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Executive Summary	August 3, 2012

The Economy While Europe's debt woes have again been spooking investors, the U.S. economy continues to show some signs of solid -- albeit unspectacular -- improvement. New unemployment claims, for example, have made a nice dip since our last newsletter, and are now 9% below year-ago levels. Continuing claims (which lag new claims by a week) also fell slightly since our last Hot List. They are now 12% below year-ago levels. The July unemployment report from the Labor Department is due out today, and as always it will be closely watched, particularly considering the relatively weak numbers we've seen in the past few monthly reports. Good news also continued to come from the housing sector -- and boy is it good to be able to say those words after housing's horrible troubles over the past several years. Home prices rose in May by 2.2%, according to the S&P/Case-Shiller Home Price Indices, building on the 1.3% gains seen the previous month. Even when seasonal factors are taken into account, prices rose nearly a full percentage point in May. Prices are still 0.7% below where they were a year-ago, according to the group's 20-city index, but the trend is encouraging. Real estate firm Zillow also said that home prices rose 0.2% in the second quarter (vs. 2011's second quarter), the first quarterly gain since 2007. "After four months with rising home values and increasingly positive forecast data, it seems clear that the country has hit a bottom in home values," the firm's Chief Economist Stan Humphries said. "The housing recovery is holding together despite lower-than-expected job growth, indicating that it has some organic strength of its own." The National Association of Realtors, meanwhile, said its Pending Home Sales Index fell 1.4% in June (seasonally adjusted), but was still more than 8% above where it was a year ago. Another good sign: Personal income rose 0.5% in June and disposable personal income rose 0.4%, according to the Commerce Department. Consumers pocketed the gains, as personal consumption expenditures were about flat and the personal savings rate rose to 4.4% (up from 4.0% in May), the Commerce Department said. That means Americans are saving the most they've saved in a year. Europe's debt troubles continue to weigh on the market, however. After having said the European Central Bank would do whatever it takes to save the euro last week, ECB President Mario Draghi said this week that the ECB would start buying Italian and Spanish government bonds only after individual governments in the euro zone approved the move, the Wall Street Journal reported. Given how hard it has been to get individual eurozone countries to agree on any sort of major action, investors weren't heartened by the news. Since our last newsletter, the S&P 500 returned -0.8%, while the Hot List returned -2.7%. So far in 2012, the portfolio has returned 6.5% vs. 8.5% for the S&P. Since its inception in July 2003, the Hot List is far outpacing the index, having gained 140.8% vs. the S&P's 36.4% gain. An Anniversary The Hot List has hit some road bumps over the past few weeks, with a couple holdings posting fairly big losses. One was Apollo Group, which through Wednesday was down about 27% since the portfolio scooped it up a month ago. Much of the decline seems to have been driven not by Apollo's performance, but by broader fears surrounding the for-profit education industry -- Ashford University, owned by Bridgepoint Education, was denied an accreditation by a regional accreditation group, which seems to have renewed fears about the industry and sent shares of other companies within it tumbling. Apollo's fundamentals remain solid, however -- while earnings are expected to decline this year and next, it is so cheap (7.5 times projected 12-month EPS, less than 0.7 times trailing 12-month sales) that the Hot List thinks it is a good candidate for a bounce-back over the longer term. The portfolio is thus holding onto the stock on today's rebalancing. Another Hot List holding, network management software maker SolarWinds, helped offset some of Apollo's losses. It announced second quarter profit of $19.43 million or $0.26 per share, up sharply from $13.55 million or $0.18 per share a year ago, RTTNews reported. Adjusted earnings were up 50% to $0.33 per share, well outpacing Thomson Reuters analysts estimates of $0.27 per share. Total revenues rose 40%, and the firm upped its full-year forecast. The result: Shares jumped nearly 28% over a two-day period. Stamps.com took a tumble though. While earnings per share declined in the second quarter, the company said, the results were better than expected. Still, a weaker outlook caused shares to fall 16% on July 26. The firm's fundamentals deteriorated a bit, which caused its score on my strategies to fall, and the portfolio is selling the stock this rebalancing. All in all, the Hot List is selling four stocks this rebalancing and replacing them with four others. The newcomers are an interesting bunch of value picks: Autoliv, a Swedish auto safety product maker; GameStop Corp., the video game seller that was a big winner for the portfolio not too long ago, gaining more than 40% from September 2010 to July 2011; Main Street Capital, a small-cap investment company that has been hit by the financial sector turmoil, but whose fundamentals are strong; and Marathon Petroleum Corp., an energy sector pick whose shares have been kept down by global economic concerns. I expect these types of value stocks to help the Hot List continue its long-term performance, which has been quite good. In fact, the portfolio last month hit its nine-year birthday, and since its July 2003 inception it has now gained more than 140% (all returns here and below are through Aug. 1), nearly four times the S&P 500's 37.5% gain. That's annualized returns of 10.2% in a nine-plus-year period in which the S&P has returned just 3.5% annualized. Given that the Hot List recently hit the nine-year mark, I thought it would be a good time to look back and see what has