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Executive Summary	September 18, 2009

The Economy After a lengthy period in which "good" news simply meant signs that economic activity was declining less quickly than it was before, we've now had several consecutive weeks in which the economic data has been genuinely improving. Over the past fortnight, one of those data points involved industrial production. According to a new report from the Federal Reserve, industrial production jumped a higher-than-expected 0.8% in August. In addition, the Fed revised its July figures upward, from a 0.5% gain to a 1.0% gain. It marks the first time since late 2007 that industrial production has increased in back-to-back months, and the increases are the largest back-to-back gains since late 2005. Following the encouraging manufacturing report that came in earlier this month -- which indicated that the U.S. manufacturing sector expanded in August for the first time in a year-and-a-half -- recent regional manufacturing reports are also coming in strong. The New York Federal Reserve reported this week that its measure of general business conditions rose more than 50% in September, reaching its highest level since November 2007. And the Philadelphia Federal Reserve reported that its manufacturing index more than tripled in September, marking the second straight month the index has indicated an expansion in the region. The bad news: The Philadelphia data also showed that the prices manufacturers are paying to obtain materials is rising, while the prices they're receiving for their goods are plunging, a cause for concern. There are other reasons to keep from getting too excited about the economy's early-stage rebound. The jobless rate -- though it is a lagging economic indicator -- remains troublingly high. The latest unemployment report from the government showed that the jobless rate rose in August to 9.7%, up from 9.4%, and that doesn't include people who have given up looking for jobs. With consumer spending making up two-thirds of the U.S. economy, a high jobless rate may be a barrier to a more robust recovery. The job losses are lessening, however, according to the Labor Department's latest figures. About 216,000 jobs were lost in August -- the fewest in a year. But overall, the employment picture remains weak. Housing data, meanwhile, has improved markedly in recent months -- something Warren Buffett cited this week in saying that the economy has leveled out. But the data released over the past two weeks was more mixed. Applications for building permits rose 2.7% in August, while housing starts rose 1.5%. But the increases were largely due to major gains in the multi-family homes category, which can be quite volatile, observers noted, making the long-term significance of the gains unclear. Overall, however, the news was generally encouraging over the past two weeks -- Fed Chairman Ben Bernanke even said it is now likely that the recession is over. Another example of positive data: Retail sales surged 2.7% in August, the government reported, representing the biggest increase in some three years. And while a chunk of that increase was due to the government's "Cash for Clunkers" program, retail sales still jumped 1.1% excluding the auto rebate program -- almost three times what analysts had expected, the Associated Press reported. In light of the upbeat economic news, stocks resumed their rise, which had been briefly interrupted in late August and early September. Since our last newsletter, the S&P 500 has gained 6.2%, while the Hot List has jumped 7.9%. For the year, the portfolio is now up 42.0%, far ahead of the S&P's 18.0% gain. And since its inception more than six years ago, the Hot List is up 132.8%, while the S&P has gained a mere 6.5%. Stock Picking in The New Normal As the economy continues to recover from one of the worst recessions in history, one term that has been popping up like wildfire is "the new normal". A number of strategists -- including some who are quite good at what they do, like PIMCO's Bill Gross and Mohamed El-Erian, as well as John Mauldin -- say that we're entering a new era, one in which the end of corporate and personal overleveraging will lead to slower-than-accustomed consumer spending and profit growth -- and, therefore, lower stock returns. Whether they are right remains to be seen. While the "new normal" crowd's arguments can be persuasive, the U.S. economy and stock market have proven to be remarkably resilient over the past 200-plus years. Many times before investors have uttered the phrase "this time it's different", and many times they've been proven wrong as long-term trends reasserted themselves -- the late, great Sir John Templeton actually called that phrase "the four most dangerous words in investing". What's crucial to remember here, however, is that the "new normal" that these strategists discuss is a reference to the broader economy and the broader stock market -- not individual companies or stocks. And, whatever the broader economy and market landscapes look like as we move forward, you can bet that there will still be plenty of companies that make plenty of money for their shareholders. The trick, of course, is separating the companies that can do that from those that will fall by the wayside -- a process that is important in any environment, but which becomes critical in one in which growth is at a premium. Fortunately, that's exactly what my Guru Strategies are designed to do. The approaches developed by the gurus aren't designed to snatch up hot stocks and ride waves of investor euphoria during good times. They are designed to search deep into companies' balance sheets and income statements, find the best companies out there, and buy their stocks when the price is right. And during what could be termed "stock-picker" environments, they have a good track record. Take, for example, the