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Executive Summary	August 5, 2011

The Economy It's been a rough two weeks for the market, with the debt ceiling debacle dominating the news and investors' minds. And the climate of fear didn't end when a temporary resolution was reached on that front, with the European debt woes and domestic economic concerns blasting stocks this Thursday. But despite what many in the media are saying, the U.S. economy has actually been continuing to improve, though we've no doubt been in a soft patch. That was evident in July's manufacturing numbers. The Institute for Supply Management reported that manufacturing activity came quite close to contracting in July, with ISM's manufacturing index falling to 50.9 (a reading below 50 indicates a contraction). It was the lowest reading since the index turned positive back in August 2009. The group's new orders sub-index did fall into contraction territory, for the first time since June 2009. As I've noted before, however, the manufacturing rebound we've seen since the summer of 2009 has been rather remarkable, with the sector having expanded for 24 straight months, and at a very solid pace. It's quite normal for there to be ebbs and flows during an expansion, so July's reading isn't cause for alarm. There was also a bit of good news within the report, as the data showed inflation pressures waned for the third straight month. Back in April, ISM's prices index reached its highest mark in nearly three years, but since then it has declined significantly. While some inflation is a sign that the economy is growing in a healthy way, inflation that is too high poses a threat to the recovery. Personal consumption expenditures -- consumer spending -- declined in June, meanwhile, according to new data from the Commerce Department. It was just the second decline since September 2009. That's not good news for an economy driven largely by consumer spending, but the 0.2% decline wasn't a dramatic drop, and right now it seems to be another sign of a soft patch -- not evidence of a renewed economic downturn. The consumer sector may have rebounded a bit in July. ISM's non-manufacturing, or service sector, index remained in expansion territory for the 20th straight month. Some have pointed out that the index was at its lowest level in over a year, but, at 52.7, it was still fairly comfortably in expansion territory, a good sign. What's interesting is that, while many of the June and July numbers for economic activity have showed a slowdown, new claims for unemployment have been falling. They've dropped more than 5% over the past two weeks and are now at their lowest point in four months. ADP's payroll report for July, meanwhile, showed modest job growth for the month, with 114,000 private sector jobs added. Today the Labor Department is scheduled to release its figures for July, and the report as always will be watched closely by investors. There was also some decent news from the housing market this week. The National Association of Realtors said pending homes sales rose in June for the second straight month. As for the debt ceiling imbroglio, it, of course, reached a conclusion (for now) this week. But the drawn-out, contentious path legisRobotors took to get there has no doubt impacted markets and consumers in terms of confidence, both in the economy and in our legisRobotors' ability to effect change. In the short term, that could mean some continued hiccups for the market. In the long term, though, it's good that steps are being taken to deal with the deficit -- though given the economy's current state, it will be important that legisRobotors walk the line between fiscal responsibility and the type of draconian cuts that would only imperil the recovery. The other big debt-related issue has been the country's credit rating. Moody's and Fitch both re-affirmed their AAA ratings for the U.S. this week, but warned that a failure to reduce the country's debt going forward could lead to a downgrade. It seems odd to place much value on the rating agencies' assessements -- they failed miserably in their grading of mortgage-backed securities leading up to the financial crisis, after all. Still, their opinions still carry a lot of weight in the financial world. One of the top economic forecasters I keep an eye on thinks a debt downgrade wouldn't be as problematic as many fear, however. Liz Ann Sonders of Charles Schwab said this week that some countries -- Japan, for example -- have experienced downgrades that did not result in big increases in borrowing costs. And she says that if a U.S. debt downgrade did lead to an increase in interest rates, it would likely be minimal. Given all of the debt-related fears, it's been rough sledding for the market over the past fortnight. Since our last newsletter, the S&P 500 returned -10.7%, while the Hot List returned -15.2%. So far in 2011, the portfolio has returned -8.6% vs. -4.6% for the S&P. Since its inception in July 2003, the Hot List is far outpacing the index, having gained 146.7% vs. the S&P's 20.0% gain. Giving Debt Its Due With