worked -- and what hasn't -- for the portfolio and the individual strategies that drive its picks over that time. For the Hot List, the best full-year we've seen so far was 2009 -- a year that many thought was going to spell doom for America and the stock market -- when the portfolio gained 47.0%. (In the partial 2003 year, the portfolio actually gained more -- 56.9% -- but that was only a five-and-a-half-month span.) In addition to being the best year in terms of raw return, 2009 was also the portfolio's best year in terms of outperformance of the broader market. It beat the S&P 500 (which returned 23.5%) by 23.5 percentage points that year. The portfolio's worst year, meanwhile, came in 2008, when it fell 35.0% amid the financial crisis and Great Recession. It did, however, beat the S&P that year by 3.5 percentage points. In terms of relative underperformance to the broader market, the Hot List's worst year was last year. It declined 16.2% while the S&P was flat. Including its 2003 and 2012 partial years, the Hot List has beaten the S&P in six years, or 60% of the time. It has been more volatile than the index, with a beta of about 1.2; that's also clear from the fact that the portfolio has had three years when it has produced negative returns (2007, 2008, and 2011), while the S&P has had just one (2008). Of course, when you look at the portfolio's long-term returns, the additional volatility has been well worth it. So, which of the strategies that go into the Hot List have done particularly well, and which have not? Well, the top overall performer has been the strategy I based on the writings of Motley Fool creators Tom and David Gardner. A 10-stock portfolio picked using this model is up nearly 200% since its inception (also July 15, 2003), or 12.8% annualized (versus that 3.6% S&P figure I mentioned above).While The Fool-based strategy is lagging the market this year, it has put together a remarkable run, beating the S&P in every year of its existence. You would think that a small-cap growth strategy would tend to be more volatile, but the Fool strategy has been successful in large part by limiting losses. Several other portfolios have had significantly better individual years, but the Fool portfolio has had only one negative year -- and that was 2008, when it still beat the S&P by more than 13 percentage points. Another top performer has been my Benjamin Graham-inspired strategy. My 10-stock Graham-based portfolio has gained more than 170% since its July 15, 2003 inception. That's 11.7% annualized, versus that same 3.6% figure for the S&P. The portfolio was my best performer during the horrible 2008 year, losing just 14.1% while the broader market tumbled nearly 3 times that much. It has lagged the index in only two years, one of which was last year, its worst overall year -- the portfolio loss about 19%. All in all though, the strategy -- which Graham outlined more than six decades ago -- has been an exceptional performer. Two other big winners have been my Kenneth Fisher-and James O'Shaughnessy-inspired approaches. The 10-stock Fisher portfolio has gained 10.6% annualized since its inception, while the O'Shaughnessy counterpart is up 9.9% annualized since inception (both inceptions were July 15, 2003. Our other individual guru 10-stock portfolios aren't quite at those double-digit annualized return levels, but nearly every one has beaten the S&P since inception. In fact the lone laggard at this point is the John Neff-inspired portfolio. Since its 2004 inception, it's up 1.4% annualized while the S&P is up 2.5%. I suspect that over the long haul it will come out on top of the index, given that the strategy looks at a number of factors that are used by other successful strategies -- price-earnings ratio, earnings growth, sales growth, and dividend yield, to name a few. Time, of course, will tell. I thought one interesting way to look at all of these portfolios was by assessing how they've done during strong years for the broader market, and during weak years for the broader market. Since 2003, we've had four years that have featured weak returns for the market: 2005 (3%); 2007 (3.5%); 2008 (-38.5%); and 2011 (0%).The other years have all featured games of at least 9%, which I think it's fair to classify it as strong years. We'll start with the weak years. The figures are the average (mean) return for the four weak years: Portfolio Based On Momentum Investor: 6.65% Motley Fool: 2.23% James O'Shaughnessy: -3.73% Kenneth Fisher: -6.33 Benjamin Graham: -7.70% Martin Zweig: -8.95% Joel Greenblatt: -10.83% John Neff: -11.43% Warren Buffett: -11.60% Hot List: -12.08% Joseph Piotroski: -14.40% David Dreman: -15.53% Peter Lynch: -17.48% S&P 500: -8.00% Now, here's how the same strategies performed in the strong years. Figures are the average (mean) return for the six strong years (including the two partial years): Portfolio Hot List: 29.07% Dreman: 27.55% Lynch: 26.08% Graham: 25.75% Fisher: 24.42% Buffett: 23.90% Piotroski: 23.22% O'Shaughnessy: 23.18% Zweig: 22.37% Motley Fool: 20.13% Greenblatt: 20.03% Neff: 17.82% Momentum: 8.18% S&P 500: 13.23% The data shows some things that have played out as you'd expect. For example, during the weaker years, the top two performers have both been growth strategies, while several of the worst performers were deeper value strategies. That makes sense, as, during tough times investors tend to gravitate towards stocks with better, more consistent earnings growth and away from deeper value stocks, which often have some sort of problems or are the subject of fears that make them cheap, but riskier, in the short term. Conversely, during good times, when investors are taking on more risk, the top performers have included several deep value strategies and the worst performer has been the momentum strategy. But the data also shows numerous exceptions. The Peter Lynch strategy has been the worst performer during weak years, for example, despite focusing quite a bit on earnings growth. And, while it has been the best performer during weak years, the Momentum portfolio significantly lagged the