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Executive Summary	August 19, 2011

The Economy With EuroZone debt fears spiking and U.S. debt fears lingering, it's been another tumultuous week for the equity markets. But the hard data beneath the fear-filled headlines actually shows that things aren't as bad as they may seem. Consider recent unemployment claims reports. While still high compared to historical levels, the four-week moving average of new claims has fallen to its lowest level in almost four months. New claims for last week were about 15% below their 2011 high, and 16% below their year-ago level. The U.S. consumer also continues to show remarkable resilience. Though wearied from the recession and quickly losing faith in their elected representatives, consumers felt good enough to increase their retail spending in July, according to the Commerce Department. Retail and food service sales rose 0.5% for the month, it said. June's increase was also revised upward. The figure has now risen in 24 of the 28 months since hitting a low in March 2009. Early manufacturing data for August has, however, been disappointing. The Federal Reserve Bank of New York's monthly manufacturing survey showed that general business conditions declined in the state for the third time in four months. The Philadelphia Fed's regional manufacturing index (which covers several mid-Atlantic states), meanwhile, was downright ugly. After being slightly in positive territory in July, the index fell to -30.7 in August, with 45.7% of respondents reporting a decline in business conditions and only 14.7% reporting an increase. Keep in mind, however, that in some past months regional manufacturing reports have been weak but overall national numbers have ended up comfortably in positive territory. The housing market, which was perhaps the main factor in the "Great Recession", continues to struggle. Existing-home sales fell 3.5% in July, according to new data from the National Association of Realtors. A government report also showed that new building permits for private housing fell 3.2% in July, and new housing starts slipped 1.5%. The individual reports have thus been mixed. The markets, however, have been more concerned with broader fears about debt -- particularly European debt. Yes, fears of a burgeoning U.S. debt are certainly present, but do investors really fear a U.S. default? If they did, would Treasury prices have soared -- and yields thereby plunged -- the day after Standard & Poor's issued its downgrade of U.S. debt? And while recent economic reports have been mixed, few -- perhaps only the Philadelphia Fed manufacturing report -- have been as surprisingly bad as to merit the huge swings we've seen in stocks. No, the downdraft we've seen seems to be more of a reaction to fears about Europe. This pattern goes back to last year -- the correction that began in late April 2010 started exactly one day after Moody's downgraded Greece's debt, and on the same day that Greece's prime minister asked for a major aid package from the European Union and International Monetary Fund. (And at that time, the markets seemed truly worried about a Greek default, as Greek debt yields soared.) Amid all the fear, it's been a tough, volatile fortnight for the market. Since our last newsletter, the S&P 500 has returned -5.0%, while the Hot List has returned -7.8%. So far in 2011, the portfolio has returned -15.7% vs. -9.3% for the S&P. Since its inception in July 2003, the Hot List is far outpacing the index, having gained 127.5% vs. the S&P's 14.0% gain. Deja Vu All Over Again? There's no denying it: On the surface, the last couple weeks have felt more than a little like the fall of 2008. The major stock market indices have been swinging 4, 5, even 6 percent in a single day. The headlines are filled with debt-related fears. And investors are cramming into "safe" investments like Treasury bills at an astonishing rate. Some key differences exist between today and the fall of 2008, however. For one thing, back then, piles of mortgage-backed securities weren't just dragging down banks' balance sheets -- they were making it impossible to even determine what exactly was on those balance sheets. Were those securities worth 75% of what they were thought to be worth? 50%? 30%? Or were they, quite simply, worthless? Today, debt is again the issue, but it's a more quantifiable sort. That doesn't mean it's not a problem. But more of the cards are on the table this time around, and, given how much the market doesn't like negative surprises, that's a good thing. U.S. financials have thus also had nearly three years to recapitalize (with extensive help from Uncle Sam), and to deal with those MBS's that were clogging their balance sheets. Just as financials have recapitalized, U.S. consumers have gained liquidity. The personal savings rate (savings as a percentage of disposable income) for June (the most recent month for which government data is available) was 5.4%, more than double what it was when the 2007-09 recession began. And consider this: Americans' "financial obligations ratio" -- that is, the amount of debt the average American has as a percentage of disposable income -- was 18.85% in the third quarter of 2007, right before the recession began. The Federal Reserve's web site has data going back to 1980, and that was the highest level on record. In the first quarter of 2011 (the most recent data available), the figure had fallen to 16.39%, the lowest level in 17 years. That's right, Americans' debt loads are down to 1994 levels, something that has been largely lost amid the negative headlines that have dominated the financial world the past couple years. Finally, U.S. non-financial companies have gotten incredibly lean. It's come at the expense of jobs -- many companies have been hoarding cash rather than hiring, likely because they fear another 2008. But they collectively have liquidity that they did not have back in 2008. There are also, to be sure, some negative factors not present back in 2008. For one, to repeat a metaphor that has been beaten to death, the Federal Reserve doesn't have nearly the amount of bullets that it had at its disposal back then. Interest rates are at rock bottom, and the Fed's balance sheet has more than tripled over the past