Executive Summary  |   Portfolio  |   Guru Analysis  |   Watch List

Executive Summary	August 1, 2014

The Economy We're now well over halfway into the Federal Reserve's tapering of its quantitative easing program, and, so far, the dire predictions many had for the US economy just aren't coming to fruition. New claims for unemployment, for example, fell to their lowest level since early 2006 in the week ending July 19. That put them an impressive 14% below where they stood a year earlier. Continuing claims, the data for which lag new claims by a week, were 16% below year-ago levels. New claims moved upward a bit in the most recent week, but still remain at very encouraging levels -- some 8.7% below year-ago levels. Private payroll processor ADP said the private sector added 218,000 jobs in July, meanwhile, the fourth straight month the figure has been over 200,000. July's jobs-added number was second only to June's 281,000 so far in 2014. The Labor Department's July jobs report hadn't been released as of this writing, but hopefully we'll see a similarly strong number from that. The first GDP report for the second quarter was also released, and it showed that economic output rose at a strong 4% annualized pace. That supported the idea that the weak first quarter growth was largely caused by bad winter weather. While conflicts continue in the Middle East and Ukraine, the geopolitical turmoil hasn't sent gas prices upward. In fact, according to AAA, abundant refinery production has pushed gas prices down over the past month. "Oil markets remain relatively unaffected because there has not been an impact to supply or distribution," the group said. "Meanwhile, domestic refinery utilization reached its highest level of the year last week, which has helped to push gas prices lower." Inflation does continue to be stronger than we've seen it for some time, however. The Consumer Price Index rose 0.3% in May, according to the Labor Department. That put it 2.1% ahead of its year-ago pace for the second straight month, the biggest year-over-year gains in almost two years. Core inflation, which strips out volatile food and energy prices, was up 1.9% year-over-year. That figure is hardly troubling, but inflation remains something to keep an eye on going forward. As for the Fed, it again reduced its bond-buying program by $10 billion per month at its latest meeting. That means it's now buying $25 billion in bonds a month, down from a peak of $85 billion. Overall since our last newsletter, the S&P 500 returned -1.4%, while the Hot List returned 0.4%. For the year, the portfolio stands at -14.0% vs. 4.5% for the S&P. Since its inception in July 2003, the Hot List is far outpacing the index, having gained 212.9% vs. the S&P's 93.0% gain. Unsexy Models? Enron and WorldCom: They are two of the most infamous names in stock market history. Both of these apparent growth dynamos went up in flames amid major accounting frauds in the early 2000s. And, in both cases, investors who thought they were hitting paydirt were left with nothing. What's amazing is that if the investing world had paid a little more attention to quantitative models, a lot of that pain could've been avoided. That's one of the many interesting things I've learned from Wesley Gray and Tobias Carlisle's book Quantitative Value. In the book, Gray and Carlisle examine how using quantitative models can help investors beat the market over the long haul. One of the areas they delve into is how to detect accounting manipulation. They found several studies, largely unknown to investors, in which academics developed quantitative models that were able to do a very good job identifying companies that were likely manipulating their financials and/or in danger of going bankrupt. The models they turned up, some of which were several decades old, looked at many different factors, ranging from scaled total accruals to depreciation rates to standard deviations of stock returns. One of the models was based on a paper by Dr. Messod Beneish of Indiana University's Kelley School of Business, entitled "The Detection of Earnings Manipulation". Using this model, Gray and Carlisle looked back at Enron's financial statements to see what the model would have thought of Enron's likelihood of manipulation. They found that Enron's 2000 score on this model "sent a very strong signal that something fishy was occurring." In 2000, Enron stock was flying high; but not long after -- December of 2001 -- the company filed for bankruptcy and its fraud was exposed. Investors who were aware of and willing to use Beneish's model would have been able to get out of the stock before it came plummeting back down. Another of the studies that Carlisle and Gray looked at used a quantitative model to classify stocks as being likely or not likely to go bankrupt within the next year. It worked very well, correctly classifying 94% of bankrupt stocks and 97% of non-bankrupt stocks one year prior to filing for bankruptcy -- and it was developed back in 1968, over 30 years before WorldCom went bankrupt. What did the model think of WorldCom? Well, Carlisle and Gray note that two researchers looked at how WorldCom would have scored in the years leading up to its 2002 bankruptcy. The researchers found that "WorldCom's [score] deteriorated precipitously between 1999 and 2001... If investors had not done so in 2000, WorldCom's 2001 [score] was flashing neon warning light to get out of the stock ... At this point WorldCom could be said to be unequivocally in trouble, and probably heading to bankruptcy absent some deus ex machina like a substantial capital raising." Keep in mind, these models didn't somehow tap into Enron's and WorldCom's true financials; they simply used the "cooked" results that the companies provided to the public. Given that they had been created before WorldCom and Enron went belly up -- and had been proven to be pretty darn accurate -- why didn't they get more press prior to those companies' bankruptcies? I think the answer involves the same reasons that investors habitually underperform the broader market averages. People are emotional creatures, and we love stories that tug on our emotions. Quantitative models may have cold, hard data, but they don't excite us. Stories about successful companies with brilliant leaders and groundbreaking products and services, on the other hand, send our imaginations running wild. No matter how objective you might try to be, you can't completely turn off those emotions. Once you read that article about "The Next Apple," it's tough to get it out of your head. Another factor: People like to do things themselves, and they are overconfident in their abilities to do those things. As Philip Tetlock wrote in his book Expert Political Judgment, "Human performance suffers because we are, deep down, deterministic thinkers with an aversion to probabilistic strategies that accept the inevitability of error." We humans want to be right every time. And we think we can be. It's just a matter of learning enough, gaining enough experience, or focusing well enough, we think. Models, on the other hand, come with the near guarantee that they will be wrong a good chunk of the time. For example, history shows that my most successful Guru Strategies tend to be accurate -- that is, make money -- on between 55% and 60% of their picks. If you're going to use these models, you can bet that, over the long term, you'll be wrong 40% to 45% of time. Humans think we can do a lot better than