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Executive Summary	September 4, 2009

The Economy While the market has taken a break from its nearly six-month rise, several pieces of very positive economic data have emerged since our last newsletter. Foremost among those encouraging data points may have been the Institute for Supply Management's latest manufacturing index reading, which showed that the U.S. manufacturing sector expanded in August -- the first time it has done so in more than a year-and-a-half. In another sign that the recession might finally be over, new factory orders jumped 1.3% in July, the Commerce Department reported, marking the fourth straight month orders have increased. The housing market also featured another encouraging trend, with pending home sales increasing in July for the sixth straight month -- the first time that has happened since the National Association of Realtors began tracking the index in 2001. The Realtor group's pending home sales index is now at its highest level since June 2007, and its existing home sales index is also showing signs that we may have hit a bottom in the housing market. The existing sales index rose in July for the fourth straight month, posting the biggest increase it has made in its 10-year history. It was also the first month in which the index was higher, year-over-year, since late 2005. The bad news is that, while economic production and home-buying are on the rise, unemployment doesn't yet seem to be abating. Unemployment claims fell slightly in the week ending August 29, but the prior week's claim totals were readjusted upward by about the same amount. And, while ISM's manufacturing index showed an expansion in August, the group also said the manufacturing sector likely won't be adding a significant number of jobs in the short term. It appears the recent uptick in production is due to increased productivity, not hirings -- the Labor Department reported this week that productivity increased more than initially thought in the second quarter, with the 6.6% gain the highest jump in productivity in almost six years. While the economic reports were, on the whole, fairly strong over the past fortnight, the market scuffled. And a big reason why was the financial sector. The FDIC reported last week that the number of banks on its "problem" list rose to 416 in the second quarter, up more than 30% from end-of-first-quarter levels. It was the highest that figure had been in 15 years. That news -- and, according to the Associated Press, rumors that a major bank might be on the verge of failure -- held the market back, with the S&P 500 falling 0.4%, while the Hot List fell 2.2%. For the year, the portfolio remains well ahead of the index, having gained 29.1% vs. the S&P's 11.1% increase. And since its inception more than six years ago, the Hot List is up 111.7% while the S&P is up 0.3%. Big Changes The Hot List is making a major shake-up this week. It's selling off six of its holdings, including five of the six stocks it added last month. Those five stocks -- Allegiant Travel Company (ALGT), Astec Industries (ASTE), Lloyd's Banking Group (LYG), Marathon Oil (MRO), and Sociedad Quimica y Minera de Chile (SQM) -- have all lost ground since joining the portfolio. Another of the departing stocks -- Fuqi International (FUQI) -- has been a standout, however, gaining about 56% since the Hot List picked it up back in mid-June. Joining the portfolio this month are a wide variety of companies, including a financial (Tower Group); a clothing retailer (Aeropostale); an aerospace & defense firm (General Dynamics); a Chinese I/T services provider (VanceInfo Technologies); and an oil services company (World Fuel Services). While those additions mean the portfolio is quite diversified, spanning five sectors and even more industries, one area it is continuing to find a good number of values in is energy stocks. In addition to World Fuel Services, the portfolio's holdovers include Chevron and Frontier Oil Corporation. A driving force in the portfolio continues to be Jos. A. Bank Clothiers. The men's retailer surged another 20% these past two weeks as it reported strong earnings, and is now up more than 90% since the portfolio snatched it up in late February. A Contrarian's View With stocks cooling over the past few weeks, some are wondering whether the market has the juice to push forward. And, to be sure, there are legitimate concerns moving forward about both the economy and the stock market. Skyrocketing government debts, corporate and consumer deleveraging, the threat of major inflation that top strategists like Warren Buffett and John Paulson have been warning about -- these are all issues that are weighing heavily on investors now. Can the economy and market overcome these challenges? I believe they can. As something of a contrarian at heart, I feel that the economy -- an incredibly complex machine -- often acts contrary to our reasonable expectations. For instance, many people think that the U.S.'s massive trade deficits hurt the economy and portend bad news for the stock market. But the reality is that over the decades that economists have been following the trade deficits, the stock market hasn't cared much about those deficits; the economy has had good times and bad times, and they have not correlated with the trade deficit. In the same way, while it's reasonable to think that a fast-growing national debt will quash the growth in the economy and be a drag on the stock market, decades of history don't support that notion. In fact, you could make a case for the opposite being true in the past -- that massive increases in government debt actually provided fuel to the economy and to the stock market. To be fair, this surge in government debt is different from many past instances in that most of this debt is not being used to purchase things and stimulate the economy, but instead to shore up financial companies' balance sheets. Nevertheless, in the end I think the huge buildup of debt will not by itself weigh down the stock market. But what about inflation? Given all of the money pumped into the global economy in the past year, it seems likely we're headed for a period of at least moderate inflation, and conventional wisdom seems to hold that inflationary climates make bad times for stocks. Well, in this case, conventional wisdom may again be misleading. In fact, a study performed by two Harvard economists, John Campbell and Tuomo Vuolteenaho, found that from 1927 to 2002, earnings and inflation tended to move up and down together -- meaning that stocks appear to actually be a good hedge against inflation. "When inflation is high and rising, companies are able to raise prices and hence fatten their bottom line," MarketWatch's Mark Hulbert explained in highlighting the study. "By the same token, when inflation is low, firms' pricing power is correspondingly low." This is similar to what David Dreman, one of the gurus upon whose writings I base my strategies, found. There are other fears out there in the market as well -- fears of the impact of tax hikes, entitlement programs that could run out of money, and massive healthcare changes. But in the end I think all of those will turn out to be overblown. Federal tax hikes represent a 1% -5% increase, but won't start for a couple years. Fears of entitlement programs going bankrupt, meanwhile, have been a recurring problem for decades, not something new. And we've all seen in recent weeks that there is huge resistance to major healthcare reforms among the American public and members of Congress; if health reform does come, it likely will be gradually phased in. Now, all of this is not to say that the coming years will be all sunshine and roses for the market and the U.S. economy. There no doubt will be tough times and tough choices for the American public, and investors. But the market and economy are resilient animals; they've made it through wars, depressions, crises of confidence, and much more. I'm confident that they'll make their way through the current issues dogging them, and, as they do, those who've bet against stocks will end up missing out.		Editor-in-Chief: John Reese Since Inception   Hot List 111.7% S&P 500 0.3% Accuracy 55.9% Beta 1.2 YTD   Hot List 29.1% S&P 500 11.1% Since Last Issue   Hot List -2.2% S&P 500 -0.4% Avg. Fundamentals   Market Cap (mil) $16,869 PE Ratio 15.1 5 Yr EPS Growth 34.2% Yield 2.4% Rel. Strength 78 Portfolio Sectors Energy 3 Services 3 Technology 1 Financial 1 Capital Goods 1 Consumer Cyclical 1
