Economy & Markets

Large cap stocks were last year's story, with the technology giants Amazon, Facebook, Alphabet and Netflix leading the indexes higher. But this year it's been a different story. This week, the small cap Russell 2000 hit an all-time intraday high.

Small companies are also benefiting from tax cuts and an improving economy but have been able to catapult past larger stocks, which are still trying to recover from the sell-off in February and March. The Russell index is up more than 4.5% for the last three months while the Dow and S&P 500 are down and the Nasdaq has gained about 2%.

Trade war fears might be the biggest damper on large caps, which derive about one-third of their revenue from overseas in contrast to the 20% of revenues smaller companies get from abroad.

The sell-off this year in larger stocks has released some of the pressure on valuations, however. The S&P 500 is trading at a 12-month trailing multiple of 19.9, and the Dow is trading at 18.5.

Some positive numbers:

1. U.S. retail sales rose 0.3% in April, and gains were spread across most categories, including furniture and clothing.

2. The unemployment rate has fallen to a 17-year low of 3.9 percent.

3. Consumer confidence measures remain strong despite rising gas prices. University of Michigan's sentiment survey was 98.8 in May, above the expected 98.5.

4. The Conference Board's leading economic index rose 0.4% in April, the sixth straight month of gains.

Some not-so-positive numbers:

1. Brent crude oil, the international benchmark, topped $80 a barrel for the first time since November 2014.

2. Housing starts dropped 3.7% in April, reversing an increase from the month before, the Commerce Department said.

3. The Federal Reserve said manufacturing output rose 0.5% in April, in-line with expectations, but numbers for earlier months were revised lower.

4. The 10-year Treasury yield hit a multiyear high of 3.1% this week, its highest in a decade.

Recommended Reading

Leuthold Group took Russell index data going back to 1979 to study the performance of value and growth. Value has outperformed four out of the last 11 years but there has been a much more noticeable trend: value's underperformance has been the longest broad stretch in 40 years. The Barron's article linked below details the study, and here are some other articles and blog posts you might have missed:

Flip Side Historical data show equity markets go down before earnings slump, not the other way around. Read more

Late-Cycle Stocks have reacted lukewarmly to strong earnings, an indication that the easy money has already been made. JP Morgan had some ideas for late-cycle trades. Read more

Look Abroad Emerging markets are better suited to withstand a global financial downturn than in the past. Societe Generale's strategist likes local debt from South Africa and Russia. Read more

Capital Spending Companies are using their tax savings for capital spending, according to a Bloomberg report. Capital spending is up 39%, the fastest rate in seven years. Read more Tech's big hitters, Alphabet, Amazon, Microsoft and Facebook, spent $16 billion, up 68% from last year. Read more

Index Influence Value investing is out of favor and part of the reason could be passive investing, Barron's notes. As money poured into market-cap weighted index funds, expensive stocks became more expensive and cheap stocks get even more overlooked. Read more

Property Glut Private real estate funds have gathered $71 billion in capital as investors shun publicly traded real estate investment trusts because of rising rates. Read more

Treasury Bump For a half-century value stocks have outperformed growth stocks by 6.1 percentage points in the months following a bump up in the 10-year Treasury yield. Will that be the case this time? Read more

Mixed Blessing Higher interest rates can be a mixed blessing for investors, according to a recent Barron's article. Investors get more bang for their buck, but that's only with new issues. Read more

Noise Blocking Ed Yardeni warns investors about allowing emotions or political news to influence investing decisions. The trick is to figure out what news is "noise" and what is a "signal." Read more

Buffett Watch Warren Buffett held his annual shareholder meeting earlier this month and it did not fail to deliver its usual mix of insights and hilarity. Read more

Crypto Future Will the next era of investing be focused on cryptocurrencies and artificial intelligence? CFA Institute runs down the key periods in finance since 1924. Read more

News on Hot List Stocks

Credit Acceptance Corporation added a lender to its Warehouse Facility IV revolving secured warehouse facility and increased the amount of the facility from $100.0 million to $250.0 million.

Autohome, a Chinese auto sale website, reported a 3.5% drop in revenue but beat expectations and raised its revenue forecast for the second quarter.

Performance Update

Since our last newsletter, the S&P 500 returned 3.4%, while the Hot List returned 5.5%. So far in 2015, the portfolio has returned -6.3% vs. 1.7% for the S&P. Since its inception in July 2003, the Hot List is far outpacing the index, having gained 240.7% vs. the S&P's 171.9% gain.