four years by virtue of its wide-ranging quantitative easing programs. Nevertheless, on the whole, I'd say we're significantly better off than we were in late 2008. Most investors, however, don't think about all that. They see the declines in their portfolio, and feel the wild gyrations of the market, and flash back to '08. It's to be expected -- that's how we're hardwired. "Recency bias" -- the tendency to weigh recent events more heavily when trying to predict what will happen in the future -- impacts everyone, both in terms of investing and other parts of life. In this case, it seems to be manifesting as a financial version of post-traumatic stress disorder. Any hint of the feelings they felt in '08, and investors are jolted to the point that they'll run the opposite direction from stocks. Not everyone, of course. Some of the world's best investors, including Warren Buffett, David Herro, and even the often-gloomy Jeremy Grantham, have all said they've been buying up shares as the market has tumbled. What they know, and what many forget, is that it all comes back to value. And right now, there seems to be plenty of value in the market. Using the average of last year's operating and as-reported earnings, the S&P 500 now trades at a price/earnings ratio of about 14. Using an average of operating and as-reported earnings for the past five years, the P/E is about 17.5 -- hardly frothy (and that includes earnings from one of the worst periods in history.) More importantly, plenty of individual stocks are offering exceptional values. Of course, as always, you never know when those values will be realized. A couple of our holdings have had some very rough periods recently, and in the short term the rough sledding could continue. Given the emotional battering investors have taken in the past decade or so, and the legitimate economic concerns hovering over many parts of the world, it may take them a while to start snatching up stocks again. But even if that is the case, to me, it's worth a bit of a wait, especially considering the alternatives. Bond prices have been going through the roof and offering little in the way of yield; gold has been climbing higher and higher, but has no real source of revenue or earnings behind it -- you can't assess its true value in any tangible way; and cash is yielding next to nothing. So we'll continue to focus on attractive shares of solid companies, remembering that history has shown that staying disciplined through tough times is the way to make money over the long term. As the great Peter Lynch said, "The real key to making money in stocks is not to get scared out of them." We don't intend to.		Editor-in-Chief: John Reese Since Inception   Hot List 127.5% S&P 500 14.0% Accuracy 55.6% Beta 1.2 YTD   Hot List -15.7% S&P 500 -9.3% Since Last Issue   Hot List -7.8% S&P 500 -5.0% Avg. Fundamentals   Market Cap (mil) $16,780 PE Ratio 16.1 5 Yr EPS Growth 15.8% Yield 3.6% Rel. Strength 68 Portfolio Sectors Financial 3 Technology 3 Services 2 Energy 1 Healthcare 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. Guru Spotlight: Warren Buffett With his humble Midwest beginnings, plainspoken wisdom and wit, and incredible wealth, Warren Buffett has become the most-watched investor in the world. But as interesting a character as Buffett is, the more important piece of the Buffett puzzle for investors is this: How did he do it? My Buffett-based Guru Strategy attempts to answer that question. Based on the approach Buffett reportedly used to build his fortune, it tries to use the same conservative, stringent criteria to choose stocks that the "Oracle of Omaha" has used in evaluating businesses. Before we get into exactly how this strategy works, a couple notes about Buffett and my Buffett-based strategy: First, while most of my Guru Strategies are based on published writings of the gurus themselves, Buffett has not publicly disclosed his exact strategy (though he has hinted at pieces of it). My Buffett-inspired model is based on the book Buffettology, written by Mary Buffett, Warren's ex-daughter-in-law, and David Clark, a Buffett family friend, both of whom worked closely with Buffett. Second, while most of my Buffett-based method centers on a company's fundamentals, there are a few non-statistical criteria to keep in mind. For example, Buffett likes to invest in companies that have very recognizable brand names, to the point that it is difficult for competitors to take away their market share, no matter how much capital they have. One example of a current Berkshire holding that meets this criterion is Coca-Cola, whose name is engrained in the culture of America, as well as other parts of the world. In addition, Buffett also likes firms whose products are simple for an investor to understand -- food, diapers, razors, to name a few examples. In the end, however, for Buffett, it comes down to the numbers -- those on a company's balance sheet and those that represent the price of its stock. In terms of the numbers on the balance sheet, one theme of the Buffett approach is solid results over a long period of time. He likes companies that have a lengthy history of steady earnings growth, and, in most cases, the model I base on his philosophy requires companies to have posted increasing earnings per share each year for the past ten years. There are a few exceptions to this, one of which is that a company's EPS can be negative or be a sharp loss in the most recent year, because that could signal a good buying opportunity (if the rest of the company's long-term earnings history is solid). Another part of Buffett's conservative approach: targeting companies with manageable debt. My model calls for companies to have the ability to pay off their debt within five years, based on their current earnings. It really likes stocks that could pay off their debts in less than two years. Smart Management, and an Advantage Two qualities Buffett is known to look for in his buys are strong management and a "durable competitive advantage". Both of those are qualitative things, but Buffett has used certain quantitative measures to get an idea of whether a firm has those qualities. Two of those measures are return on equity and return on total capital. The model I base on Buffett's approach likes firms to have posted an