Executive Summary  |   Portfolio  |   Guru Analysis  |   Watch List

Executive Summary	December 21, 2012

The Economy While the fiscal cliff talks drag on, the U.S. economy is continuing to make gains in several key areas. In November, for example, the private sector added 147,000 jobs, according to the Labor Department. That was enough to lower the unemployment rate to 7.7%, the lowest it has been since December 2008. The so-called "U-6" unemployment rate, which unlike the headline figure takes into account workers who have given up looking for a job or those working part-time who want full-time work, also fell to 14.4%. That's still significantly higher than historical averages, but it's the lowest the figure has been since January 2009. Industrial production, meanwhile, increased 1.1% in November, according to a new Federal Reserve report. Part of the reason for the big gain was a rebound in production in the aftermath of Superstorm Sandy, which had limited production in some areas the previous month. Still, November's gains wiped out all of October's losses, and more -- overall production for November was about 0.4% higher than it was in September, before Sandy's arrival. The housing market also continues to improve. Existing home sales rose 5.9% in November, according to the National Association of Realtors, reaching the highest level in three years. Construction starts, meanwhile, dipped a bit in November, falling 3%, according to the Commerce Department, but they remain more than 20% above year-ago levels. Permit issuance for new home construction rose 3.6%. Big news also came from the Federal Reserve. The Fed last week said that, starting in January, it will begin buying $45 billion of Treasury securities per month to support financial markets and bolster the economy. It will continue its ongoing plan of buying $40 billion in mortgage-backed securities per month. The Fed also took the unusual step of linking its interest rate policy to hard economic data. It said it will keep rates low at least as long as the unemployment rate stays above 6.5%, so long as the projected inflation rate a year or two out doesn't exceed 2.5%. The Fed is thus again expanding its balance sheet in an attempt to boost the economic recovery. Since our last newsletter, the S&P 500 returned 2.1%, while the Hot List returned 4.1%. So far in 2012, the portfolio has returned 20.2% vs. 14.8% for the S&P. Since its inception in July 2003, the Hot List is far outpacing the index, having gained 171.6% vs. the S&P's 44.3% gain. Five Reasons for Optimism As 2012 winds down, the general mood surrounding the market and the economy remains one of fear. The fiscal cliff, unresolved debt problems in Europe, and the lingering scars of the financial crisis and Great Recession seem to be giving pessimism the upper hand over optimism, and keeping investors lukewarm (at best) on stocks. But as we head into 2013, I think there are several reasons to be optimistic about where we stand. That doesn't mean we aren't facing some serious problems; there is no doubt that the U.S. and much of the developed world indeed have a lot on their plates. But what it does mean is that overall, a number of factors are combining to make stocks look like attractive investments right now for long-term investors. Here's a handful of those reasons: The Housing Rebound: It's hard to believe that six years have passed since the housing bubble began to burst, but it's true. And while the nascent rebound hasn't been as dramatic as the decline was, it is significant. Housing starts are up 21.9% since a year ago. Permit issuance for new home construction is up 28.1% in that period. Existing-home sales have risen 15.5% in the last 12 months, meanwhile, and pending home sales are up 18%. Home prices are on the rise, too, having jumped 3.6% in the year ending Sept. 30 (the most recent data available), according to the S&P/Case-Shiller Home Price Indices. That's a big deal. Housing is usually a big part of economic recoveries, but until recently it's been absent from this one. The sector's impacts are so wide-ranging -- impacting everything from construction companies to carpet manufacturers to home furnishing stores -- that housing market improvements can lead to the creation of thousands and thousands of jobs. Employment: It's no surprise, then, that the housing recovery has been accompanied by a significant improvement in the jobs market. Yes, unemployment is still far too high, but we've seen real progress lately. The headline unemployment number (7.7%) is down a full percentage point from a year ago, and more than two full percentage points from where it was two years ago. The broader "U-6" measure (which also includes workers who have given up looking for a job or those working part-time who want full-time work) is down 1.2 percentage points in the past year, and 2.5 points in the past two years. More employed workers means more people with money to spend. More people with money to spend means more profits for consumer-related businesses, which drive our economy. More money for them is leading to more jobs, which leads to more people with money to spend -- and so on goes the cycle. As the fiscal cliff mess gets resolved, the hiring may well increase even more. Many companies have been staying in a holding pattern until they get clarity on tax policy and government spending plans. They want to know the rules of the game -- whatever the rules may be -- before they start to really play. If Congress and the President can reach some sort of agreement that lays the tax and policy rules out for them -- whatever it involves -- businesses may have the clarity they need to start spending their cash on new employees, and capital improvements. Global Monetary Conditions: Yes, the Federal Reserve has been sharply criticized by some for its loose money policies in recent years. And, to be sure the Fed has been far from perfect in