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Executive Summary November 11, 2011

The Economy

While the world remains focused on the debt crisis in Greece -- and now Italy -- the US economy is continuing to push forward with better performance than many have been predicting.

New claims for unemployment, for example, have dropped in each of the past 2 weeks, reaching their lowest level since April. Continuing claims, meanwhile, have fallen to their lowest point since September 2008. Both the new and continuing claim figures remain significantly above levels associated with a healthy economy, but things are continuing to slowly move in the right direction.

That was also generally the case with the Labor Department's October jobs report. The private sector created 104,000 jobs in October according to the report, while the government sector cut 24,000 jobs. The net of 80,000 jobs created shows that things are improving, but slowly -- the gain caused the unemployment rate to tick only slightly lower, falling from 9.1% to 9.0%. The so-called U-6 measure of unemployment, which also includes those who have given up looking for work and those working part-time who wish to work full-time, made a more significant decline, falling from 16.5% to 16.2%. That remains quite elevated by historical standards, however.

We're also continuing to see resiliency from the manufacturing sector. The Institute for Supply Management's manufacturing index indicated that the sector expanded for the 27th straight month in October. The rate of expansion remained quite low, as it has for the past several months. But given all the fear swirling around financial markets, any expansion is good news. There were also some positive signs within the October figures, as the new orders sub-index moved from contraction territory in September to expansion territory in October, and the employment sub-index remained healthily in expansion territory.

ISM's service sector index, meanwhile, was in expansion territory for the 23rd straight month in October, and indicated an expansion that was greater than that of the manufacturing sector. The service sector new orders sub-index remained in expansion territory during the month, while the employment sub-index moved into expansion territory after showing a contraction in employment in September.

While the U.S. economy's resilience has been encouraging, the world remains focused overseas, with Greece's debt crisis now being joined -- and perhaps overshadowed -- by Italy's. Long-term Italian bond yields surged to over 7% this week, a level that, if sustained, would bring Italy dangerously close to being unable to finance its debt. There are hopes that the pending resignation of Prime Minister Silvio Berlusconi will lead to a government that is more proactive in coping with the country's debt woes. But Italy's factious political system means it will likely be a bumpy ride, both for Italy and world stock markets.

And it has indeed been bumpy over the past two weeks. Since our last newsletter, the S&P 500 returned -3.5%, while the Hot List returned -5.1%. So far in 2011, the portfolio has returned -15.8% vs. -1.4% for the S&P. Since its inception in July 2003, the Hot List is far outpacing the index, having gained 127.1% vs. the S&P's 23.9% gain.

Back to the Basics

As the European debt crisis has heated up over these past couple months, long-term strategy seems to have gone out the window for a good many investors. Fundamentals have given way to brief, alternating periods of fear and relief. Investors have fled stocks when the headlines coming out of Europe indicate the debt crisis may be about to spill over, and they rush back into stocks when hopeful signs emerge.

Different forms of this "risk-on, risk-off trade" seem to have been going on since the U.S. financial crisis hit in 2008. Pundits have warned that we are in a "New Normal", and that to make money in stocks, you need to focus on macroeconomics -- stocks are now, and will remain, highly correlated, so stock-picking is dead, they say.

Well, in a recent MarketWatch article, columnist and investment newsletter-tracker Mark Hulbert said that notion is bunk, and offered some intriguing facts to support his contention. "The trading environment has not changed," Hulbert wrote. "Superior stock picking remains as possible -- and as valuable -- as ever. Those concluding that it isn't are guilty of a fundamental misunderstanding of the ways in which stocks are now -- and have always been -- correlated with each other."

According to Hulbert, a statistical phenomenon actually makes correlations seem higher when the market is more volatile. "It turns out that increased market volatility more or less automatically leads to heightened estimates of stocks' correlation -- even when nothing has really changed," he says, noting that this has been known for more than a decade in academic circles. One of the M.I.T. researchers who detected this bias, Kristin Forbes, told Hulbert that this "statistical artifact" is playing a major role in leading analysts to falsely opine that correlations have increased.

Hulbert also notes that correlations "almost always are greater during market declines than in rallies". So, with the market having featured a lot of volatility, particularly to the downside, in the past few years, it seems that the notion that the market has fundamentally changed is highly questionable. "We're in a highly interdependent world all the time," Forbes said. "We are just more aware of it during volatile periods and down markets."

