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Executive Summary	October 28, 2011

The Economy For months now, U.S. economic news has been better than many have been predicting, but the stock market has scuffled amid worries that Europe's debt woes would spill over into the rest of the world. This past fortnight, the latest data shows that the U.S. economy continues to show resilience -- and with European officials finally reaching a deal that should address the continent's debt problems, the market is responding. The Eurozone deal calls for private banks and insurers to take losses of 50% on their Greek debt holdings. It also calls for the recapitalization of European banks, and for the European Financial Stability Facility -- the region's bailout fund -- to be levered up to about 1 trillion euros. While details of the deal need to be hammered out, the initial relief will hopefully allow investors to focus on the economic data at home, which has been better than many seem to realize. Yesterday, the government announced that gross domestic product grew at a 2.5% pace in the third quarter -- not exactly gangbusters, but not at all bad considering all of the "double-dip" recession talk we've been hearing for the past few months. The report also showed that, while recent consumer confidence readings have been very low, consumers felt good enough to spend in the third quarter. Personal consumption expenditures rose 2.4%, more than three times the second-quarter increase. (The recently released September retail and food service sales data also showed that the consumer isn't "tapped out", with sales jumping 1.1% for the month.) One issue to keep an eye on, however: Savings as a percentage of disposable income declined by a full percentage point (from 5.1% to 4.1%) in the third quarter. Ideally, consumers would be spending more because they are making more -- not because they are dipping into savings. (Of course, given how low interest rates are right now, it's easy to see why consumers wouldn't hesitate to dig into savings.) Consumers may well be dipping into their savings because wages have been relatively stagnant, and because the unemployment rate remains persistently high. New claims for unemployment the last 2 weeks stayed in the low 400,000s. The good news is that that is well below levels seen earlier this year, and well below where many thought they'd be given all of the double-dip recession talk. The bad news is that that remains higher than levels that would indicate a healthy labor market. The industrial and manufacturing sectors, meanwhile, continue to show improvement. Industrial production increased 0.2% in September, a new Federal Reserve report showed, and that was despite a 1.8% decline from the utility sector, which tends to fluctuate more than the other two major industrial sectors -- manufacturing and mining -- because of its reliance on weather conditions. Despite all of the fears that Europe's woes would derail the U.S. economy (and despite a down quarter for utility production), overall industrial production increased at a 5.1% annual rate in the third quarter. That's the fastest pace in a year. Some mixed news came from perhaps the most-maligned area of the economy: housing. On the positive side: Home construction starts jumped 15% in September, hitting their highest level in almost a year-and-a-half. On the negative side: Starts are still less than half of the levels seen in normal expansions, and permits authorized for new projects fell during the month. Falling somewhere in the middle was the latest S&P/Case-Shiller Home Price Indices data, which showed that prices rose in August for both the 10-city and 20-city indices by 0.2%. On a seasonally-adjusted basis, however, the 10-city index was down 0.2%, and the 20-city index was flat. Since our last newsletter, the S&P 500 returned 6.7%, while the Hot List returned 9.2%. So far in 2011, the portfolio has returned -11.3% vs. 2.1% for the S&P. Since its inception in July 2003, the Hot List is far outpacing the index, having gained 139.4% vs. the S&P's 28.4% gain. A First Sigh of Relief? Thursday's news about the plan to fix the European debt crisis was a big boost to the market. But there's a long way to go before healing investors' psyches. The Europe problems, rampant fears of a "double-dip" recession that doesn't seem to be materializing, and the lingering effects of the 2008-09 financial crisis and market plunge have all made for a very pessimistic climate, both in terms of the economy and the market. From June through September, for example, investors pulled more than $111 billion out of stock and mixed equity mutual funds and exchange-traded funds, according to Lipper Analytical Services. A lot was also made this past week about the latest consumer confidence figures, as the Conference Board's consumer confidence index fell in September to its lowest level since March 2009. And, to be sure, there's a lot to be worried about. While corporations' earnings have been booming since the end of the Great Recession, average workers haven't gotten nearly the same benefit. Many haven't been able to find jobs at all, with the unemployment rate still up over 9% more than two years after the recession ended. But the leap that many pundits seem to make is that the weak consumer confidence numbers portend a poor holiday shopping season, and poor stock market performance. I think there's a good chance both predictions are off-base. In fact, the current pessimistic environment may be setting up a pretty bullish environment for investors. Why might consumer spending be better in the coming months than many expect? A couple reasons. First, the troubles surrounding Europe have not only depressed the stock market in recent months; they've also caused major declines in commodity prices. Gasoline