that, or we think that, unlike models, we can improve our predictive abilities exponentially over time. But the reality is that when it comes to the stock market and all of its unpredictable drivers, we just can't. In fact, in general in terms of predicting political or economic events, 55% to 60% accuracy is far beyond what humans achieve. Tetlock's research detailed a seven-year study he conducted in which supposed experts and non-experts were asked to predict an array of political and economic events. His findings: While the "experts" tended to beat the non-experts, the best human forecasters "were hard-pressed to predict more than 20 percent of the total variability in outcomes" of events. Adjusting for factors like amount of experience, college degree level, or type of expertise made little difference. (One factor that did, however: fame. The more famous, the worse the alleged expert tended to perform!) Statistical models, meanwhile, aren't perfect at forecasting the future -- but they're a lot better than humans. Tetlock found that sophisticated algorithms could explain 47 percent of outcomes in his study -- more than twice as much as "expert" human forecasters. James O'Shaughnessy gives some excellent insights into this phenomenon in What Works on Wall Street. In the book, O'Shaughnessy cites additional studies that all found that human prognosticators couldn't match statistical-actuRoboto forecasting models. In one study, for example, an actuRoboto model did better in predicting whether certain high school students would be successful in college than did admissions officers at many colleges. In another, a researcher named Jack Sawyer reviewed 45 different studies that compared human and actuRoboto predictive ability. "In none [of the 45] was the clinical, intuitive method -- the one favored by most people -- found to be superior," O'Shaughnessy writes. "What's more, Sawyer included instances in which the human judges had more information than the model and were given the results of the quantitative models before being asked for a prediction. The actuRoboto models still beat the human judges!" Several studies have also shown that human forecasters tend to underperform models even when they are given the results of those models' forecasts ahead of time. How can all of this be? It's because people are emotional creatures, and emotions lead to inconsistency in how we assess problems. Explains O'Shaughnessy: "Models beat human forecasters because they reliably and consistently apply the same criteria time after time. Models never vary. They are always consistent. They are never moody, never fight with their spouse, are never hung over from a night on the town, and never get bored. They don't favor vivid, interesting stories over reams of statistical data. They never take anything personally. They don't have egos. They're not out to prove anything." The boring consistency of models is why they beat humans -- and why humans avoid models. And their boring consistency highlights a great irony of the stock market: The investors who produce the flashiest returns usually do so in the unsexiest of ways. They don't load up on high-risk, exciting tech stocks, or try new, flavor of the month strategies. They stick to the basics. Whether they use models or not, they analyze a company's balance sheet, competitive position, and valuations. And when the numbers tell them to buy, they buy -- regardless of what their own fickle emotions might be saying. As hedge fund guru George Soros once said, "If investing is entertaining, if you're having fun, you're probably not making any money. Good investing is boring." Fundamentals and balance sheets and quantitative models may be boring to many investors. But over the long haul, they work -- far better than our own gut instincts. So whatever particular strategy or strategies you use in management managing your portfolio, think "boring". In the market, after all, boring is beautiful.		Editor-in-Chief: John Reese Since Inception   Hot List 212.9% S&P 500 93.0% Accuracy 54.7% Beta 1.2 YTD   Hot List -14.0% S&P 500 4.5% Since Last Issue   Hot List 0.4% S&P 500 -1.4% Avg. Fundamentals   Market Cap (mil) $4,502 PE Ratio 12.3 5 Yr EPS Growth 33.0% Yield 0.8% Rel. Strength 67 Portfolio Sectors Financial 2 Healthcare 1 Services 1 Technology 1 Basic Materials 1 Capital Goods 1 Conglomerates 1 Consumer Cyclical 1 Energy 1
Have Your Portfolio Managed Using Validea's Investing System Many users know about our research services but are unaware that money management services based on our system are also offered through a separate registered investment advisory firm, Validea Capital Management. If you are thinking about switching advisors or no longer have the time or inclination to manage your investments yourself, find out more about Validea Capital, its portfolio offerings, and its performance below. Request an Investment Consultation Today! ** Validea Capital Management is a separate investment advisory firm managed by Validea.com founder John Reese. The information above is not intended as personal investment advice and should not be interpreted as such. The Fallen As we rebalance the Validea Hot List, 6 stocks leave our portfolio. These include: Tal Education Group (Adr) (XRS), Coach Inc (COH), Banco Macro Sa (Adr) (BMA), The Tjx Companies, Inc. (TJX), Tech Data Corp (TECD), Ross Stores, Inc. (ROST), . The Keepers 4 stocks remain in the portfolio. They are: Agco Corporation (AGCO), Valero Energy Corporation (VLO), Anika Therapeutics, Inc. (ANIK) and Rex American Resources Corp (REX). The Newbies We are adding 6 stocks to the portfolio. These include: Williams-sonoma, Inc. (WSM), Bbva Banco Frances S.a. (Adr) (BFR), Usana Health Sciences, Inc. (USNA), Piper Jaffray Companies (PJC), Silicon Motion Technology Corp. (Adr) (SIMO), Liquidity Services, Inc. (LQDT), . Portfolio Changes Additions   WILLIAMS-SONOMA, INC. WSM BBVA BANCO FRANCES S.A. (ADR) BFR USANA HEALTH SCIENCES, INC. USNA PIPER JAFFRAY COMPANIES PJC SILICON MOTION TECHNOLOGY CORP. (ADR) SIMO LIQUIDITY SERVICES, INC. LQDT Deletions   TAL EDUCATION GROUP (ADR) XRS COACH INC COH BANCO MACRO SA (ADR) BMA THE TJX COMPANIES, INC. TJX TECH DATA CORP TECD ROSS STORES, INC. ROST Newcomers to the Validea Hot List Williams-Sonoma Inc. (WSM): This San Francisco-based cookware and kitchen supply store, which also owns home products and furniture stores like Pottery Barn and West Elm, has nearly 600 stores across the U.S. and Canada. Sonoma ($6.4 billion market cap) gets strong interest from my Peter Lynch- and James O'Shaughnessy-based models. To read more about it, scroll down to the "Detailed Stock Analysis" section below. USANA Health Sciences, Inc. (USNA): Utah-based USANA makes nutritional and personal care products such as vitamins, nutrition bars, and skin and hair cleansers. It has customers in the U.S., Canada, Australia, New Zealand, Mexico, the U.K., and a number of countries in Asia. Its subsidiary, BabyCare, Ltd., has a direct selling business in China. USANA ($900 million market cap) gets strong interest from my Peter Lynch-, Warren Buffett-, and Joel Greenblatt-based models. To read more about it, scroll down to the "Detailed Stock Analysis" section. BBVA Banco Frances SA (BFR): This Argentina-based bank is engaged in the provision of financial and non-financial services, through a network of over 239 retail branch offices, over 25 branch offices specialized in the middle-market segment, and seven branch offices for