Executive Summary  |   Portfolio  |   Guru Analysis  |   Watch List

Executive Summary	February 18, 2011

The Economy The economic news has been mixed since our last newsletter, but overall the recovery keeps moving forward. The employment picture continues to slowly but surely improve. The Labor Department's most recent employment report showed that the private sector added 50,000 jobs in January -- not exactly gangbusters growth. But the unemployment rate fell to 9.0%, and has now fallen 0.8 percentage points since November to reach its lowest level in almost two years. The so-called "U-6" unemployment rate -- which, unlike the headline number, includes workers who have given up looking for work -- fell by 0.6 percentage points, meanwhile, to 16.1%, its lowest level in nearly two years. As happened in December, January's figures showed a significant drop in the unemployment rate, while a relatively small number of jobs were created. And, just as in December, that odd juxtaposition does not appear to be due to discouraged workers dropping out of the labor force and no longer being counted -- the U-6 figure is intended to pick them up, and it declined significantly, too. A big part of the reason for the discrepancy is that the "jobs created" figure comes from a survey of businesses; the unemployment rate is calculated using a survey of households. That creates inconsistencies. For example, the number of people who were self-employed jumped by 167,000 in January, but those jobs -- and other hirings at very new companies -- are unlikely to be included in the business survey that gives us the "jobs created" figure. Overall, the bottom line is that the employment picture is continuing to show improvement. The weekly claims data also bears that out. The four-week moving average of new claims for unemployment is about 11% below where it was a year ago; the four-week moving average for continuing claims is down close to 20% over that time. In the industrial and manufacturing arenas, meanwhile, we've gotten mixed news since our last newsletter. Industrial production fell 0.1% in January, according to a new Federal Reserve report, though the December figure was revised upward to a gain of 1.2% (up from 0.8%). A big part of the January decline was due to weather, as temperatures moved closer to normal, which decreased output from the utilities industry. Manufacturing production actually increased by 0.3%. Early signs regarding February manufacturing are encouraging. The Philadelphia Federal Reserve's manufacturing index, which measures activity in the mid-Atlantic region, almost doubled in February, a great sign. Last newsletter, I talked about how inflation had been rearing its head a bit. This week, the Labor Department announced that core inflation -- which does not include volatile food or energy prices -- was up 0.2% in January. While not an alarming number, it is the highest figure in several months. And, more importantly, the overall inflation number rose by 0.4% for the second straight month, thanks to a 0.5% increase in food prices and a 2.1% increase in energy prices. While they may not be included in the "core" figure, food and energy are certainly at the core of most consumers' expenses. Food and fuel prices that get too high would be a threat to the recovery. For now, however, consumers are continuing to show resilience. After eclipsing their pre-recession high in December, retail and food services sales increased again in January, rising 0.3%, according to the Census Bureau. It was the seventh straight month retail and food sales have risen. Overall since our last newsletter, the S&P has returned 2.5%, while the Hot List has returned 2.6%. For the year, the portfolio stands at 3.7% vs. 6.6% for the S&P. Since its inception in July 2003, the Hot List is far outpacing the index, having gained 179.7% vs. the S&P's 34.0% gain. Major Shakeup On today's regularly scheduled rebalancing, the Hot List is selling off five of its holdings, and replacing them with five new stocks that now get higher scores from my Guru Strategies. The departing stocks are mostly solid winners, including Atwood Oceanics (up about 18% through yesterday's close), Sanofi-Aventis (up about 16%), and Raytheon Company (up about 11%). Millicom International (down about 2%) and Ariad Pharmaceuticals (down about 6%) are also leaving the portfolio. The newcomers are a very diverse group, and include an oil driller (Ensco), yoga-focused retailer (lululemon), a for-profit education company (Lincoln Educational Services), and a couple tech stocks (Western Digital and Acme Packet). Given the significant amount of changeover, I thought it would be a good time to review our rebalancing process. It's been about a year since we last examined the