Davidson & Co., FactSet 1 Received in exchange for shares of Spectra Energy Corp. already held in the portfolio 2 Company was acquired by Enbridge Inc. (ENB) 3 Company was acquired by Welltower, Inc. (WELL) 4 Company was acquired by Cousins Properties Incorporated (CUZ) 5 Spin off from Occidental Petroleum Corporation (OXY) 6 Merged with Enterprise Transfer, L.P. (ET) 7 Spin off from Baxter International Inc. (BAX) and subsequently acquired by Shire PLC (SHP-GB)
29 Wealth Corporate Office Management Davidson Companies 8 Third Street North Research Contacts Great Falls, MT 59401 (800) 332-5915
Seattle Office 701 5th Ave., Suite 4050 Seattle, WA 98104
James D. Ragan, CFA Director of Research, Wealth Management (206) 389-4070 [email protected]
Matthew G. Griffith, CFA California Big Bear Lake Nevada Senior Research Analyst, Carlsbad Gardnerville Wealth Management Claremont (206) 389-4011 Encino Ohio [email protected] Fresno Dublin Long Beach Brent P. Williams, CFA Los Angeles Oregon Bend Research Analyst, Newport Beach Eugene Wealth Management Pasadena Santa Barbara Klamath Falls (206) 389-4076 Ventura Lake Oswego [email protected] Medford Colorado Pendleton Joseph-Andrew L. Malach Colorado Springs Portland Research Associate, Roseburg Wealth Management Idaho Salem (206) 389-4082 Boise Utah [email protected] Coeur d’Alene Idaho Falls Logan Lewiston Midvale Asya Gubskaya Moscow Salt Lake City Research Associate, Pocatello Wealth Management Sandpoint Washington (206) 389-4017 Twin Falls Aberdeen [email protected] Bainbridge Island Montana Bellevue Billings Bellingham Bozeman Burlington Los Angeles Office Butte Edmonds 624 S. Grand Ave., 26th Floor Great Falls Everett One Wilshire Building Hamilton Kennewick Los Angeles, CA 90017 Havre Port Angeles Helena Seattle Douglas A. Christopher, CFA Kalispell Spokane Vancouver Senior Research Analyst, Livingston Walla Walla Wealth Management Missoula Whitefish Wenatchee (213) 244-9338 [email protected] Nebraska Wyoming Columbus Gillette Omaha Sheridan Lincoln D.A. Davidson & Co. is the largest full-service
investment firm headquartered in the Northwest.
For over 80 years, the firm’s financial advisors have
provided straightforward advice and personalized
solutions to help build, protect and pass on wealth for
generations.
An experienced research staff serves individual and
institutional investors with award-winning research.
D.A. Davidson is also a regional leader in public and
corporate finance.
Further information can be found on the D.A. Davidson
Companies website at dadavidson.com
701 5th Ave., Suite 4050 | Seattle, WA | (888) 389-8001 | D.A. Davidson & Co. member SIPC