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Executive Summary	July 6, 2012

The Economy The economic news continues to be mixed, But there have been some major changes in the sources of the good news and bad news over the past couple weeks. The manufacturing sector, a major driver of the economic recovery that began in mid-2009, contracted for the first time in three years last month, for example, according to the Institute for Supply Management. ISM's manufacturing index came in at 49.7 for June -- just below the 50 level that serves as the mark between expansion and contraction. It's not a horrible reading, and it is extremely impressive that the sector expanded for three years straight before finally showing a narrow contraction -- in past expansions, it has been fairly common for much worse readings to pop up from time to time. What is somewhat disturbing is the major dip in the group's New Orders sub-index, which fell from 60.1 to 47.8. ISM reported that slowdowns in both Europe and China are being cited for the poor June figures. Good news came, however, from two areas that had been providing investors with plenty of headaches: housing and Europe. For the first time in seven months, the S&P/Case-Shiller Home Price Indices showed that U.S. housing prices rose in April, increasing 1.3% over March (and 0.7% when seasonally adjusted). That is certainly good news, given that the housing market's collapse triggered the Great Recession and that the sector -- usually a key to recoveries -- has been absent from this one. Still, prices are about 2% below where they were a year ago and about 34% below their 2006 peak, so April's gains, while encouraging, were baby steps forward. In Europe, meanwhile, debt woes still rule the day, but good news came in the form of government support. Eurozone leaders agreed on a preliminary plan to provide bailout funds directly to European banks, with Germany apparently yielding to some of its previous objections to such a proposal. It was a big show of support that had been lacking, though details are still being worked out, and the markets responded very positively. The global economic enthusiasm was tempered this week, however, when China decided to cut a key interest rate for the second time in a month, leading analysts to believe that the giant global growth engine is experiencing more of a slowdown than previously thought. In other areas at home, new claims for unemployment have fallen about 4.6% since our last newsletter (on a seasonally adjusted basis), a good sign. They are now 13.7% lower than they were a year ago (unadjusted). Continuing claims fell slightly, and are about 12% below year-ago levels. Decent news also came from the service sector, which expanded for the 30th straight month in June, according to ISM, though at a slightly slower pace than it did the previous month. And the personal savings rate increased slightly in May, according to a new Commerce Department report. It rose from 3.7% to 3.9%, reaching its highest level since January. Since our last newsletter, the S&P 500 returned 3.2%, while the Hot List returned 5.7%. So far in 2012, the portfolio has returned 14.1% vs. 8.8% for the S&P. Since its inception in July 2003, the Hot List is far outpacing the index, having gained 158.0% vs. the S&P's 36.7% gain. Boring Is Beautiful When you see the phrase "elite investment strategist", or "star stock investor", what sort of person comes to mind? I'd be willing to bet that, for most people, the answer is some version of Michael Douglas' character in Wall Street -- a smooth-talking, highly connected, risk-taking player, someone whose portfolio is as flashy as his or her impeccable wardrobe; the sort of Wall Street guru who made millions by snatching up dazzling tech stocks and red-hot start-ups, somehow having the foresight to buy them before just about everyone else thought to. Such an image makes for a great character on the big screen, of course. But after more than a dozen years studying history's best investors, I've found that far more often than not, the best investors and their portfolios are far from flashy and exciting. John Neff, for example, who produced a remarkable three-decade track record at the Windsor fund, once called his portfolio "relatively prosaic, dull, [and] conservative". In discussing the key to successful investing, James O'Shaughnessy -- whose study into the performance of various investment strategies is perhaps the most in-depth of its kind -- didn't cite great foresight or timing or intricate business knowledge, but instead the discipline to "consistently, patiently, and slavishly stick with a strategy". And the great Benjamin Graham once wrote that investing should be viewed "more as a hazard to be guarded against than as a source of profit through prophecy." It's a great irony, really -- that by investing in unexciting companies using a highly disciplined approach, elite strategists have made the sort of money that conjures up images of lavish mansions, rare sports cars, and private islands. And recently, this concept -- let's call it "boring is beautiful" -- has been borne out by some hard data. In a study entitled "Betting Against Beta" that was published in the Swiss Finance Institute Research Paper Series, authors Andrea Frazzini and Lasse Pedersen presented some powerful evidence that stocks with low betas (i.e., low volatility) produce the best returns over the long haul. It's a proposition that flies in the face of conventional wisdom, which holds that, in order to produce market-beating returns, you have to bet on riskier stocks (and many -- perhaps erroneously -- use "risk" and "volatility" synonymously when discussing stocks). Frazzini and Pedersen found, however, that Warren Buffett's Berkshire Hathaway has far outperformed the broader market not by going after stocks with more volatility, but instead by investing in low-beta stocks, and using leverage when buying them. What's more, they found that U.S. equities, 20 international equity markets, Treasury bonds, corporate bonds, and futures have all demonstrated a similar pattern over the long run, with high-beta assets actually underperforming their lower-beta peers. A big part of the phenomenon, Frazzini and Pedersen surmised, was that most investors can't use large amounts of leverage the way that Buffett and Berkshire do when loading up on less volatile plays. Instead they turn to high-beta stocks in search of more risk and higher return, and in doing so, they bid up the prices of those stocks. Those stocks become overvalued, which of course limits their