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Executive Summary	September 3, 2010

The Economy While individual investors continue to run from stocks, a good deal of recent economic data has been solid -- and in some cases, quite good. A good example is the manufacturing sector. It expanded in August for the 13th straight month, according to the Institute for Supply Management. In fact, manufacturing growth actually accelerated, with ISM's manufacturing index rising to 56.3, up from 55.5 in July. (A reading above 50 indicates expansion.) The group's employment sub-index also grew at an accelerating rate, rising to 60.4 in August -- its highest level since December 1983. Another good sign: Retail sales figures came in stronger than expected in August. Same-store sales (those at stores open more than a year) rose 3.3% for the month, exceeding July's 2.7% increase, according to The Wall Street Journal. New Commerce Department data also showed that consumer spending increased in July at its swiftest pace since March, though the 0.4% gain wasn't exactly eye-popping. The manufacturing and consumer news was particularly encouraging giving that it came on the heels of a government report showing that gross domestic product grew in the first quarter at a slower pace (1.6%) than initially thought (2.5%). There was also decent news on the employment front, as new claims for unemployment dipped slightly in the week ending Aug. 28, according to the Labor Department. But claims remain quite elevated by historical standards. Today's August unemployment report will offer a broader picture of whether the labor market is improving. In the financial sector -- the epicenter of the 2008 crisis and market crash -- news has been mixed. Bank profits totaled $21.6 billion in the second quarter after being in the red a year earlier, the Journal reported, and the number of loans past due by at least three months fell for the first time since 2006. The number of loans that banks charged off also declined in most major categories, the Journal reported. But while larger, government-aided banks are faring well, smaller banks are struggling. A new Federal Deposit Insurance Corporation report put more than 10% of U.S. banks on FDIC's "problem list", and smaller banks are increasingly making up a bigger portion of that list, according to the Journal. Lending also remains tight, with loan balances falling in the second quarter. The housing market -- another area at the center of the 2008 crisis -- got good news this week, as it was announced that the S&P/Case-Shiller home price index rose in June. Pending home sales also increased, with a National Association of Realtors' index rising 5.2% for July. But the announcement of that minor increase follows a 27.2% plunge in existing home sales for July. All in all, the housing market's status is very hard to gauge. Many buyers pushed hard to get their deals done by the end of June to take advantage of the government's homebuyer tax credit program, which was supposed to expire at that point (though it has since been extended). The impact of the tax credit, as well as the two-month lag time in home price data reporting, makes it pretty futile to try to draw any major conclusions about the housing market's direction right now. The stock market digested all of this with some major ups and downs over the past fortnight. The S&P 500 returned 1.3%, while the Hot List returned 3.1%. For the year, the portfolio stands at -7.0% vs. -2.2% for the S&P. Since its inception in July 2003, the Hot List is far outpacing the index, having gained 124.1% vs. the S&P's 9.0% gain. The Corrections In the past couple newsletters, I've taken a look at how past economic recoveries have proceeded, examining how key indicators like GDP, unemployment, and manufacturing activity fared during some previous turnarounds. The main trend in those analyses was that recoveries don't occur in a straight line; there are ups and downs and plateaus along the way, so a slowdown in a recovery -- which we've seen over the past couple months -- is by no means a sure sign that a new downturn is imminent, or even likely. This week, I thought we'd look in a similar way at how past bull markets have developed, to see what has happened historically after a bull run first hits trouble (as it has recently). To do so, I examined four bull markets (using the S&P 500) that cross a wide span: those that started in 1957, 1974, 1982, and 2002. Let's take the earliest first. The 1957 bull began in October, running for nearly two years before hitting a rough patch. From August 1959 to late October of 1960 -- a span of more than 14 months -- it went into correction mode, losing 14.0% in a series of stops and starts. Then, however, the bull resumed, with the market gaining close to 40% over the next 13-and-a-half months before the bull ended in late 1961. The bull market that followed the steep 1973-74 bear was much more eventful. It started in October 1974, and featured five corrections during its six-year run (and that's not including another big dip that wasn't quite a correction). Here's how it went: 1974-80 Bull Market (Start: Oct. 3, 1974) First Leg: +20.8% (13 months) Correction: -13.6% (1 month) Second Leg: +47.1% (7 months) Correction: -14.1% (2 months) Third Leg: +31.4% (12 months) Correction -19.4% (5.5 months) Fourth Leg: +28.0% (19 months) Correction: -10.2% (1 month) Fifth Leg: +18.6% (3 months) Correction: -17.1% (1.5 months) Sixth Leg: +43.1% (8 months) Bull market ends, Nov. 28, 1980 A six-correction bull market certainly isn't the norm, but the '74-'80 bull shows just how