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Executive Summary	July 8, 2011

The Economy The training wheels are off, and the economy is now trying to show that it can continue to roll ahead without the big push it's been getting from the Federal Reserve. Last week, the Fed ended its second round of quantitative easing, the program through which it essentially printed $600 billion and tried to pump it into the financial system by buying up Treasury bonds. And, lo and behold, the end of QE2 has not caused the economy to devolve into chaos, as some feared. To be sure, we're only about a week into a post-QE2 world, and the true impact of the program's end remains to be seen. But what's encouraging is that as we enter this new landscape, many of the fears that plagued the financial and equity markets in June appear to be coming under control. The Greek debt crisis fears -- which may well have been overblown to begin with -- have lessened, the stock market has shaken off its June swoon and has been heading back upward, and signs have been rolling in that the economy is continuing to push forward. The manufacturing sector is a good example. As I noted in our last newsletter, some weak regional manufacturing reports worried many investors last month, even though temporary ebbs and flows in manufacturing activity are quite normal in any expansion. But, last week, the Institute for Supply Management reported that, overall, manufacturing activity expanded in June for the 23rd straight month, and it did so at a pretty solid pace. The group's employment sub-index also showed strong growth, with 34% of respondents indicating growth in hiring, and only 10% indicating a decrease. Employment conditions also improved in the service sector, according to ISM, with 27% of service sector respondents reporting an increase in employment and only 12% reporting a decrease. ISM's overall service sector activity index showed increasing activity in the sector for the 19th straight month in June. New claims for unemployment also declined slightly in the most recent week (ending July 2), falling a little more than 3%. Still, the number of new claims remains on the high side. Today's monthly unemployment report from the Labor Department will, as always, be watched closely by investors. In what hopefully was a preview of the Labor Department's report, job-tracking firm ADP said this week that the private sector added nearly 160,000 jobs in June, rebounding strongly from May's lackluster increase. The housing market, meanwhile, remains wobbly, though we've received some decent news since our last newsletter. Pending-home sales, a forward-looking indicator of activity, rose 8.2% in May, the National Association of Realtors reported, the strongest increase since last November. It was also the first time in over a year that the monthly figure was higher than the year-ago figure, the group said. The S&P/Case-Shiller home price indices rose in April (there is a few months lag time in the data) for the first time in eight months, though they were basically flat when seasonal fluctuations are accounted for. The market took the latest round of economic news quite well over the past fortnight. Since our last newsletter, the S&P 500 returned 5.4%, while the Hot List returned 6.5%. So far in 2011, the portfolio has returned 10.0% vs. 7.6% for the S&P. Since its inception in July 2003, the Hot List is far outpacing the index, having gained 197.0% vs. the S&P's 35.3% gain. Movers and Shakers The Hot List is switching out four of its ten holdings on today's rebalancing, with all of the departing stocks having been big movers. Three of the four have made impressive gains: Ancestry.com was up about 13% in just one month; GameStop had increased about 44% since joining the portfolio last September; and GT Solar International surged some 35% in a one-month stint in the portfolio, on the strength of higher-than-expected earnings guidance and its receipt of two new orders totaling more than $80 million from Asia. On the negative side, the portfolio is selling Research in Motion, which tumbled about 35% in two months after some disappointing earnings and sales guidance updates (all figures through Wednesday). Last newsletter, I looked at the issue of portfolio size. I discussed why we've found that focused stock portfolios like the Hot List can provide enough diversification over the long haul, even though its big movers have a much bigger impact than big movers do within typical mutual fund portfolios, which can hold well over 100 stocks. As Joel Greenblatt -- the hedge fund guru whose approach forms the basis of