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Executive Summary	August 29, 2014

The Economy While the ongoing conflict in the Ukraine has at times overshadowed it, the US economy has continued its impressive run over the past couple weeks. Industrial production increased 0.4% in July, for example, according to a new Federal Reserve report, with manufacturing output rising a stellar 1.0%. Mining output also rose, by 0.3%, while utility output, which tends to be seasonally driven, fell 3.4%. June's industrial production gain was also revised upward from 0.2% to 0.4%. New claims for unemployment, meanwhile, fell back below the 300,000 mark in each of the past two weeks, and remain at levels not seen since before the Great Recession. That puts them more than 11% below where they stood a year earlier. Continuing claims, the data for which lag new claims by a week, have fallen slightly since our last newsletter, and are 15% below year-ago levels. GDP growth for the second quarter was also revised to show that economic output rose at a 4.2% annualized pace. That was up from an initial estimate of 4.0% The housing market has also shown signs of life. Housing starts jumped 15.7% in July, according to the Census Bureau, and are more than 20% above where they were a year ago. Permit issuance for new construction rose 8.1%, and is 7.6% above year-ago levels. New home sales, meanwhile, fell 2.4%, according to a new government report, but are 12% above year-ago levels. And the National Association of Realtors reported its pending home sales index rose 3.3%. While conflicts continue in the Middle East and Ukraine continue, the geopolitical turmoil hasn't sent gas prices upward. In fact, the price for a gallon of regular unleaded is down 9 cents from a month ago, according to AAA. Not surprisingly, given gas prices, inflation slowed a bit in July, new data showed. The Consumer Price Index rose 0.1% for the month, according to the Labor Department. That put it 2.0% ahead of its year-ago pace. Core inflation, which strips out volatile food and energy prices, was up 1.9% year-over-year. Overall since our last newsletter, the S&P 500 returned 2.1%, while the Hot List returned 1.5%. For the year, the portfolio stands at -10.0% vs. 8.0% for the S&P. Since its inception in July 2003, the Hot List is far outpacing the index, having gained 227.3% vs. the S&P's 99.6% gain. 2000: A Valuation Odyssey The S&P 500 topped 2,000 for the first time ever this week, a mark that is notable more for its psychological impact than any tangible factors. Some say the fact that we're climbing past that landmark is another sign that the market has risen too far, too fast. It's been about a full quarter since we last looked at broader market valuations, and given all of this I think it's a good time to check back in. As always, let's start with earnings. Using the S&P 500's August 28 closing price of 1996.74, the index is trading for about 19.3 times trailing 12-month (TTM) as-reported earnings per share, right about where it was in early June, when last we checked in. Using projected operating earnings for the next year, the P/E is about 15.6, again right about where it was in early June. P/Es are significantly higher than they were a year or two ago, but these earnings-related 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, meanwhile, is 1.66, up ever so slightly from 1.65 in early June, according to Morningstar.com. Its price/book ratio is 2.3, right where it was in June. 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 well. The current price/sales ratio is higher than the historical average cited by Comstock and Ned Davis. But again, it doesn't seem exuberant -- 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, staying right where they were in June, at 2.3%. One figure that continues to rise is the Stock Market/GDP ratio, which compares the market cap of the Wilshire Total Market Index to gross domestic product. It is now 124.5%, up from 119.3% in June, according to GuruFocus.com. That puts it in the "Significantly Overvalued" range, based on the site's analysis of historical data. The current figure is higher than the 2007 peak, but still well short of the 2000 bull market peak. 