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Executive Summary	March 20, 2009

The Economy The economic news hasn't been great over the past two weeks, but it apparently has provided enough silver linings to bring a good deal of jittery investors back into the stock market. One of those silver linings involved consumer spending. A Commerce Department report released last week showed that retail sales fell by just 0.1 percent in February, and that the January retail figures were actually higher than previously thought (they increased 1.8 percent, compared to the preliminary estimate of 1.0 percent). Economists, who had been expecting a February decrease of 0.5 percent, according to CNN, afterwards were divided on whether the data was an indication of the start of a real recovery, or a short-term increase that won't last. Either way, investors were encouraged, as consumer discretionary-type stocks continued a surge that had started about two weeks ago. While the retail sales figures helped continue the rally, the upward move was really triggered by the news early last week that Citigroup has been profitable for the first two months of the year, and that the troubled banking giant is on track to bring in more than $8 billion in profit for the first quarter -- though those figures don't include one-time charges. Financial stocks -- beaten to a pulp over the six months before the Citigroup news, have taken off since then, with many of the big banks' shares jumping 70 percent or more. Another much-maligned financial group -- General Electric's finance unit -- announced yesterday that it expects to post a profit in the first quarter, another good sign. Then, of course, there was the government's latest plunge into the rescue pool. Wednesday, the Federal Reserve announced that it will start a $1 trillion plan to buy up Treasury bonds and mortgage-backed securities as a way to try to loosen the still-clogged credit markets. The scope of the plan is huge -- almost doubling all of the rescue efforts the Fed has made over the past year, according to The New York Times. If and when the Fed's latest effort will start showing benefits are questions whose answers remain to be seen. But Wall Street was heartened by the news, and I am too. Still, while the pieces appear to be lining up for a recovery, the economy is a long way from healthy. New unemployment claims dipped a bit in the week ending March 14 (by about 1.8 percent), but that comes on the heels of continuing claims that rose about 3.5 percent -- to about 5.5 million -- in the week ending March 4, according to CNN, a sign that those out of work are having more trouble finding jobs. A report from the Federal Reserve also said industrial production fell for the fourth straight month in February, this time by 1.4 percent, reaching its lowest level since April 2002. The capacity utilization rate fell to 70.9 percent, which is 10 percentage points below the average from 1972 to 2008, and the lowest recorded since December 1982. But as I've noted many times before, the stock market almost always turns upward before the economy does, and the decent news coming out of the financial sector has, for the moment, provided the trigger needed to spur the market forward. Since our last newsletter, the S&P 500 has gained 14.9 percent, while the Hot List is up an even-better 23.1 percent. For the year, the S&P is down 13.2 percent, with the Hot List down 11.0 percent. Since its inception almost six years ago, the portfolio remains well ahead of the index, having gained 45.9 percent while the S&P has lost 21.6 percent. Inflation Nation? Given the unprecedented situation we find ourselves in, there are a myriad of questions that must be answered before the U.S. economy is back on its feet. But, at the risk of getting ahead of ourselves, I think it is important to address a key issue involving what we should expect if, indeed, the Fed's plan does work: inflation. (As you'll soon see, the issue is particularly relevant considering the direction the Hot List has taken this rebalancing.) Early last September, the Fed's "Total Factors Supplying Reserve Funds" stood at about $946.3 billion. Since then, that figure has increased by more than 120 percent, standing at about $2.09 trillion as of March 18 -- and that's before the new plan to inject more than a trillion more dollars into the market as part of its Treasury/asset-backed security plan. The ramp-up in the Fed's balance sheet -- most of which occurred last September and October -- had led many top investment minds to warn that inflation could be a big problem, even before the new Fed plan was announced. Warren Buffett recently told CNBC that the government's stimulus efforts could lead to inflation worse than the levels seen in the 1970s. And last week, officials at bond giant PIMCO said that inflation could return as soon as 2010. Now, the Fed's new trillion-dollar plan -- while possibly necessary -- has further heightened inflation fears. Oil and raw materials stocks have jumped over the past few days, while the dollar has tumbled. The Hot List is playing into that strength, adding four oil industry stocks this week: Exxon Mobil, Lufkin Industries, Oil States International, and World Fuel Services. While they've posted some nice recent gains, my models still view these stocks as very undervalued. In fact, all of them get multi-guru approval, with two getting triple-guru approval and one even getting the thumbs-up from four of my strategies. With inflation ticking upward in February for the first time in several months and the Fed about to pump more and more money into the system, these stocks could get a nice extra boost on top of their strong fundamentals. There's