all of the talk of deficits and fiscal responsibility lately, I thought it might be a good time to take a look at debt -- though not the governmental type, but the corporate sort. Of all the dozens of variables that my Guru Strategies examine, debt -- not earnings, or sales, or price/earnings ratios -- is the one that most frequently pops up. And for good reason. What the gurus knew was that, while debt can be a benefit if used wisely, too much debt leads to big problems for a company. It bogs down future earnings because of interest payments; it ties up revenues that could be going to expansion, capital upgrades, or dividends and share buybacks; and it can leave a company without much flexibility if it hits a rough patch (or, as we saw in 2008, if the economy hits a rough patch). Most of the gurus shun debt, regardless of their specific investing style. In his 2010 letter to shareholders, for example, Warren Buffett -- a conservative, deep value investor -- said that debt can be "lethal" to businesses. Discussing the concept of debt generally, he wrote, "unquestionably, some people have become very rich through the use of borrowed money. However, that's also been a way to get very poor. When leverage works, it magnifies your gains. Your spouse thinks you're clever, and your neighbors get envious. But leverage is addictive. Once having profited from its wonders, very few people retreat to more conservative practices. And as we all learned in third grade -- and some relearned in 2008 -- any series of positive numbers, however impressive the numbers may be, evaporates when multiplied by a single zero. History tells us that leverage all too often produces zeroes, even when it is employed by very smart people." But top growth investors like Martin Zweig also are leery of debt. In his book Winning on Wall Street, Zweig wrote, "If a company has a tremendously high level of debt, the earnings or earnings growth rate would be worthless because of the potential risk. Companies with high amounts of debt have high interest expense, and interest expense is a fixed cost. If business turns down moderately, the high fixed cost can have a very negative effect on earnings. So be careful not to overpay for companies with high debt. Indeed, you may want to avoid them entirely." (his emphasis added) All in all, 10 of the 12 individual guru-inspired models that go into the Hot List assess a company's debt level. The specifics of how the gurus examined debt differ slightly, however. Here's a look at some of the criteria they employed. (Note: Depending on the model, certain types of companies, like financials or utilities, are exempt from these criteria because of the nature of their businesses.) Debt/Equity Ratio: This is the most commonly used metric among the gurus I follow, though the standards used vary. My Peter Lynch-based model uses an upper limit of 80%; my Kenneth Fisher-based approach uses a stricter standard of 40%; my David Dreman-based model is stricter still, using a 20% limit. The strictest though, is my Motley Fool-based model, which permits long-term debt/equity ratios up to only 5%. Debt/Equity Ratio vs. Industry: The Zweig approach puts a twist on the use of the debt/equity ratio. Zweig found that companies in different industries tended to carry different levels of debt, so he compared a firm's debt/equity ratio to that of its industry average. Decreasing Debt/Equity Ratio: You might not think momentum investors would be concerned with debt, but our Momentum Investor model is. If a company has a high level of debt, it can pass this model's debt criterion if it has consistently cut its debt/equity ratio over the past three years. (If it has a debt/equity ratio less than 200%, it also passes.) Long-Term Debt vs. Net Current Assets: This criterion was employed by Benjamin Graham, the man known as the "Father of Value Investing". Graham wanted long-term debt to be no greater than net current assets (that is, current assets minus current liabilities). Essentially, this means that if you liquidated a company and paid off all its debts, you would still at least break even. Change in Long-Term Debt/Assets Ratio: This was the criterion Joseph Piotroski used. He just wanted to make sure there was no deterioration here -- as long as the company's long-term debt/assets ratio wasn't higher in the most recent year than it was the previous year, it passed the test. Debt vs. Annual Earnings: The Warren Buffett-based model uses this criterion. It targets companies that have enough annual earnings that they could, if need be, use those earnings to pay off all debt within five years (and preferably within two years). Earnings Yield: This might not seem like a debt-related criterion. But it is the way Joel Greenblatt uses it, which is the same way my Greenblatt-inspired model calculates it. Greenblatt found that using a simple earnings/price ratio to determine earnings yield could be misleading, because earnings can be skewed by the amount of debt a firm uses. So instead of share price, this strategy uses enterprise value, which includes both share