Executive Summary  |   Portfolio  |   Guru Analysis  |   Watch List

Executive Summary	April 15, 2011

The Economy Rising fuel prices and the aftermath of the tragedy in Japan have dampened confidence, but they don't seem to have made a big impact on the U.S. economy, with activity continuing to expand across several sectors and the unemployment rate continuing to edge downward. Since our last newsletter, the Institute for Supply Management reported that the manufacturing sector expanded in March for the 20th straight month despite all of the concerns about the Middle East and Japan. The rate of expansion was down fractionally from February, but still faster than any other month since May 2004. The non-manufacturing (or service) sector also expanded again in March for the 16th consecutive month, according to ISM. That growth was reflected in the strong jobs data for March. The private sector added 230,000 jobs during the month, the Labor Department reported, with 199,000 coming from the service sector. With employers stepping up their hiring -- in February, businesses posted the largest number of job openings since September 2008, other Labor Department data showed -- unemployment continues to edge lower, with the jobless rate falling from 8.9% to 8.8% in March. The rate has now declined in four straight months, falling a full percentage point from its November 2010 level. The broader, so-called "U-6" measure of unemployment (which, unlike the headline number, includes those who have given up looking for a job) also fell again in March. At 15.7%, it's now at its lowest point in two years, though still significantly higher than pre-recession levels. With more Americans employed, consumer spending also keeps rising. Retail and food service sales rose 0.4% in March, according to the Commerce Department, the ninth straight month they've increased. The figure is 7.1% above its year-ago level, and 16% above the December 2008 recessionary low. Overseas, things have continued to be more eventful than they've been at home. The ongoing turmoil in Libya has kept oil prices volatile, as they briefly climbed above $110 a barrel recently before dropping back down. Gas prices remain quite elevated, though reports this week that gas prices for the summer "will jump 40% " were misleading. Yes, the Energy Information Administration is expecting prices to be $3.86 on average in the U.S. for the April-September period, which is 40% above last summer's prices. But most of those gains have already occurred -- per-gallon gas prices averaged $3.79 as of April 11, according to the EIA. And in March, when consumers were still increasing their spending, prices were between $3.50 and $3.60 a gallon. That's not to say that rising gas prices aren't a threat to the economic recovery; just realize that the EIA is not forecasting a 40% increase on current gas prices this summer. The Japan situation also continues to weigh on markets. The Japanese government this week raised its assessment of the severity of the nuclear problems, which is of course something that bears watching. It's still far too early to gauge what the overall damage to the country and its economy will be. Also impacting the market have been interest rate hikes in Europe and in China. The Chinese government increased rates for the second time this year last week, and officials said it will likely make two more rate hikes in the second quarter. In Europe, meanwhile, where inflation has been climbing, the European Central Bank starting increasing rates this week. The latest U.S. inflation report is due out today, and it will be interesting to see if core inflation begins to accelerate. Food and gasoline prices have surged in recent months (though food prices finally declined in March for the first time since last June, according to the United Nations' Food and Agriculture Organization), but core inflation has remained moderate. Overall for the fortnight, the S&P returned -0.9%, while the Hot List returned 3.3%. For the year, the portfolio stands at 9.8% vs. 4.5% for the S&P. Since its inception in July 2003, the Hot List is far outpacing the index, having gained 196.4% vs. the S&P's 31.4% gain. Stocks: Cheap, or Pricey? If you're a regular Hot List reader, you know that the Guru Strategies that drive the Hot List portfolio tend to have a distinct value bias. Whether it's deep value strategies like my Benjamin Graham- and Warren Buffett-inspired models, or growth-oriented strategies that include key value components (like my Peter Lynch- or James O'Shaughnessy-based approaches), these methods put a major emphasis on the price you're paying for a stock. The issue of value is one that's gotten quite a bit of attention lately, particularly when it comes to the broader market's overall valuation. As an asset class, are stocks cheap, or are they pricey? That's the question on many investors' minds, and, depending on whom you ask, you'll get some wildly divergent opinions. Those on