its decisions. But whether you're pro-Fed or anti-Fed, the reality is that the central bank -- and other central banks around the globe -- are doing what they can to push investors toward riskier assets by keeping interest rates so low. And while that hasn't resulted in a deluge of cash flowing into stocks, it has no doubt helped increase demand for stocks somewhat, and it should continue to do so in 2013. Of course, there are unintended repercussions of loose monetary policy. One is that, if conditions were right, encouraging investors away from bonds and toward stocks could lead to a bubble, with stocks becoming highly overvalued. But that brings me to my next point ... Valuations Are Reasonable: As I noted in a recent Hot List, the broader market seems to be priced somewhere near fair value. Sure, there are some valuation metrics that are flashing warning signals, like the ten-year P/E ratio and Tobin's Q. But there are many more that are indicating the market is in the range of fair value or undervalued. Trailing 12-month P/E ratios are in the low- to mid-teens; the market's price-to-book ratio is lower than its long-term average; the price/sales ratio is a reasonable 1.3 or so; and the stock market-to-GDP ratio has been hovering around the high end of the fair value range/low-end of the modestly overvalued range. In addition, dividend yields are significantly higher than the yields on long-term treasury bonds, a historical rarity and a bullish sign for stocks. Also keep in mind that those figures are for the broader market. When it comes to individual stocks, there are a myriad of good companies with strong track records whose shares are trading at extremely attractive valuations, the type of stocks that the Hot List continues to target. And, as Charles Schwab's Chief Investment Strategist Liz Ann Sonders recently noted, even if the U.S. does go off the fiscal cliff and a recession results, the reasonable valuations should help provide a cushion that would keep a bear market relatively mild. Time: It takes time -- a lot of it -- to recover from financial crises. It may sound obvious, but it's very important to remember. Every year further out we get from the epicenter of the crisis, the more bad debt gets worked off, and the more the nation's collective bearish psyche heals. Professors Kenneth Rogoff and Carmen Reinhart have done perhaps the most extensive research on past financial crises. In examining about 15 pre-2007 financial crises across the globe, Reinhart and Rogoff said in a 2008 paper that on average real house prices fell for six years before rebounding. In very few cases did the declines last less than five years. Unemployment, meanwhile, increased on average for nearly five years by an average of 7 percentage points. Real public debt jumped 86% on average in the three years after the crises. In other words, the tepid recovery we've seen in the past few years isn't a sign that we're headed for disaster, or that America will never grow the way it used to. It is instead a sign that we are experiencing a typical recovery from a financial crisis. (In fact, in a recent piece for Bloomberg.com, the professors said that the economy has in some key ways actually performed better than the average country has in the aftermath of past financial crises). These five factors are, I believe, creating an environment that is pretty supportive for stocks overall, and very attractive for long-term investment strategies that can identify cheap shares of good companies. That doesn't mean 2013 will be an easy, upward climb for the market, or the Hot List portfolio. In the short term, emotions drive the market, and right now there are still a lot of strong emotions out there on the negative side. But good investing is about looking past the short term and focusing on where the best long-term opportunities lie. Right now, I think the stock market is home to plenty excellent opportunities. CNBC Appearance Since our last newsletter, I was interviewed on CNBC about my Warren Buffett-based Guru Strategy. In the interview, I talk about how the Buffett-inspired approach works, and look at a handful of stocks in the Buffett-inspired portfolio we track on Validea.com. The portfolio has been a solid performer over the long-term, and has done extremely well in the last few years. If you'd like to watch the video, click here. Last but not least, have a wonderful holiday and a very happy, very healthy New Year. I'll see you in 2013.		Editor-in-Chief: John Reese Since Inception   Hot List 171.6% S&P 500 44.3% Accuracy 56.3% Beta 1.2 YTD   Hot List 20.2% S&P 500 14.8% Since Last Issue   Hot List 4.1% S&P 500 2.1% Avg. Fundamentals   Market Cap (mil) $31,066 PE Ratio 10.9 5 Yr EPS Growth 19.5% Yield 1.9% Rel. Strength 65 Portfolio Sectors Services 3 Technology 2 Energy 2 Financial 1 Conglomerates 1 Consumer/Non-Cyclical 1
Advertisement Validea Capital Management - Private Portfolio Management Based on Strategies of Legends Are you looking for an alternative to your underperforming mutual funds or financial advisor? Click here to download Validea Capital's investment kit and learn more about the firm's guru-based portfolios. Get More Information on Validea Capital! ** Validea Capital Management is a separate investment advisory firm managed by Validea.com founder John Reese. Thre information above in not intended as personal investment advice and should not be interpreted as such. The Fallen As we rebalance the Validea Hot List, 5 stocks leave our portfolio. These include: Vale Sa (Adr) (VALE), Guess?, Inc. (GES), Hibbett Sports, Inc. (HIBB), Autoliv Inc. (ALV) and Lukoil (Adr) (LUKOY). The Keepers 5 stocks remain in the portfolio. They are: Ross Stores, Inc. (ROST), The Tjx Companies, Inc. (TJX), Western Digital Corp. (WDC), Main Street Capital Corporation (MAIN) and Hollyfrontier Corp (HFC). The Newbies We are adding 5 stocks to the portfolio. These include: Oracle