The Economy

The US jobs keep coming and the service sector keeps growing, but wage stagnation and lingering problems overseas are continuing to put a damper on the stock market.

The story in the labor market remains the same as it's been for some time now: more jobs, stagnant wages. The economy added 242,000 jobs during February, the Labor Department said, and December and January's jobs-added numbers were revised higher by 30,000. The improving jobs picture has drawn quite a few people back into the workforce -- the number of people not in the labor force declined by almost 375,000 in February. All of this kept the unemployment rate at 4.9%. The "U-6" rate, which unlike the headline number takes into account those working part-time who want full-time work, and discouraged workers who have given up looking for a job, fell to 9.7%, its lowest level since May 2008.

But then there is the wage picture. Average hourly wages slipped 0.1%, and are now only about 2% above their year-ago level. Average weekly wages fell about 0.5%, as average hours worked dipped.

The service sector continues to drive US growth. It expanded in February for the 73rd straight month, according to the Institute for Supply Management. The rate of expansion was right about where it was in January. New orders also continued to rise, but employment conditions weakened for the first time in two years. The weakening was very minor, however.

The manufacturing sector, meanwhile, crept back toward expansion territory but fell just short of it, according to ISM, marking the fifth straight month the sector contracted. The group said that new orders grew, however, and production increased. Employment conditions weakened for the third straight month, but at a slower rate than they did in January.

The manufacturing index reading was still well above the level that indicates an expansion of the overall economy, the 81st straight month it has been above that mark. The reading corresponded to a 1.8 percent increase in real annualized gross domestic product.

Oil and gas prices have moved higher since our last newsletter, the first time I can say that in quite a while. As of March 9, a gallon of regular unleaded on average cost $1.82, up from $1.73 a month earlier. That's still far below where it was one year ago -- 26% below, in fact.

Outside of the US, China remained a focal point for investors, and the recent news has been negative. First, China's National People's Congress lowered the country's 2016 growth target to 6.5%-7%. Then came news that February exports were down 25.4% from a year earlier, far worse than the 15% decline that was expected. The February data was the worst China has seen in seven years. Compared to the rest of the world, China is still growing at a rapid pace. But the continuing slowdown the country is experiencing is having a big impact on global raw material demand, hurting many countries that are major exporters of those materials.

In Europe, the European Central Bank made a somewhat surprising move to cut already negative interest rates and increase its quantitative easing bond-buying program. It said on Thursday that it would be lowering its deposit rate -- what it charges banks to park cash with the central bank -- by 0.1%, to -0.4%. The ECB also said it would increase its purchases of bonds to 80 billion euros per month, up from 60 billion euros, the USA Today reported. The aim of all of this is to push financial institutions to start lending and jumpstart the scuffling European economy.

Since our last newsletter, the S&P 500 returned 1.9%, while the Hot List returned 1.0%. So far in 2016, the portfolio has returned 2.6% vs. -2.7% for the S&P. Since its inception in July 2003, the Hot List is far outpacing the index, having gained 189.0% vs. the S&P's 98.9% gain.

What Bernie, Donald, Hillary, And Ted Will -- And Won't -- Do To Your Portfolio

If you are an investor, the lead-up to the 2016 Presidential Election has likely make you feel something between discomfort and downright terror. That's because, with the main candidates espousing such a wide range of economic policies, there is almost certainly someone in the race whose plans seem dangerous and foolish to you. Conservatives shudder at the thought of Bernie Sanders' tax hikes and self-proclaimed socialist agenda. Liberals think Ted Cruz's flat tax plan will put the country on the road to ruin. Those who blame the Obama Administration's policies for our tepid recovery cringe at the thought of a Hillary Clinton White House; those who think the administration's policies helped contain the troubles of 2008-09 are appalled when Donald Trump starts promising big tax cuts with few details.

I'm here to talk you down. Whether you think Trump is a con man or you think Sanders' policies are un-American or you just can't stand Hillary, my message is the same: Stop Googling "How to move to Canada." It's going to be alright.

Ours is a government of formidable checks and balances. Over the past eight years, we have seen just how hard it is for a President to accomplish major goals without Congress on his side. For all of the significant changes today's Presidential hopefuls are promising, the reality is that, without major alterations to the makeup of our legislature, he or she won't be able to enact the sweeping changes that you fear.

What's more, the economy and stock market are far too complex for any one person -- even the President of the United States -- to exercise real control over. Whatever you think of Bill Clinton and George W. Bush, for example, it's hard to argue that the Internet bubble that juiced stock returns in the latter part of Clinton's tenure and crushed stocks in the early part of Bush's first term wouldn't have popped just the same had Clinton still been in office. The animal spirits of millions of Americans are no match for one person, however powerful he or she may be.

The millions of Americans who are continually innovating, creating, and building also have a lot more to do with our economy than any one leader. In his latest letter to Berkshire Hathaway shareholders, for example, Warren Buffett said that, despite claims to the contrary, "America's economic magic remains alive and well." The big driver of America's long-term growth has been remarkable gains in productivity, he said, and he sees that trend continuing. "Nothing rivals the market system in producing what people want - nor, even more so, in delivering what people don't yet know they want," he wrote, noting how unexpected inventions like television and computers completely changed our lives and our economy. "For 240 years it's been a terrible mistake to bet against America, and now is no time to start. America's golden goose of commerce and innovation will continue to lay more and larger eggs."