price and the amount of debt a company has. As the success of all of these gurus shows, there's no one "right" way to examine debt; debt can be assessed through a myriad of different lenses. The main idea is that you should use some way to assess whether a company is using high enough leverage that it poses a danger to its future profits. I think that with the Hot List, part of the reason for the portfolio's success has been its use of numerous different debt-related criteria (i.e., all of the criteria used by my individual Guru Strategies). Government debts are important, too. When a country is bogged down with debt, the impact trickles down to citizens and companies in ways that can be very complex. Countries have an advantage over businesses and individuals, however: They can print money, which reduces the value of its debt in real terms. (This, of course, can also have wide-ranging consequences.) For investors, the more important point, I believe, is that many companies can -- and have been able to -- increase profits and sales during periods when national debts are high or rising. So while huge national debts and deficits have negative implications, they are not so overwhelming that they will have a terrible, universal impact on all companies or all stocks. Regardless of the country's debt situation, smart investors will be able to find good, well-financed companies whose shares are trading on the cheap. (In fact, thanks to the fears surrounding the country's debt issues, there may be more of these types of companies selling on the cheap than usual.) And over the long haul, they should be rewarded.		Editor-in-Chief: John Reese Since Inception   Hot List 146.7% S&P 500 20.0% Accuracy 55.8% Beta 1.2 YTD   Hot List -8.6% S&P 500 -4.6% Since Last Issue   Hot List -15.2% S&P 500 -10.7% Avg. Fundamentals   Market Cap (mil) $17,248 PE Ratio 18.5 5 Yr EPS Growth 15.8% Yield 3.4% Rel. Strength 73 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. The Fallen As we rebalance the Validea Hot List, 6 stocks leave our portfolio. These include: Skechers Usa, Inc. (SKX), Lincoln Educational Services Corporation (LINC), At&t Inc. (T), Rue21, Inc. (RUE), Sanofi Sa (Adr) (SNY) and Coinstar, Inc. (CSTR). The Keepers 4 stocks remain in the portfolio. They are: Amtech Systems, Inc. (ASYS), Astrazeneca Plc (Adr) (AZN), Dollar Tree, Inc. (DLTR) and Bridgepoint Education, Inc. (BPI). The Newbies We are adding 6 stocks to the portfolio. These include: Cash America International, Inc. (CSH), Quality Systems, Inc. (QSII), Conocophillips (COP), Banco Macro Sa (Adr) (BMA), Acme Packet, Inc. (APKT) and Amtrust Financial Services, Inc. (AFSI). Portfolio Changes Additions   CASH AMERICA INTERNATIONAL, INC. CSH QUALITY SYSTEMS, INC. QSII CONOCOPHILLIPS COP BANCO MACRO SA (ADR) BMA ACME PACKET, INC. APKT AMTRUST FINANCIAL SERVICES, INC. AFSI Deletions   SKECHERS USA, INC. SKX LINCOLN EDUCATIONAL SERVICES CORPORATION LINC AT&T INC. T RUE21, INC. RUE SANOFI SA (ADR) SNY COINSTAR, INC. CSTR Newcomers to the Validea Hot List Acme Packet (APKT): Located in Bedford, Mass., Acme offers session border control solutions that enable the delivery of interactive communications -- voice, video and multimedia sessions -- and data services across IP network borders. The firm has a $3.8 billion market cap. Acme gets solid scores from two of my growth approaches, my Martin Zweig-inspired model and my Motley Fool-based strategy. Read more about its fundamentals in the "Detailed Stock Analysis" section below. Cash America International, Inc. (CSH): Based in Texas, Cash America operates in more than 1,000 locations in the U.S. and Mexico, providing secured non-recourse loans -- pawn loans. It also offers short-term cash advances and check cashing services. The firm has a market cap of about $1.6 billion. Cash America gets approval from my Martin Zweig- and James O'Shaughnessy-based growth strategies. To read more about its fundamentals, see the "Detailed Stock Analysis" section below. ConocoPhillips (COP): Houston-based Conoco is the third-largest U.S. integrated energy company, with operations in more than 30 countries. It is involved in the oil, natural gas, and chemical and plastics arenas. It has taken in more than $227 billion in sales over the past year. Conoco gets strong interest from my Joel Greenblatt- and James O'Shaughnessy-based models. For more on why its fundamentals are impressive, scroll down to the "Detailed Stock Analysis" section below. Quality Systems, Inc. (QSII): Based in Irvine, California, Quality Systems is a healthcare I/T firm, providing healthcare companies with products and services that include electronic health records and "revenue cycle management" (which allows companies to outsource their billing and collections). Quality Systems ($2.6 billion market cap) gets strong interest from my Warren Buffett- and Martin Zweig-based models, as well as my Momentum Investor approach. You can read more about its financials and fundamentals in the "Detailed Stock Analysis" section below. Banco Macro SA (BMA): Based in Buenos Aires, Banco Macro is one of the