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Executive Summary	February 13, 2015

The Economy Led by some of the best jobs growth we've seen in nearly two decades, the US economy just keeps on gaining steam. The private sector added 267,000 jobs in December, the Labor Department said, with total nonfarm payrolls rising by 257,000. In addition, December's and January's jobs-added figures were revised upward -- sharply. In total, 147,000 more jobs were added in those months than previously thought. That meant that, over the past three months, the economy has added more than 1 million jobs -- the first time that has happened since 1997. Just as importantly, those long stagnant wages pushed higher in January. Average wages for hourly workers jumped 12 cents, the biggest increase since before the financial crisis. The unemployment rate edged higher by a tenth of a percentage point to 5.7%; the broader "U-6" rate (which unlike the headline number takes into account those working part-time who want full-time work, and discouraged workers who have given up looking for a job) also ticked higher by a tenth of a point to 11.3%. That was probably because more people were looking for a job, thanks to the pickup and hiring over the last several months -- the number of people not in the labor force fell by more than 350,000. It doesn't look like the hiring push is slowing down. In January, job openings jumped to the highest level since 2001, according to the Labor Department. Manufacturing growth slowed in January, meanwhile, with the Institute for Supply Management's manufacturing index coming in at its lowest mark in the past year. That is more a commentary on how strong manufacturing has been in the past year, however, as the index was still comfortably in expansion territory for the 20th straight month. ISM also said the service sector expanded in January for the 60th straight month, doing so at about the same strong pace that it did in December. The new orders sub-index also remained at a very high level, which bodes well for coming months. The latest consumer data from the Commerce Department showed that personal income rose 0.3% in December. Real disposable personal income jumped 0.5%. After surging in November, real personal consumption expenditures slipped 0.1% in December. That helped push the personal savings rate up to 4.9%, from 4.3% a month earlier. Oil and gas prices finally are moving higher. As of Feb. 11, the average price for a gallon of regular unleaded was $2.21, according to AAA, up 7 cents from $2.14 a month ago. Still, gas prices are down 33% from where they were a year ago. Since our last newsletter, the S&P 500 returned 3.3%, while the Hot List returned 3.3%. So far in 2015, the portfolio has returned 7.8% vs. 1.4% for the S&P. Since its inception in July 2003, the Hot List is far outpacing the index, having gained 248.6% vs. the S&P's 108.8% gain.. The Valuation Situation It's been close to six months since we've looked at broader market valuation, and in that time quite a bit has happened -- oil's dramatic plunge, the dollar's sharp increase, and the US economy's marked improvement, to name just a few of the major forces at work. Given all of that, it's time we checked back in to see how valuations have been impacted. As always, let's start with earnings. Using the S&P 500's Thursday morning price of 2,080, the index is trading for about 19.9 times trailing 12-month (TTM) as-reported earnings per share, up from 19.3 in August, when last we checked in. Using projected operating earnings for the next year, the P/E is about 17.5, up from 15.6 in August. P/Es are significantly higher than they were a year or two ago, but these earnings-related valuations are far from exuberant; they're probably on the high side of the "fair value" range, particularly in a low-interest-rate environment. The S&P's price/sales ratio, meanwhile, is 1.65, almost exactly where it was when we last checked in, according to Morningstar.com. Its price/book ratio is 2.45, up a bit from 2.33 in August. From 1978 through early 2011, the average S&P price/book ratio was about 2.4, according to data from Ned Davis Research and Comstock Partners. The current price/sales ratio is higher than the historical average cited by Comstock and Ned Davis. But again, it doesn't seem exuberant -- my James O'Shaughnessy-based growth model considers P/S ratios of up to 1.5 to be indicative of good values. Dividend yields, meanwhile, remain attractive, though they've dipped slightly since August. Back then the S&P's yield was 2.3%; now it's 2.2%. One figure that remains quite high is the Stock Market/GDP ratio, which compares the market cap of the Wilshire Total Market Index to gross domestic product. It is now 123.9%, down slightly from 124.5% in August, according to GuruFocus.com. That puts it in the "Significantly Overvalued" range, based on the site's analysis of historical data. The current figure is higher than the 2007 peak, but still well short of the 2000 bull market peak, when the ratio climbed to about 150%. The 10-year cyclically adjusted price/earnings ratio also remains high. The ratio, which uses inflation-adjusted average earnings for the past decade to smooth out short-term fluctuations, is at about 27.5, using Yale Economist Robert Shiller's earnings data and Thursday morning's S&P 500 price of 2,080. That's up from 26.2 in August, and is right around where it peaked in 2007. It's also well above the 16.6 historical average (which dates back to 1871). As I've noted before, it may be more appropriate to look at the figure in the context of its post-World War II average, which is 18.5 (after World War II, inflation became a permanent part of the U.S. economy; since inflation eats away so significantly at fixed-income assets, investors should be willing to pay higher multiples for stocks when inflation is a factor). Still, the figure is quite elevated, as it has been throughout almost the entire bull market. The Q ratio also indicates that the market is significantly overvalued. Based on a methodology developed by Nobel Laureate James Tobin, the "Q" Ratio is determined by dividing the total price of the stock market by the replacement cost of all of its companies. The Federal Reserve provides data needed to make the calculation in its Flow of Funds Accounts report, though that only is released once per quarter. Using the most recent report, which came at the