corporate and institutional customers. It has a $3 billion market cap. BBVA gets strong interest from my Peter Lynch-based model and high marks from my Motley Fool- and Martin Zweig-based models. To read more about the stock, scroll down to the "Detailed Stock Analysis" section below. Liquidity Services, Inc. ( LQDT): Liquidity Services is an auction marketplace for surplus and salvage assets. The company enables buyers and sellers to transact in an automated online auction environment offering over 500 product categories. Its marketplaces provide professional buyers access to a global, organized supply of surplus and salvage assets presented with digital images and other relevant product information. It has a $450 million market cap. LQDT gets strong interest from my Joel Greenblatt- and Peter Lynch-based models. To read more about it, scroll down to the "Detailed Stock Analysis" section. Piper Jaffray Companies (PJR): Piper Jaffray is an investment bank and asset management firm, serving corporations, private equity groups, public entities, non-profit entities and institutional investors in the United States and internationally. The company operates in two segments: Capital Markets and Asset Management. It has an $800 million market cap. Piper gets strong interest from my Peter Lynch-based model and high marks from several other strategies. To read more about it, scroll down to the "Detailed Stock Analysis" section. Silicon Motion Technology Corporation (SIMO): Silicon Motion is a fabless semiconductor company that makes high-performance, low-power semiconductor solutions for the multimedia consumer electronics market. Its products include mobile storage, mobile communications, multimedia systems-on-a-chip (SoCs) and other products. Silicon Motion ($800 million market cap) gets strong interest from my Peter Lynch-based model and high marks from several other strategies. To read more about it, scroll down to the "Detailed Stock Analysis" section. News about Validea Hot List Stocks Anika Therapeutics (ANIK): Anika shares were hit hard on July 31 after the firm announced earnings that beat expectations but revenues that fell short. Total revenue for the second quarter of 2014 was $26.3 million, compared with $20.8 million in the second quarter of 2013. Operating income was $15.2 million, compared with $9.4 million in the same period in 2013. Net income for the second quarter was $9.3 million, or $0.60 per diluted share, compared with $5.9 million, or $0.40 per diluted share, in the second quarter of last year. Shares fell more than 14%. The Hot List is selling the stock on today's rebalancing, as its fundamentals have been surpassed by those of other companies. 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 ANIK ANIKA THERAPEUTICS, INC. Biotechnology & Drugs 100 VLO VALERO ENERGY CORPORATION Oil & Gas Operations 96 USNA USANA HEALTH SCIENCES, INC. Conglomerates 88 PJC PIPER JAFFRAY COMPANIES Investment Services 81 REX REX AMERICAN RESOURCES CORP Chemical Manufacturing 77 SIMO SILICON MOTION TECHNOLOGY CORP. (ADR) Semiconductors 74 BFR BBVA BANCO FRANCES S.A. (ADR) Regional Banks 67 LQDT LIQUIDITY SERVICES, INC. Retail (Catalog & Mail Order) 60 WSM WILLIAMS-SONOMA, INC. Furniture & Fixtures 55 AGCO AGCO CORPORATION Constr. & Agric. Machinery 49 Ticker Market Cap Date Added Start Price Current Price Return ANIK $622 5/9/2014 $47.62 $42.06 -11.7% VLO $27,108 4/11/2014 $50.96 $50.80 -0.3% USNA $889 8/1/2014 TBD $63.85 TBD PJC $839 8/1/2014 TBD $51.60 TBD REX $690 7/3/2014 $77.21 $84.35 9.2% SIMO $777 8/1/2014 TBD $23.06 TBD BFR $2,776 8/1/2014 TBD $12.90 TBD LQDT $433 8/1/2014 TBD $13.49 TBD WSM $6,312 8/1/2014 TBD $67.07 TBD AGCO $4,575 12/20/2013 $57.62 $48.71 -15.5%

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 ANIK   |   VLO   |   USNA   |   PJC   |   REX   |   SIMO   |   BFR   |   LQDT   |   WSM   |   AGCO   |   ANIKA THERAPEUTICS, INC. Profile Strategy: Small-Cap Growth Investor Based on: Motley Fool Anika Therapeutics, Inc. (Anika) develops, manufactures and commercializes therapeutic products for tissue protection, healing and repair. These products are based on hyaluronic acid (HA), a naturally occurring, biocompatible polymer found throughout the body. As of December 31, 2011, Anika's wholly owned subsidiary, Anika Therapeutics S.r.l., had over 20 products commercialized, primarily in Europe. These products are also all made from hyaluronic acid, based on two technologies: HYAFF, which is a solid form of HA, and ACP gel, an autocross-linked polymer of HA. Analysis Guru Score: 93% PROFIT MARGIN: [PASS] This methodology seeks companies with a minimum trailing 12 month after tax profit margin of 7%. The companies that pass this criterion have strong positions within their respective industries and offer greater shareholder returns. A true test of the quality of a company is that they can sustain this margin. ANIK's profit margin of 34.67% passes this test. RELATIVE STRENGTH: [PASS] The investor must look at the relative strength of the company in question. Companies whose relative strength is 90 or above (that is, the company outperforms 90% or more of the market for the past year), are considered attractive. Companies whose price has been rising much quicker than the market tend to keep rising. ANIK, with a relative strength of 92, satisfies this test. COMPARE SALES AND EPS GROWTH TO THE SAME PERIOD LAST YEAR: [PASS] Companies must demonstrate both revenue and net income growth of at least 25% as compared to the prior year. These growth rates give you the dynamic companies that you are looking for. These rates for ANIK (361.90% for EPS, and 123.02% for Sales) are good enough to pass. INSIDER HOLDINGS: [FAIL] ANIK's insiders should own at least 10% (they own 3.78%) of the company's outstanding shares. This does not satisfy the minimum requirement, and companies that do not pass this criteria are less attractive. CASH FLOW FROM OPERATIONS: [PASS] A positive cash flow is typically used for internal expansion, acquisitions, dividend payments, etc. A company that generates rather than consumes cash is in much better shape to fund such activities on their own, rather than needing to borrow funds to do so. ANIK's free cash flow of $1.67 per share passes this test. PROFIT MARGIN CONSISTENCY: [PASS] ANIK's profit margin has been consistent or even increasing over the past three years (Current year: 27.41%, Last year: 16.48%, Two years ago: 13.08%), passing the requirement. It is a sign of good management and a healthy and competitive enterprise. R&D AS A PERCENTAGE OF SALES: [PASS] ANIK is either maintaining the same levels of R&D expenditures(currently $7.1 million) or increasing these levels which is a good sign. This allows the company to develop the superior technology and new products that will put everyone else out of business. This criterion is particularly important for high-tech and medical stocks because they are so R&D dependant. CASH AND CASH EQUIVALENTS: [PASS] ANIK's level of cash $63.3 million passes this criteria. If a company is a cash generator, like ANIK, it has the ability to pay off debt (if it has any) or acquire other companies. Most importantly, good operations generate cash. INVENTORY TO SALES: [PASS] This methodology strongly believes that companies, especially small ones, should have tight control over inventory. It's a warning sign if a company's inventory relative to sales increases significantly when compared to the previous year. Up to a 30% increase is