The idea that the market hasn't undergone a fundamental change doesn't surprise me. As I've said many times in past newsletters, America has been though a myriad of crises in its two-century-plus history, many of which have shaken it to its core. A civil war, world wars, presidential assassinations, energy crises, terrorist attacks -- the U.S. has dealt with all of these and more. And through it all, the fundamental principles of good investing have endured.

With that in mind, I think now is thus a very good time to go back and review the principles that sit at the core of the investing strategy we use in handling the Hot List. These are the six principles of "Guru Investing" that I laid out in my most recent book, The Guru Investor, back in 2009. And, while the economy and the market have been through quite a bit since then, nothing has changed my belief in their validity.

Principle 1: Combining Strategies to Minimize Risk and Maximize Returns

There are numerous different strategies that have proven track records of beating the market over the long haul -- just look at the wide variety of approaches used by the gurus upon whom I base my models. But by using multiple proven strategies within the same portfolio, you can increase returns and limit risk. The Hot List chooses the stocks that get the most combined interest from my individual models, with the strategies with the best long-term track records given greater weight. This allows the portfolio to focus on stocks that are fundamentally and financially sound on a number of different levels, and such stocks tend to produce very strong returns over the long haul. You can also combine strategies by choosing a fixed number of stocks from each of several strategies, which is what our Top Five Gurus portfolio does. Both approaches really put a stock and company through the wringer to try to bring any serious flaws to light.

Principle 2: Stick to the Numbers -- or the Market Will Stick It to You

Just about everyone has a part of them that thinks they're clever enough or experienced enough to outsmart the market. But several studies show that as forecasters, most humans flat-out stink -- even those supposed experts. Studies also show that statistical or actuLato models are much better at predicting the future than we humans are. The reason? Our emotions get in the way, leading many investors to buy high and sell low. But by sticking to the cold, hard numbers -- i.e., using proven quantitative approaches that measure a stock's financials and fundamentals -- you remove emotion from the equation and put the odds in your favor.

Principle 3: Stay Disciplined Over the Long Haul

There simply is no strategy that will succeed every month or even every year. Anyone telling you that their strategy does so is almost certainly up to no good -- Bernie Madoff's investors found that out the hard way. In fact, every guru I've followed -- from Warren Buffett to Peter Lynch to Benjamin Graham -- has gone through rough years. But one similarity these diverse strategists shared was that they stuck with their approaches through thick and thin. When others bailed, they were thus there to pick up great bargains. That's a big part of why they fared so well coming out of downturns, and over the long haul.

Principle 4: Diversify, but You Can't Beat the Market by Owning It

Everyone knows that diversification is generally a good thing. You can invest in a company that has the strongest fundamentals and balance sheet imaginable, and tomorrow something unpredictable -- an earthquake swallows its headquarters, it's revealed that its CEO has embezzled billions and fled the country -- could happen that leaves you with nothing. At the same time, however, over-diversification presents its own problems. Mutual funds that own 500 stocks are inevitably going to come pretty close to mirroring the broader market's returns. To beat the market, you need to own enough stocks to diversify away systematic risk, but few enough that you're not simply going to track the broader market. One study I examine in my book found that diversification benefits are limited once you own 50 or so stocks, and I've found that you can beat the market over the long haul with focused, fundamental-driven portfolios of 10 or 20 stocks.

Principle 5: Size- and Style-Focused Systems Only Limit Investment Possibilities

"Style-box" investing has become quite popular over the years, and many funds focus specifically on one segment of the market -- small-cap growth, mid-cap value, etc. That's great for big institutions that are required to hold so much of each category. But for individual investors, it simply limits your returns. Every category goes out of style for periods of time; if your strategy is finding that the best opportunities are in mid-cap growth at a particular point in time, why limit how many of those stocks you can buy? A good value is a good value, regardless of what category it comes from.