end of the third quarter, the Q ratio is 1.11, down from 1.17 in August, according to an analysis done by Doug Short of Advisor Perspectives in early February. That was 63% higher than the historical average using the arithmetic mean and 75% higher than the geometric mean. As has been the case for some time, the current Q indicates the market is significantly overvalued, but it's not nearly as high as it has gotten at some market tops. Overall, I think that all of this data indicates that, after nearly six years, we've reached the point in the bull market where the broader market has gotten somewhat overvalued. But that should be neither a surprise nor a major concern. While the market crashes of 2000 and 2008 have made investors hypersensitive to any hint of overvaluation, the fact is that the market is going to trade above its average valuation quite a bit. By definition, it can't always be under the average. And bull markets can run for a long time when valuations are at above-average levels. You should get concerned not when valuations become above-average, but when they become extremely bloated, and I don't think we are near that point yet. In fact, there are still an array of attractively valued individual stocks out there. Take Hot List newcomer Lannett Company, a generic pharmaceutical maker. The firm has less than $1 million in debt compared to more than $290 million in net current assets, a current ratio of 7.7, a 41% return on equity, 34% profit margins, and 47% long-term earnings growth. Despite those tremendous fundamentals, the stock trades for a very reasonable 16.6 times earnings, and has a PE-to-growth ratio of 0.35. As long as fundamentally sound stocks like Lannett are out there, we will continue to buy them. And one of the beauties of using a quantitative screening system like the Hot List is that we can scan through thousands of stocks in a matter of seconds to find those types of stocks. With so many potential opportunities so easily accessible, we can almost always find enough attractively priced, financially sound companies to fill out a portfolio. Those are the types of stocks that should fare well over the long term, regardless of what the short-term broader market valuation situation is.		Editor-in-Chief: John Reese Since Inception   Hot List 248.6% S&P 500 108.8% Accuracy 55.2% Beta 1.2 YTD   Hot List 7.8% S&P 500 1.4% Since Last Issue   Hot List 3.3% S&P 500 3.3% Avg. Fundamentals   Market Cap (mil) $79,224 PE Ratio 16.2 5 Yr EPS Growth 26.1% Yield 1.8% Rel. Strength 72 Portfolio Sectors Services 3 Financial 2 Healthcare 1 Basic Materials 1 Capital Goods 1 Consumer/Non-Cyclical 1 Technology 1
The Fallen As we rebalance the Validea Hot List, 5 stocks leave our portfolio. These include: Universal Insurance Holdings, Inc. (UVE), Silicon Motion Technology Corp. (Adr) (SIMO), Agco Corporation (AGCO), Skyworks Solutions Inc (SWKS) and Blackrock, Inc. (BLK). The Keepers 5 stocks remain in the portfolio. They are: Sasol Limited (Adr) (SSL), Sanderson Farms, Inc. (SAFM), Zumiez Inc. (ZUMZ), Amtrust Financial Services Inc (AFSI) and Starwood Property Trust, Inc. (STWD). The Newbies We are adding 5 stocks to the portfolio. These include: Apple Inc. (AAPL), Middleby Corp (MIDD), Jones Lang Lasalle Inc (JLL), Lannett Company, Inc. (LCI) and Hibbett Sports, Inc. (HIBB). Portfolio Changes Additions   APPLE INC. AAPL MIDDLEBY CORP MIDD JONES LANG LASALLE INC JLL LANNETT COMPANY, INC. LCI HIBBETT SPORTS, INC. HIBB Deletions   UNIVERSAL INSURANCE HOLDINGS, INC. UVE SILICON MOTION TECHNOLOGY CORP. (ADR) SIMO AGCO CORPORATION AGCO SKYWORKS SOLUTIONS INC SWKS BLACKROCK, INC. BLK Newcomers to the Validea Hot List Apple, Inc. (AAPL): The largest publicly traded company in the world is joining the Hot List this week. The tech sector giant has taken in nearly $200 billion in sales over the past year, and has a $727 billion market cap. Its fundamentals are impeccable: a 35% return on equity, 22% profit margins, 27% long-term revenue growth, and a 0.58 PE-to-Growth ratio. Apple gets strong interest from my Warren Buffett- and Peter Lynch-based models. To read more about it, scroll down to the "Detailed Stock Analysis" section. Hibbett Sports (HIBB): This Alabama-based sporting goods retailer is no stranger to the Hot List, having appeared last year. It focuses on small and mid-sized markets, mostly in the South, Southwest, Mid-Atlantic and Midwest. It has more than 900 retail stores across the US, mostly under the Hibbett Sports name but with some also under the Sports Additions and Sports & Co. names. Hibbett gets strong interest from my Warren Buffett- and Peter Lynch-based models and high marks from some other strategies as well. To read more about it, scroll down to the "Detailed Stock Analysis" section. Jones Lang LaSalle (JLL): Another former Hot List favorite, JLL is a financial and professional services firm specializing in real estate. It has over 200 corporate offices worldwide and operations in more than 1,000 locations in 70 countries, offering integrated real estate and investment management services on a local, regional and global basis to owner, occupier and investor clients. JLL ($7 billion market cap) gets strong interest from my Peter Lynch- and James O'Shaughnessy-based strategies. To read more about it, scroll down to the "Detailed Stock Analysis" section. The Middleby Corporation (MIDD): This commercial cooking equipment manufacturer was a pretty amazing growth story 10 to 15 years ago -- from 1998 to late-2002, Middleby more than doubled its market share in the U.S. commercial cooking equipment market, from 11% to 26%, according to U.S. Business Review. That helped the stock become one of the best-performing stocks of the 2000s, with its shares jumping about 1,700%. Growth has slowed, of course, but it's still strong (23% over the long term), and my Warren Buffett-based model is high on the mid-cap ($6 billion). For more on Middleby, see the "Detailed Stock Analysis" section below. Lannett Company, Inc. (LCI): This 73-year-old Philadelphia-based firm makes generic prescription pharmaceutical products for customers throughout the United States. Lannett ($2 billion market cap) markets its products primarily to drug wholesalers, retail drug chains, distributors, and government agencies. Lannett gets strong interest from my Peter Lynch- and Joel Greenblatt-based models, and my Momentum Investor approach. For more on the stock, see the "Detailed Stock Analysis" section below. News about Validea Hot List Stocks AmTrust Financial Services, Inc. (AFSI): Amtrust announced fourth-quarter net income attributable to common stockholders of $71.6 million, or $0.88 per diluted share, an increase of 10.6% from $64.7 million, or $0.82 per diluted share, in the fourth quarter 2013. For the full year, net income attributable to common stockholders grew to $434.3 million, or $5.45 per diluted share, an increase of 56.1% from $278.2 million, or $3.56 per diluted share, in 2013. Fourth quarter revenue was $1.05 billion, an increase of 28.3% from $816.4 million in the fourth quarter 2013. 