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Executive Summary	May 10, 2013

The Economy The U.S. economic recovery has been called a lot of things over the past few years -- tepid, sluggish, disappointing -- many of which have been well deserved. But even its harshest critics have to admit, this expansion sure has been resilient. Case in point: After disappointing GDP and manufacturing reports and somewhat troubling new data on inflation, many pundits were -- once again -- on the verge of pronouncing the recovery dead. But as it has so many times over the past four years, the economy shrugged off the bad news and fought back with some heartening data. First came news that new claims from employment fell in the week ending April 27 to their lowest point since mid-January 2008. Then, the Labor Department said the private sector added 176,000 jobs in April, exceeding expectations. In addition, the department said that total nonfarm payrolls increased by 114,000 more than previous estimates had shown in February and March. The unemployment rate dipped slightly again for the third straight month, falling to 7.5%. The "U-6" unemployment rate, which, unlike the headline number, takes into account people who have given up looking for a job and those working part time who want full-time work, edged higher by 0.1 percentage point to 13.9%. Both the headline number and the U-6 figure remain high by historical standards, of course. But all in all the data seems to be showing that the slow, steady recovery in the jobs market is continuing -- as evidenced by another dip in new jobless claims in the most recent week. That put them 12.5% lower than they were a year ago during the same period. Pretty good news also came from the service sector. The Institute for Supply Management's service sector index remained comfortably in expansion territory in April, the group said, marking the 40th straight month the sector has expanded. The survey's new orders sub-index also remained comfortably in expansion territory, and the report showed that service sector job conditions continue to improve. ISM's manufacturing index, meanwhile, showed that the sector expanded in April for the fifth straight month, though it did so at its slowest pace since December and remained barely above the line that separates expansion from contraction. The survey's employment sub-index made a rather sharp decline, though it remains slightly in expansion territory. On the positive side, the survey's new orders sub-index improved, which could be a good sign going forward. As I noted above, the first-quarter gross domestic product report was also somewhat disappointing. GDP grew at a 2.5% pace in the quarter, according to the government's first estimate, below the 3.0% figure analysts had been expecting. Strong growth did continue to come from the housing sector, as real residential fixed investment jumped 12.6%. But the government sector continued to contract sharply. Real federal government consumption expenditures and gross investment fell 8.4% last quarter, after falling nearly 15% in the fourth quarter. Inflation, meanwhile, is becoming somewhat of a concern, but not for the reasons you might expect. While the Federal Reserve's loose money policies have sent unprecedented amounts of liquidity into financial markets, inflation remains extremely low. The Commerce Department said the personal consumption expenditure price index, which the Fed reportedly pays close attention to, rose just 1.2% in the first quarter from a year earlier, marking the weakest annual reading since the third quarter of 2008. Much of that money from the Fed just isn't making it all the way through the system, as global economic fears and scars from the 2008 financial crisis continue to keep lending and job growth from taking off. Overseas, on the other hand, consumer inflation rose more than expected in China in April, while producer prices declined more than expected. If that continues, it will raise some tough policy questions for the Asian giant and global growth power as it tries to strike a balance between supporting the economy and keeping a lid on inflation. Elsewhere overseas, the European Central Bank cut a key interest rate on May 2, helping push stocks higher. Amid all of this, the S&P 500 returned 2.6% since our last newsletter, while the Hot List returned 4.6%. So far in 2013, the portfolio has returned 22.6% vs. 14.1% for the S&P. Since its inception in July 2003, the Hot List is far outpacing the index, having gained 232.5% vs. the S&P's 62.6% gain. Are Valuations Still Attractive? Backed by the resilient economy and continuing support from central banks, stocks have kept pushing higher over the past couple weeks. The Hot List has outperformed for much of that period, boosted by several stocks that recently reported earnings. Western Digital and World Acceptance, both of which announced well-received earnings shortly before our last newsletter, continued to gain significant ground. Others that reported more recently, like The TJX Companies and Saia, Inc., also were winners. Saia shares were up nearly 17% since our last newsletter (through May 