allowed, but no more. Inventory to Sales for ANIK was 11.60% last year, while for this year it is 14.65%. Although the inventory to sales is rising, it is below the max 30% that is allowed. The investor can still consider the stock if all other criteria appear very attractive. ACCOUNT RECEIVABLE TO SALES: [PASS] This methodology wants to make sure that a company's accounts receivable do not get significantly out of line with sales. It's a warning sign if a company's accounts receivable relative to sales increases significantly when compared to the previous year. Up to a 30% increase is allowed, but no more. Accounts Receivable to Sales for ANIK was 30.07% last year, while for this year it is 24.96%. Since the AR to sales is decreasing by -5.11% the stock passes this criterion. LONG TERM DEBT/EQUITY RATIO: [PASS] ANIK's trailing twelve-month Debt/Equity ratio (0.00%) is at a great level according to this methodology because the superior companies that you are looking for don't need to borrow money in order to grow. "THE FOOL RATIO" (P/E TO GROWTH): [PASS] The "Fool Ratio" is an extremely important aspect of this analysis. If the company has attractive fundamentals and its Fool Ratio is 0.5 or less (ANIK's is 0.42), the shares are looked upon favorably. These high quality companies can often wind up as the biggest winners. ANIK passes this test. The following criteria for ANIK are less important which means you would place less emphasis on them when making your investment decision using this strategy: AVERAGE SHARES OUTSTANDING: [PASS] ANIK has not been significantly increasing the number of shares outstanding within recent years which is a good sign. ANIK currently has 16.0 million shares outstanding. This means the company is not taking any measures, with regards to the number of shares, that will dilute or devalue the stock. SALES: [PASS] Companies with sales less than $500 million should be chosen. It is among these small-cap stocks that investors can find "an uncut gem", ones that institutions won't be able to buy yet. ANIK's sales of $93.8 million based on trailing 12 month sales, are fine, making this company one such "prospective gem". ANIK passes the sales test. DAILY DOLLAR VOLUME: [PASS] ANIK passes the Daily Dollar Volume (DDV of $15.6 million) test. It is required that this number be less than $25 million because these are the stocks that remain relatively undiscovered by institutions. "You'll be scoring touchdowns against the big guys on your turf." PRICE: [PASS] This is a very insignificant criterion for this methodology. But basically, low prices are chosen because "small numbers multiply more rapidly than large ones" and the potential for big returns expands. ANIK with a price of $42.06 passes the price test, even though it doesn't fall in the preferred range. The price should be above $7 in order to eliminate penny stocks and below $20 since most stocks in this price range are undiscovered by the institutions. INCOME TAX PERCENTAGE: [PASS] ANIK's income tax paid expressed as a percentage of pretax income this year was (36.64%) and last year (39.78%) are greater than 20% which is an acceptable level. If the tax rate is below 20% this could mean that the earnings that were reported were unrealistically inflated due to the lower level of income tax paid. This is a concern.   VALERO ENERGY CORPORATION Profile Strategy: Growth Investor Based on: Martin Zweig Valero Energy Corporation (Valero) is an independent petroleum refining and marketing company. Valero's refineries can produce conventional gasoline's, distillates, jet fuel, asphalt, petrochemicals, lubricants, and other refined products, as well as a slate of premium products, including conventional blendstock for oxygenate blending and reformulated gasoline blendstock for oxygenate blending, gasoline meeting the specifications of the California Air Resources Board, a diesel fuel, and low-sulfur and ultra-low-sulfur diesel fuel. It also owns 10 ethanol plants in the central plains region of the United States with a combined ethanol nameplate production capacity of about 1.1 billion gallons per year. It operates in three business segments: refining, ethanol, and retail. In May 2013, CST Brands Inc announced that the Company which includes Corner Store and Depanneur du Coin, spun off from Valero Energy Corporation. Analysis Guru Score: 77% P/E RATIO: [PASS] The P/E of a company must be greater than 5 to eliminate weak companies, but not more than 3 times the current Market P/E because the situation is much too risky, and never greater than 43. VLO's P/E is 8.90, based on trailing 12 month earnings, while the current market PE is 16.00. Therefore, it passes the first test. REVENUE GROWTH IN RELATION TO EPS GROWTH: [FAIL] Revenue Growth must not be substantially less than earnings growth. For earnings to continue to grow over time they must be supported by a comparable or better sales growth rate and not just by cost cutting or other non-sales measures. VLO's revenue growth is 19.78%, while it's earnings growth rate is 24.44%, based on the average of the 3 and 4 year historical eps growth rates using the current fiscal year eps estimate. Therefore, VLO fails this criterion. SALES GROWTH RATE: [PASS] Another important issue regarding sales growth is that the rate of quarterly sales growth is rising. To evaluate this, the change from this quarter last year to the present quarter (2.6%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (0.6%) of the current year. Sales growth for the prior must be greater than the latter. For VLO 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. VLO's EPS ($1.22) pass this test. QUARTERLY EARNINGS ONE YEAR AGO: [PASS] The EPS for the quarter one year ago must be positive. VLO's EPS for this quarter last year ($0.85) 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. VLO's growth rate of 43.53% passes this test. EARNINGS GROWTH RATE FOR THE PAST SEVERAL QUARTERS: [FAIL] Compare the earnings growth rate of the previous three quarters with long-term EPS growth rate. Earnings growth in the previous 3 quarters should be at least half of the long-term EPS growth rate. Half of the long-term EPS growth rate for VLO is 12.22%. This should be less than the growth rates for the 3 previous quarters which are -52.89%, 31.11% and 32.20%. VLO does not pass this test, which means that it does not have good, reasonably steady earnings. This strategy looks at the rate which earnings grow and evaluates this rate of growth from different angles. The 4 tests immediately following are detailed below. EPS GROWTH FOR CURRENT QUARTER MUST BE GREATER THAN PRIOR 3 QUARTERS: [PASS] If the growth rate of the prior three quarter's earnings, 7.16%, (versus the same three quarters a year earlier) is less than the growth rate of the current quarter earnings, 43.53%, (versus the same quarter one year ago) then the stock passes. EPS GROWTH FOR CURRENT QUARTER MUST BE GREATER THAN THE HISTORICAL GROWTH RATE: [PASS] The EPS growth rate for the current quarter, 43.53% must be greater than or equal to the historical growth which is 24.44%. VLO would therefore pass this test. EARNINGS PERSISTENCE: [PASS] Companies must show persistent yearly earnings growth. To fulfill this requirement a company's earnings must increase each year for a five year period. VLO, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were -0.51, 1.62, 3.68, 3.74 and 4.96, passes this test. LONG-TERM EPS GROWTH: [PASS] One final earnings test required is that the long-term earnings growth rate must be at least 15% per year. VLO's long-term growth rate of 24.44%, based on the average of the 3 and 4 year historical eps growth rates using the current fiscal year eps estimate, passes this test. TOTAL DEBT/EQUITY RATIO: [PASS] A final criterion is that a company must not have a high level of debt. A high level of total debt, due to high interest expenses, can have a very negative effect on earnings if business moderately turns down. If a company does have a high level, an investor may want to avoid this stock altogether. VLO's Debt/Equity (33.73%) is not considered high relative to its industry (38.90%) and passes this test. INSIDER TRANSACTIONS: [PASS] A factor that adds to a stock's attractiveness is if insider buy transactions number 3 or more, while insider sell transactions are zero. Zweig calls this an insider buy signal. For VLO, this criterion has not been met (insider sell transactions are 186, while insiders buying number 62). 