Life Beyond the Credit Crisis
THEME
Identifying Investment Opportunities for 2009
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This too shall pass. As the old saying implies, we will eventually move
beyond the current financial crisis. With this in mind, we present a
comprehensive, sector-by-sector analysis of what the investment landscape
may look like as we move beyond the credit crisis.
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A drastically altered financial climate. While authorities worldwide have
responded aggressively to prevent an economic collapse, the financial
climate is likely to be permanently altered. Declining asset values have left
financial institutions scarred, wary of future lending and risk taking, and
putting us in a world where capital is scarce and therefore more expensive.
Tighter credit will force companies to reexamine their business models and
reposition in order to prosper in this new world. Capital allocation will be
affected as companies reassess M&A possibilities, ponder capital
expenditure reductions, and de-lever. Industry dynamics will also likely be
altered as margins are compressed and companies fight to gain share.
Great brand companies such as Pepsi and Google are likely to take share in
the downturn while building scale that will pay off in the next upswing.
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But there will be opportunities. While much of the corporate world reins in
spending, there will be growth pockets via government spending in areas
such as alternative energy and infrastructure. Companies with flexible
business models, solid balance sheets, and stable returns should also fare
well in this new environment.
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Framing the landscape in this new world. Herein our macro strategists and
industry analysts unite to paint a picture of the post-credit crunch landscape.
At a macro level, we outline the implications across economics, interest rate
strategy, equity strategy, and quantitative strategy. From a top-down
perspective, perhaps the single most important investment conclusion is that
while the equity market is relatively inexpensive, the credit market offers a
generational buying opportunity and discounts an economic environment
more dire than the great depression. Our 60-plus U.S. research analysts
outline their views at a sector and industry level, highlighting areas of
strength and weakness and ways investors should be positioned within each
sector. Please see pages 3-4 for a summary of our sector and stock views.
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Identifying the investment opportunities. We also present three baskets of
stock ideas to help investors navigate the post-credit crunch world: (1) top
quality defensive names (e.g., WMT, LH, AMGN, ECL, CMCSA), (2) names
with solid upside potential over the next 12-24 months (e.g., JWN, YUM, RL,
GILD, ICE, JPM, PCLN, PWR), and (3) potentially vulnerable stocks
(e.g., MUR, FL, SKS, HOV, IP, GE, CBI)

Table of Contents
Index Heat Map: Outlook 2009 3
Macro Framework 5
Global Strategy 6
Equity Strategy 15
Economics 21
Interest Rate Strategy 27
Quantitative Research 31
Basic Materials 38
Capital Goods 50
Consumer Discretionary 59
Consumer Staples 74
Energy 83
Power and Utilities 100
Financials 105
Healthcare 123
Media & Telecom Service 143
Business & Professional Services 147