market during 2008, when it lost 45%. It's also been the worst performer during strong years, but it nevertheless gained more than 30% in the strong partial 2003 year. The hybrid O'Shaughnessy growth/value model produced very good years during tough times for the broader market in 2005 and 2011, but it lagged the market during 2008 by more than 8 percentage points. It also produced exceptional returns in 2003, 2006, 2009, and 2010, when the market was strong, but just 1% in 2004, another strong year for stocks. So, at the end of the day, even if you knew what the broader market climate would be, it's very hard to say which strategies are more likely to be the best performers. There are a likely a few reasons for that. One is that while the portfolios are in most cases nine years old, the sample size is still relatively small for strong and weak years. Another is that, while they may tilt one way or the other, almost the strategies that go into the Hot List include both growth and value components, making it difficult to classify them as exclusively a growth or value approach. And, markets are strong or weak for different reasons at different times. The 2008 market was crushed by financial stocks, so a strategy like the Graham approach -- whose rigid balance sheet requirements make it all but impossible for a financial stock to make its way into the portfolio (since financials carry a lot of debt due to the nature of their businesses) -- benefited. There thus doesn't seem to be a clear conclusion on which strategies perform best during different environments. But I think that, combined with the long-term success of almost all of these approaches, that does lead to another more general conclusion that is critical to understand: All strategies -- even the best ones -- have ups and downs, and you never know exactly when those ups and downs are coming (particularly when you are using a more focused portfolio like the Hot List, where stock-specific issues have a much bigger impact than they do on a portfolio with, say, 100 stocks). And, as Greenblatt and O'Shaughnessy and other top strategists have stressed, that means you need to stay very disciplined. Jumping from hot strategy to hot strategy while bailing on approaches that have short-term hiccups is a recipe for trouble. Good strategies work over time -- if you let them do their job. The hard part is understanding that good strategies will have short-term underperformance, and not overreacting to those periods, which will cause you to sell low. As Greenblatt has pointed out, his approach has had even three year periods where it has struggled. But over the long haul, he has produced exceptional returns. In the end, there are simply too many factors to take into account to beat the market every week or month or year. But over the longer term, value and fundamental soundness win out, as history has shown. If you have the discipline to stick with a good, fundamental-focused strategy through the market's (and your portfolio's) unpredictable short-term gyrations, you should stay ahead of the game over the longer term.		Editor-in-Chief: John Reese Since Inception   Hot List 140.8% S&P 500 36.4% Accuracy 55.9% Beta 1.2 YTD   Hot List 6.5% S&P 500 8.5% Since Last Issue   Hot List -2.7% S&P 500 -0.8% Avg. Fundamentals   Market Cap (mil) $8,772 PE Ratio 16.5 5 Yr EPS Growth 23.0% Yield 2.2% Rel. Strength 73 Portfolio Sectors Services 3 Consumer Cyclical 2 Financial 2 Capital Goods 1 Energy 1 Technology 1
Advertisement Validea Capital Management - Private Portfolio Management Based on Strategies of Legends Are you looking for an alternative to your underperforming mutual funds or financial advisor? Click here to download Validea Capital's investment kit and learn more about the firm's guru-based portfolios. Get More Information on Validea Capital! ** Validea Capital Management is a separate investment advisory firm managed by Validea.com founder John Reese. Thre information above in not intended as personal investment advice and should not be interpreted as such. The Fallen As we rebalance the Validea Hot List, 4 stocks leave our portfolio. These include: Stamps.com Inc. (STMP), Coinstar, Inc. (CSTR), Tractor Supply Company (TSCO) and Mwi Veterinary Supply, Inc. (MWIV). The Keepers 6 stocks remain in the portfolio. They are: The Tjx Companies, Inc. (TJX), Apollo Group Inc (APOL), Northrop Grumman Corporation (NOC), Lkq Corporation (LKQ), Solarwinds Inc (SWI) and Altisource Portfolio Solutions S.a. (ASPS). The Newbies We are adding 4 stocks to the portfolio. These include: Autoliv Inc. (ALV), Gamestop Corp. (GME), Main Street Capital Corporation (MAIN) and Marathon Petroleum Corp (MPC). Portfolio Changes Additions   AUTOLIV INC. ALV GAMESTOP CORP. GME MAIN STREET CAPITAL CORPORATION MAIN MARATHON PETROLEUM CORP MPC Deletions   STAMPS.COM INC. STMP COINSTAR, INC. CSTR TRACTOR SUPPLY COMPANY TSCO MWI VETERINARY SUPPLY, INC. MWIV Newcomers to the Validea Hot List Autoliv Inc. (ALV) : This Sweden-based automotive safety product maker ($5.3 billion market cap) and its joint ventures have more than 80 facilities in 29 countries, and test cars and auto products at more than 20 crash test tracks around the world. The firm gets strong interest from the models I base on the writings of Kenneth Fisher and Peter Lynch. To learn more about it, scroll down to the "Detailed Stock Analysis" section below. GameStop Corp. (GME): The world's largest multi-channel video game retailer, GameStop offers all sorts of Nintendo, Xbox, and PlayStation games and game units, as well as a variety of computer games and online platforms. The Texas-based company has more than 6,000 stores in the U.S. and 14 other countries, operating under the GameStop, EB Games, and Electronics Boutique names. The firm has a $2.1 billion market cap, and has taken in more than $9 billion in sales over the past 12 months. GameStop gets approval from my Peter Lynch- and Joel Greenblatt-based strategies. To find out more about the stock's fundamentals, see the "Detailed Stock Analysis" section below. Main Street Capital Corporation (MAIN): This Houston-based investment firm offers long-term debt and equity capital to lower middle-market companies (usually those with annual revenues between $10 million and $150 million) and debt capital to middle-market firms. Its investments usually support management buyouts, recapitalizations, growth financings, refinancings and acquisitions of companies that operate in diverse industry sectors. Being a small-cap financial ($670 million market cap), it is more susceptible to volatility, particularly in today's environment. But the stock trades for just 7.6 times trailing 12-month earnings, and comes with a handsome 7% dividend yield. It gets approval from my Peter Lynch-based model, and from the model I base on the writings of Tom and David Gardner of The Motley Fool. To read more about it, see the "Detailed Stock Analysis" section below. Marathon Petroleum Corp. (MPC): This Ohio-based firm was spun off from Marathon Oil about a year ago, and is the nation's fifth-largest transportation fuels refiner. Its gasoline is sold at more than 5,000 retail gas outlets in the U.S., and its subsidiary Speedway LLC owns and operates the nation's fourth-largest convenience store chain. Marathon has a $16 billion market cap and has taken in more than $80 billion in sales over the past year. Marathon gets strong interest from my Peter Lynch- and Joel Greenblatt-based models. For more information on the stock scroll down to the "Detailed Stock Analysis" section below. News about Validea Hot List Stocks SolarWinds Inc. (SWI): SolarWinds' shares jumped nearly 28% over a two-day period after it announced second quarter profit of $19.43 million or $0.26 per share, up sharply from $13.55 million or $0.18 per share a year ago, RTTNews reported. Adjusted earnings were up 50% to $0.33 per share, well outpacing Thomson Reuters analysts estimates of $0.27 per share. Total revenues rose 40%, and the firm upped its full-year forecast.. Stamps.com Inc. (STMP): The firm reported that earnings per share declined in the second quarter, but the results were better than expected. Still, a weaker outlook caused shares to fall 16% on July 26 on the news, The Wall Street Journal reported. The firm's fundamentals deteriorated a bit, and the portfolio is selling the stock this rebalancing. The Next Issue In two weeks, we will publish another issue of the Hot List, at which time we will take a closer look at my strategies and investment approach. If you have any questions, please feel free to contact us at hotlist@validea.com.

Current Portfolio Ticker Company Name Industry Guru Score GME GAMESTOP CORP. Retail (Technology) 73 TJX THE TJX COMPANIES, INC. Retail (Apparel) 71 LKQ LKQ CORPORATION Auto & Truck Parts 67 NOC NORTHROP GRUMMAN CORPORATION Aerospace & Defense 67 SWI SOLARWINDS INC Software & Programming 66 APOL APOLLO GROUP INC Schools 58 ASPS ALTISOURCE PORTFOLIO SOLUTIONS S.A. Consumer Financial Services 57 ALV AUTOLIV INC. Auto & Truck Parts 53 MPC MARATHON PETROLEUM CORP Oil & Gas Operations 47 MAIN MAIN STREET CAPITAL CORPORATION Misc. Financial Services 46 Ticker Market Cap Date Added Start Price Current Price Return GME $2,052 8/3/2012 TBD $15.75 TBD TJX $33,350 3/16/2012 $37.91 $45.01 18.7% LKQ $5,188 5/11/2012 $35.54 $35.02 -1.5% NOC $16,219 7/6/2012 $63.47 $65.61 3.4% SWI $3,941 5/11/2012 $44.75 $53.11 18.7% APOL $2,952 7/6/2012 $36.55 $26.04 -28.8% ASPS $1,816 6/8/2012 $64.94 $77.89 19.9% ALV $5,180 8/3/2012 TBD $54.29 TBD MPC $16,355 8/3/2012 TBD $48.00 TBD MAIN $671 8/3/2012 TBD $24.77 TBD

Detailed Stock Analysis Disclaimer: The analysis is from Validea's selection and interpretation of content from the guru's book or published writings, and is not from nor endorsed by the guru. See Full Disclaimer GME   |   TJX   |   LKQ   |   NOC   |   SWI   |   APOL   |   ASPS   |   ALV   |   MPC   |   MAIN   |   GAMESTOP CORP. Profile Strategy: Price/Sales Investor Based on: Kenneth Fisher GameStop Corp. (GameStop) is a holding company. GameStop is a multichannel video game retailer. It sells new and used video game hardware, physical and digital video game software, accessories, as well as personal computer (PC) entertainment software and other merchandise. As of January 28, 2012, its retail network of brands includes 6,683 Company-operated stores in the United States, Australia, Canada and Europe, primarily under the names GameStop, EB Games and Micromania. It operates in four segments: United States, Canada, Australia and Europe. It also operates electronic commerce Websites under the names www.gamestop.com, www.ebgames.com.au, www.gamestop.ca, www.gamestop.it, www.gamestop.es, www.gamestop.ie, www.gamestop.de, www.gamestop.co.uk and www.micromania.fr. The network also includes www.kongregate.com, Game Informer magazine, Spawn Labs, Inc. and a digital PC distribution platform. On March 31, 2011, GameStop acquired Spawn Labs, Inc. In May 2011, it purchased Impulse Inc. Analysis Guru Score: 80% PRICE/SALES RATIO: [PASS] The prospective company should have a low Price/Sales ratio. Non-cyclical (non-Smokestack) companies with Price/Sales ratios below 0.75 are tremendous values and should be sought. GME's P/S of 0.22 based on trailing 12 month sales, is below 0.75 which is considered quite attractive. It passes this methodology's P/S ratio test with flying colors. TOTAL DEBT/EQUITY RATIO: [PASS] Less debt equals less risk according to this methodology. GME's Debt/Equity of 0.00% is exceptional, thus passing the test. PRICE/RESEARCH RATIO: [PASS] This methodology considers companies in the Technology and Medical sectors to be attractive if they have low Price/Research ratios. GME 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 GME At this Point Is GME a "Super Stock"? NO PRICE/SALES RATIO: [PASS] The prospective company should have a low Price/Sales ratio. Non-cyclical(non-Smokestack) companies with Price/Sales ratios below .75 are tremendous values and should be sought.GME's P/S ratio of 0.22 is below .75 which is considered extremely attractive. It passes this methodology's P/S ratio test with flying colors. LONG-TERM EPS GROWTH RATE: [FAIL] This methodology looks for companies that have an inflation adjusted EPS growth rate greater than 15%. GME's inflation adjusted EPS growth rate of 7.00% fails 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. GME's free cash per share of 3.26 passes this criterion. THREE YEAR AVERAGE NET PROFIT MARGIN: [FAIL] This methodology looks for companies that have an average net profit margin of 5% or greater over a three year period. GME, whose three year net profit margin averages 4.01%, fails this evaluation.   