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Executive Summary	November 12, 2010

The Economy While the tenor of the economic discourse remains quite pessimistic, the U.S. economy is continuing to show significant signs of progress. One area where we're seeing that progress: unemployment. While the overall job market picture remains a concern, a couple positive signs have emerged since our last newsletter. First, the Labor Department announced that the private sector added 159,000 jobs in October, with one big source of the gains being the service sector. A solid increase in service-type jobs is a great sign, given the sector's huge role in the U.S. economy. It's a sign that firms may be getting more demand than expected, meaning the U.S. consumer may not be as tapped out as many have feared. The report also showed that average hours worked and average hourly wages both increased. The second piece of good labor market news came from the Labor Department's latest data on new claims for unemployment. New claims fell to 435,000 in the week ending Nov. 6, the lowest level in four months. And, the four-week moving average fell to its lowest level since the collapse of Lehman Brothers triggered the financial crisis in September 2008. Continuing claims for unemployment, both in terms of the weekly figure and the four-week moving average, also fell in the most recent weeks for which data was available. Positive signs also continued to come from the manufacturing sector. Bears have been predicting that the strong manufacturing rebound we've seen over the past year-plus is headed for trouble, but the sector just keeps on growing. In October, the Institute for Supply Management's manufacturing index not only showed an expansion in the sector, but an acceleration of growth, as the index hit its highest level in five months. And while many had viewed a significant deceleration in new orders in September as reason for concern, ISM's new orders sub-index jumped back up in October to its highest level since May. ISM's non-manufacturing index, meanwhile, showed accelerating growth in the service sector, another sign that U.S. demand and consumer spending may be higher than many have feared. In the housing market, the National Association of Realtors said its Pending Home Sales Index, a forward-looking indicator, dipped 1.8% in September. Overall, a couple big factors -- the foreclosure moratorium and the expiration of the government's homebuyer tax credit program -- are making it difficult to get a true read on the housing market right now. Finally, details are emerging about the Federal Reserve's latest quantitative easing plan. Under the program, the Fed will buy $600 billion in Treasuries through the first half of next year. The first phase of the program is expected to start today (Nov. 12), and involves the purchase of $105 billion of Treasury bonds through Dec. 9, Forbes reported. The impact of this new round of quantitative easing ("QE2") is of course being widely debated. It certainly would seem that all of the Fed's money printing will result in some long-term inflation, though to what extent remains to be seen. The generally positive economic news has helped push the market higher since our last newsletter. The S&P 500 returned 2.5% for the fortnight, while the Hot List returned 8.7%. For the year, the portfolio has gained 13.4% vs. 8.8% for the S&P. Since its inception in July 2003, the Hot List is far outpacing the index, having gained 173.3% vs. the S&P's 21.3% gain. Hold The Froth Given the market's recent turnaround and some sentiment statistics that are being highlighted in the media, you might think that investors are becoming pretty optimistic. The S&P 500 is up about 15% since Aug. 30, and the American Association of Individual Investors' weekly sentiment survey, which measures whether investors are bullish, bearish, or neutral on stocks for the next six months, has posted a bullish reading well above historical norms since early September. But a recent fund flows report from Morningstar says there's more than meets the eye here. The report notes that AAII's survey uses a relatively small sample, and measures what investors say the will do rather than what they are actually doing. And, according to fund flow figures, investors in reality remain lukewarm on equities -- particularly U.S. equities. According to Morningstar, investors withdrew about $6.3 billion from long-term U.S. stock mutual funds in October, while at the same time pouring more than $22 billion into bond funds. Some of the stock outflows were offset by flows into U.S. stock exchange-traded funds of about $3.5 billion, but overall the mutual fund and ETF U.S. stock figures combined were in the red. Investors were, however, quite bullish on foreign equities, pumping more than $9 billion into international stock ETFs and close to $6 billion into international stock mutual funds. All of that makes for a broader picture that is far from frothy, particularly when it comes to U.S. stocks. Despite the fact that many high-quality U.S. stocks are trading at very attractive values -- and the fact that bond prices are very high and yields are very low -- investors are continuing to dump more cash into the perceived safety of bonds. That's kept a number of high-quality stocks -- like some of those in the Hot List -- selling at very attractive valuations. The flight to bonds is also an indication that there's still plenty of dry powder available to push stocks higher. As the economy continues to rebound over the long haul -- and I believe it will continue to rebound -- fears should subside, and investors who've been waiting on the sidelines or diving into bonds will likely turn their attention back to stocks. And as that happens, those who've been staying disciplined and scooping up these stock market bargains should reap some nice rewards. Looking North - New Validea Canada Site For the past seven-plus years, we've been allowing the Hot List and our other model portfolios to roam the U.S. stock market universe, looking for the best opportunities they can find. While many investors and funds limit their stock-picking by market capitalization, growth/value distinction, or industry, we let the Hot List and our other portfolios roam the entire U.S. market -- the more areas of the market you allow yourself to go, the more good opportunities you can find. In that same sort of spirit, we've recently added a whole new set of opportunities to our universe, with the launch of our sister web site, Validea Canada. With