All of this isn't to say that the choice for President has no impact on the economy or the stock market. And, to be sure, there are a host of other noneconomic issues that the President can greatly impact. What I'm saying is that, regardless of who becomes the next President, long-term investors in American businesses will be able to prosper. In fact, I bet that a number of simple actions you can take regarding your portfolio will have a much bigger impact on your long-term wealth then will your choice about which lever to pull in the voting booth this November.

What sort of actions am I talking about? Here are a few:

Focus on Business Fundamentals: In Buffett's recent letter to shareholders, you'll find little, if any, discussion of short-term share price movements, analyst upgrades or downgrades, or volume levels. You will find extensive discussion of things like a business's "intrinsic value", management's performance, and "competitive advantages" that a business possesses over its peers. To Buffett, the business is the key. He knows that, while stock prices can depart from business performance in the short term, over the long term a stock follows the performance of the business behind it.

Value Matters: People are always shopping for bargains in their everyday lives -- they want good deals on clothes and cars and houses and everything else in between. But when it comes to stocks, most people want to buy things that have been rising in price, and all too often (though not exclusively) what has been rising has become quite expensive. And just as you would if you bought a very overpriced coat or car, you will probably end up disappointed if you buy an overpriced stock.

A recent piece in ValueWalk highlighted research done by StarCapital Research showing how valuation has impacted future stock returns in 17 countries since 1979. The study used the 10-year cyclically adjusted price/earnings ratio as and valuation gauge, and looked at how equities did in each country over the subsequent 10 to 15 years (on average) when starting at various "CAPE" levels. The results show clearly that cheaper stocks deliver better long-term returns than pricier stocks. Here's the average annual returns that followed over the next 10 to 15 years (on average) when stocks started from various CAPE levels:

CAPE Return
Under 10 -- 11.7%
10 to 15 -- 8.7%
15 to 20 -- 7.2%
20 to 25 -- 5.7%
25 to 30 -- 4.1%
Over 30 -- 0.5%

The lesson is clear: Valuation matters over the long term.

Think Long-Term: Turn off CNBC. Stop checking your smartphone every 10 minutes to see what your holdings are doing. Investing is about the long term, and "the long term" doesn't mean until the end of this year or even the end of next year. It means 5 years, minimum, and preferably 10. If you need your money for your son or daughter's college education in two years, don't put it in the stock market. If you expect you will need it for a down payment on a house three years from now, don't put it in the stock market. Mutual fund legend Peter Lynch said that "time is on your side in the stock market". Don't forget that -- and don't forget that you can't speed up time, no matter how badly you want to.

Rebalance Regularly: Thinking long-term doesn't mean that you have to hold every one of your stocks for the long term, however. Even Buffett, who says his favorite holding period is forever, will ditch a stock whose prospects have dimmed significantly. The trick is being able to sell a stock because its prospects have dimmed, not because its share price has fallen. We humans are an emotional bunch. It's just the way we are built. That means that we see danger in every short-term stock decline and want to sell, even though short-term machinations mean very little in terms of a stock's long-term prospects.

The solution, I believe, is using a fixed schedule to buy and sell stocks. Whether it's once a month, once a quarter, or once a year, the key is picking a schedule and sticking to it. On your scheduled rebalancing days, you keep the stocks whose fundamentals remain attractive, and sell those that don't, replacing them with better options. This way, you are buying and selling based on facts and fundamentals, not emotions.

Each of these four tips is something we incorporate into our approach with the Hot List and all of our other guru-based portfolios. They allow us to stay disciplined, take advantage of mispricings in the market, and keep dangerous emotions --which derail so many investors -- at bay. Over the long haul, doing those things should have a much bigger impact on your portfolio than the man or woman in the Oval Office.


The Fallen

As we rebalance the Validea Hot List, 6 stocks leave our portfolio. These include: Forum Energy Technologies Inc (FET), Lumber Liquidators Holdings Inc (LL), Zumiez Inc. (ZUMZ), Oceaneering International (OII), Dril-quip, Inc. (DRQ) and Sanderson Farms, Inc. (SAFM).

The Keepers

4 stocks remain in the portfolio. They are: Thor Industries, Inc. (THO), Cal-maine Foods Inc (CALM), Banco Macro Sa (Adr) (BMA) and Altisource Portfolio Solutions S.a. (ASPS).

The New Additions

We are adding 6 stocks to the portfolio. These include: Valero Energy Corporation (VLO), Rex American Resources Corp (REX), Usana Health Sciences, Inc. (USNA), Waddell & Reed Financial, Inc. (WDR), Walker & Dunlop, Inc. (WD) and Hp Inc (HPQ).

Latest Changes

Additions  
VALERO ENERGY CORPORATION VLO
REX AMERICAN RESOURCES CORP REX
USANA HEALTH SCIENCES, INC. USNA
WADDELL & REED FINANCIAL, INC. WDR
WALKER & DUNLOP, INC. WD
HP INC HPQ
Deletions  
FORUM ENERGY TECHNOLOGIES INC FET
LUMBER LIQUIDATORS HOLDINGS INC LL
ZUMIEZ INC. ZUMZ
OCEANEERING INTERNATIONAL OII
DRIL-QUIP, INC. DRQ
SANDERSON FARMS, INC. SAFM


Newcomers to the Validea Hot List

HP Inc., (HPQ): One of the 2 companies formed when Hewlett-Packard Company split up last year, HP Inc. now handles the printer and PC portion of Packard's old business. The firm has a $20 billion market capitalization.

HP gets strong interest from my James O'Shaughnessy- and Joel Greenblatt-based models. To read more about its fundamentals, scroll down to the "Detailed Stock Analysis" section below.