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 SAFM SANDERSON FARMS, INC. Food Processing 76 ZUMZ ZUMIEZ INC. Retail (Apparel) 72 LCI LANNETT COMPANY, INC. Biotechnology & Drugs 69 AAPL APPLE INC. Communications Equipment 64 JLL JONES LANG LASALLE INC Real Estate Operations 62 AFSI AMTRUST FINANCIAL SERVICES INC Insurance (Prop. & Casualty) 61 MIDD MIDDLEBY CORP Misc. Capital Goods 50 SSL SASOL LIMITED (ADR) Chemical Manufacturing 50 STWD STARWOOD PROPERTY TRUST, INC. Consumer Financial Services 47 HIBB HIBBETT SPORTS, INC. Retail (Specialty) 42 Ticker Market Cap Date Added Start Price Current Price Return SAFM $1,805 1/16/2015 $80.96 $77.97 -3.7% ZUMZ $1,131 10/24/2014 $32.97 $38.70 17.4% LCI $2,101 2/13/2015 TBD $58.69 TBD AAPL $736,598 2/13/2015 TBD $126.46 TBD JLL $7,216 2/13/2015 TBD $160.97 TBD AFSI $4,561 10/24/2014 $49.37 $56.49 14.4% MIDD $5,962 2/13/2015 TBD $104.11 TBD SSL $26,214 12/19/2014 $38.95 $40.14 3.1% STWD $5,413 1/16/2015 $23.72 $24.34 2.6% HIBB $1,235 2/13/2015 TBD $49.40 TBD

Detailed Stock Analysis Disclaimer: The analysis is from Validea's selection and interpretation of content from the guru's book or published writings, and is not from nor endorsed by the guru. See Full Disclaimer SAFM   |   ZUMZ   |   LCI   |   AAPL   |   JLL   |   AFSI   |   MIDD   |   SSL   |   STWD   |   HIBB   |   SANDERSON FARMS, INC. Profile Strategy: Contrarian Investor Based on: David Dreman Sanderson Farms, Inc. is a poultry processing company which is engaged in the production, processing, marketing and distribution of fresh and frozen chicken and other prepared chicken items. In addition, the Company is engaged in the processing, marketing and distribution of prepared chicken through its wholly owned subsidiary, Sanderson Farms, Inc. (Foods Division). It produces a range of processed chicken products and prepared chicken items. 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, and casual dining operators in the south-eastern, south-western, north-eastern and western United States and to customers who resell frozen chicken into export markets. During the fiscal year ended October 31, 2013 (fiscal 2013), it processed 452 million chickens, or over 3.0 billion dressed pounds. Analysis Guru Score: 76% MARKET CAP: [FAIL] 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. SAFM has a market cap of $1,805 million, therefore failing the test. EARNINGS TREND: [PASS] A company should show a rising trend in the reported earnings for the most recent quarters. SAFM's EPS for the past 2 quarters, (from earliest to most recent quarter) 3.30, 4.04 have been increasing, and therefore the company passes this test. EPS GROWTH RATE IN THE IMMEDIATE PAST AND FUTURE: [PASS] This methodology likes to see companies with an EPS growth rate higher than the S&P in the immediate past and a likelihood that this trend will continue in the near future. SAFM passes this test as its EPS growth rate over the past 6 months (82.80%) has beaten that of the S&P (2.98%). SAFM's estimated EPS growth for the current year is (5.74%), which indicates the company is expected to experience positive earnings growth. As a result, SAFM passes this test. This methodology would utilize four separate criteria to determine if SAFM 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. SAFM's P/E of 7.22, based on trailing 12 month earnings, meets the bottom 20% criterion (below 12.12), and therefore passes this test. PRICE/CASH FLOW (P/CF) RATIO: [PASS] The P/CF of a company should be in the bottom 20% of the overall market. SAFM's P/CF of 5.76 meets the bottom 20% criterion (below 6.92) and therefore passes this test. PRICE/BOOK (P/B) VALUE: [FAIL] The P/B value of a company should be in the bottom 20% of the overall market. SAFM's P/B is currently 2.01, which does not meet the bottom 20% criterion (below 0.98), 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%). SAFM's P/D of 88.50 does not meet the bottom 20% criterion (below 20.49), and it therefore fails this test. This methodology maintains that investors should look for as many healthy financial ratios as possible to ascertain the financial strength of the company. These criteria are detailed below. CURRENT RATIO: [PASS] A prospective company must have a strong Current Ratio (greater than or equal to the average of it's industry [13.25] or greater than 2). This is one identifier of financially strong companies, according to this methodology. SAFM's current ratio of 3.46 passes the test. PAYOUT RATIO: [PASS] A good indicator that a company has the ability to raise its dividend is a low payout ratio. The payout ratio for SAFM is 7.62%, while its historical payout ratio has been 11.71%. Therefore, it passes the payout criterion. RETURN ON EQUITY: [PASS] The company should have a high ROE, as this helps to ensure that there are no structural flaws in the company. This methodology feels that the ROE should be greater than the top one third of ROE from among the top 1500 large cap stocks, which is 17.24%, and would consider anything over 27% to be staggering. The ROE for SAFM of 30.87% 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. SAFM's pre-tax profit margin is 13.68%, thus passing this criterion. YIELD: [FAIL] The company in question should have a yield that is high and that can be maintained or increased. SAFM's current yield is 1.13%, while the market yield is 2.61%. SAFM fails this test. LOOK AT THE TOTAL DEBT/EQUITY: [PASS] The company must have a low Debt/Equity ratio, which indicates a strong balance sheet. The Debt/Equity ratio should not be greater than 20% or should be less than the average Debt/Equity for its industry of 131.53%. SAFM's Total Debt/Equity of 2.23% is considered acceptable.   