THE TJX COMPANIES, INC. Profile Strategy: Growth Investor Based on: Martin Zweig The TJX Companies, Inc. (TJX) is the off-price apparel and home fashions retailer in the United States and worldwide. As of January 28, 2012, the Company operated in four business segments. It has two segments in the United States, Marmaxx (T.J. Maxx and Marshalls) and HomeGoods; one in Canada, TJX Canada (Winners, Marshalls and HomeSense) and one in Europe, TJX Europe (T.K. Maxx and HomeSense). As a result of the consolidation of the A.J. Wright chain, all A.J. Wright stores ceased operations by the end of February 2011. It completed the consolidation of A.J. Wright, converting 90 of the A.J. Wright stores to T.J. Maxx, Marshalls or HomeGoods banners and closed the remaining 72 stores, two distribution centers and home office. 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. TJX's P/E is 20.86, based on trailing 12 month earnings, while the current market PE is 17.00. 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. TJX's revenue growth is 6.38%, while it's earnings growth rate is 21.47%, based on the average of the 3, 4 and 5 year historical eps growth rates. Therefore, TJX 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 (11.1%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (6%) of the current year. Sales growth for the prior must be greater than the latter. For TJX 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. TJX's EPS ($0.55) pass this test. QUARTERLY EARNINGS ONE YEAR AGO: [PASS] The EPS for the quarter one year ago must be positive. TJX's EPS for this quarter last year ($0.34) 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. TJX's growth rate of 61.76% 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 TJX is 10.74%. This should be less than the growth rates for the 3 previous quarters, which are 21.62%, 15.22%, and 47.62%. TJX 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, 28.00%, (versus the same three quarters a year earlier) is less than the growth rate of the current quarter earnings, 61.76%, (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, 61.76% must be greater than or equal to the historical growth which is 21.47%. TJX 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. TJX, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were 0.84, 1.04, 1.42, 1.65 and 1.93, 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. TJX's long-term growth rate of 21.47%, 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. TJX's Debt/Equity (23.62%) is not considered high relative to its industry (55.23%) 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 TJX, this criterion has not been met (insider sell transactions are 138, while insiders buying number 69). 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.   LKQ CORPORATION Profile Strategy: Growth/Value Investor Based on: James P. O'Shaughnessy LKQ Corporation (LKQ) provides replacement parts, components and systems needed to repair vehicles (cars and trucks). The Company operates in four segments: Wholesale-North America Wholesale-Europe, Self Service and Heavy-Duty Truck. Buyers of vehicle replacement products have the option to purchase from primarily five sources: new products produced by original equipment manufacturers (OEMs), which are known as OEM products; new products produced by companies other than the OEMs, which are sometimes referred to as aftermarket products; recycled products originally produced by OEMs, which it refers to as recycled products; used products that have been refurbished; and used products that have been remanufactured. October 1, 2011, it acquired Euro Car Parts Holdings Limited (ECP). On May 27, 2011, it acquired AkzoNobel Coatings Inc.'s paint distribution business. In February 2012, the Company announced that it had acquired Pieces Automobiles Lecavalier Inc. 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. LKQ, with a market cap of $5,188 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. LKQ, whose annual EPS before extraordinary items for the last 5 years (from earliest to the most recent fiscal year) were 0.53, 0.69, 0.88, 1.15 and 1.42, 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. LKQ's Price/Sales ratio of 1.38, 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. LKQ, whose relative strength is 92, is in the top 50 and would pass this last criterion.   NORTHROP GRUMMAN CORPORATION Profile Strategy: Price/Sales Investor Based on: Kenneth Fisher Northrop Grumman Corporation (Northrop Grumman) provides products, services, and integrated solutions in aerospace, electronics, information and services to its global customers. As of December 31, 2011, the Company operated in four segments: Aerospace Systems, Electronic Systems, Information Systems and Technical Services. The Company conducts most of its business with the United States Government, principally the Department of Defense (DoD) and intelligence community. It also conducts business with local, state, and foreign Governments and domestic and international commercial customers. Effective as of March 31, 2011, the company completed the spin-off of Huntington Ingalls Industries, Inc. (HII). HII operates the Company's former shipbuilding business. Analysis Guru Score: 100% PRICE/SALES RATIO: [PASS] The prospective company should have a low Price/Sales ratio. Non-cyclical (non-Smokestack) companies with Price/Sales ratios below 0.75 are tremendous values and should be sought. NOC's P/S of 0.63 based on trailing 12 month sales, is below 0.75 which is considered quite attractive. It passes this methodology's