REX American Resources (REX): In fiscal 2009 REX completed its transformation out of retail and into the alternative energy industry. It has interests in several ethanol production facilities in the Midwest and Northern US.

REX ($370 million market cap) gets strong interest from my Kenneth Fisher-based model and high marks for my Benjamin Graham-inspired model. To read more about it, see the "Detailed Stock Analysis" section.

USANA Health Sciences, Inc. (USNA): Utah-based USANA makes nutritional and personal care products such as vitamins, nutrition bars, and skin and hair cleansers. It has customers in the U.S., Canada, Australia, New Zealand, Mexico, the U.K., and a number of countries in Asia. Its subsidiary, BabyCare, Ltd., has a direct selling business in China.

USANA ($1.4 billion market cap) was a huge winner for the Hot List back in 2013. Now it's back. The firm gets strong interest from my James O'Shaughnessy-, Peter Lynch-, and Joel Greenblatt-based models. To read more about it, scroll down to the "Detailed Stock Analysis" section.

Valero Energy Corp. (VLO): Valero ($30 billion market capitalization) makes transportation fuels, other petrochemical products, and power. Its refineries can produce everything from conventional and premium gasolines and diesel fuel, to jet fuel, to asphalt, petrochemicals and lubricants. It markets branded and unbranded refined products through approximately 7,400 outlets and owns 11 ethanol plants in the central plains region of the United States.

VLO gets strong interest from my Peter Lynch-based model. For details about its impressive fundamentals, see the "Detailed Stock Analysis" section.

Walker & Dunlop, Inc. (WD): Walker & Dunlop is a provider of commercial real estate financial services in the United States, with a primary focus on multifamily lending. The company originates, sells, and services a range of multifamily and other commercial real estate financing products.

Walker & Dunlop ($664 million market capitalization) gets high marks from my Peter Lynch- and Motley Fool-based models. To read more about its fundamentals, scroll down to the "Detailed Stock Analysis" section below.

Waddell & Reed Financial, Inc.: This Kansas City-based mutual fund and asset management company provides investment management, investment advisory, investment product underwriting and distribution and shareholder services administration. It has a market capitalization of about $2 billion and has taken in about $1.5 billion in sales over the past year.

Waddell & Reed gets strong interest from my Peter Lynch-based model and high marks for my Benjamin Graham-inspired model. To read more about it, see the "Detailed Stock Analysis" section.



News about Validea Hot List Stocks

Thor Industries, Inc. (THO): Thor shares rose 6.3% on March 8 after the company reported strong second-quarter fiscal 2016 (ended Jan 31, 2016) earnings. Per-share earnings were 97 cents per share, handily beating the Zacks Consensus Estimate of 62 cents. Net income from continuing operations increased 49% from the prior-year quarter. Revenues rose 14% year over year to $975.1 million, missing the Zacks Consensus Estimate of $1.03 billion. The year-over-year improvement was driven by higher sales of towable and motorized RVs, along with benefits from acquisitions, the Associated Press reported.



The Next Issue

In two weeks, we will publish another issue of the Hot List, at which time we will take an in-depth look at my investment strategies. If you have any questions, please feel free to contact us at hotlist@validea.com.

Portfolio Holdings
Ticker Date Added Return
BMA 11/20/2015 -2.4%
HPQ 3/11/2016 TBD
ASPS 1/15/2016 -15.1%
CALM 11/20/2015 -9.5%
REX 3/11/2016 TBD
USNA 3/11/2016 TBD
WDR 3/11/2016 TBD
VLO 3/11/2016 TBD
THO 2/12/2016 19.9%
WD 3/11/2016 TBD


Guru 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

BMA   |   HPQ   |   ASPS   |   CALM   |   REX   |   USNA   |   WDR   |   VLO   |   THO   |   WD   |  

BANCO MACRO SA (ADR)

Strategy: Growth Investor
Based on: Martin Zweig

Banco Macro S.A. (the Bank) is a bank. The Bank offers traditional bank products and services to companies, including those operating in regional economies, as well as to individuals. The Bank offers savings and checking accounts, credit and debit cards, consumer finance loans (including personal loans), mortgage loans, automobile loans, overdrafts, credit-related services, home and car insurance coverage, tax collection, utility payments, automatic teller machines (ATMs) and money transfers. The Bank offers Plan Sueldo payroll services, lending, corporate credit cards, mortgage finance, transaction processing and foreign exchange. The Bank offers transaction services to its corporate customers, such as cash management, customer collections, payments to suppliers, payroll administration, foreign exchange transactions, foreign trade services, corporate credit cards and information services, such as its Datanet and Interpymes services.


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. BMA's P/E is 11.81, based on trailing 12 month earnings, while the current market PE is 15.00. 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. BMA's revenue growth is 42.07%, while it's earnings growth rate is 45.47%, based on the average of the 3, 4 and 5 year historical eps growth rates. Therefore, BMA 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 (39.3%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (79%) of the current year. Sales growth for the prior must be greater than the latter. For BMA 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. BMA's EPS ($2.20) pass this test.


QUARTERLY EARNINGS ONE YEAR AGO: PASS

The EPS for the quarter one year ago must be positive. BMA's EPS for this quarter last year ($0.13) 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. BMA's growth rate of 1,592.31% passes this test.


