Executive Summary  |   Portfolio  |   Guru Analysis  |   Watch List

Executive Summary	April 25, 2014

The Economy While the housing market recovery seems to have stalled, economic data overall has been pretty good over the past fortnight, helping stocks rebound from the pullback we saw in late March and early April. Retail and food service sales made a big jump in March, for example, rising 1.1%, according to the Commerce Department. They are now about 2.6% above where they stood a year ago -- not a particularly big year-over-year increase, however, despite March's impressive numbers. The job market also continues to look better than it's looked in a long time. While new claims for unemployment have risen a bit since our last newsletter, the four-week moving average remained almost unchanged. And new claims are about 9% below their year-ago level. Continuing claims, meanwhile, are down about 2.5% since our last newsletter. They are close to 11% below year-ago levels. As for housing, new data shows that the market continues to level off. Housing starts increased 2.8% in March, according to the Census Bureau, but were 5% below where they were a year ago. Permit issuance for new construction fell 2.4%, but was 9.5% above year-ago levels. Homebuying activity has also slowed, with lack of inventory pushing prices higher, mortgage rates continuing to rise, and the cold winter possibly delaying some buying activity. New home sales, for example, tumbled 14.5% in March, according to the Census Bureau. That put them 12.2% below their year-ago level. Prices keep rising, however, with March's median new home sales price coming in more than 11% higher than February's. Existing-home sales were essentially flat for the month, according to the National Association of Realtors. Sales were 8.5% below where they were last March, while sales prices were about 8% higher than they were a year ago. Overseas, China's first quarter GDP growth came in at 7.4%. That was down a bit from 7.7% in the last quarter of 2013, but beat analyst expectations of 7.3%. The figure led to optimism that China may indeed be able to engineer the soft landing it has sought. Since our last newsletter, the S&P 500 returned 2.5%, while the Hot List returned 2.2%. So far in 2014, the portfolio has returned -10.4% vs. 1.6% for the S&P. Since its inception in July 2003, the Hot List is far outpacing the index, having gained 226.2% vs. the S&P's 87.8% gain. Portfolio Update Stocks have been rebounding from the technology- and momentum-stock-driven downturn that rattled markets, and the Hot List portfolio, in March and early April. Whether sentiment has truly shifted or this is simply a pause in a more lengthy correction remains to be seen, of course. But over the past two weeks, the Hot List has fared quite well as the market has turned upward. As of midmorning trading on April 24, eight of the portfolio's holdings were in the black since our last newsletter, and three had fared particularly well. BofI Holding was leading the way with a 12.5% gain, while Valero Energy and HollyFrontier Corp. were both up 8.6%. The catalyst for BofI's big upward move was the fact that it reached an agreement to buy the banking arm of the H&R Block. While financial terms of the deal were not disclosed, BofI said that it expects ongoing annual revenue from H&R Block Bank to be $26 million to $28 million starting in fiscal year 2015. BofI had been hit hard in recent weeks amid the momentum-stock-driven downturn, but news about the H&R Block acquisition seemed to hearten investors a good deal. For Valero and HollyFrontier, there didn't appear to be any company-specific catalysts driving the stocks' gains. But recent increases in gas prices and a widening WTI-Brent spread amid the Ukraine turmoil seem to be helping refiners' shares. In addition, stocks like these also may tend to be subject to more dramatic shifts when the broader market swings, contributing to their recent outperformance. After a rough start to 2014, the recent gains for the Hot List's holdings are certainly encouraging. We'll see if the rebound continues when we check back in again two weeks from now.		Editor-in-Chief: John Reese Since Inception   Hot List 226.2% S&P 500 87.8% Accuracy 55.8% Beta 1.2 YTD   Hot List -10.4% S&P 500 1.6% Since Last Issue   Hot List 2.2% S&P 500 2.5% Avg. Fundamentals   Market Cap (mil) $13,194 PE Ratio 15.8 5 Yr EPS Growth 26.7% Yield 1.2% Rel. Strength 69 Portfolio Sectors Consumer Cyclical 3 Energy 3 Services 2 Capital Goods 1 Financial 1
Have Your Portfolio Managed Using Validea's Investing System Many users know about our research services but are unaware that money management services based on our system are also offered through a separate registered investment advisory firm, Validea Capital Management. If you are thinking about switching advisors or no longer have the time or inclination to manage your investments yourself, find out more about Validea Capital, its portfolio offerings, and its performance below. Request an Investment Consultation Today! ** Validea Capital Management is a separate investment advisory firm managed by Validea.com founder John Reese. The information above is not intended as personal investment advice and should not be interpreted as such. Guru Spotlight: Kenneth Fisher For decades, the price-to-earnings ratio has been the most widely