8). The doubters continue to say the market is overpriced and ready for a pullback. In the short term, they may be right -- no one knows when a correction might occur. But we're not concerned with short-term price movements; we're concerned with how much long-term value is out there. With that in mind, let's take a look at where the broader market's valuation stands. First off, let's examine earnings. Using the S&P 500's May 9 closing price of 1626.67 the index is trading for about 18.5 times trailing 12-month (TTM) as-reported earnings per share, and about 16.5 times TTM operating EPS. Those figures are up a good amount, from 15.9 and 14.2, respectively, since we last looked at broader market valuation back in November. Using projected earnings for the next year, the operating figure is 14.4, up from 12.7 in November, and the as-reported figure is 14.3, up just slightly from 14.1. But while all of the one-year P/Es have risen in the past six months, those valuations are far from exuberant; they're within what I'd say is the "fair value" range, particularly in a low-interest-rate environment. The S&P's price/sales ratio has also risen slightly since November, to 1.4 (from 1.3), according to Morningstar.com. Its price/book ratio has increased by the same amount, to 2.1. From 1978 through early 2011, the average S&P price/book ratio was about 2.4, according to data from Ned Davis Research and Comstock Partners, so that figure stacks up quite well. The current price/sales ratio is higher than the historical average cited by Comstock and Ned Davis. But it doesn't seem astronomical -- my James O'Shaughnessy-based growth model considers P/S ratios of up to 1.5 to be indicative of good values. Dividend yields, meanwhile, remain attractive, and have edged up slightly for the S&P since November. The index's yield is 2.3%, up from 2.2%, coming in well above the 1.81% yield on 10-year Treasury bonds -- a historical rarity. One figure that has risen rather sharply since November is the Stock Market/GDP ratio, which compares the market cap of the Wilshire Total Market Index to gross domestic product. It is now 109.2%, up from 89.5% in November, according to GuruFocus.com. That puts it in the "Modestly Overvalued" range, (90% to 115%), based on the site's analysis of historical data. The 10-year cyclically adjusted price/earnings ratio also remains high. The ratio, which uses inflation-adjusted average earnings for the past decade to smooth out short-term fluctuations, is at about 23.3, using Yale Economist Robert Shiller's earnings data. That's up rather sharply from 20.9 in November, and well above the 16.5 historical average (which dates back to 1871). As I've noted before, it may be more appropriate to look at the figure in the context of its post-World War II average, which is 18.3 (after World War II, inflation became a permanent part of the U.S. economy; since inflation eats away so significantly at fixed-income assets, investors should be willing to pay higher multiples for stocks when inflation is a factor). Either way, the current figure is high. Tobin's Q also indicates that the market is significantly overvalued. Developed by Nobel Laureate James Tobin, the "Q" Ratio is determined by dividing the total price of the stock market by the replacement cost of all of its companies. The Federal Reserve provides data needed to make the calculation in its Flow of Funds Accounts report, though that only is released once per quarter. As of the most recent report, which came at the end of the 2012 third quarter, the Q ratio was 1.02. That was significantly higher than the historical average of 0.7 using the arithmetic mean and 0.65 using the geometric mean, according to Doug Short of Advisor Perspectives. As has been the case for some time, the current Q indicates the market is significantly overvalued, but not nearly as high as it has gotten at some other market tops. So, on the whole, valuations are up -- in some cases significantly -- since we last checked in six months ago. But we're continuing to see a mix of signals, with some metrics showing the market to still be undervalued, and others showing significant overvaluation. I think Warren Buffett summed it up well when asked about valuations recently by FOX Business Network: "They're rich in some cases," Buffett said, adding, "The stock market was far more attractive obviously three or four years ago, but overall we find things to buy." We're finding plenty of things to buy, too. Take Hot List newcomer Chevron Corporation. The oil and gas giant has been growing earnings at a 16% clip over the long haul, has a 19% return on equity, and comes with a solid 3.2% dividend yield. Yet it trades for just 9.3 times TTM EPS, 1.0 times TTM sales, and has a 0.58 P/E-to-Growth ratio. Auto industry supplier Lear Corporation, meanwhile, has been growing EPS at a 24% clip over the long term, and has a 42% ROE. Yet it trades for just 8.2 times three-year average EPS, and 0.4 times TTM sales. The bottom line is that, while the broader market is no longer selling on the cheap, it appears to remain somewhere in the fair value range -- though perhaps at the higher end of that range now. More importantly, many individual companies are very cheap. Those are the firms the Hot List will continue to focus on. In the short term, anything can happen, but over the long haul, those types of shares should help the portfolio build on its strong track record.		Editor-in-Chief: John Reese Since Inception   Hot List 232.5% S&P 500 62.6% Accuracy 56.9% Beta 1.2 YTD   Hot List 22.6% S&P 500 14.1% Since Last Issue   Hot List 4.6% S&P 500 2.6% Avg. Fundamentals   Market Cap (mil) $60,595 PE Ratio 10.6 5 Yr EPS Growth 14.0% Yield 2.3% Rel. Strength 73 Portfolio Sectors Energy 5 Services 2 Consumer Cyclical 2 Conglomerates 1
