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Executive Summary	October 2, 2009

The Economy The latest economic data is continuing to paint the picture of an economy in recovery, though questions abound about just how fast and far that recovery will run. Some of the good recent news has come from the housing sector. The bursting of the housing bubble did major damage to homeowners and was a crucial factor in the credit crisis of 2008, as the mortgage-backed securities banks binged on plummeted in value. But the housing market is now showing signs of a sustained recovery, as pending home sales rose in August for the seventh straight month, according to the National Association of Realtors. The group's pending home sales index jumped 6.4% from its July level, and is now at its highest level since March of 2007. In addition, home prices are on the rise. The S&P/Case-Shiller home-price index rose 1.2% in July, according to data released this week -- its biggest gain since October 2005. Yale economist Robert Shiller -- co-creator of the index and one of the few to predict the housing crisis -- told The Wall Street Journal that with the July figures marking the third straight monthly gain, "it looks like a major turnaround. We have some concern that it could be an aberration and temporary. But, at this point, it seems to be evident in just about every city in the U.S. That suggests it's real." Still, there's reason for caution in the housing market. The NAR said that not all contracts are turning into closed sales within an expected timeframe, because of long delays related to short sales, and issues regarding complex new appraisal rules. In addition, there may be some double counting because buyers whose contracts fall through then go on to find and sign contracts for other homes, the group said. And Shiller said he now expects the housing market to move sideways for the next five years or so. The broader economy also continues to give signs that a recovery is in progress. The Commerce Department reported this week that gross domestic product actually decreased at an annualized rate of just 0.7% in the second quarter, better than the 1.0% decline previously reported. While still indicating a contraction, the better-than-expected results appear to give credence to the belief that we'll see growth in the third quarter for the first time since the second quarter of 2008. Consumer spending also jumped in August, according to a new Commerce Department report, rising 1.3% -- the largest increase in almost eight years. It was the fourth straight month the figure increased, an encouraging sign given that consumer spending makes up about two-thirds of the U.S. economy. There are, however, caveats to the GDP and spending numbers. First, the big increase in spending appears to have been driven in large part by the government's now-complete "Cash for Clunkers" auto rebate plan -- though spending on non-durable goods and services did also increase slightly. Second, unemployment remains high, with no signs of waning. New first-time claims for unemployment benefits rose last week, and ADP's employment report estimated that about a quarter of a million jobs were cut in the U.S. private sector in September. The Labor Department is slated to announce today the national unemployment rate for September, and the market will surely be watching. Elsewhere, the manufacturing sector continued to expand in September -- though at a slower-than-expected pace -- with the Institute for Supply Management's manufacturing index coming in at 52.6. (Anything above 50 indicates an expansion.) It was the second straight month of expansion after a year-and-a-half of monthly contractions. The mixed economic news led to an up-and-down fortnight for the stock market, with Thursday's rough day leaving the S&P 500 down 3.3% since our last newsletter. The Hot List, meanwhile, fell 4.0%. For the year, the portfolio remains well ahead of the S&P, having gained 37.3% compared to the index's 14.0%. And since its inception in July 2003, the Hot List is far outpacing the broader market, having gained 125.2% vs. the S&P's 2.9% gain. Looking South This rebalancing, the Hot List is making a pretty significant overhaul of the portfolio, saying goodbye to half of its holdings and replacing them with five new stocks that now rate higher using my Guru Strategies. Four of the five departing firms -- Capella Education, Tower Group, General Dynamics, and Sturm, Ruger & Company -- have made either one- or two-month stints in the portfolio, ending up with relatively minor gains or losses. The fifth -- Jos. A. Bank Clothiers -- is a different story. Bank joined the Hot List back in February when it was trading at $23.85 a share and the retail picture was bleak. It has since surged over $40 a share, and the Hot List is now taking the profits on an 85% or so gainer. Bank was a great example of how sticking to a strategy that rewards fundamentals is critical -- even when negative headlines are everywhere. To replace the five departing stocks, the Hot List is heading below the Equator, to South America, where three of the five newbies are headquartered. Its journey down south comes at a time when several top