topic, which means we have another year worth of data and information to learn from. While "rebalancing" is often discussed as a way to maintain certain asset allocations within a multi-asset portfolio, it means something different for the Hot List, since the Hot List is an all-stock portfolio. For the Hot List, "rebalancing" entails two main things: 1.) ensuring that the portfolio includes only the stocks that best meet an underlying quantitative strategy, and 2.) bringing them back to target weights in this all-equity portfolio. We've compiled a good amount of our own research on the topic after nearly eight years of running our model portfolios. What we've found is that, generally, a monthly rebalancing works best for our portfolios, particularly for the consensus-based Hot List. Using simple averages, the 14 ten-stock portfolios we track on Validea.com (12 individual guru portfolios, the Hot List, and our Top 5 Gurus portfolio) have returned an average of 10.68% per year since inception when rebalanced monthly (note: our "monthly" rebalancings are actually every 28 days). When rebalanced quarterly, the returns have been slightly lower, averaging 10.16% per year. And when rebalanced annually, the difference is much larger, with the average return being 7.43% per year. (All figures mentioned above and below are through Feb. 16.) For our 20-stock portfolios, it's been a similar story. The monthly rebalanced portfolios have averaged 10.10% per year; the quarterly rebalanced versions have returned 9.97%; and the annually rebalanced portfolios have returned 6.84%. For the Hot List, it's also been a similar story, with more of an edge going to the monthly rebalanced portfolios. The 10-stock version of the Hot List has returned 14.5% annualized when rebalanced monthly; 11.60% when rebalanced quarterly; and 10.20% when rebalanced annually. We also track a 20-stock version of the Hot List. Its monthly rebalancing has led to 12.20% annualized returns, while the quarterly and annual figures have been 10.40% and 9.1%, respectively. Discipline Is Key What do all of those numbers mean for your portfolio? Do they mean you should definitely use a monthly rebalancing period? Not necessarily. While I think there's value in examining the numbers I laid out above, it's important to realize that they cover a period of about seven-and-a-half years, so there's certainly the chance that they could shift over longer periods. In addition, different strategies may fare better with different rebalancing periods, and some of the gurus I follow use different rebalancing periods. Even within my models, there's wide variation. For example, while the Hot List clearly has performed best with a 10-stock, monthly rebalancing approach, my Joseph Piotroski-inspired model has generated annualized returns of 14.9% annualized using an annual rebalancing and 20-stock portfolio, well ahead of the 10.6% per year when using a 10-stock, monthly rebalancing approach. Some of the differences may be due to chance; some may be due to the specifics of the strategy. There are other factors to consider, too. Transaction costs, tax implications, and even the simple issue of the time you have available to put into your rebalancings can be key issues. So, what's the bottom line, then? To me, the key is picking a rebalancing period -- whatever it may be -- and sticking with it. A regularly scheduled rebalancing period of any length (within reason) helps you do something that most investors can't do if left to their own devices: keep emotion out of your buy and sell decisions. We humans are emotional creatures, and as such we're prone to a number of cognitive biases when it comes to stock investing. I've mentioned many of them -- hindsight bias, anchoring, over-optimism -- in past Hot Lists, and they will wreak havoc on your portfolio. By following a disciplined rebalancing system, however, you keep those biases and your emotions at bay -- and as an investor, there may be no more important task. You buy and sell when your approach says it's time to buy or sell -- not when you read about a hot stock, or when your neighbor gives you a tip on a "sure thing", or when you get a feeling that the broader market is about to turn up or down. I believe that that sort of disciplined buying and selling at regular intervals has been a big reason that the Hot List has performed so well over the long haul, and I think it's an attribute of our system that will help us continue to outperform in years to come.		Editor-in-Chief: John Reese Since Inception   Hot List 179.7% S&P 500 34.0% Accuracy 56.8% Beta 1.2 YTD   Hot List 3.7% S&P 500 6.6% Since Last Issue   Hot List 2.6% S&P 500 2.5% Avg. Fundamentals   Market Cap (mil) $15,216 PE Ratio 26.1 5 Yr EPS Growth 34.7% Yield 3.7% Rel. Strength 55 Portfolio Sectors Services 5 Technology 2 Consumer Cyclical 1 Energy 1 Financial 1
