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Executive Summary	March 28, 2014

The Economy As much of the country begins at long last to thaw from a frigid, unrelenting winter, the U.S. economy is showing signs that its winter doldrums were indeed largely weather-related. Industrial production, for example, increased 0.6% in February even though utility output (which is largely weather-dependent) declined slightly, according to a new Federal Reserve report. The February gain more than wiped out the 0.2% decline we saw in January. Manufacturing output was up 0.8% for the month, snapping back strong from a very weak January in which it had declined 0.9%. Mining output rose 0.3%. Good news has also come on the employment front. New claims for unemployment fell in each of the last two weeks, reaching their lowest level in several months. Compared to a year ago, new claims are down 13.4%. Continuing claims, the data for which lags new claims by a week, were also down in the most recent week. They are now about 7.6% below year-ago levels. The overall level of new claims is now in a range seen for much of the past couple economic expansions; the continuing claims number remains a bit high compared to those past expansions. Retail sales, meanwhile, rose by 0.3% in February after having declined 0.6% in January, according to the Commerce Department. The February figure was, however, only 1.5% above the year-ago level, a fairly weak year-over-year increase. The housing market hasn't been sizzling, but it seems to be stabilizing after an uninspiring stretch, as well. After a sharp decline in January, housing starts were just about flat in February, decreasing 0.2%, according to the Census Bureau. They are, however, 5.6% below where they were in February 2013. There may be good news ahead, though. Housing permit issuance increased 7.7% in February, the Census Bureau said. Permit issuance is 7.3% above its year-ago pace. As for home sales new home sales declined 3.3% in February, according to another government report. Prices did rise slightly, rising on average 1.5%. New sales are down about 3% over the past year. Existing home sales, meanwhile, declined 0.4% in February, according to the National Association of Realtors. That put them about 7% below year-ago levels, though average prices did rise slightly and were significantly ahead of where they were last year. The Realtor group cited the winter weather is a significant reason for the decline in sales during the month. Since our last newsletter, the S&P 500 returned 0.1%, while the Hot List returned -4.6%. So far in 2014, the portfolio has returned -12.5% vs. 0.0% for the S&P. Since its inception in July 2003, the Hot List is far outpacing the index, having gained 218.5% vs. the S&P's 84.8% gain. Portfolio Update It's been a difficult fortnight for the Hot List. While the breakdown of holdings in the red and holdings in the black wasn't too bad -- four have gained since our last newsletter, while six have fallen -- the magnitude of some of the decliners has far exceeded the magnitude of the gainers. BofI (Bank of Internet) was the worst of the bunch, declining 23.6% (performance figures as of mid-day on March 27). The catalyst for the decline seemed to be a questionable one: Some commentators said that a single bearish article about the stock, which contended that BOFI was highly overvalued, set off a selling spree. Whether or not that was the case, my models continue to think that the stock merits its higher-than-average valuation (which of course is now much lower than it was) because of its exceptional growth and other strong fundamentals. Were the portfolio to be rebalanced as of this writing, BOFI would still be a member of the Hot List. Another big decliner over the past two weeks has been Lannett Company. The biotech firm's shares were down 16.7%. The Lannett declines came amid a broader biotech selloff that may in part have been triggered by three Democrats on the House's Energy and Commerce Committee requesting a briefing with industry bellwether Gilead about the high price of a new Hepatitis C drug, Markets Emerging reported. Many "generalist" investors who'd been piling into biotech stocks amid strong recent performance may have taken profits because of fears about the Gilead inquiry. "We think the generalist money is sitting on a lot of profit and is 'getting spooked' because of 'government' starting to raise questions about drug pricing," RBC Bank surmised, according to Markets Emerging. RBC said the Gilead pricing concerns are "headline noise." The third Hot List holding making a significant decline over the past two weeks was CaesarStone, which was down more than 9%. There did not appear to be a clear catalyst for the stock's tumble. As with BofI and Lannett Company, Caesarstone is a small-cap that had been quite hot prior to the recent declines. For all three, the bad couple weeks may have been a case of investors getting jittery on minor company-specific or macroeconomic news, and deciding to take profits given the big run ups each of these stocks has had. I believe that bodes well for these stocks in terms of potential bounce-back gains, as their fundamentals remain strong. In fact, I wouldn't be surprised if all three of these stocks rebound as other investors see the recent declines as a big buying opportunity. It was not all bad news for the portfolio. Coach and USANA Health Sciences led the gainers, both rising over 2% since our last newsletter. With USANA, the stock rebounded sharply after fellow multilevel marketer NU Skin Enterprises Inc. received a far less serious penalty than many had expected from Chinese reguRobotors, who had been investigating its business practices. Because they are all multi-level marketers, NU Skin, USANA, and Herbalife have moved on each other's news in recent months as investors have tried to see what impact, if any, regulatory decisions could have on their businesses. While the past couple weeks were difficult for the Hot List, its holdings remain fundamentally strong and the portfolio remains well-positioned for the long term. We'll check in again on performance in our next newsletter two weeks from now.		