EARNINGS GROWTH RATE FOR THE PAST SEVERAL QUARTERS: FAIL

Compare the earnings growth rate of the previous three quarters with long-term EPS growth rate. Earnings growth in the previous 3 quarters should be at least half of the long-term EPS growth rate. Half of the long-term EPS growth rate for BMA is 22.74%. This should be less than the growth rates for the 3 previous quarters which are 12.50%, 9.09% and 214.29%. BMA does not pass this test, which means that it does not have good, reasonably steady earnings.


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


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

If the growth rate of the prior three quarter's earnings, 65.38%, (versus the same three quarters a year earlier) is less than the growth rate of the current quarter earnings, 1,592.31%, (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, 1,592.31% must be greater than or equal to the historical growth which is 45.47%. BMA 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. BMA, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were 0.13, 0.17, 0.27, 0.39 and 0.56, 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. BMA's long-term growth rate of 45.47%, based on the average of the 3, 4 and 5 year historical eps growth rates, passes this test.

HP INC

Strategy: Price/Sales Investor
Based on: Kenneth Fisher

HP Inc., formerly Hewlett-Packard Company, is a provider of products, technologies, software, solutions and services to individual consumers, small- and medium-sized businesses and large enterprises. The Company operates in seven business segments: Personal Systems, Printing, the Enterprise Group, Enterprise Services, Software, HP Financial Services and Corporate Investments. It offers personal computing and other access devices; imaging and printing related products and services; enterprise information technology (IT) infrastructure, including enterprise server and storage technology, networking products and solutions, technology support and maintenance; multi-vendor customer services, including technology consulting, outsourcing and support services across infrastructure, applications and business process domains, and software products and solution, including application testing and delivery software, big data analytics, information governance and IT Operations Management.


PRICE/SALES RATIO: PASS

The prospective company should have a low Price/Sales ratio. Non-cyclical (non-Smokestack) companies with Price/Sales ratios below 0.75 are tremendous values and should be sought. HPQ's P/S of 0.26 based on trailing 12 month sales, is below 0.75 which is considered quite attractive. It passes this methodology's P/S ratio test with flying colors.


TOTAL DEBT/EQUITY RATIO: PASS

Less debt equals less risk according to this methodology. HPQ's Debt/Equity of 24.24% is acceptable, thus passing the test.


PRICE/RESEARCH RATIO: PASS

This methodology considers Technology and Medical companies with low Price/Research ratios to be attractive. This ratio indicates how much a market values a company's Research and Development (R&D). Companies with Price/Research ratios between 5 and 10 are bargains and considered attractive.HPQ's Price/Research ratio of 6.92 is considered favorable.


PRELIMINARY GRADE: Some Interest in HPQ At this Point

Is HPQ a "Super Stock"? NO


PRICE/SALES RATIO: PASS

The prospective company should have a low Price/Sales ratio. Non-cyclical(non-Smokestack) companies with Price/Sales ratios below .75 are tremendous values and should be sought.HPQ's P/S ratio of 0.26 is below .75 which is considered extremely attractive. It passes this methodology's P/S ratio test with flying colors.


LONG-TERM EPS GROWTH RATE: FAIL

This methodology looks for companies that have an inflation adjusted EPS growth rate greater than 15%. HPQ's inflation adjusted EPS growth rate of -7.54% fails the test.


FREE CASH PER SHARE: PASS

This methodology looks for companies that have a positive free cash per share. Companies should have enough free cash available to sustain three years of losses. This is based on the premise that companies without cash will soon be out of business. HPQ's free cash per share of 0.89 passes this criterion.


THREE YEAR AVERAGE NET PROFIT MARGIN: FAIL

This methodology looks for companies that have an average net profit margin of 5% or greater over a three year period. HPQ, whose three year net profit margin averages 4.71%, fails this evaluation.

ALTISOURCE PORTFOLIO SOLUTIONS S.A.

Strategy: Growth Investor
Based on: Martin Zweig

Altisource Portfolio Solutions S.A. is a provider of marketplace and transaction solutions for the real estate, mortgage and consumer debt industries offering both distribution and content. The Company operates in three segments: Mortgage Services, Financial Services and Technology Services. The Company's Mortgage Services segment provides services that span the mortgage and real estate lifecycle, and are outsourced by loan servicers, loan originators, investors and other sellers of single family homes. The Financial Services segment provides collection and customer relationship management services to debt originators and servicers, and the utility, insurance and hotel industries. The Company's Technology Services consists of REALSuite of software applications, Equator, LLC (Equator) software applications, Mortgage Builder software applications and its information technology (IT) infrastructure management services.


P/E RATIO: PASS

The P/E of a company must be greater than 5 to eliminate weak companies, but not more than 3 times the current Market P/E because the situation is much too risky, and never greater than 43. ASPS's P/E is 5.59, based on trailing 12 month earnings, while the current market PE is 15.00. Therefore, it passes the first test.


REVENUE GROWTH IN RELATION TO EPS GROWTH: PASS

Revenue Growth must not be substantially less than earnings growth. For earnings to continue to grow over time they must be supported by a comparable or better sales growth rate and not just by cost cutting or other non-sales measures. ASPS's revenue growth is 37.79%, while it's earnings growth rate is 32.80%, based on the average of the 3, 4 and 5 year historical eps growth rates. Therefore, ASPS passes this criterion.


SALES GROWTH RATE: PASS

Another important issue regarding sales growth is that the rate of quarterly sales growth is rising. To evaluate this, the change from this quarter last year to the present quarter (-5.2%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (-9.4%) of the current year. Sales growth for the prior must be greater than the latter. For ASPS this criterion has been met.


The earnings numbers of a company should be examined from various different angles. Three of these angles are stability in the trend of earnings, earnings persistence, and earnings acceleration. To evaluate stability, the stock has to pass the following four criteria.