average ROE of at least 15% over the past 10 years and the past three years, and an ROTC of at least 12% over those time frames. Another way Buffett examines a firm's management is by looking at how the it spends the company's retained earnings -- that is, the earnings a company keeps rather than paying out in dividends. My Buffett-based model takes the amount a company's earnings per share have increased in the past decade and divides it by the total amount of retained earnings over that time. The result shows how much profit the company has generated using the money it has reinvested in itself -- in other words, how well management is using retained earnings to increase shareholders' wealth. The Buffett method requires a firm to have generated a return of 12% or more on its retained earnings over the past decade. The Price Is Right? The criteria we've covered so far all are used to identify "Buffett-type" stocks. But there's a second critical part to Buffett's analysis: price -- can he get the stock of a quality company at a good price? One way my Buffett-based model answers this question is by comparing a company's initial expected yield to the long-term treasury yield. (If it's not going to earn you more than a nice, safe T-Bill, why take the risk involved in a stock?) To predict where a stock will be in the future, Buffett uses not just one, but two different methods to estimate what the company's earnings and stock's rate of return will be 10 years from now. One method involves using the firm's historical return on equity figures, while another uses earnings per share data. (You can find details on these methods by viewing an individual stock's scores on the Buffett model on Validea.com, or in my latest book, The Guru Investor.) This notion of predicting what a company's earnings will be in 10 years may seem to run counter to Buffett's nonspeculative ways. But while using these methods to predict a company's earnings for the next 10 years in her book, Mary Buffett notes: "In most situations this would be an act of insanity. However, as Warren has found, if the company is one of sufficient earning power and earns high rates of return on shareholders' equity, created by some kind of consumer monopoly, chances are good that accurate long-term projections of earnings can be made." A Strong Rebounder My Buffett-based 10-stock portfolio wasn't one of my original portfolios, instead coming online in late 2003. Since then, it's returned about 25%, about twice what the S&P 500 has gained. While the portfolio hasn't been one of my best performers, it has excelled coming out of downturns. In 2004, as we were emerging from the lengthy recession associated with the tech stock bust, the Buffett portfolio surged 37.3%, more than quadrupling the S&P's 9% gain. In addition, after struggling in 2007 and 2008 amid the latest recession and bear market, the portfolio bounced back strong in 2009 -- very strong. It gained 50.3%, more than doubling the gains of the broader market. This strong performance out of downturns is no surprise, given Buffett's penchant for pouncing on good, beaten down stocks, which usually abound during tough times as investors let fear get the best of them. One of Buffett's mantras is that investors "should try to be fearful when others are greedy and greedy only when others are fearful", and he's lived up to that recently -- while others have run from stocks during the recent downdraft, he says he's been buying quite a bit. In the end, Buffett-type stocks are not the kind of sexy, flavor-of-the-month picks that catch most investors' eyes; instead, they are proven businesses selling at good prices. That approach, combined with a long-term perspective, tremendous discipline, and an ability to keep emotions at bay (allowing him to buy when others are fearful), is how Buffett has become the world's greatest investor. Whatever the size of your portfolio, those qualities are worth emulating. Now, here's a look at my Buffett portfolio's current holdings. It's an interesting group, and some of the holdings might not seem like "Buffett-type" plays on the surface. But they have the fundamental characteristics that make them the type of stocks Buffett has focused on while building his empire. Ross Stores, Inc. (ROST) The TJX Companies, Inc. (TJX) Urban Outfitters Inc. (URBN) PetMed Express, Inc. (PETS) Rollins Inc. (ROL) World Acceptance Corp. (WRLD) Coach, Inc. (COH) Varian Medical Systems Inc. (VAR) FactSet Research Systems Inc. (FDS) Infosys Technologies Limited (INFY) News about Validea Hot List Stocks Dollar Tree Inc. (DLTR): Dollar Tree reported second-quarter earnings that beat analysts' estimates, and it raised its full-year 2011 profit outlook. Net income was $94.9 million, or 77 cents a share, compared with $78 million, or 61 cents a share, in the year-ago period. Analysts, on average, had forecast 75 cents a share, according to Thomson Reuters I/B/E/S. Net sales were up 12% to $1.54 billion, coming in slightly below analysts' estimates of $1.55 billion. Cost reductions resulted in increased margins, and the firm raised its full-year projection to $3.82-$3.95 EPS, vs. previous estimates of $3.69-$3.85 AmTech Systems Inc. (ASYS): AmTech announced very strong earnings and sales for the most recent quarter, but its shares have tumbled. The company said it had record net revenues of $71.9 million in its fiscal third-quarter, up 67% from the year-ago quarter. Earnings per share were $0.74 on a diluted basis, up 76% from the year-ago period. But the company also said operating margins for the fourth quarter should be impacted negatively by several factors, and it said total orders fell from $72.5 million the prior quarter to $13.5 million in the fiscal third quarter. Investors focused on those figures, and the stock was down about 35% since our last newsletter (as of Thursday afternoon). Acme Packet Inc. (APKT): Acme shares tumbled Thursday, though the decline was not due to fundamentals. It instead came after an analyst downgraded the firm, citing industry concerns. The stock was down about 17% for the day. 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 BPI BRIDGEPOINT EDUCATION, INC. Schools 100 AFSI AMTRUST FINANCIAL SERVICES, INC. Insurance (Prop. & Casualty) 45 CSH CASH AMERICA INTERNATIONAL, INC. Misc. Financial Services 43 ASYS AMTECH SYSTEMS, INC. Semiconductors 37 BMA BANCO MACRO SA (ADR) Money Center Banks 37 AZN ASTRAZENECA PLC (ADR) Biotechnology & Drugs 33 QSII QUALITY SYSTEMS, INC. Software & Programming 29 DLTR DOLLAR TREE, INC. Retail (Department & Discount) 27 APKT ACME PACKET, INC. Communications Equipment 23 COP CONOCOPHILLIPS Oil & Gas Operations 10 Ticker Market Cap Date Added Start Price Return BPI $1,111 3/18/2011 $18.02 $21.15 17.4% AFSI $1,293 8/5/2011 $22.30 $21.57 -3.3% CSH $1,516 8/5/2011 $52.22 $51.70 -1.0% ASYS $99 5/13/2011 $23.34 $10.38 -55.5% BMA $1,732 8/5/2011 $30.72 $27.70 -9.8% AZN $61,424 7/8/2011 $50.38 $45.22 -10.2% QSII $2,274 8/5/2011 $81.32 $77.62 -4.5% DLTR $8,014 6/10/2011 $61.75 $65.54 6.1% APKT $2,750 8/5/2011 $52.39 $41.35 -21.1% COP $87,585 8/5/2011 $67.75 $63.79 -5.8%

