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Executive Summary	November 27, 2009

The Economy While a number of concerns remain, the economy is continuing to show signs of improvement in some key areas as we head into the final month of 2009. One of those important areas in which strides are being made is one that played a major role in last year's financial crisis and the recent recession: the housing market. This week, the National Association of Realtors reported that existing home sales jumped 10.1% in October, with sales activity hitting its highest point in more than two-and-a-half years. It was the sixth time in seven months that existing home sales rose, with the number of sales in October representing a 23.5% increase over October 2008 levels. New home sales also jumped, rising 6.2% in October, the Commerce Department reported. New home prices also rose slightly, though the average existing home sale price fell for the fourth straight month, as buyers continued to snatch up distressed properties. Another important bit of news in the housing sector involves inventories. New home inventories hit their lowest level in almost 40 years, according to the Associated Press, while existing home supply levels are at their lowest level in more than 30 months, almost 15% lower than they were in October 2008. That's good news for homebuilders -- and for those looking for work in the homebuilding industry. Retail sales also registered a surprise jump in October, rising 1.4% over September levels. That shows some resilience on the part of the American consumer. But the October figure was still down 1.7% from October 2008, the Commerce Department reported, a sign of just how much ground still needs to be made up. Industrial production also took a baby step forward in October, rising 0.1%. While the increase was small, it was the fourth straight month industrial production has risen, according to the Federal Reserve, a good sign. Capacity usage also gained slightly for the fourth straight month, though it remains about 10 percentage points below its historical average. Of course, the main problem that continues to hover over the economy is employment. We got some encouraging numbers this week -- the number of people filing new jobless claims fell by 7.5% in the most recent week, according to new Labor Department data, reaching the lowest level in more than a year. But that is still a lot of people going off of payrolls, and with the unemployment rate over 10%, much improvement is needed. Hopefully the Obama Administration's renewed pledge to create jobs will yield results sooner rather than later. Finally, one of the most significant economic factors for investors in recent weeks has been the dollar, which continues to tumble. It fell to a 15-month low against the euro this week and was near a decade-and-a-half low against the yen, as the newly released minutes of the Federal Reserve's early November meeting indicated that the Fed has no plans to raise historically low interest rates anytime soon. The falling dollar raises a number of issues, but it isn't necessarily a bad thing for investors. With the economic news generally featuring more hope than fear, the market trended slightly upward over the past fortnight. The S&P 500 rose 1.1%, while the Hot List gained 2.9%. Heading into the final month of the year, the portfolio is far ahead of the market in 2009, having gained 43.5% vs. the S&P's 20.0% increase. And since its inception more than six years ago, the Hot List is up 135.3%; the S&P has risen just 11.0% in that time. Shaking Up the Portfolio The Hot List is due for its monthly rebalancing today, and it is making some major changes. The portfolio is selling off five of its holdings and replacing them with five that now have higher ratings from my Guru Strategies. The departing stocks include several strong performers. Leading the way was Chinese I/T firm VanceInfo Technologies, which gained more than 30% after joining the portfolio in early September. The firm posted some very strong third quarter results during its time in the Hot List, with net income jumping 33% and net revenue jumping 45%, part of what drove the stock higher. Two other of the departing stocks, Raytheon Company and Humana, were both up more than 14% (Raytheon since joining the portfolio on Oct. 30 and Humana since joining on Oct. 2). The lone departing stock that lost ground was Frontier Oil. The newcomers feature several capital goods firms, including EMCOR Group and Jacobs Engineering, both of which are involved in construction services, and Dresser-Rand Group, which supplies products and services to firms in the oil, gas, petrochemical and process industries. Also joining the Hot List are two former holdings, Chevron and Aeropostale, both of which spent time in the portfolio earlier this year. Now my models think they're again selling at attractive values -- particularly Aeropostale, which is the lone stock in the market that currently gets approval from four of my Guru Strategies. (Another) Jobless Recovery Looking ahead, one of the key issues many investors are focused on is unemployment. Many pundits and strategists have noted that a high jobless rate will be a threat to the economic recovery, and they're right. More unemployed Americans means fewer people spending, and with consumer spending making up about 70% of the U.S. economy, that's not a recipe for long-term growth. But there are a couple things to consider when looking at employment figures. The first is that the notion of a "jobless recovery" is nothing new. In fact, employment is often one of the final pieces of the recovery puzzle to fall into place. Take the recession of 1973-1975. While the recession ended in March of '75, unemployment didn't peak until May of '75, at 9%. It stayed above 8% through the end of '75, and didn't get below 7% until the fall of 1977. Other recoveries show a similar trend. The recession that ended in November of 1982 featured very high unemployment that peaked in December of '82 at 10.7%. While GDP growth began surging at the start of 1983, unemployment remained above 10% through June of '83; it didn't fall below 8% until the start of the next year. For a final example, take the recession that ended in March of 1991. While GDP turned positive in the second quarter of '91, unemployment didn't peak until June of 1992, at 7.8%. And it remained above 7% for another year after that. Of course, every recession is different, and this one no doubt has aspects -- the massive deleveraging of America, for example -- that present unique problems in terms of employment. Given the tremendous levels of fear that hit both consumers and businesses last fall, it may take longer than usual for consumers to open their wallets and businesses to feel comfortable enough to start hiring again. But if history is any indication, the wallets will open, and the "Help Wanted" signs will start popping up, perhaps sooner than many expect. The second key factor to consider involving unemployment is one I've stressed many times before: The economy isn't the stock market. The economy is one factor that impacts the market, but it's not the only one -- especially not right now. In a recent interview, Barry Ritholtz, one of the top strategists I keep an eye on, delved into this issue. Ritholtz noted that the factors driving the market right now are historically low interest rates and huge stimulus spending by the government -- two factors that are extremely bullish for stocks. Moreover, he says that when we do start getting strong jobs reports, the market may head lower, because investors will begin to think that the economic improvements will portend the government raising interest rates and pulling back some of its stimulus efforts. Don't get me wrong -- I'm not saying I want to see a weak economy and high unemployment. No one wants to see big numbers of Americans struggling to find work, and in the end a solid, healthy economy will likely be best for stocks over the long haul. But the point is that looking at individual pieces of economic data -- even major ones like unemployment figures -- and making investment decisions based on them is a dangerous game. There are a myriad of complicated, ever-changing factors that drive stocks up or down, ranging from investor emotions to government policies to the economy. Trying to jump in and out of the market because of one piece of economic data, or even several pieces of economic data, can end very badly. That's why I'll continue to stick to my long-term strategy with the Hot List, and I expect that over the long term it will benefit the portfolio.		Editor-in-Chief: John Reese Since Inception   Hot List 135.3% S&P 500 11.0% Accuracy 56.6% Beta 1.2 YTD   Hot List 43.5% S&P 500 23.0% Since Last Issue   Hot List 2.9% S&P 500 1.1% Avg. Fundamentals   Market Cap (mil) $19,745 PE Ratio 16.9 5 Yr EPS Growth 41.4% Yield 2.2% Rel. Strength 60 Portfolio Sectors Capital Goods 3 Energy 3 Services 2 Transportation 1 Consumer Cyclical 1
Hot List Editor John Reese Announces Publication of New Book The Guru Investor shows you how to implement the strategies of Wall Street legends like Warren Buffett, Peter Lynch and Benjamin Graham in your own portfolio. Buy Your Copy Now! The Fallen As we rebalance the Validea Hot List, 5 stocks leave our portfolio. These include: Humana Inc. (HUM), Frontier Oil Corporation (FTO), World Fuel Services Corporation (INT), Raytheon Company (RTN) and Vanceinfo Technologies Inc. (VIT). The Keepers 5 stocks remain in the portfolio. They are: Itt Educational Services, Inc. (ESI), Tidewater Inc. (TDW), National-oilwell Varco, Inc. (NOV), Oil States International, Inc. (OIS) and Fuqi International, Inc. (FUQI). The Newbies We are adding 5 stocks to the portfolio. These include: Jacobs Engineering Group Inc. (JEC), Chevron Corporation (CVX), Emcor Group, Inc. (EME), Aeropostale, Inc. (ARO) and Dresser-rand Group Inc. (DRC). Portfolio Changes Additions   JACOBS ENGINEERING GROUP INC. JEC CHEVRON CORPORATION CVX EMCOR GROUP, INC. EME AEROPOSTALE, INC. ARO DRESSER-RAND GROUP INC. DRC Deletions   HUMANA INC. HUM FRONTIER OIL CORPORATION FTO WORLD FUEL SERVICES CORPORATION INT RAYTHEON COMPANY RTN VANCEINFO TECHNOLOGIES INC. VIT Newcomers to the Validea Hot List Aeropostale (ARO): This mall-based clothing retailer targets youngsters age 14 to age 17 through more than 900 stores in 49 states, Puerto Rico, and Canada. Its new P.S. from Aeropostale stores also are aimed at 7- to 12-year-old youngsters. In the past year, the $2.1 billion market cap firm has raked in more than $2 billion in sales. New York City-based Aeropostale has upped earnings per share in every year of the past decade, and has increased EPS and sales in each quarter in 2009 so far. Aeropostale gets approval from four of my models -- those I base on the approaches of Peter Lynch, Warren Buffett, Joel Greenblatt, and James O'Shaughnessy. To see why, check out the "Detailed Stock Analysis" section below. Chevron Corporation (CVX): This California-based oil giant does business in more than a hundred countries and has a market cap of almost $160 billion. It specializes in oil and natural gas, but has also invested billions in alternative and renewable energy technologies (including solar, geothermal, and hydrogen power) and energy efficiency services since 2002. Chevron, which has taken in almost $170 billion in sales in the past year, gets approval from my Peter Lynch- and James O'Shaughnessy-based models. To find out why, scroll down to the "Detailed Stock Analysis" section below. EMCOR Group, Inc. (EME): Based in Connecticut, this construction and facilities