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Executive Summary	June 12, 2009

The Economy The economy, while still weak, has continued to show signs of stabilization over the past two weeks, and in spots has even taken what you might call "baby steps" forward. One sign of hope came in last week's unemployment report. While the overall unemployment rate grew to 9.4% -- the highest reading since August 1983 -- the number of non-farm jobs lost in May (345,000) was about half the average for the previous six months, the Bureau of Labor reported. And yesterday, the Labor Department said that the number of newly-laid-off workers filing for unemployment dipped last week by almost 4%. Both the overall unemployment figure and the new unemployment claims number are high by historical standards, but the fact that the job losses are slowing is good news. While the employment figures were "less bad", retail sales results announced yesterday provided some veritable positive "green shoots". They rose 0.5% in May after dipping in both March and April, representing the biggest gain since January. Another positive sign of a more global nature comes in what Time magazine recently called "the least known key economic indicator": the Baltic Dry Index. The index, which measures worldwide shipping rates, posted its 23rd straight daily gain on Wednesday, closing at its highest mark since September, Time reported. Daily rates for large ships that typically carry iron ore were at $93,197 last week, almost 50 times what they were five months ago. The exact reasons for the index's surge are complex, but the index's president told Time that the gains show that "the complete lockup of world trade we saw at the end of last year has eased considerably." Manufacturing and home sales data, meanwhile, provided some encouraging data over the past fortnight. On the manufacturing front, the Institute for Supply Management's index of factory activity rose in May for the fifth straight month. While the index's 42.8 reading signaled a continued contraction in manufacturing (scores below 50 indicate a contraction), the May reading was the highest since September. As for home sales, the National Association of Realtors said early this month that its pending home sales index (which is based on the number of contracts signed) rose 6.7% in April, the biggest jump more than seven years. Home foreclosure filings, meanwhile, declined 6% in May compared to April's figures. But the overall figure remains quite high, and bank repossessions actually increased a bit during the month, CNNMoney reported. While the positive and "less bad" signs have been encouraging, the past two weeks have also offered some cautionary signals. For one thing, Treasury bond yields have moved sharply upward in recent weeks, causing mortgage rates to follow. While the rates are still fairly low, the increases are putting a crimp in the Federal Reserve's rate-cutting and mortgage-debt-buying barrages, which had pushed mortgage rates down toward all-time lows and helped spur some gains in home sales. If rates continue to rise, a potential housing recovery could be in trouble. Oil prices, meanwhile, are continuing their big rebound. Per-barrel crude prices jumped past $70 this week, just a few months after they flirted with sub-$30 levels. That's been good for oil stocks (and the Hot List, as we'll discuss later), but it means consumers might be less likely to loosen their belts and spur an economic recovery. Finally, there was the news that the federal government's budget deficit is now approaching $1 trillion so far this year. That's more than twice the entire 2008 deficit. The news isn't really a surprise -- given how much the government has spent on stimulus and bailout efforts, we all new deficits were going to be big -- but it does highlight the issue of what the repercussions of the recovery efforts will be. Many are predicting serious inflation given all of the money that has been pumped into the system, and the latest budget figures did little to assuage those fears. Over the past fortnight, investors have continued to focus on the positives, with the S&P 500 rising another 4.2%. The Hot List has done even better, gaining another 5.8%. That means the portfolio is now up an impressive 24.7% for the year, far outpacing the S&P's 4.6% gain. And, since its July 2003 inception, the Hot List is up 104.4%, while the S&P remains in the red, down 5.6%. Small Wonders The Hot List is making some big changes in today's rebalancing, dropping seven of the ten stocks in the portfolio and adding seven new, higher-rated issues. Some of the departing stocks have provided big rewards to the portfolio in recent months. As of yesterday morning, Schnitzer Steel had gained 65% since the Hot List snatched it up on Jan. 23. Deckers Outdoor Corporation was up 43% since its addition just four weeks ago, and oil firms BJ Services and Lufkin Industries had both gained more than 20% during their relatively short stints in the Hot List. The lone loser leaving the portfolio is Cintas Corporation, which as of Thursday afternoon was down about 7.5% since joining the portfolio in mid-May. The seven newcomers include three oil-related stocks, some of which are familiar faces. Oil States International and World Fuel Services were both in the portfolio from March 20 through May 15 of this year, and gained 59% and 28%, respectively. Now, my models think they are again selling at extremely attractive valuations. The