THE BERMAN VALUE FOLIO A TREFIS INTERACTIVE PORTFOLIO

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1 THE BERMAN VALUE FOLIO A TREFIS INTERACTIVE PORTFOLIO MAR 2015 TABLE OF CONTENTS WORLD'S FIRST TRILLIONAIRE? 1 AAPL: EXPECTED ANNUAL RETURN AAPL: $200 STOCK? NO. 3 HIGHLIGHT ON PETROBRAS 4 SCHLUMBERGER 5 EBAY 6 CSX 7 SNEAKPEAK: BERKSHIRE HATHAWAY THE BERMAN VALUE PORTFOLIO 9 ACCESS INTERACTIVE TREFIS ANALYSIS TO GET THE MOST FROM THE FOLIO - TEST OUR ASSUMPTIONS - RUN YOUR OWN SCENARIOS - READ FORECAST RATIONALE - ACCESS TREFIS RESEARCH - ANALYZE VALUE DRIVERS 2 8 APPLE: WORLD'S FIRST TRILLIONAIRE? The world's first trillionaire will be a company. To reach such heights, Bill Gates, at $79 billion, would need to compound his wealth 30% per year for a decade. Vladimir Putin, who is said to have amassed/stolen $200 billion is more likely to get there first. He would only need 18% returns. But Apple (AAPL), at the colossal, unprecedented market cap of $775 billion, is the unquestioned top seed. I was shocked when a relative told me AAPL's market cap was now twice that of Microsoft (MSFT), but such is the supremacy of all things Apple. AAPL has returned 80% over the past year and is responsible for much of the Nasdaq's impressive recent returns. In a misguided blunder of unparalleled stupidity, I sold AAPL 45% ago? in May of 2014 at just $91.71 (split-adjusted). Fearing an AAPL shorn of innovation, I sold too soon and missed out on half the gains. My relative was smart enough to hold on. As he said, he'd sold AAPL once before and regretted it. He would not do it again. To get to a trillion, AAPL will need to return 3% over the next decade, or roughly twice that over the next five years (excluding the dividend). Sounds like a layup. But is it? Trefis values AAPL at $128, while Morningstar puts it at $120. Both valuations point to an AAPL without much upside. I can feel the eyes rolling as I write this, because so many, including myself, have prematurely called a cap on AAPL's price. Even the perma-bulls must know that AAPL's uptrend will end eventually. James Berman, the president and founder of JBGlobal.com LLC, a registered investment advisory firm (SEC registered), specializes in asset management for high-net-worth individuals and trusts. Mr. Berman is a faculty member in the Finance Department of the NYU School of Professional Studies. He has appeared on CNBC and the Fox Business Channel and has been quoted and published in a variety of publications, including Barron's, Bloomberg, The Huffington Post and CNN Money. Mr. Berman holds a B.A., Magna Cum Laude, Phi Beta Kappa, in English & American Literature from Harvard and a J.D. from Harvard Law School. James Berman

2 THE TREFIS DOW Ticker Trefis Price Market Price AXP BA CAT CSCO CVX DD AAPL: EXPECTED ANNUAL RETURN Assuming AAPL is fairly valued at $128, an investor would expect to receive the dividend plus the earnings growth rate. AAPL's dividend yield is 1.5%, a payout that will likely rise as pressure continues on the company to pass cash to shareholders. Morningstar currently predicts a 13.71% annual earnings growth rate over the next five years. Interestingly, Trefis expects free cash flows to actually contract a lot by 2021, from $57 billion to $39 billion: DIS GE GS HD IBM INTC JNJ JPM KO MCD MMM MRK MSFT NKE PFE PG T TRV Clearly, everything depends on which of these two views is correct. Strange how far apart they are. Yet more strange: Morningstar has the more bullish forecast yet the lower present value. Any AAPL shareholder has to get to the bottom of this. Morningstar mentions low single digit revenue expectations for iphone revenue and 5% for the Mac? along with slight margin compression. How they get to 14% earnings growth is unclear but it must depend on Apple Watch and new product introductions. I don't think I'm willing to take so much new profitability on faith. The Trefis contraction in free cash flow looks more accurate to me, as iphone pricing declines: UNH UTX V VZ WMT XOM DOW 18, , Undervaluation + 1% 2