services firm does electrical, mechanical, lighting, air conditioning, heating, security, fire protection and power generation systems work for companies in a wide variety of industries. The $1.6 billion market cap company has taken in close to $6 billion in sales in the past year. EMCOR gets high marks from my Peter Lynch-, James O'Shaughnessy-, and Joel Greenblatt-based models. The "Detailed Stock Analysis" section below explains why. Jacobs Engineering Group (JEC): This California-based firm provides technical, professional, and construction services to industrial, commercial, and government clients. It is involved in scientific and specialty consulting and all aspects of engineering and construction, and operations and maintenance. Among the types of firms it works with: Aerospace and Defense, Automotive and Industrial, Chemicals and Polymers, Energy, Infrastructure, Oil and Gas, Pharmaceuticals and Biotechnology, and Technology Jacobs, which has a $4.5 billion market cap, gets approval from my top-performing model, my Benjamin Graham-based strategy. To see why, scroll down to the "Detailed Stock Analysis" section. Dresser-Rand Group (DRC): Based in Texas, Dresser-Rand supplies centrifugal and reciprocating compressors, steam turbines, gas turbine packages, and control systems to firms in the oil, gas, petrochemical and process industries. It has manufacturing facilities in seven countries, and service centers in 17 countries. The $2.4 billion market cap firm has taken in about $2.5 billion in sales in the past 12 months. Dresser-Rand gets approval from my James O'Shaughnessy- and Joel Greenblatt-based models. The "Detailed Stock Analysis" section below explains why. News about Validea Hot List Stocks National Oilwell Varco (NOV): Varco announced on Nov. 17 that it will pay a one-time cash dividend of $1 per share. The dividend will be payable on Dec. 16 to shareholders of record as of Dec. 2, according to MarketWatch. Varco will also pay a regular quarterly cash dividend of $0.10 per share starting on Dec. 16, MarketWatch reported. Jacobs Engineering (JEC): On Nov. 16, Jacobs announced that its fourth-quarter profit fell 31% and its sales dropped 20% compared to the year-ago quarter. Jacobs also issued full-year fiscal 2010 profit guidance of $2.00-$2.60 per share, lower than analysts' average estimates of $2.83 per share, the Associated Press reported. The stock fell almost 15% the following day (before the Hot List purchased it). The Next Issue In two weeks, we will publish another issue of the Hot List, at which time we will take an in-depth look at one of my individual Guru Strategies. If you have any questions, please feel free to contact us at hotlist@validea.com.

Current Portfolio Ticker Company Name Industry Guru Score FUQI FUQI INTERNATIONAL, INC. Jewelry & Silverware 84 EME EMCOR GROUP, INC. Construction Services 77 ARO AEROPOSTALE, INC. Retail (Apparel) 71 OIS OIL STATES INTERNATIONAL, INC. Oil Well Services & Equipment 63 NOV NATIONAL-OILWELL VARCO, INC. Oil Well Services & Equipment 63 JEC JACOBS ENGINEERING GROUP INC. Construction Services 60 CVX CHEVRON CORPORATION Oil & Gas - Integrated 60 DRC DRESSER-RAND GROUP INC. Misc. Capital Goods 57 ESI ITT EDUCATIONAL SERVICES, INC. Schools 49 TDW TIDEWATER INC. Water Transportation 43 Ticker Market Cap Date Added Start Price Current Price Return FUQI $608 10/30/2009 $20.49 $22.00 7.4% EME $1,628 11/27/2009 TBD $24.70 TBD ARO $2,127 11/27/2009 TBD $31.67 TBD OIS $1,823 10/30/2009 $34.44 $36.63 6.4% NOV $18,775 10/30/2009 $40.99 $44.88 9.5% JEC $4,552 11/27/2009 TBD $36.61 TBD CVX $159,779 11/27/2009 TBD $79.64 TBD DRC $2,424 11/27/2009 TBD $29.38 TBD ESI $3,376 10/30/2009 $90.35 $91.39 1.2% TDW $2,361 10/30/2009 $41.67 $45.66 9.6%

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 FUQI   |   EME   |   ARO   |   OIS   |   NOV   |   JEC   |   CVX   |   DRC   |   ESI   |   TDW   |   FUQI INTERNATIONAL, INC. Profile Strategy: Growth Investor Based on: Martin Zweig Fuqi International, Inc. (Fuqi) is a designer of precious metal jewelry in China, developing, promoting, and selling a range of products in the Chinese luxury goods market. The Company's products consist of a range of styles and designs made from gold and other precious metals, such as platinum and Karat gold (K-gold). The Company also produce jewelry items that contain diamonds and other precious stones on a custom-order basis. Its design database contains over 30,000 products. The Company operates through its wholly owned subsidiary Fuqi International Holdings Co., Ltd. (Fuqi BVI) and its wholly owned subsidiary, Shenzhen Fuqi Jewelry Co., Ltd. (Fuqi China). As of December 31, 2008, the Company had 69 jewelry retail counters and stores in China. Analysis Guru Score: 85% P/E RATIO: [PASS] The P/E of a company must be greater than 5 to eliminate weak companies, but not more than 3 times the current Market P/E because the situation is much too risky, and never greater than 43. FUQI's P/E is 13.22, based on trailing 12 month earnings, while the current market PE is 19.00. Therefore, it passes the first test. REVENUE GROWTH IN RELATION TO EPS GROWTH: [PASS] Revenue Growth must not be substantially less than earnings growth. For earnings to continue to grow over time they must be supported by a comparable or better sales growth rate and not just by cost cutting or other non-sales measures. FUQI's revenue growth is 65.32%, while it's earnings growth rate is 42.99%, based on the average of the 3, 4 and 5 year historical eps growth rates. Therefore, FUQI 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 (50.8%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (41%) of the current year. Sales growth for the prior must be greater than the latter. For FUQI 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. FUQI's EPS ($0.46) pass