other four stocks added to the Hot List today are a diverse bunch, including a drug-maker (Pfizer), financial firm (Net 1 UEPS), Chinese jeweler (Fuqi International), and a shoe and hat retailer (Genesco). One thing that most of the stocks (aside from Pfizer) being added to the Hot List have in common, however: They are either small-caps or smaller-sized mid-caps. In fact, seven of the ten firms now in the portfolio have market caps of about $1.6 billion or less. Earlier this year, the Hot List made a similar small-cap push, with good results. Small-caps like The Dress Barn (a 70% gainer between Jan. 23 and April 17) and Jos. A. Bank Clothiers (up 56% from Feb. 20 to present) have played a big role in the portfolio's strong 2009 returns. I don't think this small-cap bent is a coincidence. Studies show that small-caps often lead the way coming out of tough times, and I think my models are picking up on that trend. For example, Legg Mason researched stock returns following every bear market since 1980. Their findings: - In the first six months of the recoveries, small-caps on average outperformed large-caps by a 39.23% to 27.23% margin; - In the first 12 months following the market bottoms, small-caps gained an average of 59.23% vs. 42.77% for large-caps. The trend makes sense on an intuitive level. During tough times, investors turn to larger, better-known stocks in a flight to safety, lowering valuations on smaller stocks; as things get better, they file back in to smaller stocks as their appetite for risk grows. That's what we've seen lately, and my models think the trend will continue. Of course, cap size alone is no silver bullet; the critical factor here is that these stocks have exceptional fundamentals and strong businesses. (And, if smaller firms don't continue to lead the way, the Hot List is doing some nice hedging with a couple of behemoths in Chevron and Pfizer.) Bond-watching The other issue that bears addressing today involves those rising bond yields I referenced earlier. Much has been made of the increasing yields, and in terms of mortgages and the housing market, they are indeed threats to the economic recovery. But as I've often discussed, the economy and the markets are far from attached at the hip. The real question for investors is whether the current rising bond yields have an impact on long-term strategy. In addressing this question, first consider one simple but critical factor: While rising fairly sharply, Treasury bond yields are by no means high. In fact, from early 1963 through late 2002, the monthly readings on the 10-year Treasury bond yield were all higher than the 10-year rate was as of the close of market yesterday -- every single monthly reading for almost 40 years. So in terms of bonds offering competition for stocks, we're nowhere near the levels the yields need to be (and certainly nowhere near they were at the starting points used in some of the recent "bonds beat stocks" arguments; more on that in a bit). The fact that the T-bond yields have increased significantly and yet remain low by historical standards raises another key point: The rising yields may in fact be a positive sign. As BusinessWeek's James Cooper recently wrote, "the explanation [of why bond yields are rising] that makes the most sense to economists is fears of a financial Armageddon are passing, and signs that the recession is bottoming are growing. As a result, investors are regaining some of their appetite for risk." Bond yields weren't going to stay at 2.5% or 3% forever; the abnormally low yields were a result of investors fleeing to perceived safety amid one of the most panic-ridden financial periods of the past 70 years. A rise to 4% yields is healthy -- not problematic. In support of that idea, Cooper notes that yields on lower-rated corporate bonds have been falling as Treasury yields have been rising. "The spread between the two, a measure of the risk premium investors place on lending money to these corporate borrowers, has declined significantly in recent weeks," he writes. "Basically, investors are showing an increased preference for corporate debt and less demand for the relative safety of Treasury debt. Amid reduced demand for Treasuries, the onslaught of supply from Washington is only adding to the downward pressure on prices and, therefore the upward pressure on yields." Now, if Treasury yields start getting up to 6%, 7%, 8% or higher, the issue may again need to be addressed. But for now, T-bond yields of almost 4% aren't frightening me, and they certainly aren't making me rethink my long-term approach. And, if we do see major inflation that could come hand in hand with higher bond yields, stocks may be an even more attractive choice. As I've noted in previous Hot Lists, the research of David Dreman has shown that, when adjustments are made for inflation, stocks' outperformance of bonds and bills and even gold becomes quite significant, because stocks have the ability to produce increasing earnings streams -- something other assets can't do. The Longer Look Finally, let's switch to a longer stocks vs. bonds analysis, something that has also been in the news quite a bit lately -- I'm talking about those "bonds beat stocks" headlines you may have seen. Be careful when reading those. Some of the stats you'll see measure periods that began with stocks at or near highs, and end with them at or near the recent lows, hardly an accurate picture of what to expect going forward. Take Rob