Validea Canada, we've created a site that uses the same guru-inspired models you've seen on Validea.com to analyze more than 1,000 securities that trade on Canadian exchanges. This new product is the first of its kind in the Canadian market and will allow investors to uncover opportunities using tools that were previously unavailable to Canadian investors. The site offers the same analytical tools found on Validea.com, including: The Guru Analysis feature for analyzing individual stocks; Model portfolios based on each of my individual guru-based models, as well as two consensus-based portfolios; The Guru Stock Screener, which allows you to see all of the stocks that pass a particular strategy or multiple strategies; The Advanced Guru Stock Screener, which lets you find Guru Strategy-approved stocks that also meet your own fundamental criteria or industry/sector desires; A Canadian Hot List portfolio, which tracks the ten Canada-traded stocks my models are highest on. (Just to avoid any confusion, Validea Canada is a separate site from Validea.com. The Hot List portfolio you've been following here will continue to invest only in U.S.-traded stocks, while the Validea Canada site will focus only on Canada-traded securities.) The launch of Validea Canada comes at a good time for our neighbors to the north. First off, Canada's economy was not hit as hard as the U.S. during the "Great Recession". Canada didn't have the same subprime-mortgage woes the U.S. experienced, and no Canadian banks needed government capital injections amid the global financial crisis. Canada has also posted impressive growth during its recovery -- real gross domestic product increased at a 4.9% annualized rate in the fourth quarter of last year and a 5.8% annualized rate in this year's first quarter, before slowing to 2.0% in the second quarter. The Canadian economy has also posted a very strong job market rebound, and Canada's housing market is in solid shape. Canada and its businesses and stocks have also benefited from a strong Canadian dollar, which has risen to about parity with the U.S. dollar over the past couple years while also gaining significant ground on other currencies, including the Euro. And, while Canada's economy is tied strongly to the U.S. economy, the country's vast array of natural resources -- particularly oil and metals -- also allow it to benefit from growth in emerging markets, while having a government that is much more stable and proven than those of many emerging countries. Despite its many strengths, however, Canada's economy has flown largely under the radar. While investors have been turning to international stocks rather than U.S. stocks, they are keying on popular, fast-growing emerging markets -- not old, developed markets like Canada. And that's creating a lot of bargains in the Canadian market. Several dozen stocks currently get approval from one or more of my Guru Strategies. As a current subscriber to Validea.com, I'd like to offer you the chance to sign up for Validea Canada at a discount of more than 40% off our regular prices. Our normal rates for the Canadian site are $49.95 for a monthly plan, $129.95 for a quarterly plan, or $449.95 for an annual subscription. But as a current Validea.com subscriber, you can sign up for a monthly plan for just $29.95, a quarterly plan for just $74.95, or an annual plan for just $269.95. If you are interested in a free trial to Validea Canada, please click here. If you're enjoying and finding value in your subscription to Validea.com, I'd encourage you to give Validea Canada a look. And if you have any questions about the site, feel free to contact us at hotlist@validea.com.		Editor-in-Chief: John Reese Since Inception   Hot List 173.3% S&P 500 21.3% Accuracy 57.0% Beta 1.2 YTD   Hot List 13.4% S&P 500 8.8% Since Last Issue   Hot List 8.7% S&P 500 2.5% Avg. Fundamentals   Market Cap (mil) $15,140 PE Ratio 10.2 5 Yr EPS Growth 42.0% Yield 4.9% Rel. Strength 62 Portfolio Sectors Services 3 Financial 2 Healthcare 2 Consumer Cyclical 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. Guru Spotlight: Martin Zweig If you've been a Hot List reader for any significant amount of time, you know that my Guru Strategies have a distinct value bias. The majority of these models -- ranging from my Benjamin Graham approach to my Warren Buffett model to my Joseph Piotroski strategy -- are focused on finding good, often beaten-down stocks selling at bargain prices; that is, they target value stocks. But that doesn't mean that all of my gurus were cemented on the value side of the growth/value pendulum. In fact, the guru we'll examine today, Martin Zweig, used a methodology that was dominated by earnings-based criteria. He looked at a stock's earnings from a myriad of angles, wanting to ensure that he was getting stocks that had been producing strong growth over the long haul and even better growth recently -- and that their growth was coming from the right sources. Zweig's thoroughness paid off. His Zweig Forecast was one of the most highly regarded investment newsletters in the country, ranking number one for risk-adjusted returns during the 15 years that Hulbert Financial Digest monitored it. It produced an impressive 15.9 percent annualized return during that time. Zweig has also managed several mutual funds, and was co-founder of Zweig Dimenna Partners, a multibillion-dollar New York-based firm that has been ranked in the top 15 of Barron's list of the most successful hedge funds. Before we delve into Zweig's strategy, a few words about the man himself. While some of the gurus we've looked at in recent Guru Spotlights -- Buffett and John Neff in particular come to mind -- lived modest lifestyles, Zweig put his fortune to use in some pretty fun, flashy ways. He has owned what Forbes reported was the most expensive apartment in New York City, a penthouse atop Manhattan's Pierre Hotel that was at one time valued at more than $70 million. He's also an avid collector of a variety of different kinds of memorabilia. The Wall Street Journal has reported that he's owned such one-of--a-kind items as Buddy Holly's guitar, the gun from Dirty Harry, the motorcycle from Easy Rider, and Michael Jordan's jersey from his rookie season with the Chicago Bulls. He even owns the "sperm" costume from Woody Allen's film Everything You Always Wanted to Know About Sex. His collecting interests also span the historic (several old stock certificates, including one signed by Commodore Vanderbilt) as well as the nostalgic (like the two old-fashioned gas