prices are down 12.7% since their May highs, for example, while the United Nations' food price index has fallen in each of the past three months. That translates to more money in consumers' pockets, which may make for some upside surprises in consumer spending this holiday season. In addition, consumer confidence has been low for a while now -- in fact, it hasn't risen above "normal" levels at any point during the recovery. And yet consumer spending has jumped significantly during the post-recession months. According to the Commerce Department, retail and food service sales are now 19% higher than they were at their 2009 recessionary low, and 4.5% higher than their pre-recessionary high. And that's happened with consumer savings rates considerably higher than they were leading up to the recession. I would submit that consumer confidence having remained low during the recovery -- and tumbling even lower in recent months -- is as much about the depth and breadth of the last recession as it is about facts. The Great Recession was so steep that it had an impact on Americans' psyches that won't be undone in a matter of months, or even a year or two. It's what Wells Capital Management's James Paulsen has termed, "post-traumatic-armageddon-hypochondria" -- any hints of trouble make investors and consumers flash back to 2008, and they fear the worst, even though they're in much better position than they were in 2008. It's thus not surprising that there's been a big disconnect between how consumers say they feel (i.e., very scared), and what they're actually doing with their money (i.e., spending it). Just as importantly, keep in mind that periods of high pessimism are often followed by strong gains for the market. That's because people, being emotional creatures, are prone to overreaction. When they realize that the reality isn't as bad as their fears, a sense of relief hits, and many investors come rushing back to the market. There is hard data to support this. One study, performed by money manager Kenneth L. Fisher -- one of the gurus upon whom I base my strategies -- and finance professor Meir Statman found that months in which consumer confidence was low tended to be followed by months in which stock returns were high, particularly for small-cap and Nasdaq stocks. "Consumer confidence declines when stock prices decline but investors need not fear that declines in consumer confidence would be followed by low stocks returns," Fisher and Statman wrote. "Low consumer confidence is followed by high stock returns more often than it is followed by low stock returns." Liz Ann Sonders of Charles Schwab also presented some interesting data on consumer confidence and stock market returns earlier this year. Looking at data from the Conference Board and Ned Davis Research, Sonders found that, going back to 1969, when the consumer confidence reading has been above 110 the stock market has gone on to lose 0.2% per annum; when the reading has been between 66 and 110, the stock market has averaged 6.4% per annum gains; and when the reading has been 66 or below, the market has gone on to gain 14.9% per annum. (The most recent monthly reading for the index was just under 40.) "Much like investor sentiment, which works its contrarian magic on stocks, the same can be said for weak consumer confidence," Sonders wrote in commentary on Schwab's site. "The best performance for the stock market has historically come when consumer confidence was its weakest. Remember, consumers are generally reactive, while the stock market looks ahead." Of course, as with anything in the stock market, there is never a silver bullet, and the low consumer sentiment numbers don't mean that the market is going to take off today or tomorrow. And it certainly doesn't mean that the market is going to head upward in a straight line. But it does mean that the low consumer confidence readings are not reason to be alarmed, and they are not reason to flee the stock market. In fact, it may be the opposite. We saw what happened this week when the gloom and doom surrounding Europe cleared a bit; if that continues to happen, investors may finally start to focus on the fact that U.S. economic data has been better than many have been predicting. And that's when we could really see some major gains for the market, and particularly for the type of fundamentally sound, undervalued stocks now in the Hot List.		Editor-in-Chief: John Reese Since Inception   Hot List 139.4% S&P 500 28.4% Accuracy 56.3% Beta 1.2 YTD   Hot List -11.3% S&P 500 2.1% Since Last Issue   Hot List 9.2% S&P 500 6.7% Avg. Fundamentals   Market Cap (mil) $18,413 PE Ratio 11.0 5 Yr EPS Growth 15.6% Yield 4.2% Rel. Strength 46 Portfolio Sectors Services 5 Technology 1 Basic Materials 1 Energy 1 Financial 1 Healthcare 1
Advertisement Validea Capital Management - Private Portfolio Management Based on Strategies of Legends Are you looking for an alternative to your underperforming mutual funds or financial advisor? Click here to download Validea Capital's investment kit and learn more about the firm's guru-based portfolios. Get More Information on Validea Capital! ** Validea Capital Management is a separate investment advisory firm managed by Validea.com founder John Reese. Thre information above in not intended as personal investment advice and should not be interpreted as such. The Fallen As we rebalance the Validea Hot List, 4 stocks leave our portfolio. These include: Career Education Corp. (CECO), Hi-tech Pharmacal Co. (HITK), Devry Inc. (DV) and Jos. A. Bank Clothiers, Inc. (JOSB). The Keepers 6 stocks remain in the portfolio. They are: Forest Laboratories, Inc. (FRX), Asiainfo-linkage, Inc. (ASIA), Petroleo Brasileiro Sa (Adr) (PBR), Ternium S.a. (Adr) (TX), Capella Education Company (CPLA) and Bridgepoint Education, Inc. (BPI). The Newbies We are adding 