Advertisement Validea Capital Management - Private Portfolio Management Based on Strategies of Legends Are you looking for an alternative to your underperforming mutual funds or financial advisor? Click here to download Validea Capital's investment kit and learn more about the firm's guru-based portfolios. Get More Information on Validea Capital! ** Validea Capital Management is a separate investment advisory firm managed by Validea.com founder John Reese. Thre information above in not intended as personal investment advice and should not be interpreted as such. The Fallen As we rebalance the Validea Hot List, 5 stocks leave our portfolio. These include: Ariad Pharmaceuticals, Inc. (ARIA), Sanofi-aventis Sa (Adr) (SNY), Atwood Oceanics, Inc. (ATW), Raytheon Company (RTN) and Millicom International Cellular Sa (Usa) (MICC). The Keepers 5 stocks remain in the portfolio. They are: Telefonica S.a. (Adr) (TEF), Aeropostale, Inc. (ARO), Tower Group, Inc. (TWGP), Gamestop Corp. (GME) and Dollar Tree, Inc. (DLTR). The Newbies We are adding 5 stocks to the portfolio. These include: Western Digital Corp. (WDC), Lincoln Educational Services Corporation (LINC), Acme Packet, Inc. (APKT), Lululemon Athletica Inc. (LULU) and Ensco Plc (ESV). Portfolio Changes Additions   WESTERN DIGITAL CORP. WDC LINCOLN EDUCATIONAL SERVICES CORPORATION LINC ACME PACKET, INC. APKT LULULEMON ATHLETICA INC. LULU ENSCO PLC ESV Deletions   ARIAD PHARMACEUTICALS, INC. ARIA SANOFI-AVENTIS SA (ADR) SNY ATWOOD OCEANICS, INC. ATW RAYTHEON COMPANY RTN MILLICOM INTERNATIONAL CELLULAR SA (USA) MICC Newcomers to the Validea Hot List Ensco Plc (ESV): This London-based firm provides offshore drilling services to the petroleum industry. Its fleet includes eight ultra-deepwater semi-submersible rigs, as well as 40 premium "jackup rigs" that are located in several different regions around the world. Ensco, which has a $7.7 billion market cap, gets strong interest from the models I base on the writings of Peter Lynch and the late, great Benjamin Graham. To read more about it, check out the "Detailed Stock Analysis" section below. lululemon athletica inc. (LULU): This Vancouver-based firm makes clothing for a variety of athletics, focusing largely on technical athletic apparel for yoga, running, and dancing. It has more than 100 stores across Canada, the U.S., Australia, and Hong Kong. lululemon, which has a market cap of about $4.3 billion, gets strong interest from the model I base on the writings of Tom and David Gardner, the creators of The Motley Fool investment web site, as well as my Momentum Investor model. The "Detailed Stock Analysis" section below has more on the stock. Western Digital Corp. (WDC): This California-based firm is a leader in the hard drive and digital storage business. The 40-year-old company has a market cap of about $7.8 billion, and has raked in close to $10 billion in sales in the past year. It gets approval from my Peter Lynch-based model, and high marks from a couple of my other strategies. For more on the stock, see the "Detailed Stock Analysis" section below. Lincoln Educational Services Corporation (LINC): Lincoln offers high school graduates and working adults various degree and diploma programs. The New Jersey-based small-cap ($350 million) has seen its earnings surge in recent years, as the weak jobs market has sent many job-seekers back to school for more education or training. Acme Packet (APKT): Located in Bedford, Mass., Acme offers session border control solutions that enable the delivery of interactive communications -- voice, video and multimedia sessions -- and data services across IP network borders. The firm has a $4.7 billion market cap. Acme gets solid scores from two of my growth approaches, my Martin Zweig-inspired model and my Motley Fool-based strategy. Read more about its fundamentals in the "Detailed Stock Analysis" section below. News about Validea Hot List Stocks Atwood Oceanics (ATW): Shares of Atwood, which two weeks ago announced fourth-quarter earnings that beat expectations, continued to make some big gains. They appeared to get a boost from the announcement of a big merger between fellow oil service firms Ensco and Pride International. As of yesterday's close, ATW shares had gained more than 18% since the portfolio picked up the stock on Jan. 21. The big gain made Atwood's shares less attractive, and the portfolio is selling the position today and taking the profits. The Next Issue In two weeks, we will publish another issue of the Hot List, at which time we will take a closer look at my strategies and investment approach. If you have any questions, please feel free to contact us at hotlist@validea.com.