Corporation (ORCL), Jos. A. Bank Clothiers Inc (JOSB), Nu Skin Enterprises, Inc. (NUS), Usana Health Sciences, Inc. (USNA) and Statoil Asa(Adr) (STO). Portfolio Changes Additions   ORACLE CORPORATION ORCL JOS. A. BANK CLOTHIERS INC JOSB NU SKIN ENTERPRISES, INC. NUS USANA HEALTH SCIENCES, INC. USNA STATOIL ASA(ADR) STO Deletions   VALE SA (ADR) VALE GUESS?, INC. GES HIBBETT SPORTS, INC. HIBB AUTOLIV INC. ALV LUKOIL (ADR) LUKOY Newcomers to the Validea Hot List Jos. A. Bank Clothiers (JOSB): Maryland-based Bank ($1.2 billion market cap) sells men's dress and casual apparel. It has upped EPS every year of the past decade and is set to do so again in 2012. That's one reason it gets very high marks from my Warren Buffet-based model. For more on the stock, see the "Detailed Stock Analysis" section below. USANA Health Sciences, Inc. (USNA): Utah-based USANA makes nutritional and personal care products such as vitamins, nutrition bars, and skin and hair cleansers. It has customers in the U.S., Canada, Australia, New Zealand, Mexico, the U.K., and a number of countries in Asia. Its subsidiary, BabyCare, Ltd., has a direct selling business in China. USANA ($534 million market cap) gets strong interest from my Warren Buffett- and Joel Greenblatt-based models. To read more about it, scroll down to the "Detailed Stock Analysis" section. Oracle Corporation (ORCL): This California-based hardware and software giant ($164 billion market cap) has taken in more than $37 billion in sales in the past year. The firm gets strong interest from my Peter Lynch- and Warren Buffett-based models. For more on the stock, see the "Detailed Stock Analysis" section below. Statoil ASA (STO): Based in Norway, this integrated oil and gas firm ($80 billion market cap) has operations in three dozen countries across the globe. It has raked in more than $133 billion in sales in the past year. Statoil gets high marks from my Peter Lynch- and James O'Shaughnessy-based models. For more on the stock, see the "Detailed Stock Analysis" section below. Nu Skin Enterprises, Inc. (NUS): Utah-based Nu Skin ($2.4 billion market cap) is a direct selling company that sells personal care, nutrition, and technology products, such as skin creams, supplements intended to fight aging, and a biophotonic scanner that measures carotenoid antioxidant activity. It sells its products through a network of more than 750,000 independent distributors and preferred customers around the world. Nu Skin gets approval from my Peter Lynch- and Joel Greenblatt-based strategies. To read more about it, scroll down to the "Detailed Stock Analysis" section below. News about Validea Hot List Stocks Main Street Capital Corporation (MAIN): Main Street said on Dec. 17 that it closed its underwritten public offering of 2.5 million shares of common stock at a price of $28.00 per share. The underwriters also fully exercised their option to purchase 375,000 additional shares of Main Street common stock to cover over-allotments. Net proceeds from the offering were approximately $77.1 million, which the firm said will be used to initially repay outstanding debt borrowed under its credit facility, and then through re-borrowing under the credit facility, "to make investments in accordance with its investment objective and strategies, to make investments in marketable securities and idle funds investments, to pay operating expenses and other cash obligations, and for general corporate purposes." Vale S.A. (VALE): Vale shares have jumped about 16% (through Dec. 19) since the Hot List added it to the portfolio a month ago. The exact catalysts for the surge were unclear, though it appears that the stock's attractive valuation and signs that China's economy is turning around were part of the jump. The portfolio is taking the profits and selling its position in Vale on today's rebalancing. 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 MAIN MAIN STREET CAPITAL CORPORATION Misc. Financial Services 100 USNA USANA HEALTH SCIENCES, INC. Conglomerates 85 WDC WESTERN DIGITAL CORP. Computer Storage Devices 65 JOSB JOS. A. BANK CLOTHIERS INC Retail (Apparel) 62 STO STATOIL ASA(ADR) Oil & Gas - Integrated 61 ORCL ORACLE CORPORATION Software & Programming 61 NUS NU SKIN ENTERPRISES, INC. Personal & Household Prods. 59 HFC HOLLYFRONTIER CORP Oil & Gas Operations 58 ROST ROSS STORES, INC. Retail (Apparel) 43 TJX THE TJX COMPANIES, INC. Retail (Apparel) 43 Ticker Market Cap Date Added Start Price Current Price Return MAIN $954 11/23/2012 $30.13 $30.12 -0.0% USNA $512 12/21/2012 TBD $35.49 TBD WDC $10,271 11/23/2012 $35.09 $42.16 20.1% JOSB $1,204 12/21/2012 TBD $43.07 TBD STO $79,459 12/21/2012 TBD $25.02 TBD ORCL $163,558 12/21/2012 TBD $33.94 TBD NUS $2,345 12/21/2012 TBD $39.95 TBD HFC $9,625 8/31/2012 $40.29 $47.38 17.6% ROST $11,844 10/26/2012 $60.92 $53.26 -12.6% TJX $30,884 10/26/2012 $40.73 $42.35 4.0%

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 MAIN   |   USNA   |   WDC   |   JOSB   |   STO   |   ORCL   |   NUS   |   HFC   |   ROST   |   TJX   |   MAIN STREET CAPITAL CORPORATION Profile Strategy: Small-Cap Growth Investor Based on: Motley Fool Main Street Capital Corporation is a United States-based principal investment firm that primarily provides long-term debt and equity capital to lower middle market companies. The Firm targets investments associated with ownership transitions, recapitalizations, strategic acquisitions, business expansion and other growth initiatives for later stage businesses. In addition to providing companies with necessary capital, Main Street provides management with expertise in corporate finance, operations and growth strategy implementation. Analysis Guru Score: 91% 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. MAIN's profit margin of 120.82% passes this test. RELATIVE STRENGTH: [FAIL] 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. Although MAIN's relative strength of 85 is below the acceptable level, yet it is very close. Keep an eye on the stock as it could move into the acceptable range. 