future returns. Frazzini and Pedersen aren't alone in their findings. In another study published last year in the Financial Analysts Journal, authors Malcolm Baker, Brendan Bradley, and Jeffrey Wurgler looked at the 1,000 largest stocks from 1968-2008, breaking them down into five quintiles based on their betas. They found that investing a dollar in the quintile of stocks with the lowest betas would've produced a gain of $10.12, after inflation, by the end of the 41-year period. A dollar invested in the stocks with the highest betas would have left one with less than 10 cents. They hypothesized that a number of behavioral factors, including overconfidence, tend to push investors into high-beta stocks, making them overvalued, which, again, limits future returns. O'Shaughnessy last fall also presented some data that turned the higher-risk-equals-higher-reward tenet on its head. In the new, updated version of his What Works on Wall Street, he found that the consumer staples sector has produced the best returns over the 1968-2009 period -- and that it did so while being one of the least volatile sectors in the market. Over that period, he found, consumer staples averaged compound annual returns of 13.57%, beating the next-best sector (financials) by 1.2 percentage points per year. And, the sector had the second-lowest standard deviation out of the market's 10 sectors; the only one that was less volatile was utilities. O'Shaughnessy wrote that the apparently strange finding actually makes a good deal of sense. "Industries that make goods and services that people have to buy, regardless of economic circumstances, are bound to do well whatever the economic conditions," he writes. He adds that the sector is also filled with companies that have wide economic moats that protect them against competition, and strong brand recognition -- which he says are major advantages for a business. O'Shaughnessy also found that looking for the most fundamentally sound stocks within the consumer staples sector could really improve your odds of success. For example, companies in the top quintile based on shareholder yield (buyback yield plus dividend yield) returned 17.8% compounded over the 42-year study. And, they did so with a lower standard deviation and a lower maximum drawdown than the sector as a whole. In light of all the data that has emerged over the past year, I thought it would be interesting to see where the stocks in the Hot List stand according to their betas. I wanted to get a good sample size that encompassed both the 2007-09 bear market and the succeeding recovery, so I looked at the stocks' five-year beta (vs. the S&P 500; a tip of the cap to Zack's Investment Research for the beta data). Here's what I found: Coinstar -- 0.92 The TJX Companies -- 0.56 Stamps.com -- 1.17 LKQ Corporation -- 0.84 SolarWinds Inc. -- 0.75 Apollo Group -- 0.37 MWI Veterinary Supply -- 0.74 Altisource Portfolio Solutions -- -0.15 Northrop Grumman -- 1.09 Tractor Supply Company -- 0.80 As you can see, 8 of the 10 holdings have lower betas than the S&P 500 (which is 1.0), indicating they've been less volatile than the broader market over the past five years. Of course, we don't implicitly look for low-beta stocks, and neither did the gurus upon whom my models are based. But I think that many of the qualities my models do look for -- low valuations, good liquidity, conservative financing, consistent earnings growth -- tend to often lead the portfolio to solid, stable firms whose shares are less volatile than the flashy high-fliers many investors get captivated by. Consider the portfolio's current holdings. Sure, there are some well-known companies in there, but many are far from household names, and far from flashy, exciting businesses; you're certainly not likely to hear anyone bring up MWI Veterinary Supply or Tractor Supply Company when discussing hot stocks at a cocktail party. What's just as important to note, I think, is that when the portfolio does happen to buy a stock that is more volatile than the broader market, it isn't because we're playing a hunch or trying to ride the wave of a hot stock. It's because the stock's fundamentals and financials are sound. So, for example, while Stamps.com has a beta of 1.17 -- the highest of any Hot List stock right now -- it trades for just 10.1 times trailing 12-month earnings per share and has a P/E-to-Growth ratio of just 0.29. In other words, while it's been more volatile than the broader market in recent years, it hasn't been bid up in price, which is the problem with many high-beta stocks, according to the two studies I referenced above. And given the company's growth (35% per year over the long term) and financial position (it has no long-term debt), it seems like some extra volatility is worth it. The big point in all of this, I think, is not to fall into the trap of thinking that you need to take big risks on sexy, hyped-up stocks in order to make money in stocks. While there are exceptions -- Apple gets high marks from my strategies -- more often than not, the stocks that are getting talked up by pundits and friends and co-workers end up being more hype than substance. Focusing on fundamentals, however, will lead you to quality companies and undervalued stocks. Over the long haul, that should help you produce some pretty exciting returns, even if many of the stocks that help you get there are far from glamorous.		Editor-in-Chief: John Reese Since Inception   Hot List 158.0% S&P 500 36.7% Accuracy 56.6% Beta 1.2 YTD   Hot List 14.1% S&P 500 8.8% Since Last Issue   Hot List 5.7% S&P 500 3.2% Avg. Fundamentals   Market Cap (mil) $7,302 PE Ratio 21.1 5 Yr EPS Growth 27.5% Yield 0.5% Rel. Strength 82 Portfolio Sectors Services 5 Technology 1 Capital Goods 1 Consumer Cyclical 1 Financial 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. The Fallen As we rebalance the Validea Hot List, 3 stocks leave our portfolio. These include: Guess?, Inc. (GES), Discover Financial Services (DFS) and World Acceptance Corp. (WRLD). The Keepers 7 stocks remain in the portfolio. They are: The Tjx Companies, Inc. (TJX), Coinstar, Inc. (CSTR), Lkq Corporation (LKQ), Stamps.com Inc. (STMP), Mwi Veterinary Supply, Inc. (MWIV), Solarwinds Inc (SWI) and Altisource Portfolio Solutions S.a. (ASPS). The Newbies We are adding 3 stocks to the portfolio. These include: Apollo Group Inc (APOL), Northrop Grumman Corporation (NOC) and Tractor Supply Company (TSCO). Portfolio Changes Additions   APOLLO GROUP INC APOL NORTHROP GRUMMAN CORPORATION NOC TRACTOR SUPPLY COMPANY TSCO Deletions   GUESS?, INC. GES DISCOVER FINANCIAL SERVICES DFS WORLD ACCEPTANCE CORP. WRLD Newcomers to the Validea Hot List Apollo Group (APOL): Apollo owns the University of Phoenix and several other schools that offer undergraduate, master's, and doctoral degrees through both on-campus and online courses. The Phoenix, Ariz.