CURRENT QUARTER EARNINGS: PASS

The first of these criteria is that the current EPS be positive. ASPS's EPS ($1.82) pass this test.


QUARTERLY EARNINGS ONE YEAR AGO: PASS

The EPS for the quarter one year ago must be positive. ASPS's EPS for this quarter last year ($1.79) pass this test.


POSITIVE EARNINGS GROWTH RATE FOR CURRENT QUARTER: PASS

The growth rate of the current quarter's earnings compared to the same quarter a year ago must also be positive. ASPS's growth rate of 1.68% passes this test.


EARNINGS GROWTH RATE FOR THE PAST SEVERAL QUARTERS: FAIL

Compare the earnings growth rate of the past four quarters with long-term EPS growth rate. Earnings growth in the past 4 quarters should be at least half of the long-term EPS growth rate. A stock should not be considered if it posted several quarters of skimpy earnings. ASPS had 3 quarters of skimpy growth in the last 2 years.


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, -55.98%, (versus the same three quarters a year earlier) is less than the growth rate of the current quarter earnings, 1.68%, (versus the same quarter one year ago) then the stock passes.


EPS GROWTH FOR CURRENT QUARTER MUST BE GREATER THAN THE HISTORICAL GROWTH RATE: FAIL

The EPS growth rate for the current quarter, 1.68% must be greater than or equal to the historical growth which is 32.80%. Since this is not the case ASPS would therefore fail this test.


EARNINGS PERSISTENCE: PASS

Companies must show persistent yearly earnings growth. To fulfill this requirement a company's earnings must increase each year for a five year period. ASPS, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were 1.88, 2.77, 4.43, 5.19 and 5.69, passes this test.


LONG-TERM EPS GROWTH: PASS

One final earnings test required is that the long-term earnings growth rate must be at least 15% per year. ASPS's long-term growth rate of 32.80%, based on the average of the 3, 4 and 5 year historical eps growth rates, passes this test.


INSIDER TRANSACTIONS: PASS

A factor that adds to a stock's attractiveness is if insider buy transactions number 3 or more, while insider sell transactions are zero. Zweig calls this an insider buy signal. For ASPS, this criterion has not been met (insider sell transactions are 14, while insiders buying number 40). Despite the lack of an insider buy signal, there also is not an insider sell signal, so the stock passes this criterion.

CAL-MAINE FOODS INC

Strategy: Price/Sales Investor
Based on: Kenneth Fisher

Cal-Maine Foods, Inc. is a producer and marketer of shell eggs in the United States. The Company's primary business is the production, grading, packaging, marketing and distribution of shell eggs. The Company sells its shell eggs in the southwestern, southeastern, mid-western and mid-Atlantic regions of the United States. The Company markets its shell eggs through its distribution network to a group of customers, including national and regional grocery store chains, club stores, foodservice distributors and egg product consumers. Some of its sales are completed through co-pack agreements. It has a total flock of approximately 33.7 million layers and 8.4 million pullets and breeders. The Company markets its specialty shell eggs under brands, such as Egg-Land's Best, Land O' Lakes, Farmhouse and 4-Grain. The Company also produces, markets and distributes private label specialty shell eggs to several customers.


PRICE/SALES RATIO: PASS

The prospective company should have a low Price/Sales ratio. Non-cyclical (non-Smokestack) companies with Price/Sales ratio between .75 and 1.5 are good values. CALM's P/S ratio of 1.25 based on trailing 12 month sales, falls within the "good values" range for non-cyclical companies and is considered attractive.


TOTAL DEBT/EQUITY RATIO: PASS

Less debt equals less risk according to this methodology. CALM's Debt/Equity of 3.30% is acceptable, thus passing the test.


PRICE/RESEARCH RATIO: PASS

This methodology considers companies in the Technology and Medical sectors to be attractive if they have low Price/Research ratios. CALM is neither a Technology nor Medical company. Therefore the Price/Research ratio is not available and, hence, not much emphasis should be placed on this particular variable.


PRELIMINARY GRADE: Some Interest in CALM At this Point

Is CALM a "Super Stock"? NO


PRICE/SALES RATIO: FAIL

The prospective company should have a low Price/Sales ratio. To be considered a "Super Stock", non-cyclical (non-Smokestack) companies should have Price/Sales ratios below .75. However, CALM, who has a P/S of 1.25, does not fall within the "Super Stock" range. It does fall between 0.75 and 1.5, which is considered the "good values" range for non-cyclical companies. Nonetheless, it does not pass this "Super Stock" criterion.


LONG-TERM EPS GROWTH RATE: PASS

This methodology looks for companies that have an inflation adjusted EPS growth rate greater than 15%. CALM's inflation adjusted EPS growth rate of 19.95% passes the test.


FREE CASH PER SHARE: PASS

This methodology looks for companies that have a positive free cash per share. Companies should have enough free cash available to sustain three years of losses. This is based on the premise that companies without cash will soon be out of business. CALM's free cash per share of 1.32 passes this criterion.


THREE YEAR AVERAGE NET PROFIT MARGIN: PASS

This methodology looks for companies that have an average net profit margin of 5% or greater over a three year period. CALM, whose three year net profit margin averages 7.24%, passes this evaluation.