Principle 6: You Don't Have to Hold Stocks for the Long Term to be a Long-Term Investor

A lot of people think long-term, buy-and-hold investing means that you buy a stock and hold on to it for years and years and years, if not forever. But that can lead to trouble. For example, say your strategy calls for you to buy stocks with long-term earnings growth of 20%, less debt than annual earnings, and a return on equity of 30%. If you buy a stock that meets those criteria, and then it takes on tons of debt, its earnings growth drops, and its ROE declines, should you keep holding it? I sure don't think so. You buy stocks because they have qualities that make them good candidates to rise; if those qualities disappear, so too does that potential for the stock to rise, so why would you hold onto it? Using a disciplined rebalancing system like the Hot List does can help remove emotion from the selling process, and let you cut ties with stocks whose attractiveness declines and replace them with stocks that now have better prospects. Being a long-term stock investor thus can mean you stick to your strategy for the long term, even if the specific stocks you hold turn over every month, quarter, or year.

I didn't come upon these principles easily, and I don't take them lightly. I believe in them because they incorporate parts of the approaches of some of history's greatest investors -- from Benjamin Graham more than half a century ago to modern-day greats like Warren Buffet and Joel Greenblatt. And just as these tenets helped the gurus succeed, so too have they helped the Hot List produce exceptional returns over a period in which the broader market has struggled mightily. The portfolio has had some short-term problems this year, but I expect them to remain just that -- short term. That's because as great of an impact as the European debt crisis (and America's own deficit woes) are having on the financial world, I believe these concepts remain as relevant as they've ever been, and will continue to be just as relevant for decades to come.

 
Editor-in-Chief: John Reese










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Guru Spotlight: Kenneth Fisher

For decades, the price-to-earnings ratio has been the most widely used valuation measure for stock investors, and a key tool in the arsenals of many of the gurus I follow. While legendary investors like Benjamin Graham, Peter Lynch, and John Neff all used the ratio differently, they and many others agreed that the ratio itself was a key to finding bargain-priced stocks. The investing public and media seems to share their view, with the P/E ratio having long been the only valuation metric that most newspapers include in their daily stock listings.

But in 1984, Kenneth Fisher sent a shockwave through the P/E-conscious investment world. Fisher -- the son of Phillip Fisher, who is known as the "Father of Growth Stock Investing" -- thought there was a major hole in the P/E ratio's usefulness. Part of the problem, he explained in his book Super Stocks, is that earnings -- even earnings of good companies -- can fluctuate greatly from year to year. The decision to replace equipment or facilities in one year rather than in another, the use of money for new research that will help the company reap profits later on, and changes in accounting methods can all turn one quarter's profits into the next quarter's losses, without regard for what Fisher thought was truly important in the long term -- how well or poorly the company's underlying business was performing.

While earnings can fluctuate, Fisher found that sales were far more stable. In fact, he found that the sales of what he termed "Super Companies" -- those that were capable of growing their stock price 3 to 10 times in value in a period of 3 to 5 years -- rarely decline significantly. Because of that, he pioneered the use of a new way to value stocks: the price-to-sales ratio (PSR), which compared the total price of a company's stock to the sales the company generated.

Fisher's findings -- and his results -- helped make the PSR a common part of investment parlance, and helped make him one of the most well-known investors in the world. (He is a perennial member of Forbes' list of "The 400 Richest Americans", his money management firm oversees tens of billions of dollars, and he is one of Forbes' longest running magazine columnists.) The common sense, mostly quantitative approach he laid out in Super Stocks also caught my attention, and led me to create my Fisher-based Guru Strategy.

It's important to note that today, Fisher says his approach to investing has evolved quite a bit since Super Stocks. The key to winning big on Wall Street is knowing something that other people don't, he believes, and when too many people became familiar with PSR investing, he says he needed to find other ways to exploit the market.

So why have I continued to use my Super Stocks-based model? Two reasons: First, Fisher's publisher reissued the book in 2007, with the same PSR focus. Second, the strategy flat out works. Since its July 2003 inception, my 10-stock Fisher-based portfolio has gained 151.3%, or 11.7% annualized, while the S&P 500 gained just 22.9%, or 2.5% annualized (figures through Nov. 9). That makes it one of my most successful long-term strategies.

Price-to-Sales and "The Glitch"

Fisher is a student of investor psychology, and his observations about investor behavior are what led to his PSR discovery. Often, he found, companies will have a period of strong early growth and become the darlings of Wall Street, raising expectations to unrealistic levels. Then, they then have a setback. Their earnings drop, or continue to grow but simply don't keep pace with Wall Street's lofty expectations. Their stocks can then plummet as investors overreact and sell, thinking they've been led astray.