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 26.2, using Yale Economist Robert Shiller's earnings data. That's up a bit from 25.8 in June. It's also 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). Still, the figure is quite elevated, as it has been throughout almost the entire bull market. The Q ratio also indicates that the market is significantly overvalued. Based on a methodology 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. Using the most recent report, which came at the end of the first quarter, the Q ratio is about 1.17, up from 1.11 in June, according to an analysis done by Doug Short of Advisor Perspectives in early August. That was 72% higher than the historical average using the arithmetic mean and 85% higher than the geometric mean. As has been the case for some time, the current Q indicates the market is significantly overvalued, but it's not nearly as high as it has gotten at some market tops. Overall, as you can see, there's a good deal of variation in the common metrics used to gauge market valuation. On the whole, I think these metrics continue to paint a picture of a market that is on the high side of the fair value range, or perhaps just a bit overvalued. After five-and-a-half years of bull market conditions, that's hardly surprising. I do not, however, think that valuations are so bloated that the bull can't continue for a good chunk of time more. Of course, no one can predict what will happen in the short term; what I'm saying is that, if the bull stops anytime soon, it won't be because of exorbitant valuation. But if the strength of the market over the past five-plus years -- we're up nearly 200% since the March 2009 low, or more than 20% annualized -- has you thinking that we've come too far, too fast and gotten ahead of fundamentals, look at it a different way: In the 12 years or so since the 2002 bottom, the S&P is averaging annualized returns of just over 8%. As a thought exercise, imagine that the index had gained 8% a year since that bottom a dozen years ago to reach its current level. Would that seem like a market that had gotten way ahead of itself? I sure don't think so. The point here is that the gains of the last five-plus years have been so large in part because the losses that preceded them were so large. For most of this bull, the market was catching up to fair value -- not streaking past it. Most importantly, my models are continuing to find good buys in individual stocks. On today's rebalancing, we're adding five stocks to the portfolio, and their fundamentals are excellent. AmTrust Financial, for example, has been growing earnings and revenues at a 24% pace over the long term and revenues at a 38% clip, has a return on equity that is 14 percentage points higher than its industry average, and yet trades for 10.7 times trailing 12-month EPS, 0.99 times trailing 12-month sales, and at a 0.45 P/E-to-Growth ratio. Whatever happens in the short term with the broader market, stocks with those type of fundamentals and financials are always offering good opportunities for investors. We'll continue to focus on just those sort of companies, and over the long-term it should pay off.		Editor-in-Chief: John Reese Since Inception   Hot List 227.3% S&P 500 99.6% Accuracy 55.0% Beta 1.2 YTD   Hot List -10.0% S&P 500 8.0% Since Last Issue   Hot List 1.5% S&P 500 2.1% Avg. Fundamentals   Market Cap (mil) $7,514 PE Ratio 14.8 5 Yr EPS Growth 30.4% Yield 1.2% Rel. Strength 60 Portfolio Sectors Services 3 Financial 2 Healthcare 1 Capital Goods 1 Consumer Cyclical 1 Consumer/Non-Cyclical 1 Energy 1
Have Your Portfolio Managed Using Validea's Investing System Many users know about our research services but are unaware that money management services based on our system are also offered through a separate registered investment advisory firm, Validea Capital Management. If you are thinking about switching advisors or no longer have the time or inclination to manage your investments yourself, find out more about Validea Capital, its portfolio offerings, and its performance below. Request an Investment Consultation Today! ** Validea Capital Management is a separate investment advisory firm managed by Validea.com founder John Reese. The information above is 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: Bbva Banco Frances S.a. (Adr) (BFR), Silicon Motion Technology Corp. (Adr) (SIMO), Usana Health Sciences, Inc. (USNA), Williams-sonoma, Inc. (WSM) and Rex American Resources Corp (REX). The Keepers 5 stocks remain in the portfolio. They are: Agco Corporation (AGCO), Valero Energy Corporation (VLO), Anika Therapeutics, Inc. (ANIK), Piper Jaffray Companies (PJC) and Liquidity Services, Inc. (LQDT). The Newbies We are adding 5 stocks to the portfolio. These include: Bed Bath & Beyond Inc. (BBBY), Sturm, Ruger & Company (RGR), Foot Locker, Inc. (FL), Amtrust Financial Services, Inc. (AFSI) and Monster Beverage Corp (MNST). Portfolio Changes Additions   BED BATH & BEYOND INC. BBBY STURM, RUGER & COMPANY RGR FOOT LOCKER, INC. FL AMTRUST FINANCIAL SERVICES, INC. AFSI MONSTER BEVERAGE CORP MNST Deletions   BBVA BANCO FRANCES S.A. (ADR) BFR SILICON MOTION TECHNOLOGY CORP. (ADR) SIMO USANA HEALTH SCIENCES, INC. USNA WILLIAMS-SONOMA, INC. WSM REX AMERICAN RESOURCES CORP REX Newcomers to the Validea Hot List Bed Bath & Beyond Inc. (BBBY): This New Jersey-based home goods and furnishings retailer ($13 billion market cap) has stores in the U.S., Canada, and Mexico, and has taken in about $11.5 billion in sales in the past 12 months. It gets some interest from my Warren Buffett-inspired strategy, in part because