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 BPI   |   AFSI   |   CSH   |   ASYS   |   BMA   |   AZN   |   QSII   |   DLTR   |   APKT   |   COP   |   BRIDGEPOINT EDUCATION, INC. Profile Strategy: Small-Cap Growth Investor Based on: Motley Fool Bridgepoint Education, Inc. (Bridgepoint) is a provider of postsecondary education services. The Company's wholly owned subsidiaries, Ashford University and the University of the Rockies, are regionally accredited academic institutions that offer associate's, bachelor's, master's and doctoral programs in the disciplines of business, education, psychology, social sciences and health sciences. These institutions deliver programs online, as well as at its traditional campuses located in Clinton, Iowa, and Colorado Springs, Colorado. As of December 31, 2010, it offered approximately 1,345 courses, 71 degree programs and 134 specializations. As of December 31, 2010, it had 77,892 students enrolled in its institutions, 99% of whom were attending classes online. 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. BPI's profit margin of 19.77% 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. BPI, with a relative strength of 90, 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 BPI (55.17% for EPS, and 37.99% for Sales) are good enough to pass. INSIDER HOLDINGS: [PASS] BPI's insiders should own at least 10% (they own 66.22% ) of the company's outstanding shares which is extremely attractive since the minimum requirement is 10%. A high percentage 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. BPI's free cash flow of $2.74 per share passes this test. PROFIT MARGIN CONSISTENCY: [FAIL] The profit margin in the past must be consistently increasing. The profit margin of BPI has been inconsistent in the past three years (Current year: 17.89%, Last year: 10.37%, Two years ago: 12.11%), which is unacceptable. This inconsistency will carryover directly to the company's bottom line, or earnings per share. 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 BPI's case. CASH AND CASH EQUIVALENTS: [PASS] BPI's level of cash $279.1 million passes this criteria. If a company is a cash generator, like BPI, it has the ability to pay off debt (if it has any) or acquire other companies. Most importantly, good operations generate cash. 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 BPI was 9.52% last year, while for this year it is 8.19%. Since the AR to sales is decreasing by -1.32% the stock passes this criterion. LONG TERM DEBT/EQUITY RATIO: [PASS] BPI's trailing twelve-month Debt/Equity ratio (0.00%) is at a great level according to this methodology because the superior companies that you are looking for don't need 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 (BPI's is 0.22), the shares are looked upon favorably. These high quality companies can often wind up as the biggest winners. BPI passes this test. The following criteria for BPI are less important which means you would place less emphasis on them when making your investment decision using this strategy: AVERAGE SHARES OUTSTANDING: [PASS] BPI has not been significantly increasing the number of shares outstanding within recent years which is a good sign. BPI currently has 58.0 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. BPI's sales of $852.6 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: [PASS] BPI passes the Daily Dollar Volume (DDV of $15.8 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. BPI with a price of $21.15 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] BPI's income tax paid expressed as a percentage of pretax income this year was (41.42%) and last year (42.73%) 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.   AMTRUST FINANCIAL SERVICES, INC. Profile Strategy: Small-Cap Growth Investor Based on: Motley Fool AmTrust Financial Services Inc. (AmTrust) is a multinational specialty property and casualty insurance company. The Company operates in three segments: Small Commercial Business, Specialty Risk and Extended Warranty and Specialty Middle Market Business. The Company's insurance subsidiaries include Technology Insurance Company, Inc. (TIC), Rochdale Insurance Company (RIC), Wesco Insurance Company (WIC), Associated Industries Insurance Company, Inc. (AIIC), Milwaukee Casualty Insurance Company (MCIC), Security National Insurance Company (SNIC), AmTrust Insurance Company of Kansas, Inc. (AICK) and Trinity Lloyd's Insurance Company (TLIC), which are domiciled in New Hampshire, New York, Delaware, Florida, Wisconsin, Texas, Kansas and Texas respectively, and AmTrust International Insurance Ltd. (AII), AmTrust International Underwriters Limited (AIU) and IGI Insurance Company, Ltd. (IGI), which are domiciled in Bermuda, Ireland and England, respectively. Analysis Guru Score: 83% 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. AFSI's profit margin of 14.90% 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. AFSI, with a relative strength of 90, 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 AFSI (58.82% for EPS, and 30.65% for Sales) are good enough to pass. INSIDER HOLDINGS: [PASS] AFSI's insiders should own at least 10% (they own 59.63% ) of the company's outstanding shares which is extremely attractive since the minimum requirement is 10%. A high percentage indicates that the insiders are confident that the company will do well. CASH FLOW FROM OPERATIONS: [FAIL] 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. AFSI's free cash flow of $-0.22 per share fails this test. PROFIT MARGIN CONSISTENCY: [FAIL] The profit margin in the past must be consistently increasing. The profit margin of AFSI has been inconsistent in the past three years (Current year: 14.21%, Last year: 13.94%, Two years ago: 14.38%), which is unacceptable. This inconsistency will carryover directly to the company's bottom line, or earnings per share. 