Advertisement Validea Capital Management - Private Portfolio Management Based on Strategies of Legends Are you looking for an alternative to your underperforming mutual funds or financial advisor? Click here to download Validea Capital's investment kit and learn more about the firm's guru-based portfolios. Get More Information on Validea Capital! ** Validea Capital Management is a separate investment advisory firm managed by Validea.com founder John Reese. Thre information above in not intended as personal investment advice and should not be interpreted as such. The Fallen As we rebalance the Validea Hot List, 5 stocks leave our portfolio. These include: Telecom Argentina S.a. (Adr) (TEO), Statoil Asa(Adr) (STO), Saia Inc (SAIA), Western Digital Corp. (WDC) and World Acceptance Corp. (WRLD). The Keepers 5 stocks remain in the portfolio. They are: The Tjx Companies, Inc. (TJX), Usana Health Sciences, Inc. (USNA), Royal Dutch Shell Plc (Adr) (RDS.A), Lukoil (Adr) (LUKOY) and Hollyfrontier Corp (HFC). The Newbies We are adding 5 stocks to the portfolio. These include: Valero Energy Corporation (VLO), Williams-sonoma, Inc. (WSM), Netease, Inc (Adr) (NTES), Chevron Corporation (CVX) and Lear Corporation (LEA). Portfolio Changes Additions   VALERO ENERGY CORPORATION VLO WILLIAMS-SONOMA, INC. WSM NETEASE, INC (ADR) NTES CHEVRON CORPORATION CVX LEAR CORPORATION LEA Deletions   TELECOM ARGENTINA S.A. (ADR) TEO STATOIL ASA(ADR) STO SAIA INC SAIA WESTERN DIGITAL CORP. WDC WORLD ACCEPTANCE CORP. WRLD Newcomers to the Validea Hot List Lear Corporation (LEA): Michigan-based Lear supplies automotive seating and electrical power management systems. The $5.5-billion-market-cap firm has employees in 36 countries, and in the past year has taken in nearly $15 billion in sales. Lear gets strong interest from my Peter Lynch-, Kenneth Fisher, and James O'Shaughnessy-based models. For more on its fundamentals, see the "Detailed Stock Analysis" section below. Chevron Corporation (CVX): In addition to its oil and gas businesses, this California-based firm ($239 billion market cap) is involved in the lubricant, petrochemical products, geothermal energy, and biofuels markets. Over the past 12 months, it has taken in about $240 billion in sales. The firm is another favorite of my Lynch- and O'Shaughnessy-based models. For more on the stock, see the "Detailed Stock Analysis" section below. Williams-Sonoma Inc. (WSM): This San Francisco-based cookware and kitchen supply store, which also owns home products and furniture stores like Pottery Barn and West Elm, has nearly 600 stores across the U.S. and Canada. Earlier this year it announced a big boost to its dividend, as well as a significant share repurchase program. Sonoma ($5.4 billion market cap) gets strong interest from my Peter Lynch- and James O'Shaughnessy-based models. To read more about it, scroll down to the "Detailed Stock Analysis" section below. Valero Energy Corporation (VLO): This San Antonio-based oil refiner has taken in more than $137 billion in sales in the past year. It has 16 petroleum refineries, 10 ethanol plants, and a 50-megawatt wind farm among its assets. Valero ($21 billion market cap) gets strong interest from my Peter Lynch-, Joel Greenblatt-, and James O'Shaughnessy-based models. For more on the stock, see the "Detailed Stock Analysis" section below. NetEase, Inc. (NTES): This $7.6-billion-market-cap Chinese tech firm operates a number of popular online games, including World of Warcraft, as well as e-mail services, advertising services and web portals. It's been a rapid grower, increasing EPS at a 24% rate over the long haul and revenues at a 29% rate. NetEase gets high marks from my Peter Lynch- and Warren Buffett-based models. For more on its fundamentals, see the "Detailed Stock Analysis" section below. News about Validea Hot List Stocks Saia, Inc. (SAIA): Saia shares gained 17% since our last newsletter (through May 8), thanks in large part to a solid first-quarter earnings report. Saia said earnings per share were $0.55, up from $0.34 a year ago, on revenues of $274 million, which were up about 2%. The company has also lowered its debt/total capital ratio from 27.7% to 18.1% since the end of last year's first quarter. The Hot List is taking the profits on Saia, which overall was up more than 20% since joining the portfolio on April 12. 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 my strategies and investment approach. If you have any questions, please feel free to contact us at hotlist@validea.com.