strategists are also looking to emerging markets. Mark Mobius, Robin Geffen (one of the U.K.'s most successful managers), Jeremy Grantham, and Marc Faber have all recently said they see strong potential in emerging or "frontier" markets. There are two main reasons for the emerging market optimism. One is that, in part because they are still in the earlier stages of development and in part because they were not as impacted by the subprime crisis as the developed world, emerging market nations are expected to be strong engines of global growth moving forward. The other factor is that they offer a currency hedge against potential inflation in the U.S. and other developed nations that have used big stimulus packages and low interest rates to try to jumpstart their economies. As a fundamental-based system, the Hot List is focused more on the former than the latter, and the new additions to the portfolio reflect that. For example, take MercadoLibre, an Argentina-based online commerce platform that is one of the portfolio's new additions this rebalancing. In its most recent quarter (Q2 of this year), the firm's sales jumped 20%, and its profit more than doubled. Profits also more than doubled in 2009's first quarter, and that was after nearly doubling in the full 2008 year. Similarly, another of the new additions, Peru-based financial firm Credicorp, increased EPS slightly in 2008 while many other financials around the globe were hammered. Its EPS also jumped more than 50% in its most recent quarter. What's important to remember about emerging markets, however, is that high-growth regions don't mean high profit growth for all. In any economy, some businesses will thrive, others will plug along, and others will fail, and haphazardly adding companies from attractive regions to your portfolio is a good way to lose money. As with all of the stocks in the Hot List, the three South American firms have solid fundamentals and businesses that have proven they can grow even through tough environments -- that, not their location, is what really makes them attractive plays. Fund Flaws The other issue I'd like to touch on this week involves mutual fund performance. One of the topics that I covered in my most recent book, The Guru Investor, was the fact that studies show the majority of mutual funds tend to underperform the broader market indices. John Bogle -- the renowned founder of the Vanguard Group -- once told a Congressional committee, for example, that the average equity fund returned 10.5% annually from 1950 through 1970, while the S&P 500 averaged a 12.1% return. From 1983 through 2003, as mutual funds became more popular, the gap widened, according to Bogle: The average equity fund returned 10.3% annually, while the S&P returned 13% per year. Those gaps are bigger than you might think: A $10,000 investment that grows at 13% per year compounded annually, for example, will give you a little more than $115,000 after 20 years; at 10.3% per year, you'd end up with about $71,000. James O'Shaughnessy, one of the gurus upon whom I base a strategy, found similar results. In his book What Works on Wall Street, he looked at what percentage of equity funds beat the S&P 500 over a series of 10-year periods, beginning with the 10-year period that ended in 1991 and ending with the 10-year period that ended in 2003. According to O'Shaughnessy, "the best 10 years, ending December 31, 1994, saw only 26% of the traditionally managed active mutual funds beating the [S&P] index." And, he noted that these statistics didn't include all the funds that failed to survive a particular 10-year period, meaning that his findings actually overstate the collective performance of equity funds. In a recent update of its SPIVA Scorecard, Standard & Poor's has highlighted newer information that appears to support Bogle's and O'Shaughnessy's research. S&P looked at the two most recent five-year periods (1999-2003 and 2004-2008) and found that for almost every style box category in those two periods, the majority of actively managed funds lagged their benchmark index. In the 1999-2003 period, 91.36% of mid-cap funds lagged the S&P MidCap 400 index, while 69.38% of small-cap funds lagged the S&P SmallCap 600 index. Large-cap funds fared better, but 53.41% of them still lagged the S&P 500. From 2004-2008, the numbers for actively managed funds were worse, with 71.90% of large-cap funds lagging their benchmark; 79.06% of mid-cap funds lagging their benchmark; and 85.45% of small-cap funds lagging their benchmark. There are several reasons the majority of funds struggle to beat broader market indices -- among them are high fees and the career risk managers take when they don't follow the crowd (and to beat the market, you have to sometimes go against the crowd). But the bottom line is that if you want to beat the market, mutual funds are generally not the place to be. That's the lesson I learned that the hard way when I started investing years and years ago, and it's what led me to create the guru-based computer models that drive the Hot List. Since their inceptions (most of which were in July of 2003), all 12 of the 10-stock individual-guru-based portfolios I track are beating the S&P 500, and 11 are doing so by more than 3.5 percentage points per year. And the Hot List is beating the S&P by more than 15 percentage points per year. To me, that's proof that individual investors can beat the market on their own, without the help (or, more often, hindrance) of fund managers. But to give yourself the best chance to do so, you have to stick to proven strategies that reward solid, fundamentally sound stocks -- and you have to stay disciplined, even when the market seems terrifying, like it did last year. If you have the stomach to do that, you have what you need to leave most mutual funds in the dust.		