Guru Investor Editor John Reese Announces Publication of New Book The Guru Investor shows you how to implement the strategies of Wall Street legends like Warren Buffett, Peter Lynch and Benjamin Graham in your own portfolio. Buy Your Copy Now! The Fallen As we rebalance the Validea Hot List, 6 stocks leave our portfolio. These include: Astec Industries, Inc. (ASTE), Sociedad Quimica Y Minera (Adr) (SQM), Lloyds Banking Group Plc (Adr) (LYG), Marathon Oil Corporation (MRO), Allegiant Travel Company (ALGT) and Fuqi International, Inc. (FUQI). The Keepers 4 stocks remain in the portfolio. They are: Jos. A. Bank Clothiers, Inc. (JOSB), Frontier Oil Corporation (FTO), Chevron Corporation (CVX) and Capella Education Company (CPLA). The Newbies We are adding 6 stocks to the portfolio. These include: General Dynamics Corporation (GD), Sturm, Ruger & Company (RGR), World Fuel Services Corporation (INT), Aeropostale, Inc. (ARO), Tower Group, Inc. (TWGP) and Vanceinfo Technologies Inc. (VIT). Portfolio Changes Additions   GENERAL DYNAMICS CORPORATION GD STURM, RUGER & COMPANY RGR WORLD FUEL SERVICES CORPORATION INT AEROPOSTALE, INC. ARO TOWER GROUP, INC. TWGP VANCEINFO TECHNOLOGIES INC. VIT Deletions   ASTEC INDUSTRIES, INC. ASTE SOCIEDAD QUIMICA Y MINERA (ADR) SQM LLOYDS BANKING GROUP PLC (ADR) LYG MARATHON OIL CORPORATION MRO ALLEGIANT TRAVEL COMPANY ALGT FUQI INTERNATIONAL, INC. FUQI Newcomers to the Validea Hot List Aeropostale (ARO): This mall-based clothing retailer targets youngsters age 14 to age 17 through more than 900 stores in 49 states, Puerto Rico, and Canada. Its new P.S. from Aeropostale stores also are aimed at 7- to 12-year-old youngsters. In the past year, the $2.6 billion market cap firm has raked in more than $2 billion in sales. Aeropostale has an impeccable earnings history, upping earnings per share in every year of the past decade. It's at it again this year, with EPS and sales rising in each quarter so far in 2009. Aeropostale gets approval from three of my Guru Strategies, those I base on the approaches of Peter Lynch, Warren Buffett, and James O'Shaughnessy. Check the "Detailed Stock Analysis" section below to find out why. General Dynamics Corporation (GD): This Virginia-based firm is one of the U.S.'s largest aerospace & defense firms, making battle tanks and assault vehicles, armaments and munitions, battleships and nuclear submarines, and military information technology systems. It has a $22.4 billion market cap, and $31.4 billion in trailing 12-month sales. General Dynamics is one of the highest rated stocks in the market right now according to my strategies. It gets approval from four of my models, including those based on the approaches of Peter Lynch, Warren Buffett, Joel Greenblatt, and Kenneth Fisher. See the "Detailed Stock Analysis" section below to learn why. Tower Group, Inc. (TWGP): Based in New York City, this small-cap ($954 million) offers specialized property and casualty insurance to businesses and individuals. It's upped EPS in seven straight years, and over the past year has taken in more than $720 million in sales. Tower gets approval from my Peter Lynch-, Martin Zweig-, and James O'Shaughnessy-based strategies. The "Detailed Stock Analysis" section below explains why. VanceInfo Technologies (VIT): Based in Beijing, this I/T service provider was the first Chinese software development outsourcer listed on the New York Stock Exchange. It provides service to firms in technology, telecommunications, financial services, manufacturing, and retail & distribution arenas. It's a small-cap ($506 million market cap), but its 2008 revenues ranked number one among Chinese-based offshore software development service providers for the North American and European markets, according to International Data Corporation. VanceInfo gets very good "some interest" scores from two of my toughest growth stock models, my Martin Zweig-based approach and my Motley Fool-based method. To see why, check out the "Detailed Stock Analysis" section below. World Fuel Services Corp. (INT): Based in Miami, World Fuel provides fuel and services to aircraft, petroleum distributors, and ships at more than 2,500 locations around the world. It has 43 offices in 23 countries across five different continents. Its market cap is about $1.3 billion, and it has brought in almost $13 billion in sales over the past 12 months. World Fuel is making its third appearance in the Hot List this year. It gets approval from my Peter Lynch- and James O'Shaughnessy-based approaches. To see why those strategies like the stock, see the "Detailed Stock Analysis" section below. News about Validea Hot List Stocks Jos. A. Bank Clothiers (JOSB): Bank hit a 52-week high after reporting a 40% gain in profit in its second quarter, the Associated Press reported Wednesday. Bank posted earnings of 68 cents per share, topping analysts' estimates of 54 cents per share. Aeropostale (ARO): Aeropostale said that same-store sales rose 9% in August, exceeding the 7.1% rise analysts expected, the Associated Press reported Thursday. For the four-week period ended Aug. 29, total sales rose 16%, and are up 20% for the year, AP reported, adding that Aeropostale upped its third-quarter earnings guidance. The Next Issue In two weeks, we will publish another issue of the Hot List, at which time we will examine one of my individual Guru Strategies in greater depth. If you have any questions, please feel free to contact us at hotlist@validea.com.

Current Portfolio Ticker Company Name Industry Guru Score JOSB JOS. A. BANK CLOTHIERS, INC. Retail (Apparel) 88 TWGP TOWER GROUP, INC. Insurance (Prop. & Casualty) 76 INT WORLD FUEL SERVICES CORPORATION Oil & Gas Operations 76 RGR STURM, RUGER & COMPANY Recreational Products 74 VIT VANCEINFO TECHNOLOGIES INC. Software & Programming 73 GD GENERAL DYNAMICS CORPORATION Aerospace & Defense 73 FTO FRONTIER OIL CORPORATION Oil & Gas Operations 72 CPLA CAPELLA EDUCATION COMPANY Schools 71 ARO AEROPOSTALE, INC. Retail (Apparel) 66 CVX CHEVRON CORPORATION Oil & Gas - Integrated 39 Ticker Market Cap Date Added Start Price Current Price Return JOSB $840 2/20/2009 $23.85 $45.95 92.7% TWGP $967 9/4/2009 TBD $23.88 TBD INT $1,304 9/4/2009 TBD $44.02 TBD RGR $245 9/4/2009 TBD $12.84 TBD VIT $511 9/4/2009 TBD $13.06 TBD GD $22,643 9/4/2009 TBD $58.80 TBD FTO $1,308 6/12/2009 $14.67 $12.50 -14.8% CPLA $1,050 8/7/2009 $64.16 $62.79 -2.1% ARO $2,786 9/4/2009 TBD $41.29 TBD CVX $137,037 5/15/2009 $65.88 $68.33 3.7%

Detailed Stock Analysis Disclaimer: The analysis is from Validea's selection and interpretation of content from the guru's book or published writings, and is not from nor endorsed by the guru. See Full Disclaimer JOSB   |   TWGP   |   INT   |   RGR   |   VIT   |   GD   |   FTO   |   CPLA   |   ARO   |   CVX   |   JOS. A. BANK CLOTHIERS, INC. Profile Strategy: Price/Sales Investor Based on: Kenneth Fisher Jos. A. Bank Clothiers, Inc. (Jos. A. Bank) is a designer, retailer and direct marketer (through stores, catalog and Internet) of men's tailored and casual clothing and accessories. It sells all of its products exclusively under the Jos. A. Bank label through its 460 retail stores (as of January 31, 2009, which includes seven outlet stores and 12 franchise stores) located throughout 42 states and the District of Columbia in the United States, as well as through the Company's nationwide catalog and Internet (www.josbank.com) operations. Its products are targeted at the male career professional and emphasize the Jos. A. Bank brand of tailored and casual clothing and accessories. The Company's products, which range from the original Jos. A. Bank Executive collection to the more luxurious Jos. A. Bank Signature collection to the exclusive Jos. A. Bank Signature Gold collection. Jos. A. Bank operates through two segments: Stores and Direct Marketing. Analysis Guru Score: 90% PRICE/SALES RATIO: [PASS] The prospective company should have a low Price/Sales ratio. Non-cyclical (non-Smokestack) companies with Price/Sales ratio between .75 and 1.5 are good values. JOSB's P/S ratio of 1.16 based on trailing 12 month sales, falls within the "good values" range for non-cyclical companies and is considered attractive. TOTAL DEBT/EQUITY RATIO: [PASS] Less debt equals less risk according to this methodology. JOSB's Debt/Equity of 0.00% is