3 AAPL: Trillionaire, Yes. $200 Stock, No. Yet, the Trefis estimate may punish iphone pricing too much. AAPL has held onto pricing power much longer than many thought. The push to retain their premium brand has been met with open arms by Apple fanatics, who will open their hearts and wallets to any device or upgrade. That's unlikely to end soon and it means that AAPL can continue to play hard ball with cell phone providers for the foreseeable future. I think a 5% earnings growth rate is reasonable. Should AAPL hit the 5% earnings target, a 7% annualized return on the stock is easy to expect. Strip the dividend back out and the stock should appreciate at 5%, a rate that would put its market cap above a trillion dollars in six years. This all assumes the stock is fairly valued today. 5% annual appreciation would only put the stock price at $171, quite shy of the $200 price target some bulls have posted, but good enough for a wholesome return. Should AAPL maintain pricing power to the degree I think it will, fair value could be even higher, close to $140, a value that would add a couple of percentage points to any expected return. AAPL has just announced a new event centered around Apple Watch. Will this be the stonking catalyst that mints the world's first trillionaire? It will be interesting to see. Whatever the hoopla, AAPL's returns going forward cannot match the recent run. The law of large numbers must someday apply? especially to trillionaires. 3

4 HIGHLIGHT ON PETROBRAS Could a stock have more doleful publicity than Petrobras (PBR)? Bribery, delayed filings, government influence. The list is long and getting longer. Buffett's prescription of a wonderful company at a fair price cannot be applied to PBR. A cumbersome, mismanaged mess at a dirt cheap price is more like it. I have a weakness for these deeply discounted value plays that can easily become value traps. PBR could either grow to be the Peter Lynch proverbial "ten bagger" (the stock that appreciates ten times the initial price), or become the colossus that couldn't, and wither on the vine of government intervention and price caps. But it's hard to resist a stock trading at a 70% discount to book value, especially when it has traded at an average premium of 70% to book value over the past decade. As you can see below, Trefis assigns PBR a $13 fair value, roughly double the market price. Morningstar assigns an even steeper fair value of $21 per share, based on admittedly optimistic oil forecasts for Brent of $82 this year and $86 next. If we extrapolate the historical average price-to-book multiple, we get a fair value of $36, a price that could only sprout if investors felt they could get a handle on what book value actually is? a tall order when even management doesn't seem to know. Relative multiple analysis is not reliable anyway, but with a company this tough to value, I'll take whatever I can get. PBR is for the strongest stomachs and the most patient punters. The stock can return to glory only in an environment of rising oil prices, government transparency and responsible management. All that could take at least 3-5 years. In the end, I don't mind putting money on a company that controls the oil and gas assets of Brazil, a country with the 7th largest GDP worldwide? larger than India, Canada, Mexico and South Korea. Let's hope the wait is worth it. 4

5 COMPANY HIGHLIGHTS Schlumberger (SLB) has been clobbered since I bought it at $ Was I early or wrong? Trefis has lowered their fair value to $95, so perhaps the latter. Morningstar maintains a $105 estimate and I think this is closer to the truth. SLB is a short-term victim of capex being cut to the bone in the oil drilling sector. Collapsing oil prices have decimated exploration budgets putting rig counts in peril. As the world's prime servicer of rigs, along with Halliburton, SLB is at the center of the storm. Yet, SLB is the leader in market share in many of the major servicing categories, imparting it tremendous scale, while high switching costs induce customer retention. SLB is a leader in oil servicing technology and invests over $1 billion per year to maintain that cherished pole position. For those who believe (as I do) that oil exploration needs will continue to increase once oil prices stabilize, SLB is a fine and undervalued long-term investment. TREFIS KEY DRIVERS On its recent earnings call, Schlumberger's management mentioned that the company would be taking several actions in order to better weather the headwinds facing the oilfield services industry. The company noted that it will reduce its headcount by around 9,000 to better align with lower anticipated activity levels in Additionally, the company will be reducing its capex to $3 billion, down from $4 billion last year. These steps should help the company fare better throughout what is likely to be a tough year. Market Capitalization Annual Revenues Dividend/ Yield 52 Week Range $107 B $48.6 B $2.00 / 2.4% $