-based firm has a $4.2 billion market cap and has taken in about $4.4 billion in revenue in the past year. For-profit education companies have been dealing with several challenges over the past few years, not the least of which is the potential for increased government regulation of their operations. But my models think that Apollo should be getting more love from investors. It gets high marks from my Joel Greenblatt- and Peter Lynch-based models. To read more about the stock, scroll down to the "Detailed Stock Analysis" section below. Northrop Grumman Corporation (NOC): One of the country's largest defense contractors, this Virginia-based firm is involved in the aerospace, electronics, information systems, and technical services arenas, serving government and commercial customers across the globe. Its products include unmanned aircraft systems, B-2 stealth bombers, the James Webb space telescope, radar systems, 911 public safety systems, and cybersecurity solutions, to name just a few. Grumman has a $16 billion market cap, and gets strong interest from my Peter Lynch-, Joel Greenblatt-, and Kenneth Fisher-based models. To read more about it, see the "Detailed Stock Analysis" section below. Tractor Supply Company (TSCO): Tractor Supply is the largest retail farm and ranch store chain in the U.S., with more than 1,000 retail stores in 44 states. The Brentwood, Tenn.-based firm has a $6 billion market cap, and has taken in more than $4.4 billion in sales in the past year. Tractor Supply was a nice winner for the Hot List last year, gaining 18.1% during a one-month stint in the portfolio. It's back again, getting strong interest from my Warren Buffett- and James O'Shaughnessy-based approaches. See the "Detailed Stock Analysis" section below to learn more about it. News about Validea Hot List Stocks Coinstar Inc. (CSTR): On June 26, Coinstar said it had completed a $100 million acquisition of DVD rental kiosks and other assets from one of its rivals, NCR Corp., the Associated Press reported. Coinstar also assumed certain NCR liabilities related to the assets and entered into a supplier agreement to buy products and services from NCR, according to AP. The firm said the deal will cause it to initially incur extra costs, but the move will begin adding to profits in 2013. For 2012, it expects the deal will decrease profit by 40 cents to 50 cents per share and increase its capital expenditures by between $40 million and $45 million, AP reported. The TJX Companies (TJX): While retail sales reports for June were mixed across the sector, TJX reported that its sales rose 7% for the month, more than expected, the Associated Press reported. Shares jumped nearly 4% on July 5 on the news. 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 CSTR COINSTAR, INC. Recreational Activities 78 TJX THE TJX COMPANIES, INC. Retail (Apparel) 71 STMP STAMPS.COM INC. Retail (Catalog & Mail Order) 70 LKQ LKQ CORPORATION Auto & Truck Parts 67 SWI SOLARWINDS INC Software & Programming 66 MWIV MWI VETERINARY SUPPLY, INC. Medical Equipment & Supplies 62 ASPS ALTISOURCE PORTFOLIO SOLUTIONS S.A. Consumer Financial Services 57 APOL APOLLO GROUP INC Schools TSCO TRACTOR SUPPLY COMPANY Retail (Home Improvement) NOC NORTHROP GRUMMAN CORPORATION Aerospace & Defense Ticker Market Cap Date Added Start Price Current Price Return CSTR $2,225 2/17/2012 $56.23 $71.10 26.4% TJX $32,669 3/16/2012 $37.91 $44.09 16.3% STMP $409 5/11/2012 $26.60 $24.84 -6.6% LKQ $5,054 5/11/2012 $35.54 $34.28 -3.5% SWI $3,349 5/11/2012 $44.75 $45.28 1.2% MWIV $1,350 5/11/2012 $92.38 $106.08 14.8% ASPS $1,748 6/8/2012 $64.94 $74.99 15.5% APOL $4,077 7/6/2012 TBD $35.96 TBD TSCO $6,058 7/6/2012 TBD $84.08 TBD NOC $16,079 7/6/2012 TBD $63.93 TBD

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 CSTR   |   TJX   |   STMP   |   LKQ   |   SWI   |   MWIV   |   ASPS   |   APOL   |   TSCO   |   NOC   |   COINSTAR, INC. Profile Strategy: Growth Investor Based on: Martin Zweig Coinstar, Inc. (Coinstar) is a provider of automated retail solutions, which offers convenient products and services. the Company's offerings in automated retail include its Redbox business, where consumers can rent or purchase movies and video games from self-service kiosks (Redbox segment), and its Coin business, where consumers can convert their coin to cash or stored value products at self-service coin counting kiosks (Coin segment). Its New Ventures business (New Ventures segment) is focused on identifying, evaluating, building, and developing self-service concepts in the marketplace. On June 9, 2011, the Company completed the sale transaction of the Money Transfer Business to Sigue Corporation (Sigue). In June 2012, the Company's wholly owned subsidiary, Redbox Automated Retail, LLC, acquired certain assets of NCR Corp's self-service entertainment DVD kiosk business. Analysis Guru Score: 92% 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. CSTR's P/E is 14.82, based on trailing 12 month earnings, while the current market PE is 17.00. Therefore, it passes 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. CSTR's revenue growth is 41.92%, while it's earnings growth rate is 44.45%, based on the average of the 3, 4 and 5 year historical eps growth rates. Therefore, CSTR 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 (34%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (33.2%) of the current year. Sales growth for the prior must be greater than the latter. For CSTR 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. CSTR's EPS ($1.65) pass this test. QUARTERLY EARNINGS ONE YEAR AGO: [PASS] The EPS for the quarter one year ago must be positive. CSTR's EPS for this quarter last year ($0.46) 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. CSTR's growth rate of 258.70% 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 CSTR is 22.22%. This should be less than the growth rates for the 3 previous quarters, which are 151.28%, 78.79%, and 47.06%. CSTR 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, 82.66%, (versus the same three quarters a year earlier) is less than the growth rate of the current quarter earnings, 258.70%, (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, 258.70% must be greater than or equal to the historical growth which is 44.45%. CSTR 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. CSTR, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were 0.82, 1.10, 1.31, 2.03 and 3.61, passes this test. LONG-TERM EPS GROWTH: [PASS] One final earnings test required is that the long-term earnings growth rate must be at least 15% per year. CSTR's long-term growth rate of 44.45%, based on the average of the 3, 4 and 5 year historical eps growth rates, passes this test. TOTAL DEBT/EQUITY RATIO: [PASS] A final criterion is that a company must not have a high level of debt. A high level of total debt, due to high interest expenses, can have a very negative effect on earnings if business moderately turns down. If a company does have a high level, an investor may want to avoid this stock altogether. CSTR's Debt/Equity (67.73%) is not considered high relative to its industry (306.95%) 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 CSTR, this criterion has not been met (insider sell transactions are 75, while insiders buying number 45). 