4 stocks to the portfolio. These include: Telecom Argentina S.a. (Adr) (TEO), Bank Of The Ozarks, Inc. (OZRK), Aeropostale, Inc. (ARO) and Stamps.com Inc. (STMP). Portfolio Changes Additions   TELECOM ARGENTINA S.A. (ADR) TEO BANK OF THE OZARKS, INC. OZRK AEROPOSTALE, INC. ARO STAMPS.COM INC. STMP Deletions   CAREER EDUCATION CORP. CECO HI-TECH PHARMACAL CO. HITK DEVRY INC. DV JOS. A. BANK CLOTHIERS, INC. JOSB Newcomers to the Validea Hot List Stamps.com Inc. (STMP) : This Los Angeles-based company ($343 million market cap) allows customers to pay for and print postage for a variety of letters and packages online. The 15-year-old firm gets solid marks from several of my growth-focused models, including my Momentum Investor model and my Martin Zweig- and Motley Fool-based strategies. To read more about its fundamentals, scroll down to the "Detailed Stock Analysis" section below. Aeropostale, Inc. (ARO): Headquartered in New York, this mall-based clothing retailer targets youngsters age 14 to age 17 through more than 900 stores in 49 states, Puerto Rico, and Canada. Its P.S. from Aeropostale stores are aimed at 7- to 12-year-olds. Aeropostale has a market cap of about $1.1 billion. It gets approval from my Peter Lynch-, Warren Buffett-, Kenneth Fisher-, and Joel Greenblatt-based models. To read more about the stock, see the "Detailed Stock Analysis" section below. Telecom Argentina S.A. (TEO): This telecom firm has extensive operations in Argentina, offering local, long distance, cellular, data, Internet, and other services, and also offers cellular services in Paraguay. It is majority-owned by Nortel SA. TEO ($2.2 billion market cap) gets strong interest from my Peter Lynch- and Kenneth Fisher-based models. To read more about the stock, see the "Detailed Stock Analysis" section below. Bank of the Ozarks, Inc. (OZRK): This Arkansas-based bank has more than 100 locations throughout the southeastern US. It has close to $4 billion in assets, and a market cap of about $840 million. Ozarks gets strong interest from my Motley Fool-based strategy, and solid scores from several of my other strategies. To read more about it, scroll down to the " Detailed Stock Analysis" section below. News about Validea Hot List Stocks Capella Education Company (CPLA): Capella reported third-quarter net income of $9.9 million, or 66 cents a share, down from $13.5 million, or 80 cents a share, a year earlier. Revenues were down 3% to $102.3 million. The results beat analysts' expectations of 60 cents a share on revenue of $101.6 million, according to Thomson Reuters I/B/E/S. New student sign-ups fell by 36% in the third quarter, but the firm said it expects that figure to decline by only 10% in the fourth quarter, according to Reuters. The better outlook helped boost shares, which jumped sharply higher on Oct. 25 on the news. Forest Laboratories (FRX): Forest reported that net income fell 13% to $249.8 million, or 91 cents per share, in its fiscal second quarter. Revenues increased 7% to $1.17 billion. Analysts expected earnings of 99 cents per share on $1.15 billion in revenue, according to FactSet. The earnings decline came as Forest increased spending on three new drugs launched this year, according to the Associated Press, which added that the company is maintaining its full-year profit forecast of $3.60 to $3.70 per share. Analysts expect a profit of $3.73 per share for the year ending March 31. 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 BPI BRIDGEPOINT EDUCATION, INC. Schools 83 FRX FOREST LABORATORIES, INC. Biotechnology & Drugs 74 ARO AEROPOSTALE, INC. Retail (Apparel) 71 TEO TELECOM ARGENTINA S.A. (ADR) Communications Services 69 TX TERNIUM S.A. (ADR) Iron & Steel 68 CPLA CAPELLA EDUCATION COMPANY Schools 67 STMP STAMPS.COM INC. Retail (Catalog & Mail Order) 61 PBR PETROLEO BRASILEIRO SA (ADR) Oil & Gas - Integrated 60 ASIA ASIAINFO-LINKAGE, INC. Software & Programming 57 OZRK BANK OF THE OZARKS, INC. Regional Banks 57 Ticker Market Cap Date Added Start Price Return BPI $1,139 3/18/2011 $18.02 $21.69 20.4% FRX $8,679 9/2/2011 $33.10 $31.61 -4.5% ARO $1,153 10/28/2011 TBD $14.28 TBD TEO $2,278 10/28/2011 TBD $21.43 TBD TX $5,072 9/2/2011 $24.48 $25.30 3.3% CPLA $517 9/2/2011 $30.42 $35.77 17.6% STMP $370 10/28/2011 TBD $25.91 TBD PBR $163,260 9/30/2011 $22.45 $26.49 18.0% ASIA $798 9/2/2011 $11.00 $11.10 0.9% OZRK $865 10/28/2011 TBD $25.25 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 BPI   |   FRX   |   ARO   |   TEO   |   TX   |   CPLA   |   STMP   |   PBR   |   ASIA   |   OZRK   |   BRIDGEPOINT EDUCATION, INC. Profile Strategy: Price/Sales Investor Based on: Kenneth Fisher Bridgepoint Education, Inc. (Bridgepoint) is a provider of postsecondary education services. The Company's wholly owned subsidiaries, Ashford University and the University of the Rockies, are regionally accredited academic institutions that offer associate's, bachelor's, master's and doctoral programs in the disciplines of business, education, psychology, social sciences and health sciences. These institutions deliver programs online, as well as at its traditional campuses located in Clinton, Iowa, and Colorado Springs, Colorado. As of December 31, 2010, it offered approximately 1,345 courses, 71 degree programs and 134 specializations. As of December 31, 2010, it had 77,892 students enrolled in its institutions, 99% of whom were attending classes online. 