Current Portfolio Ticker Company Name Industry Guru Score LUKOY LUKOIL (ADR) Oil & Gas - Integrated 100 USNA USANA HEALTH SCIENCES, INC. Conglomerates 85 VLO VALERO ENERGY CORPORATION Oil & Gas Operations 65 LEA LEAR CORPORATION Auto & Truck Parts 61 RDS.A ROYAL DUTCH SHELL PLC (ADR) Oil & Gas - Integrated 61 HFC HOLLYFRONTIER CORP Oil & Gas Operations 60 CVX CHEVRON CORPORATION Oil & Gas - Integrated 47 WSM WILLIAMS-SONOMA, INC. Furniture & Fixtures 45 NTES NETEASE, INC (ADR) Business Services 45 TJX THE TJX COMPANIES, INC. Retail (Apparel) 43 Ticker Market Cap Date Added Start Price Current Price Return LUKOY $55,634 2/15/2013 $66.54 $64.40 -3.2% USNA $758 12/21/2012 $33.83 $56.21 66.2% VLO $20,849 5/10/2013 TBD $38.23 TBD LEA $5,539 5/10/2013 TBD $59.91 TBD RDS.A $223,824 3/15/2013 $66.20 $69.23 4.6% HFC $10,046 4/12/2013 $46.83 $49.46 5.6% CVX $239,677 5/10/2013 TBD $123.64 TBD WSM $5,484 5/10/2013 TBD $56.13 TBD NTES $7,605 5/10/2013 TBD $58.57 TBD TJX $36,533 10/26/2012 $40.73 $50.69 24.5%

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 LUKOY   |   USNA   |   VLO   |   LEA   |   RDS.A   |   HFC   |   CVX   |   WSM   |   NTES   |   TJX   |   LUKOIL (ADR) Profile Strategy: Growth/Value Investor Based on: James P. O'Shaughnessy NK Lukoil OAO (Neftyanaya Kompaniya LUKOIL OAO or NK LUKOIL OJSC) is a Russia-based integrated oil and gas company. The Company is engaged in the business of oil exploration, production, refining, marketing and distribution. It is an owner of refineries, gas processing, petrochemical plants and gas stations network located in Russia, Eastern and Western Europe, as well as Africa. The Company's petroleum products are sold in the Russian Federation, the Commonwealth of Independent States (CIS) countries, Eastern and Western Europe, Asia and the United States. NK Lukoil OAO operates through numerous subsidiaries and affiliated companies. As of December 31, 2011, the Company's major shareholder was ING Bank (Eurasia) ZAO with a stake of 75.93%. In April 2013, the Company acquired a 100% of Samara-Nafta ZAO. In April 2013, the Company completed acquisition of CJSC Kama-Oil. 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. LUKOY's market cap of $55,634 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 ($1.44). LUKOY's cash flow per share of $18.24 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 (614 million shares). These are the more well known and highly traded companies. LUKOY, who has 775 million shares outstanding, passes this test. TRAILING 12 MONTH SALES: [PASS] A company's trailing 12 month sales ($139,171 million) are required to be 1.5 times greater than the mean of the market's trailing 12 month sales ($20,631 million). LUKOY 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. LUKOY, with a dividend yield of 5.65%, is one of the 50 companies that satisfy this last criterion.   USANA HEALTH SCIENCES, INC. Profile Strategy: Growth/Value Investor Based on: James P. O'Shaughnessy USANA Health Sciences, Inc. develops and manufactures science-based nutritional and personal care products. The Company has operations in 15 markets worldwide, where it distributes and sells its products by way of direct selling. The Company reports operations in two geographic regions: North America and Asia Pacific, which is further divided into three sub-regions; Southeast Asia/Pacific, Greater China, and North Asia. North America includes the United States, Canada, Mexico, and direct sales from the United States to the United Kingdom and the Netherlands. Southeast Asia/Pacific includes Australia, New Zealand, Singapore, Malaysia, and the Philippines; Greater China includes Hong Kong, Taiwan and China; and North Asia includes Japan and South Korea. The Company's customer base consists of two types of customers: Associates and Preferred Customers. As of December 31, 2011, the Company had 222,000 active Associates and 64,000 active Preferred Customers worldwide. 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. USNA, with a market cap of $758 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. USNA, whose annual EPS before extraordinary items for the last 5 years (from earliest to the most recent fiscal year) were 1.85, 2.17, 2.86, 3.26 and 4.45, 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. USNA's Price/Sales ratio of 1.14, 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. USNA, whose relative strength is 83, is in the top 50 and would pass this last criterion.   VALERO ENERGY CORPORATION Profile Strategy: Growth/Value Investor Based on: James P. O'Shaughnessy Valero Energy Corporation (Valero) is an independent petroleum refining and marketing company. Valero's refineries can produce conventional gasoline's, distillates, jet fuel, asphalt, petrochemicals, lubricants, and other refined products, as well as a slate of premium products, including conventional blendstock for oxygenate blending and reformulated gasoline blendstock for oxygenate blending, gasoline meeting the specifications of the California Air Resources Board, a diesel fuel, and low-sulfur and ultra-low-sulfur diesel fuel. It also owns 10 ethanol plants in the central plains region of the United States with a combined ethanol nameplate production capacity of about 1.1 billion gallons per year. It operates in three business segments: refining, ethanol, and retail. In May 2013, CST Brands Inc announced that the Company which includes Corner Store and Depanneur du Coin, spun off from Valero Energy Corporation. 