topsy-turvy a bull can be. Many other bulls, however, are closer to the 1957-61 version, with just one correction (and several other 5%-10% dips). One example is the bull that followed the 1980-82 bear. It started in mid-August of '82, and ran for nearly 70% and 14 months before correcting. It then lost 14.4% over a nine-and-a-half-month span, before the second leg of the bull took hold. It took the market up another 127.8% over more than three years until the bull finally died. Another one-correction bull is the most recent bull, which ran from 2002-2007. It started in October of 2002, with the S&P gaining 20.9% over its first month-and-a-half. The market then ran into a correction, falling 14.7% in a three-and-a-half-month span. Then came Leg #2 of the bull, which featured several minor dips but ended up taking the S&P up more than 95% over the next four-and-a-half years. This is a lot of data, but it all boils down to this: Bull markets aren't smooth and easy. In fact, every bull market of the past 50 years has had at least one correction of at least 10%. And as you can see, some have multiple corrections, and sometimes the corrections can be long -- even over a year. In that context, the recent correction -- which, using the July 2 low, was a 16.0% decline in a little over two months -- certainly isn't unusual. In fact, Kenneth Fisher -- one of the gurus upon whom I base one of my best-performing strategies -- recently said this correction has been "textbook", and the numbers indicate he may well be right. Many investors, however, continue to focus on more recent history, staying away from stocks in part because of the broader market's poor performance over the past decade. They see the correction as the start of another big, lengthy move downward. But in succumbing to this "recency bias", they are ignoring the fact that many of the market conditions that led to the poor decade of returns for stocks -- including bloated valuations and easy, bubble-forming credit for just about anyone -- aren't present right now. What are present, however, are a number of strong, streamlined firms whose shares are trading at reasonable -- or cheap -- prices. And the Hot List is pouncing on some of them. Consider the balance sheets of the companies in the portfolio right now. One of the tests that the late, great Benjamin Graham used while looking for good investments was the ratio of a firm's long-term debt to its net current assets (current assets minus current liabilities). Essentially, this tells you whether a company could pay off all its liabilities if it were liquidated today. It's a tough standard to meet, but currently, seven of the eight non-financial stocks in the Hot List do just that -- in fact, seven of the eight have more than double as much in net current assets as they do in long-term debt. (The lone stock not to pass this test is newcomer GameStop, which falls just short; it has $431 million in net current assets and $448 million in long-term debt.) Financial firms, of course, tend to carry high debt levels because of the nature of their businesses. So for the two financial firms in the portfolio, let's look at two measures that the great Peter Lynch used on financials: the equity/assets ratio, which measures financial health, and the return on assets rate, which measures profitability. The model I base on Lynch's writings requires E/A ratios of at least 5% and ROAs of at least 1%. HealthSpring and Cash America both have E/As over 50% and ROAs of at least 8%, passing those tests with flying colors. The firms in the portfolio have also been producing strong growth in earnings and sales, averaging long-term EPS growth rates of about 30% and long-term revenue growth rates close to 20% -- and only one trades for more than 15 times trailing 12-month earnings, despite their strong growth. (That's Dollar Tree, which trades for about 17.5 times TTM earnings, but still has a solid P/E/Growth ratio of 0.83.) Whatever happens to the economy and the market in the short term, strategies that focus on stocks and businesses like these are a good bet to do well over the long haul. That's how the gurus achieved such outstanding success, and it's how the Hot List continues to stay far ahead of the market over the long run.		Editor-in-Chief: John Reese Since Inception   Hot List 124.1% S&P 500 9.0% Accuracy 55.8% Beta 1.2 YTD   Hot List -7.0% S&P 500 -2.2% Since Last Issue   Hot List 3.1% S&P 500 1.3% Avg. Fundamentals   Market Cap (mil) $10,438 PE Ratio 10.6 5 Yr EPS Growth 28.6% Yield 2.2% Rel. Strength 59 Portfolio Sectors Services 5 Financial 2 Healthcare 1 Technology 1 Consumer Cyclical 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, 3 stocks leave our portfolio. These include: Ezcorp, Inc. (EZPW), Chevron Corporation (CVX) and Lululemon Athletica Inc. (LULU). The Keepers 7 stocks remain in the portfolio. They are: Ross Stores, Inc. (ROST), Western Digital Corp. (WDC), Cash America International, Inc. (CSH), Jos. A. Bank Clothiers, Inc. (JOSB), Aeropostale, Inc. (ARO), China Automotive Systems, Inc. (CAAS) and Healthspring, Inc (HS). The Newbies We are adding 3 stocks to the portfolio. These include: Sanofi-aventis Sa (Adr) (SNY), Gamestop Corp. (GME) and Dollar Tree, Inc. (DLTR). Portfolio Changes Additions   SANOFI-AVENTIS SA (ADR) SNY GAMESTOP CORP. GME DOLLAR TREE, INC. DLTR Deletions   EZCORP, INC. EZPW CHEVRON CORPORATION CVX LULULEMON ATHLETICA INC. LULU Newcomers to the Validea Hot List Sanofi-Aventis SA (SNY): Headquartered in Paris with operations in more than 100 countries, Sanofi makes a wide array of drugs, including Allegra (allergies), Ambien