How to Keep Investing Perspective

Consumer confidence is high and corporate profits are growing, yet you wouldn't know this looking at the stock market this year. The Dow Jones industrial average has barely moved, despite a strong first quarter for companies and workers. The S&P 500 is up just a little more than 1%. Both indexes have been whipsawed by volatility and a sharp selloff in February and March.

There have been a number of reasons used to explain this year's markets. Talk of trade wars has spooked stocks and commodities, escalating geopolitical tensions are spiking the price of oil and the fear that corporate profits have reached their peak growth has weighed on U.S. stocks. All of this worrying comes as, at least on paper, conditions should be good for investors. Lower taxes, reduced regulation and improving economies around the world are good for profits as well as capital investment and job growth.

But how do investors take all that worry and convert it into options?

Learning how to tune out the noise and focus on what matters is the challenge. Investors have to overcome the temptation to dwell on the short-term when it's the long-term view that matters. They have to have the discipline to stick to a strategy even if it appears to be faltering at the moment. Success comes with setting clear goals and tuning out the distractions.

At Validea, we use four mantras to keep on this path:

1. Follow proven strategies: We have dozens of models based on investment strategies developed and inspired by some of the world's most successful investors, such as Warren Buffett, Benjamin Graham, Ken Fisher and Peter Lynch. The models are built using fundamental and financial characteristics that help identify good investment ideas. Graham focused on price-earnings and price-book ratios, liquidity and leverage, for example. Buffett looks for high return on equity, strong free cash flow, and consistent earnings per share. Following these proven strategies allows investors to

2. Trust facts and figures: Hunches are not reliable when it comes to investing for the long-term. They don't even work much in the short-term, and they can fool you into thinking investing is a game. Emotions and biases can stand in the way of our ability to reach our long-term goals. Instead focus on setting your strategy based the evidence right in front of you.

3. Stay disciplined: No strategy will win all the time, but investors act like impatient commuters, trying to speed through a traffic jam by continuously skipping lanes, stopping and starting rather than patiently staying on course. Chasing hot stocks is a recipe for buying high and selling low. Accept that long-term investments will have to overcome some short-term bumps along the way.

4. Beware of emotion: It's easy to get swept up in an exciting story and buy a stock or get consumed by a negative story and sell it. But doing so without first taking a look at the numbers can lead to ill-fated actions. Good investors don't let hype influence their decisions.

It can be hard to sift through all the noise and keep a calm head, particularly in an environment fraught with political and geopolitical unrest -- it's the sort of turbulence that can make any investor want to head for the hills. It might be a good time, then, to turn off the noise and circle back to basics like investment philosophy and values. This exercise can go a long way toward helping you keep an eye on the long-term, maintain perspective, and redirect you attention from worry to options. Moreover, staying clear on set goals and objectives and sticking to them even when things get muddled can pave the way for smooth sailing over the long haul.



Portfolio Holdings
Ticker Date Added Return
SBCF 5/4/2018 11.0%
CACC 3/9/2018 4.1%
BOFI 5/4/2018 3.7%
THO 4/6/2018 -10.7%
ATHM 4/6/2018 18.4%
SAFM 4/6/2018 -1.4%
NRZ 5/4/2018 0.4%
SCHN 5/4/2018 6.2%
FIVE 4/6/2018 6.8%
ANET 5/4/2018 1.0%


Guru 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

SBCF   |   CACC   |   BOFI   |   THO   |   ATHM   |   SAFM   |   NRZ   |   SCHN   |   FIVE   |   ANET   |  

SEACOAST BANKING CORPORATION OF FLORIDA

Strategy: P/E/Growth Investor
Based on: Peter Lynch

Seacoast Banking Corporation of Florida is a bank holding company. The Company's principal subsidiary is Seacoast National Bank, a national banking association (the Bank). The Company and its subsidiaries offer an array of deposit accounts and retail banking services, engage in consumer and commercial lending and provide a range of trust and asset management services, as well as securities and annuity products to its customers. The Company, through its bank subsidiary, provides a range of community banking services to commercial, small business and retail customers, offering a range of transaction and savings deposit products, treasury management services, brokerage, and secured and unsecured loan products, including revolving credit facilities, letters of credit and similar financial guarantees, and asset based financing. The Bank also provides trust and investment management services to retirement plans, corporations and individuals.