exceptional, thus passing the test. PRICE/RESEARCH RATIO: [PASS] This methodology considers companies in the Technology and Medical sectors to be attractive if they have low Price/Research ratios. JOSB is neither a Technology nor Medical company. Therefore the Price/Research ratio is not available and, hence, not much emphasis should be placed on this particular variable. PRELIMINARY GRADE: Some Interest in JOSB At this Point Is JOSB a "Super Stock"? NO PRICE/SALES RATIO: [FAIL] The prospective company should have a low Price/Sales ratio. To be considered a "Super Stock", non-cyclical (non-Smokestack) companies should have Price/Sales ratios below .75. However, JOSB, who has a P/S of 1.16, does not fall within the "Super Stock" range. It does fall between 0.75 and 1.5, which is considered the "good values" range for non-cyclical companies. Nonetheless, it does not pass this "Super Stock" criterion. LONG-TERM EPS GROWTH RATE: [PASS] This methodology looks for companies that have an inflation adjusted EPS growth rate greater than 15%. JOSB's inflation adjusted EPS growth rate of 20.29% passes the test. FREE CASH PER SHARE: [PASS] This methodology looks for companies that have a positive free cash per share. Companies should have enough free cash available to sustain three years of losses. This is based on the premise that companies without cash will soon be out of business. JOSB's free cash per share of 2.08 passes this criterion. THREE YEAR AVERAGE NET PROFIT MARGIN: [PASS] This methodology looks for companies that have an average net profit margin of 5% or greater over a three year period. JOSB, whose three year net profit margin averages 8.20%, passes this evaluation.   TOWER GROUP, INC. Profile Strategy: Growth Investor Based on: Martin Zweig Tower Group, Inc. (Tower), through its subsidiaries, is engaged in offering a range of specialized property and casualty insurance products and services to businesses and to individuals primarily in the Northeast, Florida, Texas and California. The Company provide coverage for many different market segments, including nonstandard risks that do not fit the underwriting criteria of standard risk carriers due to factors, such as type of business, location and premium per policy. It provides on both an admitted and excess and surplus lines basis, commercial lines products comprised of commercial package, general liability, workers' compensation, commercial auto and commercial umbrella policies to businesses such as residential and commercial buildings, retail and wholesale stores, food service and restaurants, artisan contractors and garage automotive services. The Company also provide personal lines products that insure homes and dwellings, as well as personal automobiles. Analysis Guru Score: 92% P/E RATIO: [PASS] The P/E of a company must be greater than 5 to eliminate weak companies, but not more than 3 times the current Market P/E because the situation is much too risky, and never greater than 43. TWGP's P/E is 8.91, based on trailing 12 month earnings, while the current market PE is 16.00. Therefore, it passes the first test. REVENUE GROWTH IN RELATION TO EPS GROWTH: [PASS] Revenue Growth must not be substantially less than earnings growth. For earnings to continue to grow over time they must be supported by a comparable or better sales growth rate and not just by cost cutting or other non-sales measures. TWGP's revenue growth is 40.26%, while it's earnings growth rate is 45.12%, based on the average of the 3, 4 and 5 year historical eps growth rates. Therefore, TWGP passes this criterion. SALES GROWTH RATE: [PASS] Another important issue regarding sales growth is that the rate of quarterly sales growth is rising. To evaluate this, the change from this quarter last year to the present quarter (138.7%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (81.3%) of the current year. Sales growth for the prior must be greater than the latter. For TWGP this criterion has been met. The earnings numbers of a company should be examined from various different angles. Three of these angles are stability in the trend of earnings, earnings persistence, and earnings acceleration. To evaluate stability, the stock has to pass the following four criteria. CURRENT QUARTER EARNINGS: [PASS] The first of these criteria is that the current EPS be positive. TWGP's EPS ($0.75) pass this test. QUARTERLY EARNINGS ONE YEAR AGO: [PASS] The EPS for the quarter one year ago must be positive. TWGP's EPS for this quarter last year ($0.44) pass this test. POSITIVE EARNINGS GROWTH RATE FOR CURRENT QUARTER: [PASS] The growth rate of the current quarter's earnings compared to the same quarter a year ago must also be positive. TWGP's growth rate of 70.45% passes this test. EARNINGS GROWTH RATE FOR THE PAST SEVERAL QUARTERS: [FAIL] Compare the earnings growth rate of the previous three quarters with long-term EPS growth rate. Earnings growth in the previous 3 quarters should be at least half of the long-term EPS growth rate. Half of the long-term EPS growth rate for TWGP is 22.56%. This should be less than the growth rates for the 3 previous quarters which are 16.13%, 151.85% and -17.19%. TWGP does not pass this test, which means that it does not have good, reasonably steady earnings. This strategy looks at the rate which earnings grow and evaluates this rate of growth from different angles. The 4 tests immediately following are detailed below. EPS GROWTH FOR CURRENT QUARTER MUST BE GREATER THAN PRIOR 3 QUARTERS: [PASS] If the growth rate of the prior three quarter's earnings, 26.14%, (versus the same three quarters a year earlier) is less than the growth rate of the current quarter earnings, 70.45%, (versus the same quarter one year ago) then the stock passes. EPS GROWTH FOR CURRENT QUARTER MUST BE GREATER THAN THE HISTORICAL GROWTH RATE: [PASS] The EPS growth rate for the current quarter, 70.45% must be greater than or equal to the historical growth which is 45.12%. TWGP would therefore pass this test. EARNINGS PERSISTENCE: [PASS] Companies must show persistent yearly earnings growth. To fulfill this requirement a company's earnings must increase each year for a five year period. TWGP, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were 0.47, 1.03, 1.81, 1.93 and 2.47, passes this test. LONG-TERM EPS GROWTH: [PASS] One final earnings test required is that the long-term earnings growth rate must be at least 15% per year. TWGP's long-term growth rate of 45.12%, based on the average of the 3, 4 and 5 year historical eps growth rates, passes this test. INSIDER TRANSACTIONS: [PASS] A factor that adds to a stock's attractiveness is if insider buy transactions number 3 or more, while insider sell transactions are zero. Zweig calls this an insider buy signal. For TWGP, this criterion has not been met (insider sell transactions are 1, while insiders buying number 2). Despite the lack of an insider buy signal, there also is not an insider sell signal, so the stock passes this criterion.   WORLD FUEL SERVICES CORPORATION Profile Strategy: Growth/Value Investor Based on: James P. O'Shaughnessy World Fuel Services Corporation is engaged in the marketing and sale of marine, aviation and land fuel products and related services on a worldwide basis. The Company operates in three segments: marine, aviation and land. In its marine segment it offers fuel and related services to maritime customers, including international container and tanker fleets, commercial cruise lines and time-charter operators. In its aviation segment, it offers fuel and related services to major commercial airlines, second and third-tier airlines, cargo carriers, regional and low-cost carriers, corporate fleets, fractional operators, private aircraft, military fleets. In its land segment, it offers fuel and related services to petroleum distributors operating in the land transportation market. In June 2008, it acquired certain assets of Texor Petroleum Company, Inc. In April 2009, the Company acquired the Henty Oil Group of Companies. Analysis Guru Score: 100% MARKET CAP: [PASS] The first requirement of the Cornerstone Growth Strategy is that the company has a market capitalization of at least $150 million. This will screen out the companies that are too illiquid for most investors, but still include a small growth company. INT, with a market cap of $1,304 million, passes this criterion. EARNINGS PER SHARE PERSISTENCE: [PASS] The Cornerstone Growth methodology looks for companies that show persistent earnings growth without regard to magnitude. To fulfill this requirement, a company's earnings must increase each year for a five year period. INT, whose annual EPS before extraordinary items for the last 5 years (from earliest to the most recent fiscal year) were 1.22, 1.57, 2.21, 2.23 and 3.62, passes this test. PRICE/SALES RATIO: [PASS] The Price/Sales ratio should be below 1.5. This value criterion, coupled with the growth criterion, identify growth stocks that are still cheap to buy. INT's Price/Sales ratio of 0.10, based on trailing 12 month sales, passes this criterion. RELATIVE STRENGTH: [PASS] The final criterion for the Cornerstone Growth Strategy requires that the Relative Strength of the company be among the top 50 of the stocks screened using the previous criterion. This gives you the opportunity to buy the growth stocks you are searching for just as the market is embracing them. INT, whose relative strength is 94, is in the top 50 and would pass this last criterion.   