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MarketPulse THE BEST OF THE BEST Investors have heard a lot recently about the importance of buying high-quality stocks. But what does “quality” mean? Goldman Sachs tries to explain just that in a recent report. Based on a host of measurements including reliably strong earnings and a company’s stock performance over time, Goldman picked 50 stocks for its “high-quality” basket. It includes Yum brands, which owns the Taco Bell and Pizza Hut chains along with others, and National Oilwell Varco, an oilfield services and products company. Goldman suggests buying stocks in the basket to protect against a volatile market.

DON’T SWEAT IT It’s a phenomenon most investors are familiar with: You buy a stock that seems cheap, and then its price falls even more. It’s easy to think that you made a mistake and bought at the wrong time. But that’s the wrong way to look at investing, says Morningstar’s Christine Benz in a report. While it’s important to pay attention to changes in your stock portfolio, there’s no way to avoid the occasional investing error, says Benz. Instead, she advises investors to aim for “direction, not perfection.” Some steps to take: Base asset allocation on research, rebalance your portfolio when necessary instead of trying to time the market and use dollarcost averaging — a way of evening out your investments over time.

ON THE DEFENSIVE The stock market has rallied in October. But many investors are still wary of the extreme volatility that has become common since August. That has made defensive stocks more attractive. Defensives include utilities and companies that sell consumer staples — things that customers keep buying even when the economy is uncertain. Demand for defensives is strong enough that Russell Investments has expanded its Defensive Index, which it launched in 2011, to include overseas companies. Its new Global Defensive index was introduced last week. Russell research director Rolf Agather says defensives have been shown to do well over the long term, and are a less risky investment than companies that rise and fall with economic cycles.

Goldman Sachs High Quality Basket sector breakdown: INFORMATION TECHNOLOGY

20% FINANCIALS

14% CONSUMER STAPLES

12% ENERGY

12% HEALTH CARE

12% CONSUMER DISCRETIONARY

10% INDUSTRIALS

10% MATERIALS

4% UTILITIES

4% TELECOM

2%

SOURCE: Goldman Sachs

Russell Global Defensive index daily total returns 15 percent

10

5

0

-5 MTD

YTD 1-YR 3-YR 5-YR 10-YR

Data as of Oct. 19 SOURCE: Russell Investments

Francesca Levy, Kristen Girard • AP

Be sensible, but find areas of growth When the economy is slowing, it’s tougher to find companies whose earnings are consistently rising. Channing Smith, co-manager at Capital Advisors Growth Fund, says it’s best to focus on large, stable companies like Procter & Gamble that can weather an economic downturn. He’s also finding pockets of growth in technology companies and automakers.

Yields slip in mixed week

Big names in small caps middle class. Marshall likes companies with strong brands because they tend to be increasing their share of profitable markets. And their success means a bigger company may try to acquire them. That would give investors a premium for their stock. Marshall’s approach is one reason why he has beaten the S&P 500 by 13 percent a year over the three years his fund has been in existence. His fund is ranked second among all small-cap funds by Morningstar. Here are some big-name small caps:

Panera Bread, Boston Beer, Domino’s Pizza. Big names, but they’re small caps — companies whose market capitalization generally falls under $3 billion. Investors often think of small caps as young, risky businesses. They can also be well-established companies with high-profile brands. Eric Marshall, manager of the $65 million Hodges Small Cap Fund, looks for smaller companies that investors will recognize. One of his top holdings is movie theater chain Cinemark. It has 295 theaters in the U.S. and is expanding in Latin America, where there’s a growing