Arnott's insightful recent paper on stock and bond returns. While a lot of reports about his paper focused on Arnott's finding that bonds beat stocks from February 1969 through February 2009, Arnott in no way says stocks should be avoided. His points, rather, are that the equity premium exists, but just not at as high a level as the 5% figure many have previously assumed; that, given the potentially erratic movements of stock prices, dividend yields are often overlooked; and that traditional bond investments do not really add the diversification many investors seek. In fact, in an interview session with the Journal of Indexes held after his paper was published, Arnott says, "At a 3% yield for stocks and for 10-year Treasuries, I am not proposing that we should replace 'stocks for the long run' with 'bonds for the long run'! On the other hand, I do not see a 3% stock market yield as a screaming bargain, either. In my view, there are bargains galore, today, but not in growth stocks or in Treasury bonds." One big bargain area he sees is deep value stocks. The fact that Arnott makes such "intra-asset-class" distinctions brings me to my final point about bond vs. stock debates, or, frankly, any-other-asset-class vs. stocks debates. In such debates, you will inevitably see comparisons between indexes -- indexes of stocks, indexes of bonds, etc. Essentially, they compare average returns for alternative asset classes to "the market" -- usually the S&P 500. The strategies we use at Validea are anything but "the market", however. They are time-tested strategies that identify the soundest businesses whose stocks are selling at attractive valuations. That allows us to find some of the big winners I mentioned earlier in this newsletter -- the 70% gainers like The Dress Barn, or the 65% gainers like Schnitzer Steel. Over the long-term, stocks have proven to outperform bonds; but more importantly, over the long-term, good stocks can leave even very attractive bonds in the dust. I'm confident that, just as it has done for the past six years, the Hot List will continue to find those good stocks, and outperform both bonds and the broader market.		Editor-in-Chief: John Reese Since Inception   Hot List 104.4% S&P 500 -5.6% Accuracy 55.8% Beta 1.2 YTD   Hot List 24.7% S&P 500 4.6% Since Last Issue   Hot List 5.8% S&P 500 4.2% Avg. Fundamentals   Market Cap (mil) $25,401 PE Ratio 10.5 5 Yr EPS Growth 41.1% Yield 2.6% Rel. Strength 70 Portfolio Sectors Energy 4 Services 2 Technology 2 Healthcare 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, 7 stocks leave our portfolio. These include: The Dress Barn, Inc. (DBRN), Ameron International Corporation (AMN), Bj Services Company (BJS), Cintas Corporation (CTAS), Deckers Outdoor Corporation (DECK), Lufkin Industries, Inc. (LUFK) and Schnitzer Steel Industries, Inc. (SCHN). The Keepers 3 stocks remain in the portfolio. They are: Jos. A. Bank Clothiers, Inc. (JOSB), Netease.com, Inc. (Adr) (NTES) and Chevron Corporation (CVX). The Newbies We are adding 7 stocks to the portfolio. These include: Pfizer Inc. (PFE), Genesco Inc. (GCO), Frontier Oil Corporation (FTO), World Fuel Services Corporation (INT), Oil States International, Inc. (OIS), Net17 1 Ueps Technologies Inc (UEPS) and Fuqi International, Inc. (FUQI). Portfolio Changes Additions   PFIZER INC. PFE GENESCO INC. GCO FRONTIER OIL CORPORATION FTO WORLD FUEL SERVICES CORPORATION INT OIL STATES INTERNATIONAL, INC. OIS NET17 1 UEPS TECHNOLOGIES INC UEPS FUQI INTERNATIONAL, INC. FUQI Deletions   THE DRESS BARN, INC. DBRN AMERON INTERNATIONAL CORPORATION AMN BJ SERVICES COMPANY BJS CINTAS CORPORATION CTAS DECKERS OUTDOOR CORPORATION DECK LUFKIN INDUSTRIES, INC. LUFK SCHNITZER STEEL INDUSTRIES, INC. SCHN Newcomers to the Validea Hot List Frontier Oil Corporation: This Houston-based energy firm, which is involved in crude oil refining and the wholesale marketing of refined petroleum products, operates refineries in Cheyenne, Wyoming, and El Dorado, Kansas. Its primary products -- gasoline, diesel, and asphalt -- are marketed in the Rocky Mountain and Plains States. Its two refineries have the capacity to produce a total of 182,000 barrels of crude oil per day. Frontier, which has a market cap of $1.57 billion, gets approval from the strategies I base on the writings of Kenneth Fisher, Benjamin Graham, and Peter Lynch. To see why, check out the "Detailed Stock Analysis" section below. Net 1 U.E.P.S. Technologies, Inc. (UEPS): This South Africa-based firm isn't your typical financial. It makes card technologies and systems that allow for transactions between formal businesses and people in developing countries who have no or limited access to traditional banking facilities. Governments and businesses use the firm's cards to make social security or wage payments to beneficiaries or employees, who can in turn use their cards for such things as making purchases, paying bills, or withdrawing cash. Users get charged monthly fees or transaction fees. Net 1 has a market cap of about $750 million. Net 1 gets approval from two of my Guru Strategies, those that I base on the writings of Peter Lynch and Joel Greenblatt. To find out exactly why, see the "Detailed Stock Analysis" section below. Oil States International (OIS): Based in Houston, this $1.4-billion-market-cap oil services company makes products used in deepwater oil production facilities and sub-sea pipelines. It also provides several types of services and products to the oil and gas