bull market of 2002-2007. That rally began in October 2002, and by the end of 2003 the S&P 500 had surged almost 45%. In the ensuing years, however, the bull was much more subdued, with the S&P gaining 9% in 2004, 3% in 2005, 13.6% in 2006, and just 3.5% in 2007. That meant that from 2004 through 2007, the S&P gained an average of 7.3%, producing a total compound return of 32.0%. While those are decent profits, they're far from runaway gains. The Hot List, in contrast, gained 23.5% in 2004, 14.5% in 2005, and 28.5% in 2006, before sustaining an 11.6% loss in 2007. That makes for an annualized gain of 12.6%, and a compound return of a little over 60%, nearly doubling the compound return of the S&P during that period of lower-than-average gains for the broader market. Is the new normal that Gross and others are predicting really ahead of us? I don't know for sure. But if it is, and growth really does become harder to come by, one group that could feel the effects is index fund investors. Index funds do, of course, have some great benefits, including low fees and low levels of effort in terms of maintaining a portfolio. But if a new normal of lower growth does set in, such broader indexes likely won't produce the kind of returns many investors are used to. If they are willing to take on a bit of extra risk and put in a bit of extra effort, however, I believe investors will be able to find plenty of opportunities even if such a new normal does set in. To do so, a disciplined, thorough approach to stock-picking will be required, one that looks deep into companies' balance sheets and fundamentals to find the firms that are likely to thrive while others struggle. That's just what the strategies that make up the Hot List are designed to do, which is why I'm confident the portfolio will continue to generate strong returns even if the "new normal" many envision becomes a reality.		Editor-in-Chief: John Reese Since Inception   Hot List 132.8% S&P 500 6.5% Accuracy 56.5% Beta 1.2 YTD   Hot List 42.0% S&P 500 18.0% Since Last Issue   Hot List 7.9% S&P 500 6.2% Avg. Fundamentals   Market Cap (mil) $17,895 PE Ratio 16.7 5 Yr EPS Growth 34.2% Yield 2.2% Rel. Strength 75 Portfolio Sectors Energy 3 Services 3 Technology 1 Financial 1 Capital Goods 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! Guru Spotlight: Peter Lynch Picking the greatest mutual fund manager of all-time is a tough task. John Templeton, Benjamin Graham, John Neff -- a number of investors have put up the types of long-term track records that make it difficult to pick just one who was "The Greatest". If you were to rank Peter Lynch at the top of the list, however, you'd probably find few would disagree with you. During his 13-year tenure as the head of Fidelity Investments' Magellan Fund, Lynch produced a 29.2 percent average annual return -- nearly twice the 15.8 percent return that the S&P 500 posted during the same period. According to Barron's, over the last five years of Lynch's tenure, Magellan beat 99.5 percent of all other funds. If those numbers aren't impressive enough, try this one: If you'd invested $10,000 in Magellan the day Lynch took the helm, you would have had $280,000 on the day he retired 13 years later. Just like investors who entrusted him with their money, I, too, owe a special debt of gratitude to Lynch. When I was trying to find my way in the stock market many years ago, Lynch's book One Up On Wall Street was a big part of what put me on the right track. Lynch didn't use complicated schemes or highbrow financial language in giving investment advice; he focused on the basics, and his common sense approach and layman-friendly writing style resonated not only with me but with amateur and professional investors all over, as evidenced by its best-seller status. The wisdom of Lynch's approach so impressed me that I decided to try to computerize the method, the first step I took toward developing my Guru Strategy computer models. Lynch's fame goes beyond his success in the market. His quick wit and "everyman" approach have made him a favorite in the media, long since he retired nearly two decades ago. But make no mistake: Much like Warren Buffett, Lynch's true appeal comes not from his sense of humor or ability to relate to the average period -- it comes from that impeccable track record. Just what was it about Lynch's approach that made him so incredibly successful? Interestingly, a big part of his approach involved something that is not at all exclusive to being a renowned professional fund manager: He invested in what he knew. Lynch believed that if you personally know something positive about a stock -- you buy the company's products, like its marketing, etc. -- you can get a beat on successful businesses before professional investors get around to them. In fact, one of the things that led him to one of his most successful investments -- undergarment manufacturer Hanes -- was his wife's affinity for the company's new pantyhose years ago. But while his "buy-what-you-know" advice has gained a lot of attention over the years, that part of his approach was only a starting point for Lynch. What his strategy really focused on was fundamentals -- that's why I was able to computerize it -- and the most important fundamental he looked at was one whose use he pioneered: the P/E/Growth ratio. The P/E/Growth ratio, or "PEG", divides a stock's price/earnings ratio by its historical growth rate. The theory behind this was relatively simple: The faster a company was growing, the more you should be willing to pay for its stock. To Lynch, PEGs below 1.0 were signs of growth stocks selling on the cheap; PEGs below 0.5 really indicated that a growth stock was a bargain. To show how the P/E/G can be more useful than the P/E ratio, Lynch has cited Wal-Mart, America's largest retailer. In his book "One Up On Wall Street", he notes that Wal-Mart's P/E was