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 MAIN (62.90% for EPS, and 34.29% for Sales) are good enough to pass. INSIDER HOLDINGS: [PASS] MAIN's insiders should own at least 10% (they own 11.48% ) 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. MAIN's free cash flow of $1.34 per share passes this test. PROFIT MARGIN CONSISTENCY: [PASS] MAIN's profit margin has been consistent or even increasing over the past three years (Current year: 95.06%, Last year: 92.71%, Two years ago: 74.75%), passing the requirement. It is a sign of good management and a healthy and competitive enterprise. R&D AS A PERCENTAGE OF SALES: [NEUTRAL] This criterion is not critically important for companies that are not high-tech or medical stocks because they are not as R&D dependant as companies within those sectors. Not much emphasis should be placed on this test in MAIN's case. CASH AND CASH EQUIVALENTS: [PASS] MAIN's level of cash $42.7 million passes this criteria. If a company is a cash generator, like MAIN, it has the ability to pay off debt (if it has any) or acquire other companies. Most importantly, good operations generate cash. "THE FOOL RATIO" (P/E TO GROWTH): [PASS] The "Fool Ratio" is an extremely important aspect of this analysis. If the company has attractive fundamentals and its Fool Ratio is 0.5 or less (MAIN's is 0.22), the shares are looked upon favorably. These high quality companies can often wind up as the biggest winners. MAIN passes this test. The following criteria for MAIN are less important which means you would place less emphasis on them when making your investment decision using this strategy: AVERAGE SHARES OUTSTANDING: [PASS] MAIN has not been significantly increasing the number of shares outstanding within recent years which is a good sign. MAIN currently has 32.0 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. MAIN's sales of $84.0 million based on trailing 12 month sales, are fine, making this company one such "prospective gem". MAIN passes the sales test. DAILY DOLLAR VOLUME: [PASS] MAIN passes the Daily Dollar Volume (DDV of $9.7 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. MAIN with a price of $30.12 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: [FAIL] MAIN's income tax paid expressed as a percentage of pretax income either this year (8.94%) or last year (2.61%) is below 20% which is cause for concern. Because the tax rate is below 20% this could mean that the earnings that were reported are unrealistically inflated due to the lower level of income tax paid. However, we have utilized a sophisticated formula so that the appropriate figures reflect a 'normal' tax rate (35%).   USANA HEALTH SCIENCES, INC. Profile Strategy: Value Investor Based on: Benjamin Graham 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: 86% SECTOR: [PASS] USNA 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. USNA's sales of $626.1 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. USNA's current ratio of 2.08 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 USNA is $0.0 million, while the net current assets are $71.9 million. USNA 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. USNA's EPS growth over that period of 452.7% passes the EPS growth test. P/E RATIO: [PASS] 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. USNA's P/E of 12.80 (using the 3 year PE) passes 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. USNA's Price/Book ratio is 2.69, while the P/E is 12.80. USNA fails the Price/Book test.   WESTERN DIGITAL CORP. Profile Strategy: Contrarian Investor Based on: David Dreman Western Digital Corporation (WD) is a provider of solutions for the collection, storage, management, protection and use of digital content, including audio and video. Its principal products are hard drives, which are devices that use one or more rotating magnetic disks (magnetic media) to store and allow access to data. Its hard drives are used in desktop and notebook computers, corporate and cloud computing data centers, home entertainment equipment and stand-alone consumer storage devices. In addition to hard drives, its other products include solid-state drives and home entertainment and networking products. Effective March 8, 2012, it acquired Viviti Technologies Ltd. In May 2012, the Company completed the divestiture of certain 3.5-inch hard drive assets to Toshiba Corporation. As part of its deal with Toshiba, WD also completed its purchase of Toshiba Storage Device (Thailand) Company Limited (TSDT), which manufactured hard drives. Analysis Guru Score: 76% MARKET CAP: [PASS] Medium to large-sized companies (the largest 1500 companies) should be chosen, because they are more in the public eye. Furthermore, the investor is exposed to less risk of "accounting gimmickry", and companies of this size have more staying power. WDC has a market cap of $10,271 million, therefore passing the test. EARNINGS TREND: [FAIL] A company should show a rising trend in the reported earnings for the most recent quarters. WDC's EPS for the latest quarter is not greater than the prior quarter, (from earliest to most recent quarter) 2.86, 2.06. Hence the stock fails this test, but the investor should evaluate this company qualitatively to see if it qualifies under this methodology's "exception rule". EPS GROWTH RATE IN THE IMMEDIATE PAST AND FUTURE: [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. WDC passes this test as its EPS growth rate over the past 6 months (5.10%) has beaten that of the S&P (-1.42%). WDC's estimated EPS growth for the current year is (15.96%), which indicates the company is expected to experience positive earnings growth. As a result, WDC passes this test. This methodology would utilize four separate criteria to determine if WDC 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. WDC's P/E of 