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.   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 $32,669 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 1.37, 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 94, is in the top 50 and would pass this last criterion.   STAMPS.COM INC. Profile Strategy: Growth Investor Based on: Martin Zweig Stamps.com Inc. is a provider of Internet-based postage solutions. The Company's customers use its service to mail and ship a variety of mail pieces, including postcards, envelopes, flats and packages, using a range of United States Postal Service (the USPS) mail classes, including First Class Mail, Priority Mail, Express Mail, Media Mail, Parcel Post, and others. Its customers include individuals, small businesses, home offices, medium-size businesses and enterprises. 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. STMP's P/E is 10.12, based on trailing 12 month earnings, while the current market PE is 17.00. 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. STMP's revenue growth is 4.71%, while it's earnings growth rate is 35.20%, based on the average of the 3, 4 and 5 year historical eps growth rates. Therefore, STMP 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 (24%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (20%) of the current year. Sales growth for the prior must be greater than the latter. For STMP 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. STMP's EPS ($0.95) pass this test. QUARTERLY EARNINGS ONE YEAR AGO: [PASS] The EPS for the quarter one year ago must be positive. STMP's EPS for this quarter last year ($0.18) 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. STMP's growth rate of 427.78% 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 STMP is 17.60%. This should be less than the growth rates for the 3 previous quarters, which are 550.00%, 57.89%, and 4,150.00%. STMP 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, 552.17%, (versus the same three quarters a year earlier) is greater than the growth rate of the current quarter earnings, 427.78%, (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 STMP is 427.8%, 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, 427.78% must be greater than or equal to the historical growth which is 35.20%. STMP 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. STMP, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were 0.50, 0.52, 0.38, 0.38, and 1.73, 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. STMP's long-term growth rate of 35.20%, based on the average of the 3, 4 and 5 year historical eps growth rates, passes this test. TOTAL DEBT/EQUITY RATIO: [PASS] A final criterion is that a company must not have a high level of debt. A high level of total debt, due to high interest expenses, can have a very negative effect on earnings if business moderately turns down. If a company does have a high level, an investor may want to avoid this stock altogether. STMP's Debt/Equity (0.00%) is not considered high relative to its industry (15.06%) 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 STMP, this criterion has not been met (insider sell transactions are 96, while insiders buying number 126). Despite the lack of an insider buy signal, there also is not an insider sell signal, so the stock passes this criterion.   LKQ CORPORATION Profile Strategy: Growth Investor Based on: Martin Zweig LKQ Corporation (LKQ) provides replacement parts, components and systems needed to repair vehicles (cars and trucks). The Company operates in four segments: Wholesale-North America Wholesale-Europe, Self Service and Heavy-Duty Truck. Buyers of vehicle replacement products have the option to purchase from primarily five sources: new products produced by original equipment manufacturers (OEMs), which are known as OEM products; new products produced by companies other than the OEMs, which are sometimes referred to as aftermarket products; recycled products originally produced by OEMs, which it refers to as recycled products; used products that have been refurbished; and used products that have been remanufactured. October 1, 2011, it acquired Euro Car Parts Holdings Limited (ECP). On May 27, 2011, it acquired AkzoNobel Coatings Inc.'s paint distribution business. In February 2012, the Company announced that it had acquired Pieces Automobiles Lecavalier Inc. 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. LKQ's P/E is 21.91, based on trailing 12 month earnings, while the current market PE is 17.00. Therefore, it passes 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. LKQ's revenue growth is 27.75%, while it's earnings growth rate is 27.89%, based on the average of the 3, 4 and 5 year historical eps growth rates. Therefore, LKQ 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 (31.2%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (39.4%) of the current year. Sales growth for the prior must be greater than the latter. For LKQ 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. LKQ's EPS ($0.54) pass this test. QUARTERLY EARNINGS ONE YEAR AGO: [PASS] The EPS for the quarter one year ago must be positive. LKQ's EPS for this quarter last year ($0.39) 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. LKQ's growth rate of 38.46% 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 LKQ is 13.94%. This should be less than the growth rates for the 3 previous quarters, which are 23.08%, 32.00%, and 35.71%. LKQ 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, 30.38%, (versus the same three quarters a year earlier) is less than the growth rate of the current quarter