InterestRates

Money market mutual funds

Smith

What do you make of the rally we’ve seen in October? Some people have said the market has hit bottom. Do you believe that? No, no, no. ... The biggest market mover that we’re going to see is coming Sunday (when European leaders meet to discuss the Greek debt problems). All eyes are on Europe. The downdraft that we’ve had is because of Europe and because of the uncertainty there. And the recent move that we’ve had (upwards) over the last week-and-a-half is because of optimism, confidence that we’re going to see a plan out of Europe. ... We’ve been taken back a bit by the optimism that we’ve seen, because it’s probably not warranted. So how are you guiding the portfolio now? You’ve mentioned that you like companies like Procter & Gamble and Johnson & Johnson. You have to have cash, because unfortunately, we don’t know which way this market is going to go. ... (Also), invest in quality. I mentioned those bluechips, and you’ve got to be very selective and pick your spots. We like mobile Internet. We love Apple; we consider Apple a blue-chip. We like Google, Qualcomm: anything that is exposed to (the market for smartphones). ... I’ve got an iPad, my kids have Apple products; we’re not giving that up. We’re not going to go back to a Nokia phone. And there’s still room for more mobile growth? If you look at the penetration on smartphones, it’s probably 25 percent. So we have a huge runway, an enormous runway for adoption. And we’re in that mass adoption stage at this point. People are buying it. At Christmas time, they might not buy a sweater, but they’re going to buy an iPhone. You also bought automakers for growth. Which companies do you like, and why? GM and Ford. It sounds crazy. But these are stocks that are trading at a (price-to-earnings) multiple of less than six. They’ve had new management that has come in the last few years and restructured. Their cost structures are very attractive now. They’ve negotiated with the (United Auto Workers), the liabilities are now off their books. ... They’re developing products that the market wants, like the Ford Focus and the Ford Fiesta. So they’re becoming more profitable.

Panera’s revenue is up 19 percent this year despite the economy. It has raised the number of stores it plans to open. It’s now planning 105 this year and 110 in 2012. The stock is up 17 percent the last year. 52-week price range $88.75

$133.43

Price-earnings ratio*

(CNK) Close: $19.13 The company has raised its revenue from Latin America 38 percent the last year. Last month, it bought 10 theaters in Argentina that have 95 screens. The stock is up 16.5 percent the last 12 months.

(SAM) Close: $84.44

Analysts say an innovative ad campaign and a recipe change have helped Domino’s surpass its rivals. Its stock is up 92 percent the last 12 months. Yum Brands, owner of Pizza Hut, is up 5 percent.

The largest American-owned brewery is best known for its Sam Adams brand. The company’s stock is up 20 percent the last 12 months. Anheuser-Busch InBev is down 7 percent.

52-week price range

52-week price range $16.70

(DPZ) Close: $30.54

$13.97

$22.09

$68.80

2.48 3.98 3.84 4.98 8.89 1.20

-0.02 -0.08 -0.11 -0.01 -0.41 -0.03

FRIDAY YIELD

1WK

0.02 0.15 0.04 0.27 1.07

0.00 -0.01 0.00 0.00 -0.05

s s s s s

t t t t t

-0.10 -0.06 -0.13 -0.07 -0.05

0.16 0.34 0.20 0.83 2.39

0.07 0.01 0.16 0.78

Price-earnings ratio*

Price-earnings ratio*

10-year T-Note 2.21 30-year T-Bond 3.26 Money fund data provided by iMoneyNet Inc.

-0.04 0.03

s s

t -0.32 t -0.68

3.72 4.77

1.72 2.72

25

16

19.5

20

Market Cap

Market Cap

Market Cap

$3.31 billion

$2.31 billion

$1.92 billion

$1.12 billion

*based on last 12 months

3-month T-Bill 1-year T-Bill 6-month T-Bill 2-year T-Note 5-year T-Note

Price-earnings ratio*

Market Cap

Source: FactSet

TREASURYS

$100.93

TICKER

52-WK RANGE FRIDAY $CHG %CHG %CHG %RTN RANK %RTN LOW HIGH CLOSE 1WK 1WK 1MO 1QTR YTD 1YR 1YR 5YRS* PE YLD

APD

72.26 5

98.01

82.74

-1.32

-1.6

s

t

-9.0

Amer Water Works

AWK

23.44 0

31.08

30.51

0.69

2.3

s

s

20.6 +32.27

Amerigas Part LP

APU

36.76 6

51.50

44.92

-1.00

-2.2

s

s

Aqua America Inc

WTR

19.28 6

23.79

21.95

0.52

2.4

s

t

Arch Dan Mid

ADM

23.69 4

38.02

28.59

0.84

3.0

s

AutoZone Inc

AZO

227.70 0 337.23 327.50

-0.62

-0.2

Bank of America

BAC

Bk of NY Mellon

BK

Bon Ton Store

BONT

CIGNA Corp CVS Caremark Corp

+.05

3

6.0

14

2.8

1 18.9a

18

3.0

-8.0 +2.68

2

13.5

28

6.6

-2.4 +7.17

2

1.0

22

3.0

t

-5.0—12.59 4

-3.5

9

2.2

s

s

20.1 +41.55

1

23.9

17

...