one of my best-performing Guru Strategies -- noted in a recent piece written for RegisteredRep.com, many funds have to invest in dozens, if not hundreds, of stocks because of their size. He also said many fund managers hold so many stocks that they end up essentially mirroring their benchmarks, because deviating too far from the benchmark on the downside for a year or two -- which is likely to happen at some point if you hold a more concentrated portfolio, no matter how good your strategy -- can be a career killer, since most investors are very short-sighted. If you want to beat the market, you can't simply own it, however, and we believe the Hot List's concentrated nature has played a big role in its long-term outperformance. This week, I'd like to take a look at two more factors that Greenblatt says keep funds -- and fund investors -- from outperforming the broader market (some studies show that upwards of 75% of managers fail to beat the S&P 500), and the reasons we think the Hot List is well-equipped to avoid those problems. Size Matters: From 1927 through 2009, according to the data of Dartmouth College professor and noted stock researcher Kenneth French, small-cap value stocks averaged a 14.17-per-cent return per year, beating large-cap value plays by nearly 3 percentage points per year and large-cap growth plays by more than 5 percentage points per year -- a staggering difference when compounded over 82 years. Smaller stocks, Greenblatt notes, are less researched and generate less attention than larger stocks, which can "often mean a greater opportunity to find bargain-priced stocks among these lesser-followed small-capitalization companies". But many mutual funds -- especially those that have success -- are forced to buy larger stocks and shun small caps. The goal of mutual funds is to accumulate assets -- more assets means more fees, and more fees means more profits. But when a fund has hundreds of millions or billions of dollars under management, it is forced toward larger stocks. A $10 billion fund isn't going to be able to buy up enough shares of a $300-million-market-cap stock to impact its returns in a big way. And, the better a fund does, the more investors tend to flock to it. That means smaller funds that can take advantage of smaller stocks will likely be forced out of small-caps if their success continues, which threatens their ability to continue to beat the market. If you're an individual investor using a system like the Hot List, you thus have a big "small" advantage over many of the pros. The Hot List lets you find the best bargains in the market, regardless of size -- small-caps, mid-caps, large-caps, all are on the table. And, over the years, we've found some great bargains in small-caps or smaller mid-caps. Just look at Ancestry.com, or GT Solar. The portfolio's ability to roam free across the various capitalization groups is a big reason for its long-term market-beating performance. Discipine and Long-Term Thinking: "Most investors have no idea why or how an active manager chooses the stocks in his portfolio," Greenblatt says, and, unfortunately, he's probably right. Most investors look at one thing: recent performance. They'll chase hot funds and hot managers and, just as is the case with hot stocks, that's no recipe for long-term success. Greenblatt cites a couple of studies that look at how institutional investors -- professional investors, that is -- selected and fired managers. Most managers were hired due to good recent performance. Most managers that were fired, he notes, had recently underperformed the market. But in the years following hire and fire decisions, the recently fired managers significantly outperformed the market; recently hired managers, meanwhile, failed to outperform the market. With the Hot List, we don't measure success or failure by short-term performance. And we don't let short-term performance dictate our approach. The strategies we run have long track records of success, both for us and for the gurus who originally developed them. Peter Lynch, Warren Buffett, John Neff, Benjamin Graham -- these great investors weren't flashes in the pan. They produced long track records of market-beating returns, and our implementation of their approaches has served to verify those track records, and lend credence to the value-focused principles on which the strategies are based. Looking ahead, we'll continue to stick to our disciplined, long-term approach. And I'm confident that by doing so, we'll continue to succeed where the vast majority of fund managers have failed.		