pumps that are almost identical to those he'd seen at the nearby Mobil station while growing up in Cleveland), Financial World has reported. Zweig may spend his cash on some flashy, fun items, but the strategy he used to compile that cash was a disciplined, methodical approach. His earnings examination of a firm spanned several categories: Trend of Earnings: Earnings should be higher in the current quarter than they were a year ago in the same quarter. Earnings Persistence: Earnings per share should have increased in each year of the past five-year period; EPS should also have grown in each of the past four quarters (vs. the respective year-ago quarters). Long-Term Growth: EPS should be growing by at least 15 percent over the long term; a growth rate over 30 percent is exceptional. Earnings Acceleration: EPS growth for the current quarter (vs. the same quarter last year) should be greater than the average growth for the previous three quarters (vs. the respective three quarters from a year ago). EPS growth in the current quarter also should be greater than the long-term growth rate. These criteria made sure that Zweig wasn't getting in late on a stock that had great long-term growth numbers, but which was coming to the end of its growth run. While Zweig's EPS focus certainly puts him on the "growth" side of the growth/value spectrum, his approach was by no means a growth-at-all-costs strategy. Like all of the gurus I follow, he included a key value-based component in his method. He made sure that a stock's price/earnings ratio was no greater than three times the market average, and no greater than 43, regardless of what the market average was. (He also didn't like stocks with P/Es less than 5, because they could be indicative of an outright dog that investors were wisely avoiding.) In addition, Zweig wanted to know that a firm's earnings growth was sustainable over the long haul. And that meant that the growth was coming primarily from sales -- not cost-cutting or other non-sales measures. My Zweig model requires a firm's revenue growth to be at least 85 percent of EPS growth. If a stock fails that test but its revenues are growing by at least 30 percent a year, it passes, however, since that is still a very strong revenue growth rate. Like earnings growth, Zweig believed sales growth should be increasing. My model thus requires that a stock's sales growth for the most recent quarter (vs. the year-ago quarter) to be greater than the previous quarter's sales growth rate (vs. the year-ago quarter). Finally, Zweig also wanted to makes sure a firm's growth wasn't driven by unsustainable amounts of leverage (a key observation given all that's happened recently). Realizing that different industries require different debt loads, he looked for stocks whose debt/equity ratios were lower than their industry average. There's one more thing you should know about Zweig. He relied a good amount on technical factors to adjust how much of his portfolio he put into stocks. Some of the indicators he used to move in and out of the market included the Federal Reserve's discount rate; installment debt levels; and the prime rate. His mottos included "Don't fight the Fed" (meaning investors should be more bullish when interest rates were low or falling) and "Don't fight the tape" (which related to his practice of getting more bullish or bearish based on market trends). Those rules are tough for an individual investor to put into practice; Zweig used what he called a "Super Model" that meshed all of his indicators into a system that determined how bullish or bearish he was. But over the years, I've found that using only the quantitative, fundamental-based criteria Zweig outlined in his book can produce very strong results. My Zweig-inspired 10-stock portfolio has been a very strong performer since its July 2003 inception, returning 7.3% per year while the S&P 500 has gained just 2.7% per year. The model tends to choose stocks from a variety of areas. Currently, my 10-stock Zweig-based portfolio's holdings range from retailers to tech firms to healthcare companies to auto parts firms: Jos. A. Bank Clothiers (JOSB) Apple Inc. (AAPL) Lululemon Athletica (LULU) Capella Education Company (CPLA) Neogen Corporation (NEOG) LKQ Corporation (LKQX) Universal American Corporation (UAM) Deckers Outdoor Corporation (DECK) World Acceptance Corporation (WRLD) HealthSpring Inc. (HS) As you might expect with a growth strategy, the Zweig portfolio tends not to hold on to stocks for a long time. Usually it will hold a stock for a few months, though it is not averse to longer periods if the stock continues to be a prospect for more growth. What I really like about the Zweig strategy is that, while it certainly would qualify as a growth approach, it doesn't look at growth in a vacuum. As you've seen, it examines earnings growth from a variety of angles, making sure that it is strong, improving, and sustainable. In doing so, it allows you to find some fast-growing growth stocks that are not paper tigers, but instead solid prospects for continued long-term success. News about Validea Hot List Stocks Eli Lilly & Co. (LLY) : Lilly announced on Nov. 8 that it will spend up to $800 million to buy Avid Radiopharmaceuticals, a development-stage company that has made an agent that could help diagnose Alzheimer's disease, the Associated Press reported. Avid has no products currently on the market, but is seeking FDA approval for Florbetapir, an injectable agent used to detect amyloid plaque in the brain, which is an indicator of Alzheimer's, AP stated. Lilly will pay $300 million upfront for Avid and as much as $500 million more if Florbetapir meets certain regulatory and commercial goals. Avid also is developing diagnostic agents used to combat other ailments like Parkinson's disease and diabetes, according to AP. China Automotive Systems (CAAS): China Automotive announced third-quarter profit and revenue that beat analysts' expectations. Revenue for the period jumped 17.6% from the year-ago quarter, to $76.1 million, beating analysts' estimates of $75.8 million. Net income fell 4.7% from the year-ago quarter, however, due to a lower noncash gain on the value of a derivative, the Associated Press reported. But the profit results ($8.2 million, or 26 cents a share) still beat analysts' expectations of 23 cents per share. The Next Issue In two weeks, we will publish another issue of the Hot List, at which time we will rebalance the portfolio. If you have any questions, please feel free to contact us at hotlist@validea.com.