largest banks in Argentina, having expanded through a string of acquisitions in recent years. The $2.1-billion-market-cap firm gets approval from two of my models, those I base on the writings of Peter Lynch and David Dreman. To read more about it, see the "Detailed Stock Analysis" section below. AmTrust Financial Services (AFSI): Founded as a workers' compensation insurance firm, this New York City-based company has expanded into a multi-national property and casualty insurer. It specializes in coverage for small- and medium-sized businesses. AmTrust gets strong interest from my Peter Lynch- and Motley Fool-based models. To read more about its fundamentals, see the "Detailed Stock Analysis" section below. News about Validea Hot List Stocks Lincoln Educational Services (LINC): On Aug. 3, Lincoln reported second-quarter earnings that were down 63% from the year-ago period, as enrollment fell 26% and student starts fell 48%, according to The Wall Street Journal. The declines came amid new federal regulations designed to improve admission standards, and Lincoln officials said they expect the recent decline in student starts to abate later this year and be behind the firm in early 2012. Still, Lincoln cut its fully-year 2011 revenue and earnings outlooks sharply. Shares of the firm fell 23% Wednesday on the news, and the Hot List has sold the stock due to fundamental deterioration. Bridgepoint Education (BPI): On Aug. 2, Bridgepoint announced second-quarter results that far exceeded analysts' expectations. Earnings per share were up 55% over the year-ago period; revenues surged 38%, as enrollment rose by 25%. The company also upped its full-year earnings outlook. It expects enrollment to fall in the second half of the year, however, and its full-year revenue outlook came in slightly below analysts' expectations. Investors chose to focus on the negative, and the stock fell 13% on the day of the earnings announcement. The Hot List thinks they're making a mistake, and continues to see value in the stock, which is up about 20% since joining the portfolio in mid-March. 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 ASYS AMTECH SYSTEMS, INC. Semiconductors 92 BPI BRIDGEPOINT EDUCATION, INC. Schools 83 DLTR DOLLAR TREE, INC. Retail (Department & Discount) 65 AZN ASTRAZENECA PLC (ADR) Biotechnology & Drugs 57 AFSI AMTRUST FINANCIAL SERVICES, INC. Insurance (Prop. & Casualty) 54 APKT ACME PACKET, INC. Communications Equipment 47 COP CONOCOPHILLIPS Oil & Gas Operations 47 QSII QUALITY SYSTEMS, INC. Software & Programming 45 CSH CASH AMERICA INTERNATIONAL, INC. Misc. Financial Services 44 BMA BANCO MACRO SA (ADR) Money Center Banks 43 Ticker Market Cap Date Added Start Price Return ASYS $156 5/13/2011 $23.34 $16.26 -30.3% BPI $1,112 3/18/2011 $18.02 $21.17 17.5% DLTR $7,768 6/10/2011 $61.75 $63.53 2.9% AZN $60,713 7/8/2011 $50.38 $44.12 -12.4% AFSI $1,346 8/5/2011 TBD $22.57 TBD APKT $3,562 8/5/2011 TBD $53.55 TBD COP $91,883 8/5/2011 TBD $66.92 TBD QSII $2,468 8/5/2011 TBD $84.49 TBD CSH $1,563 8/5/2011 TBD $53.31 TBD BMA $1,911 8/5/2011 TBD $30.81 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 ASYS   |   BPI   |   DLTR   |   AZN   |   AFSI   |   APKT   |   COP   |   QSII   |   CSH   |   BMA   |   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: 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. ASYS's P/E is 7.13, based on trailing 12 month earnings, while the current market PE is 16.00. Therefore, it passes the first test. REVENUE GROWTH IN RELATION TO EPS GROWTH: [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: [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 (280.9%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (247.4%) of the current year. Sales growth for the prior must be greater than the latter. For ASYS 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. ASYS's EPS ($0.77) 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 ($0.02) 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 3,750.00% 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 1,500.00%, 2,950.00%, and 5,100.00%. 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, 3,875.00%, (versus the same three quarters a year earlier) is greater than the growth rate of the current quarter earnings, 3,750.00%, (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 3,750.0%, 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, 3,750.00% 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 (13.26%) 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 35). 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.   BRIDGEPOINT EDUCATION, INC. Profile Strategy: Growth Investor Based on: Martin Zweig Bridgepoint Education, Inc. (Bridgepoint) is a accredited provider of postsecondary education services. The Company offers associate's, bachelor's, master's and doctoral programs in the disciplines of business, education, psychology, social sciences and health sciences. It delivers its programs online, as well as at its traditional campuses located in Clinton, Iowa, and Colorado Springs, Colorado. As of December 31, 2009, it offered approximately 1,150 courses, 60 degree programs and 125 specializations and concentrations. As of December 31, 2009, it had 53,688 students enrolled in its institutions, 99% of whom were attending classes online. 