5.62, based on trailing 12 month earnings, meets the bottom 20% criterion (below 8.80), and therefore passes this test. PRICE/CASH FLOW (P/CF) RATIO: [PASS] The P/CF of a company should be in the bottom 20% of the overall market. WDC's P/CF of 3.58 meets the bottom 20% criterion (below 4.96) and therefore passes this test. PRICE/BOOK (P/B) VALUE: [FAIL] The P/B value of a company should be in the bottom 20% of the overall market. WDC's P/B is currently 1.27, which does not meet the bottom 20% criterion (below 0.72), 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%). WDC's P/D of 42.19 does not meet the bottom 20% criterion (below 18.94 or yield above 3.7%), and it therefore fails this test. This methodology maintains that investors should look for as many healthy financial ratios as possible to ascertain the financial strength of the company. These criteria are detailed below. CURRENT RATIO: [FAIL] A prospective company must have a strong Current Ratio (greater than or equal to the average of it's industry [4.06] or greater than 2). This is one identifier of financially strong companies, according to this methodology. WDC's current ratio of 1.94 fails the test. PAYOUT RATIO: [PASS] A good indicator that a company has the ability to raise its dividend is a low payout ratio. The payout ratio for WDC 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 16.69%, and would consider anything over 27% to be staggering. The ROE for WDC of 27.50% 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. WDC's pre-tax profit margin is 15.03%, thus passing this criterion. YIELD: [FAIL] The company in question should have a yield that is high and that can be maintained or increased. WDC's current yield is 2.37%, while the market yield is 2.84%. WDC fails this test. LOOK AT THE TOTAL DEBT/EQUITY: [FAIL] 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%. WDC's Total Debt/Equity of 26.48% is not acceptable.   JOS. A. BANK CLOTHIERS INC Profile Strategy: Growth/Value Investor Based on: James P. O'Shaughnessy Jos. A. Bank Clothiers, Inc. (Jos. A. Bank) is a designer, manufacturer, retailer and direct marketer (through stores, catalog call center and Internet) of men's tailored and casual clothing and accessories and is a retailer of tuxedo rental products. Jos. A. Bank sells all of its products under the Jos. A. Bank label through 556 retail stores (as of January 28, 2012, which includes 25 outlet and factory stores and 15 franchise stores) located throughout 43 states and the District of Columbia in the United States, as well as through its catalog call center and Internet (www.josbank.com) operations. It sources substantially all of its merchandise from suppliers and manufacturers or through buying agents using Jos. A. Bank designs and specifications. It has two segments: Stores and Direct Marketing. The Stores segment includes all Company-owned stores, excluding outlet and factory stores (full-line stores). The Direct Marketing segment includes the catalog call center and the Internet. 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. JOSB, with a market cap of $1,204 million, passes this criterion. EARNINGS PER SHARE PERSISTENCE: [PASS] The Cornerstone Growth methodology looks for companies that show persistent earnings growth without regard to magnitude. To fulfill this requirement, a company's earnings must increase each year for a five year period. JOSB, whose annual EPS before extraordinary items for the last 5 years (from earliest to the most recent fiscal year) were 1.82, 2.11, 2.56, 3.08 and 3.49, passes this test. PRICE/SALES RATIO: [PASS] The Price/Sales ratio should be below 1.5. This value criterion, coupled with the growth criterion, identify growth stocks that are still cheap to buy. JOSB's Price/Sales ratio of 1.16, 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. JOSB has a relative strength of 35. 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.   STATOIL ASA(ADR) Profile Strategy: P/E/Growth Investor Based on: Peter Lynch Statoil ASA (Statoil) is an integrated energy company primarily engaged in oil and gas exploration and production activities. As of December 31, 2011, the Company had business operations in 41 countries and territories. Effective from January 1, 2011, the Company's segments were Development and Production Norway; Development and Production International; Marketing, Processing and Renewable Energy; Fuel & Retail, Other. As of 31 December 2011, the Company had proved reserves of 2,276 million barrels (mmbbl) and 3,150 billion cubic meters (bcm) (equivalent to 17,681 trillion cubic feet (tcf)) of natural gas, corresponding to aggregate proved reserves of 5,426 mmboe. In June 2012, the Company divested its 54% interest in Statoil Fuel & Retail ASA to Alimentation Couche-Tard. Analysis Guru Score: 93% DETERMINE THE CLASSIFICATION: STO is considered a "True Stalwart", according to this methodology, as its earnings growth of 15.70% lies within a moderate 10%-19% range and its annual sales of $134,227 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. STO is attractive if STO can hold its own during a recession. INVENTORY TO SALES: [PASS] When inventories increase faster than sales, it is a red flag. However an increase of up to 5% is considered bearable if all other ratios appear attractive. Inventory to sales for STO was 4.46% last year, while for this year it is 4.14%. Since inventory to sales has decreased from last year by -0.32%, STO passes this test. YIELD ADJUSTED P/E TO GROWTH (PEG) RATIO: [PASS] The Yield-adjusted P/E/G ratio for STO (0.27), based on the average of the 3, 4 and 5 year historical eps growth rates, is excellent. EARNINGS PER SHARE: [PASS] The EPS for a stalwart company must be positive. STO's EPS ($4.61) would satisfy this criterion. TOTAL DEBT/EQUITY RATIO: [PASS] This methodology would consider the Debt/Equity ratio for STO (36.47%) 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 STO (-0.16%) 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 STO (-19.29%) 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.   