Editor-in-Chief: John Reese Since Inception   Hot List 218.5% S&P 500 84.8% Accuracy 55.6% Beta 1.2 YTD   Hot List -12.5% S&P 500 0.0% Since Last Issue   Hot List -4.6% S&P 500 0.1% Avg. Fundamentals   Market Cap (mil) $3,795 PE Ratio 23.5 5 Yr EPS Growth 26.2% Yield 0.5% Rel. Strength 73 Portfolio Sectors Capital Goods 3 Healthcare 2 Services 2 Conglomerates 1 Consumer Cyclical 1 Financial 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. Guru Spotlight: Peter Lynch Choosing the greatest fund manager of all-time is a tough task. John Templeton, Benjamin Graham, John Neff -- a number of investors have put up the types of long-term track records that make it difficult to pick just one who was "The Greatest". If you were to rank Peter Lynch at the top of the list, however, you'd probably find few would disagree with you. During his 13-year tenure as the head of Fidelity Investments' Magellan Fund, Lynch produced a 29.2 percent average annual return -- nearly twice the 15.8 percent return that the S&P 500 posted during the same period. According to Barron's, over the last five years of Lynch's tenure, Magellan beat 99.5 percent of all other funds. If those numbers aren't impressive enough, try this one: If you'd invested $10,000 in Magellan the day Lynch took the helm, you would have had $280,000 on the day he retired 13 years later. Just like investors who entrusted him with their money, I, too, owe a special debt of gratitude to Lynch. When I was trying to find my way in the stock market many years ago, Lynch's book One Up On Wall Street was a big part of what put me on the right track. Lynch didn't use complicated schemes or highbrow financial language in giving investment advice; he focused on the basics, and his common sense approach and layman-friendly writing style resonated not only with me but with amateur and professional investors all over, as evidenced by its best-seller status. The wisdom of Lynch's approach so impressed me that I decided to try to computerize the method, the first step I took toward developing my Guru Strategy computer models. Just what was it about Lynch's approach that made him so incredibly successful? Interestingly, a big part of his approach involved something that is not at all exclusive to being a renowned professional fund manager: He invested in what he knew. Lynch believed that if you personally know something positive about a stock -- you buy the company's products, like its marketing, etc. -- you can get a beat on successful businesses before professional investors get around to them. In fact, one of the things that led him to one of his most successful investments -- undergarment manufacturer Hanes -- was his wife's affinity for the company's new pantyhose years ago. But while his "buy-what-you-know" advice has gained a lot of attention over the years, that part of his approach was only a starting point for Lynch. What his strategy really focused on was fundamentals -- that's why I was able to computerize it -- and the most important fundamental he looked at was one whose use he pioneered: the P/E/Growth ratio. The P/E/Growth ratio, or "PEG", divides a stock's price/earnings ratio by its historical growth rate. The theory behind this was relatively simple: The faster a company was growing, the more you should be willing to pay for its stock. To Lynch, PEGs below 1.0 were signs of growth stocks selling on the cheap; PEGs below 0.5 really indicated that a growth stock was a bargain. To show how the P/E/G can be more useful than the P/E ratio, Lynch has cited Wal-Mart, America's largest retailer. In his book "One Up On Wall Street", he notes that Wal-Mart's P/E was rarely below 20 during its three-decade rise. Its growth rate, however was consistently in the 25 to 30 percent range, generating huge profits for shareholders despite the P/E ratio not being particularly low. That also proved another one of Lynch's tenets: that a good company can grow for decades before earnings level off. The PEG wasn't the only abbreviation Lynch popularized within the stock market lexicon. His strategy is often used as a primary example of "GARP" -- Growth At A Reasonable Price -- investing, which blends growth and value tenets. While some categorize Lynch as a growth investor because his favorite type of stocks were "fast-growers" -- those growing earnings per share at an annual rate of at least 20 percent -- his use of PEG as a way to make sure he wasn't paying too much for growth really makes him a hybrid growth-value investor. One Size Doesn't Fit All One aspect of Lynch's approach that makes it different from those of other gurus I follow is his practice of evaluating different categories of stocks with different variables. His favorite category, as I noted, was "fast-growers". These companies were growing earnings at a rate of 20 to 50 percent per year. (Lynch didn't want growth rates above 50 percent, because it was unlikely companies could sustain such high growth rates over the long term). The other two main categories of stocks Lynch examined in his writings were "stalwarts" and "slow-growers". Stalwarts are large, steady firms that have multi-billion-dollar sales and moderate growth rates (between 10 and 20 percent). These are usually firms you know well -- Wal-Mart and IBM are current examples of "stalwarts" based on that definition. Their size and stability usually make them good stocks to have if the market hits a downturn, so Lynch typically kept some of them in his portfolio. "Slow-growers", meanwhile, are firms with higher sales that are growing EPS at an annual rate below 10 percent. These are the types of stocks you invest in primarily for their high dividend yields. One way Lynch treated slow-growers and stalwarts differently from fast-growers involved the PEG ratio. Because slow-growers and stalwarts tend to offer strong dividend yields, Lynch adjusted their PEG calculations to include dividend yield. For example, consider a stock that is selling for $30, and has a P/E