a broader point to keep in mind regarding inflation. It's one that I've discussed before, but, given the amount of money that the government has pumped into the economy, it's one that bears repeating. Throughout history, inflation -- even normal inflation -- has whittled away the returns of fixed income investments. Stocks, however, have managed to outpace inflation by a significant amount. For example, in his Stocks for the Long Run, Jeremy Siegel shows that from 1946 (when inflation really became a permanent part of our economy) through 2006, stocks averaged nominal annual compound returns of 11.2 percent. Long-term government bonds, meanwhile, averaged 5.7 percent -- doesn't sound bad, when you consider that the bonds come with much less volatility and short-term risk than the stock market does. But, Siegel found that after inflation was factored in -- showing the real purchasing power investors were gaining -- stocks averaged a 6.9 percent annual compound return, while long-term government bonds averaged just 1.6 percent per year. Short-term bonds were even worse after inflation, averaging just 0.6 percent per year, coming in just ahead of gold's 0.5 percent per year real return. Those figures are important to consider as we move forward into what very possibly could turn into a period of significant inflation. The Real Deal? In terms of the current market, the big question on everyone's mind is whether or not the bounce we've seen over the past two weeks is the start of a new bull market, or simply another up-fake that won't last. Some well-known investors have called a bottom, while many others say stocks will go significantly lower. In reality, any bottom-call is just an educated guess -- and, given the depth of this crisis, the unprecedented government actions made in response to it, and the sheer panic gripping many investors, trying to figure out whether we've actually hit bottom yet is something of an exercise in futility. You could analyze the heck out of every indicator you can get your hands on, and in the end you might not be much better off than if you'd just flipped a coin to decide whether we've bottomed or not. For long-term investors -- those with horizons of three, five, ten years (which, in my opinion, should be the only type of investor dealing in stocks) -- now is a time to step back and consider the bigger picture, and not get caught up in overanalyzing where the bottom is. The bottom line is that stocks, by just about every valuation measure, are undervalued. Yes, valuations fooled most investors a year or two ago, when massive leverage had propped up earnings, making P/E ratios and other metrics artificially low. But now, we've been in a recessionary climate for more than 15 months, credit is moving at a snail's pace, and the most conservative valuation measures are saying stocks are cheap. For example, The New York Times reported last week that, as of March 3, the 10-year P/E ratio (which Yale professor Robert Shiller designed to iron out yearly fluctuations) was around 12, significantly below the 1890-2009 average of 16.4. Then, this week, John Mihaljevic (CFA and managing editor of The Manual of Ideas blog) explained that another conservative valuation measure -- the Tobin's Q ratio made famous by Nobel Laureate James Tobin -- indicates that stocks are undervalued right now. The Q Ratio divides the total market value of stocks by their total asset value (or replacement cost). From 1900-2008, Mihaljevic says, the adjusted average Q Ratio was 0.76 for the market. At the end of 2007, stocks were above that level, at 0.89, indicating they were overvalued. But as of March 15, he estimated Tobin's Q at 0.43, a pretty significantly undervaluation. Of course, as both Shiller and Mihaljevic have noted, those undervaluations don't mean stocks can't go lower. The Shiller P/E and/or Tobin's Q have, in fact, been lower during other economic crises, like the Great Depression or the recessions of 1973-74 and 1980-82. Given the seriousness of the current situation, it would seem pretty reasonable to expect that they could slip even lower today, probably meaning a decline for stocks. The problem is that if stocks retreat to even lower valuations from here, it will be because of either fear, or some new, yet-unknown fundamental event or events. So, if you think you can predict investors' emotional states, or how an unprecedented economic crisis will play out, then go ahead and wait for the bottom. I suffer no such delusions, however. Rather than playing the risky game of bottom-calling -- which more often than not leads to investors missing the big initial push of a new bull run -- I'll continue to put money into undervalued stocks. And, just as it has tended to do throughout more than two centuries of stock market history, I expect such a practice to yield strong returns over the long haul, regardless of what happens today, tomorrow, or next week.		Editor-in-Chief: John Reese Since Inception   Hot List 45.9% S&P 500 -21.6% Accuracy 54.3% Beta 1.2 YTD   Hot List -11.0% S&P 500 -13.2% Since Last Issue   Hot List 23.1% S&P 500 14.9% Avg. Fundamentals   Market Cap (mil) $34,378 PE Ratio 7.1 5 Yr EPS Growth 35.4% Yield 1.8% Rel. Strength 66 Portfolio Sectors Energy 4 Services 2 Capital Goods 2 Consumer Cyclical 1 Basic Materials 1