Editor-in-Chief: John Reese Since Inception   Hot List 125.2% S&P 500 2.9% Accuracy 56.3% Beta 1.2 YTD   Hot List 37.3% S&P 500 14.0% Since Last Issue   Hot List -4.0% S&P 500 -3.3% Avg. Fundamentals   Market Cap (mil) $16,508 PE Ratio 19.8 5 Yr EPS Growth 39.6% Yield 1.9% Rel. Strength 73 Portfolio Sectors Energy 3 Financial 2 Services 2 Technology 2 Basic Materials 1
Hot List Editor John Reese Announces Publication of New Book The Guru Investor shows you how to implement the strategies of Wall Street legends like Warren Buffett, Peter Lynch and Benjamin Graham in your own portfolio. Buy Your Copy Now! The Fallen As we rebalance the Validea Hot List, 5 stocks leave our portfolio. These include: General Dynamics Corporation (GD), Jos. A. Bank Clothiers, Inc. (JOSB), Sturm, Ruger & Company (RGR), Tower Group, Inc. (TWGP) and Capella Education Company (CPLA). The Keepers 5 stocks remain in the portfolio. They are: Frontier Oil Corporation (FTO), World Fuel Services Corporation (INT), Chevron Corporation (CVX), Aeropostale, Inc. (ARO) and Vanceinfo Technologies Inc. (VIT). The Newbies We are adding 5 stocks to the portfolio. These include: Humana Inc. (HUM), Reliance Steel & Aluminum (RS), Credicorp Ltd. (Usa) (BAP), Brasil Telecom Participacoes Sa (Adr) (BRP) and Mercadolibre, Inc. (MELI). Portfolio Changes Additions   HUMANA INC. HUM RELIANCE STEEL & ALUMINUM RS CREDICORP LTD. (USA) BAP BRASIL TELECOM PARTICIPACOES SA (ADR) BRP MERCADOLIBRE, INC. MELI Deletions   GENERAL DYNAMICS CORPORATION GD JOS. A. BANK CLOTHIERS, INC. JOSB STURM, RUGER & COMPANY RGR TOWER GROUP, INC. TWGP CAPELLA EDUCATION COMPANY CPLA Newcomers to the Validea Hot List Credicorp Ltd. (BAP): Peru's leading financial holding company, Credicorp's businesses include commercial banking, insurance, and investment banking, with its largest holding being Banco de Credito del Peru. Credicorp has a $6.2 billion market cap, and has taken in about $1.4 billion in sales in the past 12 months. Credicorp gets strong interest from both my Peter Lynch-based model and my Momentum Investor strategy. To find out why, see the "Detailed Stock Analysis" section below. Humana Inc. (HUM): Based in Louisville, Ky., Humana is a health and supplemental benefits company that has over 10 million medical members and almost 7 million specialty members. The $6.3-billion-market-cap firm offers a variety of plans for employer groups, government programs, and individuals, and has taken in more than $30 billion in sales in the past year. My Peter Lynch-based model has strong interest in Humana. Find out why in the "Detailed Stock Analysis" section below. MercadoLibre, Inc. (MELI): This Argentina-based firm hosts online commerce and payment platforms in Latin America, allowing users to buy and sell a wide variety of merchandise through their site. It is a market leader in Argentina, Brazil, Chile, Colombia, Ecuador, Mexico, Peru, Uruguay and Venezuela, based on unique visitors and page views, and has also recently launched online trading platforms in Costa Rica, the Dominican Republic and Panama. The firm has a $1.7 billion market cap, and has taken in about $150 million in sales over the past year. MercadoLibre gets approval from two of my growth models, my Momentum Investor approach and my Motley Fool-based strategy. The "Detailed Stock Analysis" section below explains why. Reliance Steel & Aluminum Co. (RS): One of the largest metals service center firms in the U.S., Reliance makes over 100,000 metal products that range from stainless steel to aluminum to brass to copper and beyond. Based in Los Angeles, it has a $3.1 billion market cap, and has taken in more than $7.5 billion in sales in the past year. Reliance gets strong interest from my Benjamin Graham-, Peter Lynch-, and James O'Shaughnessy-based approaches. To find out why, see the "Detailed Stock Analysis" section below. News about Validea Hot List Stocks Chevron Corp. (CVX): This week, Chevron announced that Vice Chairman John Watson will succeed retiring David O'Reilly as chairman and chief executive officer at the end of the year, MarketWatch reported. Watson, 52, now oversees strategic planning; business development; policy, government and public affairs; major capital projects support; procurement, and corporate compliance. Reliance Steel & Aluminum Co. (RS): On Sept. 29, Reliance said it expects third-quarter profit will be 40 to 45 cents per share, far ahead of analysts' estimates of 31 cents, the Associated Press reported. The higher guidance figures reflect improving gross profit margins, increased shipping volumes, and higher prices, AP said. The Next Issue In two weeks, we will publish another issue of the Hot List, at which time we will examine one of my individual Guru Strategies in greater depth. 