ratio of 10, EPS growth of 12 percent, and a 3 percent yield. To find the PEG, you'd divide the P/E (10) by the total of the growth rate and yield (12+3=15). That gives you 10/15=0.67, which, being under 1.0, indicates that the stock is indeed a good value. Another difference: For slow-growers, Lynch wanted a high yield, and the model I base on his approach requires dividend yield to be higher than the S&P average and greater than 3 percent. Beyond The PEG The PEG wasn't the only variable Lynch applied to all stocks. For fast-growers, stalwarts, and slow-growers alike, he also looked at the inventory/sales ratio, which my Lynch-based model wants to be declining, and the debt/equity ratio, which should be below 80%. (For financial companies, it uses the equity/assets ratio and return on assets rates rather than the debt/equity ratio, since financials typically have to carry a lot of debt as a part of their business.) The final part of the Lynch strategy includes two bonus categories: free cash flow/price ratio and net cash/price ratio. Lynch loved it when a stock had a free cash flow/price ratio greater than 35 percent, or a net cash/price ratio over 30 percent. (Lynch defined net cash as cash and marketable securities minus long term debt). Failing these tests doesn't hurt a stock, however, since these are only bonus criteria. A Market-Beater Over the long term my Lynch-inspired model has had its ups and downs, but if you've stuck with it, it's paid off. In 2013 it was a particularly strong performer, with my 10-stock Lynch-based portfolio gaining 68.6% to more than double the S&P 500. Overall since I started tracking it in July 2003, the portfolio has averaged annualized returns of 10.0%, easily beating the 6.0% annualized return for the S&P 500 (all performance figures are through March 25). The 20-stock Lynch-inspired portfolio I track has been one of my best performers, gaining 15.4% annualized over that period. Here's a look at the stocks that currently make up my 10-stock Lynch-based portfolio: Silicon Motion Technology Corporation (SIMO) Cisco Systems, Inc. (CSCO) Celestica Inc. (CLS) Axa SA (AXAHY) Banco Macro SA (BMA) NetApp, Inc. (NTAP) USANA Health Sciences, Inc (USNA) CNOOC Limited (CEO) Ecopetrol SA (EC) Smith & Wesson Holding Corporation (SWHC) News about Validea Hot List Stocks Lannett Company (LCI): Lannett shares tumbled recently, falling about 17% on March 21 and 24. There was no clear catalyst for the declines, though one factor may have been the company's Chief Operating Officer selling $727,910 in shares on March 17, a move reported by Ticker Report. Still, the COO still owns 217,856 shares of the company's stock, valued at approximately $9,552,986, so it's unlikely the sale was the main factor in the declines. Another possible reason for the declines may have been the news that three Democrats on the House's Energy and Commerce Committee requested a briefing with industry bellwether Gilead about the high price of a new Hepatitis C drug, which may have triggered industry-wide concerns about government intervention. Drew Industries (DW): On March 17, Drew announced that its wholly-owned subsidiary, Lippert Components, Inc., had completed the previously announced acquisition of certain assets and the business of Star Design, LLC., an Elkhart, Indiana-based manufacturer of thermoformed sheet plastic products for the RV, bus and specialty vehicle industries. The deal was for $12.3 million, and company officials said they expect the move to be immediately accretive to Drew's earnings. 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 Ticker Company Name Industry Guru Score AGCO AGCO CORPORATION Constr. & Agric. Machinery 100 NTES NETEASE, INC (ADR) Business Services 93 PRXL PAREXEL INTERNATIONAL CORPORATION Biotechnology & Drugs 80 BOFI BOFI HOLDING, INC. Regional Banks 79 CSTE CAESARSTONE SDOT-YAM LTD Constr. - Supplies & Fixtures 68 COH COACH, INC. Retail (Apparel) 67 DW DREW INDUSTRIES, INC. Mobile Homes & RVs 62 HY HYSTER-YALE MATERIALS HANDLING INC Auto & Truck Manufacturers 61 USNA USANA HEALTH SCIENCES, INC. Conglomerates 60 LCI LANNETT COMPANY, INC. Biotechnology & Drugs 44 Ticker Market Cap Date Added Start Price Current Price Return AGCO $5,035 12/20/2013 $57.62 $53.62 -6.9% NTES $8,445 3/14/2014 $65.10 $65.00 -0.2% PRXL $3,031 2/14/2014 $51.70 $53.54 3.6% BOFI $1,085 1/17/2014 $80.22 $76.84 -4.2% CSTE $1,904 3/14/2014 $58.96 $54.80 -7.1% COH $13,699 3/14/2014 $49.11 $49.35 0.5% DW $1,231 3/14/2014 $53.08 $52.37 -1.3% HY $1,214 3/14/2014 $100.75 $94.64 -6.1% USNA $1,026 12/21/2012 $33.83 $73.77 118.1% LCI $1,277 3/14/2014 $43.10 $36.45 -15.4%

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 AGCO   |   NTES   |   PRXL   |   BOFI   |   CSTE   |   COH   |   DW   |   HY   |   USNA   |   LCI   |   AGCO CORPORATION Profile Strategy: Price/Sales Investor Based on: Kenneth Fisher 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: 100% PRICE/SALES RATIO: [PASS] The prospective company should have a low Price/Sales ratio. Smokestack (cyclical) companies with a Price/Sales ratio between .4 and .8 represent good values according to this methodology. AGCOpasses this test as its P/S of 0.47 based on trailing 12 month sales, falls within the "good values" range for cyclical companies. TOTAL DEBT/EQUITY RATIO: [PASS] Less debt equals less risk according to this methodology. AGCO's Debt/Equity of 31.18% 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. AGCO 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 AGCO At this Point Is AGCO a "Super Stock"? YES PRICE/SALES RATIO: [PASS] The prospective company should have a low Price/Sales ratio. Non-Smokestack(non-cyclical) companies with a Price/Sales ratio between .75 and 1.5 are good values. Otherwise, Smokestack(cyclical) companies with a Price/Sales ratio between .4 and .8 represent good values. AGCO's P/S ratio of 0.47 falls within the "good values " range for cyclical industries and is considered attractive. LONG-TERM EPS GROWTH RATE: [PASS] This methodology looks for companies that have an inflation adjusted EPS growth rate greater than 15%. AGCO's inflation adjusted EPS growth rate of 27.41% 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. AGCO's free cash per share of 3.68 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. AGCO, whose three year net profit margin averages 5.81%, passes this evaluation.   