Validea Hot List - April 24, 2015

Executive Summary | Portfolio | Guru Analysis | Watch List


Executive Summary	April 24, 2015

The Economy

The second quarter has begun much as the first quarter ended, with a mix of data showing that the economy continues to adjust to a world in which oil prices have been cut in half.

We'll start with industrial production, which fell sharply in March, declining 0.6%, according to a new Federal Reserve report. But the big driver of the decline was utility output, which tends to be seasonally driven. It fell 5.9%. Manufacturing output actually increased 0.1%, while mining output dropped 0.7%. Industrial production capacity utilization, which was near six-and-a-half year highs in November, fell for the fourth straight month. For the first quarter as a whole, industrial production fell 1.0%, the first quarterly decline in nearly six years. The decline "resulted from a drop in oil and gas well drilling and servicing of more than 60 percent at an annual rate," the Fed said.

After major declines in previous months, retail sales jumped 0.9% in March, according to a new report from the Census Bureau. That's just 1.6% higher than they were in the year-ago period, however, one of the lower year-over-year increases we've seen recently.

New claims for unemployment have crept higher since our last newsletter, but are about 6.7% below year-ago levels. Continuing claims, the data for which lag new claims by a week, also inched higher and are about 13.4% below year-ago levels. Overall, the employment picture remains as bright as it has been in many years.

The housing market remains mixed. New home sales fell 11.4% in March, according to the Census Bureau. They are still 15% above year-ago levels, however. Median sale prices were slightly below year-ago levels, while average sale prices were slightly above where they were a year ago.

Housing starts edged higher by 2.0% in March, meanwhile, according to the Census Bureau, putting them about 3.5% below year-ago levels. Permit issuance for new construction fell 5.7%, and is about 7.6% above where it stood a year ago.

On the earnings front, the news has also been mixed. With close to 60 of the S&P 500 companies having reported first-quarter earnings, 77% had beaten earnings estimates, but only 46% had beaten sales estimates, according to FactSet.

Lastly, oil prices have been slowing creeping back upward. A gallon of regular unleaded on average cost $2.48 as of April 22, up from $2.42 a month earlier, according to AAA. That's still more than 30% below where it was a year ago.

Since our last newsletter, the S&P 500 returned 1.0%, while the Hot List returned 0.9%. So far in 2015, the portfolio has returned 14.3% vs. 2.6% for the S&P. Since its inception in July 2003, the Hot List is far outpacing the index, having gained 269.6% vs. the S&P's 111.2% gain.

Portfolio Update

Like the economy, the Hot List has had an up-and-down fortnight. As of early trading on Thursday, 5 of the portfolio's 10 holdings were in the black since our last newsletter, and 5 were in the red.

Leading the way was Sasol Limited, the South Africa-based energy and chemicals firm, which jumped about 10%. Sasol had been hit hard in recent weeks after the oil price plunge led it to close down significant parts of its operations and change its dividend policy. But it's been on the rebound, with two likely catalysts. First, investors often overreact to bad news, so the recent gains have probably been a natural bounce-back as fears subside a bit. Second, Federal Reserve officials decreased their expectations for how high they will raise interest rates this year. As I noted last month, 15 of the 17 Fed officials recently said they still expect to raise the benchmark federal funds rate before year-end, most said they expect the rate to be 0.625% by the end of 2015, about half a percentage point lower than they forecast in December, The Wall Street Journal reported. The more-dovish-than-expected comments boosted emerging market equities -- investors have turned to EMs in a quest for yield amid the US's low-rate environment -- and Sasol likely continues to benefit.

Another strong performer was Credit Acceptance Corp., which was up nearly 6%. There didn't seem to be a stock-specific catalyst for the move. The gains may have been momentum-driven, as shares hit a 52-week high, or may have been part of the normal day-to-day ups and downs in the market.

On the downside, Universal Insurance Holdings fell 5%. A regulatory filing showed that Chief Executive Sean Downes sold 20,000 shares, valuing over half a million dollars. Investor's Business Daily said that that helped push shares lower.

While it's been an up-and-down fortnight for the Hot List, the portfolio remains far ahead of the S&P 500 in 2015. Hopefully, it will have further increased its lead over the index in two weeks when we publish our next newsletter, at which time we will rebalance the portfolio.