But while investors overreact, Fisher believed that these "glitches" are often simply a part of a firm's maturation. Good companies with good management identify the problems, solve them, and move forward, and as they do the stock's price begins to rise again. If you can buy a stock when it hits a glitch and its price is down, you can make a bundle by sticking with it until it rights the ship and other investors jump on board.

The key in all of this was finding a way to evaluate a firm when its earnings were down, or when it was losing money (remember, you can't use a P/E ratio to evaluate a company that is losing money, because it has no earnings). The answer: by looking at sales, and the PSR.

According to the model I base on Fisher's writings, stocks with PSRs below 1.5 are good values. And the real winners are those with PSR values under 0.75 -- that's the sign of a Super Stock. To find the PSR, Fisher says to take the total value of a company's stock, i.e. its market cap (the per-share price multiplied by the number of shares outstanding). We then divide that number by the firm's trailing 12-month sales.

One note: Because companies in what Fisher called "smokestack" industries -- that is, industrial or manufacturing type firms that make the everyday products we use -- grow slowly and don't earn exceptionally high margins, they don't generate a lot of excitement or command high prices on Wall Street. Their PSRs thus tend to be lower than those of companies that produce more exciting products, Fisher said. He adjusted his PSR target for these firms, and the model I base on his writings looks for smokestack firms with PSRs between 0.4 and 0.8; it is particularly high on those with PSR values under 0.4.

Beyond the PSR

While the PSR was key to Fisher's strategy, he warned not to rely exclusively on it. Terrible companies can have low PSRs simply because the investment world knows they are headed for financial ruin.

Other quantitative measures Fisher used include profit margins (he wanted three-year average net margins to be at least 5 percent; the debt/equity ratio (this should be no greater than 40 percent, and is not applied to financial firms); and earnings growth (the inflation-adjusted long-term EPS growth rate should be at least 15 percent per year).

Fisher also made an interesting observation about companies in the technology and medical industries. He saw research as a commodity, and to measure how much Wall Street valued the research that a company did, he compared the value of the company's stock (its market cap) to the money it spends on research. Price/research ratios less than 5 percent were the best case, and those between 5 and 10 percent were still indicative of bargains. Those between 10 and 15 percent were borderline, while those over 15 percent should be avoided.

One of the Best

The variety of variables in my Fisher-based model are a big part of why I think it continues to work, long after the PSR has become a well-known stock analysis tool. While it uses the PSR as its focal point, it also makes sure firms have strong profit margins, earnings growth, and cash flows, and low debt/equity ratios. That well-rounded approach helped it get through one of the worst periods for the broader market in history and stay far, far ahead of the market over the long haul -- all while the PSR has been a well-known investing tool. I expect this solid approach will continue to pay dividends over the long haul.

Now, here's a look at the stocks that currently make up my 10-stock Fisher-based portfolio.

Aeropostale, Inc. (ARO)
Telecom Argentina S.A. (TEO)
Children's Place Retail Stores, Inc. (PLCE)
Ternium S.A. (TX)
Primoris Services Corp. (PRIM)
Kirkland's, Inc. (KIRK)
Bridgepoint Education, Inc. (BPI)
Ross Stores, Inc. (ROST)
General Dynamics Corporation (GD)
The TJX Companies, Inc. (TJX)




News about Validea Hot List Stocks

Aeropostale, Inc. (ARO): Aeropostale's shares jumped nearly 20% last Thursday after it announced third-quarter earnings guidance that was far higher than previous estimates. The teen clothing retailer said that, based on better than expected gross margins for the quarter, it now expects third quarter earnings in the range of $0.27 to $0.28 per diluted share, versus its previously issued range of $0.09 to $0.15 per share.

Telecom Argentina SA (TEO): The firm said last week that third-quarter net profit jumped 36% from the year-ago period, thanks in part to strong mobile phone and broadband sales. The profit of 602 million pesos narrowly edged analysts' median estimate of 601 million pesos, Reuters reported. Net sales for the quarter were up 27%.



The Next Issue

In two weeks, we will publish another issue of the Hot List, at which time we will rebalance the portfolio. If you have any questions, please feel free to contact us at hotlist@validea.com.