P/S ratio test with flying colors. TOTAL DEBT/EQUITY RATIO: [PASS] Less debt equals less risk according to this methodology. NOC's Debt/Equity of 36.70% 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. NOC 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 NOC At this Point Is NOC a "Super Stock"? YES PRICE/SALES RATIO: [PASS] The prospective company should have a low Price/Sales ratio. Non-cyclical(non-Smokestack) companies with Price/Sales ratios below .75 are tremendous values and should be sought.NOC's P/S ratio of 0.63 is below .75 which is considered extremely attractive. It passes this methodology's P/S ratio test with flying colors. LONG-TERM EPS GROWTH RATE: [PASS] This methodology looks for companies that have an inflation adjusted EPS growth rate greater than 15%. NOC's inflation adjusted EPS growth rate of 16.28% 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. NOC's free cash per share of 3.85 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. NOC, whose three year net profit margin averages 7.14%, passes this evaluation.   SOLARWINDS INC Profile Strategy: Growth Investor Based on: Martin Zweig SolarWinds, Inc. (SolarWinds) designs, develops, markets, sells and supports enterprise information technology (IT), infrastructure management software to IT professionals in organizations of all sizes. The Company's product offerings range from individual software tools to more comprehensive software products that solve problems encountered by IT professionals. Its products are designed to help management of their infrastructure, including networks, applications, storage and physical and virtual servers, as well as products for log and event management. It offers a portfolio of products for IT infrastructure management. Its products operate in three categories: Free Tools, Transactional Products and Core Products. In January 2011, it acquired Hyper9, Inc. (Hyper9). In July 2011, it acquired TriGeo Network Security, Inc. (TriGeo). In October 2011, it acquired DNS Enterprise, Inc. (DNS). In December 2011, it acquired certain assets of DameWare Development LLC (DameWare). Analysis Guru Score: 85% P/E RATIO: [FAIL] The P/E of a company must be greater than 5 to eliminate weak companies, not more than 3 times the current Market P/E because the situation is much too risky, and never greater than 43. SWI's P/E is 54.12, based on trailing 12 month earnings, while the current market P/E is 17.00. Therefore, it fails 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. SWI's revenue growth is 33.74%, while it's earnings growth rate is 34.99%, based on the average of the 3, 4 and 5 year historical eps growth rates. Therefore, SWI 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 (39.8%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (38.8%) of the current year. Sales growth for the prior must be greater than the latter. For SWI 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. SWI's EPS ($0.26) pass this test. QUARTERLY EARNINGS ONE YEAR AGO: [PASS] The EPS for the quarter one year ago must be positive. SWI's EPS for this quarter last year ($0.18) 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. SWI's growth rate of 44.44% 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 SWI is 17.50%. This should be less than the growth rates for the 3 previous quarters which are 64.71%, 4.76% and 43.75%. SWI 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, 35.19%, (versus the same three quarters a year earlier) is less than the growth rate of the current quarter earnings, 44.44%, (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, 44.44% must be greater than or equal to the historical growth which is 34.99%. SWI 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. SWI, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were 0.25, 0.35, 0.52, 0.61 and 0.84, 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. SWI's long-term growth rate of 34.99%, 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. SWI's Debt/Equity (0.00%) is not considered high relative to its industry (15.82%) 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 SWI, this criterion has not been met (insider sell transactions are 107, while insiders buying number 65). 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.   APOLLO GROUP INC Profile Strategy: Value Investor Based on: Benjamin Graham Apollo Group, Inc. (Apollo Group) is a private education provider. The Company offers educational programs and services both online and on-campus at the undergraduate, master's and doctoral levels through its wholly owned subsidiaries, The University of Phoenix, Inc. (University of Phoenix); Institute for Professional Development (IPD); The College for Financial Planning Institutes Corporation (CFFP), and Meritus University, Inc. (Meritus). Apollo Group also formed a joint venture with The Carlyle Group (Carlyle), called Apollo Global, Inc. (Apollo Global), to pursue investments primarily in the international education services industry. As of August 31, 2011, Apollo Group owned 85.6% of Apollo Global, with Carlyle owning the remaining 14.4%. During the year ended December 31, 2011, the Other Schools segment includes IPD and CFFP, as well as Meritus University, Inc. (Meritus), which ceased operations. Analysis Guru Score: 71% SECTOR: [PASS] APOL 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. APOL's sales of $4,401.2 million, based on trailing 12 month sales, pass this test. CURRENT RATIO: [FAIL] The current ratio must be greater than or equal to 2. Companies that meet this criterion are typically financially secure and defensive. APOL's current ratio of 1.22 fails the test. LONG-TERM DEBT IN RELATION TO NET CURRENT ASSETS: [PASS] For industrial companies, long-term debt must not exceed net current assets (current assets minus current liabilities). Companies that meet this criterion display one of the attributes of a financially secure organization. The long-term debt for APOL is $90.2 million, while the net current assets are $231.0 million. APOL 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. APOL's EPS growth over that period of 318.4% 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. APOL's P/E of 6.70 (using the 3 year PE) passes this test. PRICE/BOOK RATIO: [FAIL] The Price/Book ratio must also be reasonable. That is, the Price/Book multiplied by P/E cannot be greater than 22. APOL's Price/Book ratio is 3.48, while the P/E is 6.70. APOL fails the Price/Book test.   