Fisher College of Business – Student Investment Management Alcoa/Dow Chemical Analysis Theo Constantinou Vikram Rao Ryan Rettig

Fisher College of Business – Student Investment Management Conclusion from Sector Presentation Cyclical business – materials sector will start to outperform more rapidly Increase in exports expected Expected future GDP/ global economic growth Eventual rise in commodity prices Commodity prices high despite dollar value

Fisher College of Business – Student Investment Management Recommendation from Sector Presentation Remain overweight by 51 bps –Forward looking, if the economy recovers, an even more overweight position may be in order. Relative to specific Industries in the Material Sector Current SIM Weight –Overweight at 3.88% S&P 500 Weight –3.37% Class elected to overweight by 100 additional bps

Fisher College of Business – Student Investment Management Current Materials Portfolio Dow Chemical –Only stock owned in sector –Own 36,260 shares –Best performing stock in SIM 114% return since purchase –3.88% of SIM is Dow stock Now have 488 bps to allocate

Fisher College of Business – Student Investment Management Dow Chemical- Valuation

Fisher College of Business – Student Investment Management Dow Chemical- Valuation Absolute Stock ValuationHighLowMedianCurrentTarget MultipleTarget /ShareTarget Price P/Book P/ Sales P/ Cash Flow P/EBITDA Average27.38

Fisher College of Business – Student Investment Management Key Indicators Price of Aluminum *77% of movement in Alcoa stock explained by the London Metal Exchange aluminum index over past 2 years

Fisher College of Business – Student Investment Management AA vs. Commodities/Materials *60% of movement in Alcoa stock explained by the commodity index over past 5 years *63% of movement in the Alcoa stock explained by the materials sector over past 5 years

Fisher College of Business – Student Investment Management Where is Price of Aluminum Going?

Fisher College of Business – Student Investment Management 3 Year Price – Target Price

Fisher College of Business – Student Investment Management Aluminum Price Decline Over Last Year

Fisher College of Business – Student Investment Management Future Analyst Estimates

Fisher College of Business – Student Investment Management 10-Year Cumulative Total Return - Cyclical

Fisher College of Business – Student Investment Management P/BV Valuation P/BV (Absolute) P/BV (Relative to S&P500)

Fisher College of Business – Student Investment Management P/CF Valuation P/CF (Absolute) P/CF (Relative to S&P500)

Fisher College of Business – Student Investment Management Absolute Valuation The current P/E is 12x earnings, where the 10 year average is around 13x earnings. I think that the forward P/E based on our DCF analysis is close in line with historical averages and reversion to the mean will occur.

Fisher College of Business – Student Investment Management S Curve of Future LT Growth in BRIC Countries

Fisher College of Business – Student Investment Management LRMC – LME Price Estimates through 2013

Fisher College of Business – Student Investment Management DCF Valuation – Upside of %

Fisher College of Business – Student Investment Management Sensitivity Analysis – Upside

Fisher College of Business – Student Investment Management Recommendation Buy 200 bps of Alcoa Dow Chemical: sell 100 bps to 288 bps Discretion to class: – Add additional basis points to Alcoa