Advertisement The Fallen As we rebalance the Validea Hot List, 6 stocks leave our portfolio. These include: American Eagle Outfitters (AEO), Esterline Technologies Corporation (ESL), Kennametal Inc. (KMT), Lincoln Electric Holdings, Inc. (LECO), Gildan Activewear Inc. (Usa) (GIL) and Logitech International Sa (Usa) (LOGI). The Keepers 4 stocks remain in the portfolio. They are: The Dress Barn, Inc. (DBRN), Ameron International Corporation (AMN), Jos. A. Bank Clothiers, Inc. (JOSB) and Schnitzer Steel Industries, Inc. (SCHN). The Newbies We are adding 6 stocks to the portfolio. These include: Ceradyne, Inc. (CRDN), Fossil, Inc. (FOSL), Lufkin Industries, Inc. (LUFK), World Fuel Services Corporation (INT), Exxon Mobil Corporation (XOM) and Oil States International, Inc. (OIS). Portfolio Changes Additions   CERADYNE, INC. CRDN FOSSIL, INC. FOSL LUFKIN INDUSTRIES, INC. LUFK WORLD FUEL SERVICES CORPORATION INT EXXON MOBIL CORPORATION XOM OIL STATES INTERNATIONAL, INC. OIS Deletions   AMERICAN EAGLE OUTFITTERS AEO ESTERLINE TECHNOLOGIES CORPORATION ESL KENNAMETAL INC. KMT LINCOLN ELECTRIC HOLDINGS, INC. LECO GILDAN ACTIVEWEAR INC. (USA) GIL LOGITECH INTERNATIONAL SA (USA) LOGI Newcomers to the Validea Hot List Ceradyne Inc. (CRDN): Based in Costa Mesa, Calif., Ceradyne makes advanced technical ceramic products and components for the defense, industrial, automotive, nuclear, electronic and medical industries. Its products range from body armor to tools used in oil drilling to dental abutments and crowns. Ceradyne has a market cap of about $480 million, and it has taken in about $680 million in sales in the past year. Ceradyne's strong fundamentals earn it approval from three of my Guru Strategies, those I base on the writings of Peter Lynch, Benjamin Graham, and Kenneth Fisher. To see why, scroll down to the "Detailed Stock Analysis" section below. Exxon Mobil Corp. (XOM): By far the largest publicly traded U.S. company, this Irving, Tex.-based energy giant has a market cap of about $340 billion and has raked in more than $475 billion in sales in the past year. In addition to its oil and natural gas businesses, Exxon is also one of the largest worldwide petrochemical companies. Exxon is one of only two companies in the market that currently get strong interest from four of my Guru Strategies, earning high marks from the models I base on the approaches of Kenneth Fisher, Peter Lynch, Warren Buffett, and Joel Greenblatt. See the "Detailed Stock Analysis" section below to find out why. Lufkin Industries, Inc. (LUFK): Based in Lufkin, Texas, Lufkin designs, engineers, manufactures, sells, installs and services oil field equipment and power transmission products for energy firms around the world. Lufkin is a small cap, with a market cap of $516 million, but it has taken in more than $740 million in sales in the past year. It gets approval from my Benjamin Graham-, Peter Lynch-, and Kenneth Fisher-based models. To see why, check out the "Detailed Stock Analysis" section below. Oil States International (OIS): Another Texas oil firm that has garnered the Hot List's attention, this Houston-based oil services company makes products used in deepwater oil production facilities and sub-sea pipelines. It also provides several types of services and products to the oil and gas industry, including production-related rental tools, work force accommodations and logistics, and land drilling services. The stock has been pummeled since oil prices peaked last July, but sales have continued to be strong (almost $3 billion over the past year, and more than $900 million in the fourth quarter of 2008, a 55 percent increase from '07's fourth quarter). It's a small cap, with a market cap of $665 million. To read more about why my Peter Lynch-, Kenneth Fisher-, and Benjamin Graham-based models all give high marks to Oil States, see the "Detailed Stock Analysis" section below. World Fuel Services Corp. (INT): The final oil firm added to the portfolio this rebalancing is this Miami-based company, which provides fuel and services to aircraft, petroleum distributors, and ships at more than 2,500 locations around the world. World Fuel has 43 offices in 23 countries across five different continents. Its market cap is just under $900 million, and it has brought in more than twice that in sales over the past 12 months. World Fuel gets approval from my Peter Lynch- and James O'Shaughnessy-based approaches. Find out why in the "Detailed Stock Analysis" section below. Fossil Inc. (FOSL): While its name and its Richardson, Tex. headquarters might give the appearance of yet another oil stock, there's no fossil fuel connection with this new Hot List member. Fossil designs and sells a variety of fashion accessories that are sold in more than 90 countries across the world. Its most notable product line is probably its extensive collection of watches, but the firm also makes small leather goods, belts, handbags, sunglasses, jewelry and apparel. Fossil's market cap is right around $1 billion, and it has taken in almost $1.6 billion in sales over the past year. Fossil gets approval from three of my Guru Strategies, those I base on the approaches of Warren Buffett, Benjamin Graham, and Kenneth Fisher. See the "Detailed Stock Analysis" section below to learn why. News about Validea Hot List Stocks Jos. A. Bank Clothiers (JOSB): Jos. A. Bank announced on March 16 that it will refund customers up to $199 for a suit purchased by April 9 if they lose their job between April 16 and July 1, according to the Birmingham Business Journal. If the customer provides proof of purchase and unemployment, they can keep the suit and the cash. Bank's shares also rose more than 40 percent from our last Hot List through yesterday afternoon, as retailers got a big bounce in the market's rally. Dress Barn Inc. (DBRN): The clothing retailer also jumped amid the market's climb, with shares surging more than 25 percent from our last Hot List through yesterday afternoon. 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 one of my individual Guru Strategies. If you have any questions, please feel free to contact us at hotlist@validea.com.