rarely below 20 during its three-decade rise. Its growth rate, however was consistently in the 25 to 30 percent range, generating huge profits for shareholders despite the P/E ratio not being particularly low. That also proved another one of Lynch's tenets: that a good company can grow for decades before earnings level off. The PEG wasn't the only abbreviation Lynch popularized within the stock market lexicon. His strategy is often used as a primary example of "GARP" -- Growth At A Reasonable Price -- investing, which blends growth and value tenets. While some categorize Lynch as a growth investor because his favorite type of stocks were "fast-growers" -- those growing earnings per share at an annual rate of at least 20 percent -- his use of PEG as a way to make sure he wasn't paying too much for growth really makes him a hybrid growth-value investor. One Size Doesn't Fit All One aspect of Lynch's approach that makes it different from those of other gurus I follow is his practice of evaluating different categories of stocks with different variables. His favorite category, as I noted, was "fast-growers". These companies were growing earnings at a rate of 20 to 50 percent per year. (Lynch didn't want growth rates above 50 percent, because it was unlikely companies could sustain such high growth rates over the long term). The other two main categories of stocks Lynch examined in his writings were "stalwarts" and "slow-growers". Stalwarts are large, steady firms that have multi-billion-dollar sales and moderate growth rates (between 10 and 20 percent). These are usually firms you know well -- Wal-Mart and IBM are current examples of "stalwarts" based on that definition. Their size and stability usually make them good stocks to have if the market hits a downturn, so Lynch typically kept some of them in his portfolio. "Slow-growers", meanwhile, are firms with higher sales that are growing EPS at an annual rate below 10 percent. These are the types of stocks you invest in primarily for their high dividend yields. One way Lynch treated slow-growers and stalwarts differently from fast-growers involved the PEG ratio. Because slow-growers and stalwarts tend to offer strong dividend yields, Lynch adjusted their PEG calculations to include dividend yield. For example, consider a stock that is selling for $30, and has a P/E ratio of 10, EPS growth of 12 percent, and a 3 percent yield. To find the PEG, you'd divide the P/E (10) by the total of the growth rate and yield (12+3=15). That gives you 10/15=0.67, which, being under 1.0, indicates that the stock is indeed a good value. Another difference: For slow-growers, Lynch wanted a high yield, and the model I base on his approach requires dividend yield to be higher than the S&P average and greater than 3 percent. Beyond The PEG While Lynch applied different criteria to his different stock categories, the PEG wasn't the only criterion he applied to all stocks. He also made an astute observation about inventory, which can be applied not only to fast-growers but other firms as well. He viewed it as a red flag when inventory increased more quickly than its sales. (Inventory piling up indicates the products aren't as in-demand as the company had hoped.) My Lynch-based model thus likes the inventory/sales ratio to stay the same or decrease from year to year, but will allow for an increase of up to 5 percentage points if all other financials are in order. Another crucial variable Lynch applied to all categories of stocks: the debt/equity ratio. He liked firms to be conservatively financed, and the model I base on his writings requires firms to have debt/equity ratios no greater than 80 percent. There is an exception to this test, however: For financial firms, debt is often a required part of business. Recognizing this, Lynch didn't apply the debt/equity ratio to financials. Instead, he looks at how a company's equity compares to its assets for a sign of financial health, and at how much of a return it is generating on those assets for a sign of its profitability. The model I base on Lynch's writings calls for financial firms to have an equity/assets ratio of at least 5 percent, and a return on assets of at least 1 percent. The final part of the Lynch strategy includes two bonus categories: free cash flow/price ratio and net cash/price ratio. Lynch loved it when a stock had a free cash flow/price ratio greater than 35 percent, or a net cash/price ratio over 30 percent. (Lynch defined net cash as cash and marketable securities minus long term debt). Failing these tests doesn't hurt a stock, however, since these are only bonus criteria. A Market-Beater Using these fundamental tests, the Validea Lynch-based portfolio has put together a strong track record. Since its inception more than six years ago, it has gained 81.1% percent, while the S&P 500 has gained just 6.5%. The portfolio really excelled in 2003, 2004, 2005, and 2006, before stumbling on tough times in 2007 and 2008, along with the rest of the market. But it has had an exceptional 2009, gaining 47.2%, more than doubling the S&P 500's return for the year. Now, here's a look at the stocks that currently make up my 10-stock Lynch-based portfolio: Molina Healthcare, Inc. (MOH) China Digital TV Holding Co., Ltd. (STV) Nasdaq QMX Group, Inc. (NDAQ) Humana Inc. (HUM) Comtech Telecommunications Corp. (CMTL) SonoSite, Inc. (SONO) Administaff, Inc. (ASF) Amerigroup Corporation (AGP) Energy Recovery, Inc. (ERII) Discover Financial Services (DFS) The Stomach's The Key While it's not a quantitative factor, there is another part of Lynch's strategy that was a critical part of his success: Don't bail when things get bad. Lynch recognized that the stock market was unpredictable in the short term, even to the smartest investors. In fact, he once said in an interview with American television station PBS that putting money into stocks and counting on