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 76 VIT VANCEINFO TECHNOLOGIES INC. Software & Programming 73 FTO FRONTIER OIL CORPORATION Oil & Gas Operations 72 RS RELIANCE STEEL & ALUMINUM Misc. Fabricated Products 68 ARO AEROPOSTALE, INC. Retail (Apparel) 66 MELI MERCADOLIBRE, INC. Computer Services 65 BAP CREDICORP LTD. (USA) Regional Banks 60 BRP BRASIL TELECOM PARTICIPACOES SA (ADR) Communications Services 56 HUM HUMANA INC. Insurance (Accident & Health) 49 CVX CHEVRON CORPORATION Oil & Gas - Integrated 39 Ticker Market Cap Date Added Start Price Current Price Return INT $1,376 9/4/2009 $45.32 $46.45 2.5% VIT $697 9/4/2009 $13.07 $17.82 36.3% FTO $1,411 6/12/2009 $14.67 $13.48 -8.1% RS $3,035 10/2/2009 TBD $41.30 TBD ARO $2,823 9/4/2009 $41.66 $42.02 0.9% MELI $1,631 10/2/2009 TBD $37.00 TBD BAP $6,095 10/2/2009 TBD $76.42 TBD BRP $3,686 10/2/2009 TBD $50.85 TBD HUM $6,325 10/2/2009 TBD $37.28 TBD CVX $137,999 5/15/2009 $65.88 $68.81 4.4%

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   |   VIT   |   FTO   |   RS   |   ARO   |   MELI   |   BAP   |   BRP   |   HUM   |   CVX   |   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 (11.19) 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 (0.36) 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. 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 (11.19) 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 (28.35%) 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 (22.44%) 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.   VANCEINFO TECHNOLOGIES INC. Profile Strategy: Growth Investor Based on: Martin Zweig 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: 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. VIT's P/E is 38.72, 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. VIT's revenue growth is 64.41%, while it's earnings growth rate is 34.29%, based on the average of the 3, 4 and 5 year historical eps growth rates. Therefore, VIT passes this criterion. SALES GROWTH RATE: [FAIL] Another important issue regarding sales growth is that the rate of quarterly sales growth is rising. To evaluate this, the change from this quarter last year to the present quarter (41.5%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (46.8%) of the current year. Sales growth for the prior must be greater than the latter. For VIT this criterion has not been met and fails this test. The earnings numbers of a company should be examined from various different angles. Three of these angles are stability in the trend of earnings, earnings persistence, and earnings acceleration. To evaluate stability, the stock has to pass the following four criteria. CURRENT QUARTER EARNINGS: [PASS] The first of these criteria is that the current EPS be positive. VIT's EPS ($0.13) pass this test. QUARTERLY EARNINGS ONE YEAR AGO: [PASS] The EPS for the quarter one year ago must be positive. VIT's EPS for this quarter last year ($0.09) 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. VIT's growth rate of 44.44% 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 VIT is 17.15%. This should be less than the growth rates for the 3 previous quarters, which are 83.33%, 160.00%, and 25.00%. VIT 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, 78.95%, (versus the same three quarters a year earlier) is greater than the growth rate of the current quarter earnings, 44.44%, (versus the same quarter one year ago) then the stock fails, with one exception: if the growth rate in earnings between the current quarter and the same quarter one year ago is greater than 30%, then the stock would pass. The growth rate over this period for VIT is 44.4%, and it would therefore pass this test. 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 34.29%. VIT would therefore pass this test. EARNINGS PERSISTENCE: [FAIL] Companies must show persistent yearly earnings growth. To fulfill this requirement a company's earnings must increase each year for a five year period. VIT, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were 0.05, 0.13, 0.07, 0.19, and 0.40, fails this test. LONG-TERM EPS GROWTH: [PASS] One final earnings test required is that the long-term earnings growth rate must be at least 15% per year. VIT's long-term growth rate of 34.29%, 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. VIT's Debt/Equity (0.00%) is not considered high relative to its industry (22.57%) 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 VIT, this criterion has not been met (insider sell transactions are 0, while insiders buying number 0). Despite the lack of an insider buy signal, there also is not an insider sell signal, so the stock passes this criterion.   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: 100% 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: [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. FTO's P/E of 14.47 (using the current PE) passes this test. PRICE/BOOK RATIO: [PASS] The Price/Book ratio must also be reasonable. That is, the Price/Book multiplied by P/E cannot be greater than 22. FTO's Price/Book ratio is 1.21, while the P/E is 14.47. FTO passes the Price/Book test.   