...

0.6

5.13 2

15.31

6.46

0.27

4.4

s

t -51.6—42.78 5 -26.2

17.10 3

32.50

20.70

1.73

9.1

s

t -31.5—17.10 4

-6.5

10

2.5

3.91 1

17.49

4.98

0.26

5.5

t

t -60.7—53.36 5 -31.6

19

4.0

CI

34.43 6

52.95

44.70

0.00

0.0

s

t

21.9 +25.46

1

2.4

8

0.1

CVS

29.45 7

39.50

35.55

0.55

1.6

s

t

2.2 +15.36

2

3.9

14

1.4

CocaCola

KO

59.80 8

71.77

68.19

0.34

0.5

s

t

3.7 +13.94

2

10.3

13

2.8

Comcast Corp A

CMCSA 18.75 7

27.16

24.33

0.39

1.6

s

t

11.2 +26.93

1

0.2

17

1.8

Community Bk Sys

CBU

21.67 6

28.95

25.58

1.02

4.2

s

s

-7.9 +13.65

2

5.3

13

3.8

Community Hlth Sys

CYH

14.61 2

42.50

18.66

-1.17

-5.9

s

t -50.1—39.06 5 -11.8

7

...

Entercom Comm

ETM

4.61 2

13.63

6.07

-0.43

-6.6

s

t -47.6—29.34 4 -19.7

5

...

Fairchild Semicond

FCS

9.95 4

21.02

13.36

0.27

2.1

s

t -14.4 +28.96

1

-3.8

9

...

Frontier Comm

FTR

5.33 2

9.84

6.13

0.16

2.7

t

t -37.0—21.64 4

-5.7

Genpact Ltd

G

13.09 6

18.41

15.81

0.23

1.5

s

t

3 27.3a

21

1.1

Harte Hanks Inc

HHS

7.00 3

13.74

8.71

0.05

0.6

s

s -31.8—28.66 4 -17.7

12

3.7

Heinz

HNZ

46.99 8

55.00

53.35

1.10

2.1

s

t

7.9 +11.76

2

8.2

17

3.6

Hershey Company

HSY

45.67 0

60.96

60.26

0.22

0.4

s

s

27.8 +24.93

1

5.4

23

2.3

Kraft Foods

KFT

29.80 9

36.30

35.20

-0.03

-0.1

s

t

11.7 +14.27

2

2.8

20

3.3

Lowes Cos

LOW

18.07 5

27.45

22.13

1.34

6.4

s

t -11.8 +2.63

2

-4.6

15

2.5

M&T Bank

MTB

66.40 4

91.05

74.94

-0.78

-1.0

s

t -13.9 +6.55

2

-6.2

11

3.7

McDonalds Corp

MCD

72.14 0

91.22

92.32

2.38

2.6

s

s

1

19.9

18

3.0

NBT Bncp

NBTB

17.05 6

24.98

21.04

0.59

2.9

s

t -12.9 —1.53

3

0.6

13

3.8

Nexstar Bdcstg Grp

NXST

4.25 8

10.28

8.51

-0.09

-1.0

s

t

42.1 +51.15

1

18.2

95

...

PNC Financial

PNC

42.70 6

65.19

54.06

3.25

6.4

s

t -11.0 +3.08

2

-2.1

9

2.6

PPL Corp

PPL

24.10 0

29.61

29.42

0.90

3.2

s

s

11.8 +12.28

2

0.9

12

4.8

Penn Millers Hldg

PMIC

13.16 0

20.25

20.17

0.05

0.2

s

s

52.5 +40.56

1

...

...

...

Penna REIT

PEI

6.50 3

17.34

8.69

0.93

12.0

s

t -40.2—31.89 4 -18.3

...