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. BPI's P/E is 7.34, based on trailing 12 month earnings, while the current market PE is 16.00. Therefore, it passes the first test. REVENUE GROWTH IN RELATION TO EPS GROWTH: [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. BPI's revenue growth is 112.33%, while it's earnings growth rate is 32.59%, based on the average of the 3 and 4 year historical eps growth rates using the current fiscal year eps estimate. Therefore, BPI 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 (38%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (47%) of the current year. Sales growth for the prior must be greater than the latter. For BPI 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. BPI's EPS ($0.90) pass this test. QUARTERLY EARNINGS ONE YEAR AGO: [PASS] The EPS for the quarter one year ago must be positive. BPI's EPS for this quarter last year ($0.58) 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. BPI's growth rate of 55.17% 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 BPI is 16.29%. This should be less than the growth rates for the 3 previous quarters, which are 64.86%, 36.36%, and 87.76%. BPI 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, 66.39%, (versus the same three quarters a year earlier) is greater than the growth rate of the current quarter earnings, 55.17%, (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 BPI is 55.2%, 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, 55.17% must be greater than or equal to the historical growth which is 32.59%. BPI 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. BPI, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were -2.15, 0.32, 3.15, 0.74, and 2.14, 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. BPI's long-term growth rate of 32.59%, based on the average of the 3 and 4 year historical eps growth rates using the current fiscal year eps estimate, 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. BPI's Debt/Equity (0.00%) is not considered high relative to its industry (57.60%) 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 BPI, this criterion has not been met (insider sell transactions are 86, while insiders buying number 79). 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.   DOLLAR TREE, INC. Profile Strategy: Price/Sales Investor Based on: Kenneth Fisher 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: 90% PRICE/SALES RATIO: [PASS] The prospective company should have a low Price/Sales ratio. Non-cyclical (non-Smokestack) companies with Price/Sales ratio between .75 and 1.5 are good values. DLTR's P/S ratio of 1.28 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. DLTR's Debt/Equity of 17.93% 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. DLTR 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 DLTR At this Point Is DLTR 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, DLTR, who has a P/S of 1.28, does not fall within the "Super Stock" range. It does fall between 0.75 and 1.5, which is considered the "good values" range for non-cyclical companies. Nonetheless, it does not pass this "Super Stock" criterion. LONG-TERM EPS GROWTH RATE: [PASS] This methodology looks for companies that have an inflation adjusted EPS growth rate greater than 15%. DLTR's inflation adjusted EPS growth rate of 24.35% 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. DLTR's free cash per share of 2.66 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. DLTR, whose three year net profit margin averages 5.94%, passes this evaluation.   ASTRAZENECA PLC (ADR) Profile Strategy: Patient Investor Based on: Warren Buffett 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: 86% 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 0.78, 1.33, 1.25, 1.76, 2.91, 3.85, 3.74, 4.20, 5.19, 5.57. Buffett would consider AZN's earnings predictable, although earnings have declined 2 time(s) in the past seven years, with the most recent decline 4 years ago. The dips have totaled 8.9%. AZN's long term historical EPS growth rate is 12.5%, based on the average of the 3, 4 and 5 year historical eps growth rates, and it is expected to grow earnings 0.8% 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. AZN has a debt of 9,159.0 million and earnings of 8,044.9 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 AZN, over the last ten years, is 28.9%, 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 14.1%, 20.5%, 16.2%, 20.1%, 33.8%, 38.5%, 36.8%, 38.2%, 36.4%, 33.8%, and the average ROE over the last 3 years is 36.1%, 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 AZN, over the last ten years, is 22.8% and the average ROTC over the past 3 years is 24.1%, 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 13.0%, 19.8%, 15.8%, 18.7%, 31.3%, 36.0%, 21.2%, 22.7%, 25.3%, 24.3%, 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. AZN's free cash