Editor-in-Chief: John Reese Since Inception   Hot List 197.0% S&P 500 35.3% Accuracy 56.9% Beta 1.2 YTD   Hot List 10.0% S&P 500 7.6% Since Last Issue   Hot List 6.5% S&P 500 5.4% Avg. Fundamentals   Market Cap (mil) $37,503 PE Ratio 14.1 5 Yr EPS Growth 21.8% Yield 5.3% Rel. Strength 57 Portfolio Sectors Services 6 Healthcare 2 Consumer Cyclical 1 Technology 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, 4 stocks leave our portfolio. These include: Gt Solar International, Inc. (SOLR), Gamestop Corp. (GME), Ancestry.com Inc (ACOM) and Research In Motion Limited (Usa) (RIMM). The Keepers 6 stocks remain in the portfolio. They are: Amtech Systems, Inc. (ASYS), Skechers Usa, Inc. (SKX), Sanofi Sa (Adr) (SNY), At&t Inc. (T), Dollar Tree, Inc. (DLTR) and Bridgepoint Education, Inc. (BPI). The Newbies We are adding 4 stocks to the portfolio. These include: Astrazeneca Plc (Adr) (AZN), Coinstar, Inc. (CSTR), Lincoln Educational Services Corporation (LINC) and Rue21, Inc. (RUE). Portfolio Changes Additions   ASTRAZENECA PLC (ADR) AZN COINSTAR, INC. CSTR LINCOLN EDUCATIONAL SERVICES CORPORATION LINC RUE21, INC. RUE Deletions   GT SOLAR INTERNATIONAL, INC. SOLR GAMESTOP CORP. GME ANCESTRY.COM INC ACOM RESEARCH IN MOTION LIMITED (USA) RIMM Newcomers to the Validea Hot List AstraZeneca PLC (AZN): Based in London, AstraZeneca is one of the world's largest drugmakers. The $69-billion-market-cap firm is active in more than 100 countries, and makes a variety of well-known medications, including Crestor, Symbicort, and Nexium. AstraZeneca gets strong interest from my Peter Lynch- and James O'Shaughnessy-based models. See the "Detailed Stock Analysis" section below to learn more about the stock. Lincoln Educational Services Corporation (LINC): Lincoln offers high school graduates and working adults various degree and diploma programs. The New Jersey-based small-cap ($420 million) has seen its earnings surge in recent years, as the weak jobs market has sent many job-seekers back to school for more education or training. For-profit education firms have come under a lot of scrutiny in the past year, but three of my models -- those I base on the writings of Kenneth Fisher, Joel Greenblatt, and Peter Lynch -- think it's a bargain at this price. See the "Detailed Stock Analysis" section below for more on the stock. Coinstar Inc. (CSTR): You may have seen this Washington-State-based firm's kiosks in grocery stores and other retail shops. Its automated coin-counting machines allow users to turn their spare change into cash or credit for a fee, while its automated redbox DVD kiosks let customers rent DVDs. The company has a $1.8 billion market cap, and has a total of close to 50,000 kiosks. Coinstar gets strong interest from my Martin Zweig- and James O'Shaughnessy-based models. Scroll down to the "Detailed Stock Analysis" section below to read more about it. rue21, inc. (RUE): This trendy Pennsylvania-based specialty apparel retailer caters to 11- to 17-year-olds. It recently opened its 700th store in the U.S., operating in 46 states. It's a small-cap ($836 million). rue21 gets approval from my Peter Lynch- and James O'Shaughnessy-based models. To read more about it, scroll down to the "Detailed Stock Analysis" section below. News about Validea Hot List Stocks Sanofi-Aventis (SNY): Sanofi said it is stopping a clinical trial designed to see whether its Multaq drug, which is approved to help people with temporary irregular heartbeats, was effective in people with a permanent version of the condition, Reuters reported on July 7. The firm said it made the decision after seeing a "significant increase in cardiovascular events" in the group of patients taking Multaq. 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 LINC LINCOLN EDUCATIONAL SERVICES CORPORATION Schools 74 DLTR DOLLAR TREE, INC. Retail (Department & Discount) 65 T AT&T INC. Communications Services 63 SNY SANOFI SA (ADR) Biotechnology & Drugs 58 AZN ASTRAZENECA PLC (ADR) Biotechnology & Drugs 57 SKX SKECHERS USA, INC. Footwear 56 CSTR COINSTAR, INC. Recreational Activities 54 RUE RUE21, INC. Retail (Apparel) 50 Ticker Market Cap Date Added Start Price Return ASYS $192 5/13/2011 $23.34 $20.09 -13.9% BPI $1,451 3/18/2011 $18.02 $27.45 52.3% LINC $439 7/8/2011 TBD $19.46 TBD DLTR $8,585 6/10/2011 $61.75 $70.21 13.7% T $184,944 5/13/2011 $31.41 $31.23 -0.6% SNY $106,953 3/18/2011 $33.37 $39.64 18.8% AZN $69,044 7/8/2011 TBD $50.56 TBD SKX $749 3/18/2011 $18.46 $15.05 -18.5% CSTR $1,768 7/8/2011 TBD $56.38 TBD RUE $900 7/8/2011 TBD $36.88 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   |   LINC   |   DLTR   |   T   |   SNY   |   AZN   |   SKX   |   CSTR   |   RUE   |   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 8.81, 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. 