ALTISOURCE PORTFOLIO SOLUTIONS S.A. Profile Strategy: Growth Investor Based on: Martin Zweig Altisource Portfolio Solutions S.A.( Altisource), together with its subsidiaries, is a provider of services focused on technology-enabled, knowledge-based functions related to real estate and mortgage portfolio management, asset recovery and customer relationship management. The Company operates in three segments: Mortgage Services, Financial Services and Technology Services. In April 2011, the Company acquired Springhouse, LLC (Springhouse). In July 2011, the Company acquired the assembled workforce of a sub-contractor (Tracmail) in India. Analysis Guru Score: 92% 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. ASPS's P/E is 24.10, based on trailing 12 month earnings, while the current market PE is 17.00. 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. ASPS's revenue growth is 35.11%, while it's earnings growth rate is 78.64%, based on the average of the 3, 4 and 5 year historical eps growth rates. Sales growth is not at least 85% of EPS growth so the initial part of this criteria is not met, however, since both sales growth and eps growth are greater than 30%, that requirement is waived and the company passes this test. 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 (56.8%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (44.3%) of the current year. Sales growth for the prior must be greater than the latter. For ASPS 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. ASPS's EPS ($1.02) pass this test. QUARTERLY EARNINGS ONE YEAR AGO: [PASS] The EPS for the quarter one year ago must be positive. ASPS's EPS for this quarter last year ($0.57) 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. ASPS's growth rate of 78.95% 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 ASPS is 39.32%. This should be less than the growth rates for the 3 previous quarters which are -16.13%, 81.08% and 59.38%. ASPS 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, 35.58%, (versus the same three quarters a year earlier) is less than the growth rate of the current quarter earnings, 78.95%, (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, 78.95% must be greater than or equal to the historical growth which is 78.64%. ASPS 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. ASPS, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were 0.28, 0.38, 1.07, 1.88 and 2.77, 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. ASPS's long-term growth rate of 78.64%, based on the average of the 3, 4 and 5 year historical eps growth rates, 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 ASPS, this criterion has not been met (insider sell transactions are 7, while insiders buying number 20). Despite the lack of an insider buy signal, there also is not an insider sell signal, so the stock passes this criterion.   AUTOLIV INC. Profile Strategy: P/E/Growth Investor Based on: Peter Lynch Autoliv, Inc. (Autoliv) is a holding company. Autoliv is the supplier of automotive safety systems, with a range of product offerings, including modules and components for passenger and driver-side airbags, side-impact airbag protection systems, seatbelts, steering wheels, safety electronics, whiplash protection systems and child seats, as well as night vision systems, radar and other active safety systems. Autoliv has two main operating segments: airbags/seatbelt (including restraint electronics) products and active safety electronics products. In addition, in April 2010, Autoliv Inc.'s Automotive Holding AS increased its stake in Norma AS from 51% to 93.74%. Additionally, Skandinaviska Enskilda Banken AB and ING Luxembourg SA sold their 6.67% and 10% stake, respectively, held in Norma AS. In November 2011, the Company acquired the airbag cushion cut&sew assets from Milliken. In June 2012, the Company sold its subsidiary Autoliv Mekan AB to Verktygs Allians i Hassleholm AB. Analysis Guru Score: 93% DETERMINE THE CLASSIFICATION: This methodology would consider ALV a "fast-grower". P/E/GROWTH RATIO: [PASS] The investor should examine the P/E (9.73) relative to the growth rate (21.56%), 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 ALV (0.45) 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. ALV, whose sales are $8,330.0 million, needs to have a P/E below 40 to pass this criterion. ALV's P/E of (9.73) 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 ALV was 7.83% last year, while for this year it is 7.57%. Since inventory to sales has decreased from last year by -0.26%, ALV 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 ALV is 21.6%, based on the average of the 3, 4 and 5 year historical eps growth rates, which is considered very good. TOTAL DEBT/EQUITY RATIO: [PASS] This methodology would consider the Debt/Equity ratio for ALV (18.07%) 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 ALV (4.64%) 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 ALV (5.16%) 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.   MARATHON PETROLEUM CORP Profile Strategy: Price/Sales Investor Based on: Kenneth Fisher Marathon Petroleum Corporation (MPC) is a petroleum product refiners, transporters and marketers in the United States. The Company operates in three segments: Refining & Marketing, Speedway and Pipeline Transportation. Marathon Petroleum's refining, marketing and transportation operations are concentrated in the Midwest, Gulf Coast and Southeast regions of the United States. MPC has two retail brands: Speedway and Marathon. The Company owned and operated six refineries in the Gulf Coast and Midwest regions of the United States with an aggregate crude oil refining capacity of approximately 1.2 million barrels per calendar day as of December 31, 2011. Effective as of June 30, 2011, MPC was separated from Marathon Oil Corporation (Marathon Oil) and became an independent company in a spin-off transaction. 