the "pricey" side of the debate include top value strategist Jeremy Grantham and Yale economist and noted bubble-spotter Robert Shiller. In January, with the S&P 500 trading fairly close to its current level, Grantham said that the index was about 40% overvalued. While I don't believe Grantham has divulged the exact details of his fair-market calculation, one valuation metric he relies heavily on, according to a 2010 article in Advisor Perspectives, is one that has been popularized by Shiller (though it was actually pioneered by the late, great Benjamin Graham, one of the gurus upon whom I base my models). The variable goes by a number of different names -- the Shiller P/E, the 10-year P/E, the CAPE (Cyclically Adjusted P/E) -- but essentially it compares the S&P's price to its average earnings over the past ten years, with some adjustments for inflation. The theory: Comparing price to earnings for the past ten years smoothes out anomalous one-year earnings results that pop up in any given year. Shiller's latest calculations (which are available on his Yale web page) show that, as of the beginning of April, the 10-year P/E for the S&P was 23.47 -- some 45% or so above the long-term average of 16. Others point to different numbers that paint a strikingly different picture. Wharton professor and author Jeremy Siegel, for example, said not long ago that stocks were still historically cheap. Based on 2011 earnings projections, he said, the S&P 500 was trading about 13% below where it would be with a modest 15 P/E multiple, according to Reuters. What's more, Siegel said that one must take interest rates into account when determining the market's value. During lower-interest-rate periods (when stocks have less competition from fixed-income assets), investors are willing to pay more for stocks -- he said that historically, if you exclude periods in which rates were above 8%, the average P/E for stocks is 19. That would mean the market was about 43% below average valuation. Siegel and others say that, while looking at one year of earnings can be misleading, looking at 10 years' worth of earnings can also be misleading. In a recent New York Times article that looked at the Shiller P/E, Siegel said that keeping earnings from the financial crisis -- a "once-in-a-75-year event" -- in the assessment of the market's 10-year P/E "doesn't seem to be realistic." So, two of the market's top minds offer staggeringly different views that stocks are either 45% overvalued, or 43% undervalued -- and we're only talking about earnings-related valuation metrics. There are, of course, other metrics, like the price/sales and price/book ratios, that can provide other takes on the market's valuation. Right now, according to Morningstar, the S&P 500's components on average are trading for 1.3 times sales, for example, not bad at all. That's actually below the 1.5 upper limit my James O'Shaughnessy-based model uses when examining individual stocks, and in the "good value" range my Kenneth Fisher-based model uses. The S&P also appears reasonably valued if you use a metric that Peter Lynch used to analyze individual stocks: the P/E/Growth ratio. Using 2010 earnings, the S&P is currently trading for 15.7 times operating earnings, and 17.0 times as-reported earnings. Based on an average of the 3, 4 and 5 year EPS growth rates, the index's earnings grew at a 22% pace. For both operating and as-reported earnings, those figures make for a P/E/G below 1.0, which would be considered attractive by my Lynch-based model. If we use the S&P 500's projected 2011 earnings, the P/E/Gs are also attractive. Using Standard & Poor's operating earnings projection of $96.99 for 2011, we get a P/E/G of 0.86; using S&P's as-reported earnings projection of $97.26, we get a P/E/G of 0.53. Both those figures would come in under the Lynch model's 1.0 target. Of course, you could look at S&P earnings or sales from a variety of other periods to determine a P/E/G or a price/sales ratio -- three-year average earnings or sales, five-year average earnings or sales, etc. And, often, you'll find divergent stories of what the market's valuation is. To me, the bottom line is thus this: When it comes to analyzing the stock market's valuation, there's no one metric that you should always rely on, no silver bullet that will tell you just how cheap or expensive stocks are. Oh, one more thing, just to further muddy the waters: Just because the broader market appears expensive doesn't mean it won't rise. For example, back in the early 1990s, the 10-year P/E climbed above 16 (its current historical average) just four months into a bull market that ended up lasting nearly a full decade. When it crossed that level, the S&P was priced around 372; if you'd sold out of stocks then, and waited to buy back in until the next time the 10-year P/E was below 16, you'd have had to wait until November 2008, when the index was at about 883. That's an annualized gain of about 5% per year that you'd have