Current Portfolio Ticker Company Name Industry Guru Score ARO AEROPOSTALE, INC. Retail (Apparel) 100 LINC LINCOLN EDUCATIONAL SERVICES CORPORATION Schools 96 WDC WESTERN DIGITAL CORP. Computer Storage Devices 89 TEF TELEFONICA S.A. (ADR) Communications Services 82 APKT ACME PACKET, INC. Communications Equipment 69 TWGP TOWER GROUP, INC. Insurance (Prop. & Casualty) 67 LULU LULULEMON ATHLETICA INC. Apparel/Accessories 63 ESV ENSCO PLC Oil Well Services & Equipment 63 GME GAMESTOP CORP. Retail (Technology) 57 DLTR DOLLAR TREE, INC. Retail (Department & Discount) 57 Ticker Market Cap Date Added Start Price Return ARO $2,334 11/26/2010 $26.90 $26.53 -1.4% LINC $346 2/18/2011 TBD $15.60 TBD WDC $7,796 2/18/2011 TBD $33.65 TBD TEF $114,233 11/26/2010 $22.39 $25.18 12.5% APKT $4,731 2/18/2011 TBD $74.50 TBD TWGP $1,145 12/23/2010 $25.75 $27.58 7.1% LULU $4,269 2/18/2011 TBD $82.44 TBD ESV $7,704 2/18/2011 TBD $53.89 TBD GME $3,045 9/3/2010 $19.01 $20.11 5.8% DLTR $6,555 9/3/2010 $46.03 $52.35 13.7%

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 ARO   |   LINC   |   WDC   |   TEF   |   APKT   |   TWGP   |   LULU   |   ESV   |   GME   |   DLTR   |   AEROPOSTALE, INC. Profile Strategy: Price/Sales Investor Based on: Kenneth Fisher Aeropostale, Inc. is a mall-based specialty retailer of casual apparel and accessories. The Company designs, markets and sells its own brand of merchandise principally targeting 14 to 17 year-old young women and young men. The Company also sells Aropostale merchandise through its e-commerce Website, www.aeropostale.com. During the fiscal year ended January 30, 2010 (fiscal 2009), the Company launched P.S. from Aeropostale, which offers casual clothing and accessories focused on elementary school children between the ages of 7 and 12. During fiscal 2009, the Company completed the closure of its 14 store Jimmy'Z concept. Jimmy'Z Surf Co., Inc., a wholly owned subsidiary of Aeropostale, Inc., was a contemporary lifestyle brand targeting young women and men aged 18 to 25. Analysis Guru Score: 90% PRICE/SALES RATIO: [PASS] The prospective company should have a low Price/Sales ratio. Non-cyclical (non-Smokestack) companies with Price/Sales ratio between .75 and 1.5 are good values. ARO's P/S ratio of 0.99 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. ARO'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. ARO 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 ARO At this Point Is ARO 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, ARO, who has a P/S of 0.99, 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%. ARO's inflation adjusted EPS growth rate of 31.28% passes the test. FREE CASH PER SHARE: [PASS] This methodology looks for companies that have a positive free cash per share. Companies should have enough free cash available to sustain three years of losses. This is based on the premise that companies without cash will soon be out of business. ARO's free cash per share of 2.78 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. ARO, whose three year net profit margin averages 8.78%, passes this evaluation.   LINCOLN EDUCATIONAL SERVICES CORPORATION Profile Strategy: P/E/Growth Investor Based on: Peter Lynch Lincoln Educational Services Corporation is a provider of career-oriented post-secondary education. As of December 31, 2009, the Company operated 43 campuses in 17 states. It offers recent high school graduates and working adults degree and diploma programs in five areas of study health sciences, automotive technology, skilled trades, hospitality services and business and information technology. For the year ended December 31, 2009, the Company's health science program, its automotive technology program, its skilled trades program, its hospitality services program and its business and information technology program accounted for approximately 37%, 31%, 13%, 10%, and 9%, respectively, of its average enrollment. The Company had 29,340 students enrolled as of December 31, 2009 and its average enrollment for the year ended December 31, 2009 was 27,808 students. Analysis Guru Score: 93% DETERMINE THE CLASSIFICATION: This methodology would consider LINC a "fast-grower". P/E/GROWTH RATIO: [PASS] The investor should examine the P/E (5.99) relative to the growth rate (29.34%), 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 LINC (0.20) 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. LINC, whose sales are $629.9 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 LINC is 29.3%, 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 LINC (16.74%) 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 LINC (11.60%) 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 LINC (2.42%) 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.   