it has upped EPS in all but one year of the past decade. Bed Bath & Beyond also gets strong interest from my Peter Lynch-based model. To read more about it, check out the "Detailed Stock Analysis" section below. Foot Locker (FL): This specialty athletic retailer operates nearly 3,500 stores in 23 countries in North America, Europe, Australia, and New Zealand, offering athletic footwear and apparel. Foot Locker ($8 billion market cap) gets strong interest from my James O'Shaughnessy-based model. To read more about its fundamentals, check out the "Detailed Stock Analysis" section below. Monster Beverage Corporation (MNST): This California-based firm makes energy drinks and alternative beverages under such names as Monster Energy, Java Monster, X-Presso Monster, M-3, Worx Energy and Hansen's natural sodas and juices. It gets a 100% score from my Warren Buffett-based model, thanks in part to its having upped EPS in all but one year of the past decade. Scroll down to the "Detailed Stock Analysis" section to learn more about the stock. AmTrust Financial Services (AFSI): Founded as a workers' compensation insurance firm, this New York City-based company has expanded into a multi-national property and casualty insurer. It specializes in coverage for small businesses. AmTrust gets strong interest from my Peter Lynch- and James O'Shaughnessy-based models. To read more about its fundamentals, see the "Detailed Stock Analysis" section below. Sturm Ruger & Co. Inc. (RGR ): This firearms manufacturer makes rifles, pistols, revolvers, and shotguns principally for a select number of licensed independent wholesale distributors primarily located in the United States. It has a $1 billion market cap. Sturm Ruger gets strong interest from my Joel Greenblatt-based model. To find out more about the stock, see the "Detailed Stock Analysis" section below. News about Validea Hot List Stocks Rex American Resources (REX): Rex shares surged after the firm announced second quarter net income rose to $21.9 million, or $2.68 per share, compared to $5.8 million, or 71 cents per share for the 2013 second quarter. The firm attributed its record second quarter profit to "favorable market dynamics combined with the efficiency of our plants," TheStreet reported. Net sales declined to $150.2 million, vs. $175.4 million for the year ago quarter, due to reduced ethanol and distillers grains pricing. Shares rose more than 19% in the two trading days after the announcement. 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 ANIK ANIKA THERAPEUTICS, INC. Biotechnology & Drugs 100 VLO VALERO ENERGY CORPORATION Oil & Gas Operations 96 PJC PIPER JAFFRAY COMPANIES Investment Services 81 FL FOOT LOCKER, INC. Retail (Apparel) 81 BBBY BED BATH & BEYOND INC. Retail (Specialty) 69 AFSI AMTRUST FINANCIAL SERVICES, INC. Insurance (Prop. & Casualty) 66 MNST MONSTER BEVERAGE CORP Beverages (Non-Alcoholic) 66 RGR STURM, RUGER & COMPANY Recreational Products 64 LQDT LIQUIDITY SERVICES, INC. Retail (Catalog & Mail Order) 60 AGCO AGCO CORPORATION Constr. & Agric. Machinery 49 Ticker Market Cap Date Added Start Price Current Price Return ANIK $607 5/9/2014 $47.62 $41.89 -12.0% VLO $28,594 4/11/2014 $50.96 $54.16 6.3% PJC $866 8/1/2014 $51.19 $53.26 4.0% FL $8,102 8/29/2014 TBD $55.99 TBD BBBY $12,988 8/29/2014 TBD $64.31 TBD AFSI $3,330 8/29/2014 TBD $44.04 TBD MNST $14,738 8/29/2014 TBD $88.16 TBD RGR $956 8/29/2014 TBD $49.24 TBD LQDT $435 8/1/2014 $13.70 $14.66 7.0% AGCO $4,524 12/20/2013 $57.62 $48.23 -16.3%

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 ANIK   |   VLO   |   PJC   |   FL   |   BBBY   |   AFSI   |   MNST   |   RGR   |   LQDT   |   AGCO   |   ANIKA THERAPEUTICS, INC. Profile Strategy: P/E/Growth Investor Based on: Peter Lynch Anika Therapeutics, Inc. (Anika) develops, manufactures and commercializes therapeutic products for tissue protection, healing and repair. These products are based on hyaluronic acid (HA), a naturally occurring, biocompatible polymer found throughout the body. As of December 31, 2011, Anika's wholly owned subsidiary, Anika Therapeutics S.r.l., had over 20 products commercialized, primarily in Europe. These products are also all made from hyaluronic acid, based on two technologies: HYAFF, which is a solid form of HA, and ACP gel, an autocross-linked polymer of HA. Analysis Guru Score: 93% DETERMINE THE CLASSIFICATION: This methodology would consider ANIK a "fast-grower". P/E/GROWTH RATIO: [PASS] The investor should examine the P/E (17.88) relative to the growth rate (46.96%), 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 ANIK (0.38) 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. ANIK, whose sales are $99.3 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 ANIK was 11.60% last year, while for this year it is 14.65%. 