6 COMPANY HIGHLIGHTS I've owned ebay (EBAY) since the inception of the Folio? and for many years prior in the fund I manage. I'm still not tired of this wonderful company. Most of EBAY's undeniable charms come from PayPal, which according to Trefis, now comprises 40% of the value of the parent. EBAY has finally bowed to the pressure of those who have long called for a split, agreeing to hive off PayPal as a stand-alone business. I cannot deny the cosmetic appeal of this move, given the exceptional multiples that payment processing companies garner in the market. PayPal was the main reason I bought EBAY anyway and I'll probably be happy to own it on its own two feet. That said, PayPal is facing increased payments competition everyday and I'll have to keep a weather eye on the erosion of its moat. For now, it seems very much intact. TREFIS KEY DRIVERS Sales growth in ebay's marketplaces segment further deteriorated to 1% during Q4, compared to 11%, 9% and 6% increases in Q1, Q2 and Q3, respectively. While some of this was related to FX fluctations, the company continued to face traffic-related challenges, while the addition of lower-priced items and demographic shifts led to a decline in average selling prices on the platform. Management expects the segment's struggles to continue in the near term, before showing improvement in the second half of Market Capitalization Annual Revenues Dividend/ Yield 52 Week Range $70.8 B $17.9 B N/ A $

7 COMPANY HIGHLIGHTS I sold CSX (CSX) in November at $35.63, but in his recent letter (see p. 8), Warren Buffett called my attention yet again to railroads. He mentions the enormous capital expenditure required by Berkshire Hathaway's own toy train set, Burlington Northern Santa Fe (BNSF), which he acquired in the heart of the 2009 financial crisis. BNSF turned out to be a wise purchase, but the capital expenditures are proving to be intense. In Berkshire's case, it allows their enormous cash avalanche to be used to productive purpose. In CSX's case, the coffers are not quite as full. CSX spends around $2.5 billion a year on capex, an enormous amount but less than half of what BNSF will spend. It all reminds me why railroads are such a tough business and probably one Buffett never would have entered before he had the enviable problem of having too much cash. TREFIS KEY DRIVERS CSX recently announced that it expects to see a robust increase in its contract pricing for In 2014, pricing took a hit due to weak export coal volumes, but management mentioned that around 20% of the company's contracts will renew in the first quarter, and they expect strong pricing in the first quarter and throughout the year. This is likely to be driven by increased spending on consumer goods, as well as improved housing and construction activity. Market Capitalization Annual Revenues Dividend/ Yield 52 Week Range $34.3 B $12.7 B $0.64/ 1.9% $

8 SNEAK PEAK: BRK We don't own Berkshire Hathaway (BRK-A) in the Folio, but I do own it in my fund. BRK is not covered by Trefis or we'd probably own it here as well. Warren Buffett's annual shareholder letter came out this past weekend and it was full of the usual unparalleled wisdom, sprinkled with hints of BRK's future and, of course, a line or two from country-western songs. In the biggest news, Buffett said that his successor has been chosen and is known to the board. Stay tuned for the next issue, our special Berkshire Hathaway edition. Please click on the image below to see the Wall Street Journal's annotation of Buffett's letter (with a couple of notes from yours truly). I'll be teaching an online class on Buffett-Style Investing at NYU starting April 2, with a live blog from the annual meeting in Omaha: Enroll now at this link! 8

9 THE BERMAN VALUE FOLIO Portfolio Changes: No changes this month. Symbol Company Name Buy, Hold, Sell Basic Materials Purchase Date MT Arcelor-Mittal Buy 9/21/2012 RIO Rio Tinto Buy 1/31/2014 Purchase Price Market Price Total Return Since Purchase Trefis Estimate $16.06 $10.94 (29.5%) $13.21 $53.15 $49.33 (3.7%) $43.04 Consumer PG Procter & Gamble Hold 12/21/2011 $65.84 $ % $86.93 Energy SLB Schlumberger Buy 9/30/2014 $98.66 $84.16 (14.3%) $94.96 BP BP Buy 12/21/2011 $41.33 $ % $47.00 PBR Petrobras Buy 12/31/2014 $7.30 $6.63 (9.2%) $13.00 XOM Exxon Mobil Buy 1/30/2015 $87.42 $ % $98.00 Financial Services BK BNY Mellon Buy 12/21/2011 $19.43 $ % $40.00 BLK BlackRock Buy 8/29/2014 $ $ % $360 C Citigroup Hold 12/21/2011 $25.74 $ % $56.00 JPM JPMorgan Chase Buy 12/21/2011 $32.12 $ % $65.00 Tech, Media, Telecom ADP ADP Hold 12/21/2011 $53.21 $ % $74.41 EBAY ebay Hold 12/21/2011 $30.18 $ % $67.22 IBM IBM Buy 2/28/2014 $ $ (10.5%) $204 PAYX Paychex Hold 12/21/2011 $29.14 $ % $45.15 Industrials & Transportation UPS UPS Buy 12/21/2011 $72.40 $ % $112 UTX United Tech. Hold 4/21/2012 $80.40 $ % $121 Total 87.5% Total return is calculated since inception date of 12/21/2011 and includes reinvested dividends. When a stock is bought in the portfolio, it is added on an equal cash-weighted basis at the time of purchase. 9