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 AFSI's case. CASH AND CASH EQUIVALENTS: [PASS] AFSI's level of cash $202.0 million passes this criteria. If a company is a cash generator, like AFSI, it has the ability to pay off debt (if it has any) or acquire other companies. Most importantly, good operations generate cash. 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 AFSI was 0.05% last year, while for this year it is 1.02%. Although the AR 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. "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 (AFSI's is 0.34), the shares are looked upon favorably. These high quality companies can often wind up as the biggest winners. AFSI passes this test. The following criteria for AFSI are less important which means you would place less emphasis on them when making your investment decision using this strategy: AVERAGE SHARES OUTSTANDING: [PASS] AFSI has not been significantly increasing the number of shares outstanding within recent years which is a good sign. AFSI currently has 62.0 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. AFSI's sales of $1,150.1 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: [PASS] AFSI passes the Daily Dollar Volume (DDV of $5.4 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. AFSI with a price of $21.57 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] AFSI's income tax paid expressed as a percentage of pretax income this year was (28.65%) and last year (20.88%) 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.   CASH AMERICA INTERNATIONAL, INC. Profile Strategy: Growth/Value Investor Based on: James P. O'Shaughnessy Cash America International, Inc. provides specialty financial services to individuals through retail services locations and through electronic distribution platforms known as e-commerce activities. These services include secured non-recourse loans, commonly referred to as pawn loans and unsecured consumer loans. The Company's consumer loan portfolio includes short-term single payment loans, longer-term multi-payment installment loans, credit services and participation interests purchased from third parties in the micro line of credit (MLOC) services channel. Through the Credit Services Organization program (the CSO program), it provides a third-party lender's consumer loan product in some markets by acting as a credit services organization on behalf of consumers. As of December 31, 2010, it operated in two segments: retail services and e-commerce. During the year ended December 31, 2010, the Company renamed its Internet Services Division as the E-Commerce Division. Analysis Guru Score: 100% MARKET CAP: [PASS] The first requirement of the Cornerstone Growth Strategy is that the company has a market capitalization of at least $150 million. This will screen out the companies that are too illiquid for most investors, but still include a small growth company. CSH, with a market cap of $1,516 million, passes this criterion. EARNINGS PER SHARE PERSISTENCE: [PASS] The Cornerstone Growth methodology looks for companies that show persistent earnings growth without regard to magnitude. To fulfill this requirement, a company's earnings must increase each year for a five year period. CSH, whose annual EPS before extraordinary items for the last 5 years (from earliest to the most recent fiscal year) were 2.00, 2.61, 2.70, 3.17 and 3.66, passes this test. PRICE/SALES RATIO: [PASS] The Price/Sales ratio should be below 1.5. This value criterion, coupled with the growth criterion, identify growth stocks that are still cheap to buy. CSH's Price/Sales ratio of 1.10, based on trailing 12 month sales, passes this criterion. RELATIVE STRENGTH: [PASS] The final criterion for the Cornerstone Growth Strategy requires that the Relative Strength of the company be among the top 50 of the stocks screened using the previous criterion. This gives you the opportunity to buy the growth stocks you are searching for just as the market is embracing them. CSH, whose relative strength is 92, is in the top 50 and would pass this last criterion.   AMTECH SYSTEMS, INC. Profile Strategy: Growth Investor Based on: Martin Zweig Amtech Systems, Inc. (Amtech), incorporated in October 1981, through its wholly owned subsidiaries, supplies horizontal diffusion furnace systems used for solar (photovoltaic) cell and semiconductor manufacturing. The Company provides products and services to two industries: the solar industry and the semiconductor industry. The Company's solar and semiconductor equipment is sold under brand names of Tempress Systems and Bruce Technologies, which have customers in both the solar industry and the semiconductor industry. Within the solar industry, its provide diffusion and automation equipment to solar cell manufacturers and it also offers plasma enhanced chemical vapor deposition (PECVD) and phosphocilicate glass (PSG) equipment. Within the semiconductor industry, it provides equipment to manufacturers of analog, power, automotive and microcontroller chips with geometries greater than 0.3 micron. Analysis Guru Score: 77% P/E RATIO: [FAIL] The P/E of a company must be greater than 5 to eliminate weak companies, not more than 3 times the current Market P/E because the situation is much too risky, and never greater than 43. ASYS's P/E is 3.99, based on trailing 12 month earnings, while the current market P/E is 14.00. Therefore, it fails the first test. REVENUE GROWTH IN RELATION TO EPS GROWTH: [PASS] 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. ASYS's revenue growth is 34.25%, while it's earnings growth rate is 31.23%, based on the average of the 3 and 4 year historical eps growth rates. Therefore, ASYS passes this criterion. SALES GROWTH RATE: [FAIL] Another important issue regarding sales growth is that the rate of quarterly sales growth is rising. To evaluate this, the change from this