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 (3.05%) is below 5%. EPS GROWTH RATE: [PASS] This methodology favors companies that have several years of fast earnings growth, as these companies have a proven formula for growth that in many cases can continue many more years. This methodology likes to see earnings growth in the range of 20% to 50%, as earnings growth over 50% may be unsustainable. The EPS growth rate for ANIK is 47.0%, 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 ANIK (0.00%) to be wonderfully low (equity is at least ten times debt). This ratio is one quick way to determine the financial strength of the company. FREE CASH FLOW: [NEUTRAL] The Free Cash Flow/Price ratio, though not a requirement, is considered a bonus if it is above 35%. A positive Cash Flow (the higher the better) separates a wonderfully reliable investment from a shaky one. This methodology prefers not to invest in companies that rely heavily on capital spending. This ratio for ANIK (3.99%) 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 ANIK (10.08%) 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.   VALERO ENERGY CORPORATION Profile Strategy: Price/Sales Investor Based on: Kenneth Fisher 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: 90% PRICE/SALES RATIO: [PASS] The prospective company should have a low Price/Sales ratio. Non-cyclical (non-Smokestack) companies with Price/Sales ratios below 0.75 are tremendous values and should be sought. VLO's P/S of 0.21 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. VLO's Debt/Equity of 31.59% 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. VLO 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 VLO At this Point Is VLO a "Super Stock"? NO PRICE/SALES RATIO: [PASS] The prospective company should have a low Price/Sales ratio. Non-cyclical(non-Smokestack) companies with Price/Sales ratios below .75 are tremendous values and should be sought.VLO's P/S ratio of 0.21 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%. VLO's inflation adjusted EPS growth rate of 21.59% passes the test. FREE CASH PER SHARE: [PASS] This methodology looks for companies that have a positive free cash per share. Companies should have enough free cash available to sustain three years of losses. This is based on the premise that companies without cash will soon be out of business. VLO's free cash per share of 5.44 passes this criterion. THREE YEAR AVERAGE NET PROFIT MARGIN: [FAIL] This methodology looks for companies that have an average net profit margin of 5% or greater over a three year period. VLO, whose three year net profit margin averages 1.71%, fails this evaluation.   PIPER JAFFRAY COMPANIES Profile Strategy: P/E/Growth Investor Based on: Peter Lynch Piper Jaffray Companies is an investment bank and asset management firm, serving the needs of corporations, private equity groups, public entities, non-profit entities and institutional investors in the United States and internationally. The Company operates in two segments: Capital Markets and Asset Management. The Capital Markets segment provides investment banking and institutional sales, trading and research services for various equity and fixed income products. The Asset Management segment includes traditional asset management activities and related services. The Company markets the investment banking and institutional securities business under Piper Jaffray name. Its asset management business is marketed under Advisory Research, Inc. In July 2013, Piper Jaffray Companies announced that it has completed its purchase of Seattle-Northwest Securities Corporation. In July 2013, the Company announced that it has completed its purchase of Edgeview Partners L.P. Analysis Guru Score: 93% DETERMINE THE CLASSIFICATION: This methodology would consider PJC a "fast-grower". P/E/GROWTH RATIO: [PASS] The investor should examine the P/E (12.10) relative to the growth rate (29.68%), based on the average of the 3 and 4 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 PJC (0.41) 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. PJC, whose sales are $682.6 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. 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 PJC is 29.7%, based on the average of the 3 and 4 year historical eps growth rates, which is acceptable. TOTAL DEBT/EQUITY RATIO: [NEUTRAL] PJC is a financial company so debt to equity rules are not applied to determine the company's financial soundness. EQUITY/ASSETS RATIO: [PASS] This methodology uses the Equity/Assets Ratio as a way to determine a financial intermediary's health, as it is a better measure than the Debt/Equity Ratio. PJC's Equity/Assets ratio (32.00%) is extremely healthy and above the minimum 5% this methodology looks for, thus passing the criterion. RETURN ON ASSETS: [PASS] This methodology uses Return on Assets as a way to measure a financial intermediary's profitability. PJC's ROA (3.58%) is above the minimum 1% that this methodology looks for, thus passing the criterion. 