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Executive Summary	October 16, 2009

The Economy The economic news hasn't changed much in the past two weeks, with continued small signs of improvement popping up against a broader backdrop of lingering problems and weakness. The best example may involve unemployment. New jobless claims dropped for the fifth time in six weeks, according to data released Thursday, and the four-week average is now down to 531,500 -- the lowest level since January. The figure is now almost 20% below the highs it reached in April. Continuing claims, meanwhile, dropped below 6 million for the first time in more than six months. But while those are good signs, the overall level of unemployment remains high. After declining for two straight months and four out of the last five, job cuts increased in September, the Labor Department reported earlier this month. The 263,000 jobs lost was a far cry from earlier this year, when the figure topped 600,000 throughout the first quarter, but it was still sobering news. The unemployment rate is now 9.8% -- the highest since 1983. In addition, average work week durations are at record lows, and the underemployment rate -- which factors in part-time workers who want, but can't find, full-time jobs -- is at 17%, CNNMoney reports. But there are signs that the economy is continuing to recover -- a sentiment that most Federal Reserve members expressed in their September meeting, according to minutes released this week. For example, manufacturing numbers continue to improve. Thursday, the New York Fed reported that its manufacturing index nearly doubled in October, rising to its highest level since 2004. It was the third straight month the index indicated an expansion in manufacturing, the first time that has happened in almost two years. The Philadelphia Fed also said its manufacturing index, which measures activity in the mid-Atlantic region, was positive in October for the third straight month. Two other key areas of the economy offered mixed signals this week. First, housing: While home sales and prices have shown signs of life in recent months, housing foreclosures remain high. They dropped 4% in September compared to August, but were still up almost 30% year-over-year, according to RealtyTrac. For the full third quarter, foreclosures were up 5% compared to the second quarter, though September marked the second straight month-over-month decline, the group said. The other key area: consumer spending. Retail sales fell in September by 1.5%, the Commerce Department reported this week. But a large chunk of that was due to a big drop in auto sales, which was to be expected given that the government's Cash for Clunkers plan ended. Excluding auto sales, retail sales actually rose 0.5% for the month, a good sign in a country where consumer spending makes up about 70% of the economy. Finally, we've embarked on earnings season, and thus far the third-quarter results have provided some encouragement. Several big financial firms have been posting strong numbers -- a good sign considering the mess the sector was last year at this time. JPMorgan Chase has reported $3.6 billion in profits for the quarter, while Goldman Sachs raked in about $3.2 billion. Citigroup even posted a $101 million profit, a year after it lost more than $2.8 billion. And chipmaker Intel, which some consider a bellwether for the technology sector, beat earnings and revenue estimates by wide margins, and issued greater than expected fourth-quarter revenue guidance. On balance, the signs of economic improvement continued to outweigh the lingering concerns, helping send the market higher. For the first time in more than a year, the Dow Jones Industrial Average crossed the 10,000 mark. For the fortnight, the S&P 500 jumped 6.5%, while the Hot List was even better, gaining 10.0%. For the year, the portfolio is now up 49.8%, vs. 21.4% for the S&P. And since its July 2003 inception, the Hot List is far ahead of the index, having gained 145.7% compared to the S&P's 9.6% gain. Don't Fight the Fed As the market has kept rising in recent weeks, strategists have continued to debate whether stocks can keep climbing, or whether the rally is running out of steam. On the whole, the strategists I keep my eyes on have leaned toward the bullish side. Among them are some managers with excellent long-term track records, including Steven Leuthold, Liz Ann Sonders, Bob Doll, Jeremy Siegel, James O'Shaughnessy, Kenneth Fisher, and Anthony Bolton. These top market minds have presented some strong arguments for why they remain high on stocks, and this week I'd like to focus on one of those points. It's one that's close to the heart of one of the gurus upon whom I base my Guru Strategies. The argument involves interest rates. Currently, interest rates are at or near historic lows -- part of the Federal Reserves "quantitative easing" strategy for stabilizing the economy and keeping credit markets liquid. Now that the economy has shown signs of stabilizing, and improving, many have begun to wonder when the Fed will begin to tighten up its monetary policy. This week, Australia became the first major nation to raise interest rates, leading to speculation that others -- perhaps even the U.S. -- will soon follow. But it appears we're still a ways away from that. Yesterday, the latest inflation figures from the Labor Department showed that the consumer price index rose just 0.2% in September, and it remains 1.3% lower than year-ago levels. So despite all of the money the government has pumped into the economy, inflation is far from a problem right now. In addition, the difference between 10-year Treasury note rates and Treasury Inflation-Protected Securities -- a gauge of future inflation expectations -- remains in line with what the spread has been over the past five years, according to Bloomberg News. What would continued low inflation mean for stock investors? It could mean a lot. As the great Martin Zweig astutely observed, interest rates and the stock market's direction tend to have a lot to do with each other. In his book Winning on Wall Street, Zweig, whose approach is the basis for my Growth Investor model, offers this key maxim: Don't Fight the Fed. "In the stock market, as with horse racing, money makes the mare go," he wrote. "Monetary conditions exert an enormous influence on stock prices." Zweig found that, generally, high rates or a rising trend in rates was a negative for the market, while low rates or a falling trend in rates was a positive. And right now, rates are low -- very low. For example, the prime rate -- the rate banks charge their best customers -- was at 3.25% in September. Prior to last December, it hadn't been below 4% since 1958. The federal funds rate, meanwhile (the rate at which banks lend money overnight to each other) was at 0.15% in September. Prior to last fall, its monthly reading had been below 1% only once in the previous 50 years. And the September discount rate (which the