NETEASE, INC (ADR) Profile Strategy: Contrarian Investor Based on: David Dreman NetEase, Inc. is a holding company. The Company is an Internet technology company. The Company operates in three segments: Online Game Services, Advertising Services and E-mail, Wireless Value-added Services and Others. The Company provides its Internet and wireless value-added applications, services and technologies and advertising services to Guangzhou NetEase and Guangyitong Advertising and they operate the NetEase Websites and the online advertising business. Guangzhou NetEase has two majority-owned subsidiaries, Youdao Computer (a search business operator) and Wangyibao (the operator of its Wangyibao payment system). Through its subsidiaries and contracts with its affiliates Guangzhou NetEase, Guangyitong Advertising and Shanghai EaseNet and their respective shareholders, it operates an interactive online community in China and is a provider of Chinese language content and services through its online games, Internet portal and wireless value-added services businesses. Analysis Guru Score: 79% MARKET CAP: [PASS] Medium to large-sized companies (the largest 1500 companies) should be chosen, because they are more in the public eye. Furthermore, the investor is exposed to less risk of "accounting gimmickry", and companies of this size have more staying power. NTES has a market cap of $8,445 million, therefore passing the test. EARNINGS TREND: [PASS] A company should show a rising trend in the reported earnings for the most recent quarters. NTES's EPS for the past 2 quarters, (from earliest to most recent quarter) 0.06, 1.53 have been increasing, and therefore the company passes this test. EPS GROWTH RATE IN THE IMMEDIATE PAST AND FUTURE: [PASS] This methodology likes to see companies with an EPS growth rate higher than the S&P in the immediate past and a likelihood that this trend will continue in the near future. NTES passes this test as its EPS growth rate over the past 6 months (2,960.00%) has beaten that of the S&P (1.13%). NTES's estimated EPS growth for the current year is (2,586.36%), which indicates the company is expected to experience positive earnings growth. As a result, NTES passes this test. This methodology would utilize four separate criteria to determine if NTES is a contrarian stock. In order to eliminate weak companies we have stipulated that the stock should pass at least two of the following four major criteria in order to receive "Some Interest". P/E RATIO: [PASS] The P/E of a company should be in the bottom 20% of the overall market. NTES's P/E of 11.83, based on trailing 12 month earnings, meets the bottom 20% criterion (below 12.06), and therefore passes this test. PRICE/CASH FLOW (P/CF) RATIO: [FAIL] The P/CF of a company should be in the bottom 20% of the overall market. NTES's P/CF of 11.40 does not meet the bottom 20% criterion (below 6.89), and therefore fails this test. PRICE/BOOK (P/B) VALUE: [FAIL] The P/B value of a company should be in the bottom 20% of the overall market. NTES's P/B is currently 2.59, which does not meet the bottom 20% criterion (below 1.02), and it therefore fails this test. PRICE/DIVIDEND (P/D) RATIO: [FAIL] The P/D ratio for a company should be in the bottom 20% of the overall market (that is the yield should be in the top 20%). NTES's P/D is not available, and hence an opinion cannot be rendered at this time. This methodology maintains that investors should look for as many healthy financial ratios as possible to ascertain the financial strength of the company. These criteria are detailed below. CURRENT RATIO: [PASS] A prospective company must have a strong Current Ratio (greater than or equal to the average of it's industry [2.32] or greater than 2). This is one identifier of financially strong companies, according to this methodology. NTES's current ratio of 5.38 passes the test. PAYOUT RATIO: [PASS] A good indicator that a company has the ability to raise its dividend is a low payout ratio. The payout ratio for NTES is 0.00%. Unfortunately, its historical payout ratio is not available. Nonetheless it passes the payout criterion, as this is a very low payout. RETURN ON EQUITY: [PASS] The company should have a high ROE, as this helps to ensure that there are no structural flaws in the company. This methodology feels that the ROE should be greater than the top one third of ROE from among the top 1500 large cap stocks, which is 16.45%, and would consider anything over 27% to be staggering. The ROE for NTES of 24.74% is high enough to pass this criterion. PRE-TAX PROFIT MARGINS: [PASS] This methodology looks for pre-tax profit margins of at least 8%, and considers anything over 22% to be phenomenal. NTES's pre-tax profit margin is 54.11%, thus passing this criterion. YIELD: [FAIL] The company in question should have a yield that is high and that can be maintained or increased. NTES's current yield is not available (or one is not paid) at the present time, while the market yield is 2.62%. Hence, this criterion cannot be evaluated. LOOK AT THE TOTAL DEBT/EQUITY: [PASS] The company must have a low Debt/Equity ratio, which indicates a strong balance sheet. The Debt/Equity ratio should not be greater than 20% or should be less than the average Debt/Equity for its industry of 124.55%. NTES's Total Debt/Equity of 4.82% is considered acceptable.   