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 PJC (5.20%) 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 PJC (-45.53%) 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.   FOOT LOCKER, INC. Profile Strategy: Value Investor Based on: Benjamin Graham Foot Locker, Inc. is a global retailer of shoes and apparel, operating 3,473 primarily mall-based stores in the United States, Canada, Europe, Australia and New Zealand as of February 1, 2014. The Company operates in two segments: Athletic Stores and Direct-to-Customers. The Athletic Stores segment is an athletic footwear and apparel retailers whose formats include Foot Locker, Lady Foot Locker, Kids Foot Locker, Champs Sports, Footaction, SIX:02, as well as the retail stores of Runners Point Group, including Runners Point, Sidestep and Run2. The Direct-to-Customers segment includes Footlocker.com, Inc. and other affiliates, including Eastbay, Inc., CCS, and Tredex, which sells to customers through Internet Websites, mobile devices, and catalogs. Analysis Guru Score: 71% SECTOR: [PASS] FL is neither a technology nor financial Company, and therefore this methodology is applicable. SALES: [PASS] The investor must select companies of "adequate size". This includes companies with annual sales greater than $340 million. FL's sales of $6,922.0 million, based on trailing 12 month sales, pass this test. CURRENT RATIO: [PASS] The current ratio must be greater than or equal to 2. Companies that meet this criterion are typically financially secure and defensive. FL's current ratio of 3.40 passes the test. LONG-TERM DEBT IN RELATION TO NET CURRENT ASSETS: [PASS] For industrial companies, long-term debt must not exceed net current assets (current assets minus current liabilities). Companies that meet this criterion display one of the attributes of a financially secure organization. The long-term debt for FL is $134.0 million, while the net current assets are $1,801.0 million. FL passes this test. LONG-TERM EPS GROWTH: [PASS] Companies must increase their EPS by at least 30% over a ten-year period and EPS must not have been negative for any year within the last 5 years. Companies with this type of growth tend to be financially secure and have proven themselves over time. FL's EPS growth over that period of 53.5% passes the EPS growth test. P/E RATIO: [FAIL] The Price/Earnings (P/E) ratio, based on the greater of the current PE or the PE using average earnings over the last 3 fiscal years, must be "moderate", which this methodology states is not greater than 15. Stocks with moderate P/Es are more defensive by nature. FL's P/E of 17.27 (using the current PE) fails this test. PRICE/BOOK RATIO: [FAIL] The Price/Book ratio must also be reasonable. That is, the Price/Book multiplied by P/E cannot be greater than 22. FL's Price/Book ratio is 3.14, while the P/E is 17.27. FL fails the Price/Book test.   BED BATH & BEYOND INC. Profile Strategy: Patient Investor Based on: Warren Buffett Bed Bath & Beyond Inc. is a chain of retail stores, operating under the names Bed Bath & Beyond (BBB), Christmas Tree Shops (CTS), Harmon and Harmon Face Values (Harmon), buybuy BABY and World Market or Cost Plus World Market (World Market). In addition, it is a partner in a joint venture, which operates three stores in the Mexico City market under the name Bed Bath & Beyond. The Company sells a range of domestics merchandise and home furnishings. Domestics merchandise includes categories, such as bed linens and related items, bath items and kitchen textiles. Home furnishings include categories, such as kitchen and tabletop items, fine tabletop, basic housewares and general home. During fiscal year ended March 2, 2013 (fiscal 2012), the Company opened a total of 38 stores, including 12 BBB stores throughout the United States and Canada, five CTS stores, one Harmon store and 18 buybuy BABY stores, and six World Market stores throughout the United States and closed one BBB store. Analysis Guru Score: 79% 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 1.65, 1.92, 2.08, 2.10, 1.64, 2.31, 3.07, 4.06, 4.56, 4.79. Buffett would consider BBBY's earnings predictable, although earnings have declined 1 time(s) in the past seven years, with the most recent decline 6 years ago. The dips have totaled 21.9%. BBBY's long term historical EPS growth rate is 13.8%, based on the 10 year average EPS growth rate, and it is expected to grow earnings 9.2% 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. BBBY 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 BBBY, over the last ten years, is 21.3%, 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 22.0%, 23.8%, 21.8%, 21.2%, 14.2%, 16.6%, 19.6%, 24.4%, 24.7%, 25.0%, and the average ROE over the last 3 years is 24.7%, 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 BBBY, over the last ten years, is 21.3% and the average ROTC over the past 3 years is 24.7%, 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 22.0%, 23.8%, 21.8%, 21.2%, 14.2%, 16.6%, 19.6%, 24.4%, 24.7%, 25.0%, 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. BBBY's free cash flow per share of $5.00 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: [FAIL] 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 $28.18 and compares it to the gain in EPS over the same period of $3.14. BBBY's management has earned shareholders a 11.1% return on the earnings they kept. This is unacceptable to Buffett, as management is not profitably allocating retained earnings. Essentially, investors would be better off if the company paid all earnings out to shareholders and let them invest the earnings on their own. 