this test. QUARTERLY EARNINGS ONE YEAR AGO: [PASS] The EPS for the quarter one year ago must be positive. FUQI's EPS for this quarter last year ($0.25) 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. FUQI's growth rate of 84.00% passes this test. EARNINGS GROWTH RATE FOR THE PAST SEVERAL QUARTERS: [FAIL] Compare the earnings growth rate of the previous three quarters with long-term EPS growth rate. Earnings growth in the previous 3 quarters should be at least half of the long-term EPS growth rate. Half of the long-term EPS growth rate for FUQI is 21.49%. This should be less than the growth rates for the 3 previous quarters which are 121.43%, 15.38% and 45.16%. FUQI does not pass this test, which means that it does not have good, reasonably steady earnings. This strategy looks at the rate which earnings grow and evaluates this rate of growth from different angles. The 4 tests immediately following are detailed below. EPS GROWTH FOR CURRENT QUARTER MUST BE GREATER THAN PRIOR 3 QUARTERS: [PASS] If the growth rate of the prior three quarter's earnings, 44.05%, (versus the same three quarters a year earlier) is less than the growth rate of the current quarter earnings, 84.00%, (versus the same quarter one year ago) then the stock passes. EPS GROWTH FOR CURRENT QUARTER MUST BE GREATER THAN THE HISTORICAL GROWTH RATE: [PASS] The EPS growth rate for the current quarter, 84.00% must be greater than or equal to the historical growth which is 42.99%. FUQI would therefore pass this test. EARNINGS PERSISTENCE: [PASS] Companies must show persistent yearly earnings growth. To fulfill this requirement a company's earnings must increase each year for a five year period. FUQI, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were 0.34, 0.48, 0.50, 0.86 and 1.32, 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. FUQI's long-term growth rate of 42.99%, based on the average of the 3, 4 and 5 year historical eps growth rates, passes this test. TOTAL DEBT/EQUITY RATIO: [PASS] A final criterion is that a company must not have a high level of debt. A high level of total debt, due to high interest expenses, can have a very negative effect on earnings if business moderately turns down. If a company does have a high level, an investor may want to avoid this stock altogether. FUQI's Debt/Equity (20.56%) is not considered high relative to its industry (29.02%) 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 FUQI, this criterion has not been met (insider sell transactions are 0, while insiders buying number 0). Despite the lack of an insider buy signal, there also is not an insider sell signal, so the stock passes this criterion.   EMCOR GROUP, INC. Profile Strategy: P/E/Growth Investor Based on: Peter Lynch EMCOR Group, Inc. (EMCOR) is an electrical and mechanical construction and facilities services company in the United States, Canada, the United Kingdom and in the world. The Company's segments include United States electrical construction and facilities services, United States mechanical construction and facilities services, United States facilities services, Canada construction and facilities services, United Kingdom construction and facilities services, and Other international construction and facilities services. The Company specializes in providing construction services relating to electrical and mechanical systems in facilities of all types and in providing services for the operation, maintenance and management of all aspects of such facilities (referred to as facilities services). Analysis Guru Score: 93% DETERMINE THE CLASSIFICATION: This methodology would consider EME a "fast-grower". P/E/GROWTH RATIO: [PASS] The investor should examine the P/E (9.12) relative to the growth rate (48.81%), 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 EME (0.19) 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. EME, whose sales are $5,869.8 million, needs to have a P/E below 40 to pass this criterion. EME's P/E of (9.12) 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 EME was 3.50% last year, while for this year it is 2.36%. Since inventory to sales has decreased from last year by -1.14%, EME 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 EME is 48.8%, based on the average of the 3, 4 and 5 year historical eps growth rates, which is considered 'OK'. However, it may be difficult to sustain such a high growth rate. TOTAL DEBT/EQUITY RATIO: [PASS] This methodology would consider the Debt/Equity ratio for EME (16.64%) 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 EME (17.94%) 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 EME (12.68%) is too low to add to the attractiveness of this company. Keep in mind, however, that it does not adversely affect the company as it is a bonus criteria.   AEROPOSTALE, INC. Profile Strategy: P/E/Growth Investor Based on: Peter Lynch Aeropostale, Inc. is a mall-based specialty retailer of casual apparel and accessories. The Company designs, markets and sells its own brand of merchandise principally targeting 14 to 17 year-old young women and young men. The Company also sells Aeropostale merchandise through its e-commerce Website, www.aeropostale.com. As of January 31, 2009, it operated 914 stores, consisting of 874 Aeropostale stores in 48 states and Puerto Rico, 29 Aeropostale stores in Canada, and 11 Jimmy'Z stores in 10 states. The Company locates its stores primarily in shopping malls, outlet centers and, to a much lesser degree, lifestyle and off-mall shopping centers. The Company has developed a new retail store concept called P.S. from Aeropostale, which will offer casual clothing and accessories focusing on elementary school children between the ages of seven and 12. It offers a focused collection of apparel, including graphic t-shirts, tops, bottoms, sweaters, jeans, outerwear and accessories. Analysis Guru Score: 93% DETERMINE THE CLASSIFICATION: This methodology would consider ARO a "fast-grower". P/E/GROWTH RATIO: [PASS] The investor should examine the P/E (11.84) relative to the growth rate (27.13%), 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 ARO (0.44) 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. ARO, whose sales are $2,033.1 million, needs to have a P/E below 40 to pass this criterion. ARO's P/E of (11.84) 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 ARO is 27.1%, 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 ARO (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 ARO (5.56%) 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 ARO (10.61%) 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.   