flow per share of $3.55 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 $15.70 and compares it to the gain in EPS over the same period of $4.79. AZN's management has proven it can earn shareholders a 30.5% 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. AZN's shares outstanding have fallen over the past five years from 1,532,000,000 to 1,404,000,000, 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 AZN 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 $5.73 and divide it by the current market price of $44.12. An investor, purchasing AZN, could expect to receive a 12.99% initial rate of return. Furthermore, he or she could expect the rate to increase 0.8% 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 3.47%. Compare this with AZN's initial yield of 12.99%, which will expand at an annual rate of 0.8%, 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] AZN currently has a book value of $16.16. It is safe to say that if AZN can preserve its average rate of return on equity of 28.9% and continues to retain 50.48% of its earnings, it will be able to sustain an earnings growth rate of 14.6% and it will have a book value of $62.95 in ten years. If it can still earn 28.9% on equity in ten years, then expected EPS will be $18.16. CALCULATE THE FUTURE STOCK PRICE BASED ON THE AVERAGE ROE METHOD: [No Pass/Fail] Now take the expected future EPS of $18.16 and multiply them by the lower of the 5 year average P/E ratio (10.2) or current P/E ratio (current P/E in this case), which is 7.7 and you get AZN's projected future stock price of $139.86. 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 $29.65. This gives you a total dollar amount of $169.51. These numbers indicate that one could expect to make a 14.4% average annual return on AZN's stock at the present time. Although, the return is slightly below the liking of Buffett, the return would still be somewhat acceptable. CALCULATE THE EXPECTED FUTURE STOCK PRICE BASED ON AVERAGE EPS GROWTH: [No Pass/Fail] If you take the EPS growth of 0.8%, based on the analysts' consensus estimated long term growth rate, you can project EPS in ten years to be $6.21. Now multiply EPS in 10 years by the lower of the 5 year average P/E ratio (10.2) or current P/E ratio (current P/E in this case), which is 7.7. This equals the future stock price of $47.78. Add in the total expected dividend pool of $29.65 to get a total dollar amount of $77.43. 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 $44.12 and the future expected stock price, including the dividend pool, of $77.43. If you were to invest in AZN at this time, you could expect a 5.8% average annual return on your money. Buffett likes to see a 15% return, and would even go down to 12%. LOOK AT THE RANGE OF EXPECTED RATE OF RETURN: [FAIL] Based on the two different methods, you could expect an annual compounding rate of return somewhere between 5.8% and 14.4%. To pinpoint the average return a little better, we have taken an average of the two different methods. Investors could expect an average return of 10.1% on AZN stock for the next ten years, based on the current fundamentals. Buffett accepts a 12% return, although 15% is preferable. This return is unacceptable to Buffett, thus failing the criterion.   AMTRUST FINANCIAL SERVICES, INC. Profile Strategy: Growth Investor Based on: Martin Zweig 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: 77% 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. AFSI's P/E is 8.17, based on trailing 12 month earnings, while the current market PE is 16.00. Therefore, it passes the first test. REVENUE GROWTH IN RELATION TO EPS GROWTH: [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. AFSI's revenue growth is 26.63%, while it's earnings growth rate is 23.09%, based on the average of the 3, 4 and 5 year historical eps growth rates. Therefore, AFSI 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 (30.6%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (35.4%) of the current year. Sales growth for the prior must be greater than the latter. For AFSI 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. AFSI's EPS ($0.81) pass this test. QUARTERLY EARNINGS ONE YEAR AGO: [PASS] The EPS for the quarter one year ago must be positive. AFSI's EPS for this quarter last year ($0.52) 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. AFSI's growth rate of 55.77% 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 AFSI is 11.54%. This should be less than the growth rates for the 3 previous quarters, which are 62.50%, 19.15%, and 15.63%. AFSI 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, 29.14%, (versus the same three quarters a year earlier) is less than the growth rate of the current quarter earnings, 55.77%, (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, 55.77% must be greater than or equal to the historical growth which is 23.09%. AFSI 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. AFSI, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were 0.86, 1.49, 1.37, 1.72, and 2.36, 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. AFSI's long-term growth rate of 23.09%, based on the average of the 3, 4 and 5 year historical eps growth rates, passes this 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 71.05, based on trailing 12 month earnings, while the current market P/E is 16.00. 