Editor-in-Chief: John Reese

Since Inception
Hot List	269.6%
S&P 500	111.2%
Accuracy	55.3%
Beta	1.2

YTD
Hot List	14.3%
S&P 500	2.6%

Since Last Issue
Hot List	0.9%
S&P 500	1.0%

Avg. Fundamentals
Market Cap (mil)	$80,919
PE Ratio	13.7
5 Yr EPS Growth	24.8%
Yield	0.9%
Rel. Strength	67

Portfolio Sectors
Consumer/Non-Cyclical	2
Financial	2
Healthcare	1
Services	1
Technology	1
Basic Materials	1
Capital Goods	1
Consumer Cyclical	1

Guru Spotlight: Kenneth Fisher

Most of the talking heads you'll hear on financial news offer predictions about where the market is heading today, next week, or next month. And, more often than not, they are wrong. There are simply too many moving parts in the stock market for anyone to consistently make stellar short-term calls. In fact, research from DALBAR, Inc. cited poor market timing decisions as a primary reason why the typical investor underperformed the broader market by about 4% per year from 1993-2012.

Still, people continue to try to make money by jumping in and out of stocks, something Kenneth Fisher talked about way back in his 1984 classic Super Stocks, which forms the basis for one of my top-performing Guru Strategies. "There is no end to the lengths people go to try to find the magic key to the stock market," Fisher wrote, adding that people have tried computers, astrology, demographic studies, sunspots, economics, technical analysis, tea leaves, and even "the skin of a dried lizard at sunset cast to the wind."

"At best, one could hope to be right about the stock market perhaps half the time," Fisher said. "At worst, one is apt to be wrong most of the time. Stock-market seers run hot for a couple of years. Then most embarrass themselves."

Of course, many investors believe they are different -- overconfidence leads them to think they can indeed time the market. But what's really interesting is this: Even if you could predict the market's major moves, Fisher says it wouldn't be worth it. He studied how an investor would have fared had he correctly called every 100-point move of the Dow Jones Industrial Average for the five-year period ending Dec. 31, 1982. Such an investor (which of course, probably doesn't exist) would have earned a compound rate of return of 51.5%.

Taken from Super Stocks (The McGraw-Hill Companies, orig. 1984, republished 2008)

That sounds great, but, according to Fisher, it's no better than the return you could generate by buying a what he called a "super stock" -- the type of stock capable of growing its stock price 3 to 10 times in value in a period of three to five years.

Matching those annualized returns of 51.5% may be a bit ambitious of a goal. But remember, that's what you'd get if you accurately timed every 100-point move, and didn't have to pay taxes or fees. Since the vast majority of those 100-point swings occurred in less than a year, you'd be taxed at higher short-term gains rates. Super stocks make their gains over a three- to five-year period, generating long-term gains that are subject to lower tax rates, Fisher said. When you consider those factors, the choice between picking excellent individual stocks or timing every significant move of the broader market becomes clear.

How do you find a "super stock"? My Fisher-based model looks for stocks with price/sales ratios (PSR) below 0.75; three-year net average profit margins of at least 5%; inflation-adjusted earnings growth rates of at least 15% over the long term; debt/equity ratios below 40%, and positive free cash flows.

Fisher did have some advice for how to time the market. His two rules:

1. When a company is selling at a (sufficiently) low PSR-buy it.
2. If you can't find companies selling at (sufficiently) low PSRs, don't buy stocks.

That's a tongue-in-cheek way of saying, "Don't try to time the market!" because you can almost always find some stocks trading at low PSRs. Indeed, a few hundred stocks get at least some interest from my Fisher-based model right now -- though only five get a perfect 100% score. Here they are:

Sanderson Farms (SAFM)
Pilgrim's Pride Corporation (PPC)
Liquidity Services, Inc. (LQDT)
Arctic Cat Inc. (ACAT)
Winnebago Industries (WGO)

News about Validea Hot List Stocks

Apple Inc. (AAPL): The Apple Watch sold out within hours after pre-ordering began early on April 10, according to multiple news outlets. KGI analyst Ming-Chi Kuo estimated preorders for the watch -- which will be available in select fashion boutiques on April 24 (though not in Apple's own stores) would exceed 2.3 million units, though production bottlenecks were restricting rollout, according to AppleInsider.com. A Piper Jaffray analyst said that the initial ordering indicated "solid demand paired with very limited supply."

The Next Issue

In two weeks, we will publish another issue of the Hot List, at which time we will rebalance the portfolio. If you have any questions, please feel free to contact us at hotlist@validea.com.