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. BPI's P/S ratio of 1.34 based on trailing 12 month sales, falls within the "good values" range for non-cyclical companies and is considered attractive. TOTAL DEBT/EQUITY RATIO: [PASS] Less debt equals less risk according to this methodology. BPI's Debt/Equity of 0.00% is exceptional, thus passing the test. PRICE/RESEARCH RATIO: [PASS] This methodology considers companies in the Technology and Medical sectors to be attractive if they have low Price/Research ratios. BPI 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 BPI At this Point Is BPI 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, BPI, who has a P/S of 1.34, does not fall within the "Super Stock" range. It does fall between 0.75 and 1.5, which is considered the "good values" range for non-cyclical companies. Nonetheless, it does not pass this "Super Stock" criterion. LONG-TERM EPS GROWTH RATE: [PASS] This methodology looks for companies that have an inflation adjusted EPS growth rate greater than 15%. BPI's inflation adjusted EPS growth rate of 31.15% 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. BPI's free cash per share of 2.74 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. BPI, whose three year net profit margin averages 13.46%, passes this evaluation.   FOREST LABORATORIES, INC. Profile Strategy: Value Investor Based on: Benjamin Graham Forest Laboratories, Inc. (Forest) develops, manufactures and sells branded forms of ethical drug products, most of which requires a physician's prescription. The Company also focuses on the development and introduction of new products, including products developed in collaboration with licensing partners. Its products include those developed by the Company and those acquired from other pharmaceutical companies and integrated into its marketing and distribution systems. The Company's principal products include Lexapro, Namenda, Bystolic, Savella and Teflaro. On April 13, 2011, the Company acquired Clinical Data Inc. (Clinical Data), a specialty pharmaceutical company. Analysis Guru Score: 100% SECTOR: [PASS] FRX 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. FRX's sales of $4,585.6 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. FRX's current ratio of 3.53 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 FRX is $0.0 million, while the net current assets are $2,746.8 million. FRX 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. FRX's EPS growth over that period of 164.9% passes the EPS growth test. P/E RATIO: [PASS] The Price/Earnings (P/E) ratio, based on the greater of the current PE or the PE using average earnings over the last 3 fiscal years, must be "moderate", which this methodology states is not greater than 15. Stocks with moderate P/Es are more defensive by nature. FRX's P/E of 11.30 (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. FRX's Price/Book ratio is 1.58, while the P/E is 11.30. FRX passes the Price/Book test.   AEROPOSTALE, INC. Profile Strategy: Value Investor Based on: Benjamin Graham Aeropostale, Inc. is a mall-based, specialty retailer of casual apparel and accessories, principally targeting 14 to 17 year-old young women and men through its Aeropostale stores and 7 to 12 year-old kids through its P.S. from Aeropostale stores. The Company designs, sources, markets and sells all of its own merchandise. P.S. from Aeropostale products can be purchased in P.S. from Aeropostale stores, in certain Aeropostale stores, including its new Times Square store in New York City and online at www.ps4u.com. As of January 29, 2011, it operated 965 Aeropostale stores, consisting of 906 stores in 49 states and Puerto Rico, 59 stores in Canada, as well as 47 P.S. from Aeropostale stores in 13 states. In addition, pursuant to a Licensing Agreement, one of its international licensees operated 10 Aeropostale stores in the United Arab Emirates as of January 29, 2011. During March 2011, it announced that it had signed a second licensing agreement. Analysis Guru Score: 71% SECTOR: [PASS] ARO 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. ARO's sales of $2,379.5 million, based on trailing 12 month sales, pass this test. CURRENT RATIO: [FAIL] The current ratio must be greater than or equal to 2. Companies that meet this criterion are typically financially secure and defensive. ARO's current ratio of 1.70 fails the test. LONG-TERM DEBT IN RELATION TO NET CURRENT ASSETS: [PASS] For industrial companies, long-term debt must not exceed net current assets (current assets minus current liabilities). Companies that meet this criterion display one of the attributes of a financially secure organization. The long-term debt for ARO is $0.0 million, while the net current assets are $165.8 million. ARO 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. ARO's EPS growth over that period of 1,032.7% 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. ARO's P/E of 7.90 (using the current PE) passes this test. PRICE/BOOK RATIO: [FAIL] The Price/Book ratio must also be reasonable. That is, the Price/Book multiplied by P/E cannot be greater than 22. ARO's Price/Book ratio is 3.23, while the P/E is 7.90. ARO fails the Price/Book test.   TELECOM ARGENTINA S.A. (ADR) Profile Strategy: Price/Sales Investor Based on: Kenneth Fisher Telecom Argentina SA (Telecom) is an Argentina-based company primarily engaged in the provision of national fixed-line telecommunication services, international long-distance service, data transmission and Internet services and mobile telephony. The Company also offers such solutions as online business and Web hosting, virtual private network (VPN), mobile operating systems developed by Microsoft and Blackberry, toll-free telephone numbers, call centers and voice over Internet protocol (VoIP) line, as well as other services mainly aimed at corporate clients. The Company's subsidiaries are structured in two business segments: Fixed Telephony, comprising Telecom Argentina USA Inc and Micro Sistemas Sociedad Anonima, and Mobile Services, including Telecom Personal SA, Nucleo SA and Springville SA. As of December 31, 2010, the Company's majority shareholder was Nortel SA, 54.74% of its interest. Analysis Guru Score: 100% PRICE/SALES RATIO: [PASS] The prospective company