DETERMINE THE CLASSIFICATION:

This methodology would consider SBCF a "fast-grower".


P/E/GROWTH RATIO: PASS

The investor should examine the P/E (22.66) relative to the growth rate (33.18%), based on the average of the 3 and 4 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 SBCF (0.68) makes it 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. SBCF, whose sales are $206.3 million, is not considered large enough to apply the P/E ratio analysis. However, an investor can analyze the P/E ratio relative to the EPS growth rate.


EPS GROWTH RATE: PASS

This methodology favors companies that have several years of fast earnings growth, as these companies have a proven formula for growth that in many cases can continue many more years. This methodology likes to see earnings growth in the range of 20% to 50%, as earnings growth over 50% may be unsustainable. The EPS growth rate for SBCF is 33.2%, based on the average of the 3 and 4 year historical eps growth rates, which is acceptable.


TOTAL DEBT/EQUITY RATIO: NEUTRAL

SBCF 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. SBCF's Equity/Assets ratio (12.00%) 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. SBCF's ROA (1.16%) 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 SBCF (3.27%) 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 SBCF (2.28%) 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.


CREDIT ACCEPTANCE CORP.

Strategy: Contrarian Investor
Based on: David Dreman

Credit Acceptance Corporation offers financing programs that enable automobile dealers to sell vehicles to consumers. The Company's financing programs are offered through a network of automobile dealers. The Company has two Dealers financing programs: the Portfolio Program and the Purchase Program. Under the Portfolio Program, the Company advances money to dealers (Dealer Loan) in exchange for the right to service the underlying consumer loans. Under the Purchase Program, the Company buys the consumer loans from the dealers (Purchased Loan) and keeps the amounts collected from the consumer. Dealer Loans and Purchased Loans are collectively referred to as Loans. As of December 31, 2016, the Company's target market included approximately 60,000 independent and franchised automobile dealers in the United States. The Company has market area managers located throughout the United States that market its programs to dealers, enroll new dealers and support active dealers.

MARKET CAP: PASS

Medium to large-sized companies (the largest 1500 companies) should be chosen, because they are more in the public eye. Furthermore, the investor is exposed to less risk of "accounting gimmickry", and companies of this size have more staying power. CACC has a market cap of $6,829 million, therefore passing the test.


EARNINGS TREND: FAIL

A company should show a rising trend in the reported earnings for the most recent quarters. CACC's EPS for the latest quarter is not greater than the prior quarter, (from earliest to most recent quarter) 14.13, 6.17. Hence the stock fails this test, but the investor should evaluate this company qualitatively to see if it qualifies under this methodology's "exception rule".


EPS GROWTH RATE IN THE IMMEDIATE PAST AND FUTURE: FAIL

This methodology likes to see companies with an EPS growth rate higher than the S&P in the immediate past and a likelihood that this trend will continue in the near future. CACC's EPS growth rate over the past 6 months (18.88%) has beaten that of the S&P (2.48%), but CACC's estimated EPS growth for the current year is (-10.64%) while that of the S&P is (80.35%), therefore failing this test.


This methodology would utilize four separate criteria to determine if CACC is a contrarian stock. In order to eliminate weak companies we have stipulated that the stock should pass at least two of the following four major criteria in order to receive "Some Interest".


P/E RATIO: PASS

The P/E of a company should be in the bottom 20% of the overall market. CACC's P/E of 11.56, based on trailing 12 month earnings, meets the bottom 20% criterion (below 12.37), and therefore passes this test.


PRICE/CASH FLOW (P/CF) RATIO: FAIL

The P/CF of a company should be in the bottom 20% of the overall market. CACC's P/CF of 11.13 does not meet the bottom 20% criterion (below 7.16), and therefore fails this test.


PRICE/BOOK (P/B) VALUE: FAIL

The P/B value of a company should be in the bottom 20% of the overall market. CACC's P/B is currently 4.12, which does not meet the bottom 20% criterion (below 1.11), and it therefore fails this test.


PRICE/DIVIDEND (P/D) RATIO: FAIL

The P/D ratio for a company should be in the bottom 20% of the overall market (that is the yield should be in the top 20%). CACC's P/D is not available, and hence an opinion cannot be rendered at this time.


This methodology maintains that investors should look for as many healthy financial ratios as possible to ascertain the financial strength of the company. These criteria are detailed below.