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. VLO, with a market cap of $20,849 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. VLO, whose annual EPS before extraordinary items for the last 5 years (from earliest to the most recent fiscal year) were -2.20, -0.51, 1.62, 3.68 and 3.75, 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. VLO's Price/Sales ratio of 0.15, 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. VLO, whose relative strength is 92, is in the top 50 and would pass this last criterion.   LEAR CORPORATION Profile Strategy: Price/Sales Investor Based on: Kenneth Fisher Lear Corporation is a tier 1 supplier to the global automotive industry. The Company supplies its products to automotive manufacturers with automotive seat systems and related components, as well as electrical distribution systems and related components. The Company has two segments: seating and electrical power management systems (EPMS). The seating segment includes seat systems and related components, such as seat frames, recliner mechanisms, seat tracks, seat trim covers, headrests and seat foam. The EPMS segment includes electrical distribution systems for traditional powertrain vehicles, as well as for hybrid and electric vehicles. As of December 31, 2011, it had 20 joint ventures located throughout Asia, as well as five in North America, two in Europe and Africa and one with operations in all three regions. 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. LEA's P/S of 0.37 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. LEA's Debt/Equity of 31.45% 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. LEA 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 LEA At this Point Is LEA 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.LEA's P/S ratio of 0.37 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%. LEA's inflation adjusted EPS growth rate of 21.81% 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. LEA's free cash per share of 2.17 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. LEA, whose three year net profit margin averages 5.43%, passes this evaluation.   ROYAL DUTCH SHELL PLC (ADR) Profile Strategy: Contrarian Investor Based on: David Dreman Royal Dutch Shell plc (Shell) is an independent oil and gas company. The Company owns, directly or indirectly, investments in the numerous companies constituting Shell. Shell is engaged worldwide in the principal aspects of the oil and gas industry and also has interests in chemicals and other energy-related businesses. The Company operates in three segments: Upstream, Downstream and Corporate. Upstream combines the operating segments Upstream International and Upstream Americas, which are engaged in searching for and recovering crude oil and natural gas; the liquefaction and transportation of gas; the extraction of bitumen from oil sands that is converted into synthetic crude oil, and wind energy. Downstream is engaged in manufacturing; distribution and marketing activities for oil products and chemicals. Corporate represents the key support functions, comprising holdings and treasury, headquarters, central functions and Shells self-insurance activities. Analysis Guru Score: 84% MARKET CAP: [PASS] Medium to large-sized companies (the largest 1500 companies) should be chosen, because they are more in the public eye. Furthermore, the investor is exposed to less risk of "accounting gimmickry", and companies of this size have more staying power. RDS.A has a market cap of $223,824 million, therefore passing the test. EARNINGS TREND: [PASS] A company should show a rising trend in the reported earnings for the most recent quarters. RDS.A's EPS for the past 2 quarters, (from earliest to most recent quarter) 1.06, 2.12 have been increasing, and therefore the company passes this test. EPS GROWTH RATE IN THE IMMEDIATE PAST AND FUTURE: [PASS] This methodology likes to see companies with an EPS growth rate higher than the S&P in the immediate past and a likelihood that this trend will continue in the near future. RDS.A passes this test as its EPS growth rate over the past 6 months (85.96%) has beaten that of the S&P (-0.94%). RDS.A's estimated EPS growth for the current year is (94.81%), which indicates the company is expected to experience positive earnings growth. As a result, RDS.A passes this test. This methodology would utilize four separate criteria to determine if RDS.A is a contrarian stock. In order to eliminate weak companies we have stipulated that the stock should pass at least two of the following four major criteria in order to receive "Some Interest". P/E RATIO: [PASS] The P/E of a company should be in the bottom 20% of the overall market. RDS.A's P/E of 8.16, based on trailing 12 month earnings, meets the bottom 20% criterion (below 9.89), and therefore passes this test. PRICE/CASH FLOW (P/CF) RATIO: [PASS] The P/CF of a company should be in the bottom 20% of the overall market. RDS.A's P/CF of 5.40 meets the bottom 20% criterion (below 5.62) and therefore passes this test. PRICE/BOOK (P/B) VALUE: [FAIL] The P/B value of a company should be in the bottom 20% of the overall market. RDS.A's P/B is currently 1.16, which does not meet the bottom 