Fed charges banks looking to borrow from it) was also at all-time low levels, at just 0.5%. (All figures come from the Federal Reserve.) Why are low rates better for stocks? There are a couple reasons. "First," Zweig said, "falling interest rates reduce the competition on stocks from other investments, especially short-term instruments such as Treasury bills, certificates of deposit, or money market funds." That appears to be what's happening now. As of yesterday, the 10-year Treasury note was yielding under 3.5%. While that's up from last fall, when investors flocked to the safety of T-bills amid the financial crisis, it's still far below historic norms. In fact, from 1959 through 2007, the monthly reading on 10-year T-bills was below 3.5% just once, in June 2003, according to the Federal Reserve. In other words, if you want to find impressive returns in today's investment climate, stocks -- not bills or bonds -- are probably your best bet. The other factor is that low or falling rates allow corporations to borrow money for less. "That reduces a major expense, especially for companies that are heavy borrowers such as airlines, public utilities, or savings and loans," Zweig wrote. And that means more profits for companies. "Wall Street loves the idea that future earnings will go up," Zweig says. "So, as interest rates drop, investors tend to bid prices higher, partly on the expectation of better earnings." Current rates are already so low that it's unlikely we'll see them decrease much more. But it seems likely that they'll stay low for a while. One reason is the low inflation readings I discussed earlier. Another is the sheer size of the government's efforts to stimulate the economy. One would think that, given the depth of the recession and the massive efforts to jumpstart the economy, the Fed will want to err on the side of caution and not jump the gun on rate increases, lest it risk another economic turn for the worse. One important related factor in all of this involves the slow recovery many strategists and pundits are predicting for the U.S. economy. Many assume that a slow economic recovery would be a negative for stocks. But looked at through the interest rate lens, you can see that the opposite may well be true. If growth is indeed slower, the government will likely keep rates low, which could help boost stocks. If we do go through a slow-growth environment, investors who can find those companies that are producing strong growth could really benefit. And that's what my models are designed to do -- find companies that are producing strong results, regardless of the economic climate. Of course, the Fed and interest rates are just part of the investment landscape picture. Zweig's "don't fight the fed" maxim doesn't always work -- during last year's market collapse, rates were also quite low and the market kept falling while they were cut further. But then again, no one variable will always work; Zweig himself looked at a myriad of other factors. But the "don't fight the Fed" advice does have a good track record, and in a broader market context which includes strong valuations, an improving economy, and huge amounts of government aid designed to bolster the economy and markets, it's a key reason to be optimistic that stocks can continue to climb higher.		Editor-in-Chief: John Reese Since Inception   Hot List 145.7% S&P 500 9.6% Accuracy 57.3% Beta 1.2 YTD   Hot List 49.8% S&P 500 21.4% Since Last Issue   Hot List 10.0% S&P 500 6.5% Avg. Fundamentals   Market Cap (mil) $18,268 PE Ratio 21.8 5 Yr EPS Growth 39.6% Yield 1.7% Rel. Strength 78 Portfolio Sectors Energy 3 Financial 2 Services 2 Technology 2 Basic Materials 1
Advertisement Have Your Portfolio Managed Using the Validea Hot List For the first time, you can now have your portfolio professionally managed using the Validea Hot List Strategy. Validea Capital Management's new Hot List model takes the time and effort out of following the Validea Hot List. Get More Information! ** 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. Guru Spotlight: Kenneth Fisher For decades, the price-to-earnings ratio has been the most widely used valuation measure for stock investors, and a key tool in the arsenals of many of the gurus I follow. While legendary investors like Benjamin Graham, Peter Lynch, and John Neff all used the ratio differently, they and many others agreed that the ratio itself was a key to finding bargain-priced stocks. The investing public and media seems to share their view, with the P/E ratio having long been the only valuation metric that most newspapers include in their daily stock listings. But in 1984, Kenneth Fisher sent a shockwave through the P/E-conscious investment world. Fisher -- the son of Phillip Fisher, who is known as the "Father of Growth Stock Investing" -- thought there was a major hole in the P/E ratio's usefulness. Part of the problem, he explained in his book Super Stocks, is that earnings -- even earnings of good companies -- can fluctuate greatly from year to year. The decision to replace equipment or facilities in one year rather than in another, the use of money for new research that will help the company reap profits later on, and changes in accounting methods can all turn one quarter's profits into the next quarter's losses, without regard for what Fisher thought was truly important in the long term -- how well or poorly the company's underlying business was performing. While earnings can fluctuate, Fisher found that sales were far more stable. In fact, he found that the sales of what he termed "Super Companies" -- those that were capable of growing their stock price 3 to 10 times in value in a period of 3 to 5 years -- rarely decline significantly. Because of that, he pioneered the use of a new way to value stocks: the price-to-sales ratio (PSR), which compared the total price of a company's stock to the sales the company generated. Fisher's findings -- and his results -- helped make the PSR a common part of investment parlance, and helped make him one of the most well-known investors in the world. (He is a perennial member of Forbes' list of "The 400 Richest Americans", his money management firm oversees tens of billions of dollars, and he is one of Forbes' longest running magazine columnists.) The common sense, mostly quantitative approach he laid out in Super Stocks also caught my attention, and led me to create my Fisher-based Guru Strategy. It's important to note that today, Fisher says his approach to investing has evolved quite a bit since Super Stocks. The key to winning big on Wall Street is knowing something that other people don't, he believes, and when too many people became familiar with PSR investing, he says he needed to find other ways to exploit the market. So why have I continued to use my Super Stocks-based model? Two reasons: First, Fisher's publisher reissued the book in 2007, with the same PSR focus. Second, the strategy flat out works. Since its July 2003 inception, my 10-stock Fisher-based