PAYOUT RATIO: PASS

A good indicator that a company has the ability to raise its dividend is a low payout ratio. The payout ratio for CACC is 0.00%. Unfortunately, its historical payout ratio is not available. Nonetheless it passes the payout criterion, as this is a very low payout.


RETURN ON EQUITY: PASS

The company should have a high ROE, as this helps to ensure that there are no structural flaws in the company. This methodology feels that the ROE should be greater than the top one third of ROE from among the top 1500 large cap stocks, which is 17.96%, and would consider anything over 27% to be staggering. The ROE for CACC of 42.32% is high enough to pass this criterion.


PRE-TAX PROFIT MARGINS: PASS

This methodology looks for pre-tax profit margins of at least 8%, and considers anything over 22% to be phenomenal. CACC's pre-tax profit margin is 52.27%, thus passing this criterion.


YIELD: FAIL

The company in question should have a yield that is high and that can be maintained or increased. CACC's current yield is not available (or one is not paid) at the present time, while the market yield is 2.54%. Hence, this criterion cannot be evaluated.


BOFI HOLDING, INC.

Strategy: Small-Cap Growth Investor
Based on: Motley Fool

BofI Holding, Inc. (BofI) is the holding company for BofI Federal Bank (the Bank). The Bank is a diversified financial services company. The Bank provides consumer and business banking products through its branchless, low-cost distribution channels and affinity partners. The Bank has deposit and loan customers, including consumer and business checking, savings and time deposit accounts and financing for single family and multifamily residential properties, small-to-medium size businesses in target sectors, and selected specialty finance receivables. The Bank distributes its deposit products through a range of retail distribution channels, and its deposits consist of demand, savings and time deposits accounts. Its mortgage-backed securities consist primarily of mortgage pass-through securities issued by government-sponsored entities and non-agency collateralized mortgage obligations and pass-through mortgage-backed securities issued by private sponsors.


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. BOFI's profit margin of 36.47% 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. BOFI, with a relative strength of 91, 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 BOFI (26.98% for EPS, and 35.45% for Sales) are good enough to pass.


INSIDER HOLDINGS: FAIL

BOFI's insiders should own at least 10% (they own 6.24%) 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. BOFI's free cash flow of $3.31 per share passes this test.


PROFIT MARGIN CONSISTENCY: FAIL

The profit margin in the past must be consistently increasing. The profit margin of BOFI has been inconsistent in the past three years (Current year: 34.79%, Last year: 37.55%, Two years ago: 33.84%), 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 BOFI's case.


CASH AND CASH EQUIVALENTS: PASS

BOFI's level of cash $628.2 million passes this criteria. If a company is a cash generator, like BOFI, it has the ability to pay off debt (if it has any) or acquire other companies. Most importantly, good operations generate cash.


"THE FOOL RATIO" (P/E TO GROWTH): PASS

The "Fool Ratio" is an extremely important aspect of this analysis. If the company's Fool Ratio is between 0.5 and 0.65 (BOFI's is 0.60), the company demonstrates excellence in its fundamentals and have soundly beat the earnings estimates. BOFI passes this test.

The following criteria for BOFI are less important which means you would place less emphasis on them when making your investment decision using this strategy:

AVERAGE SHARES OUTSTANDING: PASS

BOFI has not been significantly increasing the number of shares outstanding within recent years which is a good sign. BOFI currently has 64.0 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. BOFI's sales of $454.7 million based on trailing 12 month sales, are fine, making this company one such "prospective gem". BOFI passes the sales test.


DAILY DOLLAR VOLUME: FAIL

BOFI does not pass the Daily Dollar Volume (DDV of $27.3 million) test. It exceeds the maximum requirement of $25 million. Stocks that fail the test are too liquid for a small individual investor and many institutions have already discovered it.


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. BOFI with a price of $42.17 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

BOFI's income tax paid expressed as a percentage of pretax income this year was (42.09%) and last year (41.78%) 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.


THOR INDUSTRIES, INC.