6.9

PepsiCo

PEP

58.50 3

71.89

62.28

0.04

0.1

s

t

-4.7 —1.40

3

2.4

16

3.3

Philip Morris Intl

PM

55.85 9

72.74

70.00

2.60

3.9

s

t

19.6 +26.29

1 22.4a

15

4.4

Procter & Gamble

PG

57.56 9

67.72

66.26

1.90

3.0

s

s

3.0 +7.57

2

3.6

17

3.2

Prudential Fncl

PRU

42.45 5

67.52

53.23

2.31

4.5

s

t

-9.3 -+.07

3

-5.7

8

2.2

SLM Corp

SLM

10.91 5

17.11

13.99

0.45

3.3

s

t

11.1 +24.47

1 -20.8

15

2.9

SLM Corp flt pfB

SLMpB 39.65 2

60.00

43.20

-0.75

-1.7

s

t

-1.4

0.0

... 10.7

Southn Union Co

SUG

23.60 9

44.65

41.49

0.70

1.7

s

t

72.4 +71.10

1

9.8

21

1.4

TJX Cos

TJX

42.55 0

59.72

59.84

2.13

3.7

s

s

34.8 +34.91

1

16.3

18

1.3

UGI Corp

UGI

24.07 5

33.53

27.96

0.32

1.2

s

t -11.5 —1.36

3

5.3

12

3.7

Verizon Comm

VZ

31.60 8

38.95

37.42

0.09

0.2

s

s

4.6 +21.10

1

6.4

15

5.3

WalMart Strs

WMT

48.31 9

57.90

56.92

1.46

2.6

s

s

5.5 +7.94

2

4.8

13

2.6

Weis Mkts

WMK

36.52 5

42.20

39.25

0.25

0.6

s

t

-2.7 +2.36

2

1.9

15

3.0

4.0 —6.17

20.3 +20.81

...

38 12.2

Notes on data: Total returns, shown for periods 1-year or greater, include dividend income and change in market price. Three-year and five-year returns annualized. Ellipses indicate data not available. Price-earnings ratio unavailable for closed-end funds and companies with net losses over prior four quarters. Rank classifies a stock’s performance relative to all U.S.-listed shares, from top 20 percent (far-left box) to bottom 20 percent (far-right box).

Stock Screener

went public in 1999. Regional bank stocks have had a far better year. Since those banks are smaller and more focused on the U.S., they typically would have less to lose if Greece defaults on its loans. This screen, powered by FactSet, shows the best-performing banks in the Standard & Poor’s 1500 index. All of the banks have risen at least 5 percent this

COMPANY

TICKER

CLOSING PRICE

Texas Capital Bancshares Bank of the Ozarks Oritani Financial Pinnacle Financial Partners Home BancShares