STURM, RUGER & COMPANY Profile Strategy: Small-Cap Growth Investor Based on: Motley Fool Sturm, Ruger & Company, Inc. is principally engaged in the design, manufacture and sale of firearms to domestic customers. The Company's design and manufacturing operations are located in the United States and substantially all product content is domestic. The Company offers products in four industry product categories: rifles, shotguns, pistols and revolvers. Its firearms are sold through a select number of independent wholesale distributors, principally to the commercial sporting market. The Company manufactures and sells investment castings made from steel alloys for both outside customers and internal use in the firearms segment. Approximately 96% of the Company's total sales for the year ended December 31, 2008, were from the firearms segment, and approximately 4% were from investment castings. Analysis Guru Score: 87% PROFIT MARGIN: [PASS] This methodology seeks companies with a minimum trailing 12 month after tax profit margin of 7%. The companies that pass this criterion have strong positions within their respective industries and offer greater shareholder returns. A true test of the quality of a company is that they can sustain this margin. RGR's profit margin of 8.73% passes this test. RELATIVE STRENGTH: [PASS] The investor must look at the relative strength of the company in question. Companies whose relative strength is 90 or above (that is, the company outperforms 90% or more of the market for the past year), are considered attractive. Companies whose price has been rising much quicker than the market tend to keep rising. RGR, with a relative strength of 96, satisfies this test. COMPARE SALES AND EPS GROWTH TO THE SAME PERIOD LAST YEAR: [PASS] Companies must demonstrate both revenue and net income growth of at least 25% as compared to the prior year. These growth rates give you the dynamic companies that you are looking for. These rates for RGR (800.00% for EPS, and 87.25% for Sales) are good enough to pass. INSIDER HOLDINGS: [FAIL] RGR's insiders should own at least 10% (they own 0.86%) of the company's outstanding shares. This does not satisfy the minimum requirement, and companies that do not pass this criteria are less attractive. CASH FLOW FROM OPERATIONS: [PASS] A positive cash flow is typically used for internal expansion, acquisitions, dividend payments, etc. A company that generates rather than consumes cash is in much better shape to fund such activities on their own, rather than needing to borrow funds to do so. RGR's free cash flow of $0.08 per share passes this test. PROFIT MARGIN CONSISTENCY: [PASS] RGR's profit margin has been consistent or even increasing over the past three years (Current year: 4.78%, Last year: 6.60%, Two years ago: 0.66%), passing the requirement. It is a sign of good management and a healthy and competitive enterprise. R&D AS A PERCENTAGE OF SALES: [NEUTRAL] This criterion is not critically important for companies that are not high-tech or medical stocks because they are not as R&D dependant as companies within those sectors. Not much emphasis should be placed on this test in RGR's case. CASH AND CASH EQUIVALENTS: [FAIL] RGR's level of cash and cash equivalents per sales, 11.96 %, does not pass this criteria of roughly 20%(a number we determined to be appropriate based on various examples). RGR will have a more difficult time paying off debt (if it has any) or acquiring other companies than a company that passes this criteria. INVENTORY TO SALES: [PASS] This methodology strongly believes that companies, especially small ones, should have tight control over inventory. It's a warning sign if a company's inventory relative to sales increases significantly when compared to the previous year. Up to a 30% increase is allowed, but no more. Inventory to Sales for RGR was 8.50% last year, while for this year it is 6.58%. Since the inventory to sales is decreasing by -1.92% the stock passes this criterion. ACCOUNT RECEIVABLE TO SALES: [PASS] This methodology wants to make sure that a company's accounts receivable do not get significantly out of line with sales. It's a warning sign if a company's accounts receivable relative to sales increases significantly when compared to the previous year. Up to a 30% increase is allowed, but no more. Accounts Receivable to Sales for RGR was 9.99% last year, while for this year it is 14.22%. Although the AR to sales is rising, it is below the max 30% that is allowed. The investor can still consider the stock if all other criteria appear very attractive. LONG TERM DEBT/EQUITY RATIO: [PASS] RGR's trailing twelve-month Debt/Equity ratio (0.00%) is at a great level according to this methodology because the superior companies that you are looking for don't need to borrow money in order to grow. "THE FOOL RATIO" (P/E TO GROWTH): [PASS] The "Fool Ratio" is an extremely important aspect of this analysis. If the company has attractive fundamentals and its Fool Ratio is 0.5 or less (RGR's is 0.22), the shares are looked upon favorably. These high quality companies can often wind up as the biggest winners. RGR passes this test. The following criteria for RGR are less important which means you would place less emphasis on them when making your investment decision using this strategy: AVERAGE SHARES OUTSTANDING: [PASS] RGR has not been significantly increasing the number of shares outstanding within recent years which is a good sign. RGR currently has 19.0 million shares outstanding. This means the company is not taking any measures, with regards to the number of shares, that will dilute or devalue the stock. SALES: [PASS] Companies with sales less than $500 million should be chosen. It is among these small-cap stocks that investors can find "an uncut gem", ones that institutions won't be able to buy yet. RGR's sales of $236.2 million based on trailing 12 month sales, are fine, making this company one such "prospective gem". RGR passes the sales test. DAILY DOLLAR VOLUME: [PASS] RGR passes the Daily Dollar Volume (DDV of $5.1 million) test. It is required that this number be less than $25 million because these are the stocks that remain relatively undiscovered by institutions. "You'll be scoring touchdowns against the big guys on your turf." PRICE: [PASS] This is a very insignificant criterion for this methodology. But basically, low prices are chosen because "small numbers multiply more rapidly than large ones" and the potential for big returns expands. RGR with a price of $12.84 passes the price test. The price should be above $7 in order to eliminate penny stocks and below $20 since most stocks in this price range are undiscovered by the institutions. INCOME TAX PERCENTAGE: [PASS] RGR's income tax paid expressed as a percentage of pretax income this year was (37.98%) and last year (38.00%) are greater than 20% which is an acceptable level. If the tax rate is below 20% this could mean that the earnings that were reported were unrealistically inflated due to the lower level of income tax paid. This is a concern.   