Current Portfolio Ticker Company Name Industry Guru Score JOSB JOS. A. BANK CLOTHIERS, INC. Retail (Apparel) 88 LUFK LUFKIN INDUSTRIES, INC. Oil Well Services & Equipment 70 SCHN SCHNITZER STEEL INDUSTRIES, INC. Iron & Steel 70 AMN AMERON INTERNATIONAL CORPORATION Constr. - Supplies & Fixtures 66 DBRN THE DRESS BARN, INC. Retail (Apparel) 66 FOSL FOSSIL, INC. Jewelry & Silverware 54 INT WORLD FUEL SERVICES CORPORATION Oil & Gas Operations 53 CRDN CERADYNE, INC. Aerospace & Defense 51 OIS OIL STATES INTERNATIONAL, INC. Oil Well Services & Equipment 51 XOM EXXON MOBIL CORPORATION Oil & Gas Operations 51 Ticker Market Cap Date Added Start Price Current Price Return JOSB $524 2/20/2009 $23.85 $28.69 20.3% LUFK $534 3/20/2009 TBD $35.90 TBD SCHN $806 1/23/2009 $37.18 $28.71 -22.8% AMN $426 12/26/2008 $56.33 $46.39 -17.6% DBRN $704 1/23/2009 $8.89 $11.73 31.9% FOSL $1,053 3/20/2009 TBD $15.82 TBD INT $904 3/20/2009 TBD $30.82 TBD CRDN $472 3/20/2009 TBD $18.25 TBD OIS $698 3/20/2009 TBD $14.10 TBD XOM $337,662 3/20/2009 TBD $68.33 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 JOSB   |   LUFK   |   SCHN   |   AMN   |   DBRN   |   FOSL   |   INT   |   CRDN   |   OIS   |   XOM   |   JOS. A. BANK CLOTHIERS, INC. Profile Strategy: Growth/Value Investor Based on: James P. O'Shaughnessy Jos. A. Bank Clothiers, Inc. (Jos. A. Bank) is a designer, retailer and direct marketer of men's tailored and casual clothing and accessories through stores, catalog and Internet. The Company sells substantially all of its products exclusively under the Jos. A. Bank label through its retail stores, as well as through the Company's nationwide catalog and Internet (www.josbank.com) operations. As of February 2, 2008, Jos. A. Bank operated 422 retail stores, which included seven outlet stores and 12 franchise stores located throughout 42 states and the District of Columbia in the United States. The Company's product are offering include the Jos. A. Bank Executive collection, as well as the Jos. A. Bank Signature and Jos. A. Bank Signature Gold collections. The Company sources substantially all of its products through third-party suppliers, manufacturers and/or agents using Jos. A. Bank designs and specifications. Jos. A. Bank operates through two segments: Stores and Direct Marketing. 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. JOSB, with a market cap of $524 million, passes this criterion. EARNINGS PER SHARE PERSISTENCE: [PASS] The Cornerstone Growth methodology looks for companies that show persistent earnings growth without regard to magnitude. To fulfill this requirement, a company's earnings must increase each year for a five year period. JOSB, whose annual EPS before extraordinary items for the last 5 years (from earliest to the most recent fiscal year) were 0.94, 1.38, 1.96, 2.36 and 2.72, passes this test. PRICE/SALES RATIO: [PASS] The Price/Sales ratio should be below 1.5. This value criterion, coupled with the growth criterion, identify growth stocks that are still cheap to buy. JOSB's Price/Sales ratio of 0.80, 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. JOSB, whose relative strength is 97, is in the top 50 and would pass this last criterion.   LUFKIN INDUSTRIES, INC. Profile Strategy: P/E/Growth Investor Based on: Peter Lynch Lufkin Industries, Inc., is a supplier of oil field and power transmission products. The Company is divided into two operating segments: Oil Field and Power Transmission. Through its Oil Field segment, the Company manufactures and services artificial reciprocating rod lift equipment and related products, which are used to extract crude oil and other fluids from wells. Through its Power Transmission segment, the Company manufactures and services high-speed and low-speed increasing and reducing gearboxes for industrial applications. In January 2008, the Company announced the decision to suspend its participation in the commercial trailer markets and to develop a plan to run-out existing inventories, fulfil contractual obligations and close all trailer facilities. In March 2009, the Company acquired International Lift Systems, LLC (ILS), a manufacturer of artificial lift systems serving oil and gas companies. Analysis Guru Score: 93% DETERMINE THE CLASSIFICATION: This methodology would consider LUFK a "fast-grower". P/E/GROWTH RATIO: [PASS] The investor should examine the P/E (6.08) relative to the growth rate (43.60%), 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 LUFK (0.14) 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. LUFK, whose sales are $741.2 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. 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 LUFK was 16.72% last year, while for this year it is 17.35%. 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 (0.64%) is below 5%. 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 LUFK is 43.6%, 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 LUFK (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 LUFK (0.53%) 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 LUFK (20.01%) 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.   