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. BBBY's shares outstanding have fallen over the past five years from 262,899,994 to 202,000,000, 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 BBBY 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 $4.81 and divide it by the current market price of $64.31. An investor, purchasing BBBY, could expect to receive a 7.48% initial rate of return. Furthermore, he or she could expect the rate to increase 9.2% 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 2.75%. Compare this with BBBY's initial yield of 7.48%, which will expand at an annual rate of 9.2%, 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] BBBY currently has a book value of $19.25. It is safe to say that if BBBY can preserve its average rate of return on equity of 21.3% and continues to retain 100.00% of its earnings, it will be able to sustain an earnings growth rate of 21.3% and it will have a book value of $133.11 in ten years. If it can still earn 21.3% on equity in ten years, then expected EPS will be $28.39. CALCULATE THE FUTURE STOCK PRICE BASED ON THE AVERAGE ROE METHOD: [No Pass/Fail] Now take the expected future EPS of $28.39 and multiply them by the lower of the 5 year average P/E ratio (14.6) or current P/E ratio (current P/E in this case), which is 13.4 and you get BBBY's projected future stock price of $379.89. 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 $379.89. These numbers indicate that one could expect to make a 19.4% average annual return on BBBY's stock at the present time. Buffett would consider this a great return. CALCULATE THE EXPECTED FUTURE STOCK PRICE BASED ON AVERAGE EPS GROWTH: [No Pass/Fail] If you take the EPS growth of 9.2%, based on the analysts' consensus estimated long term growth rate, you can project EPS in ten years to be $11.61. Now multiply EPS in 10 years by the lower of the 5 year average P/E ratio (14.6) or current P/E ratio (current P/E in this case), which is 13.4. This equals the future stock price of $155.32. Add in the total expected dividend pool of $0.00 to get a total dollar amount of $155.32. 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 $64.31 and the future expected stock price, including the dividend pool, of $155.32. If you were to invest in BBBY at this time, you could expect a 9.22% average annual return on your money. Buffett likes to see a 15% return, and would even go down to 12%. LOOK AT THE RANGE OF EXPECTED RATE OF RETURN: [PASS] Based on the two different methods, you could expect an annual compounding rate of return somewhere between 9.2% and 19.4%. 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 14.3% on BBBY stock for the next ten years, based on the current fundamentals. Buffett likes to see a 15% return, but nonetheless would accept this return, thus passing the criterion.   AMTRUST FINANCIAL SERVICES, INC. Profile Strategy: Growth/Value Investor Based on: James P. O'Shaughnessy Amtrust Financial Services, Inc. is a holding company. The Company is a multinational specialty property and casualty insurer focused on generating consistent underwriting profits. The Company operates in four business segments: small commercial business, specialty program and personal lines reinsurance. The Company transacts business through 11 insurance company subsidiaries: Technology Insurance Company, Inc. (TIC), Rochdale Insurance Company (RIC), Wesco Insurance Company (WIC), Associated Industries Insurance Company, Inc. (AIIC), Milwaukee Casualty Insurance Company (MCIC), Security National Insurance Company (SNIC), AmTrust Insurance Company of Kansas, Inc. (AICK) and AmTrust Lloyd's Insurance Company of Texas (ALIC). In December 2013, the Company announced that it its wholly owned subsidiary completed the acquisition of Sagicor Europe Limited. In January 2014, the Company acquired Insco Dico Group. 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. AFSI, with a market cap of $3,330 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. AFSI, whose annual EPS before extraordinary items for the last 5 years (from earliest to the most recent fiscal year) were 1.56, 1.95, 2.29, 2.34 and 3.67, 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. AFSI's Price/Sales ratio of 0.99, 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. AFSI, whose relative strength is 67, is in the top 50 and would pass this last criterion.   