having nice profits in a year or two is like "just like betting on red or black at the casino. ... What the market's going to do in one or two years, you don't know." Over the long-term, however, good stocks rise like no other investment vehicle, something Lynch recognized. His philosophy: Use a proven strategy and stay in the market for the long term and you'll realize those gains; jump in and out and there's a good chance that you'll miss out on a chunk of them. That, of course, is particularly hard to do at times like this, when the market has plummeted. But the fear and anxiety investors feel after such a plunge make it more important than ever to heed Lynch's advice: "The real key to making money in stocks," he once said, "is not to get scared out of them." News about Validea Hot List Stocks General Dynamics (GD): The Air Force has awarded a contract worth almost $50 million to a unit of General Dynamics for specialized research on several programs related to survivability, the Associated Press reported on Sept. 15. GD will conduct research and use advanced state-of-the-art material technologies or applications in several programs areas, the government said. AP also reported on the same day that General Dynamics received at least five other military contracts totaling at least $54.6 million. Chevron Corp. (CVX): On Sept. 16, Chevron announced Korea Gas Corp. has agreed to buy 1.5 million tons of liquefied natural gas a year from Chevron over 15 years -- the largest long-term LNG deal ever signed between Australia and South Korea, the Associated Press reported. The gas will come from the Gorgon gas field, which Chevron and joint venture partners ExxonMobil Corp. and Royal Dutch Shell recently announced will be developed off the northwest Australian coast, according to AP. The price of the deal was not announced, but Australian Broadcasting Corp. radio reported an estimated price of 30 billion Australian dollars ($26 billion), AP stated. 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 INT WORLD FUEL SERVICES CORPORATION Oil & Gas Operations 85 CVX CHEVRON CORPORATION Oil & Gas - Integrated 80 VIT VANCEINFO TECHNOLOGIES INC. Software & Programming 71 TWGP TOWER GROUP, INC. Insurance (Prop. & Casualty) 65 RGR STURM, RUGER & COMPANY Recreational Products 64 ARO AEROPOSTALE, INC. Retail (Apparel) 61 FTO FRONTIER OIL CORPORATION Oil & Gas Operations 49 JOSB JOS. A. BANK CLOTHIERS, INC. Retail (Apparel) 47 CPLA CAPELLA EDUCATION COMPANY Schools 29 GD GENERAL DYNAMICS CORPORATION Aerospace & Defense 19 Ticker Market Cap Date Added Start Price Current Price Return INT $1,486 9/4/2009 $45.32 $50.13 10.6% CVX $144,337 5/15/2009 $65.88 $71.97 9.2% VIT $690 9/4/2009 $13.07 $17.64 35.0% TWGP $1,022 9/4/2009 $24.01 $25.24 5.1% RGR $249 9/4/2009 $13.06 $13.05 -0.1% ARO $2,950 9/4/2009 $41.66 $43.92 5.4% FTO $1,517 6/12/2009 $14.67 $14.49 -1.2% JOSB $856 2/20/2009 $23.85 $46.82 96.3% CPLA $1,028 8/7/2009 $64.16 $61.51 -4.1% GD $24,811 9/4/2009 $60.48 $64.43 6.5%

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 INT   |   CVX   |   VIT   |   TWGP   |   RGR   |   ARO   |   FTO   |   JOSB   |   CPLA   |   GD   |   WORLD FUEL SERVICES CORPORATION Profile Strategy: Price/Sales Investor Based on: Kenneth Fisher World Fuel Services Corporation is engaged in the marketing and sale of marine, aviation and land fuel products and related services on a worldwide basis. The Company operates in three segments: marine, aviation and land. In its marine segment it offers fuel and related services to maritime customers, including international container and tanker fleets, commercial cruise lines and time-charter operators. In its aviation segment, it offers fuel and related services to major commercial airlines, second and third-tier airlines, cargo carriers, regional and low-cost carriers, corporate fleets, fractional operators, private aircraft, military fleets. In its land segment, it offers fuel and related services to petroleum distributors operating in the land transportation market. In June 2008, it acquired certain assets of Texor Petroleum Company, Inc. In April 2009, the Company acquired the Henty Oil Group of Companies. 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. INT's P/S of 0.12 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. INT's Debt/Equity of 9.49% 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. INT 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 INT At this Point Is INT 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.INT's P/S ratio of 0.12 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%. INT's inflation adjusted EPS growth rate of 28.54% 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. INT's free cash per share of 13.17 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. INT, whose three year net profit margin averages 0.54%, fails this evaluation.   CHEVRON CORPORATION Profile Strategy: P/E/Growth Investor Based on: Peter Lynch 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: 93% DETERMINE THE CLASSIFICATION: This methodology would consider CVX a "fast-grower". P/E/GROWTH RATIO: [PASS] The investor should examine the P/E (8.91) relative to the growth rate (21.78%), 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 CVX (0.41) 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. CVX, whose sales are $200,405.0 million, needs to have a P/E below 40 to pass this criterion. CVX's P/E of (8.91) 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 CVX was 2.40% last year, while for this year it is 2.51%. Since inventory has been rising, this methodology would not look favorably at the stock but would not completely eliminate it from consideration as the inventory increase (0.11%) is below 5%. EPS GROWTH RATE: [PASS] This methodology favors companies that have several years of fast earnings growth, as these companies have a proven formula for growth that in many cases can continue many more years. This methodology likes to see earnings growth in the range of 20% to 50%, as earnings growth over 50% may be unsustainable. The EPS growth rate for CVX is 21.8%, based on the average of the 3, 4 and 5 year historical eps growth rates, which is considered very good. TOTAL DEBT/EQUITY RATIO: [PASS] This methodology would consider the Debt/Equity ratio for CVX (13.71%) 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 CVX (3.25%) 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 CVX (-1.13%) 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.   