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 ratios below 0.75 are tremendous values and should be sought. MPC's P/S of 0.20 based on trailing 12 month sales, is below 0.75 which is considered quite attractive. It passes this methodology's P/S ratio test with flying colors. TOTAL DEBT/EQUITY RATIO: [PASS] Less debt equals less risk according to this methodology. MPC's Debt/Equity of 34.79% 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. MPC 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 MPC At this Point Is MPC a "Super Stock"? NO PRICE/SALES RATIO: [PASS] The prospective company should have a low Price/Sales ratio. Non-cyclical(non-Smokestack) companies with Price/Sales ratios below .75 are tremendous values and should be sought.MPC's P/S ratio of 0.20 is below .75 which is considered extremely attractive. It passes this methodology's P/S ratio test with flying colors. LONG-TERM EPS GROWTH RATE: [PASS] This methodology looks for companies that have an inflation adjusted EPS growth rate greater than 15%. MPC's inflation adjusted EPS growth rate of 15.31% 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. MPC's free cash per share of 5.49 passes this criterion. THREE YEAR AVERAGE NET PROFIT MARGIN: [FAIL] This methodology looks for companies that have an average net profit margin of 5% or greater over a three year period. MPC, whose three year net profit margin averages 1.67%, fails this evaluation.   MAIN STREET CAPITAL CORPORATION Profile Strategy: Contrarian Investor Based on: David Dreman Main Street Capital Corporation (MSCC) is a principal investment firm primarily focused on providing customized debt and equity financing to lower middle market (LMM) companies, which it generally define as companies with annual revenues between $10 million and $100 million that operate in diverse industries. Main Street's LMM portfolio investments principally consist of secured debt, equity warrants and direct equity investments in privately held LMM companies. Main Street's privately placed portfolio investments consist of primarily debt investments in middle market businesses that are generally larger in size than the portfolio companies within the LMM portfolio. Its LMM portfolio investments range in size from $5 million to $25 million. As of December 31, 2011, it had debt and equity investments in 54 LMM portfolio companies. On February 29, 2012, MSCC completed the exit of its debt investment and a portion of its equity investments in Drilling Info, Inc., (Drilling Info). Analysis Guru Score: 76% MARKET CAP: [FAIL] Medium to large-sized companies (the largest 1500 companies) should be chosen, because they are more in the public eye. Furthermore, the investor is exposed to less risk of "accounting gimmickry", and companies of this size have more staying power. MAIN has a market cap of $671 million, therefore failing the test. EARNINGS TREND: [PASS] A company should show a rising trend in the reported earnings for the most recent quarters. MAIN's EPS for the past 2 quarters, (from earliest to most recent quarter) 0.80, 0.88 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. Unfortunately, we do not have sufficient data available on MAIN at this time. This methodology would utilize four separate criteria to determine if MAIN 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. MAIN's P/E of 7.62, based on trailing 12 month earnings, meets the bottom 20% criterion (below 8.30), and therefore passes this test. PRICE/CASH FLOW (P/CF) RATIO: [FAIL] The P/CF of a company should be in the bottom 20% of the overall market. MAIN's P/CF of 10.32 does not meet the bottom 20% criterion (below 4.57), and therefore fails this test. PRICE/BOOK (P/B) VALUE: [FAIL] The P/B value of a company should be in the bottom 20% of the overall market. MAIN's P/B is currently 1.58, which does not meet the bottom 20% criterion (below 0.66), and it therefore fails this test. PRICE/DIVIDEND (P/D) RATIO: [PASS] The P/D ratio for a company should be in the bottom 20% of the overall market (that is the yield should be in the top 20%). MAIN's P/D of 14.25 meets the bottom 20% criterion (below 18.76 or yield above 3.7% ), and it therefore passes this test. This methodology maintains that investors should look for as many healthy financial ratios as possible to ascertain the financial strength of the company. These criteria are detailed below. PAYOUT RATIO: [PASS] A good indicator that a company has the ability to raise its dividend is a low payout ratio. The payout ratio for MAIN is 51.74%, while its historical payout ratio has been 135.92%. Therefore, it passes the payout criterion. RETURN ON EQUITY: [PASS] The company should have a high ROE, as this helps to ensure that there are no structural flaws in the company. This methodology feels that the ROE should be greater than the top one third of ROE from among the top 1500 large cap stocks, which is 17.32%, and would consider anything over 27% to be staggering. The ROE for MAIN of 20.53% 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. MAIN's pre-tax profit margin is 115.20%, thus passing this criterion. YIELD: [PASS] The company in question should have a yield that is high and that can be maintained or increased. MAIN's current yield is 7.02%, while the market yield is 2.80%. MAIN passes this test.   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 MWIV MWI VETERINARY SUPPLY, INC. Medical Equipment & Supplies 54 PMT PENNYMAC MORTGAGE INVESTMENT TRUST Real Estate Operations 40 AZN ASTRAZENECA PLC (ADR) Biotechnology & Drugs 38 STO STATOIL ASA(ADR) Oil & Gas - Integrated 38 TX TERNIUM S.A. (ADR) Iron & Steel 38 HFC HOLLYFRONTIER CORP Oil & Gas Operations 38 ARB ARBITRON INC. Business Services 37 FRX FOREST LABORATORIES, INC. Biotechnology & Drugs 36 PL PROTECTIVE LIFE CORP. Insurance (Life) 36 USTR UNITED STATIONERS INC. Office Supplies 36

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