should have a low Price/Sales ratio. Non-cyclical (non-Smokestack) companies with Price/Sales ratios below 0.75 are tremendous values and should be sought. TEO's P/S of 0.58 based on trailing 12 month sales, is below 0.75 which is considered quite attractive. It passes this methodology's P/S ratio test with flying colors. TOTAL DEBT/EQUITY RATIO: [PASS] Less debt equals less risk according to this methodology. TEO's Debt/Equity of 2.87% 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. TEO 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 TEO At this Point Is TEO a "Super Stock"? YES PRICE/SALES RATIO: [PASS] The prospective company should have a low Price/Sales ratio. Non-cyclical(non-Smokestack) companies with Price/Sales ratios below .75 are tremendous values and should be sought.TEO's P/S ratio of 0.58 is below .75 which is considered extremely attractive. It passes this methodology's P/S ratio test with flying colors. LONG-TERM EPS GROWTH RATE: [PASS] This methodology looks for companies that have an inflation adjusted EPS growth rate greater than 15%. TEO's inflation adjusted EPS growth rate of 20.72% 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. TEO's free cash per share of 1.01 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. TEO, whose three year net profit margin averages 11.76%, passes this evaluation.   TERNIUM S.A. (ADR) Profile Strategy: P/E/Growth Investor Based on: Peter Lynch Ternium SA is a steel company in Latin America that manufactures and processes flat and long steel products for the construction, home appliances, capital goods, container, food, energy and automotive industries. The Company operates in three segments: Flat Steel Products, comprising the manufacturing and marketing of hot rolled coils and sheets, cold rolled coils and sheets, tin plate, welded pipes, hot dipped galvanized and electro-galvanized sheets and pre-painted sheets; Long Steel Products, comprising the manufacturing and marketing of billets (steel in its basic, semi-finished state), wire rod and bars; Others, comprising mainly pig iron, pellets and pre-engineered metal buildings. During the year ended December 31, 2010, Flat Steel Products accounted to 86% of the Company's overall revenues. Approximately 57% of Ternium's sales were generated in North America and 41% in South and Central America. Analysis Guru Score: 100% DETERMINE THE CLASSIFICATION: This methodology would consider TX a "fast-grower". P/E/GROWTH RATIO: [PASS] The investor should examine the P/E (7.95) relative to the growth rate (29.91%), 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 TX (0.27) 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. TX, whose sales are $8,297.3 million, needs to have a P/E below 40 to pass this criterion. TX's P/E of (7.95) is considered acceptable. INVENTORY TO SALES: [PASS] When inventories increase faster than sales, it is a red flag. However an increase of up to 5% is considered bearable if all other ratios appear attractive. Inventory to sales for TX was 27.23% last year, while for this year it is 26.46%. Since inventory to sales has decreased from last year by -0.77%, TX passes this test. 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 TX is 29.9%, 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 TX (33.06%) to be normal (equity is approximately twice debt). FREE CASH FLOW: [NEUTRAL] The Free Cash Flow/Price ratio, though not a requirement, is considered a bonus if it is above 35%. A positive Cash Flow (the higher the better) separates a wonderfully reliable investment from a shaky one. This methodology prefers not to invest in companies that rely heavily on capital spending. This ratio for TX (7.04%) is too low to add to the attractiveness of the stock. Keep in mind, however, that it does not adversely affect the company as it is a bonus criteria. NET CASH POSITION: [BONUS PASS] Another bonus for a company is having a Net Cash/Price ratio above 30%. Lynch defines net cash as cash and marketable securities minus long term debt. According to this methodology, a high value for this ratio dramatically cuts down on the risk of the security. The Net Cash/Price ratio for TX (32.40%) is high enough to add to the attractiveness of this company.   CAPELLA EDUCATION COMPANY Profile Strategy: Value Investor Based on: Benjamin Graham Capella Education Company is an online postsecondary education services company. Through its wholly owned subsidiary, Capella University, the Company offers a range of doctoral, master's and bachelor's programs. As December 31, 2010, it offered over 1,250 online courses and 43 academic programs with 136 specializations to over 39,000 learners. It also offers certificate programs, which consist of a series of courses focused on a particular area of study. In addition, Capella Education Company also offers academic services, such as new learner orientation, technical support, academic advising, research services (particularly for doctoral degree candidates), writing services and online tutoring. It also provides appropriate educational accommodations to learners with documented disabilities through its disability support services team. During the year ended December 31, 2010, it formed the joint-venture Sophia Learning, LLC, as majority owner. Analysis Guru Score: 71% SECTOR: [PASS] CPLA 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. CPLA's sales of $434.8 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. CPLA's current ratio of 3.80 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 CPLA is $0.0 million, while the net current assets are $127.5 million. CPLA 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 5 years. EPS for CPLA were negative within the last 5 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. CPLA's P/E of 13.70 (using the 3 year PE) passes this test. PRICE/BOOK RATIO: [FAIL] The Price/Book ratio must also be reasonable. That is, the Price/Book multiplied by P/E cannot be greater than 22. CPLA's Price/Book ratio is 3.00, while the P/E is 13.70. CPLA fails the Price/Book test.   