VANCEINFO TECHNOLOGIES INC. Profile Strategy: Growth Investor Based on: Martin Zweig VanceInfo Technologies Inc. is an information technology (IT) service provider and one of the offshore software development companies in China. The Company's range of IT services includes research and development services (R&D services), enterprise solutions, application development and maintenance (ADM), quality assurance and testing, as well as globalization and localization. It provides these services primarily to corporations headquartered in the United States, Europe, Japan and China, targeting industries, such as technology, telecommunications, financial services, manufacturing, retail and distribution. The Company operates a range of offshore development centers in China (CDCs). Its major clients include Microsoft, IBM, Huawei, TIBCO, and a European mobile handset manufacturer. In July 2009, the Company acquired the operating subsidiaries of TP Corporation Limited (TP), a provider of customer relationship management (CRM) solutions and call center services. 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. VIT's P/E is 38.33, based on trailing 12 month earnings, while the current market PE is 18.00. 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. VIT's revenue growth is 64.41%, while it's earnings growth rate is 34.29%, based on the average of the 3, 4 and 5 year historical eps growth rates. Therefore, VIT passes this criterion. SALES GROWTH RATE: [FAIL] Another important issue regarding sales growth is that the rate of quarterly sales growth is rising. To evaluate this, the change from this quarter last year to the present quarter (41.5%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (46.8%) of the current year. Sales growth for the prior must be greater than the latter. For VIT this criterion has not been met and fails this test. The earnings numbers of a company should be examined from various different angles. Three of these angles are stability in the trend of earnings, earnings persistence, and earnings acceleration. To evaluate stability, the stock has to pass the following four criteria. CURRENT QUARTER EARNINGS: [PASS] The first of these criteria is that the current EPS be positive. VIT's EPS ($0.13) pass this test. QUARTERLY EARNINGS ONE YEAR AGO: [PASS] The EPS for the quarter one year ago must be positive. VIT's EPS for this quarter last year ($0.09) 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. VIT's growth rate of 44.44% passes this test. EARNINGS GROWTH RATE FOR THE PAST SEVERAL QUARTERS: [PASS] Compare the earnings growth rate of the previous three quarters with long-term EPS growth rate. Earnings growth in the previous 3 quarters should be at least half of the long-term EPS growth rate. Half of the long-term EPS growth rate for VIT is 17.15%. This should be less than the growth rates for the 3 previous quarters, which are 83.33%, 160.00%, and 25.00%. VIT passes this test, which means that it has good, reasonably steady earnings. This strategy looks at the rate which earnings grow and evaluates this rate of growth from different angles. The 4 tests immediately following are detailed below. EPS GROWTH FOR CURRENT QUARTER MUST BE GREATER THAN PRIOR 3 QUARTERS: [PASS] If the growth rate of the prior three quarter's earnings, 78.95%, (versus the same three quarters a year earlier) is greater than the growth rate of the current quarter earnings, 44.44%, (versus the same quarter one year ago) then the stock fails, with one exception: if the growth rate in earnings between the current quarter and the same quarter one year ago is greater than 30%, then the stock would pass. The growth rate over this period for VIT is 44.4%, and it would therefore pass this test. EPS GROWTH FOR CURRENT QUARTER MUST BE GREATER THAN THE HISTORICAL GROWTH RATE: [PASS] The EPS growth rate for the current quarter, 44.44% must be greater than or equal to the historical growth which is 34.29%. VIT would therefore pass this test. EARNINGS PERSISTENCE: [FAIL] Companies must show persistent yearly earnings growth. To fulfill this requirement a company's earnings must increase each year for a five year period. VIT, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were 0.05, 0.13, 0.07, 0.19, and 0.40, fails this test. LONG-TERM EPS GROWTH: [PASS] One final earnings test required is that the long-term earnings growth rate must be at least 15% per year. VIT's long-term growth rate of 34.29%, 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. VIT's Debt/Equity (0.00%) is not considered high relative to its industry (22.50%) 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 VIT, 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.   TOWER GROUP, INC. Profile Strategy: Growth/Value Investor Based on: James P. O'Shaughnessy Tower Group, Inc. (Tower), through its subsidiaries, is engaged in offering a range of specialized property and casualty insurance products and services to businesses and to individuals primarily in the Northeast, Florida, Texas and California. The Company provide coverage for many different market segments, including nonstandard risks that do not fit the underwriting criteria of standard risk carriers due to factors, such as type of business, location and premium per policy. It provides on both an admitted and excess and surplus lines basis, commercial lines products comprised of commercial package, general liability, workers' compensation, commercial auto and commercial umbrella policies to businesses such as residential and commercial buildings, retail and wholesale stores, food service and restaurants, artisan contractors and garage automotive services. The Company also provide personal lines products that insure homes and dwellings, as well as personal automobiles. 