Strategy: Growth Investor
Based on: Martin Zweig

Thor Industries, Inc. manufactures a range of recreational vehicles (RVs) in the United States and sells those vehicles primarily in the United States and Canada. The Company's segments include towable recreational vehicles, which consists of the operations of Airstream, Inc. (Airstream) (towable); Heartland Recreational Vehicles, LLC (Heartland) (including Bison Coach, LLC (Bison), Cruiser RV, LLC (CRV) and DRV, LLC (DRV)); Jayco, Corp. (Jayco) (including Jayco towable, Starcraft and Highland Ridge), Keystone RV Company (Keystone) (including CrossRoads and Dutchmen) and K.Z., Inc. (KZ) (including Livin' Lite RV, Inc. (Livin' Lite)); motorized recreational vehicles, which consists of the operations of Airstream (motorized), Jayco (including Jayco motorized and Entegra Coach) and Thor Motor Coach, Inc. (Thor Motor Coach), and Other, which includes the operations of its subsidiary, Postle Operating, LLC (Postle).


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. THO's P/E is 11.57, based on trailing 12 month earnings, while the current market PE is 37.00. Therefore, it passes the first test.


REVENUE GROWTH IN RELATION TO EPS GROWTH: PASS

Revenue Growth must not be substantially less than earnings growth. For earnings to continue to grow over time they must be supported by a comparable or better sales growth rate and not just by cost cutting or other non-sales measures. THO's revenue growth is 23.83%, while it's earnings growth rate is 27.41%, based on the average of the 3, 4 and 5 year historical eps growth rates. Therefore, THO passes this criterion.


SALES GROWTH RATE: FAIL

Another important issue regarding sales growth is that the rate of quarterly sales growth is rising. To evaluate this, the change from this quarter last year to the present quarter (24.1%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (30.6%) of the current year. Sales growth for the prior must be greater than the latter. For THO this criterion has not been met and fails this test.


The earnings numbers of a company should be examined from various different angles. Three of these angles are stability in the trend of earnings, earnings persistence, and earnings acceleration. To evaluate stability, the stock has to pass the following four criteria.


CURRENT QUARTER EARNINGS: PASS

The first of these criteria is that the current EPS be positive. THO's EPS ($1.92) pass this test.


QUARTERLY EARNINGS ONE YEAR AGO: PASS

The EPS for the quarter one year ago must be positive. THO's EPS for this quarter last year ($1.23) 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. THO's growth rate of 56.10% passes this test.


EARNINGS GROWTH RATE FOR THE PAST SEVERAL QUARTERS: PASS

Compare the earnings growth rate of the previous three quarters with long-term EPS growth rate. Earnings growth in the previous 3 quarters should be at least half of the long-term EPS growth rate. Half of the long-term EPS growth rate for THO is 13.71%. This should be less than the growth rates for the 3 previous quarters, which are 39.74%, 43.95%, and 63.09%. THO passes this test, which means that it has good, reasonably steady earnings.


This strategy looks at the rate which earnings grow and evaluates this rate of growth from different angles. The 4 tests immediately following are detailed below.


EPS GROWTH FOR CURRENT QUARTER MUST BE GREATER THAN PRIOR 3 QUARTERS: PASS

If the growth rate of the prior three quarter's earnings, 48.80%, (versus the same three quarters a year earlier) is less than the growth rate of the current quarter earnings, 56.10%, (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, 56.10% must be greater than or equal to the historical growth which is 27.41%. THO 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. THO, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were 2.86, 3.29, 3.79, 4.91 and 7.09, 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. THO's long-term growth rate of 27.41%, based on the average of the 3, 4 and 5 year historical eps growth rates, passes this test.


TOTAL DEBT/EQUITY RATIO: PASS

A final criterion is that a company must not have a high level of debt. A high level of total debt, due to high interest expenses, can have a very negative effect on earnings if business moderately turns down. If a company does have a high level, an investor may want to avoid this stock altogether. THO's Debt/Equity (4.58%) is not considered high relative to its industry (18.01%) 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 THO, this criterion has not been met (insider sell transactions are 204, while insiders buying number 22). 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.


AUTOHOME INC (ADR)

Strategy: Small-Cap Growth Investor
Based on: Motley Fool

Autohome Inc. is an online destination for automobile consumers in China. The Company is engaged in the provision of online advertising and dealer subscription services in the People's Republic of China (PRC). The Company, through its Websites, autohome.com.cn and che168.com, and mobile applications, delivers content to automobile buyers and owners. These services are offered to automakers and dealers, and advertising agencies that represent automakers and dealers in the automobile industry. The Company's autohome.com.cn targets automobile consumers with a focus on new automobiles. The Company's professionally produced content is created by editorial team and includes automobile-related articles and reviews, pricing trends in various local markets, and photos and video clips. Its database also includes new and used automobile listings and promotional information. Its dealer subscription services allow dealers to market their inventory and services through its Websites.