SCHNITZER STEEL INDUSTRIES, INC. Profile Strategy: P/E/Growth Investor Based on: Peter Lynch Schnitzer Steel Industries, Inc. is a recycler of ferrous and non-ferrous metals. The Company is a recycler of used and salvaged vehicles, and a manufacturer of finished steel products. The Company provides an end of life cycle solution for a variety of products through its vertically integrated businesses, including sale of used auto parts, procuring autobodies and other metal products and manufacturing them into finished steel products. It operates in three business segments: the Metals Recycling Business (MRB), the Auto Parts Business (APB) and the Steel Manufacturing Business (SMB). In September 2007, the Company acquired a mobile metals recycling business that provides additional sources of scrap metal to the Everett, Massachusetts facility. In February 2008, it acquired the remaining 50% equity interest in Pick-N-Pull Auto Dismantlers, LLC Nevada. In August 2008, the Company acquired a self-service used auto parts business with three locations in the Southern United States. Analysis Guru Score: 93% DETERMINE THE CLASSIFICATION: This methodology would consider SCHN a "fast-grower". P/E/GROWTH RATIO: [PASS] The investor should examine the P/E (4.38) relative to the growth rate (29.43%), 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 SCHN (0.15) is very favorable. SALES AND P/E RATIO: [PASS] 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 high enough to support a P/E above this threshold. SCHN, whose sales are $3,536.2 million, needs to have a P/E below 40 to pass this criterion. SCHN's P/E of (4.38) is considered acceptable. 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 SCHN was 10.05% last year, while for this year it is 11.78%. 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 (1.73%) is below 5%. 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 SCHN is 29.4%, based on the average of the 3, 4 and 5 year historical eps growth rates, which is acceptable. TOTAL DEBT/EQUITY RATIO: [PASS] This methodology would consider the Debt/Equity ratio for SCHN (13.95%) 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 SCHN (6.76%) 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 SCHN (-11.33%) 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.   AMERON INTERNATIONAL CORPORATION Profile Strategy: Price/Sales Investor Based on: Kenneth Fisher Ameron International Corporation (Ameron) is a multinational manufacturer of engineered products and materials for the chemical, industrial, energy, transportation and infrastructure markets. It has three segments: Fiberglass-Composite Pipe Group, Water Transmission Group and Infrastructure Products Group. The Fiberglass-Composite Pipe Group manufactures and markets filament-wound and molded fiberglass pipe, tubing, fittings and well screens.The Water Transmission Group manufactures and supplies concrete and steel pressure pipe, concrete non-pressure pipe, protective linings for pipe and fabricated steel products, such as large-diameter wind towers. The Infrastructure Products Group consists of two operating segments, which are aggregated: the Hawaii Division and the Pole Products Division. In October 2007, Ameron acquired the business of Polyplaster, Ltda., a Brazilian fiberglass-pipe operation. Analysis Guru Score: 100% PRICE/SALES RATIO: [PASS] The prospective company should have a low Price/Sales ratio. Smokestack (cyclical) companies with a Price/Sales ratio between .4 and .8 represent good values according to this methodology. AMNpasses this test as its P/S of 0.64 based on trailing 12 month sales, falls within the "good values" range for cyclical companies. TOTAL DEBT/EQUITY RATIO: [PASS] Less debt equals less risk according to this methodology. AMN's Debt/Equity of 11.06% 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. AMN 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 AMN At this Point Is AMN a "Super Stock"? YES PRICE/SALES RATIO: [PASS] The prospective company should have a low Price/Sales ratio. Non-Smokestack(non-cyclical) companies with a Price/Sales ratio between .75 and 1.5 are good values. Otherwise, Smokestack(cyclical) companies with a Price/Sales ratio between .4 and .8 represent good values. AMN's P/S ratio of 0.64 falls within the "good values " range for cyclical industries and is considered attractive. LONG-TERM EPS GROWTH RATE: [PASS] This methodology looks for companies that have an inflation adjusted EPS growth rate greater than 15%. AMN's inflation adjusted EPS growth rate of 25.26% 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. AMN's free cash per share of 1.87 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. AMN, whose three year net profit margin averages 9.65%, passes this evaluation.   