used valuation measure for stock investors, and a key tool in the arsenals of many of the gurus I follow. While legendary investors like Benjamin Graham, Peter Lynch, and John Neff all used the ratio differently, they and many others agreed that the ratio itself was a key to finding bargain-priced stocks. The investing public and media seem to share their view, with the P/E ratio having long been the only valuation metric that most newspapers include in their daily stock listings. But in 1984, Kenneth Fisher sent a shockwave through the P/E-conscious investment world. Fisher -- the son of Phillip Fisher, who is known as the "Father of Growth Stock Investing" -- thought there was a major hole in the P/E ratio's usefulness. Part of the problem, he explained in his book Super Stocks, is that earnings -- even earnings of good companies -- can fluctuate greatly from year to year. The decision to replace equipment or facilities in one year rather than in another, the use of money for new research that will help the company reap profits later on, and changes in accounting methods can all turn one quarter's profits into the next quarter's losses, without regard for what Fisher thought was truly important in the long term -- how well or poorly the company's underlying business was performing. While earnings can fluctuate, Fisher found that sales were far more stable. In fact, he found that the sales of what he termed "Super Companies" -- those that were capable of growing their stock price 3 to 10 times in value in a period of 3 to 5 years -- rarely decline significantly. Because of that, he pioneered the use of a new way to value stocks: the price-to-sales ratio (PSR), which compared the total price of a company's stock to the sales the company generated. Fisher's findings -- and his results -- helped make the PSR a common part of investment parlance, and helped make him one of the most well-known investors in the world. (He is a perennial member of Forbes' list of "The 400 Richest Americans", his money management firm oversees tens of billions of dollars, and he is one of Forbes' longest running magazine columnists.) The common sense, mostly quantitative approach he laid out in Super Stocks also caught my attention, and led me to create my Fisher-based Guru Strategy. It's important to note that today, Fisher says his approach to investing has evolved quite a bit since Super Stocks. The key to winning big on Wall Street is knowing something that other people don't, he believes, and when too many people became familiar with PSR investing, he says he needed to find other ways to exploit the market. So why have I continued to use my Super Stocks-based model? Two reasons: First, Fisher's publisher reissued the book in 2007, with the same PSR focus. Second, the strategy flat out works. Since its July 2003 inception, my 10-stock Fisher-based portfolio has gained 308.0%, or 13.9% annualized, while the S&P 500 gained just 87.5%, or 6.0% annualized (figures through April 23). That makes it one of my most successful long-term strategies. Price-to-Sales and "The Glitch" Fisher is a student of investor psychology, and his observations about investor behavior are what led to his PSR discovery. Often, he found, companies will have a period of strong early growth and become the darlings of Wall Street, raising expectations to unrealistic levels. Then, they then have a setback. Their earnings drop, or continue to grow but simply don't keep pace with Wall Street's lofty expectations. Their stocks can then plummet as investors overreact and sell, thinking they've been led astray. But while investors overreact, Fisher believed that these "glitches" are often simply a part of a firm's maturation. Good companies with good management identify the problems, solve them, and move forward, and as they do the stock's price begins to rise again. If you can buy a stock when it hits a glitch and its price is down, you can make a bundle by sticking with it until it rights the ship and other investors jump on board. The key in all of this was finding a way to evaluate a firm when its earnings were down, or when it was losing money (remember, you can't use a P/E ratio to evaluate a company that is losing money, because it has no earnings). The answer: by looking at sales, and the PSR. According to the model I base on Fisher's writings, stocks with PSRs below 1.5 are good values. And the real winners are those with PSR values under 0.75 -- that's the sign of a Super Stock. To find the PSR, Fisher says to take the total value of a company's stock, i.e. its market cap (the per-share price multiplied by the number of shares outstanding). We then divide that number by the firm's trailing 12-month sales. One note: Because companies in what Fisher called "smokestack" industries -- that is, industrial or manufacturing type firms that make the everyday products we use -- grow slowly and don't earn exceptionally high margins, they don't generate a lot of excitement or command high prices on Wall Street. Their PSRs thus tend to be lower than those of companies that produce more exciting products, Fisher said. He adjusted his PSR target for these firms, and the model I base on his writings looks for smokestack firms with PSRs between 0.4 and 0.8; it is particularly high on those with PSR values under 0.4. Beyond the PSR While the PSR was key to Fisher's