Current Portfolio

Ticker	Company Name	Industry	Guru Score
JLL	JONES LANG LASALLE INC	Real Estate Operations	93
LCI	LANNETT COMPANY, INC.	Biotechnology & Drugs	89
UVE	UNIVERSAL INSURANCE HOLDINGS, INC.	Insurance (Prop. & Casualty)	85
SAFM	SANDERSON FARMS, INC.	Food Processing	78
GTLS	CHART INDUSTRIES, INC.	Misc. Capital Goods	74
PPC	PILGRIM'S PRIDE CORPORATION	Food Processing	73
AAPL	APPLE INC.	Communications Equipment	72
CACC	CREDIT ACCEPTANCE CORP.	Consumer Financial Services	64
FOSL	FOSSIL GROUP INC	Jewelry & Silverware	56
SSL	SASOL LIMITED (ADR)	Chemical Manufacturing	56

Ticker	Market Cap	Date Added	Start Price	Current Price	Return
JLL	$7,452	2/13/2015	$161.15	$166.12	3.1%
LCI	$2,413	2/13/2015	$57.78	$67.40	16.6%
UVE	$917	3/13/2015	$24.58	$25.42	3.4%
SAFM	$1,768	1/16/2015	$80.96	$76.29	-5.8%
GTLS	$1,250	3/13/2015	$33.50	$40.94	22.2%
PPC	$6,103	4/10/2015	$23.29	$23.50	0.9%
AAPL	$755,295	2/13/2015	$127.08	$129.67	2.0%
CACC	$4,346	3/13/2015	$188.06	$210.99	12.2%
FOSL	$4,142	4/10/2015	$85.36	$83.32	-2.4%
SSL	$25,499	12/19/2014	$38.95	$39.67	1.8%


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

JLL | LCI | UVE | SAFM | GTLS | PPC | AAPL | CACC | FOSL | SSL |

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 $7,452 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 1.37, 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 85, is in the top 50 and would pass this last criterion.

LANNETT COMPANY, INC.

Profile

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

Lannett Company, Inc. develops, manufactures, packages, markets and distributes solid oral (tablets and capsules), extended release, topical and oral solution finished dosage forms of drugs. The Company also manufactures active pharmaceutical ingredients through its Cody Laboratories, Inc. (Cody Labs) subsidiary. The Company operates pharmaceutical manufacturing plants in Philadelphia, Pennsylvania and Cody, Wyoming. Customers of the Company's pharmaceutical products include generic pharmaceutical distributors, drug wholesalers, chain drug stores, private label distributors, mail-order pharmacies, other pharmaceutical manufacturers, managed care organizations, hospital buying groups, Governmental entities and health maintenance organizations. The Company's products include Levothyroxine Sodium tablets, Digoxin tablets, Butalbital, Cocaine Topical Solution and Morphine Sulfate Oral Solution.

Analysis

Guru Score: 91%

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: [PASS]

The investor must look at the relative strength of the company in question. Companies whose relative strength is 90 or above (that is, the company outperforms 90% or more of the market for the past year), are considered attractive. Companies whose price has been rising much quicker than the market tend to keep rising. LCI, with a relative strength of 94, satisfies this test.

COMPARE SALES AND EPS GROWTH TO THE SAME PERIOD LAST YEAR: [PASS]

Companies must demonstrate both revenue and net income growth of at least 25% as compared to the prior year. These growth rates give you the dynamic companies that you are looking for. These rates for LCI (146.94% for EPS, and 70.53% 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 0.42), 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 $59.4 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 $67.40 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.

UNIVERSAL INSURANCE HOLDINGS, INC.

Profile

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

Universal Insurance Holdings, Inc. (UIH) is a vertically integrated insurance holding company. The Company's insurance products are offered to its customers through Universal Property & Casualty Insurance Company (UPCIC) and American Platinum Property and Casualty Insurance Company (APPCIC), (collectively the Insurance Entities). Substantially all aspects of insurance underwriting, distribution and claims processing are covered through the Company's subsidiaries. Blue Atlantic Reinsurance Corporation (BARC), a wholly owned subsidiary of UIH, is a reinsurance intermediary broker. The Insurance Entities generate revenues primarily from the collection of premiums. Universal Risk Advisors, Inc. (URA), the Company's managing general agent, generates revenue through policy fee income and other administrative fees from the marketing of the Insurance Entities' insurance products through its distribution network of independent agents.