missed out on by shunning stocks (and certainly more than that if you'd picked good stocks) -- not great, but hardly the disastrous returns you might expect for a period when stocks were usually trading for between 20 and 45 times trailing 10-year earnings. When it comes to individual stocks, there's also no silver valuation bullet. I believe that's part of what makes the Hot List so successful -- by using a dozen different proven strategies, it looks at a myriad of valuation measures, from P/E ratios to price/sales ratios to dividend yield to price/book ratios and beyond. In doing so, it offers a more comprehensive look at a stock's valuation. Take, for example, Hot List newcomer AstraZeneca, which is being added to the portfolio this rebalancing. AstraZeneca trades for just 8.8 times trailing 12-month earnings, 7.1 times projected 12-month earnings, and at a P/E/G ratio of just 0.7. Plus, it's yielding over 6% (remember, dividend yield is a valuation ratio -- it's essentially the inverse of the price/dividend ratio). That's four different metrics, all saying the same thing: AstraZeneca's stock is a bargain. Overall, I think the various valuation measures show that the market remains at least reasonably valued. But more importantly, numerous bargains in individual stocks like AstraZeneca are out there. The Hot List will continue to key on them as we move deeper into what so far has been a solid 2011.		Editor-in-Chief: John Reese Since Inception   Hot List 196.4% S&P 500 31.4% Accuracy 57.0% Beta 1.2 YTD   Hot List 9.8% S&P 500 4.5% Since Last Issue   Hot List 3.3% S&P 500 -0.9% Avg. Fundamentals   Market Cap (mil) $18,001 PE Ratio 36.9 5 Yr EPS Growth 23.5% Yield 5.0% Rel. Strength 53 Portfolio Sectors Services 4 Technology 2 Healthcare 2 Consumer Cyclical 1 Consumer/Non-Cyclical 1
Advertisement Validea Capital Management - Private Portfolio Management Based on Strategies of Legends Are you looking for an alternative to your underperforming mutual funds or financial advisor? Click here to download Validea Capital's investment kit and learn more about the firm's guru-based portfolios. Get More Information on Validea Capital! ** Validea Capital Management is a separate investment advisory firm managed by Validea.com founder John Reese. Thre information above in not intended as personal investment advice and should not be interpreted as such. The Fallen As we rebalance the Validea Hot List, 2 stocks leave our portfolio. These include: Western Digital Corp. (WDC) and Tractor Supply Company (TSCO). The Keepers 8 stocks remain in the portfolio. They are: Pre-paid Legal Services, Inc. (PPD), Skechers Usa, Inc. (SKX), Aeropostale, Inc. (ARO), Sanofi-aventis Sa (Adr) (SNY), Gamestop Corp. (GME), Acme Packet, Inc. (APKT), Bridgepoint Education, Inc. (BPI) and Opentable Inc (OPEN). The Newbies We are adding 2 stocks to the portfolio. These include: Astrazeneca Plc (Adr) (AZN) and Zhongpin Inc. (HOGS). Portfolio Changes Additions   ASTRAZENECA PLC (ADR) AZN ZHONGPIN INC. HOGS Deletions   WESTERN DIGITAL CORP. WDC TRACTOR SUPPLY COMPANY TSCO Newcomers to the Validea Hot List AstraZeneca PLC (AZN): Based in London, AstraZeneca is one of the world's largest drugmakers. The $68-billion-market-cap firm is active in more than 100 countries, and makes a variety of well-known medications, including Crestor, Symbicort, and Nexium. AstraZeneca gets strong interest from my Peter Lynch-, Warren Buffett-, and James O'Shaughnessy-based models. See the "Detailed Stock Analysis" section below to learn more about the stock. Zhongpin Inc. (HOGS): This China-based meat and food processing firm is a small-cap ($528 million), but it has taken in close to a billion dollars in sales over the past year. It specializes in pork and pork products, and vegetable and fruits. Zhongpin gets strong interest from my Peter Lynch- and James O'Shaughnessy-based models. Scroll down to the "Detailed Stock Analysis" section to learn more about the stock. News about Validea Hot List Stocks OpenTable Inc. (OPEN): The restaurant reservation upstart has kept up its strong momentum since joining the portfolio last month. It's up about 19% in that brief period. Sanofi-Aventis (SNY): Sanofi said it has completed its takeover of biotechnology firm Genzyme Corp., a deal worth about $20.1 billion, Reuters reports. The acquisition gives Sanofi access to Genzyme's business of treating rare diseases, and is expected to help the company combat sales erosion from drugs facing cheap generic competition. Sanofi is using the proceeds of its $7 billion notes offering, about $7 billion raised through its U.S. commercial paper program, a drawing of $4 billion on a bridge facility and available cash to finance the deal, according to Reuters. The Next Issue In two weeks, we will publish another issue of the Hot List, at which time we will take a closer look at my strategies and investment approach. If you have any questions, please feel free to contact us at hotlist@validea.com.