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 (10.38%) 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: P/E/Growth Investor Based on: Peter Lynch 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: 93% DETERMINE THE CLASSIFICATION: This methodology would consider BPI a "fast-grower". P/E/GROWTH RATIO: [PASS] The investor should examine the P/E (10.71) relative to the growth rate (31.44%), based on the average of the 3 and 4 year historical eps growth rates using the current fiscal year eps estimate, for a company. This is a quick way of determining the fairness of the price. In this particular case, the P/E/G ratio for BPI (0.34) is very favorable. SALES AND P/E RATIO: [NEUTRAL] For companies with sales greater than $1 billion, this methodology likes to see that the P/E ratio remain below 40. Large companies can have a difficult time maintaining a growth rate high enough to support a P/E above this threshold. BPI, whose sales are $786.6 million, is not considered large enough to apply the P/E ratio analysis. However, an investor can analyze the P/E ratio relative to the EPS growth rate. EPS GROWTH RATE: [PASS] This methodology favors companies that have several years of fast earnings growth, as these companies have a proven formula for growth that in many cases can continue many more years. This methodology likes to see earnings growth in the range of 20% to 50%, as earnings growth over 50% may be unsustainable. The EPS growth rate for BPI is 31.4%, based on the average of the 3 and 4 year historical eps growth rates using the current fiscal year eps estimate, which is acceptable. TOTAL DEBT/EQUITY RATIO: [PASS] This methodology would consider the Debt/Equity ratio for BPI (0.00%) to be wonderfully low (equity is at least ten times debt). This ratio is one quick way to determine the financial strength of the company. FREE CASH FLOW: [NEUTRAL] The Free Cash Flow/Price ratio, though not a requirement, is considered a bonus if it is above 35%. A positive Cash Flow (the higher the better) separates a wonderfully reliable investment from a shaky one. This methodology prefers not to invest in companies that rely heavily on capital spending. This ratio for BPI (9.98%) is too low to add to the attractiveness of the stock. Keep in mind, however, that it does not adversely affect the company as it is a bonus criteria. NET CASH POSITION: [NEUTRAL] Another bonus for a company is having a Net Cash/Price ratio above 30%. Lynch defines net cash as cash and marketable securities minus long term debt. According to this methodology, a high value for this ratio dramatically cuts down on the risk of the security. The Net Cash/Price ratio for BPI (17.24%) is too low to add to the attractiveness of this company. Keep in mind, however, that it does not adversely affect the company as it is a bonus criteria.   LINCOLN EDUCATIONAL SERVICES CORPORATION Profile Strategy: P/E/Growth Investor Based on: Peter Lynch Lincoln Educational Services Corporation is a provider of career-oriented post-secondary education. As of December 31, 2009, the Company operated 43 campuses in 17 states. It offers recent high school graduates and working adults degree and diploma programs in five areas of study health sciences, automotive technology, skilled trades, hospitality services and business and information technology. For the year ended December 31, 2009, the Company's health science program, its automotive technology program, its skilled trades program, its hospitality services program and its business and information technology program accounted for approximately 37%, 31%, 13%, 10%, and 9%, respectively, of its average enrollment. The Company had 29,340 students enrolled as of December 31, 2009 and its average enrollment for the year ended December 31, 2009 was 27,808 students. Analysis Guru Score: 93% DETERMINE THE CLASSIFICATION: This methodology would consider LINC a "fast-grower". P/E/GROWTH RATIO: [PASS] The investor should examine the P/E (7.11) relative to the growth rate (47.94%), based on the average of the 3, 4 and 5 year historical eps growth rates, for a company. This is a quick way of determining the fairness of the price. In this particular case, the P/E/G ratio for LINC (0.15) is very favorable. SALES AND P/E RATIO: [NEUTRAL] For companies with sales greater than $1 billion, this methodology likes to see that the P/E ratio remain below 40. Large companies can have a difficult time maintaining a growth rate high enough to support a P/E above this threshold. LINC, whose