STAMPS.COM INC. Profile Strategy: Growth Investor Based on: Martin Zweig Stamps.com Inc. is a provider of Internet-based postage solutions. The Company's customers use its service to mail and ship a variety of mail pieces, including postcards, envelopes, flats and packages, using a range of the United States Postal Service (the USPS) mail classes, including First Class Mail, Priority Mail, Express Mail, Media Mail, Parcel Post and others. Its customers include individuals, small businesses, home offices, medium-size businesses and large enterprises, and within these segments it targets both mailers and shippers. 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. STMP's P/E is 34.76, based on trailing 12 month earnings, while the current market PE is 16.00. Therefore, it passes the first test. REVENUE GROWTH IN RELATION TO EPS GROWTH: [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. STMP's revenue growth is 2.29%, while it's earnings growth rate is -6.51%, based on the average of the 3, 4 and 5 year historical eps growth rates. Therefore, STMP passes this criterion. SALES GROWTH RATE: [PASS] Another important issue regarding sales growth is that the rate of quarterly sales growth is rising. To evaluate this, the change from this quarter last year to the present quarter (25.7%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (8.7%) of the current year. Sales growth for the prior must be greater than the latter. For STMP this criterion has been met. The earnings numbers of a company should be examined from various different angles. Three of these angles are stability in the trend of earnings, earnings persistence, and earnings acceleration. To evaluate stability, the stock has to pass the following four criteria. CURRENT QUARTER EARNINGS: [PASS] The first of these criteria is that the current EPS be positive. STMP's EPS ($0.39) pass this test. QUARTERLY EARNINGS ONE YEAR AGO: [PASS] The EPS for the quarter one year ago must be positive. STMP's EPS for this quarter last year ($0.06) 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. STMP's growth rate of 550.00% 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 STMP is -3.25%. This should be less than the growth rates for the 3 previous quarters which are 72.73%, -114.29% and 28.57%. STMP 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, -10.26%, (versus the same three quarters a year earlier) is less than the growth rate of the current quarter earnings, 550.00%, (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, 550.00% must be greater than or equal to the historical growth which is -6.51%. STMP would therefore pass this test. EARNINGS PERSISTENCE: [FAIL] Companies must show persistent yearly earnings growth. To fulfill this requirement a company's earnings must increase each year for a five year period. STMP, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were 0.68, 0.50, 0.52, 0.38, and 0.38, fails this test. LONG-TERM EPS GROWTH: [FAIL] The final important criterion in this approach is that Earnings Growth be at least 15% per year. STMP's long-term growth rate of -6.51%, based on the average of the 3, 4 and 5 year historical eps growth rates, fails the minimum required. 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. STMP's Debt/Equity (0.00%) is not considered high relative to its industry (7.80%) 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 STMP, this criterion has not been met (insider sell transactions are 40, while insiders buying number 53). Despite the lack of an insider buy signal, there also is not an insider sell signal, so the stock passes this criterion.   PETROLEO BRASILEIRO SA (ADR) Profile Strategy: P/E/Growth Investor Based on: Peter Lynch Petroleo Brasileiro SA Petrobras (Petrobras) is a Brazilian integrated oil and gas company. It operates in five segments: exploration and production; refining, commercialization and transport of oil and natural gas; petrochemicals; distribution of derivatives, electrical energy, biofuels and other renewable energy sources. Directly or through its subsidiaries, Petrobras is engaged in the research, extraction, refining, processing, commercialization and transport of oil from wells, shales and other rocks, its derivatives, natural gas and other liquid hydrocarbons, as well as in activities related to energy, promoting research, development, production, transport, distribution and commercialization of all forms of energy. As of December 31, 2010, it had 132 production platforms, 16 refineries, 291 vessels, 29,398 kilometers of pipelines, six biofuel plants, 16 thermoelectric plants, one pilot wind farm, 8,477 service stations and two fertilizer plants, as well as presence in 30 countries. Analysis Guru Score: 93% DETERMINE THE CLASSIFICATION: According to this methodology, PBR is a "Slow Grower", based on its single digit earnings growth of 9.02%, based on the average of the 3, 4 and 5 year historical eps growth rates. SALES: [PASS] PBR would fall into the "Dividend Payers" category according to this methodology. The first requirement of a Slow Grower is that its sales exceed one billion. PBR's sales are $133,691 million. It passes the test. INVENTORY TO SALES: [PASS] When inventories increase faster than sales, it is a red flag. However an increase of up to 5% is considered bearable if all other ratios appear attractive. Inventory to sales for PBR was 12.10% last year, while for this year it is 9.86%. Since inventory to sales has decreased from last year by -2.24%, PBR passes this test. YIELD COMPARED TO THE S&P 500: [PASS] This methodology also maintains that the Yield of a "Slow