PAREXEL INTERNATIONAL CORPORATION Profile Strategy: Growth Investor Based on: Martin Zweig PAREXEL International Corporation (PAREXEL) is a biopharmaceutical services company, providing a range of expertise in clinical research, medical communications, consulting, and advanced technology products and services to the worldwide pharmaceutical, biotechnology, and medical device industries. It operates it three segments: Clinical Research Services (CRS), PAREXEL Consulting and Medical Communications Services (PCMS) and Perceptive Informatics, Inc. (Perceptive). The Company's product and service offerings include clinical trials management, observational studies and patient/disease registries, data management, biostatistical analysis, epidemiology, health economics / outcomes research, pharmacovigilance, medical communications, clinical pharmacology, patient recruitment, post-marketing surveillance. In May 2013, PAREXEL International Corp acquired the entire share capital of HERON Group Ltd. Analysis Guru Score: 85% P/E RATIO: [PASS] The P/E of a company must be greater than 5 to eliminate weak companies, but not more than 3 times the current Market P/E because the situation is much too risky, and never greater than 43. PRXL's P/E is 27.29, 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. PRXL's revenue growth is 12.69%, while it's earnings growth rate is 20.86%, based on the average of the 3, 4 and 5 year historical eps growth rates. Therefore, PRXL fails this criterion. SALES GROWTH RATE: [PASS] Another important issue regarding sales growth is that the rate of quarterly sales growth is rising. To evaluate this, the change from this quarter last year to the present quarter (18.9%) 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 PRXL this criterion has been met. The earnings numbers of a company should be examined from various different angles. Three of these angles are stability in the trend of earnings, earnings persistence, and earnings acceleration. To evaluate stability, the stock has to pass the following four criteria. CURRENT QUARTER EARNINGS: [PASS] The first of these criteria is that the current EPS be positive. PRXL's EPS ($0.49) pass this test. QUARTERLY EARNINGS ONE YEAR AGO: [PASS] The EPS for the quarter one year ago must be positive. PRXL's EPS for this quarter last year ($0.36) 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. PRXL's growth rate of 36.11% 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 PRXL is 10.43%. This should be less than the growth rates for the 3 previous quarters, which are 31.58%, 79.31%, and 80.00%. PRXL 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, 59.78%, (versus the same three quarters a year earlier) is greater than the growth rate of the current quarter earnings, 36.11%, (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 PRXL is 36.1%, 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, 36.11% must be greater than or equal to the historical growth which is 20.86%. PRXL 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. PRXL, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were 0.68, 0.71, 0.82, 1.04 and 1.61, 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. PRXL's long-term growth rate of 20.86%, 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. PRXL's Debt/Equity (61.00%) is not considered high relative to its industry (73.94%) 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 PRXL, this criterion has not been met (insider sell transactions are 127, while insiders buying number 92). Despite the fact that insider sells out number insider buys for this company, Zweig considers even one insider buy transaction enough to prevent an insider sell signal, therefore there is not an insider sell signal and the stock passes this criterion.   BOFI HOLDING, INC. Profile Strategy: P/E/Growth Investor Based on: Peter Lynch BofI Holding, Inc. is a holding company for BofI Federal Bank, a diversified financial services company. The Bank operate its bank from a single location in San Diego, California, serving approximately 40,000 retail deposit and loan customers across all 50 states. As of June 30, 2012, it had total assets of $2,386.8 million, loans of $1,799.7 million, mortgage-backed and other investment securities of $483.0 million, total deposits of $1,615.1 million and borrowings of $547.2 million. It distributes its deposit products through a range of retail distributions channels, and its deposits consist of demand, savings and time deposits accounts. It distributes its loan products through its retail, correspondent and wholesale channels, and the loans it retains are primarily first mortgages secured by single family real property and by multifamily real property. Analysis Guru Score: 91% DETERMINE THE CLASSIFICATION: This methodology would consider BOFI a "fast-grower". P/E/GROWTH RATIO: [PASS] The investor should examine the P/E (23.38) relative to the growth rate (30.90%), 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 BOFI (0.76) makes it 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. BOFI, whose sales are $148.7 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. 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 BOFI is 30.9%, based on the average of the 3, 4 and 5 year historical eps growth rates, which is acceptable. TOTAL DEBT/EQUITY RATIO: [NEUTRAL] BOFI 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. BOFI's Equity/Assets ratio (9.00%) is 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. BOFI's ROA (1.46%) 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 BOFI (1.00%) 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 BOFI (17.76%) 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.   CAESARSTONE SDOT-YAM LTD Profile Strategy: P/E/Growth Investor Based on: Peter Lynch Caesarstone Sdot-Yam Ltd. (Caesarstone) through its subsidiaries is engaged in the manufacturing of engineered quartz surfaces sold under its premium Caesarstone brand. Caesarstone's products consist of engineered quartz slabs, which are sold in 42 countries. The Company's products are primarily used as kitchen countertops in the renovation and remodeling end markets. Other applications include vanity tops, wall panels, back splashes, floor tiles, stairs and other interior surfaces that are used in a range of residential and non-residential applications. Through its design and manufacturing processes it offers a range of colors, styles, designs and textures. Its four diverse collections include Classico, Supremo, Motivo and Concetto. Kibbutz Sdot-Yam owns 70.1% of the Company's outstanding shares. On May 18, 2011, it acquired 75% of the shares of U.S. Quartz Products, Inc. During the year ended December 31, 2011, it acquired its former United States distributor, Caesarstone USA. Analysis Guru Score: 74% DETERMINE THE CLASSIFICATION: This methodology would consider CSTE a "fast-grower". P/E/GROWTH RATIO: [PASS] The investor should examine the P/E (30.32) relative to the growth rate (62.51%), 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 CSTE (0.49) 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. CSTE, whose sales are $356.6 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. 