CR (a prescription sleeping aid), and Plavix (used to prevent blood clots). The $78 billion market cap firm -- which is attempting to take over biotech firm Genzyme -- has taken in more than $40 billion in sales in the past year. Sanofi-Aventis gets strong interest from my Benjamin Graham-, Peter Lynch-, and James O'Shaughnessy-based models. To read more about the stock, check out the "Detailed Stock Analysis" section below. GameStop Corp. (GME): The world's largest video game retailer, GameStop sells all sorts of Nintendo, Xbox, and PlayStation games and game units, as well as a variety of computer games. The Texas-based company has more than 6,000 stores in the U.S. and 17 other countries, operating under the GameStop, EB Games, and Electronics Boutique names. The firm has a $2.7 billion market cap, and has taken in more than $9 billion in sales over the past 12 months. GameStop gets approval from my Peter Lynch- and Joel Greenblatt-based strategies. To find out more about the stock's fundamentals, see the "Detailed Stock Analysis" section below. Dollar Tree, Inc. (DLTR): Based in Virginia, Dollar Tree's stores offer a wide variety of discount merchandise, ranging from food items to household goods to toys to lawn- and garden-related items. It has a market cap of about $5.8 billion, and has taken in more than $5.5 billion in sales in the past year. Dollar Tree gets approval from my Peter Lynch- and James O'Shaughnessy-based models. To read more about it, check out the "Detailed Stock Analysis" section below. News about Validea Hot List Stocks Jos. A. Bank Clothiers (JOSB): On Sept. 1, Bank said second-quarter earnings rose almost 32% vs. the year-ago quarter, the Baltimore Business Journal reported. Revenues increased by 12% over the same period a year earlier, and both profit and revenue results beat analysts' expectations, according to the BBJ. HealthSpring, Inc. (HS): HealthSpring will acquire Baltimore-based Medicare Advantage plan operator Bravo Health Inc. for $545 million, the Associated Press reported on Aug. 27. Bravo has 100,000 Medicare Advantage members in the mid-Atlantic region and Texas, as well as stand-alone Medicare prescription drug plans in 43 states that serve close to 300,000 customers, AP reported. HealthSpring says the deal will help it expand into new markets, and says if the deal closes before year-end, it should add $0.45 to $0.55 to its 2011 earnings per share. 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 JOSB JOS. A. BANK CLOTHIERS, INC. Retail (Apparel) 85 ARO AEROPOSTALE, INC. Retail (Apparel) 81 HS HEALTHSPRING, INC Insurance (Accident & Health) 75 WDC WESTERN DIGITAL CORP. Computer Storage Devices 72 ROST ROSS STORES, INC. Retail (Apparel) 68 CAAS CHINA AUTOMOTIVE SYSTEMS, INC. Auto & Truck Parts 67 SNY SANOFI-AVENTIS SA (ADR) Biotechnology & Drugs 58 GME GAMESTOP CORP. Retail (Technology) 57 DLTR DOLLAR TREE, INC. Retail (Department & Discount) 57 CSH CASH AMERICA INTERNATIONAL, INC. Misc. Financial Services 54 Ticker Market Cap Date Added Start Price Current Price Return JOSB $1,126 6/11/2010 $40.16 $40.89 1.8% ARO $2,040 8/6/2010 $24.86 $21.81 -12.3% HS $1,243 5/14/2010 $17.18 $21.73 26.5% WDC $5,978 7/9/2010 $31.59 $26.07 -17.5% ROST $6,373 8/6/2010 $50.22 $52.20 3.9% CAAS $433 4/16/2010 $21.39 $15.96 -25.4% SNY $77,500 9/3/2010 TBD $29.70 TBD GME $2,782 9/3/2010 TBD $18.50 TBD DLTR $5,954 9/3/2010 TBD $46.90 TBD CSH $947 8/6/2010 $32.74 $32.24 -1.5%

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 JOSB   |   ARO   |   HS   |   WDC   |   ROST   |   CAAS   |   SNY   |   GME   |   DLTR   |   CSH   |   JOS. A. BANK CLOTHIERS, INC. Profile Strategy: Growth/Value Investor Based on: James P. O'Shaughnessy Jos. A. Bank Clothiers, Inc. (Jos. A. Bank) is a designer, manufacturer, retailer and direct marketer (through stores, catalog and Internet) of men's tailored and casual clothing and accessories. The Company sells substantially all of its products exclusively under the Jos. A. Bank label through its 473 retail stores (as of January 30, 2010, which includes seven outlet stores and 13 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. Jos. A. Bank operates through two segments: Stores and Direct Marketing. The Company's Stores segment consists of its 453 Full-line Stores. The Company opened 14 stores (and closed one store) during the fiscal year ended January 30, 2010 (fiscal 2009). The Company's Direct Marketing segment consists of its Internet and catalog channels. 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. JOSB, with a market cap of $1,126 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. JOSB, whose annual EPS before extraordinary items for the last 5 years (from earliest to the most recent fiscal year) were 1.30, 1.57, 1.82, 2.11 and 2.56, 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. JOSB's Price/Sales ratio of 1.39, 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. JOSB, whose relative strength is 78, is in the top 50 and would pass this last criterion.   