earnings, 38.46%, (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, 38.46% must be greater than or equal to the historical growth which is 27.89%. LKQ 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. LKQ, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were 0.53, 0.69, 0.88, 1.15 and 1.42, 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. LKQ's long-term growth rate of 27.89%, based on the average of the 3, 4 and 5 year historical eps growth rates, passes this test. TOTAL DEBT/EQUITY RATIO: [PASS] A final criterion is that a company must not have a high level of debt. A high level of total debt, due to high interest expenses, can have a very negative effect on earnings if business moderately turns down. If a company does have a high level, an investor may want to avoid this stock altogether. LKQ's Debt/Equity (51.38%) is not considered high relative to its industry (53.72%) 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 LKQ, this criterion has not been met (insider sell transactions are 83, while insiders buying number 61). 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.   SOLARWINDS INC Profile Strategy: Growth Investor Based on: Martin Zweig SolarWinds, Inc. (SolarWinds) designs, develops, markets, sells and supports enterprise information technology (IT), infrastructure management software to IT professionals in organizations of all sizes. The Company's product offerings range from individual software tools to more comprehensive software products that solve problems encountered by IT professionals. Its products are designed to help management of their infrastructure, including networks, applications, storage and physical and virtual servers, as well as products for log and event management. It offers a portfolio of products for IT infrastructure management. Its products operate in three categories: Free Tools, Transactional Products and Core Products. In January 2011, it acquired Hyper9, Inc. (Hyper9). In July 2011, it acquired TriGeo Network Security, Inc. (TriGeo). In October 2011, it acquired DNS Enterprise, Inc. (DNS). In December 2011, it acquired certain assets of DameWare Development LLC (DameWare). 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. SWI's P/E is 49.90, based on trailing 12 month earnings, while the current market P/E is 17.00. 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. SWI's revenue growth is 33.74%, while it's earnings growth rate is 34.99%, based on the average of the 3, 4 and 5 year historical eps growth rates. Therefore, SWI 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 (38.8%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (34.3%) of the current year. Sales growth for the prior must be greater than the latter. For SWI 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. SWI's EPS ($0.23) pass this test. QUARTERLY EARNINGS ONE YEAR AGO: [PASS] The EPS for the quarter one year ago must be positive. SWI's EPS for this quarter last year ($0.16) 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. SWI's growth rate of 43.75% passes this test. EARNINGS GROWTH RATE FOR THE PAST SEVERAL QUARTERS: [FAIL] 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 SWI is 17.50%. This should be less than the growth rates for the 3 previous quarters which are 63.64%, 64.71% and 4.76%. SWI does not pass this test, which means that it does not have 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, 38.78%, (versus the same three quarters a year earlier) is less than the growth rate of the current quarter earnings, 43.75%, (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, 43.75% must be greater than or equal to the historical growth which is 34.99%. SWI 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. SWI, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were 0.25, 0.35, 0.52, 0.61 and 0.84, 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. SWI's long-term growth rate of 34.99%, based on the average of the 3, 4 and 5 year historical eps growth rates, passes this test. TOTAL DEBT/EQUITY RATIO: [PASS] A final criterion is that a company must not have a high level of debt. A high level of total debt, due to high interest expenses, can have a very negative effect on earnings if business moderately turns down. If a company does have a high level, an investor may want to avoid this stock altogether. SWI's Debt/Equity (0.00%) is not considered high relative to its industry (15.90%) 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 SWI, this criterion has not been met (insider sell transactions are 98, while insiders buying number 61). 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.   MWI VETERINARY SUPPLY, INC. Profile Strategy: Growth Investor Based on: Martin Zweig MWI Veterinary Supply, Inc. (MWI) is a distributor animal health products to veterinarians across the United States and United Kingdom. The Company's products include pharmaceuticals, vaccines, parasiticides, diagnostics, capital equipment, supplies, specialty products, veterinary pet food and nutritional products. MWI markets the products to veterinarians in both the companion animal and production animal markets. The Company also offers its customers a variety of value-added services, including e-commerce platform, pharmacy fulfillment, inventory management system, equipment procurement consultation, special order fulfillment, educational seminars and pet cremation. On March 21, 2011, The Company acquired Nelson Laboratories Limited Partnership (Nelson). On October 31, 2011, the Company acquired substantially all of the assets of Micro Beef Technologies, Ltd. (Micro). Analysis Guru Score: 92% 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. MWIV's P/E is 27.93, based on trailing 12 month earnings, while the current market PE is 17.00. Therefore, it passes 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. MWIV's revenue growth is 21.99%, while it's earnings growth rate is 24.90%, based on the average of the 3, 4 and 5 year historical eps growth rates. Therefore, MWIV 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 (38.2%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (26.1%) of the current year. Sales growth for the prior must be greater than the latter. For MWIV 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. MWIV's EPS ($1.04) pass this test. QUARTERLY EARNINGS ONE YEAR AGO: [PASS] The EPS for the quarter one year ago must be positive. MWIV's EPS for this quarter last year ($0.83) 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. MWIV's growth rate of 25.30% 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 