VANCEINFO TECHNOLOGIES INC. Profile Strategy: Growth Investor Based on: Martin Zweig VanceInfo Technologies Inc. is an information technology (IT) service provider and one of the offshore software development companies in China. The Company's range of IT services includes research and development services (R&D services), enterprise solutions, application development and maintenance (ADM), quality assurance and testing, as well as globalization and localization. It provides these services primarily to corporations headquartered in the United States, Europe, Japan and China, targeting industries, such as technology, telecommunications, financial services, manufacturing, retail and distribution. The Company operates a range of offshore development centers in China (CDCs). Its major clients include Microsoft, IBM, Huawei, TIBCO, and a European mobile handset manufacturer. In July 2009, the Company acquired the operating subsidiaries of TP Corporation Limited (TP), a provider of customer relationship management (CRM) solutions and call center services. Analysis Guru Score: 85% P/E RATIO: [PASS] The P/E of a company must be greater than 5 to eliminate weak companies, but not more than 3 times the current Market P/E because the situation is much too risky, and never greater than 43. VIT's P/E is 28.38, based on trailing 12 month earnings, while the current market PE is 16.00. Therefore, it passes the first test. REVENUE GROWTH IN RELATION TO EPS GROWTH: [PASS] Revenue Growth must not be substantially less than earnings growth. For earnings to continue to grow over time they must be supported by a comparable or better sales growth rate and not just by cost cutting or other non-sales measures. VIT's revenue growth is 64.41%, while it's earnings growth rate is 34.29%, based on the average of the 3, 4 and 5 year historical eps growth rates. Therefore, VIT passes this criterion. SALES GROWTH RATE: [FAIL] Another important issue regarding sales growth is that the rate of quarterly sales growth is rising. To evaluate this, the change from this quarter last year to the present quarter (41.5%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (46.8%) of the current year. Sales growth for the prior must be greater than the latter. For VIT this criterion has not been met and fails this test. The earnings numbers of a company should be examined from various different angles. Three of these angles are stability in the trend of earnings, earnings persistence, and earnings acceleration. To evaluate stability, the stock has to pass the following four criteria. CURRENT QUARTER EARNINGS: [PASS] The first of these criteria is that the current EPS be positive. VIT's EPS ($0.13) pass this test. QUARTERLY EARNINGS ONE YEAR AGO: [PASS] The EPS for the quarter one year ago must be positive. VIT's EPS for this quarter last year ($0.09) pass this test. POSITIVE EARNINGS GROWTH RATE FOR CURRENT QUARTER: [PASS] The growth rate of the current quarter's earnings compared to the same quarter a year ago must also be positive. VIT's growth rate of 44.44% passes this test. EARNINGS GROWTH RATE FOR THE PAST SEVERAL QUARTERS: [PASS] Compare the earnings growth rate of the previous three quarters with long-term EPS growth rate. Earnings growth in the previous 3 quarters should be at least half of the long-term EPS growth rate. Half of the long-term EPS growth rate for VIT is 17.15%. This should be less than the growth rates for the 3 previous quarters, which are 83.33%, 160.00%, and 25.00%. VIT passes this test, which means that it has good, reasonably steady earnings. This strategy looks at the rate which earnings grow and evaluates this rate of growth from different angles. The 4 tests immediately following are detailed below. EPS GROWTH FOR CURRENT QUARTER MUST BE GREATER THAN PRIOR 3 QUARTERS: [PASS] If the growth rate of the prior three quarter's earnings, 78.95%, (versus the same three quarters a year earlier) is greater than the growth rate of the current quarter earnings, 44.44%, (versus the same quarter one year ago) then the stock fails, with one exception: if the growth rate in earnings between the current quarter and the same quarter one year ago is greater than 30%, then the stock would pass. The growth rate over this period for VIT is 44.4%, and it would therefore pass this test. EPS GROWTH FOR CURRENT QUARTER MUST BE GREATER THAN THE HISTORICAL GROWTH RATE: [PASS] The EPS growth rate for the current quarter, 44.44% must be greater than or equal to the historical growth which is 34.29%. VIT would therefore pass this test. EARNINGS PERSISTENCE: [FAIL] Companies must show persistent yearly earnings growth. To fulfill this requirement a company's earnings must increase each year for a five year period. VIT, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were 0.05, 0.13, 0.07, 0.19, and 0.40, fails this test. LONG-TERM EPS GROWTH: [PASS] One final earnings test required is that the long-term earnings growth rate must be at least 15% per year. VIT's long-term growth rate of 34.29%, based on the average of the 3, 4 and 5 year historical eps growth rates, passes this test. TOTAL DEBT/EQUITY RATIO: [PASS] A final criterion is that a company must not have a high level of debt. A high level of total debt, due to high interest expenses, can have a very negative effect on earnings if business moderately turns down. If a company does have a high level, an investor may want to avoid this stock altogether. VIT's Debt/Equity (0.00%) is not considered high relative to its industry (21.00%) and passes this test. INSIDER TRANSACTIONS: [PASS] A factor that adds to a stock's attractiveness is if insider buy transactions number 3 or more, while insider sell transactions are zero. Zweig calls this an insider buy signal. For VIT, this criterion has not been met (insider sell transactions are 0, while insiders buying number 0). Despite the lack of an insider buy signal, there also is not an insider sell signal, so the stock passes this criterion.   GENERAL DYNAMICS CORPORATION Profile Strategy: Patient Investor Based on: Warren Buffett General Dynamics Corporation (General Dynamics) offers a portfolio of products and services in business aviation; combat vehicles, weapons systems and munitions; shipbuilding design and construction, and information systems, technologies and services. The Company focuses on delivering products and services to military, federal government, commercial and international customers. General Dynamics operates through four business groups: Aerospace, Combat Systems, Marine Systems, and Information Systems and Technology. On December 19, 2008, the Company acquired AxleTech International (AxleTech), a manufacturer and supplier of axles, suspensions, brakes and aftermarket parts for heavy-payload vehicles for a variety of military and commercial customers. On November 5, 2008, it acquired Jet Aviation of Zurich, Switzerland. On July 23, 2008, it acquired HSI Electric, Inc. (HSI), a marine and industrial electrical company. On July 22, 2008, the Company acquired ViPS, Inc. (ViPS). Analysis Guru Score: 93% STAGE 1: "Is this a Buffett type company?" A bedrock principle for Buffett is that his type of company has a "durable competitive advantage" as compared to being a "price competitive" or "commodity" type of business. Companies with a "durable competitive advantage" are more likely to be found in these sub-industries: Brand Name Fast Food Restaurants, Brand Name Beverages, Brand Name Foods, Brand Name Toiletries and Household Products, Brand Name Clothing, Brand Name Prescription Drugs, Advertising, Advertising Agencies, TV, Newspapers, Magazines, Direct Mail, Repetitive Services for Businesses, Low Cost Producers of Insurance, furniture, or Low Cost Retailers. While you should be easily able to explain where the company's pricing power comes from (i.e. a strong regional brand image, a business tollgate, its main products are #1 or # 2 in its field and has been on the market for years and hasn't changed at all, a consumer or business ends up buying the same product many times in a year, etc. or having the lowest production cost among its competition), there are certain figures that one can look at that can qualify the company as having a durable competitive advantage. LOOK FOR EARNINGS PREDICTABILITY: [PASS] Buffett likes companies to have solid, stable earnings that are continually expanding. This allows him to accurately predict future earnings. Annual earnings per share from earliest to most recent were 2.18, 2.23, 2.32, 2.56, 2.46, 2.96, 3.58, 4.20, 5.10, 6.21. Buffett would consider GD's earnings predictable, although earnings have declined 1 time(s) in the past seven years, with the most recent decline 6 years ago. The dips have totaled 3.9%. GD's