sales are $632.4 million, is not considered large enough to apply the P/E ratio analysis. However, an investor can analyze the P/E ratio relative to the EPS growth rate. EPS GROWTH RATE: [PASS] This methodology favors companies that have several years of fast earnings growth, as these companies have a proven formula for growth that in many cases can continue many more years. This methodology likes to see earnings growth in the range of 20% to 50%, as earnings growth over 50% may be unsustainable. The EPS growth rate for LINC is 47.9%, based on the average of the 3, 4 and 5 year historical eps growth rates, which is considered 'OK'. However, it may be difficult to sustain such a high growth rate. TOTAL DEBT/EQUITY RATIO: [PASS] This methodology would consider the Debt/Equity ratio for LINC (15.76%) to be acceptable (equity is three to ten times debt). This ratio is one quick way to determine the financial strength of the company. FREE CASH FLOW: [NEUTRAL] The Free Cash Flow/Price ratio, though not a requirement, is considered a bonus if it is above 35%. A positive Cash Flow (the higher the better) separates a wonderfully reliable investment from a shaky one. This methodology prefers not to invest in companies that rely heavily on capital spending. This ratio for LINC (13.67%) is too low to add to the attractiveness of the stock. Keep in mind, however, that it does not adversely affect the company as it is a bonus criteria. NET CASH POSITION: [NEUTRAL] Another bonus for a company is having a Net Cash/Price ratio above 30%. Lynch defines net cash as cash and marketable securities minus long term debt. According to this methodology, a high value for this ratio dramatically cuts down on the risk of the security. The Net Cash/Price ratio for LINC (6.92%) is too low to add to the attractiveness of this company. Keep in mind, however, that it does not adversely affect the company as it is a bonus criteria.   DOLLAR TREE, INC. Profile Strategy: Growth/Value Investor Based on: James P. O'Shaughnessy 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: 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. DLTR, with a market cap of $8,585 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. DLTR, whose annual EPS before extraordinary items for the last 5 years (from earliest to the most recent fiscal year) were 1.23, 1.39, 1.68, 2.37 and 3.10, 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. DLTR's Price/Sales ratio of 1.41, 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. DLTR, whose relative strength is 83, is in the top 50 and would pass this last criterion.   AT&T INC. Profile Strategy: Contrarian Investor Based on: David Dreman AT&T Inc. is a holding company. The Company is a provider of telecommunications services in the United States and worldwide. These include wireless communications, local exchange services, long-distance services, data/broadband and Internet services, video services, managed networking, wholesale services and directory advertising and publishing. It operates in four segments: wireless, which provides both wireless voice and data communications services across the United States and, through roaming agreements, in foreign countries; wireline, which provides landline voice and data communication services, AT&T U-Verse TV, broadband and voice services (U-Verse) and managed networking to business customers; advertising solutions, which publishes Yellow and White Pages directories and sells directory advertising and Internet-based advertising and local search, and other, which provides results from customer information services and all corporate and other operations. Analysis Guru Score: 84% 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. T has a market cap of $184,944 million, therefore passing the test. EARNINGS TREND: [PASS] A company should show a rising trend in the reported earnings for the most recent quarters. T's EPS for the past 2 quarters, (from earliest to most recent quarter) 0.18, 0.57 have been increasing, and therefore the company passes this test. EPS GROWTH RATE IN THE IMMEDIATE PAST AND FUTURE: [FAIL] 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. T fails this test as its EPS growth rate for the past 6 months (-70.61%) does not beat that of the S&P (6.96%). This methodology would utilize four separate criteria to determine if T 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. T's P/E of 9.25, based on trailing 12 month earnings, meets the bottom 20% criterion (below 9.33), and therefore passes this test. PRICE/CASH FLOW (P/CF) RATIO: [PASS] The P/CF of a company should be in the bottom 20% of the overall