portfolio has gained 120.2% (13.4% annualized), while the S&P 500 has gained just 9.6% (1.5% annualized). That makes it one of my most successful long-term strategies. Price-to-Sales and "The Glitch" Fisher is a student of investor psychology, and his observations about investor behavior are what led to his PSR discovery. Often, he found, companies will have a period of strong early growth and become the darlings of Wall Street, raising expectations to unrealistic levels. Then, they then have a setback. Their earnings drop, or continue to grow but simply don't keep pace with Wall Street's lofty expectations. Their stocks can then plummet as investors overreact and sell, thinking they've been led astray. But while investors overreact, Fisher believed that these "glitches" are often simply a part of a firm's maturation. Good companies with good management identify the problems, solve them, and move forward, and as they do the stock's price begins to rise again. If you can buy a stock when it hits a glitch and its price is down, you can make a bundle by sticking with it until it rights the ship and other investors jump on board. The key in all of this was finding a way to evaluate a firm when its earnings were down, or when it was losing money (remember, you can't use a P/E ratio to evaluate a company that is losing money, because it has no earnings). The answer: by looking at sales, and the PSR. According to the model I base on Fisher's writings, stocks with PSRs below 1.5 are good values. And the real winners are those with PSR values under 0.75 -- that's the sign of a Super Stock. To find the PSR, Fisher says to take the total value of a company's stock, i.e. its market cap (the per-share price multiplied by the number of shares outstanding). We then divide that number by the firm's trailing 12-month sales. One note: Because companies in what Fisher called "smokestack" industries -- that is, industrial or manufacturing type firms that make the everyday products we use -- grow slowly and don't earn exceptionally high margins, they don't generate a lot of excitement or command high prices on Wall Street. Their PSRs thus tend to be lower than those of companies that produce more exciting products, Fisher said. He adjusted his PSR target for these firms, and the model I base on his writings looks for smokestack firms with PSRs between 0.4 and 0.8; it is particularly high on those with PSR values under 0.4. More than the PSR While the PSR was key to Fisher's strategy, he warned not to rely exclusively on it. Terrible companies can have low PSRs simply because the investment world knows they are headed for financial ruin. Other quantitative measures Fisher used include profit margins (he wanted three-year average net margins to be at least 5 percent; the debt/equity ratio (this should be no greater than 40 percent, and is not applied to financial firms); and earnings growth (the inflation-adjusted long-term EPS growth rate should be at least 15 percent per year). Fisher also made an interesting observation about companies in the technology and medical industries. He saw research as a commodity, and to measure how much Wall Street valued the research that a company did, he compared the value of the company's stock (its market cap) to the money it spends on research. Price/research ratios less than 5 percent were the best case, and those between 5 and 10 percent were still indicative of bargains. Those between 10 and 15 percent were borderline, while those over 15 percent should be avoided. A Winner The variety of variables in my Fisher-based model are a big part of why I think it continues to work, long after the PSR has become a well-known stock analysis tool. While it uses the PSR as its focal point, it also makes sure firms have strong profit margins, earnings growth, and cash flows, and low debt/equity ratios. That well-rounded approach is has helped it rebound from a tough 2008 and remain far ahead of the broader market since its inception, and it's why I expect it to continue to produce solid returns over the long run. Now, here's a look at the stocks that currently make up my 10-stock Fisher-based portfolio. As you'll see, it's particularly high on oil firms right now -- an interesting trend given that, in his September column for Forbes, Fisher himself said fossil fuels aren't leaving the energy landscape anytime soon, and recommended that investors dedicate a sizeable chunk of their portfolios to fossil fuel stocks. Oil States International, Inc. (OIS) Frontier Oil Corporation (FTO) Sierra Wireless, Inc. (SWIR) Schnitzer Steel Industries, Inc. (SCHN) General Dynamics Corporation (GD) Chevron Corporation (CVX) Aeropostale, Inc. (ARO) World Fuel Services Corporation (INT) National Presto Industries Inc. (NPK) AAON, Inc. (AAON) News about Validea Hot List Stocks Chevron Corp. (CVX): Chevron said on Oct. 8 that it expects third-quarter earnings to be significantly higher than the second quarter, due to higher crude oil prices and gains from asset sales and tax items, the Associated Press reported. The company didn't offer a specific estimate for third-quarter earnings, which are due on Oct. 30. Earnings were $1.75 billion, or 87 cents per share, in the second quarter. Aeropostale (ARO): The teen clothing retailer reported that sales jumped 19% in September vs. a year ago, beating estimates, according to Investor's Business Daily. Aeropostale also raised Q3 earnings per share guidance. 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 INT WORLD FUEL SERVICES CORPORATION Oil & Gas Operations 100 RS RELIANCE STEEL & ALUMINUM Misc. Fabricated Products 79 MELI MERCADOLIBRE, INC. Computer Services 76 BRP BRASIL TELECOM PARTICIPACOES SA (ADR) Communications Services 65 ARO AEROPOSTALE, INC. Retail (Apparel) 63 CVX CHEVRON CORPORATION Oil & Gas - Integrated 59 FTO FRONTIER OIL CORPORATION Oil & Gas Operations 57 HUM HUMANA INC. Insurance (Accident & Health) 57 VIT VANCEINFO TECHNOLOGIES INC. Software & Programming 48 BAP CREDICORP LTD. (USA) Regional Banks 43 Ticker Market Cap Date Added Start Price Current Price Return INT $1,554 9/4/2009 $45.32 $52.43 15.7% RS $3,290 10/2/2009 $40.15 $44.77 11.5% MELI $1,844 10/2/2009 $36.98 $41.81 13.1% BRP $4,346 10/2/2009 $52.33 $59.95 14.6% ARO $2,805 9/4/2009 $41.66 $41.75 0.2% CVX $153,803 5/15/2009 $65.88 $76.69 16.4% FTO $1,578 6/12/2009 $14.67 $15.08 2.8% HUM $6,321 10/2/2009 $36.68 $37.26 1.6% VIT $790 9/4/2009 $13.07 $20.04 53.3% BAP $6,349 10/2/2009 $76.20 $79.60 4.5%