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. ATHM's profit margin of 34.98% 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. ATHM, with a relative strength of 96, 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 ATHM (45.45% for EPS, and -4.47% for Sales) are not good enough to pass.


INSIDER HOLDINGS: PASS

ATHM's insiders should own at least 10% (they own 12.15% ) 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. ATHM's free cash flow of $3.15 per share passes this test.


PROFIT MARGIN CONSISTENCY: FAIL

The profit margin in the past must be consistently increasing. The profit margin of ATHM has been inconsistent in the past three years (Current year: 32.23%, Last year: 20.60%, Two years ago: 28.60%), 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: PASS

ATHM is either maintaining the same levels of R&D expenditures(currently $138.0 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

ATHM's level of cash $201.6 million passes this criteria. If a company is a cash generator, like ATHM, 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 ATHM was 1.60% last year, while for this year it is 0.00%. Since the inventory to sales is decreasing by -1.60% 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 ATHM was 20.23% last year, while for this year it is 30.49%. 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: PASS

ATHM'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): FAIL

The "Fool Ratio" is an extremely important aspect of this analysis. The methodology says consider holding the shares when the company's Fool Ratio is greater than 0.65 (ATHM's is 0.85), but initial purchases in this range are unfavorable.

The following criteria for ATHM are less important which means you would place less emphasis on them when making your investment decision using this strategy:

AVERAGE SHARES OUTSTANDING: FAIL

ATHM has either issued a significant amount of new shares over the past year or has been issuing more and more shares over the past five years. ATHM currently has 119.0 million shares outstanding. Neither of these are a good sign. Generally when a small-cap company issues more stock, the existing stock becomes devalued by the market, and hence diluted.


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. ATHM's sales of $966.3 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: FAIL

ATHM does not pass the Daily Dollar Volume (DDV of $83.6 million) test. It exceeds the maximum requirement of $25 million. Stocks that fail the test are too liquid for a small individual investor and many institutions have already discovered it.


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. ATHM with a price of $104.47 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: FAIL

ATHM's income tax paid expressed as a percentage of pretax income either this year (11.81%) or last year (2.61%) is below 20% which is cause for concern. Because the tax rate is below 20% this could mean that the earnings that were reported are unrealistically inflated due to the lower level of income tax paid. However, we have utilized a sophisticated formula so that the appropriate figures reflect a 'normal' tax rate (35%).


SANDERSON FARMS, INC.

Strategy: Value Investor
Based on: Benjamin Graham

Sanderson Farms, Inc. is a poultry processing company. The Company is engaged in the production, processing, marketing and distribution of fresh and frozen chicken, and also preparation, processing, marketing and distribution of processed and minimally prepared chicken. It sells ice pack, chill pack, bulk pack and frozen chicken, in whole, cut-up and boneless form, under the Sanderson Farms brand name to retailers, distributors, casual dining operators, customers reselling frozen chicken into export markets. The Company, through its subsidiaries, Sanderson Farms, Inc. (Production Division) and Sanderson Farms, Inc. (Processing Division), conducts its chicken operations. Sanderson Farms, Inc. (Production Division) is engaged in the production of chickens to the broiler-stage. Sanderson Farms, Inc. (Foods Division) is engaged in the processing, sale and distribution of chickens. The Company, through Sanderson Farms, Inc. (Foods Division), conducts its prepared chicken business.


SECTOR: PASS

SAFM 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 $1 billion. SAFM's sales of $3,425.8 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. SAFM's current ratio of 4.67 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 SAFM is $0.0 million, while the net current assets are $644.0 million. SAFM passes this test.


LONG-TERM EPS GROWTH: FAIL

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 10 years. EPS for SAFM were negative within the last 10 years and therefore the company fails this criterion.


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. SAFM's P/E of 11.10 (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. SAFM's Price/Book ratio is 1.73, while the P/E is 11.10. SAFM passes the Price/Book test.


NEW RESIDENTIAL INVESTMENT CORP

Strategy: P/E/Growth Investor
Based on: Peter Lynch

New Residential Investment Corp. is a real estate investment trust (REIT). The Company focuses on investing in, and managing, investments related to residential real estate. The Company's segments include investments in excess mortgage servicing rights (Excess MSRs); investments in mortgage servicing rights (MSRs); investments in servicer advances; investments in real estate securities; investments in residential mortgage loans; investments in consumer loans, and corporate. Its portfolio includes mortgage servicing related assets, residential mortgage backed securities (RMBS), residential mortgage loans and other investments. The Company's servicing related assets include its investments in Excess MSRs, MSRs and servicer advances. The Company invests in agency RMBS and non-agency RMBS. The Company's other investments consist of consumer loans.