THE DRESS BARN, INC. Profile Strategy: P/E/Growth Investor Based on: Peter Lynch The Dress Barn, Inc. operates women's apparel specialty stores, principally under the names dressbarn, dressbarn woman and maurices. As of July 26, 2008, the Company operated 1,503 stores in 48 states and the District of Columbia, including 656 dressbarn Combo stores (a combination of its dressbarn and dressbarn woman brands), 677 maurices stores, 134 dressbarn stores and 36 dressbarn woman stores. Its dressbarn stores are typically operated as Combo stores, offering both dressbarn and larger-sized dressbarn woman merchandise. The Dress Barn, Inc. also operates stand-alone dressbarn and dressbarn woman stores in certain markets. Its dressbarn brands cater to 35 to 55 year-old women, sizes 4 to 24. The dressbarn stores offer in-season and casual fashion located primarily in convenient strip shopping centers in major trading and markets and surrounding suburban areas. As of July 26, 2008, the Company operated 1,503 stores in 48 states. Analysis Guru Score: 93% DETERMINE THE CLASSIFICATION: This methodology would consider DBRN a "fast-grower". P/E/GROWTH RATIO: [PASS] The investor should examine the P/E (11.33) relative to the growth rate (30.83%), 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 DBRN (0.37) is very favorable. SALES AND P/E RATIO: [PASS] 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 high enough to support a P/E above this threshold. DBRN, whose sales are $1,454.5 million, needs to have a P/E below 40 to pass this criterion. DBRN's P/E of (11.33) is considered acceptable. 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 DBRN is 30.8%, based on the average of the 3, 4 and 5 year historical eps growth rates, which is acceptable. TOTAL DEBT/EQUITY RATIO: [PASS] This methodology would consider the Debt/Equity ratio for DBRN (25.10%) 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 DBRN (10.49%) 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 DBRN (11.11%) 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.   FOSSIL, INC. Profile Strategy: Patient Investor Based on: Warren Buffett Fossil, Inc. is a global design, marketing and distribution company that specializes in consumer fashion accessories. The Company's principal offerings include a line of men's and women's fashion watches and jewelry sold under licensed brands, handbags, small leather goods, belts, sunglasses, footwear, cold weather accessories and apparel. In the watch and jewelry product category, Fossil, Inc. has a diverse portfolio of owned and licensed brand names, under which its products are marketed. The Company's products are distributed globally through various distribution channels, including wholesale, export and direct to the consumer at varying price points to service the needs of its customers. The Company sells its products through diversified distribution networks that includes department stores, specialty retail locations, specialty watch and jewelry stores, owned retail and factory outlet stores, mass market stores, owned and affiliate Internet sites and through its FOSSIL catalog. 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 0.69, 0.76, 0.62, 0.81, 0.93, 1.23, 1.04, 1.13, 1.75, 2.02. Buffett would consider FOSL'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 33.9%. FOSL's long term historical EPS growth rate is 16.5%, based on the 10 year average EPS growth rate, and it is expected to grow earnings 16.2% 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. FOSL has a debt of 4.7 million and earnings of 134.0 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 FOSL, over the last ten years, is 17.3%, 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 26.0%, 23.4%, 16.0%, 16.6%, 15.4%, 16.7%, 13.6%, 12.7%, 15.8%, 16.8%, and the average ROE over the last 3 years is 15.1%, 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 FOSL, over the last ten years, is 17.3% and the average ROTC over the past 3 years is 15.0%, which is high enough to pass. It is not enough that the average be at least 12%. For each of the last 10 years, with the possible exception of the last fiscal year, the ROTC must be at least 9% for Buffett to feel comfortable that the ROTC is consistent. The ROTC for the last 10 years, from earliest to latest, is 26.0%, 23.4%, 16.0%, 16.6%, 15.4%, 16.6%, 13.6%, 12.7%, 15.8%, 16.7%, 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. FOSL's free cash flow per share of $0.66 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 $10.98 and compares it to the gain in EPS over the same period of $1.33. FOSL's management has proven it can earn shareholders a 12.1% return on the earnings they kept. This return is acceptable to Buffett, but he would prefer to see a return > 15%. Essentially, management is is doing a good 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. FOSL's shares outstanding have fallen over the past five years from 71,110,001 to 66,000,000, 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 FOSL 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 $2.03 and divide it by the current market price of $15.82. An investor, purchasing FOSL, could expect to receive a 12.83% initial rate of return. Furthermore, he or she could expect the rate to increase 16.2% 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 4.60%. Compare this with FOSL's initial yield of 12.83%, which will expand at an annual rate of 16.2%, 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] FOSL currently has a book value of $12.08. It is safe to say that if FOSL can preserve its average rate of return on equity of 15.1% and continues to retain 100.00% of its earnings, it will be able to sustain an earnings growth rate of 15.1% and it will have a book value of $49.24 in ten years. If it can still earn 15.1% on equity in ten years, then expected EPS will be $7.43. CALCULATE THE FUTURE STOCK PRICE BASED ON THE AVERAGE ROE METHOD: [No Pass/Fail] Now take the expected future EPS of $7.43 and multiply them by the lower of the 5 year average P/E ratio (17.2) or current P/E ratio (current P/E in this case), which is 7.8 and you get FOSL's projected future stock price of $57.96. 