ORACLE CORPORATION Profile Strategy: Growth Investor Based on: Martin Zweig Oracle Corporation is a provider of enterprise software and computer hardware products and services. The Company's software, hardware systems, and services businesses develops, manufactures, markets, hosts and supports database and middleware software, applications software, and hardware systems, with the latter consisting primarily of computer server and storage products. It is organized into three businesses: software, hardware systems and services. Its software business consists of two segments: new software licenses and software license updates and product support. Its hardware systems business consists of two segments: hardware systems products and hardware systems support. The Company's services business consists of the remainder of its segments and offers consulting services, managed cloud services, and education services. On January 25, 2012, it acquired RightNow Technologies, Inc. (RightNow). On April 5, 2012, the Company acquired Taleo Corporation (Taleo). 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. ORCL's P/E is 16.01, 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. ORCL's revenue growth is 15.23%, while it's earnings growth rate is 19.10%, based on the average of the 3, 4 and 5 year historical eps growth rates. Therefore, ORCL 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 (3.4%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (-2.3%) of the current year. Sales growth for the prior must be greater than the latter. For ORCL 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. ORCL's EPS ($0.53) pass this test. QUARTERLY EARNINGS ONE YEAR AGO: [PASS] The EPS for the quarter one year ago must be positive. ORCL's EPS for this quarter last year ($0.43) 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. ORCL's growth rate of 23.26% 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 ORCL is 9.55%. This should be less than the growth rates for the 3 previous quarters, which are 19.51%, 11.29%, and 13.89%. ORCL 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, 14.39%, (versus the same three quarters a year earlier) is less than the growth rate of the current quarter earnings, 23.26%, (versus the same quarter one year ago) then the stock passes. EPS GROWTH FOR CURRENT QUARTER MUST BE GREATER THAN THE HISTORICAL GROWTH RATE: [PASS] The EPS growth rate for the current quarter, 23.26% must be greater than or equal to the historical growth which is 19.10%. ORCL 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. ORCL, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were 1.06, 1.09, 1.21, 1.67 and 1.96, 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. ORCL's long-term growth rate of 19.10%, based on the average of the 3, 4 and 5 year historical eps growth rates, passes this test. TOTAL DEBT/EQUITY RATIO: [FAIL] 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. ORCL's Debt/Equity (45.51%) is considered high relative to its industry (17.03%) and fails 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 ORCL, this criterion has not been met (insider sell transactions are 147, while insiders buying number 165). Despite the lack of an insider buy signal, there also is not an insider sell signal, so the stock passes this criterion.   NU SKIN ENTERPRISES, INC. Profile Strategy: Price/Sales Investor Based on: Kenneth Fisher Nu Skin Enterprises, Inc. is a global direct selling company with operations in 52 markets worldwide. The Company develops and distributes anti-aging personal care products and nutritional supplements under its Nu Skin and Pharmanex brands, respectively. The Company operates through a direct selling model with independent distributors in all of its markets except Mainland China. As of December 31, 2011, the Company had more than 850,000 distributors. The Company has two primary product categories, each operating under its own brand. It markets its personal care products under the Nu Skin brand and its nutritional supplements under the Pharmanex brand. During the year ended December 31, 2011, approximately 88% of its revenues came from its markets outside of the United States. On December 13, 2011, the Company acquired LifeGen Technologies, LLC (LifeGen). Analysis Guru Score: 90% PRICE/SALES RATIO: [PASS] The prospective company should have a low Price/Sales ratio. Non-cyclical (non-Smokestack) companies with Price/Sales ratio between .75 and 1.5 are good values. NUS's P/S ratio of 1.13 based on trailing 12 month sales, falls within the "good values" range for non-cyclical companies and is considered attractive. TOTAL DEBT/EQUITY RATIO: [PASS] Less debt equals less risk according to this methodology. NUS's Debt/Equity of 38.46% 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. NUS 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 NUS At this Point Is NUS a "Super Stock"? NO PRICE/SALES RATIO: [FAIL] The prospective company should have a low Price/Sales ratio. To be considered a "Super Stock", non-cyclical (non-Smokestack) companies should have Price/Sales ratios below .75. However, NUS, who has a P/S of 1.13, does not fall within the "Super Stock" range. It does fall between 0.75 and 1.5, which is considered the "good values" range for non-cyclical companies. Nonetheless, it does not pass this "Super Stock" criterion. LONG-TERM EPS GROWTH RATE: [PASS] This methodology looks for companies that have an inflation adjusted EPS growth rate greater than 15%. NUS's inflation adjusted EPS growth rate of 33.84% 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. NUS's free cash per share of 2.26 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. NUS, whose three year net profit margin averages 8.13%, passes this evaluation.   