10 DISCLAIMER The Berman Value Folio (TBVF) is published monthly and provides information and investment ideas on stocks. All material in TBVF is copyright, 2011 through the present, by Trefis and JBGlobal.com LLC and may not be reproduced in whole or in part in any form without written consent. TBVF is written by James Berman with assistance from Trefis staff. TBVF is distributed by both Trefis and Forbes. Forbes acts only as distributor and is not responsible for, nor does it endorse, any TBVF content or investment ideas. All stock buys and sells are the sole decision of James Berman. In the TBVF portfolio, James Berman is restricted to buying only stocks that are covered by Trefis. TBVF is intended for experienced investors, who understand the risks, costs, mechanics and consequences of investing. None of the content in this newsletter is intended to be, nor should be interpreted as, a solicitation to buy or sell securities. The selection of portfolio stocks is based on fundamental analysis. There is, however, no assurance that these securities will produce profits. They may instead produce serious losses. It should not be assumed that the recommendations made in the future will be profitable or will equal the performance of any prior securities mentioned in the TBVF. All investing involves risk of serious loss. No graph, chart, formula or other device offered or portrayed in TBVF can in and of itself be used to make trading or investment decisions. Any graph, chart, formula or other device is inherently unreliable in making a trading or investment decision due to the intrinsically misleading nature of such items. Performance results are based on model portfolios and do not reflect actual trading. Actual performance will vary based on a variety of factors, including market conditions and trading costs. TBVF results may not reflect the impact that material economic and market factors might have had on the adviser's decision-making if the adviser were actually managing clients' money in this portfolio. TBVF contains stocks that are managed with a view towards capital appreciation. James Berman and JBGlobal.com may manage other portfolios with different strategies and returns that may materially differ from TBVF results with substantially higher or lower performance. TBVF model results do not reflect the deduction of any management fees, advisory fees, brokerage or other commissions, bid-ask spreads, tax consequences, and any other expenses that a client would have to actually pay or would have actually paid in a real portfolio. All return figures assume the reinvestment of all dividends. When a stock is bought in the portfolio, it is added on an equal cash-weighted basis at the time of purchase. Past performance does not guarantee future results. Any forward-looking statement is inherently uncertain and cannot be relied upon as a statement of actual performance. If you would like a spreadsheet furnishing a list of all recommendations made by TBVF since inception on 12/21/2011, please send an request to: info@jbglobal.com. Although all content is derived from data believed to be reliable, accuracy cannot be guaranteed. James Berman, JBGlobal.com LLC, Insight Guru Inc., Trefis, TBVF?s publisher and distributor(s) and their employees assume no liability whatsoever for any investment losses as a result of securities purchased on TBVF recommendations. TBVF is not intended to provide personalized investment advice. Readers and subscribers should consult their financial adviser before investment. James Berman is an investor in Insight Guru Inc., the parent company of Trefis, both personally and through the venture fund he subadvises. James Berman, therefore, has a financial interest in Trefis aside from his interest in TBVF. James Berman, JBGlobal.com LLC and employees of TBVF, Insight Guru Inc., JBGlobal.com L.L.C. and Trefis may hold positions in some or all of the stocks mentioned here, both personally and in the accounts and funds they manage for others. No compensation for recommending particular securities, services, or financial advisors is solicited or accepted. If you are unwilling or unable to abide by any conditions of this disclaimer, then you may obtain a refund for the unused portion of your subscription at any time. The Berman Value Folio info@jbglobal.com 10