WESTERN DIGITAL CORP. Profile Strategy: Contrarian Investor Based on: David Dreman 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: 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. WDC has a market cap of $7,796 million, therefore passing the test. EARNINGS TREND: [PASS] A company should show a rising trend in the reported earnings for the most recent quarters. WDC's EPS for the past 2 quarters, (from earliest to most recent quarter) 0.84, 0.96 have been increasing, and therefore the company passes this test. EPS GROWTH RATE IN THE IMMEDIATE PAST AND FUTURE: [FAIL] This methodology likes to see companies with an EPS growth rate higher than the S&P in the immediate past and a likelihood that this trend will continue in the near future. WDC fails this test as its EPS growth rate for the past 6 months (-15.04%) does not beat that of the S&P (1.34%). This methodology would utilize four separate criteria to determine if WDC 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. WDC's P/E of 7.26, based on trailing 12 month earnings, meets the bottom 20% criterion (below 10.30), and therefore passes this test. PRICE/CASH FLOW (P/CF) RATIO: [PASS] The P/CF of a company should be in the bottom 20% of the overall market. WDC's P/CF of 4.72 meets the bottom 20% criterion (below 5.91) and therefore passes this test. PRICE/BOOK (P/B) VALUE: [FAIL] The P/B value of a company should be in the bottom 20% of the overall market. WDC's P/B is currently 1.51, which does not meet the bottom 20% criterion (below 0.86), and it therefore fails this test. PRICE/DIVIDEND (P/D) RATIO: [FAIL] The P/D ratio for a company should be in the bottom 20% of the overall market (that is the yield should be in the top 20%). WDC's P/D is not available, and hence an opinion cannot be rendered at this time. This methodology maintains that investors should look for as many healthy financial ratios as possible to ascertain the financial strength of the company. These criteria are detailed below. CURRENT RATIO: [PASS] A prospective company must have a strong Current Ratio (greater than or equal to the average of it's industry [9.72] or greater than 2). This is one identifier of financially strong companies, according to this methodology. WDC's current ratio of 2.39 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 WDC is 0.00%. Unfortunately, its historical payout ratio is not available. Nonetheless it passes the payout criterion, as this is a very low payout. 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 17.12%, and would consider anything over 27% to be staggering. The ROE for WDC of 23.76% 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. WDC's pre-tax profit margin is 11.95%, thus passing this criterion. YIELD: [FAIL] The company in question should have a yield that is high and that can be maintained or increased. WDC's current yield is not available (or one is not paid) at the present time, while the market yield is 2.57%. Hence, this criterion cannot be evaluated. LOOK AT THE TOTAL DEBT/EQUITY: [PASS] The company must have a low Debt/Equity ratio, which indicates a strong balance sheet. The Debt/Equity ratio should not be greater than 20% or should be less than the average Debt/Equity for its industry of 15.58%. WDC's Total Debt/Equity of 6.78% is considered acceptable.   TELEFONICA S.A. (ADR) Profile Strategy: Contrarian Investor Based on: David Dreman Telefonica SA (Telefonica) together with its subsidiaries and investees operates in the telecommunications, media and contact center industries. Telefonica basic purpose is the provision of all manner of public or private telecommunications services, including ancillary or complementary telecommunications services or related services. The Company operates in three business areas: Telefonica Spain, Telefonica Latin America and Telefonica Europe. During the year ended December 31, 2009, Telefonica Moviles Espana, SAU, a wholly owned subsidiary of the Company completed the sale of its 32.18% stake in Medi Telecom, SA. In January 2010, the Telefonica Group, through its wholly owned subsidiary, Telefonica Europe plc completed the acquisition of JAJAH. Analysis Guru Score: 84% 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. TEF has a market cap of $114,233 million, therefore passing the test. EARNINGS TREND: [PASS] A company should show a rising trend in the reported earnings for the most recent quarters. TEF's EPS for the past 2 quarters, (from earliest to most recent quarter) 0.64, 1.52 have been increasing, and therefore the company passes this test. EPS GROWTH RATE IN THE IMMEDIATE PAST AND FUTURE: [PASS] 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. TEF passes this test as its EPS growth rate over the past 6 months (210.20%) has beaten that of the S&P (1.34%). TEF's estimated EPS growth for the current year is (6.93%), which indicates the company is expected to experience positive earnings growth. As a result, TEF passes this test. This methodology would utilize four separate criteria to determine if TEF 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. TEF's P/E of 7.63, based on trailing 12 month earnings, meets the bottom 20% criterion (below 10.30), and therefore passes this test. PRICE/CASH FLOW (P/CF) RATIO: [PASS] The P/CF of a company should be in the bottom 20% of the overall market. TEF's P/CF of 4.14 meets the bottom 20% criterion (below 5.91) and therefore passes this test. PRICE/BOOK (P/B) VALUE: [FAIL] The P/B value of a company should be in the bottom 20% of the overall market. TEF's P/B is currently 3.78, which does not meet the bottom 20% criterion (below 0.86), 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%). TEF's P/D of 14.64 meets the bottom 20% criterion (below 21.69 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: [FAIL] A prospective company must have a strong Current Ratio (greater than or equal to the average of it's industry [0.97] or greater than 2). This is one identifier of financially strong companies, according to this methodology. TEF's current ratio of 0.61 fails the test. PAYOUT RATIO: [FAIL] A good indicator that a company has the ability to raise its dividend is a low payout ratio. The payout ratio for TEF is 63.09%, while its historical payout ratio has been 46.64%. Therefore, it fails 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 17.12%, and would consider anything over 27% to be staggering. The ROE for TEF of 55.35% 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. TEF's pre-tax profit margin is 23.77%, thus passing this criterion. YIELD: [PASS] The company in question should have a yield that is high and that can be maintained or increased. TEF's current yield is 6.83%, while the market yield is 2.57%. TEF passes this test. LOOK AT THE TOTAL DEBT/EQUITY: [FAIL] 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%. TEF's Total Debt/Equity of 272.71% is not acceptable.   