industry, including production-related rental tools, work force accommodations and logistics, and land drilling services. The stock was hammered after oil prices peaked last July, but it has roared back lately, more than doubling since the start of March. And its fundamentals are extremely strong, good enough to earn approval from the Guru Strategies I base on the writings of Peter Lynch, Kenneth Fisher, and Benjamin Graham. To see why, scroll down to the "Detailed Stock Analysis" section below. Pfizer Inc. (PFE): While healthcare stocks provided some protection when the market tanked last year, their performance in recent years have overall been weak, with investors concerned about the rise of generic drugs and fearful about healthcare reform. But several firms in the sector have strong businesses that make them good bets to succeed over the long haul, and low valuations that make them attractive right now. Pfizer, whose cache includes popular medications like Benadryl, Zoloft, Lipitor, Celebrex, and a host of others, is one of them. The $95 billion drug giant gets approval from my Peter Lynch-, Benjamin Graham-, and James O'Shaughnessy-based models. You can find out why in 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 more than $16 billion in sales over the past 12 months. World Fuel, which has jumped 60% over the past three months, 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. Fuqi International (FUQI): Based in Shenzhen, China, Fuqi designs and sells a range of high-quality jewelry. The firm, which has about a thousand employees, makes products from gold, diamonds, platinum, and other gemstones. It has increased earnings per share in seven straight years, including 2008, and has a market cap of about $412 million. Fuqi's stock has soared more than 400% since it announced strong first-quarter results in mid-May. Three of my models -- those I base on the writings of Peter Lynch, James O'Shaughnessy, and The Motley Fool's Tom and David Gardner -- think it has even more room to run. Check out the "Detailed Stock Analysis" section below to find out why. Genesco Inc. (GCO): Based in Nashville, Tenn., Genesco makes and sells footwear and hats, selling both to retail customers and also selling shoes as a wholesaler. It operates more than 2,000 footwear and headwear retail stores in the U.S., Puerto Rico and Canada, under such names as Journeys, Underground Station, Johnston & Murphy, Hatworld, Lids, Hat Shack, Hat Zone, Cap Connection and Head Quarters. Genesco, which has a market cap of $465 million, gets strong interest from my Peter Lynch- and Benjamin Graham-based models. The "Detailed Stock Analysis" section below explains why these strategies are so high on the stock. News about Validea Hot List Stocks Jos. A. Bank Clothiers (JOSB): On June 2, Bank reported first-quarter profit of $11.5 million, or 62 cents per share, up 17% from the year-ago period. Sales jumped 11% to $161.9 million, despite the tough recessionary climate. Analysts expected earnings of 58 cents per share on sales of $160 million, Washington Business Journal reported. Chevron Corporation (CVX): On June 2, Chevron announced it will sell its fuels marketing businesses in Haiti to Medley Capital Limited, which is owned by a Haiti-based industrial group that has holdings in energy, steel and food products. Medley Capital would acquire 58 service stations, a portfolio of approximately 120 commercial and industrial customers, and other lines of business under the terms of the deal, Chevron stated. Financial terms of the deal were not disclosed. The Next Issue In two weeks, we will publish another issue of the Hot List, at which time we will take a closer look at the Guru Strategy I base on the approach of the "Father of Value Investing", Benjamin Graham. 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 OIS OIL STATES INTERNATIONAL, INC. Oil Well Services & Equipment 77 FTO FRONTIER OIL CORPORATION Oil & Gas Operations 72 FUQI FUQI INTERNATIONAL, INC. Jewelry & Silverware 71 PFE PFIZER INC. Major Drugs 63 INT WORLD FUEL SERVICES CORPORATION Oil & Gas Operations 51 UEPS NET17 1 UEPS TECHNOLOGIES INC Computer Services 50 GCO GENESCO INC. Retail (Apparel) 48 NTES NETEASE.COM, INC. (ADR) Computer Services 44 CVX CHEVRON CORPORATION Oil & Gas - Integrated 39 Ticker Market Cap Date Added Start Price Current Price Return JOSB $639 2/20/2009 $23.85 $34.94 46.5% OIS $1,424 6/12/2009 TBD $28.73 TBD FTO $1,545 6/12/2009 TBD $14.75 TBD FUQI $381 6/12/2009 TBD $17.32 TBD PFE $98,723 6/12/2009 TBD $14.63 TBD INT $1,251 6/12/2009 TBD $42.45 TBD UEPS $779 6/12/2009 TBD $14.00 TBD GCO $438 6/12/2009 TBD $22.79 TBD NTES $4,692 5/15/2009 $30.45 $36.66 20.4% CVX $144,136 5/15/2009 $65.88 $71.90 9.1%