20% criterion (below 0.80), and it therefore fails this test. PRICE/DIVIDEND (P/D) RATIO: [PASS] The P/D ratio for a company should be in the bottom 20% of the overall market (that is the yield should be in the top 20%). RDS.A's P/D of 19.23 meets the bottom 20% criterion (below 20.79 or yield above 3.7% ), and it therefore passes this test. This methodology maintains that investors should look for as many healthy financial ratios as possible to ascertain the financial strength of the company. These criteria are detailed below. CURRENT RATIO: [FAIL] A prospective company must have a strong Current Ratio (greater than or equal to the average of it's industry [1.33] or greater than 2). This is one identifier of financially strong companies, according to this methodology. RDS.A's current ratio of 1.18 fails the test. PAYOUT RATIO: [PASS] A good indicator that a company has the ability to raise its dividend is a low payout ratio. The payout ratio for RDS.A is 41.20%, while its historical payout ratio has been 48.65%. Therefore, it passes the payout criterion. RETURN ON EQUITY: [FAIL] The company should have a high ROE, as this helps to ensure that there are no structural flaws in the company. This methodology feels that the ROE should be greater than the top one third of ROE from among the top 1500 largest cap stocks, which is 16.83%, and would consider anything over 27% to be staggering. The ROE for RDS.A of 14.86% is not high enough to pass this criterion. PRE-TAX PROFIT MARGINS: [PASS] This methodology looks for pre-tax profit margins of at least 8%, and considers anything over 22% to be phenomenal. RDS.A's pre-tax profit margin is 10.76%, thus passing this criterion. YIELD: [PASS] The company in question should have a yield that is high and that can be maintained or increased. RDS.A's current yield is 5.20%, while the market yield is 2.63%. RDS.A passes this test. LOOK AT THE TOTAL DEBT/EQUITY: [PASS] The company must have a low Debt/Equity ratio, which indicates a strong balance sheet. The Debt/Equity ratio should not be greater than 20% or should be less than the average Debt/Equity for its industry of 31.94%. RDS.A's Total Debt/Equity of 20.03% is considered acceptable.   HOLLYFRONTIER CORP Profile Strategy: Contrarian Investor Based on: David Dreman HollyFrontier Corporation (HollyFrontier), formerly Holly Corporation, is a petroleum refiner, which produces light products, such as gasoline, diesel fuel, jet fuel, specialty lubricant products, and specialty and modified asphalt. HollyFrontier operates in two segments: Refining and Holly Energy Partners, L.P. (HEP). The Refining segment includes the operations of its El Dorado, Tulsa, Navajo, Cheyenne and Woods Cross Refineries and NK Asphalt. The HEP segment involves all of the operations of HEP. As of December 31, 2011, it operated five refineries having a combined crude oil processing capacity of 443,000 barrels per day that serve markets throughout the Mid-Continent, Southwest and Rocky Mountain regions of the United States. The Company merged with Frontier Oil Corporation (Frontier), on July 1, 2011. On November 9, 2011, HEP acquired from the Company certain tankage, loading rack and crude receiving assets located at its El Dorado and Cheyenne Refineries. Analysis Guru Score: 76% MARKET CAP: [PASS] Medium to large-sized companies (the largest 1500 companies) should be chosen, because they are more in the public eye. Furthermore, the investor is exposed to less risk of "accounting gimmickry", and companies of this size have more staying power. HFC has a market cap of $10,046 million, therefore passing the test. EARNINGS TREND: [FAIL] A company should show a rising trend in the reported earnings for the most recent quarters. HFC's EPS for the latest quarter is not greater than the prior quarter, (from earliest to most recent quarter) 2.94, 1.92. Hence the stock fails this test, but the investor should evaluate this company qualitatively to see if it qualifies under this methodology's "exception rule". EPS GROWTH RATE IN THE IMMEDIATE PAST AND FUTURE: [FAIL] This methodology likes to see companies with an EPS growth rate higher than the S&P in the immediate past and a likelihood that this trend will continue in the near future. HFC fails this test as its EPS growth rate for the past 6 months (-19.66%) does not beat that of the S&P (-0.94%). This methodology would utilize four separate criteria to determine if HFC is a contrarian stock. In order to eliminate weak companies we have stipulated that the stock should pass at least two of the following four major criteria in order to receive "Some Interest". P/E RATIO: [PASS] The P/E of a company should be in the bottom 20% of the overall market. HFC's P/E of 5.89, based on trailing 12 month earnings, meets the bottom 20% criterion (below 9.89), and therefore passes this test. PRICE/CASH FLOW (P/CF) RATIO: [PASS] The P/CF of a company should be in the bottom 20% of the overall market. HFC's P/CF of 5.02 meets the bottom 20% criterion (below 5.62) and therefore passes this test. PRICE/BOOK (P/B) VALUE: [FAIL] The P/B value of a company should be in the bottom 20% of the overall market. HFC's P/B is currently 1.66, which does not meet the bottom 20% criterion (below 0.80), and it therefore fails this test. PRICE/DIVIDEND (P/D) RATIO: [FAIL] The P/D ratio for a company should be in the