ZUMIEZ INC. Profile Strategy: Growth Investor Based on: Martin Zweig Zumiez Inc. (Zumiez) is a specialty retailer of action sports related apparel, footwear, equipment and accessories operating under the Zumiez brand name. As of January 28, 2012, the Company operated 434 stores in the United States and 10 stores in Canada. In addition, the Company operates a Website that sells merchandise online. At January 28, 2012, its stores averaged approximately 2,900 square feet. Its apparel offerings include tops, bottoms, outerwear and accessories, such as caps, bags and backpacks, belts, jewelry and sunglasses. Zumiez's footwear offerings primarily consist of action sports related athletic shoes and sandals. Its equipment offerings, or hardgoods, include skateboards, snowboards and ancillary gear, such as boots and bindings. The Company also offers a selection of other items, such as miscellaneous novelties. 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. ZUMZ's P/E is 21.82, based on trailing 12 month earnings, while the current market PE is 18.00. 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. ZUMZ's revenue growth is 14.07%, while it's earnings growth rate is 31.79%, based on the average of the 3, 4 and 5 year historical eps growth rates. Therefore, ZUMZ fails 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 (11.6%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (11.9%) of the current year. Sales growth for the prior must be greater than the latter. For ZUMZ 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. ZUMZ's EPS ($0.54) pass this test. QUARTERLY EARNINGS ONE YEAR AGO: [PASS] The EPS for the quarter one year ago must be positive. ZUMZ's EPS for this quarter last year ($0.39) 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. ZUMZ's growth rate of 38.46% 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 ZUMZ is 15.90%. This should be less than the growth rates for the 3 previous quarters which are 20.27%, 0.00% and 62.50%. ZUMZ 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, 25.51%, (versus the same three quarters a year earlier) is less than the growth rate of the current quarter earnings, 38.46%, (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, 38.46% must be greater than or equal to the historical growth which is 31.79%. ZUMZ 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. ZUMZ, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were 0.30, 0.79, 1.20, 1.35 and 1.52, 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. ZUMZ's long-term growth rate of 31.79%, 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. ZUMZ's Debt/Equity (0.00%) is not considered high relative to its industry (36.13%) 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 ZUMZ, this criterion has not been met (insider sell transactions are 69, while insiders buying number 39). 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.   LANNETT COMPANY, INC. Profile Strategy: Small-Cap Growth Investor Based on: Motley Fool Lannett Company, Inc. is engaged in developing, manufacturing, marketing and distributing generic versions of branded pharmaceutical products. All of the Company's products manufactured and/or sold are prescription products. The Company's products containing Levo are produced and marketed with 12 varying potencies. In addition to generic Levo tablets, the Company also markets and distributes Unithroid tablets, a branded version of Levo, which is produced and marketed with 11 varying potencies. The Company's Levo tablets are used to treat hypothyroidism and other thyroid disorders. The Company's generic Levo tablets and Unithroid tablets are manufactured by Jerome Stevens Pharmaceuticals (JSP). As of June 30, 2012, the Company manufactured and/or distributed 30 products. 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. LCI's profit margin of 34.25% 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 LCI'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 LCI (75.36% for EPS, and 434.05% for Sales) are good enough to pass. INSIDER HOLDINGS: [PASS] LCI's insiders should own at least 10% (they own 17.09% ) 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. LCI's free cash flow of $0.54 per share passes this test. PROFIT MARGIN CONSISTENCY: [PASS] LCI's profit margin has been consistent or even increasing over the past three years (Current year: 20.86%, Last year: 8.82%, Two years ago: 3.21%), passing the requirement. It is a sign of good management and a healthy and competitive enterprise. R&D AS A PERCENTAGE OF SALES: [FAIL] LCI has reduced their R&D expenditures(currently $27.7 million) over the past two years which is unacceptable. LCI 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] LCI's level of cash $146.3 million passes this criteria. If a company is a cash generator, like LCI, 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 LCI was 21.54% last year, while for this year it is 16.38%. Since the inventory to sales is decreasing by -5.16% 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 LCI was 17.48% last year, while for this year it is 22.40%. 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] LCI's trailing twelve-month Debt/Equity ratio (0.25%) 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 has attractive fundamentals and its Fool Ratio is 0.5 or less (LCI's is 0.36), the shares are looked upon favorably. These high quality companies can often wind up as the biggest winners. LCI passes this test. The following criteria for LCI are less important which means you would place less emphasis on them when making your investment decision using this strategy: AVERAGE SHARES OUTSTANDING: [PASS] LCI has not been significantly increasing the number of shares outstanding within recent years which is a good sign. LCI currently has 37.0 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. LCI's sales of $368.8 million based on trailing 12 month sales, are fine, making this company one such "prospective gem". LCI passes the sales test. DAILY DOLLAR VOLUME: [FAIL] LCI does not pass the Daily Dollar Volume (DDV of $42.3 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. LCI with a price of $58.69 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] LCI's income tax paid expressed as a percentage of pretax income this year was (36.50%) and last year (35.30%) 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.   