DETERMINE THE CLASSIFICATION:

This methodology would consider NRZ a "fast-grower".


P/E/GROWTH RATIO: PASS

The investor should examine the P/E (4.02) relative to the growth rate (24.79%), 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 NRZ (0.16) 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. NRZ, whose sales are $2,687.7 million, needs to have a P/E below 40 to pass this criterion. NRZ's P/E of (4.02) 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 NRZ is 24.8%, 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

NRZ 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. NRZ's Equity/Assets ratio (26.00%) is extremely 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. NRZ's ROA (7.05%) 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 NRZ (8.00%) 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 NRZ (-112.30%) 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.

Strategy: Price/Sales Investor
Based on: Kenneth Fisher

Schnitzer Steel Industries, Inc. is a recycler of ferrous and nonferrous scrap metal, including end-of-life vehicles, and a manufacturer of finished steel products. The Company operates through two segments: the Auto and Metals Recycling (AMR) business and the Steel Manufacturing Business (SMB). The AMR segment collects and recycles auto bodies, rail cars, home appliances, industrial machinery, manufacturing scrap and construction and demolition scrap from bridges, buildings and other infrastructure. AMR's primary products include recycled ferrous and nonferrous scrap metal. The SMB segment produces finished steel products such as rebar, wire rod, coiled rebar, merchant bar and other specialty products using 100% recycled metal sourced from AMR. SMB's products are primarily used in nonresidential and infrastructure construction in North America. SMB operates a steel mini-mill in McMinnville, Oregon that produces finished steel products using recycled metal and other raw materials.


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. SCHNpasses this test as its P/S of 0.43 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. SCHN's Debt/Equity of 36.18% 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. SCHN 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 SCHN At this Point

Is SCHN a "Super Stock"? NO


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. SCHN's P/S ratio of 0.43 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%. SCHN's inflation adjusted EPS growth rate of 37.65% 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. SCHN's free cash per share of 1.25 passes this criterion.


THREE YEAR AVERAGE NET PROFIT MARGIN: FAIL

This methodology looks for companies that have an average net profit margin of 5% or greater over a three year period. SCHN, whose three year net profit margin averages -3.03%, fails this evaluation.



FIVE BELOW INC

Strategy: P/E/Growth Investor
Based on: Peter Lynch

Five Below, Inc. is a specialty retailer offering a range of merchandise for teen and pre-teen customer. The Company offers an assortment of products, including select brands and licensed merchandise across a range of categories, including Style, Room, Sports, Tech, Crafts, Party, Candy and Now. Its product groups include leisure, fashion and home, and party and snack. Its Leisure includes items, such as sporting goods, games, toys, tech, books, electronic accessories, and arts and crafts. Its Fashion and home includes items, such as personal accessories, attitude t-shirts, beauty offerings, home goods and storage options. Its Party and snack includes items, such as party and seasonal goods, greeting cards, candy and other snacks, and beverages. The Company operated 522 locations across over 31 states throughout the Northeast, South and Midwest regions of the United States, as of January 29, 2017. Its typical store featured 4,000 stock-keeping units (SKUs), as of January 29, 2017.


DETERMINE THE CLASSIFICATION:

This methodology would consider FIVE a "fast-grower".


P/E/GROWTH RATIO: PASS

The investor should examine the P/E (41.24) relative to the growth rate (30.23%), based on the average of the 3 and 4 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 FIVE (1.36) is on the high side, but is acceptable if all the other tests are met.


SALES AND P/E RATIO: FAIL

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. FIVE, whose sales are $1,278.2 million, needs to have a P/E below 40 to pass this criterion. FIVE's P/E of (41.24) is not 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 FIVE is 30.2%, based on the average of the 3 and 4 year historical eps growth rates, which is acceptable.


TOTAL DEBT/EQUITY RATIO: PASS

This methodology would consider the Debt/Equity ratio for FIVE (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 FIVE (2.37%) 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 FIVE (5.78%) 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.