strategy, he warned not to rely exclusively on it. Terrible companies can have low PSRs simply because the investment world knows they are headed for financial ruin. Other quantitative measures Fisher used include profit margins (he wanted three-year average net margins to be at least 5%; the debt/equity ratio (this should be no greater than 40%, and is not applied to financial firms); and earnings growth (the inflation-adjusted long-term EPS growth rate should be at least 15% per year). Fisher also made an interesting observation about companies in the technology and medical industries. He saw research as a commodity, and to measure how much Wall Street valued the research that a company did, he compared the value of the company's stock (its market cap) to the money it spends on research. Price/research ratios less than 5% were the best case, and those between 5 and 10% were still indicative of bargains. Those between 10 and 15% were borderline, while those over 15% should be avoided. One of the Best The variety of variables in my Fisher-based model are a big part of why I think it continues to work, long after the PSR has become a well-known stock analysis tool. While it uses the PSR as its focal point, it also makes sure firms have strong profit margins, earnings growth, and cash flows, and low debt/equity ratios. That well-rounded approach helped it get through one of the worst periods for the broader market in history and stay far, far ahead of the market over the long haul -- all while the PSR has been a well-known investing tool. I expect this solid approach will continue to pay dividends over the long haul. Now, here's a look at the stocks that currently make up my 10-stock Fisher-based portfolio. AGCO Corporation (AGCO) Telecom Argentina (TEO) Navigant Consulting, Inc. (NCI) Ross Stores Inc (ROST) Liquidity Services Inc (LQDT) TrueBlue Inc (TBI) Hyster-Yale Materials Handling (HY) Valero Energy Corporation (VLO) Bed Bath & Beyond Inc. (BBBY) Foot Locker (FL) News about Validea Hot List Stocks BofI Holding Inc (BOFI): BofI shares jumped after it announced it had reached an agreement to purchase H&R Block's banking unit. Financial terms of the deal weren't disclosed, but BofI said that it expects ongoing annual revenue from H&R Block Bank to be $26 million to $28 million starting in fiscal 2015, the Motley Fool reported. The agreement is subject to regulatory approvals and other closing conditions. The Next Issue In two weeks, we will publish another issue of the Hot List, at which time we will rebalance the portfolio. If you have any questions, please feel free to contact us at hotlist@validea.com.

Current Portfolio Ticker Company Name Industry Guru Score AGCO AGCO CORPORATION Constr. & Agric. Machinery 100 VLO VALERO ENERGY CORPORATION Oil & Gas Operations 94 DORM DORMAN PRODUCTS INC. Auto & Truck Parts 79 HY HYSTER-YALE MATERIALS HANDLING INC Auto & Truck Manufacturers 76 TBI TRUEBLUE INC Business Services 69 BOFI BOFI HOLDING, INC. Regional Banks 68 SWHC SMITH & WESSON HOLDING CORP Recreational Products 55 FL FOOT LOCKER, INC. Retail (Apparel) 40 HFC HOLLYFRONTIER CORP Oil & Gas Operations 27 CEO CNOOC LTD (ADR) Oil & Gas Operations 9 Ticker Market Cap Date Added Start Price Current Price Return AGCO $5,379 12/20/2013 $57.62 $57.28 -0.6% VLO $30,124 4/11/2014 $50.96 $56.55 11.0% DORM $2,108 4/11/2014 $55.94 $57.72 3.2% HY $1,268 3/14/2014 $100.75 $98.86 -1.9% TBI $1,117 4/11/2014 $27.28 $27.14 -0.5% BOFI $1,184 1/17/2014 $80.22 $83.88 4.6% SWHC $784 4/11/2014 $13.91 $14.27 2.6% FL $6,728 4/11/2014 $44.02 $46.14 4.8% HFC $10,239 4/11/2014 $46.18 $51.46 11.4% CEO $73,013 4/11/2014 $163.91 $162.44 -0.9%

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 AGCO   |   VLO   |   DORM   |   HY   |   TBI   |   BOFI   |   SWHC   |   FL   |   HFC   |   CEO   |   AGCO CORPORATION Profile Strategy: Price/Sales Investor Based on: Kenneth Fisher AGCO Corporation (AGCO) is a manufacturer and distributor of agricultural equipment and related replacement parts globally. The Company sells a range of agricultural equipment, including tractors, combines, self-propelled sprayers, hay tools, forage equipment and implements. It also manufactures and distributes grain storage and handling equipment systems, as well as protein production systems. Its products are recognized in the agricultural equipment industry and are marketed under a range of brands, including Challenger, Fendt, Massey Ferguson and Valtra. The Company distributes its products through a combination of approximately 3,100 independent dealers and distributors in more than 140 countries. In September 2013, Grain Systems, Inc. (GSI), a global brand of the Company announced that it has purchased Johnson System Inc. (JSI), manufacturer of catwalks, towers and support structures based in Marshall, Michigan. Analysis Guru Score: 100% 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. AGCOpasses this test as its P/S of 0.50 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. AGCO's Debt/Equity of 31.18% 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. AGCO 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 AGCO At this Point Is AGCO 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. AGCO's P/S ratio of 0.50 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%. AGCO's inflation adjusted EPS growth rate of 27.41% 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. AGCO's free cash per share of 3.68 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. AGCO, whose three year net profit margin averages 5.81%, passes this evaluation.   