Current Portfolio






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

FRX   |   BPI   |   ARO   |   TEO   |   CPLA   |   TX   |   PBR   |   ASIA   |   OZRK   |   STMP   |  



Forest Laboratories, Inc. (Forest) develops, manufactures and sells branded forms of ethical drug products, most of which requires a physician's prescription. The Company also focuses on the development and introduction of new products, including products developed in collaboration with licensing partners. Its products include those developed by the Company and those acquired from other pharmaceutical companies and integrated into its marketing and distribution systems. The Company's principal products include Lexapro, Namenda, Bystolic, Savella and Teflaro. On April 13, 2011, the Company acquired Clinical Data Inc. (Clinical Data), a specialty pharmaceutical company.





Bridgepoint Education, Inc. (Bridgepoint) is a provider of postsecondary education services. The Company's wholly owned subsidiaries, Ashford University and the University of the Rockies, are regionally accredited academic institutions that offer associate's, bachelor's, master's and doctoral programs in the disciplines of business, education, psychology, social sciences and health sciences. These institutions deliver programs online, as well as at its traditional campuses located in Clinton, Iowa, and Colorado Springs, Colorado. As of December 31, 2010, it offered approximately 1,345 courses, 71 degree programs and 134 specializations. As of December 31, 2010, it had 77,892 students enrolled in its institutions, 99% of whom were attending classes online.





Aeropostale, Inc. is a mall-based, specialty retailer of casual apparel and accessories, principally targeting 14 to 17 year-old young women and men through its Aeropostale stores and 7 to 12 year-old kids through its P.S. from Aeropostale stores. The Company designs, sources, markets and sells all of its own merchandise. P.S. from Aeropostale products can be purchased in P.S. from Aeropostale stores, in certain Aeropostale stores, including its new Times Square store in New York City and online at www.ps4u.com. As of January 29, 2011, it operated 965 Aeropostale stores, consisting of 906 stores in 49 states and Puerto Rico, 59 stores in Canada, as well as 47 P.S. from Aeropostale stores in 13 states. In addition, pursuant to a Licensing Agreement, one of its international licensees operated 10 Aeropostale stores in the United Arab Emirates as of January 29, 2011. During March 2011, it announced that it had signed a second licensing agreement.





Telecom Argentina SA (Telecom) is an Argentina-based company primarily engaged in the provision of national fixed-line telecommunication services, international long-distance service, data transmission and Internet services and mobile telephony. The Company also offers such solutions as online business and Web hosting, virtual private network (VPN), mobile operating systems developed by Microsoft and Blackberry, toll-free telephone numbers, call centers and voice over Internet protocol (VoIP) line, as well as other services mainly aimed at corporate clients. The Company's subsidiaries are structured in two business segments: Fixed Telephony, comprising Telecom Argentina USA Inc and Micro Sistemas Sociedad Anonima, and Mobile Services, including Telecom Personal SA, Nucleo SA and Springville SA. As of December 31, 2010, the Company's majority shareholder was Nortel SA, 54.74% of its interest.





Capella Education Company is an online postsecondary education services company. Through its wholly owned subsidiary, Capella University, the Company offers a range of doctoral, master's and bachelor's programs. As December 31, 2010, it offered over 1,250 online courses and 43 academic programs with 136 specializations to over 39,000 learners. It also offers certificate programs, which consist of a series of courses focused on a particular area of study. In addition, Capella Education Company also offers academic services, such as new learner orientation, technical support, academic advising, research services (particularly for doctoral degree candidates), writing services and online tutoring. It also provides appropriate educational accommodations to learners with documented disabilities through its disability support services team. During the year ended December 31, 2010, it formed the joint-venture Sophia Learning, LLC, as majority owner.





Ternium SA is a steel company in Latin America that manufactures and processes flat and long steel products for the construction, home appliances, capital goods, container, food, energy and automotive industries. The Company operates in three segments: Flat Steel Products, comprising the manufacturing and marketing of hot rolled coils and sheets, cold rolled coils and sheets, tin plate, welded pipes, hot dipped galvanized and electro-galvanized sheets and pre-painted sheets; Long Steel Products, comprising the manufacturing and marketing of billets (steel in its basic, semi-finished state), wire rod and bars; Others, comprising mainly pig iron, pellets and pre-engineered metal buildings. During the year ended December 31, 2010, Flat Steel Products accounted to 86% of the Company's overall revenues. Approximately 57% of Ternium's sales were generated in North America and 41% in South and Central America.