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.   USANA HEALTH SCIENCES, INC. Profile Strategy: P/E/Growth Investor Based on: Peter Lynch USANA Health Sciences, Inc. develops and manufactures science-based nutritional and personal care products. The Company has operations in 15 markets worldwide, where it distributes and sells its products by way of direct selling. The Company reports operations in two geographic regions: North America and Asia Pacific, which is further divided into three sub-regions; Southeast Asia/Pacific, Greater China, and North Asia. North America includes the United States, Canada, Mexico, and direct sales from the United States to the United Kingdom and the Netherlands. Southeast Asia/Pacific includes Australia, New Zealand, Singapore, Malaysia, and the Philippines; Greater China includes Hong Kong, Taiwan and China; and North Asia includes Japan and South Korea. The Company's customer base consists of two types of customers: Associates and Preferred Customers. As of December 31, 2011, the Company had 222,000 active Associates and 64,000 active Preferred Customers worldwide. Analysis Guru Score: 93% DETERMINE THE CLASSIFICATION: This methodology would consider USNA a "fast-grower". P/E/GROWTH RATIO: [PASS] The investor should examine the P/E (11.74) relative to the growth rate (25.22%), 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 USNA (0.47) 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. USNA, whose sales are $731.5 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 USNA was 5.62% last year, while for this year it is 6.58%. 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 (0.95%) 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 USNA is 25.2%, 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 USNA (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 USNA (10.02%) 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 USNA (16.33%) 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.   PIPER JAFFRAY COMPANIES Profile Strategy: Small-Cap Growth Investor Based on: Motley Fool Piper Jaffray Companies is an investment bank and asset management firm, serving the needs of corporations, private equity groups, public entities, non-profit entities and institutional investors in the United States and internationally. The Company operates in two segments: Capital Markets and Asset Management. The Capital Markets segment provides investment banking and institutional sales, trading and research services for various equity and fixed income products. The Asset Management segment includes traditional asset management activities and related services. The Company markets the investment banking and institutional securities business under Piper Jaffray name. Its asset management business is marketed under Advisory Research, Inc. In July 2013, Piper Jaffray Companies announced that it has completed its purchase of Seattle-Northwest Securities Corporation. In July 2013, the Company announced that it has completed its purchase of Edgeview Partners L.P. Analysis Guru Score: 83% PROFIT MARGIN: [PASS] This methodology seeks companies with a minimum trailing 12 month after tax profit margin of 7%. The companies that pass this criterion have strong positions within their respective industries and offer greater shareholder returns. A true test of the quality of a company is that they can sustain this margin. PJC's profit margin of 12.34% passes this test. RELATIVE STRENGTH: [FAIL] The investor must look at the relative strength of the company in question. Companies whose relative strength is 90 or above (that is, the company outperforms 90% or more of the market for the past year), are considered attractive. Companies whose price has been rising much quicker than the market tend to keep rising. Although PJC's relative strength of 85 is below the acceptable level, yet it is very close. Keep an eye on the stock as it could move into the acceptable range. COMPARE SALES AND EPS GROWTH TO THE SAME PERIOD LAST YEAR: [PASS] Companies must demonstrate both revenue and net income growth of at least 25% as compared to the prior year. These growth rates give you the dynamic companies that you are looking for. These rates for PJC (326.92% for EPS, and 65.21% for Sales) are good enough to pass. INSIDER HOLDINGS: [FAIL] PJC's insiders should own at least 10% (they own 2.63%) of the company's outstanding shares. This does not satisfy the minimum requirement, and companies that do not pass this criteria are less attractive. CASH FLOW FROM OPERATIONS: [PASS] A positive cash flow is typically used for internal expansion, acquisitions, dividend payments, etc. A company that generates rather than consumes cash is in much better shape to fund such activities on their own, rather than needing to borrow funds to do so. PJC's free cash flow of $2.77 per share passes this test. PROFIT MARGIN CONSISTENCY: [PASS] PJC's profit margin has been consistent or even increasing over the past three years (Current year: 8.05%, Last year: 8.12%, Two years ago: -22.53%), passing the requirement. It is a sign of good management and a healthy and competitive enterprise. R&D AS A PERCENTAGE OF SALES: [NEUTRAL] This criterion is not critically important for companies that are not high-tech or medical stocks because they are not as R&D dependant as companies within those sectors. Not much emphasis should be placed on this test in PJC's case. CASH AND CASH EQUIVALENTS: [PASS] PJC's level of cash $123.7 million passes this criteria. If a company is a cash generator, like PJC, it has the ability to pay off debt (if it has any) or acquire other companies. Most importantly, good operations generate cash. ACCOUNT RECEIVABLE TO SALES: [PASS] This methodology wants to make sure that a company's accounts receivable do not get significantly out of line with sales. It's a warning sign if a company's accounts receivable relative to sales increases significantly when compared to the previous year. Up to a 30% increase is allowed, but no more. Accounts Receivable to Sales for PJC was 37.93% last year, while for this year it is 30.92%. Since the AR to sales is decreasing by -7.01% the stock passes this criterion. "THE FOOL RATIO" (P/E TO GROWTH): [PASS] The "Fool Ratio" is an extremely important aspect of this analysis. If the company has attractive fundamentals and its Fool Ratio is 0.5 or less (PJC's is 0.40), the shares are looked upon favorably. These high quality companies can often wind up as the biggest winners. PJC passes this test. The