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   |   OIS   |   FTO   |   FUQI   |   PFE   |   INT   |   UEPS   |   GCO   |   NTES   |   CVX   |   JOS. A. BANK CLOTHIERS, INC. Profile Strategy: Small-Cap Growth Investor Based on: Motley Fool 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: 83% 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. JOSB's profit margin of 8.43% 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. JOSB, with a relative strength of 94, satisfies this test. COMPARE SALES AND EPS GROWTH TO THE SAME PERIOD LAST YEAR: [FAIL] 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 JOSB (16.98% for EPS, and 11.37% for Sales) are not good enough to pass. INSIDER HOLDINGS: [FAIL] JOSB's insiders should own at least 10% (they own 2.68%) 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. JOSB's free cash flow of $2.08 per share passes this test. PROFIT MARGIN CONSISTENCY: [PASS] JOSB's profit margin has been consistent or even increasing over the past three years (Current year: 8.39%, Last year: 8.31%, Two years ago: 7.91%), 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 JOSB's case. CASH AND CASH EQUIVALENTS: [PASS] JOSB's level of cash $122.9 million passes this criteria. If a company is a cash generator, like JOSB, it has the ability to pay off debt (if it has any) or acquire other companies. Most importantly, good operations generate cash. 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 JOSB was 34.24% last year, while for this year it is 30.07%. Since the inventory to sales is decreasing by -4.17% 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 JOSB was 2.15% last year, while for this year it is 1.67%. Since the AR to sales is decreasing by -0.49% the stock passes this criterion. LONG TERM DEBT/EQUITY RATIO: [PASS] JOSB'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 (JOSB's is 0.48), the shares are looked upon favorably. These high quality companies can often wind up as the biggest winners. JOSB passes this test. The following criteria for JOSB are less important which means you would place less emphasis on them when making your investment decision using this strategy: AVERAGE SHARES OUTSTANDING: [PASS] JOSB has not been significantly increasing the number of shares outstanding within recent years which is a good sign. JOSB currently has 18.0 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: [FAIL] 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. JOSB's sales of $712.4 million based on trailing 12 month sales, are too high and would therefore fail the test. It is companies with $500 million or less in sales that are most likely to double or triple in size in the next few years. DAILY DOLLAR VOLUME: [PASS] JOSB passes the Daily Dollar Volume (DDV of $24.8 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. JOSB with a price of $34.94 passes the price test, even though it doesn't fall in the preferred range. 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] JOSB's income tax paid expressed as a percentage of pretax income this year was (39.14%) and last year (40.51%) 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.   OIL STATES INTERNATIONAL, INC. Profile Strategy: P/E/Growth Investor Based on: Peter Lynch Oil States International, Inc. (Oil States) through its subsidiaries, is a provider of specialty products and services to oil and gas drilling and production companies worldwide. The Company operates in a number of oil and gas producing regions, including the Gulf of Mexico, United States onshore, West Africa, the North Sea, Canada, South America and Southeast and Central Asia. Its customers include many of the national oil companies, major and independent oil and gas companies and other oilfield service companies. Oil States operates in three principal business segments: offshore products, tubular services and well site services. The Company's well site services segment includes the accommodations, rental tools and drilling services businesses. On February 1, 2008, Oil States purchased all of Christina Lake Enterprises Ltd., the owners of an accommodations lodge (Christina Lake Lodge) in the Conklin area of Alberta, Canada. Analysis Guru Score: 93% DETERMINE THE CLASSIFICATION: This methodology would consider OIS a "fast-grower". P/E/GROWTH RATIO: [PASS] The investor should examine the P/E (6.98) relative to the growth rate (32.12%), 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 OIS (0.22) is very 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. OIS, whose sales are $3,014.3 million, needs to have a P/E below 40 to pass this criterion. OIS's P/E of (6.98) 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 OIS was 16.73% last year, while for this year it is 20.77%. Since inventory has been rising, this methodology would not look favorably at the stock but would not completely eliminate it from consideration as the inventory increase (4.04%) is below 5%. 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 OIS is 32.1%, 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 OIS (29.80%) to be acceptable (equity is three to ten times debt). This ratio is one quick way to determine the financial strength of the company. 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 OIS (0.66%) 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 OIS (-24.14%) 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.   FRONTIER OIL CORPORATION Profile Strategy: Price/Sales Investor Based on: Kenneth Fisher 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: 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. FTO's P/S of 0.25 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. FTO's Debt/Equity of 31.26% 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. FTO 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 FTO At this Point Is FTO 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.FTO's P/S ratio of 0.25 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%. FTO's inflation adjusted EPS growth rate of 23.59% 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. FTO's free cash per share of 0.62 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. FTO, whose three year net profit margin averages 6.25%, passes this evaluation.   