long term historical EPS growth rate is 15.6%, based on the 10 year average EPS growth rate, and it is expected to grow earnings 8.7% per year in the future, based on the analysts' consensus estimated long term growth rate. For the purposes of our analysis, we will use the more conservative of the two EPS growth numbers. LOOK AT THE ABILITY TO PAY OFF DEBT [PASS] Buffett likes companies that are conservatively financed. Nonetheless, he has invested in companies with large financing divisions and in firms with rather high levels of debt. GD has a debt of 3,860.0 million and earnings of 2,453.6 million, which could be used to pay off the debt in less than two years, which is considered exceptional. LOOK FOR CONSISTENTLY HIGHER THAN AVERAGE RETURN ON EQUITY: [PASS] Buffett likes companies with above average return on equity of at least 15% or better, as this is an indicator that the company has a durable competitive advantage. US corporations have, on average, returned about 12% on equity over the last 30 years. The average ROE for GD, over the last ten years, is 20.1%, which is high enough to pass. It is not enough that the average be at least 15%. For each of the last 10 years, with the possible exception of the last fiscal year, the ROE must be at least 10% for Buffett to feel comfortable that the ROE is consistent. In addition, the average ROE over the last 3 years must also exceed 15%. The ROE for the last 10 years, from earliest to latest, is 27.6%, 23.4%, 20.6%, 19.8%, 16.4%, 16.6%, 17.6%, 17.4%, 17.5%, 23.9%, and the average ROE over the last 3 years is 19.6%, thus passing this criterion. LOOK FOR CONSISTENTLY HIGHER THAN AVERAGE RETURN ON TOTAL CAPITAL: [PASS] Because some companies can be financed with debt that is many times their equity, they can show a consistently high ROE, yet still be in unattractive price competitive businesses. To screen this out, for non-financial companies Buffett also requires that the average Return On Total Capital (ROTC) be at least 12% and consistent. In addition, the average ROTC over the last 3 years must also exceed 12%. Return On Total Capital is defined as the net earnings of the business divided by the total capital in the business, both equity and debt. The average ROTC for GD, over the last ten years, is 16.5% and the average ROTC over the past 3 years is 15.5%, which is high enough to pass. It is not enough that the average be at least 12%. For each of the last 10 years, with the possible exception of the last fiscal year, the ROTC must be at least 9% for Buffett to feel comfortable that the ROTC is consistent. The ROTC for the last 10 years, from earliest to latest, is 26.2%, 22.4%, 17.8%, 17.4%, 10.6%, 11.4%, 13.1%, 13.5%, 14.8%, 18.3%, thus passing this criterion. LOOK AT CAPITAL EXPENDITURES: [PASS] Buffett likes companies that do not have major capital expenditures. That is, he looks for companies that do not need to spend a ton of money on major upgrades of plant and equipment or on research and development to stay competitive. GD's free cash flow per share of $5.23 is positive, indicating that the company is generating more cash that it is consuming. This is a favorable sign, and so the company passes this criterion. LOOK AT MANAGEMENT'S USE OF RETAINED EARNINGS: [PASS] Buffett likes to see if management has spent retained earnings in a way that benefits shareholders. To figure this out, Buffett takes the total amount of retained earnings over the previous ten years of $26.08 and compares it to the gain in EPS over the same period of $4.03. GD's management has proven it can earn shareholders a 15.4% return on the earnings they kept. This return is more than acceptable to Buffett. Essentially, management is doing a great job putting the retained earnings to work. HAS THE COMPANY BEEN BUYING BACK SHARES: [BONUS PASS] Buffett likes to see falling shares outstanding, which indicates that the company has been repurchasing shares. This indicates that management has been using excess capital to increase shareholder value. GD's shares outstanding have fallen over the past five years from 402,070,007 to 387,000,000, thus passing this criterion. This is a bonus criterion and will not adversely affect the ability of a stock to pass the strategy as a whole if it is failed. The preceding concludes Buffett's qualitative analysis. If and when he gets positive responses to all the above criteria, he would then proceed with a price analysis. The price analysis will determine whether or not the stock should be bought. The following is how he would evaluate GD quantitatively. STAGE 2: "Should I buy at this price?" Although a firm may be a Buffett type company, he won't invest in it unless he can get a favorable price that allows him a great long term return. CALCULATE THE INITIAL RATE OF RETURN: [No Pass/Fail] Buffett compares his type of stocks to bonds, and likes to see what a company's initial rate of return is. To calculate the initial rate of return, take the trailing 12-month EPS of $6.34 and divide it by the current market price of $58.80. An investor, purchasing GD, could expect to receive a 10.78% initial rate of return. Furthermore, he or she could expect the rate to increase 8.7% per year, based on the analysts' consensus estimated long term growth rate, as this is how fast earnings are growing. COMPARE THE INITIAL RATE OF RETURN WITH THE LONG-TERM TREASURY YIELD: [PASS] Buffett favors companies in which the initial rate of return is around the long-term treasury yield. Nonetheless, he has invested in companies with low initial rates of return, as long as the yield is expected to expand rapidly. Currently, the long-term treasury yield is about 4.60%. Compare this with GD's initial yield of 10.78%, which will expand at an annual rate of 8.7%, based on the analysts' consensus estimated long term growth rate. The company is the better choice, as the initial rate of return is close to or above the long term bond yield and is expanding. CALCULATE THE FUTURE EPS: [No Pass/Fail] GD currently has a book value of $28.54. It is safe to say that if GD can preserve its average rate of return on equity of 19.6% and continues to retain 77.17% of its earnings, it will be able to sustain an earnings growth rate of 15.1% and it will have a book value of $116.61 in ten years. If it can still earn 19.6% on equity in ten years, then expected EPS will be $22.84. CALCULATE THE FUTURE STOCK PRICE BASED ON THE AVERAGE ROE METHOD: [No Pass/Fail] Now take the expected future EPS of $22.84 and multiply them by the lower of the 5 year average P/E ratio (15.0) or current P/E ratio (current P/E in this case), which is 9.3 and you get GD's projected future stock price of $211.70. CALCULATE THE EXPECTED RATE OF RETURN BASED ON THE AVERAGE ROE METHOD: [No Pass/Fail] Now add in the total expected dividend pool to be paid over the next ten years, which is $23.58. This gives you a total dollar amount of $235.27. These numbers indicate that one could expect to make a 14.9% average annual return on GD's stock at the present time. Although, the return is slightly below the liking of Buffett, the return would still be somewhat acceptable. CALCULATE THE EXPECTED FUTURE STOCK PRICE BASED ON AVERAGE EPS GROWTH: [No Pass/Fail] If you take the EPS growth of 8.7%, based on the analysts' consensus estimated long term growth rate, you can project EPS in ten years to be $14.61. Now multiply EPS in 10 years by the lower of the 5 year average P/E ratio (15.0) or current P/E ratio (current P/E in this case), which is 9.3. This equals the future stock price of $135.48. Add in the total expected dividend pool of $23.58 to get a total dollar amount of $159.05. CALCULATE THE EXPECTED RETURN USING THE AVERAGE EPS GROWTH METHOD: [No Pass/Fail] Now you can figure out your expected return based on a current price of $58.80 and the future expected stock price, including the dividend pool, of $159.05. If you were to invest in GD at this time, you could expect a 10.5% average annual return on your money. Buffett likes to see a 15% return, and would even go down to 12%. LOOK AT THE RANGE OF EXPECTED RATE OF RETURN: [PASS] Based on the two different methods, you could expect an annual compounding rate of return somewhere between 10.5% and 14.9%. To pinpoint the average return a little better, we have taken an average of the two different methods. Investors could expect an average return of 12.7% on GD stock for the next ten years, based on the current fundamentals. Buffett likes to see a 15% return, but nonetheless would accept this return, thus passing the criterion.   