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. TWGP, with a market cap of $1,022 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. TWGP, whose annual EPS before extraordinary items for the last 5 years (from earliest to the most recent fiscal year) were 0.47, 1.03, 1.81, 1.93 and 2.47, 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. TWGP's Price/Sales ratio of 1.42, 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. TWGP, whose relative strength is 81, is in the top 50 and would pass this last criterion.   STURM, RUGER & COMPANY Profile Strategy: Growth Investor Based on: Martin Zweig Sturm, Ruger & Company, Inc. is principally engaged in the design, manufacture and sale of firearms to domestic customers. The Company's design and manufacturing operations are located in the United States and substantially all product content is domestic. The Company offers products in four industry product categories: rifles, shotguns, pistols and revolvers. Its firearms are sold through a select number of independent wholesale distributors, principally to the commercial sporting market. The Company manufactures and sells investment castings made from steel alloys for both outside customers and internal use in the firearms segment. Approximately 96% of the Company's total sales for the year ended December 31, 2008, were from the firearms segment, and approximately 4% were from investment castings. 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. RGR's P/E is 12.41, based on trailing 12 month earnings, while the current market PE is 18.00. Therefore, it passes the first test. REVENUE GROWTH IN RELATION TO EPS GROWTH: [FAIL] Revenue Growth must not be substantially less than earnings growth. For earnings to continue to grow over time they must be supported by a comparable or better sales growth rate and not just by cost cutting or other non-sales measures. RGR's revenue growth is 5.08%, while it's earnings growth rate is 54.61%, based on the average of the 3, 4 and 5 year historical eps growth rates. Therefore, RGR fails this criterion. SALES GROWTH RATE: [PASS] Another important issue regarding sales growth is that the rate of quarterly sales growth is rising. To evaluate this, the change from this quarter last year to the present quarter (87.2%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (49.4%) of the current year. Sales growth for the prior must be greater than the latter. For RGR 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. RGR's EPS ($0.45) pass this test. QUARTERLY EARNINGS ONE YEAR AGO: [PASS] The EPS for the quarter one year ago must be positive. RGR's EPS for this quarter last year ($0.05) 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. RGR's growth rate of 800.00% passes this test. EARNINGS GROWTH RATE FOR THE PAST SEVERAL QUARTERS: [PASS] Compare the earnings growth rate of the previous three quarters with long-term EPS growth rate. Earnings growth in the previous 3 quarters should be at least half of the long-term EPS growth rate. Half of the long-term EPS growth rate for RGR is 27.30%. This should be less than the growth rates for the 3 previous quarters, which are 166.67%, 380.00%, and 328.57%. RGR passes this test, which means that it has good, reasonably steady earnings. This strategy looks at the rate which earnings grow and evaluates this rate of growth from different angles. The 4 tests immediately following are detailed below. EPS GROWTH FOR CURRENT QUARTER MUST BE GREATER THAN PRIOR 3 QUARTERS: [PASS] If the growth rate of the prior three quarter's earnings, 1,100.00%, (versus the same three quarters a year earlier) is greater than the growth rate of the current quarter earnings, 800.00%, (versus the same quarter one year ago) then the stock fails, with one exception: if the growth rate in earnings between the current quarter and the same quarter one year ago is greater than 30%, then the stock would pass. The growth rate over this period for RGR is 800.0%, and it would therefore pass this test. EPS GROWTH FOR CURRENT QUARTER MUST BE GREATER THAN THE HISTORICAL GROWTH RATE: [PASS] The EPS growth rate for the current quarter, 800.00% must be greater than or equal to the historical growth which is 54.61%. RGR would therefore pass this test. EARNINGS PERSISTENCE: [FAIL] Companies must show persistent yearly earnings growth. To fulfill this requirement a company's earnings must increase each year for a five year period. RGR, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were 0.18, 0.03, 0.04, 0.46, and 0.43, fails this test. LONG-TERM EPS GROWTH: [PASS] One final earnings test required is that the long-term earnings growth rate must be at least 15% per year. RGR's long-term growth rate of 54.61%, 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. RGR's Debt/Equity (0.00%) is not considered high relative to its industry (88.10%) 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 RGR, this criterion has not been met (insider sell transactions are 1, while insiders buying number 1). Despite the lack of an insider buy signal, there also is not an insider sell signal, so the stock passes this criterion.   