VALERO ENERGY CORPORATION Profile Strategy: P/E/Growth Investor Based on: Peter Lynch Valero Energy Corporation (Valero) is an independent petroleum refining and marketing company. Valero's refineries can produce conventional gasoline's, distillates, jet fuel, asphalt, petrochemicals, lubricants, and other refined products, as well as a slate of premium products, including conventional blendstock for oxygenate blending and reformulated gasoline blendstock for oxygenate blending, gasoline meeting the specifications of the California Air Resources Board, a diesel fuel, and low-sulfur and ultra-low-sulfur diesel fuel. It also owns 10 ethanol plants in the central plains region of the United States with a combined ethanol nameplate production capacity of about 1.1 billion gallons per year. It operates in three business segments: refining, ethanol, and retail. In May 2013, CST Brands Inc announced that the Company which includes Corner Store and Depanneur du Coin, spun off from Valero Energy Corporation. Analysis Guru Score: 93% DETERMINE THE CLASSIFICATION: This methodology would consider VLO a "fast-grower". P/E/GROWTH RATIO: [PASS] The investor should examine the P/E (11.40) relative to the growth rate (28.55%), based on the average of the 3 and 4 year historical eps growth rates using the current fiscal year eps estimate, 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 VLO (0.40) 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. VLO, whose sales are $138,074.0 million, needs to have a P/E below 40 to pass this criterion. VLO's P/E of (11.40) is considered acceptable. INVENTORY TO SALES: [PASS] When inventories increase faster than sales, it is a red flag. However an increase of up to 5% is considered bearable if all other ratios appear attractive. Inventory to sales for VLO was 4.28% last year, while for this year it is 4.17%. Since inventory to sales has decreased from last year by -0.11%, VLO passes this test. EPS GROWTH RATE: [PASS] This methodology favors companies that have several years of fast earnings growth, as these companies have a proven formula for growth that in many cases can continue many more years. This methodology likes to see earnings growth in the range of 20% to 50%, as earnings growth over 50% may be unsustainable. The EPS growth rate for VLO is 28.5%, based on the average of the 3 and 4 year historical eps growth rates using the current fiscal year eps estimate, which is acceptable. TOTAL DEBT/EQUITY RATIO: [PASS] This methodology would consider the Debt/Equity ratio for VLO (33.73%) to be normal (equity is approximately twice debt). 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 VLO (9.62%) 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 VLO (-6.39%) 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.   DORMAN PRODUCTS INC. Profile Strategy: P/E/Growth Investor Based on: Peter Lynch Dorman Products, Inc. (Dorman) is a supplier of automotive and heavy duty truck replacement parts and service line products primarily for the automotive aftermarket. The Company market approximately 133,000 different stock keeping units (SKU's) of automotive replacement parts (including brake parts), fasteners and service line products. Original equipment dealer parts are those parts, which were available to consumers only from original equipment manufacturers or salvage yards. These parts include, among other parts, intake manifolds, exhaust manifolds, oil cooler lines, window reguRobotors, radiator fan assemblies, power steering pulleys, harmonic balancers, tire pressure monitor sensors and keyless entry devices. Fasteners include such items as oil drain plugs, wheel bolts, and wheel lug nuts. Analysis Guru Score: 91% DETERMINE THE CLASSIFICATION: This methodology would consider DORM a "fast-grower". P/E/GROWTH RATIO: [PASS] The investor should examine the P/E (25.74) relative to the growth rate (28.83%), based on the average of the 3, 4 and 5 year historical eps growth rates, for a company. This is a quick way of determining the fairness of the price. In this particular case, the P/E/G ratio for DORM (0.89) makes it 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. DORM, whose sales are $664.5 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. INVENTORY TO SALES: [PASS] When inventories increase faster than sales, it is a red flag. However an increase of up to 5% is considered bearable if all other ratios appear attractive. Inventory to sales for DORM was 25.47% last year, while for this year it is 24.74%. Since inventory to sales has decreased from last year by -0.72%, DORM passes this test. EPS GROWTH RATE: [PASS] This methodology favors companies that have several years of fast earnings growth, as these companies have a proven formula for growth that in many cases can continue many more years. This methodology likes to see earnings growth in the range of 20% to 50%, as earnings growth over 50% may be unsustainable. The EPS growth rate for DORM is 28.8%, 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 DORM (0.00%) to be wonderfully 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 DORM (1.75%) 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 DORM (2.84%) 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.   