AEROPOSTALE, INC. Profile Strategy: Patient Investor Based on: Warren Buffett Aeropostale, Inc. is a mall-based specialty retailer of casual apparel and accessories. The Company designs, markets and sells its own brand of merchandise principally targeting 14 to 17 year-old young women and young men. The Company also sells Aropostale merchandise through its e-commerce Website, www.aeropostale.com. During the fiscal year ended January 30, 2010 (fiscal 2009), the Company launched P.S. from Aeropostale, which offers casual clothing and accessories focused on elementary school children between the ages of 7 and 12. During fiscal 2009, the Company completed the closure of its 14 store Jimmy'Z concept. Jimmy'Z Surf Co., Inc., a wholly owned subsidiary of Aeropostale, Inc., was a contemporary lifestyle brand targeting young women and men aged 18 to 25. Analysis Guru Score: 100% STAGE 1: "Is this a Buffett type company?" A bedrock principle for Buffett is that his type of company has a "durable competitive advantage" as compared to being a "price competitive" or "commodity" type of business. Companies with a "durable competitive advantage" are more likely to be found in these sub-industries: Brand Name Fast Food Restaurants, Brand Name Beverages, Brand Name Foods, Brand Name Toiletries and Household Products, Brand Name Clothing, Brand Name Prescription Drugs, Advertising, Advertising Agencies, TV, Newspapers, Magazines, Direct Mail, Repetitive Services for Businesses, Low Cost Producers of Insurance, furniture, or Low Cost Retailers. While you should be easily able to explain where the company's pricing power comes from (i.e. a strong regional brand image, a business tollgate, its main products are #1 or # 2 in its field and has been on the market for years and hasn't changed at all, a consumer or business ends up buying the same product many times in a year, etc. or having the lowest production cost among its competition), there are certain figures that one can look at that can qualify the company as having a durable competitive advantage. LOOK FOR EARNINGS PREDICTABILITY: [PASS] Buffett likes companies to have solid, stable earnings that are continually expanding. This allows him to accurately predict future earnings. Annual earnings per share from earliest to most recent were 0.08, 0.23, 0.24, 0.41, 0.65, 0.67, 0.88, 1.15, 1.47, 2.27. Buffett would consider ARO's earnings predictable. In fact EPS have increased every year. ARO's long term historical EPS growth rate is 33.6%, based on the average of the 3, 4 and 5 year historical eps growth rates, and it is expected to grow earnings 13.8% per year in the future, based on the analysts' consensus estimated long term growth rate. For the purposes of our analysis, we will use the more conservative of the two EPS growth numbers. LOOK AT THE ABILITY TO PAY OFF DEBT [PASS] Buffett likes companies that are conservatively financed. Nonetheless, he has invested in companies with large financing divisions and in firms with rather high levels of debt. ARO has no long term debt and therefore would pass this criterion. LOOK FOR CONSISTENTLY HIGHER THAN AVERAGE RETURN ON EQUITY: [PASS] Buffett likes companies with above average return on equity of at least 15% or better, as this is an indicator that the company has a durable competitive advantage. US corporations have, on average, returned about 12% on equity over the last 30 years. The average ROE for ARO, over the last ten years, is 32.9%, which is high enough to pass. It is not enough that the average be at least 15%. For each of the last 10 years, with the possible exception of the last fiscal year, the ROE must be at least 10% for Buffett to feel comfortable that the ROE is consistent. In addition, the average ROE over the last 3 years must also exceed 15%. The ROE for the last 10 years, from earliest to latest, is 24.3%, 34.7%, 22.5%, 28.0%, 34.1%, 28.5%, 32.8%, 58.4%, 41.7%, 49.1%, and the average ROE over the last 3 years is 49.7%, thus passing this criterion. LOOK FOR CONSISTENTLY HIGHER THAN AVERAGE RETURN ON TOTAL CAPITAL: [PASS] Because some companies can be financed with debt that is many times their equity, they can show a consistently high ROE, yet still be in unattractive price competitive businesses. To screen this out, for non-financial companies Buffett also requires that the average Return On Total Capital (ROTC) be at least 12% and consistent. In addition, the average ROTC over the last 3 years must also exceed 12%. Return On Total Capital is defined as the net earnings of the business divided by the total capital in the business, both equity and debt. The average ROTC for ARO, over the last ten years, is 35.4% and the average ROTC over the past 3 years is 49.7%, which is high enough to pass. It is not enough that the average be at least 12%. For each of the last 10 years, with the possible exception of the last fiscal year, the ROTC must be at least 9% for Buffett to feel comfortable that the ROTC is consistent. The ROTC for the last 10 years, from earliest to latest, is 24.3%, 34.7%, 22.5%, 28.0%, 34.1%, 28.5%, 32.8%, 58.4%, 41.7%, 49.1%, thus passing this criterion. LOOK AT CAPITAL EXPENDITURES: [PASS] Buffett likes companies that do not have major capital expenditures. That is, he looks for companies that do not need to spend a ton of money on major upgrades of plant and equipment or on research and development to stay competitive. ARO's free cash flow per share of $2.78 is positive, indicating that the company is generating more cash that it is consuming. This is a favorable sign, and so the company passes this criterion. LOOK AT MANAGEMENT'S USE OF RETAINED EARNINGS: [PASS] Buffett likes to see if management has spent retained earnings in a way that benefits shareholders. To figure this out, Buffett takes the total amount of retained earnings over the previous ten years of $8.05 and compares it to the gain in EPS over the same period of $2.19. ARO's management has proven it can earn shareholders a 27.2% return on the earnings they kept. This return is more than acceptable to Buffett. Essentially, management is doing a great job putting the retained earnings to work. HAS THE COMPANY BEEN BUYING BACK SHARES: [BONUS PASS] Buffett likes to