Petroleo Brasileiro SA Petrobras (Petrobras) is a Brazilian integrated oil and gas company. It operates in five segments: exploration and production; refining, commercialization and transport of oil and natural gas; petrochemicals; distribution of derivatives, electrical energy, biofuels and other renewable energy sources. Directly or through its subsidiaries, Petrobras is engaged in the research, extraction, refining, processing, commercialization and transport of oil from wells, shales and other rocks, its derivatives, natural gas and other liquid hydrocarbons, as well as in activities related to energy, promoting research, development, production, transport, distribution and commercialization of all forms of energy. As of December 31, 2010, it had 132 production platforms, 16 refineries, 291 vessels, 29,398 kilometers of pipelines, six biofuel plants, 16 thermoelectric plants, one pilot wind farm, 8,477 service stations and two fertilizer plants, as well as presence in 30 countries.





AsiaInfo-Linkage, Inc. (AsiaInfo-Linkage), formerly AsiaInfo Holdings, Inc., is a provider of telecommunications software solutions and information technology products and services in China. The Company's software and services enables its customers to build, maintain, operate, manage and improve their communications infrastructure. It's products and services in telecom business include business operation support systems, including billing and partnership relationship management applications; business intelligence systems, including data warehousing platforms and data mining applications; operating support systems (OSS) package, including protocol adaptor, service fulfilment, process management and service activation; service and data applications, such as mail centers, mobile device management and mobile e-commerce platforms, and network infrastructure services, including network design and implementation, integrated network management and professional maintenance and support.





Bank of the Ozarks, Inc. is a bank holding company. The Company owns an Arkansas state chartered subsidiary bank, Bank of the Ozarks (the Bank). As of December 31, 2010, the Company, through the Bank, conducted banking operations through 90 offices, including 66 offices in Arkansas, seven in Texas, 10 in Georgia, three in Florida, two in North Carolina, and one each in South Carolina and Alabama and it opened its eighth and ninth Texas offices and acquired two additional Georgia offices. It also owns Ozark Capital Statutory Trust II, Ozark Capital Statutory Trust III, Ozark Capital Statutory Trust IV and Ozark Capital Statutory Trust V, all 100%-owned finance subsidiary business trusts formed in connection with the issuance of certain subordinated debentures and related trust preferred securities, and indirectly through the Bank, a subsidiary engaged in the development of real estate. On October 26, 2010, it closed four of the Woodlands offices.





Stamps.com Inc. is a provider of Internet-based postage solutions. The Company's customers use its service to mail and ship a variety of mail pieces, including postcards, envelopes, flats and packages, using a range of the United States Postal Service (the USPS) mail classes, including First Class Mail, Priority Mail, Express Mail, Media Mail, Parcel Post and others. Its customers include individuals, small businesses, home offices, medium-size businesses and large enterprises, and within these segments it targets both mailers and shippers.





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.





Disclaimer


The names of individuals (i.e., the 'gurus') appearing in this report are for identification purposes of his methodology only, as derived by Validea.com from published sources, and are not intended to suggest or imply any affiliation with or endorsement or even agreement with this report personally by such gurus, or any knowledge or approval by such persons of the content of this report. All trademarks, service marks and tradenames appearing in this report are the property of their respective owners, and are likewise used for identification purposes only.

Validea is not registered as a securities broker-dealer or investment advisor either with the U.S. Securities and Exchange Commission or with any state securities regulatory authority. Validea is not responsible for trades executed by users of this site based on the information included herein. The information presented on this website does not represent a recommendation to buy or sell stocks or any financial instrument nor is it intended as an endorsement of any security or investment. The information on this website is generic by nature and is not personalized to the specific situation of any individual. The user therefore bears complete responsibility for their own investment research and should seek the advice of a qualified investment professional prior to making any investment decisions.

Performance results are based on model portfolios and do not reflect actual trading. Actual performance will vary based on a variety of factors, including market conditions and trading costs. Past performance is not necessarily indicative of future results. Individual stocks mentioned throughout this web site may be holdings in the managed portfolios of Validea Capital Management, a separate asset management firm founded by Validea.com founder John Reese. Validea Capital Management, which is a separate legal entity and an SEC registered investment advisory firm, uses, in part, the strategies on the web site to select stocks for its clients.