Grower" should be high, which includes being higher than the S&P average (currently 2.37%), and at least 3%. This yield is required because dividends are the main reason for investing in "Slow Growers". The yield for PBR is 4.60% so it passes this test. YIELD ADJUSTED P/E/GROWTH (PEG) RATIO: [PASS] This methodology would consider the Yield-adjusted P/E/G ratio for PBR of 0.49, based on the average of the 3, 4 and 5 year historical eps growth rates, to be excellent. TOTAL DEBT/EQUITY RATIO: [PASS] This methodology would consider the Debt/Equity ratio for PBR (39.72%) to be normal (equity is approximately twice debt). FREE CASH FLOW: [NEUTRAL] The Free Cash Flow/Price ratio, though not a requirement, is considered a bonus if it is above 35%. A positive Cash Flow (the higher the better) separates a wonderfully reliable investment from a shaky one. This methodology prefers not to invest in companies that rely heavily on capital spending. This ratio for PBR (-16.72%) 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 PBR (-21.65%) 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.   ASIAINFO-LINKAGE, INC. Profile Strategy: P/E/Growth Investor Based on: Peter Lynch AsiaInfo-Linkage, Inc. (AsiaInfo-Linkage), formerly AsiaInfo Holdings, Inc., is a provider of telecommunications software solutions and information technology products and services in China. The Company's software and services enables its customers to build, maintain, operate, manage and improve their communications infrastructure. It's products and services in telecom business include business operation support systems, including billing and partnership relationship management applications; business intelligence systems, including data warehousing platforms and data mining applications; operating support systems (OSS) package, including protocol adaptor, service fulfilment, process management and service activation; service and data applications, such as mail centers, mobile device management and mobile e-commerce platforms, and network infrastructure services, including network design and implementation, integrated network management and professional maintenance and support. Analysis Guru Score: 100% DETERMINE THE CLASSIFICATION: This methodology would consider ASIA a "fast-grower". P/E/GROWTH RATIO: [PASS] The investor should examine the P/E (11.38) relative to the growth rate (46.95%), 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 ASIA (0.24) is very favorable. SALES AND P/E RATIO: [NEUTRAL] For companies with sales greater than $1 billion, this methodology likes to see that the P/E ratio remain below 40. Large companies can have a difficult time maintaining a growth rate high enough to support a P/E above this threshold. ASIA, whose sales are $455.5 million, is not considered large enough to apply the P/E ratio analysis. However, an investor can analyze the P/E ratio relative to the EPS growth rate. INVENTORY TO SALES: [PASS] When inventories increase faster than sales, it is a red flag. However an increase of up to 5% is considered bearable if all other ratios appear attractive. Inventory to sales for ASIA was 4.46% last year, while for this year it is 2.88%. Since inventory to sales has decreased from last year by -1.58%, ASIA passes this test. 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 ASIA is 46.9%, based on the average of the 3 and 4 year historical eps growth rates, which is considered 'OK'. However, it may be difficult to sustain such a high growth rate. TOTAL DEBT/EQUITY RATIO: [PASS] This methodology would consider the Debt/Equity ratio for ASIA (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 ASIA (6.58%) is too low to add to the attractiveness of the stock. Keep in mind, however, that it does not adversely affect the company as it is a bonus criteria. NET CASH POSITION: [BONUS PASS] Another bonus for a company is having a Net Cash/Price ratio above 30%. Lynch defines net cash as cash and marketable securities minus long term debt. According to this methodology, a high value for this ratio dramatically cuts down on the risk of the security. The Net Cash/Price ratio for ASIA (34.10%) is high enough to add to the attractiveness of this company.   BANK OF THE OZARKS, INC. Profile Strategy: Patient Investor Based on: Warren Buffett Bank of the Ozarks, Inc. is a bank holding company. The Company owns an Arkansas state chartered subsidiary bank, Bank of the Ozarks (the Bank). As of December 31, 2010, the Company, through the Bank, conducted banking operations through 90 offices, including 66 offices in Arkansas, seven in Texas, 10 in Georgia, three in Florida, two in North Carolina, and one each in South Carolina and Alabama and it opened its eighth and ninth Texas offices and acquired two additional Georgia offices. It also owns Ozark Capital Statutory Trust II, Ozark Capital Statutory Trust III, Ozark Capital Statutory Trust IV and Ozark Capital Statutory Trust V, all 100%-owned finance subsidiary business trusts formed in connection with the issuance of certain subordinated debentures and related trust preferred securities, and indirectly through the Bank, a subsidiary engaged in the development of real estate. On October 26, 2010, it closed four of the Woodlands offices. Analysis Guru Score: 79% 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 0.29, 0.46, 0.62, 0.78, 0.94, 0.94, 0.94, 1.02, 1.09, 1.88. Buffett would consider OZRK's earnings predictable. In fact EPS have increased every year. OZRK's long term historical EPS growth rate is 19.8%, based on the average of the 3, 4 and 5 year historical eps growth rates, and it is expected to grow earnings 6.5% per year in the future, based on the analysts' consensus estimated long term growth rate. For the purposes of our analysis, we will use the more conservative of the two EPS growth numbers. LOOK 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 OZRK, over the last ten years, is 17.7%. Although he prefers ROE to be 15% or higher, this level is acceptable to Buffett. 