see falling shares outstanding, which indicates that the company has been repurchasing shares. This indicates that management has been using excess capital to increase shareholder value. ARO's shares outstanding have fallen over the past five years from 121,610,001 to 95,000,000, thus passing this criterion. This is a bonus criterion and will not adversely affect the ability of a stock to pass the strategy as a whole if it is failed. The preceding concludes Buffett's qualitative analysis. If and when he gets positive responses to all the above criteria, he would then proceed with a price analysis. The price analysis will determine whether or not the stock should be bought. The following is how he would evaluate ARO quantitatively. STAGE 2: "Should I buy at this price?" Although a firm may be a Buffett type company, he won't invest in it unless he can get a favorable price that allows him a great long term return. CALCULATE THE INITIAL RATE OF RETURN: [No Pass/Fail] Buffett compares his type of stocks to bonds, and likes to see what a company's initial rate of return is. To calculate the initial rate of return, take the trailing 12-month EPS of $2.45 and divide it by the current market price of $21.81. An investor, purchasing ARO, could expect to receive a 11.23% initial rate of return. Furthermore, he or she could expect the rate to increase 13.8% per year, based on the analysts' consensus estimated long term growth rate, as this is how fast earnings are growing. COMPARE THE INITIAL RATE OF RETURN WITH THE LONG-TERM TREASURY YIELD: [PASS] Buffett favors companies in which the initial rate of return is around the long-term treasury yield. Nonetheless, he has invested in companies with low initial rates of return, as long as the yield is expected to expand rapidly. Currently, the long-term treasury yield is about 3.47%. Compare this with ARO's initial yield of 11.23%, which will expand at an annual rate of 13.8%, based on the analysts' consensus estimated long term growth rate. The company is the better choice, as the initial rate of return is close to or above the long term bond yield and is expanding. CALCULATE THE FUTURE EPS: [No Pass/Fail] ARO currently has a book value of $4.85. It is safe to say that if ARO can preserve its average rate of return on equity of 32.9% and continues to retain 100.00% of its earnings, it will be able to sustain an earnings growth rate of 32.9% and it will have a book value of $83.11 in ten years. If it can still earn 32.9% on equity in ten years, then expected EPS will be $27.32. CALCULATE THE FUTURE STOCK PRICE BASED ON THE AVERAGE ROE METHOD: [No Pass/Fail] Now take the expected future EPS of $27.32 and multiply them by the lower of the 5 year average P/E ratio (13.2) or current P/E ratio (current P/E in this case), which is 8.9 and you get ARO's projected future stock price of $242.86. CALCULATE THE EXPECTED RATE OF RETURN BASED ON THE AVERAGE ROE METHOD: [No Pass/Fail] Now add in the total expected dividend pool to be paid over the next ten years, which is $0.00. This gives you a total dollar amount of $242.86. These numbers indicate that one could expect to make a 27.3% average annual return on ARO's stock at the present time. Buffett would consider this an absolutely fantastic expected return. CALCULATE THE EXPECTED FUTURE STOCK PRICE BASED ON AVERAGE EPS GROWTH: [No Pass/Fail] If you take the EPS growth of 13.8%, based on the analysts' consensus estimated long term growth rate, you can project EPS in ten years to be $8.94. Now multiply EPS in 10 years by the lower of the 5 year average P/E ratio (13.2) or current P/E ratio (current P/E in this case), which is 8.9. This equals the future stock price of $79.48. Add in the total expected dividend pool of $0.00 to get a total dollar amount of $79.48. CALCULATE THE EXPECTED RETURN USING THE AVERAGE EPS GROWTH METHOD: [No Pass/Fail] Now you can figure out your expected return based on a current price of $21.81 and the future expected stock price, including the dividend pool, of $79.48. If you were to invest in ARO at this time, you could expect a 13.8% average annual return on your money. Buffett likes to see a 15% return, but nonetheless would accept this return. LOOK AT THE RANGE OF EXPECTED RATE OF RETURN: [PASS] Based on the two different methods, you could expect an annual compounding rate of return somewhere between 13.8% and 27.3%. To pinpoint the average return a little better, we have taken an average of the two different methods. Investors could expect an average return of 20.5% on ARO stock for the next ten years, based on the current fundamentals. Buffett would consider this a great return, thus passing the criterion.   HEALTHSPRING, INC Profile Strategy: Growth/Value Investor Based on: James P. O'Shaughnessy HealthSpring, Inc. (HealthSpring) is a managed care organization with a primary focus on Medicare, the federal government-sponsored health insurance program for United States citizens aged 65 and older, qualifying disabled persons and persons suffering from end-stage renal disease. As of December 31, 2009, the Company operated coordinated care Medicare Advantage plans in Alabama, Florida, Illinois, Mississippi, Tennessee, and Texas. As of January 1, 2010, it also commenced operations of Medicare Advantage plans in three counties in Northern Georgia. As of December 31, 2009, the Company's Medicare Advantage plans had over 189,000 members. The Company also offers prescription drug benefits in accordance with Medicare Part D to its Medicare Advantage plan members, in addition to providing other medical benefits (MA-PD) plans. It also offers prescription drug benefits nationally on a stand-alone basis in accordance with Medicare Part D (PDP). 