FUQI INTERNATIONAL, INC. Profile Strategy: Small-Cap Growth Investor Based on: Motley Fool Fuqi International, Inc. (Fuqi) is a designer of precious metal jewelry in China, developing, promoting, and selling a range of products in the Chinese luxury goods market. The Company's products consist of a range of styles and designs made from gold and other precious metals, such as platinum and Karat gold (K-gold). The Company also produce jewelry items that contain diamonds and other precious stones on a custom-order basis. Its design database contains over 30,000 products. The Company operates through its wholly owned subsidiary Fuqi International Holdings Co., Ltd. (Fuqi BVI) and its wholly owned subsidiary, Shenzhen Fuqi Jewelry Co., Ltd. (Fuqi China). As of December 31, 2008, the Company had 69 jewelry retail counters and stores in China. Analysis Guru Score: 91% 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. FUQI's profit margin of 7.80% 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. FUQI, with a relative strength of 97, 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 FUQI (45.16% for EPS, and 40.98% for Sales) are good enough to pass. INSIDER HOLDINGS: [PASS] FUQI's insiders should own at least 10% (they own 58.65% ) of the company's outstanding shares which is extremely attractive since the minimum requirement is 10%. A high percentage indicates that the insiders are confident that the company will do well. CASH FLOW FROM OPERATIONS: [FAIL] 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. FUQI's free cash flow of $-0.42 per share fails this test. PROFIT MARGIN CONSISTENCY: [PASS] FUQI's profit margin has been consistent or even increasing over the past three years (Current year: 7.58%, Last year: 9.29%, Two years ago: 6.28%), 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 FUQI's case. CASH AND CASH EQUIVALENTS: [PASS] FUQI's level of cash $58.0 million passes this criteria. If a company is a cash generator, like FUQI, it has the ability to pay off debt (if it has any) or acquire other companies. Most importantly, good operations generate cash. 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 FUQI was 20.36% last year, while for this year it is 12.08%. Since the inventory to sales is decreasing by -8.28% 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 FUQI was 17.83% last year, while for this year it is 20.71%. 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] FUQI'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 (FUQI's is 0.28), the shares are looked upon favorably. These high quality companies can often wind up as the biggest winners. FUQI passes this test. The following criteria for FUQI are less important which means you would place less emphasis on them when making your investment decision using this strategy: AVERAGE SHARES OUTSTANDING: [PASS] FUQI has not been significantly increasing the number of shares outstanding within recent years which is a good sign. FUQI currently has 21.0 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. FUQI's sales of $399.4 million based on trailing 12 month sales, are fine, making this company one such "prospective gem". FUQI passes the sales test. DAILY DOLLAR VOLUME: [PASS] FUQI passes the Daily Dollar Volume (DDV of $9.4 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. FUQI with a price of $17.32 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: [FAIL] FUQI's income tax paid expressed as a percentage of pretax income either this year (19.75%) or last year (13.45%) is below 20% which is cause for concern. Because the tax rate is below 20% this could mean that the earnings that were reported are unrealistically inflated due to the lower level of income tax paid. However, we have utilized a sophisticated formula so that the appropriate figures reflect a 'normal' tax rate (35%).   PFIZER INC. Profile Strategy: Growth/Value Investor Based on: James P. O'Shaughnessy Pfizer Inc. (Pfizer) is a research-based, global pharmaceutical company. The Company discovers, develops, manufactures and markets prescription medicines for humans and animals. It operates in two business segments: Pharmaceutical and Animal Health. Pfizer also operates several other businesses, including the manufacture of gelatin capsules, contract manufacturing and bulk pharmaceutical chemicals. In June 2008, Pfizer completed the acquisition of all remaining outstanding shares of common stock of Encysive Pharmaceuticals, Inc. through a merger of Pfizer's wholly owned subsidiary, Explorer Acquisition Corp., with and into Encysive. In June 2008, it also completed the acquisition of Serenex, Inc., a biotechnology company with a Heat Shock Protein 90 development portfolio. In January 2008, the Company completed the acquisition of Coley Pharmaceutical Group, Inc., a company whose area of capability is immunotherapy with emphasis on Toll-like receptor research and development. Analysis Guru Score: 100% MARKET CAP: [PASS] The Cornerstone Value Strategy looks for large, well known companies whose market cap is greater than $1 billion. These companies exhibit solid and stable earnings. PFE's market cap of $98,723 million passes this test. CASH FLOW PER SHARE: [PASS] The second criterion requires that the company exhibit strong cash flows. Companies with strong cash flow are typically the value oriented investments that this strategy looks for. The company's cash flow per share must be greater than the mean of the market cash flow per share ($0.60). PFE's