OIL STATES INTERNATIONAL, INC. Profile Strategy: Growth/Value Investor Based on: James P. O'Shaughnessy Oil States International, Inc. (Oil States) through its subsidiaries, is a provider of specialty products and services to oil and gas drilling and production companies worldwide. The Company operates in a number of oil and gas producing regions, including the Gulf of Mexico, United States onshore, West Africa, the North Sea, Canada, South America and Southeast and Central Asia. Its customers include many of the national oil companies, major and independent oil and gas companies and other oilfield service companies. Oil States operates in three principal business segments: offshore products, tubular services and well site services. The Company's well site services segment includes the accommodations, rental tools and drilling services businesses. On February 1, 2008, Oil States purchased all of Christina Lake Enterprises Ltd., the owners of an accommodations lodge (Christina Lake Lodge) in the Conklin area of Alberta, Canada. 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. OIS, with a market cap of $1,823 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. OIS, whose annual EPS before extraordinary items for the last 5 years (from earliest to the most recent fiscal year) were 1.19, 2.41, 3.89, 4.00 and 4.33, 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. OIS's Price/Sales ratio of 0.74, 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. OIS, whose relative strength is 74, is in the top 50 and would pass this last criterion.   NATIONAL-OILWELL VARCO, INC. Profile Strategy: Value Investor Based on: Benjamin Graham National Oilwell Varco, Inc. (NOV) is a provider of equipment and components used in oil and gas drilling and production operations, oilfield services, and supply chain integration services to the upstream oil and gas industry. The Company operates in three segments. The Rig Technology segment designs, manufactures, sells and services systems for the drilling, completion and servicing of oil and gas wells. The Petroleum Services & Supplies segment provides a variety of consumable goods and services used to drill, complete, remediate and workover oil and gas wells, service pipelines, flowlines and other oilfield tubular goods. The Distribution Services segment provides maintenance, repair and operating (MRO) supplies, and spare parts to drill site and production locations worldwide.On April 21, 2008, NOV acquired Grant Prideco, Inc. In December 2008, it acquired Sakhalin Outfitters LLC and Mid-South Machine, Inc. In April 2009, NOV acquired ASEP Group Holding B.V. and Anson Limited. Analysis Guru Score: 100% SECTOR: [PASS] NOV 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. NOV's sales of $13,388.2 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. NOV's current ratio of 2.09 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 NOV is $875.0 million, while the net current assets are $5,418.0 million. NOV 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. NOV's EPS growth over that period of 1,608.1% 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. NOV's P/E of 12.70 (using the 3 year 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. NOV's Price/Book ratio is 1.32, while the P/E is 12.70. NOV passes the Price/Book test.   JACOBS ENGINEERING GROUP INC. Profile Strategy: Price/Sales Investor Based on: Kenneth Fisher Jacobs Engineering Group Inc. is a technical professional services firm in the United States. It provides a range of technical, professional, and construction services to industrial, commercial, and governmental clients globally. The Company provides four categories of services, including project services, which include engineering, design, architectural, and similar services; process, scientific and systems consulting services, which includes services performed in connection with a range of scientific testing, analysis, and consulting activities; construction services, which encompasses construction services, as well as modular construction activities, and includes direct-hire construction and construction management services, and operations and maintenance services, which includes services performed in connection with operating facilities on behalf of clients, as well as services involving process plant maintenance. 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 ratios below 0.75 are tremendous values and should be sought. JEC's P/S of 0.40 based on trailing 12 month sales, is below 0.75 which is considered quite attractive. It passes this methodology's P/S ratio test with flying colors. TOTAL DEBT/EQUITY RATIO: [PASS] Less debt equals less risk according to this methodology. JEC's Debt/Equity of 0.69% 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. JEC 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 JEC At this Point Is JEC a "Super Stock"? NO PRICE/SALES RATIO: [PASS] The prospective company should have a low Price/Sales ratio. Non-cyclical(non-Smokestack) companies with Price/Sales ratios below .75 are tremendous values and should be sought.JEC's P/S ratio of 0.40 is below .75 which is considered extremely attractive. It passes this methodology's P/S ratio test with flying colors. LONG-TERM EPS GROWTH RATE: [PASS] This methodology looks for companies that have an inflation adjusted EPS growth rate greater than 15%. JEC's inflation adjusted EPS growth rate of 24.66% 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. JEC's free cash per share of 3.84 passes this criterion. THREE YEAR AVERAGE NET PROFIT MARGIN: [FAIL] This methodology looks for companies that have an average net profit margin of 5% or greater over a three year period. JEC, whose three year net profit margin averages 3.54%, fails this evaluation.   