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. HS, with a market cap of $1,243 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. HS, whose annual EPS before extraordinary items for the last 5 years (from earliest to the most recent fiscal year) were 0.24, 1.44, 1.51, 2.12 and 2.41, 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. HS's Price/Sales ratio of 0.43, 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. HS, whose relative strength is 88, is in the top 50 and would pass this last criterion.   WESTERN DIGITAL CORP. Profile Strategy: Price/Sales Investor Based on: Kenneth Fisher Western Digital Corporation (WD) designs, develops, manufactures and sells hard drives. It sells its products worldwide to original equipment manufacturers (OEMs) and original design manufacturers (ODMs) for use in computer systems, subsystems or consumer electronics (CE) devices, and to distributors, resellers and retailers. Its hard drives are used in desktop computers, notebook computers, and enterprise applications such as servers, workstations, network attached storage, storage area networks and video surveillance equipment. Its hard drives are used in CE applications, such as digital video recorders (DVRs), and satellite and cable set-top boxes (STBs). It also sells its hard drives as stand-alone storage products by integrating them into finished enclosures, embedding application software and offering the products as WD-branded external storage appliances for personal data backup and portable or expanded storage of digital music, video and other digital data. 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. WDC's P/S of 0.61 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. WDC's Debt/Equity of 8.49% is acceptable, thus passing the test. PRICE/RESEARCH RATIO: [PASS] This methodology considers Technology and Medical companies with low Price/Research ratios to be attractive. This ratio indicates how much a market values a company's Research and Development (R&D). Companies with Price/Research ratios between 5 and 10 are bargains and considered attractive.WDC's Price/Research ratio of 9.78 is considered favorable. PRELIMINARY GRADE: Some Interest in WDC At this Point Is WDC 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.WDC's P/S ratio of 0.61 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%. WDC's inflation adjusted EPS growth rate of 35.77% 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. WDC's free cash per share of 5.17 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. WDC, whose three year net profit margin averages 10.36%, passes this evaluation.   ROSS STORES, INC. Profile Strategy: Growth Investor Based on: Martin Zweig Ross Stores, Inc. operates two chains of off-price retail apparel and home accessories stores. As of January 30, 2010, the Company operated a total of 1,005 stores, of which 953 were Ross Dress for Less (Ross) locations in 27 states and Guam and 52 were dd's DISCOUNTS stores in four states. Both chains target women and men between the ages of 18 and 54. Ross target customers are primarily from middle income households, while the dd's DISCOUNTS target customer is from more moderate income households. Ross offers name brand and designer apparel, accessories, footwear, and home fashions for the entire family at everyday savings of 20% to 60% off department and specialty store regular prices. dd's DISCOUNTS features a moderately-priced assortment of name brand apparel, accessories, footwear, and home fashions for the entire family at everyday savings of 20% to 70% off moderate department and discount store regular prices. Analysis Guru Score: 77% 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. ROST's P/E is 12.32, based on trailing 12 month earnings, while the current market PE is 16.00. Therefore, it passes the first test. REVENUE GROWTH IN RELATION TO EPS GROWTH: [FAIL] 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. ROST's revenue growth is 9.89%, while it's earnings growth rate is 26.69%, based on the average of the 3, 4 and 5 year historical eps growth rates. Therefore, ROST fails 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 (8.1%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (14.4%) of the current year. Sales growth for the prior must be greater than the latter. For ROST 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. ROST's EPS ($1.07) pass this test. QUARTERLY EARNINGS ONE YEAR AGO: [PASS] The EPS for the quarter one year ago must be positive. ROST's EPS for this quarter last year ($0.82) 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. ROST's growth rate of 30.49% passes this test. EARNINGS GROWTH RATE FOR THE PAST SEVERAL QUARTERS: [PASS] Compare the earnings growth rate of the previous three quarters with long-term EPS growth rate. Earnings growth in the previous 3 quarters should be at least half of the long-term EPS growth rate. Half of the long-term EPS growth rate for ROST is 13.35%. This should be less than the growth rates for the 3 previous quarters, which are 90.91%, 52.63%, and 61.11%. ROST passes this test, which means that it has good, reasonably steady earnings. This strategy looks at the rate which earnings grow and evaluates this rate of growth from different angles. The 4 tests immediately following are detailed below. EPS GROWTH FOR CURRENT QUARTER MUST BE GREATER THAN PRIOR 3 QUARTERS: [PASS] If the growth rate of the prior three quarter's earnings, 64.58%, (versus the same three quarters a year earlier) is greater than the