Analysis

Guru Score: 93%

DETERMINE THE CLASSIFICATION:

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

P/E/GROWTH RATIO: [PASS]

The investor should examine the P/E (12.26) relative to the growth rate (35.56%), 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 UVE (0.34) 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. UVE, whose sales are $369.3 million, is not considered large enough to apply the P/E ratio analysis. However, an investor can analyze the P/E ratio relative to the EPS growth rate.

EPS GROWTH RATE: [PASS]

This methodology favors companies that have several years of fast earnings growth, as these companies have a proven formula for growth that in many cases can continue many more years. This methodology likes to see earnings growth in the range of 20% to 50%, as earnings growth over 50% may be unsustainable. The EPS growth rate for UVE is 35.6%, based on the average of the 3, 4 and 5 year historical eps growth rates, which is considered 'OK'. However, it may be difficult to sustain such a high growth rate.

TOTAL DEBT/EQUITY RATIO: [NEUTRAL]

UVE 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. UVE's Equity/Assets ratio (24.00%) 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. UVE's ROA (7.97%) is above the minimum 1% that this methodology looks for, thus passing the criterion.

FREE CASH FLOW: [NEUTRAL]

The Free Cash Flow/Price ratio, though not a requirement, is considered a bonus if it is above 35%. A positive Cash Flow (the higher the better) separates a wonderfully reliable investment from a shaky one. This methodology prefers not to invest in companies that rely heavily on capital spending. This ratio for UVE (10.62%) 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 UVE (9.53%) 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.

SANDERSON FARMS, INC.

Profile

Strategy: Growth Investor
Based on: Martin Zweig

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: 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. SAFM's P/E is 6.15, 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. SAFM's revenue growth is 9.37%, while it's earnings growth rate is 18.92%, based on the average of the 4 and 5 year historical eps growth rates. Therefore, SAFM fails this criterion.

SALES GROWTH RATE: [PASS]

Another important issue regarding sales growth is that the rate of quarterly sales growth is rising. To evaluate this, the change from this quarter last year to the present quarter (14.1%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (4.6%) of the current year. Sales growth for the prior must be greater than the latter. For SAFM 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. SAFM's EPS ($2.87) pass this test.

QUARTERLY EARNINGS ONE YEAR AGO: [PASS]

The EPS for the quarter one year ago must be positive. SAFM's EPS for this quarter last year ($1.25) 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. SAFM's growth rate of 129.60% passes this test.

EARNINGS GROWTH RATE FOR THE PAST SEVERAL QUARTERS: [PASS]

Compare the earnings growth rate of the previous three quarters with long-term EPS growth rate. Earnings growth in the previous 3 quarters should be at least half of the long-term EPS growth rate. Half of the long-term EPS growth rate for SAFM is 9.46%. This should be less than the growth rates for the 3 previous quarters, which are 190.79%, 11.86%, and 105.08%. SAFM passes this test, which means that it has good, reasonably steady earnings.

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

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

If the growth rate of the prior three quarter's earnings, 68.13%, (versus the same three quarters a year earlier) is less than the growth rate of the current quarter earnings, 129.60%, (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, 129.60% must be greater than or equal to the historical growth which is 18.92%. SAFM 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. SAFM, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were 6.07, -5.74, 2.35, 5.68, and 10.80, fails 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. SAFM's long-term growth rate of 18.92%, based on the average of the 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. SAFM's Debt/Equity (2.08%) is not considered high relative to its industry (133.18%) 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 SAFM, this criterion has not been met (insider sell transactions are 938, while insiders buying number 214). 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.

CHART INDUSTRIES, INC.

Profile

Strategy: Growth Investor
Based on: Martin Zweig

Chart Industries, Inc. is an independent global manufacturer of engineered equipment used in the production, storage and end-use of hydrocarbon and industrial gases. The Company supplies engineered equipment used throughout the global liquid gas supply chain. It operates in three segments: energy and chemicals (E&C), distribution and storage or (D&S), and biomedical. The E&C and D&S segments manufacture products used primarily in energy-related and general industrial applications, such as the separation, liquefaction, distribution and storage of hydrocarbon and industrial gases. Through its BioMedical segment, it supplies cryogenic and other equipment used in the storage and distribution of biological materials and oxygen, used primarily in the medical, biological research and animal breeding industries.