MONSTER BEVERAGE CORP Profile Strategy: P/E/Growth Investor Based on: Peter Lynch Monster Beverage Corporation is a holding company. The Company develops, markets, sells and distributes alternative beverage, such as non-carbonated ready-to-drink iced teas, lemonades, juice cocktails, single-serve juices and fruit beverages, ready-to-drink dairy and coffee drinks, energy drinks, sports drinks, and single-serve still water (flavored and unflavored) with beverages, including sodas that are considered natural, sparkling juices and flavored sparkling beverages. It has two reportable segments, namely Direct Store Delivery (DSD), whose principal products comprise energy drinks, and Warehouse (Warehouse), whose principal products comprise juice-based and soda beverages. The DSD segment develops, markets and sells products primarily through an exclusive distributor network. The Warehouse segment develops, markets and sells products directly to retailers. Analysis Guru Score: 74% DETERMINE THE CLASSIFICATION: This methodology would consider MNST a "fast-grower". P/E/GROWTH RATIO: [FAIL] The investor should examine the P/E (37.88) relative to the growth rate (21.19%), 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 MNST (1.79) is too high to add to the attractiveness of the stock. 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. MNST, whose sales are $2,354.6 million, needs to have a P/E below 40 to pass this criterion. MNST's P/E of (37.88) is considered acceptable. INVENTORY TO SALES: [PASS] When inventories increase faster than sales, it is a red flag. However an increase of up to 5% is considered bearable if all other ratios appear attractive. Inventory to sales for MNST was 9.86% last year, while for this year it is 9.86%. Since inventory to sales has not changed appreciably, MNST 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 MNST 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 MNST (0.00%) to be wonderfully low (equity is at least ten times debt). This ratio is one quick way to determine the financial strength of the company. FREE CASH FLOW: [NEUTRAL] The Free Cash Flow/Price ratio, though not a requirement, is considered a bonus if it is above 35%. A positive Cash Flow (the higher the better) separates a wonderfully reliable investment from a shaky one. This methodology prefers not to invest in companies that rely heavily on capital spending. This ratio for MNST (1.97%) 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 MNST (4.00%) 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.   STURM, RUGER & COMPANY Profile Strategy: Growth/Value Investor Based on: James P. O'Shaughnessy Sturm Ruger & Co Inc, formerly Sturm, Ruger & Company, Inc., is engaged in the design, manufacture, and sale of firearms to domestic customers. The Company operates in two segments: firearms and investment castings. The firearms segment manufactures and sells rifles, pistols, revolvers, and shotguns principally to a select number of licensed independent wholesale distributors primarily located in the United States. The investment castings segment manufactures and sells steel investment castings. The Company offers products in four industry product categories, which include rifles, shotguns, pistols, and revolvers. The Company's firearms are sold through independent wholesale distributors, principally to the commercial sporting market. The Company's customers include Jerry's/Ellett Brothers, Davidson's, Sports South and Lipsey's. 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. RGR, with a market cap of $956 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. RGR, whose annual EPS before extraordinary items for the last 5 years (from earliest to the most recent fiscal year) were 1.42, 1.46, 2.09, 3.60 and 5.58, 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. RGR'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. RGR has a relative strength of 33. 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.   LIQUIDITY SERVICES, INC. Profile Strategy: P/E/Growth Investor Based on: Peter Lynch Liquidity Services, Inc. is an auction marketplace for surplus and salvage assets. The Company enables buyers and sellers to transact in an automated online auction environment offering over 500 product categories. The Company's marketplaces provide professional buyers access to a global, organized supply of surplus and salvage assets presented with digital images and other relevant product information. It organizes its products into categories across industry verticals, such as consumer electronics, general merchandise, apparel, scientific equipment, aerospace parts and equipment, technology hardware and specialty equipment. It's online auction marketplaces are www.liquidation.com, www.govliquidation.com, www.govdeals.com