HYSTER-YALE MATERIALS HANDLING INC Profile Strategy: P/E/Growth Investor Based on: Peter Lynch Hyster-Yale Materials Handling, Inc. (Hyster-Yale), formerly NMHG Holding Co., , designs, engineers, manufactures, sells and services a line of lift trucks and aftermarket parts. The Company's products are marketed globally under the Hyster and Yale brand names. The Company segments include three management units: Americas, Europe and Asia-Pacific. Americas includes its operations in the United States, Canada, Mexico, Brazil and Latin America. Europe includes its operations in Europe, the Middle East and Africa. Asia-Pacific includes its operations in the Asia-Pacific region and China. Lift trucks and component parts are manufactured in the United States, Northern Ireland, Mexico, The Netherlands, the Philippines, Italy, Japan, Vietnam, Brazil and China. Hyster-Yale has a 20% ownership interest in Hyster-Yale Financial Services, Inc. (NFS). Hyster-Yale is a wholly owned subsidiary of NACCO Industries, Inc. (NACCO). Analysis Guru Score: 91% DETERMINE THE CLASSIFICATION: This methodology would consider HY a "fast-grower". P/E/GROWTH RATIO: [PASS] The investor should examine the P/E (15.10) relative to the growth rate (21.96%), based on the average of the 3 and 4 year historical eps growth rates using the current fiscal year eps estimate, 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 HY (0.69) makes it favorable. SALES AND P/E RATIO: [PASS] For companies with sales greater than $1 billion, this methodology likes to see that the P/E ratio remain below 40. Large companies can have a difficult time maintaining a growth high enough to support a P/E above this threshold. HY, whose sales are $2,666.3 million, needs to have a P/E below 40 to pass this criterion. HY's P/E of (15.10) is considered acceptable. INVENTORY TO SALES: [PASS] When inventories increase faster than sales, it is a red flag. However an increase of up to 5% is considered bearable if all other ratios appear attractive. Inventory to sales for HY was 12.50% last year, while for this year it is 12.40%. Since inventory to sales has not changed appreciably, HY passes this test. EPS GROWTH RATE: [PASS] This methodology favors companies that have several years of fast earnings growth, as these companies have a proven formula for growth that in many cases can continue many more years. This methodology likes to see earnings growth in the range of 20% to 50%, as earnings growth over 50% may be unsustainable. The EPS growth rate for HY is 22.0%, based on the average of the 3 and 4 year historical eps growth rates using the current fiscal year eps estimate, which is considered very good. TOTAL DEBT/EQUITY RATIO: [PASS] This methodology would consider the Debt/Equity ratio for HY (15.45%) 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 HY (6.00%) 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 HY (10.06%) 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.   TRUEBLUE INC Profile Strategy: P/E/Growth Investor Based on: Peter Lynch TrueBlue, Inc. (TrueBlue) is a provider of temporary blue-collar staffing services. The Company has a network of 691 branches in all 50 states, Puerto Rico and Canada, which supply its customers with temporary workers. It operates as Labor Ready for general labor, Spartan Staffing for light industrial services, CLP Resources for skilled trades, PlaneTechs for aviation and diesel mechanics and technicians, and Centerline Drivers for dedicated and temporary drivers to the transportation and distribution industries. In June 2013, Trueblue Inc acquired the assets of Crowley Transportation Services. On September 30, 2013, the Company acquired The Work Connection (TWC). Analysis Guru Score: 91% DETERMINE THE CLASSIFICATION: This methodology would consider TBI a "fast-grower". P/E/GROWTH RATIO: [PASS] The investor should examine the P/E (23.00) relative to the growth rate (43.61%), based on the average of the 3 and 4 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 TBI (0.53) makes it favorable. SALES AND P/E RATIO: [PASS] For companies with sales greater than $1 billion, this methodology likes to see that the P/E ratio remain below 40. Large companies can have a difficult time maintaining a growth high enough to support a P/E above this threshold. TBI, whose sales are $1,718.5 million, needs to have a P/E below 40 to pass this criterion. TBI's P/E of (23.00) 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 TBI is 43.6%, based on the average of the 3 and 4 year historical eps growth rates, which is considered 'OK'. However, it may be difficult to sustain such a high growth rate. TOTAL DEBT/EQUITY RATIO: [PASS] This methodology would consider the Debt/Equity ratio for TBI (7.68%) 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 TBI (6.63%) 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 TBI (9.62%) 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.   