cash flow per share of $1.87 passes this test. SHARES OUTSTANDING: [PASS] This particular strategy looks for companies whose total number of outstanding shares are in excess of the market average (597 million shares). These are the more well known and highly traded companies. PFE, who has 6,753 million shares outstanding, passes this test. TRAILING 12 MONTH SALES: [PASS] A company's trailing 12 month sales ($47,315 million) are required to be 1.5 times greater than the mean of the market's trailing 12 month sales ($17,768 million). PFE passes this test. DIVIDEND: [PASS] The final step in the Cornerstone Value strategy is to select the 50 companies from the market leaders group (those that have passed the previous four criteria) that have the highest dividend yield. PFE, with a dividend yield of 4.38%, is one of the 50 companies that satisfy this last criterion.   WORLD FUEL SERVICES CORPORATION Profile Strategy: Price/Sales Investor Based on: Kenneth Fisher 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: 90% 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. INT's P/S of 0.08 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. INT's Debt/Equity of 12.48% 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. INT 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 INT At this Point Is INT a "Super Stock"? NO 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.INT's P/S ratio of 0.08 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%. INT's inflation adjusted EPS growth rate of 28.54% 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. INT's free cash per share of 13.17 passes this criterion. THREE YEAR AVERAGE NET PROFIT MARGIN: [FAIL] This methodology looks for companies that have an average net profit margin of 5% or greater over a three year period. INT, whose three year net profit margin averages 0.54%, fails this evaluation.   NET17 1 UEPS TECHNOLOGIES INC Profile Strategy: P/E/Growth Investor Based on: Peter Lynch Net 1 UEPS Technologies, Inc. (Net1) provides its universal electronic payment system (UEPS), as an alternative payment system for the unbanked and under-banked populations of developing economies. The Company generates its revenues by charging transaction fees to government agencies, employers, merchants and other financial service providers, by providing financial services, such as loans and insurance products and by selling hardware, software and related technology. Net1's smart card to smart card (S2S) products include S2S Pension and Welfare, S2S Wage Payment, S2S Cash Advance, S2S Loans to Card, S2S Medical Management, Patient Monitoring and Distribution, S2S Retail and Wholesale, and S2S Insurance System. In August 2008, Net 1 announced that it has acquired 80.1% of BGS Smartcard Systems AG, an Austrian company that provides smart card-based payment systems to banks, enterprises and government authorities in Russia, Ukraine, Uzbekistan, Mongolia, Vietnam, India and Oman. Analysis Guru Score: 100% DETERMINE THE CLASSIFICATION: This methodology would consider UEPS a "fast-grower". P/E/GROWTH RATIO: [PASS] The investor should examine the P/E (8.87) relative to the growth rate (32.10%), 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 UEPS (0.28) is very favorable. SALES AND P/E RATIO: [NEUTRAL] 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 rate high enough to support a P/E above this threshold. UEPS, whose sales are $247.4 million, is not considered large enough to apply the P/E ratio analysis. However, an investor can analyze the P/E ratio relative to the EPS growth rate. 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 UEPS was 2.52% last year, while for this year it is 2.38%. Since inventory to sales has decreased from last year by -0.14%, UEPS 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 UEPS is 32.1%, 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 UEPS (1.36%) to be exceptionally low (equity is at least ten times debt). This ratio is one quick way to determine the financial strength of the company. 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 UEPS (14.29%) 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: [BONUS PASS] 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 UEPS (34.85%) is high enough to add to the attractiveness of this company.   GENESCO INC. Profile Strategy: Price/Sales Investor Based on: Kenneth Fisher Genesco is a retailer of branded footwear and licensed and branded headwear and a wholesaler of branded footwear. During the year ended January 31, 2009, the Company operated five reportable business segments: Journeys Group, comprised of the Journeys, Journeys Kidz and Shi by Journeys retail footwear chains, catalog and e-commerce operations; Underground Station Group, comprised of the Underground Station retail footwear chain and e-commerce operations and the remaining Jarman retail footwear stores; Hat World Group, comprised of the Hat World, Lids, Hat Shack, Hat Zone, Head Quarters, Cap Connection, Lids Kids and Lids Locker Room retail headwear stores and e-commerce operations; Johnston & Murphy Group, comprised of Johnston & Murphy retail operations, catalog and e-commerce operations and wholesale distribution; and Licensed Brands, comprised primarily of Dockers footwear, sourced and marketed under a license from Levi Strauss & Company. 