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 CSTE was 17.05% last year, while for this year it is 16.23%. Since inventory to sales has decreased from last year by -0.81%, CSTE passes this test. EPS GROWTH RATE: [FAIL] 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 CSTE is 62.5%, based on the average of the 3, 4 and 5 year historical eps growth rates, which is considered too fast. TOTAL DEBT/EQUITY RATIO: [PASS] This methodology would consider the Debt/Equity ratio for CSTE (6.70%) to be exceptionally low (equity is at least ten times debt). This ratio is one quick way to determine the financial strength of the company. FREE CASH FLOW: [NEUTRAL] The Free Cash Flow/Price ratio, though not a requirement, is considered a bonus if it is above 35%. A positive Cash Flow (the higher the better) separates a wonderfully reliable investment from a shaky one. This methodology prefers not to invest in companies that rely heavily on capital spending. This ratio for CSTE (1.46%) 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 CSTE (4.17%) 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.   COACH, INC. Profile Strategy: P/E/Growth Investor Based on: Peter Lynch Coach, Inc. (Coach) is a marketer of accessories and gifts for women and men. The Company offers a range of modern, fashionable handbags and accessories. Its product offerings include women's and men's bags, accessories, footwear, wearables, jewelry, travel bags, sunwear, watches and fragrance. The Company operates in two segments: North America, which includes sales to North American consumers through Company-operated stores, including the Internet, and sales to wholesale customers and distributors and International, which includes sales to consumers through Company-operated stores in Japan and mainland China, including the Internet, Hong Kong, Macau, Singapore, Taiwan, Malaysia and Korea and sales to wholesale customers and distributors in 25 countries. Analysis Guru Score: 91% DETERMINE THE CLASSIFICATION: COH is considered a "True Stalwart", according to this methodology, as its earnings growth of 14.50% lies within a moderate 10%-19% range and its annual sales of $4,981 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. COH is attractive if COH can hold its own during a recession. YIELD ADJUSTED P/E TO GROWTH (PEG) RATIO: [PASS] The Yield-adjusted P/E/G ratio for COH (0.83), based on the average of the 3, 4 and 5 year historical eps growth rates, is O.K. EARNINGS PER SHARE: [PASS] The EPS for a stalwart company must be positive. COH's EPS ($3.44) would satisfy this criterion. TOTAL DEBT/EQUITY RATIO: [PASS] This methodology would consider the Debt/Equity ratio for COH (0.02%) to be exceptionally low (equity is at least ten times debt). This ratio is one quick way to determine the financial strength of the company. FREE CASH FLOW: [NEUTRAL] The Free Cash Flow/Price ratio, though not a requirement, is considered a bonus if it is above 35%. A positive Cash Flow (the higher the better) separates a wonderfully reliable investment from a shaky one. This methodology prefers not to invest in companies that rely heavily on capital spending. This ratio for COH (5.90%) 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 COH (8.15%) 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.   DREW INDUSTRIES, INC. Profile Strategy: P/E/Growth Investor Based on: Peter Lynch Drew Industries, is a supplier of components for recreational vehicle (RVs) and manufactured housing. The Company operates in two segments: the RV products segment (RV Segment), and the manufactured housing products segment (MH Segment). The Company's operations are conducted through its wholly owned subsidiaries, Lippert Components, Inc. and its subsidiaries (Lippert) and Kinro, Inc. and its subsidiaries (Kinro), each of which has operations in both the RV Segment and the MH Segment. During the year ended December 31, 2012, the RV Segment accounted for 87% of net sales and the MH segment accounted for 13% of net sales. In February 2014, the Company's wholly-owned subsidiary, Lippert Components, Inc has acquired Innovative Design Solutions, Inc. (IDS). In March 2014, the Company's subsidiary Lippert Components, Inc, completed the acquisition of certain assets and the business of Star Design, LLC. Analysis Guru Score: 91% DETERMINE THE CLASSIFICATION: This methodology would consider DW a "fast-grower". P/E/GROWTH RATIO: [PASS] The investor should examine the P/E (24.83) relative to the growth rate (25.19%), based on the average of the 3 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 DW (0.99) 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. DW, whose sales are $1,015.6 million, needs to have a P/E below 40 to pass this criterion. DW's P/E of (24.83) 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 DW was 10.81% last year, while for this year it is 9.97%. Since inventory to sales has decreased from last year by -0.84%, DW 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 DW is 25.2%, based on the average of the 3 and 5 year historical eps growth rates, which is acceptable. TOTAL DEBT/EQUITY RATIO: [PASS] This methodology would consider the Debt/Equity ratio for DW (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 DW (4.03%) 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 DW (5.27%) 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.   