MWIV is 12.45%. This should be less than the growth rates for the 3 previous quarters, which are 22.97%, 12.68%, and 20.69%. MWIV 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, 18.97%, (versus the same three quarters a year earlier) is less than the growth rate of the current quarter earnings, 25.30%, (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, 25.30% must be greater than or equal to the historical growth which is 24.90%. MWIV 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. MWIV, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were 1.40, 1.62, 2.02, 2.70 and 3.40, 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. MWIV's long-term growth rate of 24.90%, based on the average of the 3, 4 and 5 year historical eps growth rates, passes this test. TOTAL DEBT/EQUITY RATIO: [PASS] A final criterion is that a company must not have a high level of debt. A high level of total debt, due to high interest expenses, can have a very negative effect on earnings if business moderately turns down. If a company does have a high level, an investor may want to avoid this stock altogether. MWIV's Debt/Equity (19.92%) is not considered high relative to its industry (53.78%) 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 MWIV, this criterion has not been met (insider sell transactions are 84, while insiders buying number 48). 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.   ALTISOURCE PORTFOLIO SOLUTIONS S.A. Profile Strategy: Growth Investor Based on: Martin Zweig Altisource Portfolio Solutions S.A.( Altisource), together with its subsidiaries, is a provider of services focused on technology-enabled, knowledge-based functions related to real estate and mortgage portfolio management, asset recovery and customer relationship management. The Company operates in three segments: Mortgage Services, Financial Services and Technology Services. In April 2011, the Company acquired Springhouse, LLC (Springhouse). In July 2011, the Company acquired the assembled workforce of a sub-contractor (Tracmail) in India. Analysis Guru Score: 92% 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. ASPS's P/E is 23.20, based on trailing 12 month earnings, while the current market PE is 17.00. Therefore, it passes 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. ASPS's revenue growth is 35.11%, while it's earnings growth rate is 78.64%, based on the average of the 3, 4 and 5 year historical eps growth rates. Sales growth is not at least 85% of EPS growth so the initial part of this criteria is not met, however, since both sales growth and eps growth are greater than 30%, that requirement is waived and the company passes this test. 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 (56.8%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (44.3%) of the current year. Sales growth for the prior must be greater than the latter. For ASPS 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. ASPS's EPS ($1.02) pass this test. QUARTERLY EARNINGS ONE YEAR AGO: [PASS] The EPS for the quarter one year ago must be positive. ASPS's EPS for this quarter last year ($0.57) 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. ASPS's growth rate of 78.95% passes this test. EARNINGS GROWTH RATE FOR THE PAST SEVERAL QUARTERS: [FAIL] 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 ASPS is 39.32%. This should be less than the growth rates for the 3 previous quarters which are -16.13%, 81.08% and 59.38%. ASPS does not pass this test, which means that it does not have 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, 35.58%, (versus the same three quarters a year earlier) is less than the growth rate of the current quarter earnings, 78.95%, (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, 78.95% must be greater than or equal to the historical growth which is 78.64%. ASPS 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. ASPS, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were 0.28, 0.38, 1.07, 1.88 and 2.77, 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. ASPS's long-term growth rate of 78.64%, based on the average of the 3, 4 and 5 year historical eps growth rates, 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 ASPS, this criterion has not been met (insider sell transactions are 7, while insiders buying number 20). Despite the lack of an insider buy signal, there also is not an insider sell signal, so the stock passes this criterion.   APOLLO GROUP INC Profile Strategy: Price/Sales Investor Based on: Kenneth Fisher Apollo Group, Inc. (Apollo Group) is a private education provider. The Company offers educational programs and services both online and on-campus at the undergraduate, master's and doctoral levels through its wholly owned subsidiaries, The University of Phoenix, Inc. (University of Phoenix); Institute for Professional Development (IPD); The College for Financial Planning Institutes Corporation (CFFP), and Meritus University, Inc. (Meritus). Apollo Group also formed a joint venture with The Carlyle Group (Carlyle), called Apollo Global, Inc. (Apollo Global), to pursue investments primarily in the international education services industry. As of August 31, 2011, Apollo Group owned 85.6% of Apollo Global, with Carlyle owning the remaining 14.4%. During the year ended December 31, 2011, the Other Schools segment includes IPD and CFFP, as well as Meritus University, Inc. (Meritus), which ceased 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 ratio between .75 and 1.5 are good values. APOL's P/S ratio of 0.93 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. APOL's Debt/Equity of 13.94% 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. APOL 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 APOL At this Point Is APOL 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, APOL, who has a P/S of 0.93, 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: [FAIL] This methodology looks for companies that have an inflation adjusted EPS growth rate greater than 15%. APOL's inflation adjusted EPS growth rate of 9.75% 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. APOL's free cash per share of 5.18 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. APOL, whose three year net profit margin averages 12.82%, passes this evaluation.   