market. T's P/CF of 4.68 meets the bottom 20% criterion (below 5.58) and therefore passes this test. PRICE/BOOK (P/B) VALUE: [FAIL] The P/B value of a company should be in the bottom 20% of the overall market. T's P/B is currently 1.64, which does not meet the bottom 20% criterion (below 0.80), 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%). T's P/D of 18.15 meets the bottom 20% criterion (below 21.23 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. CURRENT RATIO: [FAIL] A prospective company must have a strong Current Ratio (greater than or equal to the average of it's industry [1.06] or greater than 2). This is one identifier of financially strong companies, according to this methodology. T's current ratio of 0.59 fails the test. PAYOUT RATIO: [PASS] A good indicator that a company has the ability to raise its dividend is a low payout ratio. The payout ratio for T is 50.13%, while its historical payout ratio has been 55.42%. Therefore, it passes the payout criterion. 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 17.93%, and would consider anything over 27% to be staggering. The ROE for T of 18.68% 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. T's pre-tax profit margin is 14.49%, thus passing this criterion. YIELD: [PASS] The company in question should have a yield that is high and that can be maintained or increased. T's current yield is 5.51%, while the market yield is 2.61%. T passes this test. LOOK AT THE TOTAL DEBT/EQUITY: [PASS] The company must have a low Debt/Equity ratio, which indicates a strong balance sheet. The Debt/Equity ratio should not be greater than 20% or should be less than the average Debt/Equity for its industry of 90.75%. T's Total Debt/Equity of 57.78% is considered acceptable.   SANOFI SA (ADR) Profile Strategy: Value Investor Based on: Benjamin Graham Sanofi, formerly Sanofi-Aventis, is a global and diversified healthcare company. The Company discovers, develops and distributes therapeutic solutions focused on patients' needs. Sanofi focuses on the field of healthcare with seven growth platforms: diabetes solutions, human vaccines, innovative drugs, rare diseases, consumer healthcare, emerging markets and animal health. As of February 2011, Sanofi portfolio comprised 55 projects in clinical development, of which 13 were in Phase III or had been submitted to the health authorities for approval. Sanofi has a portfolio of prescription drugs, vaccines, generics and consumer healthcare products. Its prescription medicines include Lantus, which is an insulin band. The range of products in the field of diabetes also include Apidra and Amaryl. Its human vaccines for Polio/Pertussis include Pentacel and Pentaxim along with influenza vaccines (Vaxigrip et Fluzone). Its animal health products include Frontline and Heartgard. Analysis Guru Score: 100% SECTOR: [PASS] SNY is neither a technology nor financial Company, and therefore this methodology is applicable. SALES: [PASS] The investor must select companies of "adequate size". This includes companies with annual sales greater than $340 million. SNY's sales of $46,597.7 million, based on trailing 12 month sales, pass this test. CURRENT RATIO: [PASS] The current ratio must be greater than or equal to 2. Companies that meet this criterion are typically financially secure and defensive. SNY's current ratio of 2.30 passes the test. LONG-TERM DEBT IN RELATION TO NET CURRENT ASSETS: [PASS] For industrial companies, long-term debt must not exceed net current assets (current assets minus current liabilities). Companies that meet this criterion display one of the attributes of a financially secure organization. The long-term debt for SNY is $9,892.6 million, while the net current assets are $22,187.1 million. SNY passes this test. LONG-TERM EPS GROWTH: [PASS] Companies must increase their EPS by at least 30% over a ten-year period and EPS must not have been negative for any year within the last 5 years. Companies with this type of growth tend to be financially secure and have proven themselves over time. SNY's EPS growth over that period of 141.5% passes the EPS growth test. P/E RATIO: [PASS] The Price/Earnings (P/E) ratio, based on the greater of the current PE or the PE using average earnings over the last 3 fiscal years, must be "moderate", which this methodology states is not greater than 15. Stocks with moderate P/Es are more defensive by nature. SNY's P/E of 14.53 (using the current PE) passes this test. PRICE/BOOK RATIO: [PASS] The Price/Book ratio must also be reasonable. That is, the Price/Book multiplied by P/E cannot be greater than 22. SNY's Price/Book ratio is 1.35, while the P/E is 14.53. SNY passes the Price/Book test.   