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. GTLS's P/E is 15.44, 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. GTLS's revenue growth is 16.75%, while it's earnings growth rate is 22.31%, based on the average of the 3, 4 and 5 year historical eps growth rates. Therefore, GTLS fails this criterion.

SALES GROWTH RATE: [PASS]

Another important issue regarding sales growth is that the rate of quarterly sales growth is rising. To evaluate this, the change from this quarter last year to the present quarter (7.3%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (-2.6%) of the current year. Sales growth for the prior must be greater than the latter. For GTLS 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. GTLS's EPS ($0.88) pass this test.

QUARTERLY EARNINGS ONE YEAR AGO: [PASS]

The EPS for the quarter one year ago must be positive. GTLS's EPS for this quarter last year ($0.70) 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. GTLS's growth rate of 25.71% 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 GTLS is 11.16%. This should be less than the growth rates for the 3 previous quarters which are -25.49%, 1.56% and 0.00%. GTLS 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, -6.35%, (versus the same three quarters a year earlier) is less than the growth rate of the current quarter earnings, 25.71%, (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, 25.71% must be greater than or equal to the historical growth which is 22.31%. GTLS 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. GTLS, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were 0.69, 1.47, 2.36, 2.60 and 2.67, 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. GTLS's long-term growth rate of 22.31%, 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. GTLS's Debt/Equity (23.75%) is not considered high relative to its industry (84.15%) 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 GTLS, this criterion has not been met (insider sell transactions are 148, while insiders buying number 45). 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.

PILGRIM'S PRIDE CORPORATION

Profile

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

Pilgrim's Pride Corp (Pilgrim's) is a chicken producer with operations in the United States, Mexico and Puerto Rico. The Company is engaged in the production, processing, marketing and distribution of fresh, frozen and value-added chicken products to retailers, distributors and foodservice operators. As of December 26, 2010, it had the capacity to process more than 38 million birds per week for a total of more than 10.3 billion pounds of live chicken annually. During the fiscal year ended December 26, 2010 (fiscal 2010), it produced 7.7 billion pounds of chicken products. As of December 26, 2010, it operated 26 poultry processing plants located in Alabama, Arkansas, Florida, Georgia, Kentucky, Louisiana, North Carolina, South Carolina, Tennessee, Texas, Virginia, and West Virginia. It has one chicken processing plant in Puerto Rico and three chicken processing plants in Mexico. In August 2012, Cal-Maine Foods, Inc. announced acquisition of the commercial egg assets of Pilgrim's.

Analysis

Guru Score: 74%

DETERMINE THE CLASSIFICATION:

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

P/E/GROWTH RATIO: [PASS]

The investor should examine the P/E (8.57) relative to the growth rate (57.58%), based on the average of the 3 and 5 year historical eps growth rates using the current fiscal year eps estimate, 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 PPC (0.15) is very favorable.

SALES AND P/E RATIO: [PASS]

For companies with sales greater than $1 billion, this methodology likes to see that the P/E ratio remain below 40. Large companies can have a difficult time maintaining a growth high enough to support a P/E above this threshold. PPC, whose sales are $8,583.4 million, needs to have a P/E below 40 to pass this criterion. PPC's P/E of (8.57) 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 PPC was 9.62% last year, while for this year it is 9.21%. Since inventory to sales has decreased from last year by -0.41%, PPC passes this test.

EPS GROWTH RATE: [FAIL]

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 PPC is 57.6%, based on the average of the 3 and 5 year historical eps growth rates using the current fiscal year eps estimate, which is considered too fast.

TOTAL DEBT/EQUITY RATIO: [PASS]

This methodology would consider the Debt/Equity ratio for PPC (0.19%) to be exceptionally low (equity is at least ten times debt). This ratio is one quick way to determine the financial strength of the company.

FREE CASH FLOW: [NEUTRAL]

The Free Cash Flow/Price ratio, though not a requirement, is considered a bonus if it is above 35%. A positive Cash Flow (the higher the better) separates a wonderfully reliable investment from a shaky one. This methodology prefers not to invest in companies that rely heavily on capital spending. This ratio for PPC (14.68%) 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 PPC (9.36%) 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.

APPLE INC.