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 $0.00. This gives you a total dollar amount of $57.96. These numbers indicate that one could expect to make a 13.9% average annual return on FOSL'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 16.2%, based on the analysts' consensus estimated long term growth rate, you can project EPS in ten years to be $9.09. Now multiply EPS in 10 years by the lower of the 5 year average P/E ratio (17.2) or current P/E ratio (current P/E in this case), which is 7.8. This equals the future stock price of $70.88. Add in the total expected dividend pool of $0.00 to get a total dollar amount of $70.88. 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 $15.82 and the future expected stock price, including the dividend pool, of $70.88. If you were to invest in FOSL at this time, you could expect a 16.2% 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 13.9% and 16.2%. 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 15.0% on FOSL stock for the next ten years, based on the current fundamentals. Buffett would consider this a great return, thus passing the criterion.   WORLD FUEL SERVICES CORPORATION Profile Strategy: Value Investor Based on: Benjamin Graham World Fuel Services Corporation is engaged in the marketing and sale of marine, aviation and land fuel products and related services on a worldwide basis. The Company operates in three segments: marine, aviation and land. In its marine segment it offers fuel and related services to maritime customers, including international container and tanker fleets, commercial cruise lines and time-charter operators. In its aviation segment, it offers fuel and related services to major commercial airlines, second and third-tier airlines, cargo carriers, regional and low-cost carriers, corporate fleets, fractional operators, private aircraft, military fleets. In its land segment, it offers fuel and related services to petroleum distributors operating in the land transportation market. In June 2008, it acquired certain assets of Texor Petroleum Company, Inc.. Analysis Guru Score: 86% SECTOR: [PASS] INT 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. INT's sales of $18,509.4 million, based on trailing 12 month sales, pass this test. CURRENT RATIO: [FAIL] The current ratio must be greater than or equal to 2. Companies that meet this criterion are typically financially secure and defensive. INT's current ratio of 1.56 fails 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 INT is $9.5 million, while the net current assets are $421.1 million. INT 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. INT's EPS growth over that period of 639.4% 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. INT's P/E of 11.50 (using the 3 year 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. INT's Price/Book ratio is 1.48, while the P/E is 11.50. INT passes the Price/Book test.   CERADYNE, INC. Profile Strategy: Price/Sales Investor Based on: Kenneth Fisher Ceradyne, Inc. develops, manufactures and markets advanced technical ceramic products, ceramic powders and components for defense, industrial, automotive/diesel and commercial applications. The Company's products include lightweight ceramic armor for soldiers and other military applications; ceramic industrial components for erosion and corrosion resistant applications; ceramic powders, including boron carbide, boron nitride, titanium diboride, calcium hexaboride, zirconium diboride, and fused silica, which are used in manufacture of armor and a range of industrial products and consumer products; evaporation boats for metallization of materials for food packaging and other products; reduced friction, ceramic diesel engine components; functional and frictional coatings primarily for automotive applications; translucent ceramic orthodontic brackets, and ceramic-impregnated dispenser cathodes for microwave tubes, lasers and cathode ray tubes. Analysis Guru Score: 100% PRICE/SALES RATIO: [PASS] The prospective company should have a low Price/Sales ratio. Non-cyclical (non-Smokestack) companies with Price/Sales ratios below 0.75 are tremendous values and should be sought. CRDN's P/S of 0.69 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. CRDN's Debt/Equity of 19.26% 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. CRDN 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 CRDN At this Point Is CRDN a "Super Stock"? YES PRICE/SALES RATIO: [PASS] The prospective company should have a low Price/Sales ratio. Non-cyclical(non-Smokestack) companies with Price/Sales ratios below .75 are tremendous values and should be sought.CRDN's P/S ratio of 0.69 is below .75 which is considered extremely attractive. It passes this methodology's P/S ratio test with flying colors. LONG-TERM EPS GROWTH RATE: [PASS] This methodology looks for companies that have an inflation adjusted EPS growth rate greater than 15%. CRDN's inflation adjusted EPS growth rate of 36.74% 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. CRDN's free cash per share of 4.19 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. CRDN, whose three year net profit margin averages 18.04%, passes this evaluation.   