ACME PACKET, INC. Profile Strategy: Growth Investor Based on: Martin Zweig Acme Packet, Inc., incorporated on August 3, 2000, provides session border controllers (SBCs) that enable service providers, enterprises, government agencies and contact centers to deliver interactive communications, such as voice, video and other real-time multimedia sessions, across Internet protocol (IP) network borders. The Company's Net-Net product supports a range of communications applications at multiple network border points and also supports service architectures, such as IP Multimedia Subsystem (IMS). The Company's Net-Net family of products consists of the Net-Net OS software platform, the 2600, 3800, 4250, 4500 and 9200 platforms; 4500 Advanced Telecommunications Computing Architecture blade (ATCA blade); and Element Management System (EMS), Session Analysis System (SAS), and Route Manager Central (RMC), management applications. On April 30, 2009, the Company acquired Covergence Inc. Analysis Guru Score: 85% P/E RATIO: [FAIL] The P/E of a company must be greater than 5 to eliminate weak companies, not more than 3 times the current Market P/E because the situation is much too risky, and never greater than 43. APKT's P/E is 117.32, based on trailing 12 month earnings, while the current market P/E is 17.00. Therefore, it fails the first test. REVENUE GROWTH IN RELATION TO EPS GROWTH: [PASS] Revenue Growth must not be substantially less than earnings growth. For earnings to continue to grow over time they must be supported by a comparable or better sales growth rate and not just by cost cutting or other non-sales measures. APKT's revenue growth is 27.71%, while it's earnings growth rate is 16.85%, based on the average of the 3 and 4 year historical eps growth rates. Therefore, APKT 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 (70.2%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (55.7%) of the current year. Sales growth for the prior must be greater than the latter. For APKT 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. APKT's EPS ($0.21) pass this test. QUARTERLY EARNINGS ONE YEAR AGO: [PASS] The EPS for the quarter one year ago must be positive. APKT's EPS for this quarter last year ($0.14) 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. APKT's growth rate of 50.00% 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 APKT is 8.42%. This should be less than the growth rates for the 3 previous quarters, which are 160.00%, 366.67%, and 150.00%. APKT 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, 200.00%, (versus the same three quarters a year earlier) is greater than the growth rate of the current quarter earnings, 50.00%, (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 APKT is 50.0%, 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, 50.00% must be greater than or equal to the historical growth which is 16.85%. APKT 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. APKT, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were 0.50, 0.30, 0.18, 0.28, and 0.63, 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. APKT's long-term growth rate of 16.85%, based on the average of the 3 and 4 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. APKT's Debt/Equity (0.00%) is not considered high relative to its industry (33.37%) 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 APKT, this criterion has not been met (insider sell transactions are 127, while insiders buying number 34). 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.   TOWER GROUP, INC. Profile Strategy: P/E/Growth Investor Based on: Peter Lynch Tower Group, Inc. (Tower), through its subsidiaries, offers a range of commercial, personal and specialty property and casualty insurance products and services to businesses in various industries and to individuals. The Company operates in three segments: Brokerage Insurance, Specialty Business and Insurance Services. On February 5, 2009, Tower acquired CastlePoint Holdings, Ltd. (CastlePoint). On February 27, 2009, the Company and its subsidiary, CastlePoint, completed the acquisition of HIG, Inc. (Hermitage), a property and casualty insurance holding company. On October 14, 2009, the Company completed the acquisition of the renewal rights to the workers compensation business of AequiCap Program Administrators, Inc. (AequiCap), an underwriting agency. On November 13, 2009, it acquired Specialty Underwriters Alliance, Inc. (SUA). In July 2010, Tower Group, Inc. acquired the Personal Lines Division of OneBeacon Insurance Group, Ltd. Analysis Guru Score: 93% DETERMINE THE CLASSIFICATION: This methodology would consider TWGP a "fast-grower". P/E/GROWTH RATIO: [PASS] The investor should examine the