Detailed Stock Analysis Disclaimer: The analysis is from Validea's selection and interpretation of content from the guru's book or published writings, and is not from nor endorsed by the guru. See Full Disclaimer INT   |   RS   |   MELI   |   BRP   |   ARO   |   CVX   |   FTO   |   HUM   |   VIT   |   BAP   |   WORLD FUEL SERVICES CORPORATION Profile Strategy: P/E/Growth Investor Based on: Peter Lynch World Fuel Services Corporation is engaged in the marketing and sale of marine, aviation and land fuel products and related services on a worldwide basis. The Company operates in three segments: marine, aviation and land. In its marine segment it offers fuel and related services to maritime customers, including international container and tanker fleets, commercial cruise lines and time-charter operators. In its aviation segment, it offers fuel and related services to major commercial airlines, second and third-tier airlines, cargo carriers, regional and low-cost carriers, corporate fleets, fractional operators, private aircraft, military fleets. In its land segment, it offers fuel and related services to petroleum distributors operating in the land transportation market. In June 2008, it acquired certain assets of Texor Petroleum Company, Inc. In April 2009, the Company acquired the Henty Oil Group of Companies. Analysis Guru Score: 93% DETERMINE THE CLASSIFICATION: This methodology would consider INT a "fast-grower". P/E/GROWTH RATIO: [PASS] The investor should examine the P/E (12.63) relative to the growth rate (30.86%), 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 INT (0.41) 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. INT, whose sales are $12,914.1 million, needs to have a P/E below 40 to pass this criterion. INT's P/E of (12.63) 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 INT was 0.75% last year, while for this year it is 0.16%. Since inventory to sales has decreased from last year by -0.60%, INT 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 INT is 30.9%, based on the average of the 3, 4 and 5 year historical eps growth rates, which is acceptable. TOTAL DEBT/EQUITY RATIO: [PASS] This methodology would consider the Debt/Equity ratio for INT (9.49%) 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 INT (25.12%) 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 INT (19.88%) 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.   RELIANCE STEEL & ALUMINUM Profile Strategy: P/E/Growth Investor Based on: Peter Lynch Reliance Steel & Aluminum Co. is a metals service center company. The Company's network of metals service centers operates more than 200 locations in 38 states, Belgium, Canada, China, Mexico, Singapore, South Korea and the United Kingdom. Through this network, it provides metals processing services and distributes a line of more than 100,000 metal products, including alloy, aluminum, brass, copper, carbon steel, titanium, stainless steel and specialty steel products, to more than 125,000 customers in a range of industries. Many of the Company's metals service centers process and distribute only specialty metals. Reliance Steel & Aluminum Co. delivers products from facilities located across the United States and Canada. In March 2009, New Wave Holdings Ltd. completed the sale of the entire 30% interest in Reliance Pan Pacific Pte. Ltd. (RPP) held by its wholly owned subsidiary, Manufacturing Network Pte Ltd, to the Company. Analysis Guru Score: 93% DETERMINE THE CLASSIFICATION: This methodology would consider RS a "fast-grower". P/E/GROWTH RATIO: [PASS] The investor should examine the P/E (14.25) relative to the growth rate (39.83%), 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 RS (0.36) 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. RS, whose sales are $7,517.1 million, needs to have a P/E below 40 to pass this criterion. RS's P/E of (14.25) 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 RS was 12.56% last year, while for this year it is 14.73%. Since inventory has been rising, this methodology would not look favorably at the stock but would not completely eliminate it from consideration as the inventory increase (2.17%) is below 5%. EPS GROWTH RATE: [PASS] This methodology favors companies that have several years of fast earnings growth, as these companies have a proven formula for growth that in many cases can continue many more years. This methodology likes to see earnings growth in the range of 20% to 50%, as earnings growth over 50% may be unsustainable. The EPS growth rate for RS is 39.8%, 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: [PASS] This methodology would consider the Debt/Equity ratio for RS (51.70%) to be mediocre. If the Debt/Equity ratio is this high, the other ratios and financial statistics for RS should be good enough to compensate. 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 RS (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 RS (-34.66%) 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.   MERCADOLIBRE, INC. Profile Strategy: Small-Cap Growth Investor Based on: Motley Fool MercadoLibre, Inc. hosts an online platform in Latin America, called MercadoLibre and located at www.mercadolibre.com. The Company has e-commerce operations in Argentina, Brazil, Chile, Colombia, Ecuador, Mexico, Peru, Uruguay and Venezuela. In addition, it also operates online trading platforms in Costa Rica, the Dominican Republic and Panama. MercadoLibre has two principal services: The MercadoLibre marketplace and The MercadoPago online payments solution. The MercadoLibre marketplace is a fully automated, topically arranged online trading service. The MercadoPago online payments solution is an integrated online payments solution. During the year ended December 31, 2008, visitors to its Website were able to browse an average of over 2.5 million total listings on any given day in over 2,000 different product categories. At December 31, 2008, the Company had over 33.7 million confirmed registered MercadoLibre users. 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. MELI's profit margin of 17.61% 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. MELI, with a relative strength of 90, satisfies this test. COMPARE SALES AND EPS GROWTH TO THE SAME PERIOD LAST YEAR: [FAIL] Companies must demonstrate both revenue and net income growth of at least 25% as compared to the prior year. These growth rates give you the dynamic companies that you are looking for. These rates for MELI (114.29% for EPS, and 18.65% for Sales) are not good enough to pass. INSIDER HOLDINGS: [PASS] MELI's insiders should own at least 10% (they own 41.26% ) of the company's outstanding shares which is extremely attractive since the minimum requirement is 10%. A high percentage 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. MELI's free cash flow of $1.12 per share passes this test. PROFIT MARGIN CONSISTENCY: [PASS] MELI's profit margin has been consistent or even increasing over the past three years (Current year: 13.73%, Last year: 11.38%, Two years ago: 2.06%), passing the requirement. It is a sign of good management and a healthy and competitive enterprise. R&D AS A PERCENTAGE OF SALES: [PASS] MELI is either maintaining the same levels of R&D expenditures(currently $7.3 million) or increasing these levels which is a good sign. This allows the company to develop the superior technology and new products that will put everyone else out of business. This criterion is particularly important for high-tech and medical stocks