TRACTOR SUPPLY COMPANY Profile Strategy: Patient Investor Based on: Warren Buffett Tractor Supply Company is an operator of retail farm and ranch stores in the United States. The Company operates retail stores under the names Tractor Supply Company and Del's Farm Supply and operate a Website under the name TractorSupply.com. The Company's stores are located in towns outlying metropolitan markets and in rural communities, and offer a selection of merchandise, which include equine, pet and small animal products, including items necessary for their health, care, growth and containment; hardware, truck, towing and tool products; seasonal products, including lawn and garden items, power equipment, gifts and toys; maintenance products for agricultural and rural use, and work/recreational clothing and footwear. The Company operates at farm and ranch retail sales segment, both at its retail locations and online. Analysis Guru Score: 93% STAGE 1: "Is this a Buffett type company?" A bedrock principle for Buffett is that his type of company has a "durable competitive advantage" as compared to being a "price competitive" or "commodity" type of business. Companies with a "durable competitive advantage" are more likely to be found in these sub-industries: Brand Name Fast Food Restaurants, Brand Name Beverages, Brand Name Foods, Brand Name Toiletries and Household Products, Brand Name Clothing, Brand Name Prescription Drugs, Advertising, Advertising Agencies, TV, Newspapers, Magazines, Direct Mail, Repetitive Services for Businesses, Low Cost Producers of Insurance, furniture, or Low Cost Retailers. While you should be easily able to explain where the company's pricing power comes from (i.e. a strong regional brand image, a business tollgate, its main products are #1 or # 2 in its field and has been on the market for years and hasn't changed at all, a consumer or business ends up buying the same product many times in a year, etc. or having the lowest production cost among its competition), there are certain figures that one can look at that can qualify the company as having a durable competitive advantage. LOOK FOR EARNINGS PREDICTABILITY: [PASS] Buffett likes companies to have solid, stable earnings that are continually expanding. This allows him to accurately predict future earnings. Annual earnings per share from earliest to most recent were 0.49, 0.72, 0.79, 1.04, 1.15, 1.24, 1.44, 1.63, 2.25, 3.01. Buffett would consider TSCO's earnings predictable. In fact EPS have increased every year. TSCO's long term historical EPS growth rate is 23.7%, based on the 10 year average EPS growth rate, and it is expected to grow earnings 17.7% per year in the future, based on the analysts' consensus estimated long term growth rate. For the purposes of our analysis, we will use the more conservative of the two EPS growth numbers. LOOK AT THE ABILITY TO PAY OFF DEBT [PASS] Buffett likes companies that are conservatively financed. Nonetheless, he has invested in companies with large financing divisions and in firms with rather high levels of debt. TSCO has a debt of 1.3 million and earnings of 242.4 million, which could be used to pay off the debt in less than two years, which is considered exceptional. LOOK FOR CONSISTENTLY HIGHER THAN AVERAGE RETURN ON EQUITY: [PASS] Buffett likes companies with above average return on equity of at least 15% or better, as this is an indicator that the company has a durable competitive advantage. US corporations have, on average, returned about 12% on equity over the last 30 years. The average ROE for TSCO, over the last ten years, is 17.0%, which is high enough to pass. It is not enough that the average be at least 15%. For each of the last 10 years, with the possible exception of the last fiscal year, the ROE must be at least 10% for Buffett to feel comfortable that the ROE is consistent. In addition, the average ROE over the last 3 years must also exceed 15%. The ROE for the last 10 years, from earliest to latest, is 15.6%, 18.4%, 16.3%, 17.3%, 15.5%, 16.4%, 17.0%, 15.1%, 17.5%, 21.3%, and the average ROE over the last 3 years is 18.0%, thus passing this criterion. LOOK FOR CONSISTENTLY HIGHER THAN AVERAGE RETURN ON TOTAL CAPITAL: [PASS] Because some companies can be financed with debt that is many times their equity, they can show a consistently high ROE, yet still be in unattractive price competitive businesses. To screen this out, for non-financial companies Buffett also requires that the average Return On Total Capital (ROTC) be at least 12% and consistent. In addition, the average ROTC over the last 3 years must also exceed 12%. Return On Total Capital is defined as the net earnings of the business divided by the total capital in the business, both equity and debt. The average ROTC for TSCO, over the last ten years, is 16.3% and the average ROTC over the past 3 years is 18.0%, which is high enough to pass. It is not enough that the average be at least 12%. For each of the last 10 years, with the possible exception of the last fiscal year, the ROTC must be at least 9% for Buffett to feel comfortable that the ROTC is consistent. The ROTC for the last 10 years, from earliest to latest, is 13.3%, 17.1%, 14.9%, 16.9%, 15.5%, 14.9%, 17.0%, 15.1%, 17.5%, 21.3%, thus passing this criterion. LOOK AT CAPITAL EXPENDITURES: [PASS] Buffett likes companies that do not have major capital expenditures. That is, he looks for companies that do not need to spend a ton of money on major upgrades of plant and equipment or on research and development to stay competitive. TSCO's free cash flow per share of $0.77 is positive, indicating that the company is generating more cash that it is consuming. This is a favorable sign, and so the company passes this criterion. LOOK AT MANAGEMENT'S USE OF RETAINED EARNINGS: [PASS] Buffett likes to see if management has spent retained earnings in a way that benefits shareholders. To figure this out, Buffett takes the total amount of retained earnings over the previous ten years of $13.07 and compares it to the gain in EPS over the same period of $2.52. TSCO's management has proven it can earn shareholders a 19.3% return on the earnings they kept. This return is more than acceptable to Buffett. Essentially, management is doing a great job putting the retained earnings to work. HAS THE COMPANY BEEN BUYING BACK SHARES: [BONUS PASS] Buffett likes to see falling shares outstanding, which indicates that the company has been repurchasing shares. This indicates that management has been using excess capital to increase shareholder value. TSCO's shares outstanding have fallen over the past five years from 74,970,001 to 73,000,000, thus passing this criterion. This is a bonus criterion and will not adversely affect the ability of a stock to pass the strategy as a whole if it is failed. The preceding concludes Buffett's qualitative analysis. If and when he gets positive responses to all the above