OIL STATES INTERNATIONAL, INC. Profile Strategy: Value Investor Based on: Benjamin Graham Oil States International, Inc. (Oil States) through its subsidiaries, is a provider of specialty products and services to oil and gas drilling and production companies worldwide. The Company operates in a number of oil and gas producing regions, including the Gulf of Mexico, United States onshore, West Africa, the North Sea, Canada, South America and Southeast and Central Asia. Its customers include many of the national oil companies, major and independent oil and gas companies and other oilfield service companies. Oil States operates in three principal business segments: offshore products, tubular services and well site services. The Company's well site services segment includes the accommodations, rental tools and drilling services businesses. On February 1, 2008, Oil States purchased all of Christina Lake Enterprises Ltd., the owners of an accommodations lodge (Christina Lake Lodge) in the Conklin area of Alberta, Canada. Analysis Guru Score: 100% SECTOR: [PASS] OIS 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. OIS's sales of $2,948.5 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. OIS's current ratio of 2.31 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 OIS is $475.0 million, while the net current assets are $701.0 million. OIS 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. We have data for 9 years, and have adjusted this requirement to be a 27% gain over the 9 year period. Companies with this type of growth tend to be financially secure and have proven themselves over time. OIS's EPS growth over that period of 1,723.9% 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. OIS's P/E of 3.50 (using the 3 year 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. OIS's Price/Book ratio is 0.57, while the P/E is 3.50. OIS passes the Price/Book test.   EXXON MOBIL CORPORATION Profile Strategy: P/E/Growth Investor Based on: Peter Lynch Exxon Mobil Corporation (Exxon Mobil) through its divisions and affiliates is engaged in exploration for, and production of, crude oil and natural gas, manufacture of petroleum products and transportation and sale of crude oil, natural gas and petroleum products. ExxonMobil is a manufacturer and marketer of commodity petrochemicals, including olefins, aromatics, polyethylene and polypropylene plastics and a wide variety of specialty products. It also has interests in electric power generation facilities. Affiliates of ExxonMobil conduct research programs in support of these businesses. Exxon Mobil Corporation has several divisions and affiliates, many with names that include Exxon Mobil, Exxon, Esso or Mobil. The Company operates in three segments: Upstream, Downstream and Chemicals. In November 2008, Sunoco Logistics Partners L.P. completed the acquisition of the MagTex refined products pipeline system located in Texas, from affiliates of Exxon Mobil Corporation. Analysis Guru Score: 93% DETERMINE THE CLASSIFICATION: XOM is considered a "True Stalwart", according to this methodology, as its earnings growth of 19.85% lies within a moderate 10%-19% range and its annual sales of $477,359 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. XOM is attractive if XOM 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 XOM was 2.74% last year, while for this year it is 2.44%. Since inventory to sales has decreased from last year by -0.30%, XOM passes this test. YIELD ADJUSTED P/E TO GROWTH (PEG) RATIO: [PASS] The Yield-adjusted P/E/G ratio for XOM (0.36), 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. XOM's EPS ($8.68) would satisfy this criterion. TOTAL DEBT/EQUITY RATIO: [PASS] This methodology would consider the Debt/Equity ratio for XOM (8.34%) 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 XOM (9.10%) 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 XOM (7.25%) 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.   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 KMT KENNAMETAL INC. Constr. & Agric. Machinery 51 LECO LINCOLN ELECTRIC HOLDINGS, INC. Misc. Capital Goods 51 BJS BJ SERVICES COMPANY Oil Well Services & Equipment 51 GWW W.W. GRAINGER, INC. Misc. Capital Goods 48 ASF ADMINISTAFF, INC. Business Services 46 CVX CHEVRON CORPORATION Oil & Gas - Integrated 45 CTAS CINTAS CORPORATION Personal Services 43 TWGP TOWER GROUP, INC. Insurance (Prop. & Casualty) 40 UMBF UMB FINANCIAL CORPORATION Regional Banks 40 SOHU SOHU.COM INC. Computer Services 40

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