because they are so R&D dependant. CASH AND CASH EQUIVALENTS: [PASS] MELI's level of cash $49.1 million passes this criteria. If a company is a cash generator, like MELI, it has the ability to pay off debt (if it has any) or acquire other companies. Most importantly, good operations generate cash. ACCOUNT RECEIVABLE TO SALES: [PASS] This methodology wants to make sure that a company's accounts receivable do not get significantly out of line with sales. It's a warning sign if a company's accounts receivable relative to sales increases significantly when compared to the previous year. Up to a 30% increase is allowed, but no more. Accounts Receivable to Sales for MELI was 38.02% last year, while for this year it is 4.51%. Since the AR to sales is decreasing by -33.51% the stock passes this criterion. LONG TERM DEBT/EQUITY RATIO: [PASS] MELI's trailing twelve-month Debt/Equity ratio (0.00%) is at a great level according to this methodology because the superior companies that you are looking for don't need to borrow money in order to grow. "THE FOOL RATIO" (P/E TO GROWTH): [PASS] The "Fool Ratio" is an extremely important aspect of this analysis. If the company has attractive fundamentals and its Fool Ratio is 0.5 or less (MELI's is 0.33), the shares are looked upon favorably. These high quality companies can often wind up as the biggest winners. MELI passes this test. The following criteria for MELI are less important which means you would place less emphasis on them when making your investment decision using this strategy: AVERAGE SHARES OUTSTANDING: [PASS] MELI has not been significantly increasing the number of shares outstanding within recent years which is a good sign. MELI currently has 44.0 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. MELI's sales of $146.9 million based on trailing 12 month sales, are fine, making this company one such "prospective gem". MELI passes the sales test. DAILY DOLLAR VOLUME: [FAIL] MELI does not pass the Daily Dollar Volume (DDV of $28.2 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. MELI with a price of $41.81 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] MELI's income tax paid expressed as a percentage of pretax income this year was (36.10%) and last year (32.80%) 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.   BRASIL TELECOM PARTICIPACOES SA (ADR) Profile Strategy: Contrarian Investor Based on: David Dreman Brasil Telecom Participacoes S.A. is a provider of telecommunications services in Region II in Brazil. The Company offers integrated telecommunications services, which includes fixed-line and mobile telecommunications services, data transmission services (including broadband access services), Internet service provider (ISP) services and other services, for residential customers, small, medium and large companies, and governmental agencies. The Company provided services, which include Fixed-Line Telecommunications Services, Mobile Telecommunications Services, Data Transmission Services and other services. Analysis Guru Score: 83% MARKET CAP: [PASS] Medium to large-sized companies (the largest 1500 companies) should be chosen, because they are more in the public eye. Furthermore, the investor is exposed to less risk of "accounting gimmickry", and companies of this size have more staying power. BRP has a market cap of $4,346 million, therefore passing the test. EARNINGS TREND: [PASS] A company should show a rising trend in the reported earnings for the most recent quarters. BRP's EPS for the past 2 quarters, (from earliest to most recent quarter) 0.39, 0.40 have been increasing, and therefore the company passes this test. EPS GROWTH RATE IN THE IMMEDIATE PAST AND FUTURE: [FAIL] This methodology likes to see companies with an EPS growth rate higher than the S&P in the immediate past and a likelihood that this trend will continue in the near future. BRP fails this test as its EPS growth rate for the past 6 months (5.26%) does not beat that of the S&P (15.54%). This methodology would utilize four separate criteria to determine if BRP is a contrarian stock. In order to eliminate weak companies we have stipulated that the stock should pass at least two of the following four major criteria in order to receive "Some Interest". P/E RATIO: [PASS] The P/E of a company should be in the bottom 20% of the overall market. BRP's P/E of 8.33, based on trailing 12 month earnings, meets the bottom 20% criterion (below 10.23), and therefore passes this test. PRICE/CASH FLOW (P/CF) RATIO: [PASS] The P/CF of a company should be in the bottom 20% of the overall market. BRP's P/CF of 2.15 meets the bottom 20% criterion (below 5.53) and therefore passes this test. PRICE/BOOK (P/B) VALUE: [FAIL] The P/B value of a company should be in the bottom 20% of the overall market. BRP's P/B is currently 1.32, which does not meet the bottom 20% criterion (below 0.71), and it therefore fails this test. PRICE/DIVIDEND (P/D) RATIO: [FAIL] The P/D ratio for a company should be in the bottom 20% of the overall market (that is the yield should be in the top 20%). BRP's P/D is not available, and hence an opinion cannot be rendered at this time. This methodology maintains that investors should look for as many healthy financial ratios as possible to ascertain the financial strength of the company. These criteria are detailed below. CURRENT RATIO: [PASS] A prospective company must have a strong Current Ratio (greater than or equal to the average of it's industry [0.91] or greater than 2). This is one identifier of financially strong companies, according to this methodology. BRP's current ratio of 1.57 passes the test. PAYOUT RATIO: [PASS] A good indicator that a company has the ability to raise its dividend is a low payout ratio. The payout ratio for BRP is 0.00%, while its historical payout ratio has been 100.03%. Therefore, it passes the payout criterion. RETURN ON EQUITY: [PASS] The company should have a high ROE, as this helps to ensure that there are no structural flaws in the company. This methodology feels that the ROE should be greater than the top one third of ROE from among the top 1500 large cap stocks, which is 15.01%, and would consider anything over 27% to be staggering. The ROE for BRP of 16.16% is high enough to pass this criterion. PRE-TAX PROFIT MARGINS: [PASS] This methodology looks for pre-tax profit margins of at least 8%, and considers anything over 22% to be phenomenal. BRP's pre-tax profit margin is 15.10%, thus passing this criterion. YIELD: [FAIL] The company in question should have a yield that is high and that can be maintained or increased. BRP's current yield is not available (or one is not paid) at the present time, while the market yield is 2.84%. Hence, this criterion cannot be evaluated. LOOK AT THE TOTAL DEBT/EQUITY: [PASS] The company must have a low Debt/Equity ratio, which indicates a strong balance sheet. The Debt/Equity ratio should not be greater than 20% or should be less than the average Debt/Equity for its industry of 101.18%. BRP's Total Debt/Equity of 75.40% is considered acceptable.   