HYSTER-YALE MATERIALS HANDLING INC Profile Strategy: Price/Sales Investor Based on: Kenneth Fisher Hyster-Yale Materials Handling, Inc. (Hyster-Yale), formerly NMHG Holding Co., , designs, engineers, manufactures, sells and services a line of lift trucks and aftermarket parts. The Company's products are marketed globally under the Hyster and Yale brand names. The Company segments include three management units: Americas, Europe and Asia-Pacific. Americas includes its operations in the United States, Canada, Mexico, Brazil and Latin America. Europe includes its operations in Europe, the Middle East and Africa. Asia-Pacific includes its operations in the Asia-Pacific region and China. Lift trucks and component parts are manufactured in the United States, Northern Ireland, Mexico, The Netherlands, the Philippines, Italy, Japan, Vietnam, Brazil and China. Hyster-Yale has a 20% ownership interest in Hyster-Yale Financial Services, Inc. (NFS). Hyster-Yale is a wholly owned subsidiary of NACCO Industries, Inc. (NACCO). Analysis Guru Score: 90% PRICE/SALES RATIO: [PASS] The prospective company should have a low Price/Sales ratio. Smokestack (cyclical) companies with a Price/Sales ratio between .4 and .8 represent good values according to this methodology. HYpasses this test as its P/S of 0.46 based on trailing 12 month sales, falls within the "good values" range for cyclical companies. TOTAL DEBT/EQUITY RATIO: [PASS] Less debt equals less risk according to this methodology. HY's Debt/Equity of 15.45% is acceptable, thus passing the test. PRICE/RESEARCH RATIO: [PASS] This methodology considers companies in the Technology and Medical sectors to be attractive if they have low Price/Research ratios. HY 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 HY At this Point Is HY a "Super Stock"? NO PRICE/SALES RATIO: [PASS] The prospective company should have a low Price/Sales ratio. Non-Smokestack(non-cyclical) companies with a Price/Sales ratio between .75 and 1.5 are good values. Otherwise, Smokestack(cyclical) companies with a Price/Sales ratio between .4 and .8 represent good values. HY's P/S ratio of 0.46 falls within the "good values " range for cyclical industries and is considered attractive. LONG-TERM EPS GROWTH RATE: [PASS] This methodology looks for companies that have an inflation adjusted EPS growth rate greater than 15%. HY's inflation adjusted EPS growth rate of 19.68% 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. HY's free cash per share of 5.93 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. HY, whose three year net profit margin averages 3.78%, fails this evaluation.   USANA HEALTH SCIENCES, INC. Profile Strategy: P/E/Growth Investor Based on: Peter Lynch USANA Health Sciences, Inc. develops and manufactures science-based nutritional and personal care products. The Company has operations in 15 markets worldwide, where it distributes and sells its products by way of direct selling. The Company reports operations in two geographic regions: North America and Asia Pacific, which is further divided into three sub-regions; Southeast Asia/Pacific, Greater China, and North Asia. North America includes the United States, Canada, Mexico, and direct sales from the United States to the United Kingdom and the Netherlands. Southeast Asia/Pacific includes Australia, New Zealand, Singapore, Malaysia, and the Philippines; Greater China includes Hong Kong, Taiwan and China; and North Asia includes Japan and South Korea. The Company's customer base consists of two types of customers: Associates and Preferred Customers. As of December 31, 2011, the Company had 222,000 active Associates and 64,000 active Preferred Customers worldwide. Analysis Guru Score: 91% DETERMINE THE CLASSIFICATION: This methodology would consider USNA a "fast-grower". P/E/GROWTH RATIO: [PASS] The investor should examine the P/E (13.25) relative to the growth rate (25.22%), 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 USNA (0.53) makes it 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. USNA, whose sales are $718.2 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 USNA was 5.62% last year, while for this year it is 6.58%. Since inventory has been rising, this methodology would not look favorably at the stock but would not completely eliminate it from consideration as the inventory increase (0.95%) 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 USNA is 25.2%, 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 USNA (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.   LANNETT COMPANY, INC. Profile Strategy: Small-Cap Growth Investor Based on: Motley Fool Lannett Company, Inc. is engaged in developing, manufacturing, marketing and distributing generic versions of branded pharmaceutical products. All of the Company's products manufactured and/or sold are prescription products. The Company's products containing Levo are produced and marketed with 12 varying potencies. In addition to generic Levo tablets, the Company also markets and distributes Unithroid tablets, a branded version of Levo, which is produced and marketed with 11 varying potencies. The Company's Levo tablets are used to treat hypothyroidism and other thyroid disorders. The Company's generic Levo tablets and Unithroid tablets are manufactured by Jerome Stevens Pharmaceuticals (JSP). As of June 30, 2012, the Company manufactured and/or distributed 30 products. Analysis Guru Score: 93% PROFIT MARGIN: [PASS] This methodology seeks companies with a minimum trailing 12 month after tax profit margin of 7%. The companies that pass this criterion have strong positions within their respective industries and offer greater shareholder returns. A true test of the quality of a company is that they can sustain this margin. LCI's profit margin of 9.45% passes this test. RELATIVE STRENGTH: [PASS] The investor must look at the relative strength of the company in question. Companies whose relative strength is 90 or above (that is, the company outperforms 90% or more of the market for the past year), are considered attractive. Companies whose price has been rising much quicker than the market tend to keep rising. LCI, with a relative