CHEVRON CORPORATION Profile Strategy: Price/Sales Investor Based on: Kenneth Fisher Chevron Corporation (Chevron) manages its investments in subsidiaries and affiliates, and provides administrative, financial, management and technology support to the United States and International subsidiaries that engage in fully integrated petroleum operations, chemicals operations, mining operations of coal and other minerals, power generation and energy services. Exploration and production (upstream) operations consist of exploring for, developing and producing crude oil and natural gas, and also marketing natural gas. Refining, marketing and transportation (downstream) operations relate to refining crude oil into finished petroleum products; marketing crude oil and the many products derived from petroleum, and transporting crude oil, natural gas and petroleum products by pipeline, marine vessel, motor equipment and rail car. In April 2009, Reliance Industries Limited bought back Chevron Corporation's 5% stake in Reliance Petroleum Limited. Analysis Guru Score: 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. CVX's P/S ratio of 0.95 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. CVX's Debt/Equity of 11.63% 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. CVX 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 CVX At this Point Is CVX 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, CVX, who has a P/S of 0.95, 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%. CVX's inflation adjusted EPS growth rate of 19.46% 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. CVX's free cash per share of 2.34 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. CVX, whose three year net profit margin averages 8.46%, passes this evaluation.   DRESSER-RAND GROUP INC. Profile Strategy: Price/Sales Investor Based on: Kenneth Fisher Dresser-Rand Group Inc. is the global supplier of custom-engineered rotating equipment solutions for the applications in the oil, gas, petrochemical and process industries. The products and service applications include oil and gas production; high-pressure field injection, gas lift, and enhanced oil recovery; natural gas processing; gas liquefaction; gas transmission and storage; refining; petrochemical production; and general industrial markets, such as paper, steel, sugar, distributed power and United States Navy. The Company operates globally with manufacturing facilities in the United States, France, United Kingdom, Germany, Norway, China and India. It operates a range of products and clients to the global client base in over 140 countries from the global locations in 18 United States states and 26 countries. The Company operates in two business segments: new units, and aftermarket parts and services. 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. DRC's P/S ratio of 0.98 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. DRC's Debt/Equity of 38.00% 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. DRC 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 DRC At this Point Is DRC 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, DRC, who has a P/S of 0.98, 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%. DRC's inflation adjusted EPS growth rate of 64.68% 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. DRC's free cash per share of 2.32 passes this criterion. THREE YEAR AVERAGE NET PROFIT MARGIN: [PASS] This methodology looks for companies that have an average net profit margin of 5% or greater over a three year period. DRC, whose three year net profit margin averages 6.89%, passes this evaluation.   ITT EDUCATIONAL SERVICES, INC. Profile Strategy: Patient Investor Based on: Warren Buffett ITT Educational Services, Inc. (ITT/ESI), is a provider of postsecondary degree programs in the United States based on revenue and student enrollment. As of December 31, 2008, the Company offered master, bachelor and associate degree programs to approximately 62,000 students. As of December 31, 2008, it had 105 institutes and nine learning sites located in 37 states. All of its institutes are authorized by the applicable education authorities of the states, in which they operate, and are accredited by an accrediting commission recognized by the United States Department of Education (ED). During the year ended December 31, 2008, the Company began its operations at eight new institutes. As of December 31, 2008, the Company offered 33 degree programs in various fields schools of study: information technology (IT); electronics technology; drafting and design; business; criminal justice, and health sciences. Analysis Guru Score: 100% STAGE 1: "Is this a Buffett type company?" A bedrock principle for Buffett is that his type of company has a "durable competitive advantage" as compared to being a "price competitive" or "commodity" type of business. Companies with a "durable competitive advantage" are more likely to be found in these sub-industries: Brand Name Fast Food Restaurants, Brand Name Beverages, Brand Name Foods, Brand Name Toiletries and Household Products, Brand Name Clothing, Brand Name Prescription