Profile

Strategy: Growth Investor
Based on: Martin Zweig

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: 85%

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. AAPL's P/E is 17.47, 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: [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. AAPL's revenue growth is 27.30%, while it's earnings growth rate is 28.92%, based on the average of the 3, 4 and 5 year historical eps growth rates. Therefore, AAPL 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 (29.5%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (12.4%) of the current year. Sales growth for the prior must be greater than the latter. For AAPL 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. AAPL's EPS ($3.06) pass this test.

QUARTERLY EARNINGS ONE YEAR AGO: [PASS]

The EPS for the quarter one year ago must be positive. AAPL's EPS for this quarter last year ($2.07) 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. AAPL's growth rate of 47.83% passes this test.

EARNINGS GROWTH RATE FOR THE PAST SEVERAL QUARTERS: [PASS]

Compare the earnings growth rate of the previous three quarters with long-term EPS growth rate. Earnings growth in the previous 3 quarters should be at least half of the long-term EPS growth rate. Half of the long-term EPS growth rate for AAPL is 14.46%. This should be less than the growth rates for the 3 previous quarters, which are 15.28%, 19.63%, and 20.34%. AAPL passes this test, which means that it has good, reasonably steady earnings.

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

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

If the growth rate of the prior three quarter's earnings, 18.16%, (versus the same three quarters a year earlier) is less than the growth rate of the current quarter earnings, 47.83%, (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, 47.83% must be greater than or equal to the historical growth which is 28.92%. AAPL 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. AAPL, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were 2.16, 3.95, 6.31, 5.68, and 6.45, fails 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. AAPL's long-term growth rate of 28.92%, 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. AAPL's Debt/Equity (29.52%) is not considered high relative to its industry (72.04%) 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 AAPL, this criterion has not been met (insider sell transactions are 449, while insiders buying number 87). 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.

CREDIT ACCEPTANCE CORP.

Profile

Strategy: Patient Investor
Based on: Warren Buffett

Credit Acceptance Corporation is a provider of financing programs to automobile dealers that enable them to sell vehicles to consumers, regardless of their credit history. The Company's financing programs are offered through a nationwide network of automobile dealers who benefit from sales of vehicles to consumers who otherwise could not obtain financing; from repeat and referral sales generated by these same customers; and from sales to customers responding to advertisements. Credit Acceptance has two programs: the Portfolio Program and the Purchase Program. Under the Portfolio Program, it advances money to Dealer-Partners (referred to as a Dealer Loan) in exchange for the right to service the underlying Consumer Loans. Under the Purchase Program, Credit Acceptance buys the Consumer Loans from the Dealer-Partners (referred to as a Purchased Loan) and keeps all amounts collected from the consumer. Dealer Loans and Purchased Loans are collectively referred to as Loans.

Analysis

Guru Score: 93%

STAGE 1: "Is this a Buffett type company?"

A bedrock principle for Buffett is that his type of company has a "durable competitive advantage" as compared to being a "price competitive" or "commodity" type of business. Companies with a "durable competitive advantage" are more likely to be found in these sub-industries: Brand Name Fast Food Restaurants, Brand Name Beverages, Brand Name Foods, Brand Name Toiletries and Household Products, Brand Name Clothing, Brand Name Prescription Drugs, Advertising, Advertising Agencies, TV, Newspapers, Magazines, Direct Mail, Repetitive Services for Businesses, Low Cost Producers of Insurance, furniture, or Low Cost Retailers. While you should be easily able to explain where the company's pricing power comes from (i.e. a strong regional brand image, a business tollgate, its main products are #1 or # 2 in its field and has been on the market for years and hasn't changed at all, a consumer or business ends up buying the same product many times in a year, etc. or having the lowest production cost among its competition), there are certain figures that one can look at that can qualify the company as having a durable competitive advantage.

LOOK FOR EARNINGS PREDICTABILITY: [PASS]

Buffett likes companies to have solid, stable earnings that are continually expanding. This allows him to accurately predict future earnings. Annual earnings per share from earliest to most recent were 1.74, 1.67, 1.72, 2.16, 4.61, 5.67, 7.07, 8.58, 10.54, 11.92. Buffett would consider CACC's earnings predictable, although earnings have declined 1 time(s) in the past seven years, with the most recent decline 9 years ago. The dips have totaled 4.0%. CACC's long term historical EPS growth rate is 20.0%, based on the average of the 3, 4 and 5 year historical eps growth rates, and it is expected to grow earnings 10.2% per year in the future, based on the analysts' consensus estimated long term growth rate. For the purposes of our analysis, we will use the more conservative of the two EPS growth numbers.