Current Portfolio Ticker Company Name Industry Guru Score ARO AEROPOSTALE, INC. Retail (Apparel) 100 BPI BRIDGEPOINT EDUCATION, INC. Schools 83 HOGS ZHONGPIN INC. Food Processing 70 AZN ASTRAZENECA PLC (ADR) Biotechnology & Drugs 70 APKT ACME PACKET, INC. Communications Equipment 69 PPD PRE-PAID LEGAL SERVICES, INC. Personal Services 64 OPEN OPENTABLE INC Software & Programming 63 SNY SANOFI-AVENTIS SA (ADR) Biotechnology & Drugs 58 GME GAMESTOP CORP. Retail (Technology) 57 SKX SKECHERS USA, INC. Footwear 56 Ticker Market Cap Date Added Start Price Return ARO $2,111 11/26/2010 $26.90 $25.81 -4.1% BPI $889 3/18/2011 $18.02 $16.87 -6.4% HOGS $502 4/15/2011 TBD $14.21 TBD AZN $67,150 4/15/2011 TBD $49.00 TBD APKT $4,791 2/18/2011 $72.92 $72.83 -0.1% PPD $645 3/18/2011 $65.78 $66.03 0.4% OPEN $2,458 3/18/2011 $90.02 $104.74 16.4% SNY $96,913 3/18/2011 $33.37 $37.23 11.6% GME $3,575 9/3/2010 $19.01 $25.41 33.7% SKX $977 3/18/2011 $18.46 $20.27 9.8%

Detailed Stock Analysis Disclaimer: The analysis is from Validea's selection and interpretation of content from the guru's book or published writings, and is not from nor endorsed by the guru. See Full Disclaimer ARO   |   BPI   |   HOGS   |   AZN   |   APKT   |   PPD   |   OPEN   |   SNY   |   GME   |   SKX   |   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 Aropostale merchandise through its e-commerce Website, www.aeropostale.com. During the fiscal year ended January 30, 2010 (fiscal 2009), the Company launched P.S. from Aeropostale, which offers casual clothing and accessories focused on elementary school children between the ages of 7 and 12. During fiscal 2009, the Company completed the closure of its 14 store Jimmy'Z concept. Jimmy'Z Surf Co., Inc., a wholly owned subsidiary of Aeropostale, Inc., was a contemporary lifestyle brand targeting young women and men aged 18 to 25. Analysis Guru Score: 93% DETERMINE THE CLASSIFICATION: This methodology would consider ARO a "fast-grower". P/E/GROWTH RATIO: [PASS] The investor should examine the P/E (10.26) relative to the growth rate (29.59%), 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 (0.35) 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 $2,400.4 million, needs to have a P/E below 40 to pass this criterion. ARO's P/E of (10.26) 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 29.6%, 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 (6.82%) 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 (11.56%) 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.   BRIDGEPOINT EDUCATION, INC. Profile Strategy: Growth Investor Based on: Martin Zweig Bridgepoint Education, Inc. (Bridgepoint) is a accredited provider of postsecondary education services. The Company offers associate's, bachelor's, master's and doctoral programs in the disciplines of business, education, psychology, social sciences and health sciences. It delivers its programs online, as well as at its traditional campuses located in Clinton, Iowa, and Colorado Springs, Colorado. As of December 31, 2009, it offered approximately 1,150 courses, 60 degree programs and 125 specializations and concentrations. As of December 31, 2009, it had 53,688 students enrolled in its institutions, 99% of whom were attending classes online. 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. BPI's P/E is 7.90, based on trailing 12 month earnings, while the current market PE is 15.00. Therefore, it passes the first test. REVENUE GROWTH IN RELATION TO EPS GROWTH: [PASS] Revenue Growth must not be substantially less than earnings growth. For earnings to continue to grow over time they must be supported by a comparable or better sales growth rate and not just by cost cutting or other non-sales measures. BPI's revenue growth is 112.33%, while it's earnings growth rate is 26.56%, based on the average of the 3 and 4 year historical eps growth rates using the current fiscal year eps estimate. Therefore, BPI 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 (46%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (49.9%) of the current year. Sales growth for the prior must be greater than the latter. For BPI 