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 (13.15) 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 (0.33) 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 (13.15) 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 (15.91%) 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 (-37.57%) 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.   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 $42.02. An investor, purchasing ARO, could expect to receive a 6.35% 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 6.35%, 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 $6.40. 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 $94.38 in ten years. If it can still earn 30.9% on equity in ten years, then expected EPS will be $29.15. CALCULATE THE FUTURE STOCK PRICE BASED ON THE AVERAGE ROE METHOD: [No Pass/Fail] Now take the expected future EPS of $29.15 and multiply them by the lower of the 5 year average P/E ratio or current P/E ratio (15.7) (5 year average P/E in this case), which is 15.6 and you get ARO's projected future stock price of $453.90. 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 $453.90. 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 $10.96. Now multiply EPS in 10 years by the lower of the 5 year average P/E ratio or current P/E ratio (15.7) (5 year average P/E in this case), which is 15.6. This equals the future stock price of $170.68. Add in the total expected dividend pool of $0.00 to get a total dollar amount of $170.68. 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 $42.02 and the future expected stock price, including the dividend pool, of $170.68. If you were to invest in ARO at this time, you could expect a 15.0% 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 15.0% 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.   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: 93% 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 93, 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 0.29), 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: [PASS] MELI passes the Daily Dollar Volume (DDV of $24.2 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. MELI with a price of $37.00 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.   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 (18.37) 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 (0.66) 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 (18.37) 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 (3.95%) 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 (2.50%) 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.   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 $3,686 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) 0.38, 0.39 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 (8.33%) does not beat that of the S&P (12.67%). 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 7.35, based on trailing 12 month earnings, meets the bottom 20% criterion (below 9.65), 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 1.90 meets the bottom 20% criterion (below 5.20) 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 1.17, which does not meet the bottom 20% criterion (below 0.69), 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 100.04%. 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 2.98%. 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.   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 (71.29%) is considered very favorable.   CHEVRON CORPORATION Profile Strategy: P/E/Growth Investor Based on: Peter Lynch 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: 93% DETERMINE THE CLASSIFICATION: This methodology would consider CVX a "fast-grower". P/E/GROWTH RATIO: [PASS] The investor should examine the P/E (8.52) relative to the growth rate (21.78%), 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 CVX (0.39) 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. CVX, whose sales are $200,405.0 million, needs to have a P/E below 40 to pass this criterion. CVX's P/E of (8.52) 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 CVX was 2.40% last year, while for this year it is 2.51%. 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 (0.11%) 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 CVX is 21.8%, 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 CVX (13.71%) 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 CVX (3.40%) 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 CVX (-1.19%) 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 JOSB JOS. A. BANK CLOTHIERS, INC. Retail (Apparel) 47 GYMB THE GYMBOREE CORPORATION Retail (Apparel) 47 ESV ENSCO INTERNATIONAL INCORPORATED Oil Well Services & Equipment 46 CHE CHEMED CORPORATION Healthcare Facilities 46 TDW TIDEWATER INC. Water Transportation 46 ASIA ASIAINFO HOLDINGS, INC. Software & Programming 42 AGNC AMERICAN CAPITAL AGENCY CORP. Real Estate Operations 42 NE NOBLE CORPORATION Oil Well Services & Equipment 41 LUFK LUFKIN INDUSTRIES, INC. Oil Well Services & Equipment 41 MGLN MAGELLAN HEALTH SERVICES, INC. Healthcare Facilities 41

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