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 1.0% 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 9,097.0 million and earnings of 7,950.8 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 1,430,000,000, 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 $5.56 and divide it by the current market price of $50.56. An investor, purchasing AZN, could expect to receive a 11.00% initial rate of return. Furthermore, he or she could expect the rate to increase 1.0% 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 11.00%, which will expand at an annual rate of 1.0%, 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 $16.47. 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 $64.15 in ten years. If it can still earn 28.9% on equity in ten years, then expected EPS will be $18.51. CALCULATE THE FUTURE STOCK PRICE BASED ON THE AVERAGE ROE METHOD: [No Pass/Fail] Now take the expected future EPS of $18.51 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 9.1 and you get AZN's projected future stock price of $168.25. 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 $29.09. This gives you a total dollar amount of $197.34. These numbers indicate that one could expect to make a 14.6% 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 1.0%, based on the analysts' consensus estimated long term growth rate, you can project EPS in ten years to be $6.14. 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 9.1. This equals the future stock price of $55.83. Add in the total expected dividend pool of $29.09 to get a total dollar amount of $84.92. 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 $50.56 and the future expected stock price, including the dividend pool, of $84.92. If you were to invest in AZN at this time, you could expect a 5.3% 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 5.3% and 14.6%. 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 10.0% 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.   SKECHERS USA, INC. Profile Strategy: P/E/Growth Investor Based on: Peter Lynch Skechers U.S.A., Inc. (Skechers) design and market Skechers-branded contemporary footwear for men, women and children under several lines. addition to Skechers-branded lines, the Company also offers several designer, fashion and street-focused footwear lines for men, women and children. These lines are branded and marketed separately from Skechers and appeal to specific audiences. Its brands are sold through department stores, specialty stores, athletic retailers, and boutiques as well as catalog and Internet retailers. Along with wholesale distribution, its footwear is available at its e-commerce Website and its own retail stores. Skechers operates 90 concept stores, 92 factory outlet stores and 37 warehouse outlet stores in the United States, and 22 concept stores and five factory outlets internationally. The Company operates in four reportable segments: domestic wholesale sales, international wholesale sales, retail sales, and e-commerce sales. Analysis Guru Score: 93% DETERMINE THE CLASSIFICATION: SKX is considered a "True Stalwart", according to this methodology, as its earnings growth of 18.98% lies within a moderate 10%-19% range and its annual sales of $1,990 million are greater than the multi billion dollar level. This methodology looks for the "Stalwart" securities to gain 30%-50% in value over a two year period if they can be purchased at an attractive price based on the P/E to Growth ratio. SKX is attractive if SKX can hold its own during a recession. INVENTORY TO SALES: [PASS] When inventories increase faster than sales, it is a red flag. However an increase of up to 5% is considered bearable if all other ratios appear attractive. Inventory to sales for SKX was 15.60% last year, while for this year it is 19.86%. Since inventory has been rising, this methodology would not look favorably at the stock but would not completely eliminate it from consideration as the inventory increase (4.26%) is below 5%. YIELD ADJUSTED P/E TO GROWTH (PEG) RATIO: [PASS] The Yield-adjusted P/E/G ratio for SKX (0.43), based on the average of the 3, 4 and 5 year historical eps growth rates, is excellent. EARNINGS PER SHARE: [PASS] The EPS for a stalwart company must be positive. SKX's EPS ($1.86) would satisfy this criterion. TOTAL DEBT/EQUITY RATIO: [PASS] This methodology would consider the Debt/Equity ratio for SKX (9.68%) to be exceptionally low (equity is at least ten times debt). This ratio is one quick way to determine the financial strength of the company. FREE CASH FLOW: [NEUTRAL] The Free