TCBI OZRK ORIT PNFP HOMB

$26.33 24.05 13.45 14.45 23.15

SOURCE: FactSet

AVERAGE TARGET PRICE

$31.50 26.60 14.40 14.70 26.70 Data through Oct. 20

52-WK HIGH LOW

t 0.10 t -0.71 s 0.28 t 0.10 s 1.42 t -0.19

3.29 5.31 4.22 5.95 10.15 2.46

CHANGE 1MO 3MO 1YR

FRIDAY NAV

WK CHG

4WK

American Funds BalA m ABALX American Funds BondA m ABNDX American Funds CapIncBuA m CAIBX American Funds CpWldGrIA m CWGIX American Funds EurPacGrA m AEPGX American Funds FnInvA m ANCFX American Funds GrthAmA m AGTHX American Funds IncAmerA m AMECX American Funds InvCoAmA m AIVSX American Funds NewPerspA m ANWPX American Funds WAMutInvA m AWSHX BlackRock GlobAlcA m MDLOX BlackRock GlobAlcC m MCLOX BlackRock GlobAlcI d MALOX Dodge & Cox Income DODIX Dodge & Cox IntlStk DODFX Dodge & Cox Stock DODGX Fidelity Contra FCNTX Fidelity DivrIntl d FDIVX Fidelity Free2020 FFFDX Fidelity GrowCo FDGRX Fidelity LowPriStk d FLPSX Fidelity Spartan 500IdxInv FUSEX FrankTemp-Franklin Income A m FKINX FrankTemp-Franklin Income C m FCISX FrankTemp-Templeton GlBond A mTPINX FrankTemp-Templeton GlBondAdv TGBAX Harbor IntlInstl d HAINX Oakmark EqIncI OAKBX PIMCO AllAssetI PAAIX PIMCO ComRlRStI PCRIX PIMCO TotRetA m PTTAX PIMCO TotRetAdm b PTRAX PIMCO TotRetIs PTTRX PIMCO TotRetrnD b PTTDX T Rowe Price EqtyInc PRFDX T Rowe Price GrowStk PRGFX T Rowe Price MidCpGr RPMGX T Rowe Price NewIncome PRCIX Vanguard 500Adml VFIAX Vanguard 500Inv VFINX Vanguard GNMA VFIIX Vanguard GNMAAdml VFIJX Vanguard InflaPro VIPSX Vanguard InstIdxI VINIX Vanguard InstPlus VIIIX Vanguard MuIntAdml VWIUX Vanguard STCor VFSTX Vanguard STGradeAd VFSUX Vanguard Tgtet2025 VTTVX Vanguard TotBdAdml VBTLX Vanguard TotBdInst VBTIX Vanguard TotIntl d VGTSX Vanguard TotStIAdm VTSAX Vanguard TotStIIns VITSX Vanguard TotStIdx VTSMX Vanguard Welltn VWELX Vanguard WelltnAdm VWENX Vanguard WndsrII VWNFX Wells Fargo AstAlllcA f EAAFX

18.10 12.45 49.19 32.81 36.65 35.19 29.11 16.50 27.04 26.82 27.83 18.72 17.43 18.82 13.29 31.34 100.97 67.60 26.81 13.47 84.88 35.68 43.87 2.08 2.10 12.92 12.89 54.92 27.31 11.82 7.66 10.74 10.74 10.74 10.74 22.73 31.83 57.37 9.60 114.17 114.16 11.08 11.08 14.01 113.41 113.41 13.72 10.66 10.66 12.46 10.92 10.92 13.93 30.81 30.81 30.80 30.94 53.44 25.38 12.13

+.17 +.04 +.23 +.05 -.20 +.24 +.08 +.19 +.29 -.09 +.43 +.02 +.02 +.03 +.09 -.08 +.73 -.30 -.16 +.03 -.92 +.32 +.50 +.04 +.04 -.16 -.15 -.13 +.15 +.04 -.13 +.05 +.05 +.05 +.05 +.42 -.29 +.37 +.02 +1.29 +1.29 -.01 -.01 +.11 +1.28 +1.28 +.06 +.03 +.03 +.06 +.02 +.02 -.09 +.31 +.31 +.31 +.36 +.63 +.46 -.03

+4.3 -.8 +4.1 +6.5 +4.6 +6.0 +4.0 +4.2 +7.0 +4.2 +6.8 +1.8 +1.8 +1.9 -.7 +8.4 +7.1 +2.9 +3.5 +1.8 +2.4 +6.1 +6.3 +2.6 +2.5 +.5 +.6 +7.7 +4.4 -.4 -7.0 -1.6 -1.6 -1.6 -1.6 +7.6 +2.6 +4.4 -1.3 +6.3 +6.3 -.9 -.9 -1.2 +6.3 +6.3 -.8 -.2 -.2 +3.9 -1.2 -1.2 +4.9 +6.2 +6.1 +6.1 +4.6 +4.6 +7.7 +.3

2.15 3.79 3.36 4.87 6.61 0.96

52-WK HIGH LOW

p year. Many of them also pay a dividend. Texas Capital Bancshares is the top performer. It’s up 23 percent this year. The bank, which focuses on lending to consumers and businesses in Texas, didn’t suffer big losses from the housing crisis. Analysts also think the stock has room to grow. The average target price is $31.50, suggesting it can go up another 20 percent over the next 12 months. YTD

23.4% 23 4% 10.5 9.9 6.4 5.1

RETURN/RANK 1YR 5YR +6.7/A +2.9/C +2.5/A -4.9/D -9.8/D +3.1/D +1.8/E +5.1/A +2.5/D -1.9/C +9.6/A +.6/B -.1/C +.9/B +3.3/C -9.8/D +2.1/D +6.4/C -7.1/B +2.5/B +12.3/A +6.9/A +7.0/A +3.6/B +3.5/B -.3/E /E -6.5/B +3.9/B +.6/B +3.2/C -.6/E -.5/E -.2/E -.5/E +5.1/B +6.0/C +9.9/B +2.6/D +7.0/A +6.9/A +5.2/A +5.3/A +7.1/A +7.1/A +7.1/A +2.7/B +1.1/B +1.2/B +3.5/A +4.1/A +4.1/A -8.7/D +6.9/B +6.8/B +6.7/B +5.3/A +5.4/A +6.4/B +1.6/