bottom 20% of the overall market (that is the yield should be in the top 20%). HFC's P/D of 41.15 does not meet the bottom 20% criterion (below 20.79 or yield above 3.7%), and it therefore fails this test. This methodology maintains that investors should look for as many healthy financial ratios as possible to ascertain the financial strength of the company. These criteria are detailed below. CURRENT RATIO: [PASS] A prospective company must have a strong Current Ratio (greater than or equal to the average of it's industry [1.04] or greater than 2). This is one identifier of financially strong companies, according to this methodology. HFC's current ratio of 2.70 passes the test. PAYOUT RATIO: [PASS] A good indicator that a company has the ability to raise its dividend is a low payout ratio. The payout ratio for HFC is 30.79%, while its historical payout ratio has been 49.30%. Therefore, it passes the payout criterion. RETURN ON EQUITY: [PASS] The company should have a high ROE, as this helps to ensure that there are no structural flaws in the company. This methodology feels that the ROE should be greater than the top one third of ROE from among the top 1500 large cap stocks, which is 16.83%, and would consider anything over 27% to be staggering. The ROE for HFC of 30.69% is high enough to pass this criterion. PRE-TAX PROFIT MARGINS: [PASS] This methodology looks for pre-tax profit margins of at least 8%, and considers anything over 22% to be phenomenal. HFC's pre-tax profit margin is 13.88%, thus passing this criterion. YIELD: [FAIL] The company in question should have a yield that is high and that can be maintained or increased. HFC's current yield is 2.43%, while the market yield is 2.63%. HFC fails this test. LOOK AT THE TOTAL DEBT/EQUITY: [PASS] The company must have a low Debt/Equity ratio, which indicates a strong balance sheet. The Debt/Equity ratio should not be greater than 20% or should be less than the average Debt/Equity for its industry of 34.13%. HFC's Total Debt/Equity of 22.08% is considered acceptable.   CHEVRON CORPORATION Profile Strategy: P/E/Growth Investor Based on: Peter Lynch 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 petroleum operations, chemicals operations, mining operations, power generation and energy services. Upstream operations consist primarily of exploring for, developing and producing crude oil and natural gas; processing, liquefaction, transportation and regasification associated with liquefied natural gas; transporting crude oil by international oil export pipelines; transporting, storage and marketing of natural gas; and a gas-to-liquids project. Downstream operations consist primarily of refining crude oil into petroleum products; marketing of crude oil and refined products; transporting crude oil by pipeline, motor equipment and rail car, and manufacturing and marketing of commodity petrochemicals, plastics for industrial uses and fuel and lubricant additives. Analysis Guru Score: 93% DETERMINE THE CLASSIFICATION: CVX is considered a "True Stalwart", according to this methodology, as its earnings growth of 16.05% lies within a moderate 10%-19% range and its annual sales of $238,022 million are greater than the multi billion dollar level. This methodology looks for the "Stalwart" securities to gain 30%-50% in value over a two year period if they can be purchased at an attractive price based on the P/E to Growth ratio. CVX is attractive if CVX can hold its own during a recession. 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 CVX was 2.18% last year, while for this year it is 2.54%. 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 (0.35%) is below 5%. YIELD ADJUSTED P/E TO GROWTH (PEG) RATIO: [PASS] The Yield-adjusted P/E/G ratio for CVX (0.48), based on the average of the 3, 4 and 5 year historical eps growth rates, is excellent. EARNINGS PER SHARE: [PASS] The EPS for a stalwart company must be positive. CVX's EPS ($13.23) would satisfy this criterion. TOTAL DEBT/EQUITY RATIO: [PASS] This methodology would consider the Debt/Equity ratio for CVX (10.09%) 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 CVX (0.42%) 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 CVX (4.10%) 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.   WILLIAMS-SONOMA, INC. Profile Strategy: Price/Sales Investor Based on: Kenneth Fisher Williams-Sonoma, Inc. is a multi-channel specialty retailer of products for the home. The direct-to-customer segment of the Company's business sells its products through its six e-commerce Websites (williams-sonoma.com, potterybarn.com, potterybarnkids.com, pbteen.com, westelm.com and rejuvenation.com) and seven direct-mail catalogs (Williams-Sonoma, Pottery Barn, Pottery Barn Kids, Pottery Barn Bed and Bath, PBteen, West Elm and Rejuvenation). Its e-commerce platform is available to customers in more than 75 countries, while its catalogs reach customers throughout the United States. The retail segment of its business sells products through its five retail store concepts (Williams-Sonoma, Pottery Barn, Pottery Barn Kids, West Elm and Rejuvenation). As of January 29, 2012, it operated 576 stores in 44 states, Washington, D.C., Canada and Puerto Rico. On November 1, 2011, the Company acquired Rejuvenation Inc. 