APPLE INC. Profile Strategy: Growth/Value Investor Based on: James P. O'Shaughnessy Apple Inc. designs, manufactures and markets mobile communication and media devices, personal computers and portable digital music players and sells a variety of related software, services, peripherals, networking solutions and third-party digital content and applications. The Company's products and services include iPhone, iPad, Mac, iPod, Apple TV, a portfolio of consumer and professional software applications, the iOS and OS X operating systems, iCloud and a variety of accessory, service and support offerings. The Company offers a range of mobile communication and media devices, personal computing products and portable digital music players, as well as a variety of related software, services, peripherals, networking solutions and third-party hardware and software products. The Company's primary products include iPhone, iPad, Mac, iPod, iTunes, Mac App Store, iCloud, Operating System Software, Application Software and Other Application Software. Analysis Guru Score: 80% MARKET CAP: [PASS] The Cornerstone Value Strategy looks for large, well known companies whose market cap is greater than $1 billion. These companies exhibit solid and stable earnings. AAPL's market cap of $736,598 million passes this test. CASH FLOW PER SHARE: [PASS] The second criterion requires that the company exhibit strong cash flows. Companies with strong cash flow are typically the value oriented investments that this strategy looks for. The company's cash flow per share must be greater than the mean of the market cash flow per share ($1.81). AAPL's cash flow per share of $9.07 passes this test. SHARES OUTSTANDING: [PASS] This particular strategy looks for companies whose total number of outstanding shares are in excess of the market average (624 million shares). These are the more well known and highly traded companies. AAPL, who has 5,882 million shares outstanding, passes this test. TRAILING 12 MONTH SALES: [PASS] A company's trailing 12 month sales ($199,800 million) are required to be 1.5 times greater than the mean of the market's trailing 12 month sales ($21,622 million). AAPL passes this test. DIVIDEND: [FAIL] The final step in the Cornerstone Value strategy is to select the 50 companies from the market leaders group (those that have passed the previous four criteria) that have the highest dividend yield. AAPL's dividend yield of 1.49% fails this final criterion. Even though it did pass the previous four criteria it would fail the overall methodology.   JONES LANG LASALLE INC Profile Strategy: Growth/Value Investor Based on: James P. O'Shaughnessy Jones Lang LaSalle Incorporated (Jones Lang LaSalle), is a financial and professional services firm specializing in real estate. Jones Lang LaSalle has over 200 corporate offices worldwide and operations in more than 1,000 locations in 70 countries. The Company offers integrated real estate and investment management services on a local, regional and global basis to owner, occupier and investor clients. It delivers an array of Real Estate Services (RES) across its three geographic business segments: the Americas, Europe, Middle East and Africa (EMEA), and Asia Pacific. LaSalle Investment Management, a wholly owned member of the Jones Lang LaSalle group that consists of its fourth business segment, is a diversified real estate investment management company. In July 2014, Jones Lang LaSalle Inc acquired CLEO Construction Management (CLEO), a construction project management services firm that specializes in medical facilities. Analysis Guru Score: 100% MARKET CAP: [PASS] The first requirement of the Cornerstone Growth Strategy is that the company has a market capitalization of at least $150 million. This will screen out the companies that are too illiquid for most investors, but still include a small growth company. JLL, with a market cap of $7,216 million, passes this criterion. EARNINGS PER SHARE PERSISTENCE: [PASS] The Cornerstone Growth methodology looks for companies that show persistent earnings growth without regard to magnitude. To fulfill this requirement, a company's earnings must increase each year for a five year period. JLL, whose annual EPS before extraordinary items for the last 5 years (from earliest to the most recent fiscal year) were 3.48, 3.70, 4.63, 5.98 and 8.52, passes this test. PRICE/SALES RATIO: [PASS] The Price/Sales ratio should be below 1.5. This value criterion, coupled with the growth criterion, identify growth stocks that are still cheap to buy. JLL's Price/Sales ratio of 1.33, based on trailing 12 month sales, passes this criterion. RELATIVE STRENGTH: [PASS] The final criterion for the Cornerstone Growth Strategy requires that the Relative Strength of the company be among the top 50 of the stocks screened using the previous criterion. This gives you the opportunity to buy the growth stocks you are searching for just as the market is embracing them. JLL, whose relative strength is 84, is in the top 50 and would pass this last criterion.   AMTRUST FINANCIAL SERVICES INC Profile Strategy: P/E/Growth Investor Based on: Peter Lynch Amtrust Financial Services, Inc., (AmTrust) is a provider of property and casualty insurance. The Company operates in four business segments: small commercial business, Specialty Risk and Extended Warranty, specialty program and personal lines reinsurance. Small Commercial Business segment provides workers' compensation to small businesses. The Company's Specialty Risk and Extended Warranty segment provides coverage for consumer and commercial goods and custom designed coverages. The Company's Specialty Program segment provides workers' compensation, package products, general liability, commercial auto liability, excess and surplus lines programs and other specialty commercial property and casualty insurance. The Company subsidiaries include: Technology Insurance Company, Inc. (TIC), Rochdale Insurance Company (RIC), AmTrust Insurance Company of Kansas, Inc. (AICK), AmTrust Lloyd's Insurance Company of Texas (ALIC), Oryx Insurance Brokerage, Inc. and TMI Solutions, LLC. Analysis Guru Score: 93% DETERMINE THE CLASSIFICATION: This methodology would consider AFSI a "fast-grower". P/E/GROWTH RATIO: [PASS] The investor should examine the P/E (10.38) relative to the growth rate (30.35%), 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 AFSI (0.34) 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. AFSI, whose sales are $4,084.3 million, needs to have a P/E below 40 to pass this criterion. AFSI's P/E of (10.38) 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 AFSI is 30.3%, based on the average of the 3, 4 and 5 year historical eps growth rates, which is acceptable. TOTAL DEBT/EQUITY RATIO: [NEUTRAL] AFSI 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. AFSI's Equity/Assets ratio (15.00%) 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. AFSI's ROA (2.37%) is above the minimum 1% that this methodology looks for, thus passing the criterion.   