following criteria for PJC are less important which means you would place less emphasis on them when making your investment decision using this strategy: AVERAGE SHARES OUTSTANDING: [PASS] PJC has not been significantly increasing the number of shares outstanding within recent years which is a good sign. PJC currently has 15.0 million shares outstanding. This means the company is not taking any measures, with regards to the number of shares, that will dilute or devalue the stock. SALES: [FAIL] Companies with sales less than $500 million should be chosen. It is among these small-cap stocks that investors can find "an uncut gem", ones that institutions won't be able to buy yet. PJC's sales of $682.6 million based on trailing 12 month sales, are too high and would therefore fail the test. It is companies with $500 million or less in sales that are most likely to double or triple in size in the next few years. DAILY DOLLAR VOLUME: [PASS] PJC passes the Daily Dollar Volume (DDV of $7.6 million) test. It is required that this number be less than $25 million because these are the stocks that remain relatively undiscovered by institutions. "You'll be scoring touchdowns against the big guys on your turf." PRICE: [PASS] This is a very insignificant criterion for this methodology. But basically, low prices are chosen because "small numbers multiply more rapidly than large ones" and the potential for big returns expands. PJC with a price of $51.60 passes the price test, even though it doesn't fall in the preferred range. The price should be above $7 in order to eliminate penny stocks and below $20 since most stocks in this price range are undiscovered by the institutions. INCOME TAX PERCENTAGE: [PASS] PJC's income tax paid expressed as a percentage of pretax income this year was (26.97%) and last year (28.21%) are greater than 20% which is an acceptable level. If the tax rate is below 20% this could mean that the earnings that were reported were unrealistically inflated due to the lower level of income tax paid. This is a concern.   REX AMERICAN RESOURCES CORP Profile Strategy: Small-Cap Growth Investor Based on: Motley Fool Rex American Resources Corporation (REX) is a holding company to succeed to the entire ownership of three affiliated corporations, Rex Radio and Television, Inc., Stereo Town, Inc. and Kelly & Cohen Appliances, Inc. As of January 31, 2012, the Company had lease agreements, as landlord, for six owned former retail stores and had 16 vacant former retail properties. The Company also owns one former distribution center that is partially leased, partially occupied by its corporate office personnel and partially vacant. As of January 31, 2012, the Company invested in five ethanol production entities, two of which the Company has a majority ownership interest in. These properties include One Earth Energy, LLC, NuGen Energy, LLC, Patriot Renewable Fuels, LLC, Levelland Hockley County Ethanol, LLC, and one group consisting of Big River Resources, LLC-W Burlington, Big River Resources, LLC-Galva and Big River United Energy, LLC. Analysis Guru Score: 76% PROFIT MARGIN: [PASS] This methodology seeks companies with a minimum trailing 12 month after tax profit margin of 7%. The companies that pass this criterion have strong positions within their respective industries and offer greater shareholder returns. A true test of the quality of a company is that they can sustain this margin. REX's profit margin of 9.23% passes this test. RELATIVE STRENGTH: [PASS] The investor must look at the relative strength of the company in question. Companies whose relative strength is 90 or above (that is, the company outperforms 90% or more of the market for the past year), are considered attractive. Companies whose price has been rising much quicker than the market tend to keep rising. REX, with a relative strength of 93, satisfies this test. COMPARE SALES AND EPS GROWTH TO THE SAME PERIOD LAST YEAR: [FAIL] Companies must demonstrate both revenue and net income growth of at least 25% as compared to the prior year. These growth rates give you the dynamic companies that you are looking for. These rates for REX (565.00% for EPS, and -12.76% for Sales) are not good enough to pass. INSIDER HOLDINGS: [PASS] REX's insiders should own at least 10% (they own 33.00% ) of the company's outstanding shares which is the minimum required. A high percentage typically indicates that the insiders are confident that the company will do well. CASH FLOW FROM OPERATIONS: [PASS] A positive cash flow is typically used for internal expansion, acquisitions, dividend payments, etc. A company that generates rather than consumes cash is in much better shape to fund such activities on their own, rather than needing to borrow funds to do so. REX's free cash flow of $7.45 per share passes this test. PROFIT MARGIN CONSISTENCY: [FAIL] The profit margin in the past must be consistently increasing. The profit margin of REX has been inconsistent in the past three years (Current year: 5.27%, Last year: -0.35%, Two years ago: 6.91%), which is unacceptable. This inconsistency will carryover directly to the company's bottom line, or earnings per share. R&D AS A PERCENTAGE OF SALES: [NEUTRAL] This criterion is not critically important for companies that are not high-tech or medical stocks because they are not as R&D dependant as companies within those sectors. Not much emphasis should be placed on this test in REX's case. CASH AND CASH EQUIVALENTS: [PASS] REX's level of cash $105.2 million passes this criteria. If a company is a cash generator, like REX, it has the ability to pay off debt (if it has any) or acquire other companies. Most importantly, good operations generate cash. INVENTORY TO SALES: [PASS] This methodology strongly believes that companies, especially small ones, should have tight control over inventory. It's a warning sign if a company's inventory relative to sales increases significantly when compared to the previous year. Up to a 30% increase is allowed, but no more. Inventory to Sales for REX was 3.80% last year, while for this year it is 2.91%. Since the inventory to sales is decreasing by -0.89% the stock passes this criterion. ACCOUNT RECEIVABLE TO SALES: [PASS] This methodology wants to make sure that a company's accounts receivable do not get significantly out of line with sales. It's a warning sign if a company's accounts receivable relative to sales increases significantly when compared to the previous year. Up to a 30% increase is allowed, but no more. Accounts Receivable to Sales for REX was 1.97% last year, while for this year it is 2.51%. Although the AR to sales is rising, it is below the max 30% that is allowed. The investor can still consider the stock if all other criteria appear very attractive. LONG TERM DEBT/EQUITY RATIO: [FAIL] REX's trailing twelve-month Debt/Equity ratio (19.22%) is too high, according to this methodology. You can find other more superior companies that do not have to borrow money in order to grow. "THE FOOL RATIO" (P/E TO GROWTH): [PASS] The "Fool Ratio" is an extremely important aspect of this analysis. If the company has attractive fundamentals and its Fool Ratio is 0.5 or less (REX's is 0.30), the shares are looked upon favorably. These high quality companies can often wind up as the biggest winners. REX passes this test. The following criteria for REX are less important which means you would place less emphasis on them when making your investment decision using this strategy: AVERAGE SHARES OUTSTANDING: [PASS] REX has not been significantly increasing the number of shares outstanding within recent years which is a good sign. REX currently has 8.0 million shares outstanding. This means the company is not taking any measures, with regards to the number of shares, that will dilute or devalue the stock. SALES: [FAIL] Companies with sales less than $500 million should be chosen. It is among these small-cap stocks that investors can find "an uncut gem", ones that institutions won't be able to buy yet. REX's sales of $643.3 million based on trailing 12 month sales, are too high and would therefore fail the test. It is companies with $500 million or less in sales that are most likely to double or triple in size in the next few years. DAILY DOLLAR VOLUME: [PASS] REX passes the Daily Dollar Volume (DDV of $11.5 million) test. It is required that this number be less than $25 million because these are the stocks that remain relatively undiscovered by institutions. "You'll be scoring touchdowns against the big guys on your turf." PRICE: [PASS] This is a very insignificant criterion for this methodology. But basically, low prices are chosen because "small numbers multiply more rapidly than large ones" and the potential for big returns expands. REX with a price of $84.35 passes the price test, even though it doesn't fall in the preferred range. The price should be above $7 in order to eliminate penny stocks and below $20 since most stocks in this price range are undiscovered by the institutions. INCOME TAX PERCENTAGE: [PASS] REX's income tax paid expressed as a percentage of pretax income this year was (34.63%) and last year (42.67%) are greater than 20% which is an acceptable level. If the tax rate is below 20% this could mean that the earnings that were reported were unrealistically inflated due to the lower level of income tax paid. This is a concern.   SILICON MOTION TECHNOLOGY CORP. (ADR) Profile Strategy: P/E/Growth Investor Based on: Peter Lynch Silicon Motion Technology Corporation (SMTC) is a holding company. The Company's operations are conducted through Silicon Motion, Inc. (SMI Taiwan), a wholly owned subsidiary located in Taiwan and FCI, Inc. (FCI), a wholly owned subsidiary of SMTC, located in Korea. The Company is a fabless semiconductor company that designs, develops and markets, high-performance, low-power semiconductor solutions for the multimedia consumer electronics market. SMTC designs, develops and markets high performance, low-power semiconductor products for the multimedia consumer electronics market. Its products include mobile storage, mobile communications, multimedia systems-on-a-chip (SoCs) and other products. Its product offerings address three main markets: mobile storage, multimedia SoCs and mobile communications markets. On October 25, 2011, its subsidiary FCI acquired BTL System, Inc. Analysis Guru Score: 100% DETERMINE THE CLASSIFICATION: This methodology would consider SIMO a "fast-grower". P/E/GROWTH RATIO: [PASS] The investor should examine the P/E (7.35) relative to the growth rate (42.79%), based on the average of the 2 and 5 year historical and the current year 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 SIMO (0.17) 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. SIMO, whose sales are $220.8 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 SIMO was 11.42% last year, while for this year it is 14.94%. 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 (3.52%) 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 SIMO is 42.8%, based on the average of the 2 and 5 year historical and the current year 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 SIMO (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 SIMO (8.50%) 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: [BONUS PASS] 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 SIMO (88.06%) is considered very favorable.   BBVA BANCO FRANCES S.A. (ADR) Profile Strategy: P/E/Growth Investor Based on: Peter Lynch BBVA Banco Frances SA is an Argentina-based bank. The Bank is engaged in the provision of financial and non-financial services, through a network of over 239 retail branch offices, over 25 branch offices specialized in the middle-market segment and seven branch offices for corporate and institutional customers. Its services and products also included securities operations in the Buenos Aires Stock Exchange, Asset Management, as well as financial assessment in mergers and acquisitions (M&A). Analysis Guru Score: 93% DETERMINE THE CLASSIFICATION: This methodology would consider BFR a "fast-grower". P/E/GROWTH RATIO: [PASS] The investor should examine the P/E (6.21) relative to the growth rate (23.64%), 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 BFR (0.26) 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. BFR, whose sales are $1,250.6 million, needs to have a P/E below 40 to pass this criterion. BFR's P/E of (6.21) 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 BFR is 23.6%, based on the average of the 3, 4 and 5 year historical eps growth rates, which is considered very good. TOTAL DEBT/EQUITY RATIO: [NEUTRAL] BFR is a financial company so debt to equity rules are not applied to determine the company's financial soundness. EQUITY/ASSETS RATIO: [PASS] This methodology uses the Equity/Assets Ratio as a way to determine a financial intermediary's health, as it is a better measure than the Debt/Equity Ratio. BFR's Equity/Assets ratio (13.00%) is healthy and above the minimum 5% this methodology looks for, thus passing the criterion. RETURN ON ASSETS: [PASS] This methodology uses Return on Assets as a way to measure a financial intermediary's profitability. BFR's ROA (5.62%) is above the minimum 1% that this methodology looks for, thus passing the criterion. FREE CASH FLOW: [NEUTRAL] The Free Cash Flow/Price ratio, though not a requirement, is considered a bonus if it is above 35%. A positive Cash Flow (the higher the better) separates a wonderfully reliable investment from a shaky one. This methodology prefers not to invest in companies that rely heavily on capital spending. This ratio for BFR (32.09%) is too low to add to the attractiveness of the stock. Keep in mind, however, that it does not adversely affect the company as it is a bonus criteria. NET CASH POSITION: [NEUTRAL] Another bonus for a company is having a Net Cash/Price ratio above 30%. Lynch defines net cash as cash and marketable securities minus long term debt. According to this methodology, a high value for this ratio dramatically cuts down on the risk of the security. The Net Cash/Price ratio for BFR (8.52%) 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.   