AEROPOSTALE, INC. Profile Strategy: Patient Investor Based on: Warren Buffett Aeropostale, Inc. is a mall-based specialty retailer of casual apparel and accessories. The Company designs, markets and sells its own brand of merchandise principally targeting 14 to 17 year-old young women and young men. The Company also sells Aeropostale merchandise through its e-commerce Website, www.aeropostale.com. As of January 31, 2009, it operated 914 stores, consisting of 874 Aeropostale stores in 48 states and Puerto Rico, 29 Aeropostale stores in Canada, and 11 Jimmy'Z stores in 10 states. The Company locates its stores primarily in shopping malls, outlet centers and, to a much lesser degree, lifestyle and off-mall shopping centers. The Company has developed a new retail store concept called P.S. from Aeropostale, which will offer casual clothing and accessories focusing on elementary school children between the ages of seven and 12. It offers a focused collection of apparel, including graphic t-shirts, tops, bottoms, sweaters, jeans, outerwear and accessories. Analysis Guru Score: 100% 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 0.11, 0.12, 0.35, 0.36, 0.62, 0.98, 1.00, 1.32, 1.73, 2.21. Buffett would consider ARO's earnings predictable. In fact EPS have increased every year. ARO's long term historical EPS growth rate is 27.1%, based on the average of the 3, 4 and 5 year historical eps growth rates, and it is expected to grow earnings 15.2% 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 AT THE ABILITY TO PAY OFF DEBT [PASS] Buffett likes companies that are conservatively financed. Nonetheless, he has invested in companies with large financing divisions and in firms with rather high levels of debt. ARO has no long term debt and therefore would pass this criterion. 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 ARO, over the last ten years, is 30.9%, 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 31.1%, 24.5%, 34.6%, 22.5%, 28.0%, 34.1%, 28.5%, 32.8%, 58.3%, 41.7%, and the average ROE over the last 3 years is 44.3%, thus passing this criterion. LOOK FOR CONSISTENTLY HIGHER THAN AVERAGE RETURN ON TOTAL CAPITAL: [PASS] Because some companies can be financed with debt that is many times their equity, they can show a consistently high ROE, yet still be in unattractive price competitive businesses. To screen this out, for non-financial companies Buffett also requires that the average Return On Total Capital (ROTC) be at least 12% and consistent. In addition, the average ROTC over the last 3 years must also exceed 12%. Return On Total Capital is defined as the net earnings of the business divided by the total capital in the business, both equity and debt. The average ROTC for ARO, over the last ten years, is 33.6% and the average ROTC over the past 3 years is 44.3%, which is high enough to pass. It is not enough that the average be at least 12%. For each of the last 10 years, with the possible exception of the last fiscal year, the ROTC must be at least 9% for Buffett to feel comfortable that the ROTC is consistent. The ROTC for the last 10 years, from earliest to latest, is 31.1%, 24.5%, 34.6%, 22.5%, 28.0%, 34.1%, 28.5%, 32.8%, 58.3%, 41.7%, 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. ARO's free cash flow per share of $1.76 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 $8.80 and compares it to the gain in EPS over the same period of $2.10. ARO's management has proven it can earn shareholders a 23.9% 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. ARO's shares outstanding have fallen over the past five years from 83,050,003 to 68,000,000, 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 ARO 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 $2.67 and divide it by the current market price of $41.75. An investor, purchasing ARO, could expect to receive a 6.40% initial rate of return. Furthermore, he or she could expect the rate to increase 15.2% 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 4.60%. Compare this with ARO's initial yield of 6.40%, which will expand at an annual rate of 15.2%, 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] ARO currently has a book value of $6.39. It is safe to say that if ARO can preserve its average rate of return on equity of 30.9% and continues to retain 100.00% of its earnings, it will be able to sustain an earnings growth rate of 30.9% and it will have a book value of $94.35 in ten years. If it can still earn 30.9% on equity in ten years, then expected EPS will be $29.14. CALCULATE THE FUTURE STOCK PRICE BASED ON THE AVERAGE ROE METHOD: [No Pass/Fail] Now take the expected future EPS of $29.14 and multiply them by the lower of the 5 year average P/E ratio or current P/E ratio (15.6) (5 year average P/E in this case), which is 15.6 and you get ARO's projected future stock price of $453.74. 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 $453.74. These numbers indicate that one could expect to make a 26.9% average annual return on ARO's stock at the present time. Buffett would consider this an absolutely fantastic expected return. CALCULATE THE EXPECTED FUTURE STOCK PRICE BASED ON AVERAGE EPS GROWTH: [No Pass/Fail] If you take the EPS growth of 15.2%, based on the analysts' consensus estimated long term growth rate, you can project EPS in ten years to be $10.98. Now multiply EPS in 10 years by the lower of the 5 year average P/E ratio or current P/E ratio (15.6) (5 year average P/E in this case), which is 15.6. This equals the future stock price of $170.98. Add in the total expected dividend pool of $0.00 to get a total dollar amount of $170.98. 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 $41.75 and the future expected stock price, including the dividend pool, of $170.98. If you were to invest in ARO at this time, you could expect a 15.1% average annual return on your money. Buffett would consider this a great return. LOOK AT THE RANGE OF EXPECTED RATE OF RETURN: [PASS] Based on the two different methods, you could expect an annual compounding rate of return somewhere between 15.1% and 26.9%. 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 21.0% on ARO stock for the next ten years, based on the current fundamentals. Buffett would consider this a great return, thus passing the criterion.   CHEVRON CORPORATION Profile Strategy: Price/Sales Investor Based on: Kenneth Fisher Chevron Corporation (Chevron) manages its investments in subsidiaries and affiliates, and provides administrative, financial, management and technology support to the United States and International subsidiaries that engage in fully integrated petroleum operations, chemicals operations, mining operations of coal and other minerals, power generation and energy services. Exploration and production (upstream) operations consist of exploring for, developing and producing crude oil and natural gas, and also marketing natural gas. Refining, marketing and transportation (downstream) operations relate to refining crude oil into finished petroleum products; marketing crude oil and the many products derived from petroleum, and transporting crude oil, natural gas and petroleum products by pipeline, marine vessel, motor equipment and rail car. In April 2009, Reliance Industries Limited bought back Chevron Corporation's 5% stake in Reliance Petroleum Limited. 