criteria, he would then proceed with a price analysis. The price analysis will determine whether or not the stock should be bought. The following is how he would evaluate TSCO quantitatively. STAGE 2: "Should I buy at this price?" Although a firm may be a Buffett type company, he won't invest in it unless he can get a favorable price that allows him a great long term return. CALCULATE THE INITIAL RATE OF RETURN: [No Pass/Fail] Buffett compares his type of stocks to bonds, and likes to see what a company's initial rate of return is. To calculate the initial rate of return, take the trailing 12-month EPS of $3.32 and divide it by the current market price of $84.08. An investor, purchasing TSCO, could expect to receive a 3.95% initial rate of return. Furthermore, he or she could expect the rate to increase 17.7% per year, based on the analysts' consensus estimated long term growth rate, as this is how fast earnings are growing. COMPARE THE INITIAL RATE OF RETURN WITH THE LONG-TERM TREASURY YIELD: [PASS] Buffett favors companies in which the initial rate of return is around the long-term treasury yield. Nonetheless, he has invested in companies with low initial rates of return, as long as the yield is expected to expand rapidly. Currently, the long-term treasury yield is about 2.20%. Compare this with TSCO's initial yield of 3.95%, which will expand at an annual rate of 17.7%, based on the analysts' consensus estimated long term growth rate. The company is the better choice, as the initial rate of return is close to or above the long term bond yield and is expanding. CALCULATE THE FUTURE EPS: [No Pass/Fail] TSCO currently has a book value of $14.67. It is safe to say that if TSCO can preserve its average rate of return on equity of 17.0% and continues to retain 91.77% of its earnings, it will be able to sustain an earnings growth rate of 15.6% and it will have a book value of $62.74 in ten years. If it can still earn 17.0% on equity in ten years, then expected EPS will be $10.69. CALCULATE THE FUTURE STOCK PRICE BASED ON THE AVERAGE ROE METHOD: [No Pass/Fail] Now take the expected future EPS of $10.69 and multiply them by the lower of the 5 year average P/E ratio or current P/E ratio (25.3) (5 year average P/E in this case), which is 18.9 and you get TSCO's projected future stock price of $201.55. CALCULATE THE EXPECTED RATE OF RETURN BASED ON THE AVERAGE ROE METHOD: [No Pass/Fail] Now add in the total expected dividend pool to be paid over the next ten years, which is $7.44. This gives you a total dollar amount of $208.99. These numbers indicate that one could expect to make a 9.5% average annual return on TSCO's stock at the present time. The return is unacceptable to Buffett. CALCULATE THE EXPECTED FUTURE STOCK PRICE BASED ON AVERAGE EPS GROWTH: [No Pass/Fail] If you take the EPS growth of 17.7%, based on the analysts' consensus estimated long term growth rate, you can project EPS in ten years to be $16.90. Now multiply EPS in 10 years by the lower of the 5 year average P/E ratio or current P/E ratio (25.3) (5 year average P/E in this case), which is 18.9. This equals the future stock price of $318.50. Add in the total expected dividend pool of $7.44 to get a total dollar amount of $325.94. CALCULATE THE EXPECTED RETURN USING THE AVERAGE EPS GROWTH METHOD: [No Pass/Fail] Now you can figure out your expected return based on a current price of $84.08 and the future expected stock price, including the dividend pool, of $325.94. If you were to invest in TSCO at this time, you could expect a 14.5% average annual return on your money. Buffett likes to see a 15% return, but nonetheless would accept this return. LOOK AT THE RANGE OF EXPECTED RATE OF RETURN: [PASS] Based on the two different methods, you could expect an annual compounding rate of return somewhere between 9.5% and 14.5%. To pinpoint the average return a little better, we have taken an average of the two different methods. Investors could expect an average return of 12.0% on TSCO stock for the next ten years, based on the current fundamentals. Buffett likes to see a 15% return, but nonetheless would accept this return, thus passing the criterion.   NORTHROP GRUMMAN CORPORATION Profile Strategy: Price/Sales Investor Based on: Kenneth Fisher Northrop Grumman Corporation (Northrop Grumman) provides products, services, and integrated solutions in aerospace, electronics, information and services to its global customers. As of December 31, 2011, the Company operated in four segments: Aerospace Systems, Electronic Systems, Information Systems and Technical Services. The Company conducts most of its business with the United States Government, principally the Department of Defense (DoD) and intelligence community. It also conducts business with local, state, and foreign Governments and domestic and international commercial customers. Effective as of March 31, 2011, the company completed the spin-off of Huntington Ingalls Industries, Inc. (HII). HII operates the Company's former shipbuilding business. Analysis Guru Score: 100% 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. NOC's P/S of 0.62 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. NOC's Debt/Equity of 37.31% 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. NOC 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 NOC At this Point Is NOC a "Super Stock"? YES 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.NOC's P/S ratio of 0.62 is below .75 which is considered extremely attractive. It passes this methodology's P/S ratio test with flying colors. LONG-TERM EPS GROWTH RATE: [PASS] This methodology looks for companies that have an inflation adjusted EPS growth rate greater than 15%. NOC's inflation adjusted EPS growth rate of 16.28% 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. NOC's free cash per share of 3.85 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. NOC, whose three year net profit margin averages 7.14%, passes 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 AZN ASTRAZENECA PLC (ADR) Biotechnology & Drugs 51 ALV AUTOLIV INC.(ADR) Auto & Truck Parts 50 MAIN MAIN STREET CAPITAL CORPORATION Misc. Financial Services 49 WRLD WORLD ACCEPTANCE CORP. Consumer Financial Services 47 HFC HOLLYFRONTIER CORP Oil & Gas Operations 47 AVD AMERICAN VANGUARD CORP. Chemical Manufacturing 42 UFS DOMTAR CORP. (USA) Paper & Paper Products 41 MKSI MKS INSTRUMENTS, INC. Scientific & Technical Instr. 40 QCOR QUESTCOR PHARMACEUTICALS, INC. Biotechnology & Drugs 40 PMT PENNYMAC MORTGAGE INVESTMENT TRUST Real Estate Operations 40

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