Current Portfolio Ticker Company Name Industry Guru Score CAAS CHINA AUTOMOTIVE SYSTEMS, INC. Auto & Truck Parts 72 LLEN L&L ENERGY, INC. Coal 58 WRLD WORLD ACCEPTANCE CORP. Consumer Financial Services 56 SNY SANOFI-AVENTIS SA (ADR) Biotechnology & Drugs 56 GME GAMESTOP CORP. Retail (Technology) 55 DLTR DOLLAR TREE, INC. Retail (Department & Discount) 55 WDC WESTERN DIGITAL CORP. Computer Storage Devices 44 LLY ELI LILLY & CO. Major Drugs 42 CCME CHINA MEDIAEXPRESS HOLDINGS INC Advertising 34 HS HEALTHSPRING, INC Insurance (Accident & Health) 19 Ticker Market Cap Date Added Start Price Current Price Return CAAS $447 4/16/2010 $21.39 $16.50 -22.9% LLEN $330 10/1/2010 $8.35 $11.03 32.1% WRLD $661 10/29/2010 $43.15 $42.24 -2.1% SNY $89,739 9/3/2010 $30.20 $34.39 13.9% GME $3,172 9/3/2010 $19.01 $21.10 11.0% DLTR $6,898 9/3/2010 $46.03 $54.33 18.0% WDC $7,581 7/9/2010 $31.59 $32.99 4.4% LLY $40,302 10/29/2010 $35.20 $34.95 -0.7% CCME $668 10/29/2010 $15.46 $19.50 26.1% HS $1,603 5/14/2010 $17.18 $28.00 63.0%

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 CAAS   |   LLEN   |   WRLD   |   SNY   |   GME   |   DLTR   |   WDC   |   LLY   |   CCME   |   HS   |   CHINA AUTOMOTIVE SYSTEMS, INC. Profile Strategy: Growth Investor Based on: Martin Zweig China Automotive Systems, Inc. (China Automotive) is a holding company and has no significant business operations or assets other than its interest in Great Genesis Holdings Limited (Genesis). Through Genesis, the Company manufactures power steering systems and other component parts for automobiles. All operations are conducted through eight Sino-foreign joint ventures in China and a wholly owned subsidiary in the United States. The Company has business relations with more than 60 vehicle manufacturers, including FAW Group and Dongfeng Auto Group, automobile manufacturers in China; Shenyang Brilliance Jinbei Co., Ltd., light vehicle manufacturer in China; Chery Automobile Co., Ltd, state-owned car manufacturer in China, and Xi'an BYD Auto Co., Ltd and Zhejiang Geely Automobile Co., Ltd., car manufacturers. 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. CAAS's P/E is 14.72, based on trailing 12 month earnings, while the current market PE is 16.00. Therefore, it passes the first test. REVENUE GROWTH IN RELATION TO EPS GROWTH: [PASS] Revenue Growth must not be substantially less than earnings growth. For earnings to continue to grow over time they must be supported by a comparable or better sales growth rate and not just by cost cutting or other non-sales measures. CAAS's revenue growth is 38.10%, while it's earnings growth rate is 42.09%, based on the average of the 3, 4 and 5 year historical eps growth rates. Therefore, CAAS 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 (36.2%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (88.4%) of the current year. Sales growth for the prior must be greater than the latter. For CAAS 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. CAAS's EPS ($0.28) pass this test. QUARTERLY EARNINGS ONE YEAR AGO: [PASS] The EPS for the quarter one year ago must be positive. CAAS's EPS for this quarter last year ($0.19) 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. CAAS's growth rate of 47.37% 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 CAAS is 21.04%. This should be less than the growth rates for the 3 previous quarters, which are 170.00%, 1,050.00%, and 325.00%. CAAS 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, 320.00%, (versus the same three quarters a year earlier) is greater than the growth rate of the current quarter earnings, 47.37%, (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 CAAS is 47.4%, 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, 47.37% must be greater than or equal to the historical growth which is 42.09%. CAAS 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. CAAS, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were 0.15, 0.21, 0.37, 0.46 and 0.78, 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. CAAS's long-term growth rate of 42.09%, 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. CAAS's Debt/Equity (66.19%) is not considered high relative to its industry (2,626.47%) 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 CAAS, this criterion has not been met (insider sell transactions are 2, 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.   L&L ENERGY, INC. Profile Strategy: Small-Cap Growth Investor Based on: Motley Fool L & L Energy, Inc. (L & L) is engaged in the businesses of coal mining, coal washing, coal coking and coal wholesaling. The Company's operations are conducted in Yunnan and Guizhou provinces in the southwest region of the People's Republic of China. As of April 30, 2010, the Company had three operating subsidiaries: KMC, which has coal wholesale operations and Ping Yi Coal Mine (mining operations PYC); two coal mining operations (DaPuAn Mine and SuTsong Mine), including DaPuAn's coal washing operations (the 2 Mines or LLC), and L&L Yunnan Tianneng Industry Co. Ltd. (including Hong Xing coal washing and ZoneLin coking operations) (TNI). Analysis Guru Score: 91% PROFIT MARGIN: [PASS] This methodology seeks companies with a minimum trailing 12 month after tax profit margin of 7%. The companies that pass this criterion have strong positions within their respective industries and offer greater shareholder returns. A true test of the quality of a company is that they can sustain this margin. LLEN's profit margin of 30.16% 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. LLEN, with a relative strength of 92, satisfies this test. COMPARE SALES AND EPS GROWTH TO THE SAME PERIOD LAST YEAR: [PASS] Companies must demonstrate both revenue and net income growth of at least 25% as compared to the prior year. These growth rates give you the dynamic companies that you are looking for. These rates for LLEN (200.00% for EPS, and 394.46% for Sales) are good enough to pass. INSIDER HOLDINGS: [PASS] LLEN's insiders should own at least 10% (they own 29.84% ) of the company's outstanding shares which is the minimum required. A high percentage typically indicates that the insiders are confident that the company will do well. CASH FLOW FROM OPERATIONS: [PASS] A positive cash flow is typically used for