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 272, while insiders buying number 72). 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 0.40 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 0.40 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.   QUALITY SYSTEMS, INC. Profile Strategy: Patient Investor Based on: Warren Buffett Quality Systems, Inc. develops and markets healthcare information systems that automate certain aspects of medical and dental practices, networks of practices, such as physician hospital organizations (PHOs) and management service organizations (MSOs), ambuRobotory care centers, community health centers, and medical and dental schools. The Company also provides revenue cycle management (RCM) services through the Practice Solutions Division. The Company operates in three segments: NextGen Division, the QSI Dental Division and the Practice Solutions Division. On August 12, 2009, the Company acquired NextGen Sphere, LLC (Sphere), a provider of financial information systems to the small hospital inpatient market. On February 10, 2010, the Company acquired Opus Healthcare Solutions, Inc. (Opus), a provider of clinical information systems to the small hospital inpatient market. 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 0.21, 0.28, 0.40, 0.61, 0.85, 1.21, 1.44, 1.62, 1.68, 2.12. Buffett would consider QSII's earnings predictable. In fact EPS have increased every year. QSII's long term historical EPS growth rate is 16.2%, based on the average of the 3, 4 and 5 year historical eps growth rates. 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. QSII has no long term debt and therefore would pass this criterion. LOOK FOR CONSISTENTLY HIGHER THAN AVERAGE RETURN ON EQUITY: [PASS] Buffett likes companies with above average return on equity of at least 15% or better, as this is an indicator that the company has a durable competitive advantage. US corporations have, on average, returned about 12% on equity over the last 30 years. The average ROE for QSII, over the last ten years, is 25.4%, 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 12.9%, 14.2%, 16.6%, 25.5%, 31.5%, 35.9%, 34.8%, 29.7%, 25.8%, 27.3%, and the average ROE over the last 3 years is 27.6%, 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 QSII, over the last ten years, is 25.4% and the average ROTC over the past 3 years is 27.6%, 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 12.9%, 14.2%, 16.6%, 25.5%, 31.5%, 35.9%, 34.8%, 29.7%, 25.8%, 27.3%, 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. QSII's free cash flow per share of $0.61 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 $3.32 and compares it to the gain in EPS over the same period of $1.91. QSII's management has proven it can earn shareholders a 57.6% 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. QSII's shares outstanding have fallen in the current year from 29,030,001 to 29,000,000, 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 QSII 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 $2.34 and divide it by the current market price of $84.49. An investor, purchasing QSII, could expect to receive a 2.77% initial rate of return. Furthermore, he or she could expect the rate to increase 16.2% per year, based on the average of the 3, 4 and 5 year historical eps growth rates, 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 3.47%. Compare this with QSII's initial yield of 2.77%, which will expand at an annual rate of 16.2%, based on the average of the 3, 4 and 5 year historical eps growth rates. 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] QSII currently has a book value of $8.56. It is safe to say that if QSII can preserve its average rate of return on equity of 25.4% and continues to retain 42.25% of its earnings, it will be able to sustain an earnings growth rate of 10.7% and it will have a book value of $23.74 in ten years. If it can still earn 25.4% on equity in ten years, then expected EPS will be $6.04. CALCULATE THE FUTURE STOCK PRICE BASED ON THE AVERAGE ROE METHOD: [No Pass/Fail] Now take the expected future EPS of $6.04 and multiply them by the lower of the 5 year average P/E ratio or current P/E ratio (36.0) (5 year average P/E in this case), which is 32.2 and you get QSII's projected future stock price of $194.40. 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 $33.89. This gives you a total dollar amount of $228.29. These numbers indicate that one could expect to make a 10.5% average annual return on QSII'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 16.2%, based on the average of the 3, 4 and 5 year historical eps growth rates, you can project EPS in ten years to be $10.54. Now multiply EPS in 10 years by the lower of the 5 year average P/E ratio or current P/E ratio (36.0) (5 year average P/E in this case), which is 32.2. This equals the future stock price of $339.44. Add in the total expected dividend pool of $33.89 to get a total dollar amount of $373.33. 