growth rate of the current quarter earnings, 30.49%, (versus the same quarter one year ago) then the stock fails, with one exception: if the growth rate in earnings between the current quarter and the same quarter one year ago is greater than 30%, then the stock would pass. The growth rate over this period for ROST is 30.5%, and it would therefore pass this test. EPS GROWTH FOR CURRENT QUARTER MUST BE GREATER THAN THE HISTORICAL GROWTH RATE: [PASS] The EPS growth rate for the current quarter, 30.49% must be greater than or equal to the historical growth which is 26.69%. ROST 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. ROST, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were 1.36, 1.70, 1.90, 2.33 and 3.54, 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. ROST's long-term growth rate of 26.69%, 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. ROST's Debt/Equity (11.94%) is not considered high relative to its industry (30.00%) and passes this test. INSIDER TRANSACTIONS: [PASS] A factor that adds to a stock's attractiveness is if insider buy transactions number 3 or more, while insider sell transactions are zero. Zweig calls this an insider buy signal. For ROST, this criterion has not been met (insider sell transactions are 9, while insiders buying number 13). Despite the lack of an insider buy signal, there also is not an insider sell signal, so the stock passes this criterion.   CHINA AUTOMOTIVE SYSTEMS, INC. Profile Strategy: P/E/Growth Investor Based on: Peter Lynch China Automotive Systems, Inc. (China Automotive) is a holding company and has no significant business operations or assets other than its interest in Great Genesis Holdings Limited (Genesis). Through Genesis, the Company manufactures power steering systems and other component parts for automobiles. All operations are conducted through eight Sino-foreign joint ventures in China and a wholly owned subsidiary in the United States. The Company has business relations with more than 60 vehicle manufacturers, including FAW Group and Dongfeng Auto Group, automobile manufacturers in China; Shenyang Brilliance Jinbei Co., Ltd., light vehicle manufacturer in China; Chery Automobile Co., Ltd, state-owned car manufacturer in China, and Xi'an BYD Auto Co., Ltd and Zhejiang Geely Automobile Co., Ltd., car manufacturers. Analysis Guru Score: 93% DETERMINE THE CLASSIFICATION: This methodology would consider CAAS a "fast-grower". P/E/GROWTH RATIO: [PASS] The investor should examine the P/E (14.24) relative to the growth rate (42.09%), 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 CAAS (0.34) 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. CAAS, whose sales are $317.7 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 CAAS was 17.17% last year, while for this year it is 11.67%. Since inventory to sales has decreased from last year by -5.49%, CAAS 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 CAAS is 42.1%, based on the average of the 3, 4 and 5 year historical eps growth rates, which is considered 'OK'. However, it may be difficult to sustain such a high growth rate. TOTAL DEBT/EQUITY RATIO: [PASS] This methodology would consider the Debt/Equity ratio for CAAS (66.19%) to be mediocre. If the Debt/Equity ratio is this high, the other ratios and financial statistics for CAAS should be good enough to compensate. 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 CAAS (3.38%) 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 CAAS (8.47%) 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.   SANOFI-AVENTIS SA (ADR) Profile Strategy: P/E/Growth Investor Based on: Peter Lynch Sanofi-Aventis is a pharmaceutical group engaged in the research, development, manufacture and marketing of healthcare products. The Company's business includes two main activities: pharmaceuticals and human vaccines through sanofi pasteur. The Company is also present in animal health products through Merial Limited (Merial). In its pharmaceutical activity, the Company specializes in six therapeutic areas: diabetes, oncology, thrombosis and cardiovascular, central nervous system (CNS), and internal medicine. The global portfolio of sanofi-aventis also consists of a range of other pharmaceutical products in Consumer Health Care (CHC) and other prescription drugs, including generics. It offers vaccines in five areas: pediatric combination vaccines, influenza vaccines, adult and adolescent booster vaccines, meningitis vaccines and travel and endemic vaccines. Analysis Guru Score: 93% DETERMINE THE CLASSIFICATION: SNY is considered a "True Stalwart", according to this methodology, as its earnings growth of 17.67% lies within a moderate 10%-19% range and its annual sales of $40,356 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. SNY is attractive if SNY 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 SNY was 12.46% last year, while for this year it is 14.45%. 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 (1.99%) is below 5%. YIELD ADJUSTED P/E TO GROWTH (PEG) RATIO: [PASS] The Yield-adjusted P/E/G ratio for SNY (0.44), based on the average of the 3 and 4 year historical eps growth rates, is excellent. EARNINGS PER SHARE: [PASS] The EPS for a stalwart company must be positive. SNY's EPS ($2.97) would satisfy this criterion. TOTAL DEBT/EQUITY RATIO: [PASS] This methodology would consider the Debt/Equity ratio for SNY (18.25%) 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 SNY (6.36%) 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 SNY (-1.13%) 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.   