REX AMERICAN RESOURCES CORP

Strategy: Price/Sales Investor
Based on: Kenneth Fisher

Rex American Resources Corporation (REX) is a holding company to succeed to the entire ownership of three affiliated companies, Rex Radio and Television, Inc., Stereo Town, Inc. and Kelly & Cohen Appliances, Inc. As of January 31, 2015, the Company invested in four ethanol production entities, two of which the Company has a majority ownership interest. The Company's ethanol investments include One Earth Energy, LLC, NuGen Energy, LLC, Patriot Holdings, LLC, Big River Resources W Burlington, LLC, Big River Resources Galva, LLC, Big River United Energy, LLC and Big River Resources Boyceville, LLC. The Company owns around 74% of the outstanding membership units of One Earth Energy, LLC, around 99% of NuGen Energy, LLC, around 27% of Patriot Holdings, LLC and around 10% of Big River Resources, LLC.


PRICE/SALES RATIO: PASS

The prospective company should have a low Price/Sales ratio. Smokestack (cyclical) companies with a Price/Sales ratio between .4 and .8 represent good values according to this methodology. REXpasses this test as its P/S of 0.80 based on trailing 12 month sales, falls within the "good values" range for cyclical companies.


TOTAL DEBT/EQUITY RATIO: PASS

Less debt equals less risk according to this methodology. REX's Debt/Equity of 0.00% is exceptional, thus passing the test.


PRICE/RESEARCH RATIO: PASS

This methodology considers companies in the Technology and Medical sectors to be attractive if they have low Price/Research ratios. REX is neither a Technology nor Medical company. Therefore the Price/Research ratio is not available and, hence, not much emphasis should be placed on this particular variable.


PRELIMINARY GRADE: Some Interest in REX At this Point

Is REX a "Super Stock"? YES


PRICE/SALES RATIO: PASS

The prospective company should have a low Price/Sales ratio. Non-Smokestack(non-cyclical) companies with a Price/Sales ratio between .75 and 1.5 are good values. Otherwise, Smokestack(cyclical) companies with a Price/Sales ratio between .4 and .8 represent good values. REX's P/S ratio of 0.80 falls within the "good values " range for cyclical industries and is considered attractive.


LONG-TERM EPS GROWTH RATE: PASS

This methodology looks for companies that have an inflation adjusted EPS growth rate greater than 15%. REX's inflation adjusted EPS growth rate of 58.53% passes the test.


FREE CASH PER SHARE: PASS

This methodology looks for companies that have a positive free cash per share. Companies should have enough free cash available to sustain three years of losses. This is based on the premise that companies without cash will soon be out of business. REX's free cash per share of 15.68 passes this criterion.


THREE YEAR AVERAGE NET PROFIT MARGIN: PASS

This methodology looks for companies that have an average net profit margin of 5% or greater over a three year period. REX, whose three year net profit margin averages 6.73%, passes this evaluation.

USANA HEALTH SCIENCES, INC.

Strategy: Price/Sales Investor
Based on: Kenneth Fisher

USANA Health Sciences, Inc. develops and manufactures science-based nutritional and personal care products. The Company has operations in approximately 19 markets across the world, where it distributes and sells its products by way of direct selling. The Company operates as a direct selling company and reports revenue in two geographic regions: Americas and Europe, and Asia Pacific, which includes three sub-regions as: Southeast Asia Pacific, Greater China and North Asia. Americas and Europe includes the United States, Canada, Mexico, Colombia, the United Kingdom, France, Belgium, and the Netherlands. Southeast Asia Pacific includes Australia, New Zealand, Singapore, Malaysia, the Philippines, and Thailand; Greater China includes Hong Kong, Taiwan and China, and North Asia includes Japan and South Korea.


PRICE/SALES RATIO: PASS

The prospective company should have a low Price/Sales ratio. Non-cyclical (non-Smokestack) companies with Price/Sales ratio between .75 and 1.5 are good values. USNA's P/S ratio of 1.50 based on trailing 12 month sales, falls within the "good values" range for non-cyclical companies and is considered attractive.


TOTAL DEBT/EQUITY RATIO: PASS

Less debt equals less risk according to this methodology. USNA's Debt/Equity of 0.00% is exceptional, thus passing the test.


PRICE/RESEARCH RATIO: PASS

This methodology considers companies in the Technology and Medical sectors to be attractive if they have low Price/Research ratios. USNA is neither a Technology nor Medical company. Therefore the Price/Research ratio is not available and, hence, not much emphasis should be placed on this particular variable.


PRELIMINARY GRADE: Some Interest in USNA At this Point

Is USNA a "Super Stock"? NO


PRICE/SALES RATIO: FAIL

The prospective company should have a low Price/Sales ratio. To be considered a "Super Stock", non-cyclical (non-Smokestack) companies should have Price/Sales ratios below .75. However, USNA, who has a P/S of 1.50, does not fall within the "Super Stock" range. It does fall between 0.75 and 1.5, which is considered the "good values" range for non-cyclical companies. Nonetheless, it does not pass this "Super Stock" criterion.


LONG-TERM EPS GROWTH RATE: PASS

This methodology looks for companies that have an inflation adjusted EPS growth rate greater than 15%. USNA's inflation adjusted EPS growth rate of 25.76% passes the test.


FREE CASH PER SHARE: PASS

This methodology looks for companies that have a positive free cash per share. Companies should have enough free cash available to sustain three years of losses. This is based on the premise that companies without cash will soon be out of business. USNA's free cash per share of 6.66 passes this criterion.


THREE YEAR AVERAGE NET PROFIT MARGIN: PASS

This methodology looks for companies that have an average net profit margin of 5% or greater over a three year period. USNA, whose three year net profit margin averages 10.34%, passes this evaluation.