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. CVX's P/S ratio of 0.77 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. CVX's Debt/Equity of 13.71% 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. CVX 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 CVX At this Point Is CVX 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, CVX, who has a P/S of 0.77, 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%. CVX's inflation adjusted EPS growth rate of 19.46% 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. CVX's free cash per share of 2.34 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. CVX, whose three year net profit margin averages 8.46%, passes this evaluation.   FRONTIER OIL CORPORATION Profile Strategy: Value Investor Based on: Benjamin Graham Frontier Oil Corporation (Frontier) is an independent energy company engaged in crude oil refining and the wholesale marketing of refined petroleum products. The Company operates refineries (the Refineries) in Cheyenne, Wyoming and El Dorado, Kansas with a total annual average crude oil capacity of approximately 182,000 barrels per day (bpd). Frontier's Cheyenne Refinery has a permitted crude oil capacity of 52,000 bpd on a 12-month average. The Company markets its refined products primarily in the eastern slope of the Rocky Mountain region, which encompasses eastern Colorado (including the Denver metropolitan area), eastern Wyoming and western Nebraska (the Eastern Slope). The Cheyenne Refinery has a coking unit, which allows the refinery to process amounts of heavy crude oil for use as a feedstock. During the year ended December 31, 2008, heavy crude oil constituted approximately 76% of the Cheyenne Refinery's total crude oil charge. Analysis Guru Score: 86% SECTOR: [PASS] FTO 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. FTO's sales of $5,494.5 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. FTO's current ratio of 2.38 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 FTO is $350.7 million, while the net current assets are $745.1 million. FTO 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. FTO's EPS growth over that period of 2,476.5% passes the EPS growth test. P/E RATIO: [FAIL] 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. FTO's P/E of 16.18 (using the current PE) fails 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. FTO's Price/Book ratio is 1.35, while the P/E is 16.18. FTO passes the Price/Book test.   HUMANA INC. Profile Strategy: P/E/Growth Investor Based on: Peter Lynch Humana Inc. (Humana) is a health and supplemental benefits company. The Company is a full-service benefits solutions company, offering an array of health and supplemental benefit plans for employer groups, government benefit programs and individuals. The Company operates in two segments: Government and Commercial. The Government segment consists of beneficiaries of government benefit programs, and includes three lines of business: Medicare, Military and Medicaid. The Commercial segment consists of members enrolled in its medical and specialty products marketed to employer groups and individuals. On October 31, 2008, the Company acquired PHP Companies, Inc. (doing business as Cariten Healthcare). On August 29, 2008, the Company acquired Metcare Health Plans, Inc. On May 22, 2008, it acquired OSF Health Plans, Inc. On April 30, 2008, the Company acquired UnitedHealth Group's Las Vegas, Nevada individual SecureHorizons Medicare Advantage health maintenance organization (HMO) business. Analysis Guru Score: 100% DETERMINE THE CLASSIFICATION: This methodology would consider HUM a "fast-grower". P/E/GROWTH RATIO: [PASS] The investor should examine the P/E (7.44) relative to the growth rate (24.55%), 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 HUM (0.30) is very favorable. SALES AND P/E RATIO: [PASS] For companies with sales greater than $1 billion, this methodology likes to see that the P/E ratio remain below 40. Large companies can have a difficult time maintaining a growth high enough to support a P/E above this threshold. HUM, whose sales are $30,246.4 million, needs to have a P/E below 40 to pass this criterion. HUM's P/E of (7.44) is considered acceptable. EPS GROWTH RATE: [PASS] This methodology favors companies that have several years of fast earnings growth, as these companies have a proven formula for growth that in many cases can continue many more years. This methodology likes to see earnings growth in the range of 20% to 50%, as earnings growth over 50% may be unsustainable. The EPS growth rate for HUM is 24.6%, based on the average of the 3, 4 and 5 year historical eps growth rates, which is considered very good. TOTAL DEBT/EQUITY RATIO: [NEUTRAL] HUM 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. HUM's Equity/Assets ratio (37.00%) 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. HUM's ROA (6.34%) 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 HUM (11.43%) 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 HUM (71.33%) is considered very favorable.   VANCEINFO TECHNOLOGIES INC. Profile Strategy: Small-Cap Growth Investor Based on: Motley Fool VanceInfo Technologies Inc. is an information technology (IT) service provider and one of the offshore software development companies in China. The Company's range of IT services includes research and development services (R&D services), enterprise solutions, application development and maintenance (ADM), quality assurance and testing, as well as globalization and localization. It provides these services primarily to corporations headquartered in the United States, Europe, Japan and China, targeting industries, such as technology, telecommunications, financial services, manufacturing, retail and distribution. The Company operates a range of offshore development centers in China (CDCs). Its major clients include Microsoft, IBM, Huawei, TIBCO, and a European mobile handset manufacturer. In July 2009, the Company acquired the operating subsidiaries of TP Corporation Limited (TP), a provider of customer relationship management (CRM) solutions and call center services. Analysis Guru Score: 83% PROFIT MARGIN: [PASS] This methodology seeks companies with a minimum trailing 12 month after tax profit margin of 7%. The companies that pass this criterion have strong positions within their respective industries and offer greater shareholder returns. A true test of the quality of a company is that they can sustain this margin. VIT's profit margin of 15.21% 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. VIT, with a relative strength of 96, 