HOLLYFRONTIER CORP Profile Strategy: Small-Cap Growth Investor Based on: Motley Fool HollyFrontier Corporation (HollyFrontier), formerly Holly Corporation, is a petroleum refiner, which produces light products, such as gasoline, diesel fuel, jet fuel, specialty lubricant products, and specialty and modified asphalt. HollyFrontier operates in two segments: Refining and Holly Energy Partners, L.P. (HEP). The Refining segment includes the operations of its El Dorado, Tulsa, Navajo, Cheyenne and Woods Cross Refineries and NK Asphalt. The HEP segment involves all of the operations of HEP. As of December 31, 2011, it operated five refineries having a combined crude oil processing capacity of 443,000 barrels per day that serve markets throughout the Mid-Continent, Southwest and Rocky Mountain regions of the United States. The Company merged with Frontier Oil Corporation (Frontier), on July 1, 2011. On November 9, 2011, HEP acquired from the Company certain tankage, loading rack and crude receiving assets located at its El Dorado and Cheyenne Refineries. Analysis Guru Score: 72% 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. HFC's profit margin of 8.01% 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. HFC, with a relative strength of 93, satisfies this test. COMPARE SALES AND EPS GROWTH TO THE SAME PERIOD LAST YEAR: [FAIL] 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 HFC (18.55% for EPS, and 0.61% for Sales) are not good enough to pass. INSIDER HOLDINGS: [FAIL] HFC's insiders should own at least 10% (they own 0.90%) of the company's outstanding shares. This does not satisfy the minimum requirement, and companies that do not pass this criteria are less attractive. 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. HFC's free cash flow of $4.47 per share passes this test. PROFIT MARGIN CONSISTENCY: [PASS] HFC's profit margin has been consistent or even increasing over the past three years (Current year: 6.63%, Last year: 1.25%, Two years ago: 0.40%), passing the requirement. It is a sign of good management and a healthy and competitive enterprise. R&D AS A PERCENTAGE OF SALES: [NEUTRAL] This criterion is not critically important for companies that are not high-tech or medical stocks because they are not as R&D dependant as companies within those sectors. Not much emphasis should be placed on this test in HFC's case. CASH AND CASH EQUIVALENTS: [PASS] HFC's level of cash $1,790.5 million passes this criteria. If a company is a cash generator, like HFC, 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 HFC was 4.81% last year, while for this year it is 7.22%. Although the inventory to sales is rising, it is below the max 30% that is allowed. The investor can still consider the stock if all other criteria appear very attractive. 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 HFC was 12.55% last year, while for this year it is 9.94%. Since the AR to sales is decreasing by -2.61% the stock passes this criterion. LONG TERM DEBT/EQUITY RATIO: [FAIL] HFC's trailing twelve-month Debt/Equity ratio (23.36%) is too high, according to this methodology. You can find other more superior companies that do not have to borrow money in order to grow. "THE FOOL RATIO" (P/E TO GROWTH): [PASS] The "Fool Ratio" is an extremely important aspect of this analysis. If the company has attractive fundamentals and its Fool Ratio is 0.5 or less (HFC's is 0.15), the shares are looked upon favorably. These high quality companies can often wind up as the biggest winners. HFC passes this test. The following criteria for HFC are less important which means you would place less emphasis on them when making your investment decision using this strategy: AVERAGE SHARES OUTSTANDING: [PASS] HFC has not been significantly increasing the number of shares outstanding within recent years which is a good sign. HFC currently has 204.0 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: [FAIL] 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. HFC's sales of $19,915.6 million based on trailing 12 month sales, are too high and would therefore fail the test. It is companies with $500 million or less in sales that are most likely to double or triple in size in the next few years. DAILY DOLLAR VOLUME: [FAIL] HFC does not pass the Daily Dollar Volume (DDV of $125.0 million) test. It exceeds the maximum requirement of $25 million. Stocks that fail the test are too liquid for a small individual investor and many institutions have already discovered it. 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. HFC with a price of $47.38 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] HFC's income tax paid expressed as a percentage of pretax income this year was (35.45%) and last year (30.83%) 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.   ROSS STORES, INC. Profile Strategy: Price/Sales Investor Based on: Kenneth Fisher Ross Stores, Inc., along with its subsidiaries, operates two brands of off-price retail apparel and home fashion stores. As of January 28, 2012, the Company operated a total of 1,125 stores, of which 1,037 were Ross Dress for Less (Ross) locations in 29 states, the District of Columbia, and Guam, and 88 were dd's DISCOUNTS stores in seven states: 48 in California, 19 in Texas, 12 in Florida, four in Arizona, two in Georgia, two in Nevada, and one in Maryland. Ross focuses on customers primarily from middle income households, while dd's DISCOUNTS focuses on customers from more moderate income households. During the fiscal year ended January 28, 2012 (fiscal 2012), it opened 59 new Ross stores and closed ten existing stores. During fiscal 2011, it opened 21 new dd's DISCOUNTS stores. The average approximate dd's DISCOUNTS store size is 23,900 square feet. In April 2011, it purchased a 449,000 square foot warehouse for packaway storage in Riverside, California. Analysis Guru Score: 90% PRICE/SALES RATIO: [PASS] The prospective company should have a low Price/Sales ratio. Non-cyclical (non-Smokestack) companies with Price/Sales ratio between .75 and 1.5 are good values. ROST's P/S ratio of 1.27 based on trailing 12 month sales, falls within the "good values" range for non-cyclical companies and is considered attractive. TOTAL DEBT/EQUITY RATIO: [PASS] Less debt equals less risk according to this methodology. ROST's Debt/Equity of 8.84% 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. ROST 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 ROST At this Point Is ROST a "Super Stock"? NO PRICE/SALES RATIO: [FAIL] The prospective company should have a low Price/Sales ratio. To be considered a "Super Stock", non-cyclical (non-Smokestack) companies should have Price/Sales ratios below .75. However, ROST, who has a P/S of 1.27, does not fall within the "Super Stock" range. It does fall between 0.75 and 1.5, which is considered the "good values" range for non-cyclical companies. Nonetheless, it does not pass this "Super Stock" criterion. LONG-TERM EPS GROWTH RATE: [PASS] This methodology looks for companies that have an inflation adjusted EPS growth rate greater than 15%. ROST's inflation adjusted EPS growth rate of 28.97% 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. ROST's free cash per share of 1.31 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. ROST, whose three year net profit margin averages 6.95%, passes this evaluation.   THE TJX COMPANIES, INC. Profile Strategy: Growth/Value Investor Based on: James P. O'Shaughnessy The TJX Companies, Inc. (TJX) is the off-price apparel and home fashions retailer in the United States and worldwide. As of January 28, 2012, the Company operated in four business segments. It has two segments in the United States, Marmaxx (T.J. Maxx and Marshalls) and HomeGoods; one in Canada, TJX Canada (Winners, Marshalls and HomeSense) and one in Europe, TJX Europe (T.K. Maxx and HomeSense). As a result of the consolidation of the A.J. Wright chain, all A.J. Wright stores ceased operations by the end of February 2011. It completed the consolidation of A.J. Wright, converting 90 of the A.J. Wright stores to T.J. Maxx, Marshalls or HomeGoods banners and closed the remaining 72 stores, two distribution centers and home office. 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. TJX, with a market cap of $30,884 million, passes this criterion. EARNINGS PER SHARE PERSISTENCE: [PASS] The Cornerstone Growth methodology looks for companies that show persistent earnings growth without regard to magnitude. To fulfill this requirement, a company's earnings must increase each year for a five year period. TJX, whose annual EPS before extraordinary items for the last 5 years (from earliest to the most recent fiscal year) were 0.84, 1.04, 1.42, 1.65 and 1.93, passes this test. PRICE/SALES RATIO: [PASS] The Price/Sales ratio should be below 1.5. This value criterion, coupled with the growth criterion, identify growth stocks that are still cheap to buy. TJX's Price/Sales ratio of 1.24, 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. TJX, whose relative strength is 79, is in the top 50 and would pass this last criterion.   Watch List The Watch List contains the highest scoring stocks according to our guru consensus system that are not currently in the Hot List portfolio. We provide this list both for informational purposes and for investors who are not comfortable with a portfolio of ten stocks. Ticker Company Name Industry Guru Score VALE VALE SA (ADR) Metal Mining 64 GES GUESS?, INC. Retail (Apparel) 58 NOC NORTHROP GRUMMAN CORPORATION Aerospace & Defense 54 DCM NTT DOCOMO INC (ADR) Communications Services 52 RUE RUE21, INC. Retail (Apparel) 52 FINL FINISH LINE INC Retail (Apparel) 51 ECPG ENCORE CAPITAL GROUP, INC. Misc. Financial Services 46 BBBY BED BATH & BEYOND INC. Retail (Specialty) 45 SPRD SPREADTRUM COMMUNICATIONS, INC (ADR) Semiconductors 45 BRLI BIO-REFERENCE LABORATORIES INC Healthcare Facilities 44

Disclaimer

The names of individuals (i.e., the 'gurus') appearing in this report are for identification purposes of his methodology only, as derived by Validea.com from published sources, and are not intended to suggest or imply any affiliation with or endorsement or even agreement with this report personally by such gurus, or any knowledge or approval by such persons of the content of this report. All trademarks, service marks and tradenames appearing in this report are the property of their respective owners, and are likewise used for identification purposes only. Validea is not registered as a securities broker-dealer or investment advisor either with the U.S. Securities and Exchange Commission or with any state securities regulatory authority. Validea is not responsible for trades executed by users of this site based on the information included herein. The information presented on this website does not represent a recommendation to buy or sell stocks or any financial instrument nor is it intended as an endorsement of any security or investment. The information on this website is generic by nature and is not personalized to the specific situation of any individual. The user therefore bears complete responsibility for their own investment research and should seek the advice of a qualified investment professional prior to making any investment decisions. Performance results are based on model portfolios and do not reflect actual trading. Actual performance will vary based on a variety of factors, including market conditions and trading costs. Past performance is not necessarily indicative of future results. Individual stocks mentioned throughout this web site may be holdings in the managed portfolios of Validea Capital Management, a separate asset management firm founded by Validea.com founder John Reese. Validea Capital Management, which is a separate legal entity and an SEC registered investment advisory firm, uses, in part, the strategies on the web site to select stocks for its clients.