FRONTIER OIL CORPORATION Profile Strategy: P/E/Growth Investor Based on: Peter Lynch Frontier Oil Corporation (Frontier) is an independent energy company engaged in crude oil refining and the wholesale marketing of refined petroleum products. The Company operates refineries (the Refineries) in Cheyenne, Wyoming and El Dorado, Kansas with a total annual average crude oil capacity of approximately 182,000 barrels per day (bpd). Frontier's Cheyenne Refinery has a permitted crude oil capacity of 52,000 bpd on a 12-month average. The Company markets its refined products primarily in the eastern slope of the Rocky Mountain region, which encompasses eastern Colorado (including the Denver metropolitan area), eastern Wyoming and western Nebraska (the Eastern Slope). The Cheyenne Refinery has a coking unit, which allows the refinery to process amounts of heavy crude oil for use as a feedstock. During the year ended December 31, 2008, heavy crude oil constituted approximately 76% of the Cheyenne Refinery's total crude oil charge. Analysis Guru Score: 91% DETERMINE THE CLASSIFICATION: This methodology would consider FTO a "fast-grower". P/E/GROWTH RATIO: [PASS] The investor should examine the P/E (13.42) relative to the growth rate (25.91%), based on the average of the 3, 4 and 5 year historical eps growth rates, for a company. This is a quick way of determining the fairness of the price. In this particular case, the P/E/G ratio for FTO (0.52) makes it favorable. SALES AND P/E RATIO: [PASS] For companies with sales greater than $1 billion, this methodology likes to see that the P/E ratio remain below 40. Large companies can have a difficult time maintaining a growth high enough to support a P/E above this threshold. FTO, whose sales are $5,494.5 million, needs to have a P/E below 40 to pass this criterion. FTO's P/E of (13.42) is considered acceptable. INVENTORY TO SALES: [PASS] When inventories increase faster than sales, it is a red flag. However an increase of up to 5% is considered bearable if all other ratios appear attractive. Inventory to sales for FTO was 9.67% last year, while for this year it is 3.94%. Since inventory to sales has decreased from last year by -5.73%, FTO passes this test. EPS GROWTH RATE: [PASS] This methodology favors companies that have several years of fast earnings growth, as these companies have a proven formula for growth that in many cases can continue many more years. This methodology likes to see earnings growth in the range of 20% to 50%, as earnings growth over 50% may be unsustainable. The EPS growth rate for FTO is 25.9%, based on the average of the 3, 4 and 5 year historical eps growth rates, which is acceptable. TOTAL DEBT/EQUITY RATIO: [PASS] This methodology would consider the Debt/Equity ratio for FTO (30.04%) to be normal (equity is approximately twice debt). FREE CASH FLOW: [NEUTRAL] The Free Cash Flow/Price ratio, though not a requirement, is considered a bonus if it is above 35%. A positive Cash Flow (the higher the better) separates a wonderfully reliable investment from a shaky one. This methodology prefers not to invest in companies that rely heavily on capital spending. This ratio for FTO (4.96%) is too low to add to the attractiveness of the stock. Keep in mind, however, that it does not adversely affect the company as it is a bonus criteria. NET CASH POSITION: [NEUTRAL] Another bonus for a company is having a Net Cash/Price ratio above 30%. Lynch defines net cash as cash and marketable securities minus long term debt. According to this methodology, a high value for this ratio dramatically cuts down on the risk of the security. The Net Cash/Price ratio for FTO (10.77%) is too low to add to the attractiveness of this company. Keep in mind, however, that it does not adversely affect the company as it is a bonus criteria.   CAPELLA EDUCATION COMPANY Profile Strategy: Growth Investor Based on: Martin Zweig Capella Education Company, is an online postsecondary education services company. Through its wholly owned subsidiary, Capella University (the University), the Company offers a variety of bachelor's, master's and doctoral degree programs primarily delivered to working adults. At December 31, 2008, Capella Education Company offered over 1,020 online courses and 22 academic programs with 111 specializations to approximately 26,800 learners. The Company also offers certificate programs, which consist of a series of courses focused on a particular area of study. In addition, Capella Education Company offers academic services, such as advising, writing and research services; administrative services, such as online class registration and transcript requests; library services; financial aid counseling and career counseling services. Analysis Guru Score: 92% P/E RATIO: [PASS] The P/E of a company must be greater than 5 to eliminate weak companies, but not more than 3 times the current Market P/E because the situation is much too risky, and never greater than 43. CPLA's P/E is 30.73, based on trailing 12 month earnings, while the current market PE is 16.00. Therefore, it passes the first test. REVENUE GROWTH IN RELATION TO EPS GROWTH: [PASS] Revenue Growth must not be substantially less than earnings growth. For earnings to continue to grow over time they must be supported by a comparable or better sales growth rate and not just by cost cutting or other non-sales measures. CPLA's revenue growth is 24.16%, while it's earnings growth rate is 19.48%, based on the average of the 3, 4 and 5 year historical eps growth rates. Therefore, CPLA passes this criterion. SALES GROWTH RATE: [PASS] Another important issue regarding sales growth is that the rate of quarterly sales growth is rising. To evaluate this, the change from this quarter last year to the present quarter (21.3%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (17.1%) of the current year. Sales growth for the prior must be greater than the latter. For CPLA this criterion has been met. The earnings numbers of a company should be examined from various different angles. Three of these angles are stability in the trend of earnings, earnings persistence, and earnings acceleration. To evaluate stability, the stock has to pass the following four criteria. CURRENT QUARTER EARNINGS: [PASS] The first of these criteria is that the current EPS be positive. CPLA's EPS ($0.56) pass this test. QUARTERLY EARNINGS ONE YEAR AGO: [PASS] The EPS for the quarter one year ago must be positive. CPLA's EPS for this quarter last year ($0.37) pass this test. POSITIVE EARNINGS GROWTH RATE FOR CURRENT QUARTER: [PASS] The growth rate of the current quarter's earnings compared to the same quarter a year ago must also be positive. CPLA's growth rate of 51.35% passes this test. EARNINGS GROWTH RATE FOR THE PAST SEVERAL QUARTERS: [PASS] Compare the earnings growth rate of the previous three quarters with long-term EPS growth rate. Earnings growth in the previous 3 quarters should be at least half of the long-term EPS growth rate. Half of the long-term EPS growth rate for CPLA is 9.74%. This should be less than the growth rates for the 3 previous quarters, which are 17.24%, 29.41%, and 58.06%. CPLA passes this test, which means that it has good, reasonably steady earnings. This strategy looks at the rate which earnings grow and evaluates this rate of growth from different angles. The 4 tests immediately following are detailed below. EPS GROWTH FOR CURRENT QUARTER MUST BE GREATER THAN PRIOR 3 QUARTERS: [PASS] If the growth rate of the prior three quarter's earnings, 34.23%, (versus the same three quarters a year earlier) is less than the growth rate of the current quarter earnings, 51.35%, (versus the same quarter one year ago) then the stock passes. EPS GROWTH FOR CURRENT QUARTER MUST BE GREATER THAN THE HISTORICAL GROWTH RATE: [PASS] The EPS growth rate for the current quarter, 51.35% must be greater than or equal to the historical growth which is 19.48%. CPLA would therefore pass this test. EARNINGS PERSISTENCE: [FAIL] Companies must show persistent yearly earnings growth. To fulfill this requirement a company's earnings must increase each year for a five year period. CPLA, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were 1.62, 0.86, 1.06, 1.33, and 1.66, fails this test. LONG-TERM EPS GROWTH: [PASS] One final earnings test required is that the long-term earnings growth rate must be at least 15% per year. CPLA's long-term growth rate of 19.48%, based on the average of the 3, 4 and 5 year historical eps growth rates, passes this test. TOTAL DEBT/EQUITY RATIO: [PASS] A final criterion is that a company must not have a high level of debt. A high level of total debt, due to high interest expenses, can have a very negative effect on earnings if business moderately turns down. If a company does have a high level, an investor may want to avoid this stock altogether. CPLA's Debt/Equity (0.00%) is not considered high relative to its industry (8.98%) and passes this test. INSIDER TRANSACTIONS: [PASS] A factor that adds to a stock's attractiveness is if insider buy transactions number 3 or more, while insider sell transactions are zero. Zweig calls this an insider buy signal. For CPLA, this criterion has not been met (insider sell transactions are 16, while insiders buying number 1). Despite the fact that insider sells out number insider buys for this company, Zweig considers even one insider buy transaction enough to prevent an insider sell signal, therefore there is not an insider sell signal and the stock passes this criterion.   