BOFI HOLDING, INC. Profile Strategy: Small-Cap Growth Investor Based on: Motley Fool BofI Holding, Inc. is a holding company for BofI Federal Bank, a diversified financial services company. The Bank operate its bank from a single location in San Diego, California, serving approximately 40,000 retail deposit and loan customers across all 50 states. As of June 30, 2012, it had total assets of $2,386.8 million, loans of $1,799.7 million, mortgage-backed and other investment securities of $483.0 million, total deposits of $1,615.1 million and borrowings of $547.2 million. It distributes its deposit products through a range of retail distributions channels, and its deposits consist of demand, savings and time deposits accounts. It distributes its loan products through its retail, correspondent and wholesale channels, and the loans it retains are primarily first mortgages secured by single family real property and by multifamily real property. Analysis Guru Score: 87% PROFIT MARGIN: [PASS] This methodology seeks companies with a minimum trailing 12 month after tax profit margin of 7%. The companies that pass this criterion have strong positions within their respective industries and offer greater shareholder returns. A true test of the quality of a company is that they can sustain this margin. BOFI's profit margin of 32.92% passes this test. RELATIVE STRENGTH: [PASS] The investor must look at the relative strength of the company in question. Companies whose relative strength is 90 or above (that is, the company outperforms 90% or more of the market for the past year), are considered attractive. Companies whose price has been rising much quicker than the market tend to keep rising. BOFI, with a relative strength of 90, satisfies this test. COMPARE SALES AND EPS GROWTH TO THE SAME PERIOD LAST YEAR: [FAIL] Companies must demonstrate both revenue and net income growth of at least 25% as compared to the prior year. These growth rates give you the dynamic companies that you are looking for. These rates for BOFI (31.43% for EPS, and 22.82% for Sales) are not good enough to pass. INSIDER HOLDINGS: [PASS] BOFI's insiders should own at least 10% (they own 11.38% ) of the company's outstanding shares which is the minimum required. A high percentage typically indicates that the insiders are confident that the company will do well. CASH FLOW FROM OPERATIONS: [PASS] A positive cash flow is typically used for internal expansion, acquisitions, dividend payments, etc. A company that generates rather than consumes cash is in much better shape to fund such activities on their own, rather than needing to borrow funds to do so. BOFI's free cash flow of $0.77 per share passes this test. PROFIT MARGIN CONSISTENCY: [PASS] BOFI's profit margin has been consistent or even increasing over the past three years (Current year: 29.70%, Last year: 25.47%, Two years ago: 22.14%), passing the requirement. It is a sign of good management and a healthy and competitive enterprise. R&D AS A PERCENTAGE OF SALES: [NEUTRAL] This criterion is not critically important for companies that are not high-tech or medical stocks because they are not as R&D dependant as companies within those sectors. Not much emphasis should be placed on this test in BOFI's case. CASH AND CASH EQUIVALENTS: [PASS] BOFI's level of cash $196.3 million passes this criteria. If a company is a cash generator, like BOFI, it has the ability to pay off debt (if it has any) or acquire other companies. Most importantly, good operations generate cash. "THE FOOL RATIO" (P/E TO GROWTH): [FAIL] The "Fool Ratio" is an extremely important aspect of this analysis. The methodology says consider holding the shares when the company's Fool Ratio is greater than 0.65 (BOFI's is 0.83), but initial purchases in this range are unfavorable. The following criteria for BOFI are less important which means you would place less emphasis on them when making your investment decision using this strategy: AVERAGE SHARES OUTSTANDING: [PASS] BOFI has not been significantly increasing the number of shares outstanding within recent years which is a good sign. BOFI currently has 14.0 million shares outstanding. This means the company is not taking any measures, with regards to the number of shares, that will dilute or devalue the stock. SALES: [PASS] Companies with sales less than $500 million should be chosen. It is among these small-cap stocks that investors can find "an uncut gem", ones that institutions won't be able to buy yet. BOFI's sales of $148.7 million based on trailing 12 month sales, are fine, making this company one such "prospective gem". BOFI passes the sales test. DAILY DOLLAR VOLUME: [PASS] BOFI passes the Daily Dollar Volume (DDV of $22.7 million) test. It is required that this number be less than $25 million because these are the stocks that remain relatively undiscovered by institutions. "You'll be scoring touchdowns against the big guys on your turf." PRICE: [PASS] This is a very insignificant criterion for this methodology. But basically, low prices are chosen because "small numbers multiply more rapidly than large ones" and the potential for big returns expands. BOFI with a price of $83.88 passes the price test, even though it doesn't fall in the preferred range. The price should be above $7 in order to eliminate penny stocks and below $20 since most stocks in this price range are undiscovered by the institutions. INCOME TAX PERCENTAGE: [PASS] BOFI's income tax paid expressed as a percentage of pretax income this year was (40.92%) and last year (40.49%) are greater than 20% which is an acceptable level. If the tax rate is below 20% this could mean that the earnings that were reported were unrealistically inflated due to the lower level of income tax paid. This is a concern.   