P/E (10.95) relative to the growth rate (28.45%), 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 TWGP (0.38) 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. TWGP, whose sales are $1,310.4 million, needs to have a P/E below 40 to pass this criterion. TWGP's P/E of (10.95) 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 TWGP is 28.5%, based on the average of the 3, 4 and 5 year historical eps growth rates, which is acceptable. TOTAL DEBT/EQUITY RATIO: [NEUTRAL] TWGP 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. TWGP's Equity/Assets ratio (26.00%) 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. TWGP's ROA (3.20%) 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 TWGP (16.28%) 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 TWGP (-17.60%) 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.   LULULEMON ATHLETICA INC. Profile Strategy: Growth Investor Based on: Martin Zweig lululemon athletica inc. is a designer and retailer of technical athletic apparel primarily in North America. Its yoga-inspired apparel is marketed under the lululemon athletica brand name. The Company offers a line of apparel and accessories, including fitness pants, shorts, tops and jackets designed for athletic pursuits, such as yoga, running and general fitness. As of January 31, 2010, its branded apparel was principally sold through 124 stores that are primarily located in Canada and the United States. As of January 31, 2010, its retail footprint included 45 stores in Canada, 70 stores in the United States and nine franchise stores in Australia. Analysis Guru Score: 77% P/E RATIO: [FAIL] The P/E of a company must be greater than 5 to eliminate weak companies, not more than 3 times the current Market P/E because the situation is much too risky, and never greater than 43. LULU's P/E is 61.79, based on trailing 12 month earnings, while the current market P/E is 17.00. Therefore, it fails the first test. REVENUE GROWTH IN RELATION TO EPS GROWTH: [PASS] Revenue Growth must not be substantially less than earnings growth. For earnings to continue to grow over time they must be supported by a comparable or better sales growth rate and not just by cost cutting or other non-sales measures. LULU's revenue growth is 48.49%, while it's earnings growth rate is 120.80%, based on the average of the 3 and 4 year historical eps growth rates. Sales growth is not at least 85% of EPS growth so the initial part of this criteria is not met, however, since both sales growth and eps growth are greater than 30%, that requirement is waived and the company passes this test. SALES GROWTH RATE: [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 (55.7%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (55.8%) of the current year. Sales growth for the prior must be greater than the latter. For LULU 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. LULU's EPS ($0.36) pass this test. QUARTERLY EARNINGS ONE YEAR AGO: [PASS] The EPS for the quarter one year ago must be positive. LULU's EPS for this quarter last year ($0.20) 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. LULU's growth rate of 80.00% 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 LULU is 60.40%. This should be less than the growth rates for the 3 previous quarters, which are 150.00%, 200.00%, and 130.77%. LULU 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, 155.26%, (versus the same three quarters a year earlier) is greater than the growth rate of the current quarter earnings, 80.00%, (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 LULU is 80.0%, and it would therefore pass this test. EPS GROWTH FOR CURRENT QUARTER MUST BE GREATER THAN THE HISTORICAL GROWTH RATE: [FAIL] The EPS growth rate for the current quarter, 80.00% must be greater than or equal to the historical growth which is 120.80%. Since this is not the case LULU 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. LULU, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were 0.02, 0.12, 0.46, 0.57 and 0.82, 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. LULU's long-term growth rate of 120.80%, based on the average of the 3 and 4 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. LULU's Debt/Equity (0.00%) is not considered high relative to its industry (55.74%) 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 LULU, this criterion has not been met (insider sell transactions are 60, while insiders buying number 18). 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.   ENSCO PLC Profile Strategy: Value Investor Based on: Benjamin Graham Ensco plc, formerly Ensco International plc (Ensco), is an offshore contract drilling company. As of February 15, 2010, Ensco's offshore rig fleet included 42 jackup rigs, four ultra-deepwater semisubmersible rigs and one barge rig. Additionally, it had four ultra-deepwater semisubmersible rigs under construction. Ensco's operations are concentrated in the regions of Asia Pacific, which includes Asia, the Middle East and Australia, Europe and Africa, and North and South America. It operates under four segments: Deepwater, Asia Pacific, Europe and Africa, and North and South America. Each of the four operating segments provides one service, contract drilling. Ensco engages in the drilling of offshore oil and natural gas wells by providing its drilling rigs and crews under contracts with international, government-owned and independent oil and gas companies. Analysis Guru Score: 100% SECTOR: [PASS] ESV is neither a technology nor financial Company, and therefore this methodology is applicable. SALES: [PASS] The investor must select companies of "adequate size". This includes companies with annual sales greater than $340 million. ESV's sales of $1,787.9 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. ESV's current ratio of 3.19 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 ESV is $248.6 million, while the net current assets are $1,048.0 million. ESV 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. ESV's EPS growth over that period of 930.1% 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. ESV's P/E of 12.89 (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. ESV's Price/Book ratio is 1.31, while the P/E is 12.89. ESV passes the Price/Book test.   