strength of 95, satisfies this test. COMPARE SALES AND EPS GROWTH TO THE SAME PERIOD LAST YEAR: [PASS] Companies must demonstrate both revenue and net income growth of at least 25% as compared to the prior year. These growth rates give you the dynamic companies that you are looking for. These rates for LCI (390.00% for EPS, and 84.16% for Sales) are good enough to pass. INSIDER HOLDINGS: [PASS] LCI's insiders should own at least 10% (they own 22.58% ) of the company's outstanding shares which is the minimum required. A high percentage typically indicates that the insiders are confident that the company will do well. CASH FLOW FROM OPERATIONS: [PASS] A positive cash flow is typically used for internal expansion, acquisitions, dividend payments, etc. A company that generates rather than consumes cash is in much better shape to fund such activities on their own, rather than needing to borrow funds to do so. LCI's free cash flow of $0.65 per share passes this test. PROFIT MARGIN CONSISTENCY: [PASS] LCI's profit margin has been consistent or even increasing over the past three years (Current year: 8.82%, Last year: 3.21%, Two years ago: -0.26%), passing the requirement. It is a sign of good management and a healthy and competitive enterprise. R&D AS A PERCENTAGE OF SALES: [PASS] LCI is either maintaining the same levels of R&D expenditures(currently $16.3 million) or increasing these levels which is a good sign. This allows the company to develop the superior technology and new products that will put everyone else out of business. This criterion is particularly important for high-tech and medical stocks because they are so R&D dependant. CASH AND CASH EQUIVALENTS: [PASS] LCI's level of cash $51.2 million passes this criteria. If a company is a cash generator, like LCI, it has the ability to pay off debt (if it has any) or acquire other companies. Most importantly, good operations generate cash. INVENTORY TO SALES: [PASS] This methodology strongly believes that companies, especially small ones, should have tight control over inventory. It's a warning sign if a company's inventory relative to sales increases significantly when compared to the previous year. Up to a 30% increase is allowed, but no more. Inventory to Sales for LCI was 22.00% last year, while for this year it is 21.54%. Since the inventory to sales is decreasing by -0.47% the stock passes this criterion. ACCOUNT RECEIVABLE TO SALES: [PASS] This methodology wants to make sure that a company's accounts receivable do not get significantly out of line with sales. It's a warning sign if a company's accounts receivable relative to sales increases significantly when compared to the previous year. Up to a 30% increase is allowed, but no more. Accounts Receivable to Sales for LCI was 23.34% last year, while for this year it is 17.48%. Since the AR to sales is decreasing by -5.86% the stock passes this criterion. LONG TERM DEBT/EQUITY RATIO: [PASS] LCI's trailing twelve-month Debt/Equity ratio (0.46%) is a little higher than what this methodology is looking for, but is still at an acceptable level. The superior companies that you are looking for don't need to borrow money in order to grow. This company has borrowed very little which is still OK. "THE FOOL RATIO" (P/E TO GROWTH): [FAIL] The "Fool Ratio" is an extremely important aspect of this analysis. The methodology says consider shorting shares when the company's Fool Ratio is greater than 1.30. LCI's PEG Ratio of 4.74 is excessively high. The following criteria for LCI are less important which means you would place less emphasis on them when making your investment decision using this strategy: AVERAGE SHARES OUTSTANDING: [PASS] LCI has not been significantly increasing the number of shares outstanding within recent years which is a good sign. LCI currently has 34.0 million shares outstanding. This means the company is not taking any measures, with regards to the number of shares, that will dilute or devalue the stock. SALES: [PASS] Companies with sales less than $500 million should be chosen. It is among these small-cap stocks that investors can find "an uncut gem", ones that institutions won't be able to buy yet. LCI's sales of $192.4 million based on trailing 12 month sales, are fine, making this company one such "prospective gem". LCI passes the sales test. DAILY DOLLAR VOLUME: [PASS] LCI passes the Daily Dollar Volume (DDV of $17.8 million) test. It is required that this number be less than $25 million because these are the stocks that remain relatively undiscovered by institutions. "You'll be scoring touchdowns against the big guys on your turf." PRICE: [PASS] This is a very insignificant criterion for this methodology. But basically, low prices are chosen because "small numbers multiply more rapidly than large ones" and the potential for big returns expands. LCI with a price of $36.45 passes the price test, even though it doesn't fall in the preferred range. The price should be above $7 in order to eliminate penny stocks and below $20 since most stocks in this price range are undiscovered by the institutions. INCOME TAX PERCENTAGE: [PASS] LCI's income tax paid expressed as a percentage of pretax income this year was (35.30%) and last year (39.27%) are greater than 20% which is an acceptable level. If the tax rate is below 20% this could mean that the earnings that were reported were unrealistically inflated due to the lower level of income tax paid. This is a concern.   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 SWHC SMITH & WESSON HOLDING CORP Recreational Products 88 TBI TRUEBLUE INC Business Services 81 HFC HOLLYFRONTIER CORP Oil & Gas Operations 73 ROST ROSS STORES, INC. Retail (Apparel) 71 TLK PERUSAHN PRSN PSR TLKMKS INDS TBK PT-ADR Communications Services 66 WRLD WORLD ACCEPTANCE CORP. Consumer Financial Services 62 UNFI UNITED NATURAL FOODS, INC. Food Processing 62 TARO TARO PHARMACEUTICAL INDUSTRIES LTD. Biotechnology & Drugs 61 CBI CHICAGO BRIDGE & IRON COMPANY N.V. Construction Services 60 HES HESS CORP. Oil & Gas Operations 60

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