MIDDLEBY CORP Profile Strategy: Patient Investor Based on: Warren Buffett The Middleby Corporation (Middleby), through its operating subsidiary Middleby Marshall Inc. (Middleby Marshall) and its subsidiaries, is engaged in the design, manufacture, marketing, distribution, and service of a line of cooking and warming equipment used in all types of commercial restaurants and institutional kitchens, and food preparation, cooking and packaging equipment for food processing operations. The Company conducts its business through three principal business segments: the Commercial Foodservice Equipment Group, the Food Processing Equipment Group and the Residential Kitchen Equipment Group. Analysis Guru Score: 96% STAGE 1: "Is this a Buffett type company?" A bedrock principle for Buffett is that his type of company has a "durable competitive advantage" as compared to being a "price competitive" or "commodity" type of business. Companies with a "durable competitive advantage" are more likely to be found in these sub-industries: Brand Name Fast Food Restaurants, Brand Name Beverages, Brand Name Foods, Brand Name Toiletries and Household Products, Brand Name Clothing, Brand Name Prescription Drugs, Advertising, Advertising Agencies, TV, Newspapers, Magazines, Direct Mail, Repetitive Services for Businesses, Low Cost Producers of Insurance, furniture, or Low Cost Retailers. While you should be easily able to explain where the company's pricing power comes from (i.e. a strong regional brand image, a business tollgate, its main products are #1 or # 2 in its field and has been on the market for years and hasn't changed at all, a consumer or business ends up buying the same product many times in a year, etc. or having the lowest production cost among its competition), there are certain figures that one can look at that can qualify the company as having a durable competitive advantage. LOOK FOR EARNINGS PREDICTABILITY: [PASS] Buffett likes companies to have solid, stable earnings that are continually expanding. This allows him to accurately predict future earnings. Annual earnings per share from earliest to most recent were 0.40, 0.66, 0.86, 1.03, 1.25, 1.10, 1.32, 1.72, 2.16, 2.74. Buffett would consider MIDD's earnings predictable, although earnings have declined 1 time(s) in the past seven years, with the most recent decline 5 years ago. The dips have totaled 12.0%. MIDD's long term historical EPS growth rate is 23.3%, based on the average of the 3, 4 and 5 year historical eps growth rates. LOOK AT THE ABILITY TO PAY OFF DEBT [PASS] Buffett likes companies that are conservatively financed. Nonetheless, he has invested in companies with large financing divisions and in firms with rather high levels of debt. MIDD has a debt of 506.6 million and earnings of 192.1 million, which could be used to pay off the debt in less than five years, thus passing this criterion. Buffett would prefer, however, for a company to have sufficient earnings to pay off its debt in less than two years. LOOK FOR CONSISTENTLY HIGHER THAN AVERAGE RETURN ON EQUITY: [PASS] Buffett likes companies with above average return on equity of at least 15% or better, as this is an indicator that the company has a durable competitive advantage. US corporations have, on average, returned about 12% on equity over the last 30 years. The average ROE for MIDD, over the last ten years, is 23.6%, which is high enough to pass. It is not enough that the average be at least 15%. For each of the last 10 years, with the possible exception of the last fiscal year, the ROE must be at least 10% for Buffett to feel comfortable that the ROE is consistent. In addition, the average ROE over the last 3 years must also exceed 15%. The ROE for the last 10 years, from earliest to latest, is 248.5%, 64.8%, 40.6%, 28.7%, 28.0%, 17.8%, 17.3%, 18.8%, 18.8%, 18.7%, and the average ROE over the last 3 years is 18.8%, thus passing this criterion. LOOK FOR CONSISTENTLY HIGHER THAN AVERAGE RETURN ON TOTAL CAPITAL: [PASS] Because some companies can be financed with debt that is many times their equity, they can show a consistently high ROE, yet still be in unattractive price competitive businesses. To screen this out, for non-financial companies Buffett also requires that the average Return On Total Capital (ROTC) be at least 12% and consistent. In addition, the average ROTC over the last 3 years must also exceed 12%. Return On Total Capital is defined as the net earnings of the business divided by the total capital in the business, both equity and debt. The average ROTC for MIDD, over the last ten years, is 15.7% and the average ROTC over the past 3 years is 14.4%, which is high enough to pass. It is not enough that the average be at least 12%. For each of the last 10 years, with the possible exception of the last fiscal year, the ROTC must be at least 9% for Buffett to feel comfortable that the ROTC is consistent. The ROTC for the last 10 years, from earliest to latest, is 14.9%, 20.1%, 24.5%, 19.0%, 14.0%, 10.0%, 11.6%, 18.8%, 13.4%, 11.1%, thus passing this criterion. LOOK AT CAPITAL EXPENDITURES: [PASS] Buffett likes companies that do not have major capital expenditures. That is, he looks for companies that do not need to spend a ton of money on major upgrades of plant and equipment or on research and development to stay competitive. MIDD's free cash flow per share of $2.25 is positive, indicating that the company is generating more cash that it is consuming. This is a favorable sign, and so the company passes this criterion. LOOK AT MANAGEMENT'S USE OF RETAINED EARNINGS: [PASS] Buffett likes to see if management has spent retained earnings in a way that benefits shareholders. To figure this out, Buffett takes the total amount of retained earnings over the previous ten years of $13.18 and compares it to the gain in EPS over the same period of $2.34. MIDD's management has proven it can earn shareholders a 17.8% return on the earnings they kept. This return is