ARISTA NETWORKS INC

Strategy: Small-Cap Growth Investor
Based on: Motley Fool

Arista Networks, Inc. is a supplier of cloud networking solutions that use software innovations to address the needs of Internet companies, cloud service providers and data centers for enterprise support. It develops, markets and sells cloud networking solutions, which consist of its Gigabit Ethernet switches and related software. The Company's cloud networking solutions consist of its Extensible Operating System (EOS), a set of network applications and its Ethernet switching and routing platforms. The programmability of EOS has allowed it to create a set of software applications that address the requirements of cloud networking, including workflow automation, network visibility and analytics, and has also allowed it to integrate with a range of third-party applications for virtualization, management, automation, orchestration and network services. EOS supports cloud and virtualization solutions, including VMware NSX, Microsoft System Center and other cloud management frameworks.


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. ANET's profit margin of 30.09% 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 ANET's relative strength of 89 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 ANET (70.48% for EPS, and 40.84% for Sales) are good enough to pass.


INSIDER HOLDINGS: PASS

ANET's insiders should own at least 10% (they own 25.11% ) 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. ANET's free cash flow of $7.80 per share passes this test.


PROFIT MARGIN CONSISTENCY: PASS

ANET's profit margin has been consistent or even increasing over the past three years (Current year: 25.71%, Last year: 16.31%, Two years ago: 14.46%), passing the requirement. It is a sign of good management and a healthy and competitive enterprise.


R&D AS A PERCENTAGE OF SALES: FAIL

ANET has reduced their R&D expenditures(currently $349.6 million) over the past two years which is unacceptable. ANET is jeopardizing the future in order to boost current EPS numbers. This criterion is particularly important for high-tech and medical stocks because they are so R&D dependant.


CASH AND CASH EQUIVALENTS: PASS

ANET's level of cash $1,535.6 million passes this criteria. If a company is a cash generator, like ANET, 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 ANET was 26.28% last year, while for this year it is 20.67%. Since the inventory to sales is decreasing by -5.61% 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 ANET was 22.42% last year, while for this year it is 15.03%. Since the AR to sales is decreasing by -7.39% the stock passes this criterion.


LONG TERM DEBT/EQUITY RATIO: PASS

ANET's trailing twelve-month Debt/Equity ratio (2.01%) is a little higher than what this methodology is looking for, but is still at an acceptable level. The superior companies that you are looking for don't need to borrow money in order to grow. This company has borrowed very little which is still OK.


"THE FOOL RATIO" (P/E TO GROWTH): PASS

The "Fool Ratio" is an extremely important aspect of this analysis. If the company's Fool Ratio is between 0.5 and 0.65 (ANET's is 0.53), the company demonstrates excellence in its fundamentals and have soundly beat the earnings estimates. ANET passes this test.

The following criteria for ANET are less important which means you would place less emphasis on them when making your investment decision using this strategy:

AVERAGE SHARES OUTSTANDING: FAIL

ANET has either issued a significant amount of new shares over the past year or has been issuing more and more shares over the past five years. ANET currently has 81.0 million shares outstanding. Neither of these are a good sign. Generally when a small-cap company issues more stock, the existing stock becomes devalued by the market, and hence diluted.


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. ANET's sales of $1,783.2 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: FAIL

ANET does not pass the Daily Dollar Volume (DDV of $333.1 million) test. It exceeds the maximum requirement of $25 million. Stocks that fail the test are too liquid for a small individual investor and many institutions have already discovered it.


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. ANET with a price of $247.47 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: FAIL

ANET's income tax paid expressed as a percentage of pretax income either this year (-0.05%) or last year (23.96%) is below 20% which is cause for concern. Because the tax rate is below 20% this could mean that the earnings that were reported are unrealistically inflated due to the lower level of income tax paid. However, we have utilized a sophisticated formula so that the appropriate figures reflect a 'normal' tax rate (35%).



Watch List

The top scoring stocks not currently in the Hot List portfolio.

Ticker Company Name Current
Score
UFPI UNIVERSAL FOREST PRODUCTS, INC. 66%
ROST ROSS STORES, INC. 61%
MU MICRON TECHNOLOGY, INC. 58%
MGA MAGNA INTERNATIONAL INC. (USA) 51%
LGIH LGI HOMES INC 51%
TNET TRINET GROUP INC 49%
TOL TOLL BROTHERS INC 48%
CADE CADENCE BANCORP 48%
TTC TORO CO 42%
ETFC E*TRADE FINANCIAL CORP 42%



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