WADDELL & REED FINANCIAL, INC.

Strategy: Value Investor
Based on: Benjamin Graham

Waddell & Reed Financial, Inc. is a mutual fund and asset management company. The Company provides investment management, investment advisory, investment product underwriting and distribution and shareholder services administration to Waddell & Reed Advisors group of mutual funds, Ivy Funds, Ivy Funds Variable Insurance Portfolios, InvestEd Portfolios, 529 college savings and Selector Management Fund SICAV and its Ivy Global Investors sub-funds and institutional and separately managed accounts. The Company operates its business through a distribution network. Its retail products are distributed through its Wholesale channel, which includes third parties, such as other broker/dealers, registered investment advisors and various retirement platforms or through its Advisors channel sales force of independent financial advisors. It also markets investment advisory services to institutional investors, either directly or through consultants, in its Institutional channel.


SECTOR: FAIL

WDR is in the Financial sector, which is one sector that this methodology avoids. Technology and financial stocks were considered too risky to invest in when this methodology was published. Although times have changed since then with respect to the risk of financial stocks, several of Graham's criteria, like the Current Ratio and Debt to Current Assets, do not apply to financial companies. As a result, the company will not be able to pass this methodology, although we will include the remainder of the analysis for informational purposes.


SALES: PASS

The investor must select companies of "adequate size". This includes companies with annual sales greater than $340 million. WDR's sales of $1,516.6 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. WDR's current ratio of 2.75 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 WDR is $190.0 million, while the net current assets are $774.5 million. WDR 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. WDR's EPS growth over that period of 248.2% passes the EPS growth test.


P/E RATIO: PASS

The Price/Earnings (P/E) ratio, based on the greater of the current PE or the PE using average earnings over the last 3 fiscal years, must be "moderate", which this methodology states is not greater than 15. Stocks with moderate P/Es are more defensive by nature. WDR's P/E of 8.33 (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. WDR's Price/Book ratio is 2.40, while the P/E is 8.33. WDR passes the Price/Book test.

VALERO ENERGY CORPORATION

Strategy: Price/Sales Investor
Based on: Kenneth Fisher

Valero Energy Corp (Valero) is an international manufacturer and marketer of transportation fuels, other petrochemical products and power. The Company's refineries can produce conventional gasolines, premium gasolines, gasoline, diesel fuel, low-sulfur diesel fuel, ultra-low-sulfur diesel fuel, CARB diesel fuel, other distillates, jet fuel, asphalt, petrochemicals, lubricants, and other refined products. The Company markets branded and unbranded refined products through approximately 7,400 outlets. The Company also owns 11 ethanol plants in the central plains region of the United States that primarily produce ethanol. The Company operates through two segments. The refining segment includes refining operations, wholesale marketing, product supply and distribution, and transportation operations in the United States, Canada, the United Kingdom, Aruba and Ireland. Its ethanol segment primarily includes sale of internally produced ethanol and distillers grains.


PRICE/SALES RATIO: PASS

The prospective company should have a low Price/Sales ratio. Non-cyclical (non-Smokestack) companies with Price/Sales ratios below 0.75 are tremendous values and should be sought. VLO's P/S of 0.34 based on trailing 12 month sales, is below 0.75 which is considered quite attractive. It passes this methodology's P/S ratio test with flying colors.


TOTAL DEBT/EQUITY RATIO: PASS

Less debt equals less risk according to this methodology. VLO's Debt/Equity of 35.94% is acceptable, thus passing the test.


PRICE/RESEARCH RATIO: PASS

This methodology considers companies in the Technology and Medical sectors to be attractive if they have low Price/Research ratios. VLO is neither a Technology nor Medical company. Therefore the Price/Research ratio is not available and, hence, not much emphasis should be placed on this particular variable.


PRELIMINARY GRADE: Some Interest in VLO At this Point

Is VLO a "Super Stock"? NO


PRICE/SALES RATIO: PASS

The prospective company should have a low Price/Sales ratio. Non-cyclical(non-Smokestack) companies with Price/Sales ratios below .75 are tremendous values and should be sought.VLO's P/S ratio of 0.34 is below .75 which is considered extremely attractive. It passes this methodology's P/S ratio test with flying colors.


LONG-TERM EPS GROWTH RATE: PASS

This methodology looks for companies that have an inflation adjusted EPS growth rate greater than 15%. VLO's inflation adjusted EPS growth rate of 21.41% passes the test.


FREE CASH PER SHARE: PASS

This methodology looks for companies that have a positive free cash per share. Companies should have enough free cash available to sustain three years of losses. This is based on the premise that companies without cash will soon be out of business. VLO's free cash per share of 6.29 passes this criterion.


THREE YEAR AVERAGE NET PROFIT MARGIN: FAIL

This methodology looks for companies that have an average net profit margin of 5% or greater over a three year period. VLO, whose three year net profit margin averages 3.09%, fails this evaluation.

THOR INDUSTRIES, INC.

Strategy: Price/Sales Investor
Based on: Kenneth Fisher

Thor Industries, Inc. (Thor), manufactures and sells various recreational vehicles (RV) throughout the United States and Canada, as well as related parts and accessories. The principal types of The Company's towable recreational vehicles that the Company produces include conventional travel trailers and fifth wheels. In addition, it also produces truck and folding campers and equestrian, and other specialty towable recreational vehicles, as well as Class A, Class C and Class B motorhomes. The Company operates through two segments: towable recreational vehicles and motorized recreational vehicles. The Company through its operating subsidiaries manufactures recreational vehicles in North America. The subsidiaries are Airstream, Inc., CrossRoads RV, Thor Motor Coach, Inc., Keystone RV Company, Heartland Recreational Vehicles, LLC, Livin' Lite RV, Inc., Bison Coach, K.Z., Inc. and Postle Operating, LLC.