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. WSM's P/S ratio of 1.36 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. WSM's Debt/Equity of 0.42% 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. WSM 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 WSM At this Point Is WSM 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, WSM, who has a P/S of 1.36, 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%. WSM's inflation adjusted EPS growth rate of 41.93% 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. WSM's free cash per share of 0.70 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. WSM, whose three year net profit margin averages 6.14%, passes this evaluation.   NETEASE, INC (ADR) Profile Strategy: Growth Investor Based on: Martin Zweig NetEase, Inc. is a holding company. The Company is an Internet technology company. The Company provides its Internet and wireless value-added applications, services and technologies and advertising services to Guangzhou NetEase and Guangyitong Advertising and they operate the NetEase Websites and the online advertising business. Guangzhou NetEase has two majority-owned subsidiaries, Youdao Computer (a search business operator) and Wangyibao (the operator of its Wangyibao payment system). Through its subsidiaries and contracts with its affiliates Guangzhou NetEase, Guangyitong Advertising and Shanghai EaseNet and their respective shareholders, it operates an interactive online community in China and are a provider of Chinese language content and services through its online games, Internet portal and wireless value-added services businesses. During the year ended December 31, 2011, it developed its online games and advertising business. 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 12.98, based on trailing 12 month earnings, while the current market PE is 18.00. 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 29.01%, while it's earnings growth rate is 24.25%, based on the average of the 3, 4 and 5 year historical eps growth rates. Therefore, NTES 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 (16.5%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (8.2%) of the current year. Sales growth for the prior must be greater than the latter. For NTES 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. NTES's EPS ($1.25) 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 ($0.05) 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 2,400.00% 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 12.12%. This should be less than the growth rates for the 3 previous quarters which are 0.00%, 0.00% and 25.00%. 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, 8.33%, (versus the same three quarters a year earlier) is less than the growth rate of the current quarter earnings, 2,400.00%, (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, 2,400.00% must be greater than or equal to the historical growth which is 24.25%. 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 0.08, 0.09, 0.11, 0.16 and 0.18, 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 24.25%, 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 (135.03%) and passes this test.   THE TJX COMPANIES, INC. Profile Strategy: Growth/Value Investor Based on: James P. O'Shaughnessy The TJX Companies, Inc. (TJX) is the off-price apparel and home fashions retailer in the United States and worldwide. As of January 28, 2012, the Company operated in four business segments. It has two segments in the United States, Marmaxx (T.J. Maxx and Marshalls) and HomeGoods; one in Canada, TJX Canada (Winners, Marshalls and HomeSense) and one in Europe, TJX Europe (T.K. Maxx and HomeSense). As a result of the consolidation of the A.J. Wright chain, all A.J. Wright stores ceased operations by the end of February 2011. It completed the consolidation of A.J. Wright, converting 90 of the A.J. Wright stores to T.J. Maxx, Marshalls or HomeGoods banners and closed the remaining 72 stores, two distribution centers and home office. In December 2012, the Company acquired Sierra Trading Post, an off-price Internet retailer. Analysis Guru Score: 75% 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. TJX, with a market cap of $36,533 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. TJX, whose annual EPS before extraordinary items for the last 5 years (from earliest to the most recent fiscal year) were 1.04, 1.42, 1.65, 1.93 and 2.55, 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. TJX's Price/Sales ratio of 1.41, based on trailing 12 month sales, passes this criterion. RELATIVE STRENGTH: [FAIL] 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. TJX has a relative strength of 70. This does not pass the final criterion. As a result, this methodology would not consider the stock even though it passed the previous three criteria.   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 NUS NU SKIN ENTERPRISES, INC. Personal & Household Prods. 56 MPC MARATHON PETROLEUM CORP Oil & Gas Operations 51 STMP STAMPS.COM INC. Retail (Catalog & Mail Order) 50 SLM SLM CORP Consumer Financial Services 46 ROST ROSS STORES, INC. Retail (Apparel) 45 STO STATOIL ASA(ADR) Oil & Gas - Integrated 43 DLTR DOLLAR TREE, INC. Retail (Department & Discount) 43 TSO TESORO CORPORATION Oil & Gas Operations 42 CEO CNOOC LIMITED (ADR) Oil & Gas Operations 39 WNR WESTERN REFINING, INC. Oil & Gas Operations 39

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