Cash Flow/Price ratio, though not a requirement, is considered a bonus if it is above 35%. A positive Cash Flow (the higher the better) separates a wonderfully reliable investment from a shaky one. This methodology prefers not to invest in companies that rely heavily on capital spending. This ratio for SKX (-17.54%) is too low to add to the attractiveness of the stock. Keep in mind, however, that it does not adversely affect the company as it is a bonus criteria. NET CASH POSITION: [NEUTRAL] Another bonus for a company is having a Net Cash/Price ratio above 30%. Lynch defines net cash as cash and marketable securities minus long term debt. According to this methodology, a high value for this ratio dramatically cuts down on the risk of the security. The Net Cash/Price ratio for SKX (24.84%) is too low to add to the attractiveness of this company. Keep in mind, however, that it does not adversely affect the company as it is a bonus criteria.   COINSTAR, INC. Profile Strategy: Growth/Value Investor Based on: James P. O'Shaughnessy Coinstar, Inc. (Coinstar) is a provider of automated retail solutions. Coinstar's core offerings in automated retail include its digital video disk (DVD) business, where consumers can rent or purchase movies from self-service kiosks (DVD Services segment), and its Coin business, where consumers can convert their coin to cash or stored value products at coin-counting self-service kiosks (Coin Services segment). As of December 31, 2010, the Company had approximately 30,200 DVD kiosks in 26,100 locations and 18,900 coin-counting kiosks in 18,700 locations (approximately 12,100 of which offer a variety of stored value products to customers) in supermarkets, drug stores, mass merchants, financial institutions, convenience stores, and restaurants. On May 25, 2010, the Company sold its subsidiaries consisting of its E-Pay Business to InComm Holdings, Inc. and InComm Europe Limited (collectively InComm). 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. CSTR, with a market cap of $1,768 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. CSTR, whose annual EPS before extraordinary items for the last 5 years (from earliest to the most recent fiscal year) were 0.66, 0.82, 1.10, 1.31 and 2.03, 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. CSTR's Price/Sales ratio of 1.15, 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. CSTR, whose relative strength is 57, is in the top 50 and would pass this last criterion.   RUE21, INC. Profile Strategy: Price/Sales Investor Based on: Kenneth Fisher rue21, inc. (rue21) is a specialty apparel retailer offering the newest fashion trends for girls and guys. As of January 30, 2010, the Company operated 535 stores in 43 states throughout the United States. The Company's merchandise is designed to appeal to 11 to 17 year olds who aspire to be 21 and adults who want to look and feel 21. In addition, it offers its own brands, such as rue21 etc!, Carbon, tarea and rueKicks, to create merchandise excitement and differentiation in its stores. 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. RUE's P/S ratio of 1.34 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. RUE's Debt/Equity of 0.00% is exceptional, 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. RUE 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 RUE At this Point Is RUE 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, RUE, who has a P/S of 1.34, 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%. RUE's inflation adjusted EPS growth rate of 34.07% 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. RUE's free cash per share of 0.85 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. RUE, whose three year net profit margin averages 4.06%, fails this evaluation.   Watch List The Watch List contains the highest scoring stocks according to our guru consensus system that are not currently in the Hot List portfolio. We provide this list both for informational purposes and for investors who are not comfortable with a portfolio of ten stocks. Ticker Company Name Industry Guru Score HUM HUMANA INC. Insurance (Accident & Health) 48 FRX FOREST LABORATORIES, INC. Biotechnology & Drugs 47 CW CURTISS-WRIGHT CORP. Misc. Fabricated Products 46 ACOM ANCESTRY.COM INC Computer Services 46 FCFS FIRST CASH FINANCIAL SERVICES, INC. Retail (Specialty) 45 BAP CREDICORP LTD. (USA) Regional Banks 44 PLCE CHILDREN'S PLACE RETAIL STORES, INC. Retail (Apparel) 44 TX TERNIUM S.A. (ADR) Iron & Steel 44 TECD TECH DATA CORPORATION Computer Hardware 42 FOSL FOSSIL, INC. Jewelry & Silverware 40

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