LOOK 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 CACC, over the last ten years, is 27.6%, 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 17.3%, 23.9%, 19.6%, 19.6%, 28.7%, 32.7%, 33.6%, 33.3%, 32.2%, 35.0%, and the average ROE over the last 3 years is 33.5%, 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 CACC, over the last ten years, is 9.1%, 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 10.4%, 6.9%, 5.5%, 5.8%, 12.2%, 11.5%, 10.3%, 9.7%, 9.9%, 8.8%, 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. CACC's free cash flow per share of $16.16 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 $55.68 and compares it to the gain in EPS over the same period of $10.18. CACC's management has proven it can earn shareholders a 18.3% 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. CACC's shares outstanding have fallen over the past five years from 27,299,999 to 21,000,000, 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 CACC 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 $12.04 and divide it by the current market price of $210.99. An investor, purchasing CACC, could expect to receive a 5.71% initial rate of return. Furthermore, he or she could expect the rate to increase 10.2% per year, based on the analysts' consensus estimated long term growth rate, as this is how fast earnings are growing.

COMPARE THE INITIAL RATE OF RETURN WITH THE LONG-TERM TREASURY YIELD: [PASS]

Buffett favors companies in which the initial rate of return is around the long-term treasury yield. Nonetheless, he has invested in companies with low initial rates of return, as long as the yield is expected to expand rapidly. Currently, the long-term treasury yield is about 2.75%. Compare this with CACC's initial yield of 5.71%, which will expand at an annual rate of 10.2%, based on the analysts' consensus estimated long term growth rate. The company is the better choice, as the initial rate of return is close to or above the long term bond yield and is expanding.

CALCULATE THE FUTURE EPS: [No Pass/Fail]

CACC currently has a book value of $34.09. It is safe to say that if CACC can preserve its average rate of return on equity of 27.6% and continues to retain 100.00% of its earnings, it will be able to sustain an earnings growth rate of 27.6% and it will have a book value of $389.40 in ten years. If it can still earn 27.6% on equity in ten years, then expected EPS will be $107.40.

CALCULATE THE FUTURE STOCK PRICE BASED ON THE AVERAGE ROE METHOD: [No Pass/Fail]

Now take the expected future EPS of $107.40 and multiply them by the lower of the 5 year average P/E ratio or current P/E ratio (17.5) (5 year average P/E in this case), which is 11.7 and you get CACC's projected future stock price of $1,258.69.

CALCULATE THE EXPECTED RATE OF RETURN BASED ON THE AVERAGE ROE METHOD: [No Pass/Fail]

Now add in the total expected dividend pool to be paid over the next ten years, which is $0.00. This gives you a total dollar amount of $1,258.69. These numbers indicate that one could expect to make a 19.6% average annual return on CACC's stock at the present time. Buffett would consider this a great return.

CALCULATE THE EXPECTED FUTURE STOCK PRICE BASED ON AVERAGE EPS GROWTH: [No Pass/Fail]

If you take the EPS growth of 10.2%, based on the analysts' consensus estimated long term growth rate, you can project EPS in ten years to be $31.66. Now multiply EPS in 10 years by the lower of the 5 year average P/E ratio or current P/E ratio (17.5) (5 year average P/E in this case), which is 11.7. This equals the future stock price of $371.02. Add in the total expected dividend pool of $0.00 to get a total dollar amount of $371.02.

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 $210.99 and the future expected stock price, including the dividend pool, of $371.02. If you were to invest in CACC at this time, you could expect a 5.81% 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: [PASS]

Based on the two different methods, you could expect an annual compounding rate of return somewhere between 5.8% and 19.6%. 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 12.7% on CACC stock for the next ten years, based on the current fundamentals. Buffett likes to see a 15% return, but nonetheless would accept this return, thus passing the criterion.

FOSSIL GROUP INC

Profile

Strategy: Value Investor
Based on: Benjamin Graham

Fossil Group, Inc. a global designer, marketer and distributer company that specializes in consumer fashion accessories. The Company's offerings include a line of men's and women's fashion watches and jewelry, handbags, small leather goods, belts, sunglasses, soft accessories and clothing. Its products are distributed globally through various distribution channels, including wholesale in countries where the Company has a physical presence, direct to the consumer through its retail stores and commercial websites and through third-party distributors in countries where the Company do not maintain a physical presence. The Company operates in four different segments: the North America Wholesale segment, the Europe Wholesale segment, Asia Pacific Wholesale segment and the Direct to Consumer segment.