Drugs, Advertising, Advertising Agencies, TV, Newspapers, Magazines, Direct Mail, Repetitive Services for Businesses, Low Cost Producers of Insurance, furniture, or Low Cost Retailers. While you should be easily able to explain where the company's pricing power comes from (i.e. a strong regional brand image, a business tollgate, its main products are #1 or # 2 in its field and has been on the market for years and hasn't changed at all, a consumer or business ends up buying the same product many times in a year, etc. or having the lowest production cost among its competition), there are certain figures that one can look at that can qualify the company as having a durable competitive advantage. LOOK FOR EARNINGS PREDICTABILITY: [PASS] Buffett likes companies to have solid, stable earnings that are continually expanding. This allows him to accurately predict future earnings. Annual earnings per share from earliest to most recent were 0.48, 0.57, 0.70, 0.94, 1.27, 1.61, 2.33, 2.72, 3.71, 5.17. Buffett would consider ESI's earnings predictable. In fact EPS have increased every year. ESI's long term historical EPS growth rate is 32.1%, based on the average of the 3, 4 and 5 year historical eps growth rates, and it is expected to grow earnings 16.9% per year in the future, based on the analysts' consensus estimated long term growth rate. For the purposes of our analysis, we will use the more conservative of the two EPS growth numbers. LOOK AT THE ABILITY TO PAY OFF DEBT [PASS] Buffett likes companies that are conservatively financed. Nonetheless, he has invested in companies with large financing divisions and in firms with rather high levels of debt. ESI has no long term debt and therefore would pass this criterion. LOOK FOR CONSISTENTLY HIGHER THAN AVERAGE RETURN ON EQUITY: [PASS] Buffett likes companies with above average return on equity of at least 15% or better, as this is an indicator that the company has a durable competitive advantage. US corporations have, on average, returned about 12% on equity over the last 30 years. The average ROE for ESI, over the last ten years, is 39.5%, which is high enough to pass. It is not enough that the average be at least 15%. For each of the last 10 years, with the possible exception of the last fiscal year, the ROE must be at least 10% for Buffett to feel comfortable that the ROE is consistent. In addition, the average ROE over the last 3 years must also exceed 15%. The ROE for the last 10 years, from earliest to latest, is 40.9%, 41.3%, 41.4%, 47.5%, 39.6%, 31.5%, 34.5%, 107.2%, 208.6%, 106.6%, and the average ROE over the last 3 years is 140.8%, thus passing this criterion. LOOK FOR CONSISTENTLY HIGHER THAN AVERAGE RETURN ON TOTAL CAPITAL: [PASS] Because some companies can be financed with debt that is many times their equity, they can show a consistently high ROE, yet still be in unattractive price competitive businesses. To screen this out, for non-financial companies Buffett also requires that the average Return On Total Capital (ROTC) be at least 12% and consistent. In addition, the average ROTC over the last 3 years must also exceed 12%. Return On Total Capital is defined as the net earnings of the business divided by the total capital in the business, both equity and debt. The average ROTC for ESI, over the last ten years, is 44.6% and the average ROTC over the past 3 years is 56.6%, which is high enough to pass. It is not enough that the average be at least 12%. For each of the last 10 years, with the possible exception of the last fiscal year, the ROTC must be at least 9% for Buffett to feel comfortable that the ROTC is consistent. The ROTC for the last 10 years, from earliest to latest, is 40.9%, 41.3%, 41.4%, 47.5%, 39.6%, 31.5%, 34.5%, 43.9%, 66.7%, 59.3%, thus passing this criterion. LOOK AT CAPITAL EXPENDITURES: [PASS] Buffett likes companies that do not have major capital expenditures. That is, he looks for companies that do not need to spend a ton of money on major upgrades of plant and equipment or on research and development to stay competitive. ESI's free cash flow per share of $3.50 is positive, indicating that the company is generating more cash that it is consuming. This is a favorable sign, and so the company passes this criterion. LOOK AT MANAGEMENT'S USE OF RETAINED EARNINGS: [PASS] Buffett likes to see if management has spent retained earnings in a way that benefits shareholders. To figure this out, Buffett takes the total amount of retained earnings over the previous ten years of $19.50 and compares it to the gain in EPS over the same period of $4.69. ESI's management has proven it can earn shareholders a 24.1% return on the earnings they kept. This return is more than acceptable to Buffett. Essentially, management is doing a great job putting the retained earnings to work. HAS THE COMPANY BEEN BUYING BACK SHARES: [BONUS PASS] Buffett likes to see falling shares outstanding, which indicates that the company has been repurchasing shares. This indicates that management has been using excess capital to increase shareholder value. ESI's shares outstanding have fallen over the past five years from 45,990,002 to 38,000,000, thus passing this criterion. This is a bonus criterion and will not adversely affect the ability of a stock to pass the strategy as a whole if it is failed. The preceding concludes Buffett's qualitative analysis. If and when he gets positive responses to all the above criteria, he would then proceed with a price analysis. The price analysis will determine whether or not the stock should be bought. The following is how he would evaluate ESI quantitatively. STAGE 2: "Should I buy at this price?" Although a firm may be a Buffett type company, he won't invest in it unless he can get a favorable price that allows him a great long term return. CALCULATE THE INITIAL RATE OF RETURN: [No Pass/Fail] Buffett compares his type of stocks to bonds, and likes to see what a company's initial rate of return is. To calculate the initial rate of return, take the trailing 12-month EPS of $7.06 and divide it by the current market price of $91.39. An investor, purchasing ESI, could expect to receive a 7.73% initial rate of return. Furthermore, he or she could expect the rate to increase 16.9% per year, based on the analysts' consensus estimated long term growth rate, as this is how fast earnings are growing. COMPARE THE INITIAL RATE OF RETURN WITH THE LONG-TERM TREASURY YIELD: [PASS] Buffett favors companies in which the initial rate of return is around the long-term treasury yield. Nonetheless, he has invested in companies with low initial rates of return, as long as the yield is expected to expand rapidly. Currently, the long-term treasury yield is about 4.60%. Compare this with ESI's initial yield of 7.73%, which will expand at an annual rate of 16.9%, based on the analysts' consensus estimated long term growth rate. The company is the better choice, as the initial rate of return is close to or above the long term bond yield and is expanding. CALCULATE THE FUTURE EPS: [No Pass/Fail] ESI currently has a book value of $5.78. It is safe to say that if ESI can preserve its average rate of return on equity of 39.5% and continues to retain 100.00% of its earnings, it will be able to sustain an earnings growth rate of 39.5% and it will have a book value of $161.24 in ten years. If it can still earn 39.5% on equity in ten years, then expected EPS will be $63.69. CALCULATE THE FUTURE STOCK PRICE BASED ON THE AVERAGE ROE METHOD: [No Pass/Fail] Now take the expected future EPS of $63.69 and multiply them by the lower of the 5 year average P/E ratio (22.7) or current P/E ratio (current P/E in this case), which is 12.9 and you get ESI's projected future stock price of $824.19. CALCULATE THE EXPECTED RATE OF RETURN BASED ON THE AVERAGE ROE METHOD: [No Pass/Fail] Now add in the total expected dividend pool to be paid over the next ten years, which is $0.00. This gives you a total dollar amount of $824.19. These numbers indicate that one could expect to make a 24.6% average annual return on ESI's stock at the present time. Buffett would consider this an absolutely fantastic expected return. CALCULATE THE EXPECTED FUTURE STOCK PRICE BASED ON AVERAGE EPS GROWTH: [No Pass/Fail] If you take the EPS growth of 16.9%, based on the analysts' consensus estimated long term growth rate, you can project EPS in ten years to be $33.50. Now multiply EPS in 10 years by the lower of the 5 year average P/E ratio (22.7) or current P/E ratio (current P/E in this case), which is 12.9. This equals the future stock price of $433.54. Add in the total expected dividend pool of $0.00 to get a total dollar amount of $433.54. CALCULATE THE EXPECTED RETURN USING THE AVERAGE EPS GROWTH METHOD: [No Pass/Fail] Now you can figure out your expected return based on a current price of $91.39 and the future expected stock price, including the dividend pool, of $433.54. If you were to invest in ESI at this time, you could expect a 16.8% average annual return on your money. Buffett would consider this a great return. LOOK AT THE RANGE OF EXPECTED RATE OF RETURN: [PASS] Based on the two different methods, you could expect an annual compounding rate of return somewhere between 16.8% and 24.6%. To pinpoint the average return a little better, we have taken an average of the two different methods. Investors could expect an average return of 20.7% on ESI stock for the next ten years, based on the current fundamentals. Buffett would consider this a great return, thus passing the criterion.   TIDEWATER INC. Profile Strategy: Value Investor Based on: Benjamin Graham Tidewater Inc. provides offshore supply vessels and marine support services to the offshore energy industry through the operation of offshore marine service vessels. As of March 31, 2008, the Company had a total of 430 vessels, of which 10 were operated through joint ventures, 61 were stacked and 11 vessels withdrawn from service. The Company provides services supporting all phases of offshore exploration, development and production, including towing of and anchor handling of mobile drilling rigs and equipment; transporting supplies and personnel necessary to sustain drilling, workover and production activities; assisting in offshore construction activities, and a variety of specialized services, including pipe laying, cable laying and three-dimensional (3-D) seismic work. The Company operates in two segments: United States and International. Analysis Guru Score: 100% SECTOR: [PASS] TDW 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. TDW's sales of $1,326.1 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. TDW's current ratio of 2.78 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 TDW is $275.0 million, while the net current assets are $439.2 million. TDW 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. TDW's EPS growth over that period of 212.9% 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. TDW's P/E of 6.70 (using the 3 year 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. TDW's Price/Book ratio is 1.00, while the P/E is 6.70. TDW passes 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 HUM HUMANA INC. Insurance (Accident & Health) 57 YZC YANZHOU COAL MINING CO. (ADR) Coal 57 RINO RINO INTERNATIONAL CORPORATION Waste Management Services 55 RTN RAYTHEON COMPANY Aerospace & Defense 54 CVS CVS CAREMARK CORPORATION Retail (Drugs) 54 CAAS CHINA AUTOMOTIVE SYSTEMS, INC. Auto & Truck Parts 51 PFE PFIZER INC. Major Drugs 48 TGI TRIUMPH GROUP, INC. Aerospace & Defense 48 TKR THE TIMKEN COMPANY Misc. Fabricated Products 48 TXT TEXTRON INC. Conglomerates 48

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