SMITH & WESSON HOLDING CORP Profile Strategy: P/E/Growth Investor Based on: Peter Lynch Smith & Wesson Holding Corporation (Smith & Wesson) is a manufacturer of firearms. The Company manufactures a range of handguns, modern sporting rifles, hunting rifles, black powder firearms, handcuffs, and firearm-related products and accessories for sale to a range of customers, including gun enthusiasts, collectors, hunters, sportsmen, competitive shooters, individuals desiring home and personal protection, law enforcement and security agencies and officers, and military agencies in the United States and globally. It sells its products under the Smith & Wesson brand, the M&P brand, the Thompson/Center Arms brand, and the Performance Center brand. The Company manufactures its firearm products at its facilities in Springfield, Massachusetts and Houlton, Maine. Analysis Guru Score: 93% DETERMINE THE CLASSIFICATION: This methodology would consider SWHC a "fast-grower". P/E/GROWTH RATIO: [PASS] The investor should examine the P/E (9.39) relative to the growth rate (44.56%), based on the average of the 3 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 SWHC (0.21) 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. SWHC, whose sales are $634.9 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. INVENTORY TO SALES: [PASS] When inventories increase faster than sales, it is a red flag. However an increase of up to 5% is considered bearable if all other ratios appear attractive. Inventory to sales for SWHC was 13.42% last year, while for this year it is 10.72%. Since inventory to sales has decreased from last year by -2.70%, SWHC passes this test. EPS GROWTH RATE: [PASS] This methodology favors companies that have several years of fast earnings growth, as these companies have a proven formula for growth that in many cases can continue many more years. This methodology likes to see earnings growth in the range of 20% to 50%, as earnings growth over 50% may be unsustainable. The EPS growth rate for SWHC is 44.6%, based on the average of the 3 and 5 year historical eps growth rates, which is considered 'OK'. However, it may be difficult to sustain such a high growth rate. TOTAL DEBT/EQUITY RATIO: [PASS] This methodology would consider the Debt/Equity ratio for SWHC (72.54%) to be mediocre. If the Debt/Equity ratio is this high, the other ratios and financial statistics for SWHC should be good enough to compensate. FREE CASH FLOW: [NEUTRAL] The Free Cash Flow/Price ratio, though not a requirement, is considered a bonus if it is above 35%. A positive Cash Flow (the higher the better) separates a wonderfully reliable investment from a shaky one. This methodology prefers not to invest in companies that rely heavily on capital spending. This ratio for SWHC (5.96%) 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 SWHC (-0.35%) 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.   FOOT LOCKER, INC. Profile Strategy: Growth/Value Investor Based on: James P. O'Shaughnessy Foot Locker, Inc. is a global retailer of shoes and apparel, operating 3,335 primarily mall-based stores in the United States, Canada, Europe, Australia, and New Zealand as of February 2, 2013. The Company operates in two segments: Athletic Stores and Direct-to-Customers. The Athletic Stores segment is an athletic footwear and apparel retailer whose formats include Foot Locker, Lady Foot Locker, Kids Foot Locker, Champs Sports, Footaction, and CCS. The Direct-to-Customers segment includes Footlocker.com, Inc. and other affiliates, including Eastbay, Inc. and CCS, which sell to customers through Internet websites, mobile devices, and catalogs. In September 2013, the Company acquired Runners Point Warenhandels GmbH (Runners) from Hannover Finanz GmbH. Analysis Guru Score: 100% MARKET CAP: [PASS] The first requirement of the Cornerstone Growth Strategy is that the company has a market capitalization of at least $150 million. This will screen out the companies that are too illiquid for most investors, but still include a small growth company. FL, with a market cap of $6,728 million, passes this criterion. EARNINGS PER SHARE PERSISTENCE: [PASS] The Cornerstone Growth methodology looks for companies that show persistent earnings growth without regard to magnitude. To fulfill this requirement, a company's earnings must increase each year for a five year period. FL, whose annual EPS before extraordinary items for the last 5 years (from earliest to the most recent fiscal year) were 0.30, 1.08, 1.80, 2.58 and 2.85, passes this test. PRICE/SALES RATIO: [PASS] The Price/Sales ratio should be below 1.5. This value criterion, coupled with the growth criterion, identify growth stocks that are still cheap to buy. FL's Price/Sales ratio of 1.03, based on trailing 12 month sales, passes this criterion. RELATIVE STRENGTH: [PASS] The final criterion for the Cornerstone Growth Strategy requires that the Relative Strength of the company be among the top 50 of the stocks screened using the previous criterion. This gives you the opportunity to buy the growth stocks you are searching for just as the market is embracing them. FL, whose relative strength is 75, is in the top 50 and would pass this last criterion.   