GAMESTOP CORP. Profile Strategy: P/E/Growth Investor Based on: Peter Lynch GameStop Corp. (GameStop) is a retailer of video game products and personal computer (PC) entertainment software. The Company sells new and used video game hardware, video game software and accessories, as well as PC entertainment software, and related accessories and other merchandise. As of January 30, 2010, the Company operated 6,450 stores in the United States, Australia, Canada and Europe, primarily under the names GameStop and EB Games. GameStop also operates the electronic commerce Website www.gamestop.com and publish Game Informer, a multi-platform video game magazine in the United States based on circulation, with approximately 4 million subscribers. During the fiscal year ended January 30, 2010 (fiscal 2009), GameStop operated its business in four segments: United States, Canada, Australia and Europe. Analysis Guru Score: 93% DETERMINE THE CLASSIFICATION: This methodology would consider GME a "fast-grower". P/E/GROWTH RATIO: [PASS] The investor should examine the P/E (7.90) relative to the growth rate (31.10%), 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 GME (0.25) 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. GME, whose sales are $9,240.5 million, needs to have a P/E below 40 to pass this criterion. GME's P/E of (7.90) is considered acceptable. 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 GME is 31.1%, 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 GME (16.94%) 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 GME (15.46%) 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 GME (16.06%) 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.   DOLLAR TREE, INC. Profile Strategy: P/E/Growth Investor Based on: Peter Lynch Dollar Tree, Inc. (Dollar Tree) is an operator of discount variety stores offering merchandise at the fixed price of one dollar. At January 30, 2010, the Company operated 3,806 discount variety retail stores. Approximately 3,650 of these stores sell substantially all items for one dollar or less. The remaining stores, operating as Deal$, sell items for one dollar or less but also sell items for more than one dollar. Dollar Tree's stores operate under the names of Dollar Tree, Deal$ and Dollar Bills. Analysis Guru Score: 91% DETERMINE THE CLASSIFICATION: This methodology would consider DLTR a "fast-grower". P/E/GROWTH RATIO: [PASS] The investor should examine the P/E (17.89) relative to the growth rate (21.20%), 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 DLTR (0.84) makes it favorable. SALES AND P/E RATIO: [PASS] For companies with sales greater than $1 billion, this methodology likes to see that the P/E ratio remain below 40. Large companies can have a difficult time maintaining a growth high enough to support a P/E above this threshold. DLTR, whose sales are $5,537.8 million, needs to have a P/E below 40 to pass this criterion. DLTR's P/E of (17.89) is considered acceptable. 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 DLTR is 21.2%, based on the average of the 3, 4 and 5 year historical eps growth rates, which is considered very good. TOTAL DEBT/EQUITY RATIO: [PASS] This methodology would consider the Debt/Equity ratio for DLTR (19.29%) 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 DLTR (6.57%) 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 DLTR (5.82%) 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.   CASH AMERICA INTERNATIONAL, INC. Profile Strategy: Growth/Value Investor Based on: James P. O'Shaughnessy Cash America International, Inc. provides specialty financial services to individuals through its Company-owned and franchised lending locations, and check cashing centers and via the Internet. These services include secured non-recourse loans (pawn loans), short-term unsecured cash advances and related financial services. It operates in three segments. As of December 31, 2009, the pawn lending segment offered pawn loans through 676 total pawn lending locations operating under the names of Cash America Pawn, SuperPawn and Prenda Facil. As of December 31, 2009, the cash advance operating segment included 246 cash advance storefront locations in six states in the United States operating under the names Cash America Payday Advance and Cashland. As of December 31, 2009, the check cashing operating segment consisted of 120 unconsolidated franchised and six consolidated Company-owned check cashing locations operating in 16 states in the United States under the name Mr. Payroll. 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. CSH, with a market cap of $947 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. CSH, whose annual EPS before extraordinary items for the last 5 years (from earliest to the most recent fiscal year) were 1.48, 2.00, 2.61, 2.70 and 3.17, 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. CSH's Price/Sales ratio of 0.79, 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. CSH, whose relative strength is 65, is in the top 50 and would pass 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 SLT STERLITE INDUSTRIES INDIA LIMITED (ADR) Misc. Fabricated Products 53 LULU LULULEMON ATHLETICA INC. Apparel/Accessories 52 EZPW EZCORP, INC. Consumer Financial Services 52 NOV NATIONAL-OILWELL VARCO, INC. Oil Well Services & Equipment 50 EME EMCOR GROUP, INC. Construction Services 50 UNH UNITEDHEALTH GROUP INC. Insurance (Accident & Health) 49 RTN RAYTHEON COMPANY Aerospace & Defense 48 ARCC ARES CAPITAL CORPORATION Misc. Financial Services 47 BKE THE BUCKLE, INC. Retail (Apparel) 46 NDAQ NASDAQ OMX GROUP, INC. Investment Services 45

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