PRICE/SALES RATIO: PASS

The prospective company should have a low Price/Sales ratio. Smokestack (cyclical) companies with a Price/Sales ratio between .4 and .8 represent good values according to this methodology. THOpasses this test as its P/S of 0.74 based on trailing 12 month sales, falls within the "good values" range for cyclical companies.


TOTAL DEBT/EQUITY RATIO: PASS

Less debt equals less risk according to this methodology. THO's Debt/Equity of 0.00% is exceptional, thus passing the test.


PRICE/RESEARCH RATIO: PASS

This methodology considers companies in the Technology and Medical sectors to be attractive if they have low Price/Research ratios. THO is neither a Technology nor Medical company. Therefore the Price/Research ratio is not available and, hence, not much emphasis should be placed on this particular variable.


PRELIMINARY GRADE: Some Interest in THO At this Point

Is THO a "Super Stock"? NO


PRICE/SALES RATIO: PASS

The prospective company should have a low Price/Sales ratio. Non-Smokestack(non-cyclical) companies with a Price/Sales ratio between .75 and 1.5 are good values. Otherwise, Smokestack(cyclical) companies with a Price/Sales ratio between .4 and .8 represent good values. THO's P/S ratio of 0.74 falls within the "good values " range for cyclical industries and is considered attractive.


LONG-TERM EPS GROWTH RATE: PASS

This methodology looks for companies that have an inflation adjusted EPS growth rate greater than 15%. THO's inflation adjusted EPS growth rate of 16.97% passes the test.


FREE CASH PER SHARE: PASS

This methodology looks for companies that have a positive free cash per share. Companies should have enough free cash available to sustain three years of losses. This is based on the premise that companies without cash will soon be out of business. THO's free cash per share of 2.78 passes this criterion.


THREE YEAR AVERAGE NET PROFIT MARGIN: FAIL

This methodology looks for companies that have an average net profit margin of 5% or greater over a three year period. THO, whose three year net profit margin averages 4.93%, fails this evaluation.

WALKER & DUNLOP, INC.

Strategy: Growth Investor
Based on: Martin Zweig

Walker & Dunlop, Inc. (Walker & Dunlop) is a holding company, which conducts all of its operations through Walker & Dunlop, LLC, its operating company. Walker & Dunlop is a provider of commercial real estate financial services in the United States, with a primary focus on multifamily lending. The Company originates, sells, and services a range of multifamily and other commercial real estate financing products, including Multifamily Finance, Federal Housing Administration Finance, Capital Markets, and Proprietary Capital. It originates and sells loans through the programs of the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac, and together with Fannie Mae, the government-sponsored enterprises), the Government National Mortgage Association (Ginnie Mae) and the Federal Housing Administration, a division of the United States Department of Housing and Urban Development (together with Ginnie Mae, HUD).


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. WD's P/E is 8.91, based on trailing 12 month earnings, while the current market PE is 15.00. 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. WD's revenue growth is 28.41%, while it's earnings growth rate is 25.52%, based on the average of the 3, 4 and 5 year historical eps growth rates. Therefore, WD 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 (7.8%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (23.2%) of the current year. Sales growth for the prior must be greater than the latter. For WD 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. WD's EPS ($0.67) pass this test.


QUARTERLY EARNINGS ONE YEAR AGO: PASS

The EPS for the quarter one year ago must be positive. WD's EPS for this quarter last year ($0.50) 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. WD's growth rate of 34.00% 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 WD is 12.76%. This should be less than the growth rates for the 3 previous quarters, which are 214.29%, 67.50%, and 40.43%. WD 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, 84.26%, (versus the same three quarters a year earlier) is greater than the growth rate of the current quarter earnings, 34.00%, (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 WD is 34.0%, 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, 34.00% must be greater than or equal to the historical growth which is 25.52%. WD 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. WD, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were 1.60, 1.31, 1.21, 1.58, and 2.65, 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. WD's long-term growth rate of 25.52%, based on the average of the 3, 4 and 5 year historical eps growth rates, passes this test.


INSIDER TRANSACTIONS: PASS

A factor that adds to a stock's attractiveness is if insider buy transactions number 3 or more, while insider sell transactions are zero. Zweig calls this an insider buy signal. For WD, this criterion has not been met (insider sell transactions are 131, while insiders buying number 32). Despite the fact that insider sells out number insider buys for this company, Zweig considers even one insider buy transaction enough to prevent an insider sell signal, therefore there is not an insider sell signal and the stock passes this criterion.


Watch List

The top scoring stocks not currently in the Hot List portfolio.

Ticker Company Name Current
Score
OXM OXFORD INDUSTRIES INC 72%
BANC BANC OF CALIFORNIA INC 68%
SIMO SILICON MOTION TECHNOLOGY CORP. (ADR) 59%
SAFM SANDERSON FARMS, INC. 57%
NSR NEUSTAR INC 54%
IOSP INNOSPEC INC. 53%
JBSS JOHN B. SANFILIPPO & SON, INC. 53%
WLK WESTLAKE CHEMICAL CORPORATION 50%
UFPI UNIVERSAL FOREST PRODUCTS, INC. 48%
WRLD WORLD ACCEPTANCE CORP. 46%



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