HOLLYFRONTIER CORP Profile Strategy: Value Investor Based on: Benjamin Graham HollyFrontier Corporation (HollyFrontier), formerly Holly Corporation, is a petroleum refiner, which produces light products, such as gasoline, diesel fuel, jet fuel, specialty lubricant products, and specialty and modified asphalt. HollyFrontier operates in two segments: Refining and Holly Energy Partners, L.P. (HEP). The Refining segment includes the operations of its El Dorado, Tulsa, Navajo, Cheyenne and Woods Cross Refineries and NK Asphalt. The HEP segment involves all of the operations of HEP. As of December 31, 2011, it operated five refineries having a combined crude oil processing capacity of 443,000 barrels per day that serve markets throughout the Mid-Continent, Southwest and Rocky Mountain regions of the United States. The Company merged with Frontier Oil Corporation (Frontier), on July 1, 2011. On November 9, 2011, HEP acquired from the Company certain tankage, loading rack and crude receiving assets located at its El Dorado and Cheyenne Refineries. Analysis Guru Score: 86% SECTOR: [PASS] HFC 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. HFC's sales of $20,160.6 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. HFC's current ratio of 2.33 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 HFC is $997.5 million, while the net current assets are $2,222.0 million. HFC 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. HFC's EPS growth over that period of 701.7% 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. HFC's P/E of 14.22 (using the current PE) passes this test. PRICE/BOOK RATIO: [FAIL] The Price/Book ratio must also be reasonable. That is, the Price/Book multiplied by P/E cannot be greater than 22. HFC's Price/Book ratio is 1.70, while the P/E is 14.22. HFC fails the Price/Book test.   CNOOC LTD (ADR) Profile Strategy: P/E/Growth Investor Based on: Peter Lynch CNOOC Limited is an investment holding company. The Company, along with its subsidiaries, is a producer of offshore crude oil and natural gas and an independent oil and gas exploration and production company. Its subsidiaries are engaged in exploration, development, production and sales of oil and natural gas. It has three segments: independent operations, operations under joint arrangement and trading business. The Company has four producing areas in offshore China, which include the Bohai Bay, Western South China Sea, Eastern South China Sea and East China Sea. It also has oil and gas assets in Indonesia, Iraq, Australia, Africa, North America and South America. As of December 31, 2012, its subsidiaries included CNOOC China Limited, CNOOC International Limited, China Offshore Oil (Singapore) International Pte Ltd and others. Analysis Guru Score: 91% DETERMINE THE CLASSIFICATION: According to this methodology, CEO is a "Slow Grower", based on its single digit earnings growth of 6.89%, based on the average of the 3, 4 and 5 year historical eps growth rates. SALES: [PASS] CEO would fall into the "Dividend Payers" category according to this methodology. The first requirement of a Slow Grower is that its sales exceed one billion. CEO's sales are $45,749 million. It passes the test. INVENTORY TO SALES: [PASS] When inventories increase faster than sales, it is a red flag. However an increase of up to 5% is considered bearable if all other ratios appear attractive. Inventory to sales for CEO was 2.12% last year, while for this year it is 3.20%. Since inventory has been rising, this methodology would not look favorably at the stock but would not completely eliminate it from consideration as the inventory increase (1.08%) is below 5%. YIELD COMPARED TO THE S&P 500: [PASS] This methodology also maintains that the Yield of a "Slow Grower" should be high, which includes being higher than the S&P average (currently 2.19%), and at least 3%. This yield is required because dividends are the main reason for investing in "Slow Growers". The yield for CEO is 4.52% so it passes this test. YIELD ADJUSTED P/E/GROWTH (PEG) RATIO: [PASS] This methodology would consider the Yield-adjusted P/E/G ratio for CEO of 0.70, based on the average of the 3, 4 and 5 year historical eps growth rates, to be good. TOTAL DEBT/EQUITY RATIO: [PASS] This methodology would consider the Debt/Equity ratio for CEO (38.60%) to be normal (equity is approximately twice debt). 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 CEO (0.87%) 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 CEO (-14.81%) is too low to add to the attractiveness of this company. Keep in mind, however, that it does not adversely affect the company as it is a bonus criteria.   Watch List The Watch List contains the highest scoring stocks according to our guru consensus system that are not currently in the Hot List portfolio. We provide this list both for informational purposes and for investors who are not comfortable with a portfolio of ten stocks. Ticker Company Name Industry Guru Score LQDT LIQUIDITY SERVICES, INC. Retail (Catalog & Mail Order) 76 NTES NETEASE, INC (ADR) Business Services 68 HCI HCI GROUP INC Insurance (Prop. & Casualty) 68 ROST ROSS STORES, INC. Retail (Apparel) 67 TJX THE TJX COMPANIES, INC. Retail (Apparel) 66 BBBY BED BATH & BEYOND INC. Retail (Specialty) 65 TECD TECH DATA CORP Retail (Technology) 65 COH COACH, INC. Retail (Apparel) 64 DW DREW INDUSTRIES, INC. Mobile Homes & RVs 63 USNA USANA HEALTH SCIENCES, INC. Conglomerates 63

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.