quarter last year to the present quarter (66.9%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (280.9%) of the current year. Sales growth for the prior must be greater than the latter. For ASYS this criterion has not been met and fails this test. The earnings numbers of a company should be examined from various different angles. Three of these angles are stability in the trend of earnings, earnings persistence, and earnings acceleration. To evaluate stability, the stock has to pass the following four criteria. CURRENT QUARTER EARNINGS: [PASS] The first of these criteria is that the current EPS be positive. ASYS's EPS ($0.74) pass this test. QUARTERLY EARNINGS ONE YEAR AGO: [PASS] The EPS for the quarter one year ago must be positive. ASYS's EPS for this quarter last year ($0.42) 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. ASYS's growth rate of 76.19% 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 ASYS is 15.61%. This should be less than the growth rates for the 3 previous quarters, which are 2,950.00%, 5,100.00%, and 3,750.00%. ASYS 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, 18,500.00%, (versus the same three quarters a year earlier) is greater than the growth rate of the current quarter earnings, 76.19%, (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 ASYS is 76.2%, 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, 76.19% must be greater than or equal to the historical growth which is 31.23%. ASYS would therefore pass this test. EARNINGS PERSISTENCE: [FAIL] Companies must show persistent yearly earnings growth. To fulfill this requirement a company's earnings must increase each year for a five year period. ASYS, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were 0.36, 0.44, 0.32, -0.18, and 1.03, fails 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. ASYS's long-term growth rate of 31.23%, based on the average of the 3 and 4 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. ASYS's Debt/Equity (0.00%) is not considered high relative to its industry (13.19%) 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 ASYS, this criterion has not been met (insider sell transactions are 136, while insiders buying number 38). 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.   BANCO MACRO SA (ADR) Profile Strategy: P/E/Growth Investor Based on: Peter Lynch Banco Macro SA (the Bank) is an Argentina-based financial institution. The Bank offers traditional banking products and services to companies and individuals nationwide. Banco Macro divides its operations into personal banking, which provides services for individuals and microenterprises, and corporate baking, which covers small, medium and large companies, as well as major corporations. The Bank's products and services portfolio includes loans, insurance, debit and credit cards, investment advice and investment accounts, among others. As of December 31, 2010, Banco Macro held interest in such entities as Macro Securities SA Sociedad de Bolsa, Sud Inversiones & Analisis SA, Banco del Tucuman SA and Banco Privado de Inversiones SA. Analysis Guru Score: 93% DETERMINE THE CLASSIFICATION: This methodology would consider BMA a "fast-grower". P/E/GROWTH RATIO: [PASS] The investor should examine the P/E (6.48) relative to the growth rate (25.87%), 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 BMA (0.25) 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. BMA, whose sales are $957.3 million, is not considered large enough to apply the P/E ratio analysis. However, an investor can analyze the P/E ratio relative to the EPS growth rate. 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 BMA is 25.9%, based on the average of the 3, 4 and 5 year historical eps growth rates, which is acceptable. TOTAL DEBT/EQUITY RATIO: [NEUTRAL] BMA 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. BMA's Equity/Assets ratio (11.00%) is very 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. BMA's ROA (3.16%) 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 BMA (15.09%) 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 BMA (9.24%) 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.   ASTRAZENECA PLC (ADR) Profile Strategy: Growth/Value Investor Based on: James P. O'Shaughnessy AstraZeneca PLC (AstraZeneca) is a global biopharmaceutical company. AstraZeneca discovers, develops and commercializes prescription medicines for six areas of healthcare: Cardiovascular, Gastrointestinal, Infection, Neuroscience, Oncology, and Respiratory and Inflammation. It has a range of medicines that includes treatments for illnesses, such as its antibiotic, Merrem/Meronem and Losec/Prilosec for acid related diseases. AstraZeneca's products include Crestor, Seloken/Toprol-XL, Atacand, Nexium, Synagis, Seroquel IR, Seroquel XR, Arimidex, Zoladex and Symbicort. The Company owns and operates a range of research and development (R&D), production and marketing facilities worldwide. AstraZeneca operates in over 100 countries, including China, Mexico, Brazil and Russia. On March 3, 2010, AstraZeneca completed the acquisition of Novexel S.A. Novexel is a France-based research company focused on the infection therapy area. Analysis Guru Score: 100% MARKET CAP: [PASS] The Cornerstone Value Strategy looks for large, well known companies whose market cap is greater than $1 billion. These companies exhibit solid and stable earnings. AZN's market cap of $61,424 million passes this test. CASH FLOW PER SHARE: [PASS] The second criterion requires that the company exhibit strong cash flows. Companies with strong cash flow are typically the value oriented investments that this strategy looks for. The company's cash flow per share must be greater than the mean of the market cash flow per share ($1.30). AZN's cash flow per share of $8.16 passes this test. SHARES OUTSTANDING: [PASS] This particular strategy looks for companies whose total number of outstanding shares are in excess of the market average (615 million shares). These are the more well known and highly traded companies. AZN, who has 1,404 million shares outstanding, passes this test. TRAILING 12 MONTH SALES: [PASS] A company's trailing 12 month sales ($32,985 million) are required to be 1.5 times greater than the mean of the market's trailing 12 month sales ($19,187 million). AZN passes this test. DIVIDEND: [PASS] The final step in the Cornerstone Value strategy is to select the 50 companies from the market leaders group (those that have passed the previous four criteria) that have the highest dividend yield. AZN, with a dividend yield of 5.97%, is one of the 50 companies that satisfy this last criterion.   