more than acceptable to Buffett. Essentially, management is doing a great job putting the retained earnings to work. HAS THE COMPANY BEEN BUYING BACK SHARES: [BONUS PASS] Buffett likes to see falling shares outstanding, which indicates that the company has been repurchasing shares. This indicates that management has been using excess capital to increase shareholder value. MIDD's shares outstanding have fallen in the current year from 57,369,999 to 57,000,000, thus passing this criterion. This is a bonus criterion and will not adversely affect the ability of a stock to pass the strategy as a whole if it is failed. The preceding concludes Buffett's qualitative analysis. If and when he gets positive responses to all the above criteria, he would then proceed with a price analysis. The price analysis will determine whether or not the stock should be bought. The following is how he would evaluate MIDD quantitatively. STAGE 2: "Should I buy at this price?" Although a firm may be a Buffett type company, he won't invest in it unless he can get a favorable price that allows him a great long term return. CALCULATE THE INITIAL RATE OF RETURN: [No Pass/Fail] Buffett compares his type of stocks to bonds, and likes to see what a company's initial rate of return is. To calculate the initial rate of return, take the trailing 12-month EPS of $3.37 and divide it by the current market price of $104.11. An investor, purchasing MIDD, could expect to receive a 3.24% initial rate of return. Furthermore, he or she could expect the rate to increase 23.3% per year, based on the average of the 3, 4 and 5 year historical eps growth rates, as this is how fast earnings are growing. COMPARE THE INITIAL RATE OF RETURN WITH THE LONG-TERM TREASURY YIELD: [PASS] Buffett favors companies in which the initial rate of return is around the long-term treasury yield. Nonetheless, he has invested in companies with low initial rates of return, as long as the yield is expected to expand rapidly. Currently, the long-term treasury yield is about 2.75%. Compare this with MIDD's initial yield of 3.24%, which will expand at an annual rate of 23.3%, based on the average of the 3, 4 and 5 year historical eps growth rates. The company is the better choice, as the initial rate of return is close to or above the long term bond yield and is expanding. CALCULATE THE FUTURE EPS: [No Pass/Fail] MIDD currently has a book value of $16.82. It is safe to say that if MIDD can preserve its average rate of return on equity of 18.8% and continues to retain 99.22% of its earnings, it will be able to sustain an earnings growth rate of 18.6% and it will have a book value of $92.79 in ten years. If it can still earn 18.8% on equity in ten years, then expected EPS will be $17.42. CALCULATE THE FUTURE STOCK PRICE BASED ON THE AVERAGE ROE METHOD: [No Pass/Fail] Now take the expected future EPS of $17.42 and multiply them by the lower of the 5 year average P/E ratio or current P/E ratio (30.9) (5 year average P/E in this case), which is 22.0 and you get MIDD's projected future stock price of $382.45. CALCULATE THE EXPECTED RATE OF RETURN BASED ON THE AVERAGE ROE METHOD: [No Pass/Fail] Now add in the total expected dividend pool to be paid over the next ten years, which is $1.00. This gives you a total dollar amount of $383.45. These numbers indicate that one could expect to make a 13.9% average annual return on MIDD's stock at the present time. Although, the return is slightly below the liking of Buffett, the return would still be somewhat acceptable. CALCULATE THE EXPECTED FUTURE STOCK PRICE BASED ON AVERAGE EPS GROWTH: [No Pass/Fail] If you take the EPS growth of 23.3%, based on the average of the 3, 4 and 5 year historical eps growth rates, you can project EPS in ten years to be $27.35. Now multiply EPS in 10 years by the lower of the 5 year average P/E ratio or current P/E ratio (30.9) (5 year average P/E in this case), which is 22.0. This equals the future stock price of $600.70. Add in the total expected dividend pool of $1.00 to get a total dollar amount of $601.70. CALCULATE THE EXPECTED RETURN USING THE AVERAGE EPS GROWTH METHOD: [No Pass/Fail] Now you can figure out your expected return based on a current price of $104.11 and the future expected stock price, including the dividend pool, of $601.70. If you were to invest in MIDD at this time, you could expect a 19.18% average annual return on your money. Buffett would consider this a great return. LOOK AT THE RANGE OF EXPECTED RATE OF RETURN: [PASS] Based on the two different methods, you could expect an annual compounding rate of return somewhere between 13.9% and 19.2%. To pinpoint the average return a little better, we have taken an average of the two different methods. Investors could expect an average return of 16.6% on MIDD stock for the next ten years, based on the current fundamentals. Buffett would consider this a great return, thus passing the criterion.   SASOL LIMITED (ADR) Profile Strategy: Value Investor Based on: Benjamin Graham Sasol Limited (Sasol) is an integrated energy and chemicals company. Sasol mines coal in South Africa and produce natural gas and condensate in Mozambique, oil in Gabon and shale gas in Canada. In South Africa it refines imported crude oil and retail liquid fuels. It has chemical manufacturing and marketing operations in South Africa, Europe, the Middle East, Asia and the Americas. It operates in four segments: South African energy cluster, International Energy Cluster, Chemical Cluster and Other businesses. Effective March 31, 2013, Sasol Olefins & Surfactants sold G.D. Portbury Ltd. On 16 August 2013, Sasol Investment Company (Pty) Limited, a wholly owned subsidiary of Sasol, entered into a definitive sale and share purchase agreement pursuant to which Main Street 1095 (Pty) Limited, completed the acquisition of 100% of the interest of SPI International (Pty) Limited (SPII). SPII is the indirect owner of a 50% interest in the Iranian joint venture, Arya Sasol Polymer Company. Analysis Guru Score: 100% SECTOR: [PASS] SSL 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. SSL's sales of $17,312.2 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. SSL's current ratio of 2.50 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 SSL is $2,001.8 million, while the net current assets are $4,986.3 million. SSL 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. SSL's EPS growth over that period of 216.1% 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. SSL's P/E of 10.80 (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. SSL's Price/Book ratio is 1.88, while the P/E is 10.80. SSL passes the Price/Book test.   