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 (8.42) 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 (0.27) 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 $9,305.0 million, needs to have a P/E below 40 to pass this criterion. GME's P/E of (8.42) 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 (8.98%) 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 GME (14.22%) 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 (21.34%) 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: Value Investor Based on: Benjamin Graham 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: 71% SECTOR: [PASS] DLTR is neither a technology nor financial Company, and therefore this methodology is applicable. SALES: [PASS] The investor must select companies of "adequate size". This includes companies with annual sales greater than $340 million. DLTR's sales of $5,715.7 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. DLTR's current ratio of 2.41 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 DLTR is $250.0 million, while the net current assets are $799.9 million. DLTR 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. DLTR's EPS growth over that period of 131.5% passes the EPS growth test. P/E RATIO: [FAIL] The Price/Earnings (P/E) ratio, based on the greater of the current PE or the PE using average earnings over the last 3 fiscal years, must be "moderate", which this methodology states is not greater than 15. Stocks with moderate P/Es are more defensive by nature. DLTR's P/E of 18.42 (using the current PE) fails this test. PRICE/BOOK RATIO: [FAIL] The Price/Book ratio must also be reasonable. That is, the Price/Book multiplied by P/E cannot be greater than 22. DLTR's Price/Book ratio is 4.66, while the P/E is 18.42. DLTR fails the Price/Book test.   Watch List The Watch List contains the highest scoring stocks according to our guru consensus system that are not currently in the Hot List portfolio. We provide this list both for informational purposes and for investors who are not comfortable with a portfolio of ten stocks. Ticker Company Name Industry Guru Score SKX SKECHERS USA, INC. Footwear 78 AGP AMERIGROUP CORPORATION Healthcare Facilities 62 ULTA ULTA SALON, COSMETICS & FRAGRANCE, INC. Retail (Specialty) 57 VSH VISHAY INTERTECHNOLOGY Semiconductors 53 AMN AMERON INTERNATIONAL CORPORATION Constr. - Supplies & Fixtures 51 ADSK AUTODESK, INC. Software & Programming 51 FOSL FOSSIL, INC. Jewelry & Silverware 51 ELP COMPANHIA PARANAENSE DE ENERGIA (ADR) Electric Utilities 51 CKH SEACOR HOLDINGS, INC. Water Transportation 51 GRMN GARMIN LTD. Communications Equipment 50

Disclaimer

The names of individuals (i.e., the 'gurus') appearing in this report are for identification purposes of his methodology only, as derived by Validea.com from published sources, and are not intended to suggest or imply any affiliation with or endorsement or even agreement with this report personally by such gurus, or any knowledge or approval by such persons of the content of this report. All trademarks, service marks and tradenames appearing in this report are the property of their respective owners, and are likewise used for identification purposes only. Validea is not registered as a securities broker-dealer or investment advisor either with the U.S. Securities and Exchange Commission or with any state securities regulatory authority. Validea is not responsible for trades executed by users of this site based on the information included herein. The information presented on this website does not represent a recommendation to buy or sell stocks or any financial instrument nor is it intended as an endorsement of any security or investment. The information on this website is generic by nature and is not personalized to the specific situation of any individual. The user therefore bears complete responsibility for their own investment research and should seek the advice of a qualified investment professional prior to making any investment decisions. Performance results are based on model portfolios and do not reflect actual trading. Actual performance will vary based on a variety of factors, including market conditions and trading costs. Past performance is not necessarily indicative of future results. Individual stocks mentioned throughout this web site may be holdings in the managed portfolios of Validea Capital Management, a separate asset management firm founded by Validea.com founder John Reese. Validea Capital Management, which is a separate legal entity and an SEC registered investment advisory firm, uses, in part, the strategies on the web site to select stocks for its clients.