QUALITY SYSTEMS, INC. Profile Strategy: Small-Cap Growth Investor Based on: Motley Fool Quality Systems, Inc. develops and markets healthcare information systems that automate certain aspects of physician, inpatient and dental practices, networks of practices, such as physician hospital organizations (PHOs) and management service organizations (MSOs), ambuRobotory care centers, community health centers, Federal Qualified Health Centers (FQHC) and medical and dental schools. The Company also provides inpatient electronic health records (EHR) and financial solutions for community hospitals, as well as revenue cycle management (RCM) services through the Practice Solutions Division. The Company along with its wholly owned subsidiaries operates as four business divisions: the QSI Dental Division, the NextGen Division, the Inpatient Solutions Division, and the Practice Solutions Division. Analysis Guru Score: 73% 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. QSII's profit margin of 18.47% 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 QSII's relative strength of 87 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: [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 QSII (54.76% for EPS, and 21.11% for Sales) are not good enough to pass. INSIDER HOLDINGS: [PASS] QSII's insiders should own at least 10% (they own 33.58% ) 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. QSII's free cash flow of $0.61 per share passes this test. PROFIT MARGIN CONSISTENCY: [FAIL] The profit margin in the past must be consistently increasing. The profit margin of QSII has been inconsistent in the past three years (Current year: 17.44%, Last year: 16.58%, Two years ago: 18.78%), which is unacceptable. This inconsistency will carryover directly to the company's bottom line, or earnings per share. R&D AS A PERCENTAGE OF SALES: [PASS] QSII is either maintaining the same levels of R&D expenditures(currently $21.8 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] QSII's level of cash $117.7 million passes this criteria. If a company is a cash generator, like QSII, 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 QSII was 0.46% last year, while for this year it is 0.55%. Since the inventory to sales has been flat, QSII passes this test. 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 QSII was 37.84% last year, while for this year it is 39.55%. Although the AR 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. LONG TERM DEBT/EQUITY RATIO: [PASS] QSII's trailing twelve-month Debt/Equity ratio (0.00%) is at a great level according to this methodology because the superior companies that you are looking for don't need to borrow money in order to grow. "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. QSII's PEG Ratio of 2.04 is excessively high. The following criteria for QSII are less important which means you would place less emphasis on them when making your investment decision using this strategy: AVERAGE SHARES OUTSTANDING: [PASS] QSII has not been significantly increasing the number of shares outstanding within recent years which is a good sign. QSII currently has 29.0 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. QSII's sales of $370.9 million based on trailing 12 month sales, are fine, making this company one such "prospective gem". QSII passes the sales test. DAILY DOLLAR VOLUME: [PASS] QSII passes the Daily Dollar Volume (DDV of $19.7 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. QSII with a price of $77.62 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] QSII's income tax paid expressed as a percentage of pretax income this year was (34.75%) and last year (36.53%) 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.   DOLLAR TREE, INC. Profile Strategy: Value Investor Based on: Benjamin Graham Dollar Tree, Inc. is an operator of discount variety stores offering merchandise at the fixed price of $1. At January 29, 2011, the Company operated 4,101 discount variety retail stores. Its stores operate under the names of Dollar Tree, Deal$, Dollar Tree Deal$, Dollar Giant and Dollar Bills. Approximately 3,935 of these stores sell substantially all items for $1 or less in the United States and $1.25 or less in Canada. Substantially all of the remaining stores, operating as Deal$, sell items for $1 or less but also sell items for more than $1. The Company's optimal store is between 8,000 and 10,000 selling square feet. This store size provides the appropriate amount of space for its merchandise offerings while allowing it to provide service. At January 29, 2011, it operated 4,015 stores in 48 states and the District of Columbia, as well as 86 stores in Canada. In November 2010, it acquired 86 Dollar Giant stores based in Vancouver, British Columbia. Analysis Guru Score: 71% SECTOR: [PASS] DLTR 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. DLTR's sales of $6,240.2 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. DLTR's current ratio of 2.84 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 DLTR is $250.0 million, while the net current assets are $912.5 million. DLTR 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. DLTR's EPS growth over that period of 346.9% passes the EPS growth test. P/E RATIO: [FAIL] The Price/Earnings (P/E) ratio, based on the greater of the current PE or the PE using average earnings over the last 3 fiscal years, must be "moderate", which this methodology states is not greater than 15. Stocks with moderate P/Es are more defensive by nature. DLTR's P/E of 18.15 (using the current PE) fails this test. PRICE/BOOK RATIO: [FAIL] The Price/Book ratio must also be reasonable. That is, the Price/Book multiplied by P/E cannot be greater than 22. DLTR's Price/Book ratio is 5.05, while the P/E is 18.15. DLTR fails the Price/Book test.   