AEROPOSTALE, INC. Profile Strategy: Growth/Value Investor Based on: James P. O'Shaughnessy 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: 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. ARO, with a market cap of $2,950 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. ARO, whose annual EPS before extraordinary items for the last 5 years (from earliest to the most recent fiscal year) were 0.98, 1.00, 1.32, 1.73 and 2.21, 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. ARO's Price/Sales ratio of 1.45, 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. ARO, whose relative strength is 85, is in the top 50 and would pass this last criterion.   FRONTIER OIL CORPORATION Profile Strategy: P/E/Growth Investor Based on: Peter Lynch Frontier Oil Corporation (Frontier) is an independent energy company engaged in crude oil refining and the wholesale marketing of refined petroleum products. The Company operates refineries (the Refineries) in Cheyenne, Wyoming and El Dorado, Kansas with a total annual average crude oil capacity of approximately 182,000 barrels per day (bpd). Frontier's Cheyenne Refinery has a permitted crude oil capacity of 52,000 bpd on a 12-month average. The Company markets its refined products primarily in the eastern slope of the Rocky Mountain region, which encompasses eastern Colorado (including the Denver metropolitan area), eastern Wyoming and western Nebraska (the Eastern Slope). The Cheyenne Refinery has a coking unit, which allows the refinery to process amounts of heavy crude oil for use as a feedstock. During the year ended December 31, 2008, heavy crude oil constituted approximately 76% of the Cheyenne Refinery's total crude oil charge. Analysis Guru Score: 91% DETERMINE THE CLASSIFICATION: This methodology would consider FTO a "fast-grower". P/E/GROWTH RATIO: [PASS] The investor should examine the P/E (15.55) relative to the growth rate (25.91%), 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 FTO (0.60) 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. FTO, whose sales are $5,494.5 million, needs to have a P/E below 40 to pass this criterion. FTO's P/E of (15.55) 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 FTO was 9.67% last year, while for this year it is 3.94%. Since inventory to sales has decreased from last year by -5.73%, FTO 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 FTO is 25.9%, 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 FTO (30.04%) 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 FTO (4.28%) is too low to add to the attractiveness of the stock. Keep in mind, however, that it does not adversely affect the company as it is a bonus criteria. NET CASH POSITION: [NEUTRAL] Another bonus for a company is having a Net Cash/Price ratio above 30%. Lynch defines net cash as cash and marketable securities minus long term debt. According to this methodology, a high value for this ratio dramatically cuts down on the risk of the security. The Net Cash/Price ratio for FTO (9.29%) 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.   JOS. A. BANK CLOTHIERS, INC. Profile Strategy: P/E/Growth Investor Based on: Peter Lynch Jos. A. Bank Clothiers, Inc. (Jos. A. Bank) is a designer, retailer and direct marketer (through stores, catalog and Internet) of men's tailored and casual clothing and accessories. It sells all of its products exclusively under the Jos. A. Bank label through its 460 retail stores (as of January 31, 2009, which includes seven outlet stores and 12 franchise stores) located throughout 42 states and the District of Columbia in the United States, as well as through the Company's nationwide catalog and Internet (www.josbank.com) operations. Its products are targeted at the male career professional and emphasize the Jos. A. Bank brand of tailored and casual clothing and accessories. The Company's products, which range from the original Jos. A. Bank Executive collection to the more luxurious Jos. A. Bank Signature collection to the exclusive Jos. A. Bank Signature Gold collection. Jos. A. Bank operates through two segments: Stores and Direct Marketing. Analysis Guru Score: 91% DETERMINE THE CLASSIFICATION: This methodology would consider JOSB a "fast-grower". P/E/GROWTH RATIO: [PASS] The investor should examine the P/E (13.60) relative to the growth rate (22.61%), 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 JOSB (0.60) 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. JOSB, whose sales are $727.4 million, is not considered large enough to apply the P/E ratio analysis. However, an investor can analyze the P/E ratio relative to the EPS growth rate. EPS GROWTH RATE: [PASS] This methodology favors companies that have several years of fast earnings growth, as these companies have a proven formula for growth that in many cases can continue many more years. This methodology likes to see earnings growth in the range of 20% to 50%, as earnings growth over 50% may be unsustainable. The EPS growth rate for JOSB is 22.6%, based on the average of the 3, 4 and 5 year historical eps growth rates, which is considered very good. TOTAL DEBT/EQUITY RATIO: [PASS] This methodology would consider the Debt/Equity ratio for JOSB (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 JOSB (4.44%) 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 JOSB (13.81%) 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.   CAPELLA EDUCATION COMPANY Profile Strategy: Growth Investor Based on: Martin Zweig Capella Education Company, is an online postsecondary education services company. Through its wholly owned subsidiary, Capella University (the University), the Company offers a variety of bachelor's, master's and doctoral degree programs primarily delivered to working adults. At December 31, 2008, Capella Education Company offered over 1,020 online courses and 22 academic programs with 111 specializations to approximately 26,800 learners. The Company also offers certificate programs, which consist of a series of courses focused on a particular area of study. In addition, Capella Education Company offers academic services, such as advising, writing and research services; administrative services, such as online class registration and transcript requests; library services; financial aid counseling and career counseling services. Analysis Guru Score: 92% 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. CPLA's P/E is 30.10, based on trailing 12 month earnings, while the current market PE is 18.00. 