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 $84.49 and the future expected stock price, including the dividend pool, of $373.33. If you were to invest in QSII at this time, you could expect a 16.0% average annual return on your money. Buffett would consider this a great 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 10.5% and 16.0%. 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 13.2% on QSII 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.   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 $1,563 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 1.14, 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 91, is in the top 50 and would pass this last criterion.   BANCO MACRO SA (ADR) Profile Strategy: Contrarian Investor Based on: David Dreman 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: 90% MARKET CAP: [PASS] Medium to large-sized companies (the largest 1500 companies) should be chosen, because they are more in the public eye. Furthermore, the investor is exposed to less risk of "accounting gimmickry", and companies of this size have more staying power. BMA has a market cap of $1,911 million, therefore passing the test. EARNINGS TREND: [PASS] A company should show a rising trend in the reported earnings for the most recent quarters. BMA's EPS for the past 2 quarters, (from earliest to most recent quarter) 0.10, 1.04 have been increasing, and therefore the company passes this test. EPS GROWTH RATE IN THE IMMEDIATE PAST AND FUTURE: [PASS] This methodology likes to see companies with an EPS growth rate higher than the S&P in the immediate past and a likelihood that this trend will continue in the near future. BMA passes this test as its EPS growth rate over the past 6 months (845.45%) has beaten that of the S&P (12.72%). BMA's estimated EPS growth for the current year is (994.29%), which indicates the company is expected to experience positive earnings growth. As a result, BMA passes this test. This methodology would utilize four separate criteria to determine if BMA is a contrarian stock. In order to eliminate weak companies we have stipulated that the stock should pass at least two of the following four major criteria in order to receive "Some Interest". P/E RATIO: [PASS] The P/E of a company should be in the bottom 20% of the overall market. BMA's P/E of 7.43, based on trailing 12 month earnings, meets the bottom 20% criterion (below 8.22), and therefore passes this test. PRICE/CASH FLOW (P/CF) RATIO: [FAIL] The P/CF of a company should be in the bottom 20% of the overall market. BMA's P/CF of 6.94 does not meet the bottom 20% criterion (below 4.97), and therefore fails this test. PRICE/BOOK (P/B) VALUE: [FAIL] The P/B value of a company should be in the bottom 20% of the overall market. BMA's P/B is currently 1.72, which does not meet the bottom 20% criterion (below 0.71), and it therefore fails this test. PRICE/DIVIDEND (P/D) RATIO: [PASS] The P/D ratio for a company should be in the bottom 20% of the overall market (that is the yield should be in the top 20%). BMA's P/D of 14.79 meets the bottom 20% criterion (below 18.25 or yield above 3.7% ), and it therefore passes this test. This methodology maintains that investors should look for as many healthy financial ratios as possible to ascertain the financial strength of the company. These criteria are detailed below. PAYOUT RATIO: [FAIL] A good indicator that a company has the ability to raise its dividend is a low payout ratio. The payout ratio for BMA is not available, and hence no opinion can be rendered on this variable. RETURN ON EQUITY: [PASS] The company should have a high ROE, as this helps to ensure that there are no structural flaws in the company. This methodology feels that the ROE should be greater than the top one third of ROE from among the top 1500 large cap stocks, which is 18.20%, and would consider anything over 27% to be staggering. The ROE for BMA of 25.50% is high enough to pass this criterion. PRE-TAX PROFIT MARGINS: [PASS] This methodology looks for pre-tax profit margins of at least 8%, and considers anything over 22% to be phenomenal. BMA's pre-tax profit margin is 35.76%, thus passing this criterion. YIELD: [PASS] The company in question should have a yield that is high and that can be maintained or increased. BMA's current yield is 6.76%, while the market yield is 2.91%. BMA passes this test.   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 TX TERNIUM S.A. (ADR) Iron & Steel 63 CECO CAREER EDUCATION CORP. Schools 55 SOLR GT SOLAR INTERNATIONAL, INC. Semiconductors 53 PLCE CHILDREN'S PLACE RETAIL STORES, INC. Retail (Apparel) 47 CPLA CAPELLA EDUCATION COMPANY Schools 47 HUM HUMANA INC. Insurance (Accident & Health) 43 LULU LULULEMON ATHLETICA INC. Retail (Apparel) 43 ROST ROSS STORES, INC. Retail (Apparel) 42 CW CURTISS-WRIGHT CORP. Misc. Fabricated Products 42 STM STMICROELECTRONICS N.V. (ADR) Semiconductors 42

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