STARWOOD PROPERTY TRUST, INC. Profile Strategy: Contrarian Investor Based on: David Dreman Starwood Property Trust, Inc. is a holding company. The Company, through its subsidiaries is focused on originating, acquiring, financing and managing commercial mortgage loans and other commercial real estate debt investments, commercial mortgage-backed securities (CMBS), and other commercial real estate-related debt investments in both the United States and Europe. The Company operates in two segments: Real estate investment lending (the Lending Segment) and LNR. Real estate investment includes all business activities of the Company comprising investments in real estate related loans and securities that are held-for-investment. Analysis Guru Score: 90% MARKET CAP: [PASS] Medium to large-sized companies (the largest 1500 companies) should be chosen, because they are more in the public eye. Furthermore, the investor is exposed to less risk of "accounting gimmickry", and companies of this size have more staying power. STWD has a market cap of $5,413 million, therefore passing the test. EARNINGS TREND: [PASS] A company should show a rising trend in the reported earnings for the most recent quarters. STWD's EPS for the past 2 quarters, (from earliest to most recent quarter) 0.52, 0.73 have been increasing, and therefore the company passes this test. EPS GROWTH RATE IN THE IMMEDIATE PAST AND FUTURE: [PASS] This methodology likes to see companies with an EPS growth rate higher than the S&P in the immediate past and a likelihood that this trend will continue in the near future. STWD passes this test as its EPS growth rate over the past 6 months (30.35%) has beaten that of the S&P (2.98%). STWD's estimated EPS growth for the current year is (19.34%), which indicates the company is expected to experience positive earnings growth. As a result, STWD passes this test. This methodology would utilize four separate criteria to determine if STWD 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. STWD's P/E of 10.70, based on trailing 12 month earnings, meets the bottom 20% criterion (below 12.12), 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. STWD's P/CF of 10.35 does not meet the bottom 20% criterion (below 6.92), 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. STWD's P/B is currently 1.41, which does not meet the bottom 20% criterion (below 0.98), and it therefore fails this test. PRICE/DIVIDEND (P/D) RATIO: [PASS] The P/D ratio for a company should be in the bottom 20% of the overall market (that is the yield should be in the top 20%). STWD's P/D of 12.67 meets the bottom 20% criterion (below 20.49), and it therefore passes this test. This methodology maintains that investors should look for as many healthy financial ratios as possible to ascertain the financial strength of the company. These criteria are detailed below. PAYOUT RATIO: [PASS] A good indicator that a company has the ability to raise its dividend is a low payout ratio. The payout ratio for STWD is 81.89%, while its historical payout ratio has been 87.57%. Therefore, it passes the payout criterion. RETURN ON EQUITY: [FAIL] 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 largest cap stocks, which is 17.24%, and would consider anything over 27% to be staggering. The ROE for STWD of 12.08% is not 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. STWD's pre-tax profit margin is 72.22%, thus passing this criterion. YIELD: [PASS] The company in question should have a yield that is high and that can be maintained or increased. STWD's current yield is 7.89%, while the market yield is 2.61%. STWD passes this test.   HIBBETT SPORTS, INC. Profile Strategy: Price/Sales Investor Based on: Kenneth Fisher Hibbett Sports, Inc. operates sporting goods stores in small and mid-sized markets predominantly in the South, Southwest, Mid-Atlantic and the Midwest. The Company operates 927 stores consisting of 910 Hibbett Sports stores and 17 smaller-format Sports. The Company's merchandise assortment emphasizes team sports complemented by localized apparel, footwear and accessories designed to appeal to a range of customers within each individual market. The Company's primary retail format is Hibbett Sports, an approximately 5,000 square foot store located primarily in strip centers, which are usually near a Wal-Mart store. Of these stores, 730 Hibbett Sports stores are located in strip centers, which include free-standing stores, with the remaining 180 stores located in enclosed malls, which are the only enclosed malls in their county. 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. HIBB's P/S ratio of 1.38 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. HIBB's Debt/Equity of 0.14% 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. HIBB 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 HIBB At this Point Is HIBB 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, HIBB, who has a P/S of 1.38, 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%. HIBB's inflation adjusted EPS growth rate of 19.33% 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. HIBB's free cash per share of 0.11 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. HIBB, whose three year net profit margin averages 8.42%, passes this evaluation.   Watch List The Watch List contains the highest scoring stocks according to our guru consensus system that are not currently in the Hot List portfolio. We provide this list both for informational purposes and for investors who are not comfortable with a portfolio of ten stocks. Ticker Company Name Industry Guru Score CACC CREDIT ACCEPTANCE CORP. Consumer Financial Services 56 PII POLARIS INDUSTRIES INC. Recreational Products 54 AAP ADVANCE AUTO PARTS, INC. Retail (Specialty) 52 TASR TASER INTERNATIONAL, INC. Electronic Instr. & Controls 52 FET FORUM ENERGY TECHNOLOGIES INC Oil Well Services & Equipment 49 MA MASTERCARD INC Consumer Financial Services 49 UVE UNIVERSAL INSURANCE HOLDINGS, INC. Insurance (Prop. & Casualty) 48 MNST MONSTER BEVERAGE CORP Beverages (Non-Alcoholic) 47 HP HELMERICH & PAYNE, INC. Oil Well Services & Equipment 47 SODA SODASTREAM INTERNATIONAL LTD Beverages (Non-Alcoholic) 45

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