internal expansion, acquisitions, dividend payments, etc. A company that generates rather than consumes cash is in much better shape to fund such activities on their own, rather than needing to borrow funds to do so. LLEN's free cash flow of $0.44 per share passes this test. PROFIT MARGIN CONSISTENCY: [PASS] LLEN's profit margin has been consistent or even increasing over the past three years (Current year: 30.13%, Last year: 24.33%, Two years ago: 4.19%), passing the requirement. It is a sign of good management and a healthy and competitive enterprise. R&D AS A PERCENTAGE OF SALES: [NEUTRAL] This criterion is not critically important for companies that are not high-tech or medical stocks because they are not as R&D dependant as companies within those sectors. Not much emphasis should be placed on this test in LLEN's case. CASH AND CASH EQUIVALENTS: [FAIL] LLEN's level of cash and cash equivalents per sales, 9.18 %, does not pass this criteria of roughly 20%(a number we determined to be appropriate based on various examples). LLEN will have a more difficult time paying off debt (if it has any) or acquiring other companies than a company that passes this criteria. INVENTORY TO SALES: [PASS] This methodology strongly believes that companies, especially small ones, should have tight control over inventory. It's a warning sign if a company's inventory relative to sales increases significantly when compared to the previous year. Up to a 30% increase is allowed, but no more. Inventory to Sales for LLEN was 3.71% last year, while for this year it is 8.79%. Although the inventory to sales is rising, it is below the max 30% that is allowed. The investor can still consider the stock if all other criteria appear very attractive. 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 LLEN was 42.43% last year, while for this year it is 25.06%. Since the AR to sales is decreasing by -17.37% the stock passes this criterion. LONG TERM DEBT/EQUITY RATIO: [PASS] LLEN's trailing twelve-month Debt/Equity ratio (4.57%) is a little higher than what this methodology is looking for, but is still at an acceptable level. The superior companies that you are looking for don't need to borrow money in order to grow. This company has borrowed very little which is still OK. "THE FOOL RATIO" (P/E TO GROWTH): [PASS] The "Fool Ratio" is an extremely important aspect of this analysis. If the company has attractive fundamentals and its Fool Ratio is 0.5 or less (LLEN's is 0.05), the shares are looked upon favorably. These high quality companies can often wind up as the biggest winners. LLEN passes this test. The following criteria for LLEN are less important which means you would place less emphasis on them when making your investment decision using this strategy: AVERAGE SHARES OUTSTANDING: [PASS] LLEN has not been significantly increasing the number of shares outstanding within recent years which is a good sign. LLEN currently has 30.0 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. LLEN's sales of $151.8 million based on trailing 12 month sales, are fine, making this company one such "prospective gem". LLEN passes the sales test. DAILY DOLLAR VOLUME: [PASS] LLEN passes the Daily Dollar Volume (DDV of $7.2 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. LLEN with a price of $11.03 passes the price test. The price should be above $7 in order to eliminate penny stocks and below $20 since most stocks in this price range are undiscovered by the institutions. INCOME TAX PERCENTAGE: [FAIL] LLEN's income tax paid expressed as a percentage of pretax income either this year (10.63%) or last year (6.51%) is below 20% which is cause for concern. Because the tax rate is below 20% this could mean that the earnings that were reported are unrealistically inflated due to the lower level of income tax paid. However, we have utilized a sophisticated formula so that the appropriate figures reflect a 'normal' tax rate (35%).   WORLD ACCEPTANCE CORP. Profile Strategy: P/E/Growth Investor Based on: Peter Lynch World Acceptance Corporation is engaged in the small-loan consumer finance business, offering short-term small loans, medium-term larger loans, related credit insurance and ancillary products and services to individuals. The Company offers standardized installment loans of between $300 and $4,000 through 990 offices in South Carolina, Georgia, Texas, Oklahoma, Louisiana, Tennessee, Illinois, Missouri, New Mexico, Kentucky, Alabama and Mexico as of March 31, 2010. The Company serves individuals with limited access to consumer credit from banks, savings and loans, other consumer finance businesses and credit card lenders. In the United States offices, the Company also offers income tax return preparation services and access to refund anticipation loans through a third party bank to its customers and others. During the fiscal year ended March 31, 2010 (fiscal 2010), the Company opened 48 offices. Analysis Guru Score: 93% DETERMINE THE CLASSIFICATION: This methodology would consider WRLD a "fast-grower". P/E/GROWTH RATIO: [PASS] The investor should examine the P/E (8.36) relative to the growth rate (21.10%), 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 WRLD (0.40) is very favorable. SALES AND P/E RATIO: [NEUTRAL] For companies with sales greater than $1 billion, this methodology likes to see that the P/E ratio remain below 40. Large companies can have a difficult time maintaining a growth rate high enough to support a P/E above this threshold. WRLD, whose sales are $464.7 million, is not considered large enough to apply the P/E ratio analysis. However, an investor can analyze the P/E ratio relative to the EPS growth rate. EPS GROWTH RATE: [PASS] This methodology favors companies that have several years of fast earnings growth, as these companies have a proven formula for growth that in many cases can continue many more years. This methodology likes to see earnings growth in the range of 20% to 50%, as earnings growth over 50% may be unsustainable. The EPS growth rate for WRLD is 21.1%, 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] WRLD 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. WRLD's Equity/Assets ratio (59.00%) 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. WRLD's ROA (13.43%) 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 WRLD (25.38%) 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 WRLD (-35.57%) 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.   