+2.8/B +3.6/E +1.8/C +.6/B +.4/A +1.0/A +.2/D +2.1/C -.4/C +2.2/A +.2/B +4.7/B +3.9/B +5.0/B +6.5/B -.9/A -3.5/D +3.3/A -2.6/C +1.8/C +5.3/A +3.3/A +.1/B +3.2/C +2.7/D +10.1/A +10.5/A +1.5/A +4.7/A +5.8/A +2.7/A +7.4/A +7.6/A +7.9/A +7.5/A -.4/B +2.1/B +6.0/A +6.5/B +.2/B +.1/B +6.8/A +6.9/A +7.2/B +.2/B +.2/B +4.7/A +4.5/B +4.6/B +1.9/B +6.5/B +6.5/B -1.3/B +.7/B +.7/B +.6/B +3.8/A +3.9/A -1.0/B +2.7/

Rank: Fund’s letter grade compared with others in the same performance group; an A indicates fund performed in the top 20 percent; an E, in the bottom 20 percent.

Finding standouts among banks

Banks stocks have plunged this year on fears about the European debt crisis and a slowing economy in the U.S. Bank of America is down 52 percent, Citigroup is down 36 percent and Wells Fargo is down 15 percent. Goldman Sachs is down 40 percent for the year. The company also said this week that it lost $428 million in the third quarter as a result of lower trading revenue. It was only its second loss since it

s s s s t s

TICKER

GROUP, FUND

David K. Randall, Kristen Girard • AP

Air Products

CHANGE 1MO 3MO 1YR

MutualFunds

LocalStocks COMPANY

0.01 0.10 $ 2,500 min (888) 785-5578

1WK

Broad market Lehman Triple-A corporate Moody’s Corp. Inv. Grade Lehman Municipal Bond Buyer U.S. high yield Barclays Treasury Barclays

52-week price range

$31.18

0.01 0.13 $ 10,000 min (800) 243-1575

FRIDAY YIELD

U.S. BOND INDEXES

(PNRA) Close: $105.85

MIN INVEST PHONE

YIELD

PRIME FED Taxable—national avg RATE FUNDS Selected Daily Govt Fund/Cl D FRIDAY 3.25 .13 Tax-exempt—national avg 6 MO AGO 3.25 .13 Alpine Municipal MMF/Investor 1 YR AGO 3.25 .13

InsiderQ&A

How do you feel about the economy, and what does that mean for stocks? Our fundamental view of the world is that the economy is slowing — not only in developed economies like the U.S. and Europe, but also in the emerging markets like China, India and Brazil. ... (That) eventually is going to impact profits. (One) quantitative indicator that we look at is (the stock market’s) moving average. What we have found is that where the market is today, it’s trading under these moving averages. That means negative momentum for the market. ... So, monthly future returns are much more likely to be negative than positive.

The price of a 10-year Treasury rose for the week, sending its yield down amid choppy stock trading. On Friday, yields rose along with stock prices as traders seemed somewhat more optimistic about the ability of European leaders to resolve the Greek debt crisis. The average rate on the 30-year fixed mortgage edged down to 4.11 percent from 4.12 percent a week earlier.

DIVIDEND YIELD

0.0% 1.7 3.0 0.0 1.4

P/E RATIO

26.3 12.8 48.0 N/A 48.3

Dow industrials

+1.4% WEEKLY

q

Nasdaq

-1.1% WEEKLY

LARGE-CAP

p

S&P 500

+1.1% WEEKLY

q

SMALL-CAP

Russell 2000

-0.0% WEEKLY

p p

+9.6%

p q

+6.2%

p q

+9.0%

p q

+9.2%

MO +2.0%

YTD

MO -0.6%

YTD

MO -1.5%

YTD

MO -9.1%

YTD

TL Stocks 10-24-11  

TL Stocks 10-24-11

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