Analysis

Guru Score: 86%

SECTOR: [PASS]

FOSL 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. FOSL's sales of $3,509.7 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. FOSL's current ratio of 3.33 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 FOSL is $613.7 million, while the net current assets are $1,043.0 million. FOSL 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. FOSL's EPS growth over that period of 466.2% 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. FOSL's P/E of 13.00 (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. FOSL's Price/Book ratio is 4.33, while the P/E is 13.00. FOSL fails the Price/Book test.

SASOL LIMITED (ADR)

Profile

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

Sasol Limited (Sasol) is a South Africa-based international integrated energy and chemicals company. The Company develops and commercializes technologies, builds and operates facilities to produce a range of product streams, including liquid fuels, high-value chemicals and low-carbon electricity. The Company's operations are organized into three focused business clusters: South African Energy Cluster; International Energy Cluster and Chemical Cluster. The South African Energy Cluster is involved in coal mining, gas production, synfuels manufacturing and oil refining. The International Energy Cluster manages the Company's oil and gas business outside South Africa. The Chemical Cluster is involved in making polymers, solvents, olefins and surfactants and other chemicals.

Analysis

Guru Score: 93%

DETERMINE THE CLASSIFICATION:

SSL is considered a "True Stalwart", according to this methodology, as its earnings growth of 15.49% lies within a moderate 10%-19% range and its annual sales of $16,821 million are greater than the multi billion dollar level. This methodology looks for the "Stalwart" securities to gain 30%-50% in value over a two year period if they can be purchased at an attractive price based on the P/E to Growth ratio. SSL is attractive if SSL can hold its own during a recession.

INVENTORY TO SALES: [PASS]

When inventories increase faster than sales, it is a red flag. However an increase of up to 5% is considered bearable if all other ratios appear attractive. Inventory to sales for SSL was 13.31% last year, while for this year it is 13.20%. Since inventory to sales has decreased from last year by -0.11%, SSL passes this test.

YIELD ADJUSTED P/E TO GROWTH (PEG) RATIO: [PASS]

The Yield-adjusted P/E/G ratio for SSL (0.41), based on the average of the 3, 4 and 5 year historical eps growth rates, is excellent.

EARNINGS PER SHARE: [PASS]

The EPS for a stalwart company must be positive. SSL's EPS ($4.80) would satisfy this criterion.

TOTAL DEBT/EQUITY RATIO: [PASS]

This methodology would consider the Debt/Equity ratio for SSL (19.57%) to be acceptable (equity is three to ten times debt). This ratio is one quick way to determine the financial strength of the company.

FREE CASH FLOW: [NEUTRAL]

The Free Cash Flow/Price ratio, though not a requirement, is considered a bonus if it is above 35%. A positive Cash Flow (the higher the better) separates a wonderfully reliable investment from a shaky one. This methodology prefers not to invest in companies that rely heavily on capital spending. This ratio for SSL (1.71%) 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 SSL (-9.85%) is too low to add to the attractiveness of this company. Keep in mind, however, that it does not adversely affect the company as it is a bonus criteria.


Watch List

The Watch List contains the highest scoring stocks according to our guru consensus system that are not currently in the Hot List portfolio. We provide this list both for informational purposes and for investors who are not comfortable with a portfolio of ten stocks.

Ticker	Company Name	Industry	Guru Score
AGCO	AGCO CORPORATION	Constr. & Agric. Machinery	65
PLUS	EPLUS INC.	Software & Programming	63
MNST	MONSTER BEVERAGE CORP	Beverages (Non-Alcoholic)	57
AFSI	AMTRUST FINANCIAL SERVICES INC	Insurance (Prop. & Casualty)	56
NSM	NATIONSTAR MORTGAGE HOLDINGS INC	Consumer Financial Services	54
WSM	WILLIAMS-SONOMA, INC.	Furniture & Fixtures	53
LL	LUMBER LIQUIDATORS HOLDINGS INC	Retail (Home Improvement)	53
LMT	LOCKHEED MARTIN CORPORATION	Aerospace & Defense	52
MMS	MAXIMUS, INC.	Business Services	52
UIHC	UNITED INSURANCE HOLDINGS CORP.(NDA)	Insurance (Prop. & Casualty)	52


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