SANOFI-AVENTIS SA (ADR) Profile Strategy: Growth/Value Investor Based on: James P. O'Shaughnessy Sanofi-Aventis is a pharmaceutical group engaged in the research, development, manufacture and marketing of healthcare products. The Company's business includes two main activities: pharmaceuticals and human vaccines through sanofi pasteur. The Company is also present in animal health products through Merial Limited (Merial). In its pharmaceutical activity, the Company specializes in six therapeutic areas: diabetes, oncology, thrombosis and cardiovascular, central nervous system (CNS), and internal medicine. The global portfolio of sanofi-aventis also consists of a range of other pharmaceutical products in Consumer Health Care (CHC) and other prescription drugs, including generics. It offers vaccines in five areas: pediatric combination vaccines, influenza vaccines, adult and adolescent booster vaccines, meningitis vaccines and travel and endemic vaccines. In October 2010, Siegfried Holding AG sold its PulmoJet Inhalation Project to the Company. Analysis Guru Score: 100% MARKET CAP: [PASS] The Cornerstone Value Strategy looks for large, well known companies whose market cap is greater than $1 billion. These companies exhibit solid and stable earnings. SNY's market cap of $89,739 million passes this test. CASH FLOW PER SHARE: [PASS] The second criterion requires that the company exhibit strong cash flows. Companies with strong cash flow are typically the value oriented investments that this strategy looks for. The company's cash flow per share must be greater than the mean of the market cash flow per share ($1.17). SNY's cash flow per share of $4.57 passes this test. SHARES OUTSTANDING: [PASS] This particular strategy looks for companies whose total number of outstanding shares are in excess of the market average (670 million shares). These are the more well known and highly traded companies. SNY, who has 2,616 million shares outstanding, passes this test. TRAILING 12 MONTH SALES: [PASS] A company's trailing 12 month sales ($43,633 million) are required to be 1.5 times greater than the mean of the market's trailing 12 month sales ($17,834 million). SNY passes this test. DIVIDEND: [PASS] The final step in the Cornerstone Value strategy is to select the 50 companies from the market leaders group (those that have passed the previous four criteria) that have the highest dividend yield. SNY, with a dividend yield of 4.26%, is one of the 50 companies that satisfy this last criterion.   GAMESTOP CORP. Profile Strategy: P/E/Growth Investor Based on: Peter Lynch GameStop Corp. (GameStop) is a retailer of video game products and personal computer (PC) entertainment software. The Company sells new and used video game hardware, video game software and accessories, as well as PC entertainment software, and related accessories and other merchandise. As of January 30, 2010, the Company operated 6,450 stores in the United States, Australia, Canada and Europe, primarily under the names GameStop and EB Games. GameStop also operates the electronic commerce Website www.gamestop.com and publish Game Informer, a multi-platform video game magazine in the United States based on circulation, with approximately 4 million subscribers. During the fiscal year ended January 30, 2010 (fiscal 2009), GameStop operated its business in four segments: United States, Canada, Australia and Europe. Analysis Guru Score: 93% DETERMINE THE CLASSIFICATION: This methodology would consider GME a "fast-grower". P/E/GROWTH RATIO: [PASS] The investor should examine the P/E (9.01) relative to the growth rate (31.10%), 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 GME (0.29) 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. GME, whose sales are $9,240.5 million, needs to have a P/E below 40 to pass this criterion. GME's P/E of (9.01) 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 GME is 31.1%, 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 GME (16.94%) 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 GME (13.55%) 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 GME (14.08%) 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.   DOLLAR TREE, INC. Profile Strategy: Growth Investor Based on: Martin Zweig Dollar Tree, Inc. (Dollar Tree) is an operator of discount variety stores offering merchandise at the fixed price of one dollar. At January 30, 2010, the Company operated 3,806 discount variety retail stores. Approximately 3,650 of these stores sell substantially all items for one dollar or less. The remaining stores, operating as Deal$, sell items for one dollar or less but also sell items for more than one dollar. Dollar Tree's stores operate under the names of Dollar Tree, Deal$ and Dollar Bills. 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. DLTR's P/E is 20.73, based on trailing 12 month earnings, while the current market PE is 16.00. Therefore, it passes the first test. REVENUE GROWTH IN RELATION TO EPS GROWTH: [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. DLTR's revenue growth is 10.60%, while it's earnings growth rate is 21.20%, based on the average of the 3, 4 and 5 year historical eps growth rates. Therefore, DLTR 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 (12.7%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (12.6%) of the current year. Sales growth for the prior must be greater than the latter. For DLTR 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. DLTR's EPS ($0.61) pass this test. QUARTERLY EARNINGS ONE YEAR AGO: [PASS] The EPS for the quarter one year ago must be positive. DLTR's EPS for this quarter last year ($0.42) 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. DLTR's growth rate of 45.24% 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 DLTR is 10.60%. This should be less than the growth rates for the 3 previous quarters, which are 59.38%, 31.17%, and 11.36%. DLTR 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, 31.37%, (versus the same three quarters a year earlier) is less than the growth rate of the current quarter earnings, 45.24%, (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, 45.24% must be greater than or equal to the historical growth which is 21.20%. DLTR 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. DLTR, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were 1.07, 1.23, 1.39, 1.68 and 2.37, 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. DLTR's long-term growth rate of 21.20%, 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. DLTR's Debt/Equity (19.29%) is not considered high relative to its industry (54.24%) 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 DLTR, this criterion has not been met (insider sell transactions are 10, while insiders buying number 14). Despite the lack of an insider buy signal, there also is not an insider sell signal, so the stock passes this criterion.   