and www.liquibiz.com. It also operates a wholesale industry portal www.goWholesale.com. In July 2012, the Company acquired GoIndustry-DoveBid plc. In November 2012, the Company acquired National Electronics Service Association. Analysis Guru Score: 93% DETERMINE THE CLASSIFICATION: This methodology would consider LQDT a "fast-grower". P/E/GROWTH RATIO: [PASS] The investor should examine the P/E (11.25) relative to the growth rate (33.47%), 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 LQDT (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. LQDT, whose sales are $506.4 million, is not considered large enough to apply the P/E ratio analysis. However, an investor can analyze the P/E ratio relative to the EPS growth rate. 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 LQDT is 33.5%, 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 LQDT (0.00%) to be wonderfully low (equity is at least ten times debt). This ratio is one quick way to determine the financial strength of the company. FREE CASH FLOW: [NEUTRAL] The Free Cash Flow/Price ratio, though not a requirement, is considered a bonus if it is above 35%. A positive Cash Flow (the higher the better) separates a wonderfully reliable investment from a shaky one. This methodology prefers not to invest in companies that rely heavily on capital spending. This ratio for LQDT (5.53%) 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 LQDT (20.93%) 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.   AGCO CORPORATION Profile Strategy: P/E/Growth Investor Based on: Peter Lynch AGCO Corporation (AGCO) is a manufacturer and distributor of agricultural equipment and related replacement parts globally. The Company sells a range of agricultural equipment, including tractors, combines, self-propelled sprayers, hay tools, forage equipment and implements. It also manufactures and distributes grain storage and handling equipment systems, as well as protein production systems. Its products are recognized in the agricultural equipment industry and are marketed under a range of brands, including Challenger, Fendt, Massey Ferguson and Valtra. The Company distributes its products through a combination of approximately 3,100 independent dealers and distributors in more than 140 countries. In September 2013, Grain Systems, Inc. (GSI), a global brand of the Company announced that it has purchased Johnson System Inc. (JSI), manufacturer of catwalks, towers and support structures based in Marshall, Michigan. Analysis Guru Score: 93% DETERMINE THE CLASSIFICATION: This methodology would consider AGCO a "fast-grower". P/E/GROWTH RATIO: [PASS] The investor should examine the P/E (8.82) relative to the growth rate (29.73%), 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 AGCO (0.30) 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. AGCO, whose sales are $10,419.3 million, needs to have a P/E below 40 to pass this criterion. AGCO's P/E of (8.82) is considered acceptable. INVENTORY TO SALES: [PASS] When inventories increase faster than sales, it is a red flag. However an increase of up to 5% is considered bearable if all other ratios appear attractive. Inventory to sales for AGCO was 17.10% last year, while for this year it is 18.69%. 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 (1.59%) is below 5%. EPS GROWTH RATE: [PASS] This methodology favors companies that have several years of fast earnings growth, as these companies have a proven formula for growth that in many cases can continue many more years. This methodology likes to see earnings growth in the range of 20% to 50%, as earnings growth over 50% may be unsustainable. The EPS growth rate for AGCO is 29.7%, 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 AGCO (30.42%) to be normal (equity is approximately twice debt). FREE CASH FLOW: [NEUTRAL] The Free Cash Flow/Price ratio, though not a requirement, is considered a bonus if it is above 35%. A positive Cash Flow (the higher the better) separates a wonderfully reliable investment from a shaky one. This methodology prefers not to invest in companies that rely heavily on capital spending. This ratio for AGCO (7.63%) 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 AGCO (1.48%) 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.   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 CTCM CTC MEDIA, INC. Broadcasting & Cable TV 61 SIMO SILICON MOTION TECHNOLOGY CORP. (ADR) Semiconductors 58 USNA USANA HEALTH SCIENCES, INC. Conglomerates 58 ZUMZ ZUMIEZ INC. Retail (Apparel) 57 TJX THE TJX COMPANIES, INC. Retail (Apparel) 55 EDU NEW ORIENTAL EDUCATION & TECH GRP (ADR) Schools 54 REX REX AMERICAN RESOURCES CORP Chemical Manufacturing 52 NUS NU SKIN ENTERPRISES, INC. Personal & Household Prods. 49 PRXL PAREXEL INTERNATIONAL CORPORATION Biotechnology & Drugs 48 EC ECOPETROL S.A. (ADR) Oil & Gas Operations 48

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