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. CPLA's revenue growth is 24.16%, while it's earnings growth rate is 19.48%, based on the average of the 3, 4 and 5 year historical eps growth rates. Therefore, CPLA 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 (21.3%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (17.1%) of the current year. Sales growth for the prior must be greater than the latter. For CPLA 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. CPLA's EPS ($0.56) pass this test. QUARTERLY EARNINGS ONE YEAR AGO: [PASS] The EPS for the quarter one year ago must be positive. CPLA's EPS for this quarter last year ($0.37) 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. CPLA's growth rate of 51.35% passes this test. EARNINGS GROWTH RATE FOR THE PAST SEVERAL QUARTERS: [PASS] Compare the earnings growth rate of the previous three quarters with long-term EPS growth rate. Earnings growth in the previous 3 quarters should be at least half of the long-term EPS growth rate. Half of the long-term EPS growth rate for CPLA is 9.74%. This should be less than the growth rates for the 3 previous quarters, which are 17.24%, 29.41%, and 58.06%. CPLA passes this test, which means that it has good, reasonably steady earnings. This strategy looks at the rate which earnings grow and evaluates this rate of growth from different angles. The 4 tests immediately following are detailed below. EPS GROWTH FOR CURRENT QUARTER MUST BE GREATER THAN PRIOR 3 QUARTERS: [PASS] If the growth rate of the prior three quarter's earnings, 34.23%, (versus the same three quarters a year earlier) is less than the growth rate of the current quarter earnings, 51.35%, (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, 51.35% must be greater than or equal to the historical growth which is 19.48%. CPLA would therefore pass this test. EARNINGS PERSISTENCE: [FAIL] Companies must show persistent yearly earnings growth. To fulfill this requirement a company's earnings must increase each year for a five year period. CPLA, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were 1.62, 0.86, 1.06, 1.33, and 1.66, fails this test. LONG-TERM EPS GROWTH: [PASS] One final earnings test required is that the long-term earnings growth rate must be at least 15% per year. CPLA's long-term growth rate of 19.48%, 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. CPLA's Debt/Equity (0.00%) is not considered high relative to its industry (8.98%) 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 CPLA, this criterion has not been met (insider sell transactions are 16, while insiders buying number 1). Despite the fact that insider sells out number insider buys for this company, Zweig considers even one insider buy transaction enough to prevent an insider sell signal, therefore there is not an insider sell signal and the stock passes this criterion.   GENERAL DYNAMICS CORPORATION Profile Strategy: P/E/Growth Investor Based on: Peter Lynch General Dynamics Corporation (General Dynamics) offers a portfolio of products and services in business aviation; combat vehicles, weapons systems and munitions; shipbuilding design and construction, and information systems, technologies and services. The Company focuses on delivering products and services to military, federal government, commercial and international customers. General Dynamics operates through four business groups: Aerospace, Combat Systems, Marine Systems, and Information Systems and Technology. On December 19, 2008, the Company acquired AxleTech International, a manufacturer and supplier of axles, suspensions, brakes and aftermarket parts for heavy-payload vehicles for a variety of military and commercial customers. On November 5, 2008, it acquired Jet Aviation of Zurich, Switzerland. On July 22, 2008, it acquired ViPS, Inc. In September 2009, General Dynamics Advanced Information Systems, a business unit of General Dynamics, acquired Axsys Technologies, Inc. Analysis Guru Score: 91% DETERMINE THE CLASSIFICATION: This methodology would consider GD a "fast-grower". P/E/GROWTH RATIO: [PASS] The investor should examine the P/E (10.16) relative to the growth rate (20.21%), 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 GD (0.50) 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. GD, whose sales are $31,356.0 million, needs to have a P/E below 40 to pass this criterion. GD's P/E of (10.16) 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 GD was 21.87% last year, while for this year it is 21.74%. Since inventory to sales has decreased from last year by -0.13%, GD 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 GD is 20.2%, based on the average of the 3, 4 and 5 year historical eps growth rates, which is considered very good. TOTAL DEBT/EQUITY RATIO: [PASS] This methodology would consider the Debt/Equity ratio for GD (35.59%) 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 GD (8.12%) 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 GD (-8.98%) 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 MELI MERCADOLIBRE, INC. Computer Services 65 BRP BRASIL TELECOM PARTICIPACOES SA (ADR) Communications Services 64 ORH ODYSSEY RE HOLDINGS CORP. Insurance (Prop. & Casualty) 53 YZC YANZHOU COAL MINING CO. (ADR) Coal 49 AGNC AMERICAN CAPITAL AGENCY CORP. Real Estate Operations 49 HUM HUMANA INC. Insurance (Accident & Health) 49 GYMB THE GYMBOREE CORPORATION Retail (Apparel) 47 ESV ENSCO INTERNATIONAL INCORPORATED Oil Well Services & Equipment 46 FUQI FUQI INTERNATIONAL, INC. Jewelry & Silverware 46 TDW TIDEWATER INC. Water Transportation 46

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