WESTERN DIGITAL CORP. Profile Strategy: P/E/Growth Investor Based on: Peter Lynch Western Digital Corporation (WD) designs, develops, manufactures and sells hard drives. It sells its products worldwide to original equipment manufacturers (OEMs) and original design manufacturers (ODMs) for use in computer systems, subsystems or consumer electronics (CE) devices, and to distributors, resellers and retailers. Its hard drives are used in desktop computers, notebook computers, and enterprise applications such as servers, workstations, network attached storage, storage area networks and video surveillance equipment. Its hard drives are used in CE applications, such as digital video recorders (DVRs), and satellite and cable set-top boxes (STBs). It also sells its hard drives as stand-alone storage products by integrating them into finished enclosures, embedding application software and offering the products as WD-branded external storage appliances for personal data backup and portable or expanded storage of digital music, video and other digital data. Analysis Guru Score: 100% DETERMINE THE CLASSIFICATION: This methodology would consider WDC a "fast-grower". P/E/GROWTH RATIO: [PASS] The investor should examine the P/E (5.97) relative to the growth rate (38.09%), 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 WDC (0.16) 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. WDC, whose sales are $10,038.0 million, needs to have a P/E below 40 to pass this criterion. WDC's P/E of (5.97) 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 WDC was 5.04% last year, while for this year it is 5.69%. 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 (0.64%) 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 WDC is 38.1%, 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 WDC (7.64%) 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 WDC (15.67%) 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 WDC (32.02%) is high enough to add to the attractiveness of this company.   ELI LILLY & CO. Profile Strategy: Contrarian Investor Based on: David Dreman Eli Lilly and Company discovers, develops, manufactures, and sells products in one business segment, pharmaceutical products. The Company also has an animal health business segment. It manufactures and distributes its products through facilities in the United States, Puerto Rico, and 17 other countries. Its products are sold in approximately 128 countries. The Company's products include Neuroscience products, Endocrinology products, Oncology products, Cardiovascular products, Animal health products, and other pharmaceuticals. In the United States, Eli Lilly and Company distributes pharmaceutical products principally through independent wholesale distributors, with some sales directly to pharmacies. In July 2010, the Company acquired Alnara Pharmaceuticals, Inc. 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. LLY has a market cap of $40,302 million, therefore passing the test. EARNINGS TREND: [FAIL] A company should show a rising trend in the reported earnings for the most recent quarters. LLY's EPS for the latest quarter is not greater than the prior quarter, (from earliest to most recent quarter) 1.22, 1.18. Hence the stock fails this test, but the investor should evaluate this company qualitatively to see if it qualifies under this methodology's "exception rule". 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. LLY fails this test as its EPS growth rate for the past 6 months (4.42%) does not beat that of the S&P (14.89%). This methodology would utilize four separate criteria to determine if LLY 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. LLY's P/E of 8.01, based on trailing 12 month earnings, meets the bottom 20% criterion (below 9.63), 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. LLY's P/CF of 6.52 does not meet the bottom 20% criterion (below 5.76), 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. LLY's P/B is currently 3.25, which does not meet the bottom 20% criterion (below 0.80), 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%). LLY's P/D of 17.83 meets the bottom 20% criterion (below 20.83 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. CURRENT RATIO: [PASS] A prospective company must have a strong Current Ratio (greater than or equal to the average of it's industry [1.78] or greater than 2). This is one identifier of financially strong companies, according to this methodology. LLY's current ratio of 2.33 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 LLY is 46.90%, while its historical payout ratio has been 53.11%. 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 17.28%, and would consider anything over 27% to be staggering. The ROE for LLY of 43.15% 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. LLY's pre-tax profit margin is 27.40%, thus passing this criterion. YIELD: [PASS] The company in question should have a yield that is high and that can be maintained or increased. LLY's current yield is 5.61%, while the market yield is 2.69%. LLY passes this test. 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 120.79%. LLY's Total Debt/Equity of 57.50% is considered acceptable.   