LIQUIDITY SERVICES, INC. Profile Strategy: Value Investor Based on: Benjamin Graham Liquidity Services, Inc. is an auction marketplace for surplus and salvage assets. The Company enables buyers and sellers to transact in an automated online auction environment offering over 500 product categories. The Company's marketplaces provide professional buyers access to a global, organized supply of surplus and salvage assets presented with digital images and other relevant product information. It organizes its products into categories across industry verticals, such as consumer electronics, general merchandise, apparel, scientific equipment, aerospace parts and equipment, technology hardware and specialty equipment. It's online auction marketplaces are www.liquidation.com, www.govliquidation.com, www.govdeals.com and www.liquibiz.com. It also operates a wholesale industry portal www.goWholesale.com. In July 2012, the Company acquired GoIndustry-DoveBid plc. In November 2012, the Company acquired National Electronics Service Association. Analysis Guru Score: 86% SECTOR: [PASS] LQDT 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. LQDT's sales of $503.6 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. LQDT's current ratio of 1.83 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 LQDT is $0.0 million, while the net current assets are $102.6 million. LQDT 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. LQDT's EPS growth over that period of 437.5% 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. LQDT's P/E of 12.77 (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. LQDT's Price/Book ratio is 1.30, while the P/E is 12.77. LQDT passes the Price/Book test.   WILLIAMS-SONOMA, INC. Profile Strategy: Price/Sales Investor Based on: Kenneth Fisher Williams-Sonoma, Inc. is a multi-channel specialty retailer of products for the home. The Company is an e- commerce retailer with brands in home furnishings. It operates retail stores in the United States, Canada and Puerto Rico, and franchises its brands to a third party in a number of countries in the Middle East, including Bahrain, the Kingdom of Saudi Arabia, Kuwait and the United Arab Emirates. Its products are also available to customers through its catalogs and online worldwide. The Company operates in two segments: direct-to-customer and retail. The direct-to-customer segment has seven merchandising concepts (Williams-Sonoma, Pottery Barn, Pottery Barn Kids, PBteen, West Elm, Rejuvenation and Mark and Graham) which sell its products through its seven e-commerce Websites and eight direct-mail catalogs. The retail segment has five merchandising concepts (Williams-Sonoma, Pottery Barn, Pottery Barn Kids, West Elm and Rejuvenation) which sells products through its retail stores. Analysis Guru Score: 90% PRICE/SALES RATIO: [PASS] The prospective company should have a low Price/Sales ratio. Non-cyclical (non-Smokestack) companies with Price/Sales ratio between .75 and 1.5 are good values. WSM's P/S ratio of 1.41 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. WSM's Debt/Equity of 0.31% is acceptable, thus passing the test. PRICE/RESEARCH RATIO: [PASS] This methodology considers companies in the Technology and Medical sectors to be attractive if they have low Price/Research ratios. WSM 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 WSM At this Point Is WSM 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, WSM, who has a P/S of 1.41, 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%. WSM's inflation adjusted EPS growth rate of 35.92% 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. WSM's free cash per share of 1.50 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. WSM, whose three year net profit margin averages 6.36%, passes this evaluation.   AGCO CORPORATION Profile Strategy: P/E/Growth Investor Based on: Peter Lynch AGCO Corporation (AGCO) is a manufacturer and distributor of agricultural equipment and related replacement parts globally. The Company sells a range of agricultural equipment, including tractors, combines, self-propelled sprayers, hay tools, forage equipment and implements. It also manufactures and distributes grain storage and handling equipment systems, as well as protein production systems. Its products are recognized in the agricultural equipment industry and are marketed under a range of brands, including Challenger, Fendt, Massey Ferguson and Valtra. The Company distributes its products through a combination of approximately 3,100 independent dealers and distributors in more than 140 countries. In September 2013, Grain Systems, Inc. (GSI), a global brand of the Company announced that it has purchased Johnson System Inc. (JSI), manufacturer of catwalks, towers and support structures based in Marshall, Michigan. Analysis Guru Score: 93% DETERMINE THE CLASSIFICATION: This methodology would consider AGCO a "fast-grower". P/E/GROWTH RATIO: [PASS] The investor should examine the P/E (8.91) relative to the growth rate (29.73%), 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 AGCO (0.30) 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. AGCO, whose sales are $10,419.3 million, needs to have a P/E below 40 to pass this criterion. AGCO's P/E of (8.91) 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 AGCO was 17.10% last year, while for this year it is 18.69%. 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 (1.59%) 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 AGCO is 29.7%, 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 AGCO (30.42%) to be normal (equity is approximately twice debt). 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 AGCO (7.55%) 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 AGCO (1.47%) 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 EDU NEW ORIENTAL EDUCATION & TECH GRP (ADR) Schools 60 SAVE SPIRIT AIRLINES INCORPORATED Airline 60 BBBY BED BATH & BEYOND INC. Retail (Specialty) 59 TARO TARO PHARMACEUTICAL INDUSTRIES LTD. Biotechnology & Drugs 59 ROST ROSS STORES, INC. Retail (Apparel) 55 TJX THE TJX COMPANIES, INC. Retail (Apparel) 52 OIS OIL STATES INTERNATIONAL, INC. Oil Well Services & Equipment 49 MNST MONSTER BEVERAGE CORP Beverages (Non-Alcoholic) 49 PII POLARIS INDUSTRIES INC. Recreational Products 47 ACAT ARCTIC CAT INC Auto & Truck Manufacturers 46

Disclaimer

The names of individuals (i.e., the 'gurus') appearing in this report are for identification purposes of his methodology only, as derived by Validea.com from published sources, and are not intended to suggest or imply any affiliation with or endorsement or even agreement with this report personally by such gurus, or any knowledge or approval by such persons of the content of this report. All trademarks, service marks and tradenames appearing in this report are the property of their respective owners, and are likewise used for identification purposes only. Validea is not registered as a securities broker-dealer or investment advisor either with the U.S. Securities and Exchange Commission or with any state securities regulatory authority. Validea is not responsible for trades executed by users of this site based on the information included herein. The information presented on this website does not represent a recommendation to buy or sell stocks or any financial instrument nor is it intended as an endorsement of any security or investment. The information on this website is generic by nature and is not personalized to the specific situation of any individual. The user therefore bears complete responsibility for their own investment research and should seek the advice of a qualified investment professional prior to making any investment decisions. Performance results are based on model portfolios and do not reflect actual trading. Actual performance will vary based on a variety of factors, including market conditions and trading costs. Past performance is not necessarily indicative of future results. Individual stocks mentioned throughout this web site may be holdings in the managed portfolios of Validea Capital Management, a separate asset management firm founded by Validea.com founder John Reese. Validea Capital Management, which is a separate legal entity and an SEC registered investment advisory firm, uses, in part, the strategies on the web site to select stocks for its clients.