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 15.7%, 19.5%, 20.4%, 21.1%, 21.0%, 18.1%, 16.6%, 10.6%, 13.7%, 20.0%, and the average ROE over the last 3 years is 14.8%, thus passing this criterion. LOOK FOR CONSISTENTLY HIGHER THAN AVERAGE RETURN ON ASSETS: [PASS] Buffett also requires, for financial companies, that the average Return On Assets (ROA) be at least 1% and consistent. Return On Assets is defined as the net earnings of the business divided by the total assets of the business. The average ROA for OZRK, over the last ten years, is 1.4%, which is high enough to pass. It is not enough that the average be at least 1%. For each of the last 10 years, with the possible exception of the last fiscal year, the ROA must be at least 1% for Buffett to feel comfortable that the ROA is consistent. The ROA for the last 10 years, from earliest to latest, is 1.0%, 1.4%, 1.5%, 1.5%, 1.5%, 1.3%, 1.2%, 1.1%, 1.3%, 2.0%, 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. OZRK's free cash flow per share of $0.39 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 $7.16 and compares it to the gain in EPS over the same period of $1.59. OZRK's management has proven it can earn shareholders a 22.2% 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. OZRK's shares outstanding have fallen in the current year from 34,110,001 to 34,000,000, 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 OZRK quantitatively. STAGE 2: "Should I buy at this price?" Although a firm may be a Buffett type company, he won't invest in it unless he can get a favorable price that allows him a great long term return. CALCULATE THE INITIAL RATE OF RETURN: [No Pass/Fail] Buffett compares his type of stocks to bonds, and likes to see what a company's initial rate of return is. To calculate the initial rate of return, take the trailing 12-month EPS of $2.97 and divide it by the current market price of $25.25. An investor, purchasing OZRK, could expect to receive a 11.76% initial rate of return. Furthermore, he or she could expect the rate to increase 6.5% per year, based on the analysts' consensus estimated long term growth rate, as this is how fast earnings are growing. COMPARE THE INITIAL RATE OF RETURN WITH THE LONG-TERM TREASURY YIELD: [PASS] Buffett favors companies in which the initial rate of return is around the long-term treasury yield. Nonetheless, he has invested in companies with low initial rates of return, as long as the yield is expected to expand rapidly. Currently, the long-term treasury yield is about 3.47%. Compare this with OZRK's initial yield of 11.76%, which will expand at an annual rate of 6.5%, based on the analysts' consensus estimated long term growth rate. The company is the better choice, as the initial rate of return is close to or above the long term bond yield and is expanding. CALCULATE THE FUTURE EPS: [No Pass/Fail] OZRK currently has a book value of $11.27. It is safe to say that if OZRK can preserve its average rate of return on equity of 14.8% and continues to retain 82.00% of its earnings, it will be able to sustain an earnings growth rate of 12.1% and it will have a book value of $35.36 in ten years. If it can still earn 14.8% on equity in ten years, then expected EPS will be $5.22. CALCULATE THE FUTURE STOCK PRICE BASED ON THE AVERAGE ROE METHOD: [No Pass/Fail] Now take the expected future EPS of $5.22 and multiply them by the lower of the 5 year average P/E ratio (13.8) or current P/E ratio (current P/E in this case), which is 8.5 and you get OZRK's projected future stock price of $44.39. 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 $7.68. This gives you a total dollar amount of $52.08. These numbers indicate that one could expect to make a 7.5% average annual return on OZRK's stock at the present time. The return is unacceptable to Buffett. CALCULATE THE EXPECTED FUTURE STOCK PRICE BASED ON AVERAGE EPS GROWTH: [No Pass/Fail] If you take the EPS growth of 6.5%, based on the analysts' consensus estimated long term growth rate, you can project EPS in ten years to be $5.58. Now multiply EPS in 10 years by the lower of the 5 year average P/E ratio (13.8) or current P/E ratio (current P/E in this case), which is 8.5. This equals the future stock price of $47.39. Add in the total expected dividend pool of $7.68 to get a total dollar amount of $55.07. 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 $25.25 and the future expected stock price, including the dividend pool, of $55.07. If you were to invest in OZRK at this time, you could expect a 8.1% average annual return on your money. Buffett likes to see a 15% return, and would even go down to 12%. LOOK AT THE RANGE OF EXPECTED RATE OF RETURN: [FAIL] Based on the two different methods, you could expect an annual compounding rate of return somewhere between 7.5% and 8.1%. 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 7.8% on OZRK stock for the next ten years, based on the current fundamentals. Buffett accepts a 12% return, although 15% is preferable. This return is unacceptable to Buffett, thus failing the criterion.   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 WRLD WORLD ACCEPTANCE CORP. Consumer Financial Services 57 AFSI AMTRUST FINANCIAL SERVICES, INC. Insurance (Prop. & Casualty) 57 CECO CAREER EDUCATION CORP. Schools 55 DV DEVRY INC. Schools 51 HITK HI-TECH PHARMACAL CO. Biotechnology & Drugs 51 SWI SOLARWINDS, INC. Software & Programming 51 AZN ASTRAZENECA PLC (ADR) Biotechnology & Drugs 50 LULU LULULEMON ATHLETICA INC. Retail (Apparel) 50 DCM NTT DOCOMO, INC. (ADR) Communications Services 47 CSTR COINSTAR, INC. Recreational Activities 43

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