ACME PACKET, INC. Profile Strategy: Growth Investor Based on: Martin Zweig Acme Packet, Inc. is a provider in session border control solutions, which enable the delivery interactive communications, such as voice, video and multimedia sessions, and data services across Internet protocol (IP), network borders. The Company's Net-Net product family of session border controllers (SBCs), session aware load balancers (SLBs), session routing proxies (SRPs), and multiservice security gateways (MSGs), supports multiple applications in enterprise networks and fixed line, mobile, over-the-top and application service provider networks. These applications range from voice over IP (VoIP), trunking to hosted enterprise and residential services to fixed-mobile convergence. Its products satisfy critical security, service assurance and regulatory requirements in these networks. On January 20, 2011, the Company acquired Newfound Communications, Inc. ( Newfound Communications). Analysis Guru Score: 85% P/E RATIO: [FAIL] The P/E of a company must be greater than 5 to eliminate weak companies, not more than 3 times the current Market P/E because the situation is much too risky, and never greater than 43. APKT's P/E is 54.86, based on trailing 12 month earnings, while the current market P/E is 14.00. Therefore, it fails the first test. REVENUE GROWTH IN RELATION TO EPS GROWTH: [PASS] 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. APKT's revenue growth is 27.71%, while it's earnings growth rate is 16.85%, based on the average of the 3 and 4 year historical eps growth rates. Therefore, APKT passes 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 (49.5%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (44.9%) of the current year. Sales growth for the prior must be greater than the latter. For APKT 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. APKT's EPS ($0.20) pass this test. QUARTERLY EARNINGS ONE YEAR AGO: [PASS] The EPS for the quarter one year ago must be positive. APKT's EPS for this quarter last year ($0.14) 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. APKT's growth rate of 42.86% 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 APKT is 8.42%. This should be less than the growth rates for the 3 previous quarters, which are 150.00%, 50.00%, and 53.85%. APKT 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, 69.70%, (versus the same three quarters a year earlier) is greater than the growth rate of the current quarter earnings, 42.86%, (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 APKT is 42.9%, 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, 42.86% must be greater than or equal to the historical growth which is 16.85%. APKT would therefore pass this test. EARNINGS PERSISTENCE: [FAIL] Companies must show persistent yearly earnings growth. To fulfill this requirement a company's earnings must increase each year for a five year period. APKT, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were 0.50, 0.30, 0.18, 0.28, and 0.63, fails 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. APKT's long-term growth rate of 16.85%, based on the average of the 3 and 4 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. APKT's Debt/Equity (0.00%) is not considered high relative to its industry (33.10%) 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 APKT, this criterion has not been met (insider sell transactions are 274, while insiders buying number 76). 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.   CONOCOPHILLIPS Profile Strategy: Price/Sales Investor Based on: Kenneth Fisher ConocoPhillips is an international, integrated energy company. the Company operates in six segments: Exploration and Production (E&P), which explores for, produces, transports and markets crude oil, bitumen, natural gas, liquefied natural gas (LNG) and natural gas liquids on a worldwide basis; Midstream, which gathers, processes and markets natural gas produced by it and others, and fractionates and markets natural gas liquids, in the United States and Trinidad; Refining and Marketing (R&M), which purchases, refines, markets and transports crude oil and petroleum products, in the United States, Europe and Asia; LUKOIL Investment, which consists of its investment in the ordinary shares of OAO LUKOIL; Chemicals, which manufactures and markets petrochemicals and plastics worldwide, and Emerging Businesses, which represents investment in new technologies or businesses outside its operations. Analysis Guru Score: 80% PRICE/SALES RATIO: [PASS] The prospective company should have a low Price/Sales ratio. Non-cyclical (non-Smokestack) companies with Price/Sales ratios below 0.75 are tremendous values and should be sought. COP's P/S of 0.38 based on trailing 12 month sales, is below 0.75 which is considered quite attractive. It passes this methodology's P/S ratio test with flying colors. TOTAL DEBT/EQUITY RATIO: [PASS] Less debt equals less risk according to this methodology. COP's Debt/Equity of 33.11% 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. COP 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 COP At this Point Is COP a "Super Stock"? NO PRICE/SALES RATIO: [PASS] The prospective company should have a low Price/Sales ratio. Non-cyclical(non-Smokestack) companies with Price/Sales ratios below .75 are tremendous values and should be sought.COP's P/S ratio of 0.38 is below .75 which is considered extremely attractive. It passes this methodology's P/S ratio test with flying colors. LONG-TERM EPS GROWTH RATE: [FAIL] This methodology looks for companies that have an inflation adjusted EPS growth rate greater than 15%. COP's inflation adjusted EPS growth rate of -4.64% fails 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. COP's free cash per share of 2.76 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. COP, whose three year net profit margin averages 1.65%, fails this evaluation.   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 CECO CAREER EDUCATION CORP. Schools 72 FRX FOREST LABORATORIES, INC. Biotechnology & Drugs 71 TX TERNIUM S.A. (ADR) Iron & Steel 66 DV DEVRY INC. Schools 65 CPLA CAPELLA EDUCATION COMPANY Schools 64 MU MICRON TECHNOLOGY, INC. Semiconductors 56 ASIA ASIAINFO-LINKAGE, INC. Software & Programming 55 MKTX MARKETAXESS HOLDINGS INC. Investment Services 49 CW CURTISS-WRIGHT CORP. Misc. Fabricated Products 46 PLCE CHILDREN'S PLACE RETAIL STORES, INC. Retail (Apparel) 45

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