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 VIT (44.44% for EPS, and 41.52% for Sales) are good enough to pass. INSIDER HOLDINGS: [PASS] VIT's insiders should own at least 10% (they own 59.16% ) of the company's outstanding shares which is extremely attractive since the minimum requirement is 10%. A high percentage 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. VIT's free cash flow of $0.23 per share passes this test. PROFIT MARGIN CONSISTENCY: [PASS] VIT's profit margin has been consistent or even increasing over the past three years (Current year: 15.75%, Last year: 15.26%, Two years ago: 15.08%), passing the requirement. It is a sign of good management and a healthy and competitive enterprise. R&D AS A PERCENTAGE OF SALES: [FAIL] VIT did not have any R&D expenditures for the current year which is unacceptable. VIT could be jepordizing the future in order to boost current EPS numbers. CASH AND CASH EQUIVALENTS: [PASS] VIT's level of cash $80.0 million passes this criteria. If a company is a cash generator, like VIT, it has the ability to pay off debt (if it has any) or acquire other companies. Most importantly, good operations generate cash. ACCOUNT RECEIVABLE TO SALES: [PASS] This methodology wants to make sure that a company's accounts receivable do not get significantly out of line with sales. It's a warning sign if a company's accounts receivable relative to sales increases significantly when compared to the previous year. Up to a 30% increase is allowed, but no more. Accounts Receivable to Sales for VIT was 45.51% last year, while for this year it is 35.88%. Since the AR to sales is decreasing by -9.64% the stock passes this criterion. LONG TERM DEBT/EQUITY RATIO: [PASS] VIT's trailing twelve-month Debt/Equity ratio (0.00%) is at a great level according to this methodology because the superior companies that you are looking for don't need to borrow money in order to grow. "THE FOOL RATIO" (P/E TO GROWTH): [FAIL] The "Fool Ratio" is an extremely important aspect of this analysis. The methodology says consider holding the shares when the company's Fool Ratio is greater than 0.65 (VIT's is 0.77), but initial purchases in this range are unfavorable. The following criteria for VIT are less important which means you would place less emphasis on them when making your investment decision using this strategy: AVERAGE SHARES OUTSTANDING: [PASS] VIT has not been significantly increasing the number of shares outstanding within recent years which is a good sign. VIT currently has 41.0 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. VIT's sales of $122.4 million based on trailing 12 month sales, are fine, making this company one such "prospective gem". VIT passes the sales test. DAILY DOLLAR VOLUME: [PASS] VIT passes the Daily Dollar Volume (DDV of $11.5 million) test. It is required that this number be less than $25 million because these are the stocks that remain relatively undiscovered by institutions. "You'll be scoring touchdowns against the big guys on your turf." PRICE: [PASS] This is a very insignificant criterion for this methodology. But basically, low prices are chosen because "small numbers multiply more rapidly than large ones" and the potential for big returns expands. VIT with a price of $20.04 passes the price test, even though it doesn't fall in the preferred range. The price should be above $7 in order to eliminate penny stocks and below $20 since most stocks in this price range are undiscovered by the institutions. INCOME TAX PERCENTAGE: [FAIL] VIT's income tax paid expressed as a percentage of pretax income either this year (7.48%) or last year (1.73%) is below 20% which is cause for concern. Because the tax rate is below 20% this could mean that the earnings that were reported are unrealistically inflated due to the lower level of income tax paid. However, we have utilized a sophisticated formula so that the appropriate figures reflect a 'normal' tax rate (35%).   CREDICORP LTD. (USA) Profile Strategy: P/E/Growth Investor Based on: Peter Lynch Credicorp Ltd. (Credicorp) is a financial services holding company. The Company operates primarily through its four principal subsidiaries: Banco de Credito del Peru (BCP), Atlantic Security Holding Corporation (ASHC), El Pacifico-Peruano Suiza Compania de Seguros y Reaseguros (PPS) and Grupo Credito S.A (Grupo Credito). Credicorp is engaged principally in commercial banking (including trade finance, corporate finance and leasing services), insurance (including commercial property, transportation and marine hull, automobile, life, health and pension fund underwriting insurance) and investment banking (including brokerage services, asset management, and trust, custody and securitization services, and trading and investment). The Company conducts its commercial banking and investment banking activities primarily through BCP, ASHC and its pension fund business through Prima AFP. Credicorp's insurance activities are conducted through PPS. Analysis Guru Score: 91% DETERMINE THE CLASSIFICATION: This methodology would consider BAP a "fast-grower". P/E/GROWTH RATIO: [PASS] The investor should examine the P/E (19.13) relative to the growth rate (27.75%), 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 BAP (0.69) makes it 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. BAP, whose sales are $1,375.7 million, needs to have a P/E below 40 to pass this criterion. BAP's P/E of (19.13) is considered acceptable. EPS GROWTH RATE: [PASS] This methodology favors companies that have several years of fast earnings growth, as these companies have a proven formula for growth that in many cases can continue many more years. This methodology likes to see earnings growth in the range of 20% to 50%, as earnings growth over 50% may be unsustainable. The EPS growth rate for BAP is 27.7%, based on the average of the 3, 4 and 5 year historical eps growth rates, which is acceptable. TOTAL DEBT/EQUITY RATIO: [NEUTRAL] BAP 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. BAP's Equity/Assets ratio (9.00%) is healthy and above the minimum 5% this methodology looks for, thus passing the criterion. RETURN ON ASSETS: [PASS] This methodology uses Return on Assets as a way to measure a financial intermediary's profitability. BAP's ROA (1.72%) 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 BAP (3.79%) 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 BAP (2.40%) 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 OIS OIL STATES INTERNATIONAL, INC. Oil Well Services & Equipment 80 TGI TRIUMPH GROUP, INC. Aerospace & Defense 79 AIR AAR CORP. Aerospace & Defense 57 YZC YANZHOU COAL MINING CO. (ADR) Coal 57 GYMB THE GYMBOREE CORPORATION Retail (Apparel) 55 TDW TIDEWATER INC. Water Transportation 54 CPLA CAPELLA EDUCATION COMPANY Schools 53 BBV BANCO BILBAO VIZCAYA ARGENTARIA SA (ADR) Money Center Banks 51 JOSB JOS. A. BANK CLOTHIERS, INC. Retail (Apparel) 51 CAB CABELA'S INCORPORATED Retail (Specialty) 48

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