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 ratios below 0.75 are tremendous values and should be sought. GCO's P/S of 0.28 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. GCO's Debt/Equity of 26.52% 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. GCO 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 GCO At this Point Is GCO a "Super Stock"? NO 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.GCO's P/S ratio of 0.28 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%. GCO's inflation adjusted EPS growth rate of 36.96% 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. GCO's free cash per share of 5.42 passes this criterion. THREE YEAR AVERAGE NET PROFIT MARGIN: [FAIL] This methodology looks for companies that have an average net profit margin of 5% or greater over a three year period. GCO, whose three year net profit margin averages 4.98%, fails this evaluation.   NETEASE.COM, INC. (ADR) Profile Strategy: Growth Investor Based on: Martin Zweig NetEase.com, Inc. operates an interactive online community in China, and is a provider of Chinese language content and services through its online games, Internet portal and wireless value-added services businesses. The Company generates revenues from fees it charge users of its online games and from selling advertisements on the NetEase Websites, and to a much lesser extent, of wireless value-added and other fee-based services. The Company's basic service offerings on the NetEase Websites are available without charge to its users. 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. NTES's P/E is 18.57, based on trailing 12 month earnings, while the current market PE is 14.00. 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. NTES's revenue growth is 33.79%, while it's earnings growth rate is 34.88%, based on the average of the 3, 4 and 5 year historical eps growth rates. Therefore, NTES 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 (20.4%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (32.7%) of the current year. Sales growth for the prior must be greater than the latter. For NTES 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. NTES's EPS ($0.02) pass this test. QUARTERLY EARNINGS ONE YEAR AGO: [PASS] The EPS for the quarter one year ago must be positive. NTES's EPS for this quarter last year ($0.01) 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. NTES's growth rate of 100.00% 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 NTES is 17.44%. This should be less than the growth rates for the 3 previous quarters which are 100.00%, 0.00% and 50.00%. NTES 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, 50.00%, (versus the same three quarters a year earlier) is less than the growth rate of the current quarter earnings, 100.00%, (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, 100.00% must be greater than or equal to the historical growth which is 34.88%. NTES 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. NTES, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were 0.02, 0.04, 0.05, 0.06 and 0.07, 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. NTES's long-term growth rate of 34.88%, 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. NTES's Debt/Equity (0.00%) is not considered high relative to its industry (132.49%) 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 NTES, 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.   CHEVRON CORPORATION Profile Strategy: Growth/Value Investor Based on: James P. O'Shaughnessy 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% MARKET CAP: [PASS] The Cornerstone Value Strategy looks for large, well known companies whose market cap is greater than $1 billion. These companies exhibit solid and stable earnings. CVX's market cap of $144,136 million passes this test. CASH FLOW PER SHARE: [PASS] The second criterion requires that the company exhibit strong cash flows. Companies with strong cash flow are typically the value oriented investments that this strategy looks for. The company's cash flow per share must be greater than the mean of the market cash flow per share ($0.60). CVX's cash flow per share of $15.36 passes this test. SHARES OUTSTANDING: [PASS] This particular strategy looks for companies whose total number of outstanding shares are in excess of the market average (597 million shares). These are the more well known and highly traded companies. CVX, who has 2,000 million shares outstanding, passes this test. TRAILING 12 MONTH SALES: [PASS] A company's trailing 12 month sales ($243,189 million) are required to be 1.5 times greater than the mean of the market's trailing 12 month sales ($17,768 million). CVX passes this test. DIVIDEND: [PASS] The final step in the Cornerstone Value strategy is to select the 50 companies from the market leaders group (those that have passed the previous four criteria) that have the highest dividend yield. CVX, with a dividend yield of 3.62%, is one of the 50 companies that satisfy this last criterion.   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 SPAR SPARTAN MOTORS, INC. Auto & Truck Manufacturers 53 ARO AEROPOSTALE, INC. Retail (Apparel) 47 AFAM ALMOST FAMILY, INC. Healthcare Facilities 47 AIT APPLIED INDUSTRIAL TECHNOLOGIES Auto & Truck Parts 46 CRDN CERADYNE, INC. Aerospace & Defense 46 CSL CARLISLE COMPANIES, INC. Fabricated Plastic & Rubber 46 HUM HUMANA INC. Insurance (Accident & Health) 46 LECO LINCOLN ELECTRIC HOLDINGS, INC. Misc. Capital Goods 46 TKR THE TIMKEN COMPANY Misc. Fabricated Products 46 APOG APOGEE ENTERPRISES, INC. Constr. - Supplies & Fixtures 44

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