AEROPOSTALE, INC. Profile Strategy: Price/Sales Investor Based on: Kenneth Fisher Aeropostale, Inc. is a mall-based specialty retailer of casual apparel and accessories. The Company designs, markets and sells its own brand of merchandise principally targeting 14 to 17 year-old young women and young men. The Company also sells Aeropostale merchandise through its e-commerce Website, www.aeropostale.com. As of January 31, 2009, it operated 914 stores, consisting of 874 Aeropostale stores in 48 states and Puerto Rico, 29 Aeropostale stores in Canada, and 11 Jimmy'Z stores in 10 states. The Company locates its stores primarily in shopping malls, outlet centers and, to a much lesser degree, lifestyle and off-mall shopping centers. The Company has developed a new retail store concept called P.S. from Aeropostale, which will offer casual clothing and accessories focusing on elementary school children between the ages of seven and 12. It offers a focused collection of apparel, including graphic t-shirts, tops, bottoms, sweaters, jeans, outerwear and accessories. Analysis Guru Score: 90% PRICE/SALES RATIO: [PASS] The prospective company should have a low Price/Sales ratio. Non-cyclical (non-Smokestack) companies with Price/Sales ratio between .75 and 1.5 are good values. ARO's P/S ratio of 1.37 based on trailing 12 month sales, falls within the "good values" range for non-cyclical companies and is considered attractive. TOTAL DEBT/EQUITY RATIO: [PASS] Less debt equals less risk according to this methodology. ARO's Debt/Equity of 0.00% is exceptional, thus passing the test. PRICE/RESEARCH RATIO: [PASS] This methodology considers companies in the Technology and Medical sectors to be attractive if they have low Price/Research ratios. ARO is neither a Technology nor Medical company. Therefore the Price/Research ratio is not available and, hence, not much emphasis should be placed on this particular variable. PRELIMINARY GRADE: Some Interest in ARO At this Point Is ARO a "Super Stock"? NO PRICE/SALES RATIO: [FAIL] The prospective company should have a low Price/Sales ratio. To be considered a "Super Stock", non-cyclical (non-Smokestack) companies should have Price/Sales ratios below .75. However, ARO, who has a P/S of 1.37, does not fall within the "Super Stock" range. It does fall between 0.75 and 1.5, which is considered the "good values" range for non-cyclical companies. Nonetheless, it does not pass this "Super Stock" criterion. LONG-TERM EPS GROWTH RATE: [PASS] This methodology looks for companies that have an inflation adjusted EPS growth rate greater than 15%. ARO's inflation adjusted EPS growth rate of 24.81% passes the test. FREE CASH PER SHARE: [PASS] This methodology looks for companies that have a positive free cash per share. Companies should have enough free cash available to sustain three years of losses. This is based on the premise that companies without cash will soon be out of business. ARO's free cash per share of 1.68 passes this criterion. THREE YEAR AVERAGE NET PROFIT MARGIN: [PASS] This methodology looks for companies that have an average net profit margin of 5% or greater over a three year period. ARO, whose three year net profit margin averages 7.86%, passes this evaluation.   CHEVRON CORPORATION Profile Strategy: Price/Sales Investor Based on: Kenneth Fisher Chevron Corporation (Chevron) manages its investments in subsidiaries and affiliates, and provides administrative, financial, management and technology support to the United States and International subsidiaries that engage in fully integrated petroleum operations, chemicals operations, mining operations of coal and other minerals, power generation and energy services. Exploration and production (upstream) operations consist of exploring for, developing and producing crude oil and natural gas, and also marketing natural gas. Refining, marketing and transportation (downstream) operations relate to refining crude oil into finished petroleum products; marketing crude oil and the many products derived from petroleum, and transporting crude oil, natural gas and petroleum products by pipeline, marine vessel, motor equipment and rail car. In April 2009, Reliance Industries Limited bought back Chevron Corporation's 5% stake in Reliance Petroleum Limited. Analysis Guru Score: 100% PRICE/SALES RATIO: [PASS] The prospective company should have a low Price/Sales ratio. Non-cyclical (non-Smokestack) companies with Price/Sales ratios below 0.75 are tremendous values and should be sought. CVX's P/S of 0.68 based on trailing 12 month sales, is below 0.75 which is considered quite attractive. It passes this methodology's P/S ratio test with flying colors. TOTAL DEBT/EQUITY RATIO: [PASS] Less debt equals less risk according to this methodology. CVX's Debt/Equity of 13.71% is acceptable, thus passing the test. PRICE/RESEARCH RATIO: [PASS] This methodology considers companies in the Technology and Medical sectors to be attractive if they have low Price/Research ratios. CVX is neither a Technology nor Medical company. Therefore the Price/Research ratio is not available and, hence, not much emphasis should be placed on this particular variable. PRELIMINARY GRADE: Some Interest in CVX At this Point Is CVX a "Super Stock"? YES PRICE/SALES RATIO: [PASS] The prospective company should have a low Price/Sales ratio. Non-cyclical(non-Smokestack) companies with Price/Sales ratios below .75 are tremendous values and should be sought.CVX's P/S ratio of 0.68 is below .75 which is considered extremely attractive. It passes this methodology's P/S ratio test with flying colors. LONG-TERM EPS GROWTH RATE: [PASS] This methodology looks for companies that have an inflation adjusted EPS growth rate greater than 15%. CVX's inflation adjusted EPS growth rate of 19.46% passes the test. FREE CASH PER SHARE: [PASS] This methodology looks for companies that have a positive free cash per share. Companies should have enough free cash available to sustain three years of losses. This is based on the premise that companies without cash will soon be out of business. CVX's free cash per share of 2.34 passes this criterion. THREE YEAR AVERAGE NET PROFIT MARGIN: [PASS] This methodology looks for companies that have an average net profit margin of 5% or greater over a three year period. CVX, whose three year net profit margin averages 8.46%, passes this evaluation.   Watch List The Watch List contains the highest scoring stocks according to our guru consensus system that are not currently in the Hot List portfolio. We provide this list both for informational purposes and for investors who are not comfortable with a portfolio of ten stocks. Ticker Company Name Industry Guru Score MELI MERCADOLIBRE, INC. Computer Services 72 APOL APOLLO GROUP, INC. Schools 59 ROST ROSS STORES, INC. Retail (Apparel) 57 CALM CAL-MAINE FOODS, INC. Fish/Livestock 54 CVS CVS CAREMARK CORPORATION Retail (Drugs) 54 OIS OIL STATES INTERNATIONAL, INC. Oil Well Services & Equipment 54 HUM HUMANA INC. Insurance (Accident & Health) 54 RTN RAYTHEON COMPANY Aerospace & Defense 53 TDW TIDEWATER INC. Water Transportation 52 GYMB THE GYMBOREE CORPORATION Retail (Apparel) 52

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