CHINA MEDIAEXPRESS HOLDINGS INC Profile Strategy: Small-Cap Growth Investor Based on: Motley Fool China MediaExpress Holdings, Inc. (CME), through contractual arrangements with Fujian Fenzhong Media Co., Ltd. (Fujian Fenzhong), operates the television advertising network on inter-city express buses in China. The Company and its subsidiaries and variable interest entity (VIE) are engaged in the operation of mobile television advertising networks on passenger buses travelling on highways in the People's Republic of China. The Company does not conduct any substantive operations of its own, but conducts it primary business operations through Fujian Fenzhong, a VIE of a wholly owned subsidiary, Fujian Across Express Information Technology Co, Ltd. (Across Express). On October 15, 2009, CME acquired all of the issued and outstanding capital stock of Hong Kong Mandefu Holding Limited (the HKMDF), its subsidiary and VIE, and as a result, HKMDF became its direct wholly owned subsidiary. Analysis Guru Score: 80% 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. CCME's profit margin of 49.26% passes this test. RELATIVE STRENGTH: [FAIL] 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. Although CCME's relative strength of 89 is below the acceptable level, yet it is very close. Keep an eye on the stock as it could move into the acceptable range. 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 CCME (9.46% for EPS, and 118.07% for Sales) are not good enough to pass. INSIDER HOLDINGS: [PASS] CCME's insiders should own at least 10% (they own 74.41% ) 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. CCME's free cash flow of $1.16 per share passes this test. PROFIT MARGIN CONSISTENCY: [PASS] CCME's profit margin has been consistent or even increasing over the past three years (Current year: 43.48%, Last year: 41.86%, Two years ago: 26.97%), passing the requirement. It is a sign of good management and a healthy and competitive enterprise. R&D AS A PERCENTAGE OF SALES: [NEUTRAL] This criterion is not critically important for companies that are not high-tech or medical stocks because they are not as R&D dependant as companies within those sectors. Not much emphasis should be placed on this test in CCME's case. CASH AND CASH EQUIVALENTS: [PASS] CCME's level of cash $57.2 million passes this criteria. If a company is a cash generator, like CCME, 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 CCME was 9.62% last year, while for this year it is 13.10%. Although the AR to sales is rising, it is below the max 30% that is allowed. The investor can still consider the stock if all other criteria appear very attractive. LONG TERM DEBT/EQUITY RATIO: [PASS] CCME's trailing twelve-month Debt/Equity ratio (0.00%) is at a great level according to this methodology because the superior companies that you are looking for don't need to borrow money in order to grow. "THE FOOL RATIO" (P/E TO GROWTH): [FAIL] The "Fool Ratio" is an extremely important aspect of this analysis. The methodology says consider shorting shares when the company's Fool Ratio is greater than 1.30. CCME's PEG Ratio of 3.14 is excessively high. The following criteria for CCME are less important which means you would place less emphasis on them when making your investment decision using this strategy: AVERAGE SHARES OUTSTANDING: [PASS] CCME has not been significantly increasing the number of shares outstanding within recent years which is a good sign. CCME currently has 38.0 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. CCME's sales of $186.9 million based on trailing 12 month sales, are fine, making this company one such "prospective gem". CCME passes the sales test. DAILY DOLLAR VOLUME: [PASS] CCME passes the Daily Dollar Volume (DDV of $19.2 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. CCME with a price of $19.50 passes the price test. 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] CCME's income tax paid expressed as a percentage of pretax income this year was (26.50%) and last year (25.13%) 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.   HEALTHSPRING, INC Profile Strategy: Growth/Value Investor Based on: James P. O'Shaughnessy HealthSpring, Inc. (HealthSpring) is a managed care organization with a primary focus on Medicare, the federal government-sponsored health insurance program for United States citizens aged 65 and older, qualifying disabled persons and persons suffering from end-stage renal disease. As of December 31, 2009, the Company operated coordinated care Medicare Advantage plans in Alabama, Florida, Illinois, Mississippi, Tennessee, and Texas. As of January 1, 2010, it also commenced operations of Medicare Advantage plans in three counties in Northern Georgia. As of December 31, 2009, the Company's Medicare Advantage plans had over 189,000 members. The Company also offers prescription drug benefits in accordance with Medicare Part D to its Medicare Advantage plan members, in addition to providing other medical benefits (MA-PD) plans. It also offers prescription drug benefits nationally on a stand-alone basis in accordance with Medicare Part D (PDP). 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. HS, with a market cap of $1,603 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. HS, whose annual EPS before extraordinary items for the last 5 years (from earliest to the most recent fiscal year) were 0.24, 1.44, 1.51, 2.12 and 2.41, 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. HS's Price/Sales ratio of 0.55, 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. HS, whose relative strength is 90, is in the top 50 and would pass this last criterion.   Watch List The Watch List contains the highest scoring stocks according to our guru consensus system that are not currently in the Hot List portfolio. We provide this list both for informational purposes and for investors who are not comfortable with a portfolio of ten stocks. Ticker Company Name Industry Guru Score JOSB JOS. A. BANK CLOTHIERS, INC. Retail (Apparel) 63 ARO AEROPOSTALE, INC. Retail (Apparel) 58 MICC MILLICOM INTERNATIONAL CELLULAR SA (USA) Communications Services 54 RTN RAYTHEON COMPANY Aerospace & Defense 53 LULU LULULEMON ATHLETICA INC. Apparel/Accessories 52 AGP AMERIGROUP CORPORATION Healthcare Facilities 51 CSH CASH AMERICA INTERNATIONAL, INC. Misc. Financial Services 50 FOSL FOSSIL, INC. Jewelry & Silverware 50 T AT&T INC. Communications Services 48 CHSI CATALYST HEALTH SOLUTIONS, INC. Insurance (Accident & Health) 42

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