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. BPI's EPS ($0.45) pass this test. QUARTERLY EARNINGS ONE YEAR AGO: [PASS] The EPS for the quarter one year ago must be positive. BPI's EPS for this quarter last year ($0.33) 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. BPI's growth rate of 36.36% 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 BPI is 13.28%. This should be less than the growth rates for the 3 previous quarters, which are 19.51%, 2,800.00%, and 64.86%. BPI 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, 110.00%, (versus the same three quarters a year earlier) is greater than the growth rate of the current quarter earnings, 36.36%, (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 BPI is 36.4%, 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, 36.36% must be greater than or equal to the historical growth which is 26.56%. BPI 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. BPI, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were -2.15, 0.32, 3.15, 1.03, and 2.14, 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. BPI's long-term growth rate of 26.56%, based on the average of the 3 and 4 year historical eps growth rates using the current fiscal year eps estimate, 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. BPI's Debt/Equity (0.00%) is not considered high relative to its industry (26.65%) 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 BPI, this criterion has not been met (insider sell transactions are 51, while insiders buying number 48). 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.   ZHONGPIN INC. Profile Strategy: P/E/Growth Investor Based on: Peter Lynch Zhongpin Inc. is principally engaged in the meat and food processing and distribution business in the People's Republic of China (the PRC). At December 31, 2009, the Company's product line included 358 meat products, including chilled pork, frozen pork and prepared meats, and 34 vegetable and fruit products, that are sold on a wholesale basis and on a retail basis through an exclusive network of showcase stores, network stores and supermarket counters. Its eight processing plants are located in Henan, Jilin and Sichuan provinces and in Tianjin in the PRC, have an aggregate processing capacity of approximately 1,504.9 metric tons per day or approximately 541,760 metric tons on an annual basis for chilled and frozen pork. Its three prepared pork products facilities are located in Henan province. Its one vegetable and fruits processing plant is located in Henan province. All of its products are sold under the Zhongpin brand name. Analysis Guru Score: 93% DETERMINE THE CLASSIFICATION: This methodology would consider HOGS a "fast-grower". P/E/GROWTH RATIO: [PASS] The investor should examine the P/E (8.60) relative to the growth rate (41.14%), 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 HOGS (0.21) is very favorable. SALES AND P/E RATIO: [NEUTRAL] For companies with sales greater than $1 billion, this methodology likes to see that the P/E ratio remain below 40. Large companies can have a difficult time maintaining a growth rate high enough to support a P/E above this threshold. HOGS, whose sales are $946.7 million, is not considered large enough to apply the P/E ratio analysis. However, an investor can analyze the P/E ratio relative to the EPS growth rate. INVENTORY TO SALES: [PASS] When inventories increase faster than sales, it is a red flag. However an increase of up to 5% is considered bearable if all other ratios appear attractive. Inventory to sales for HOGS was 4.66% last year, while for this year it is 2.80%. Since inventory to sales has decreased from last year by -1.86%, HOGS 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 HOGS is 41.1%, 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 HOGS (59.66%) to be mediocre. If the Debt/Equity ratio is this high, the other ratios and financial statistics for HOGS should be good enough to compensate. FREE CASH FLOW: [NEUTRAL] The Free Cash Flow/Price ratio, though not a requirement, is considered a bonus if it is above 35%. A positive Cash Flow (the higher the better) separates a wonderfully reliable investment from a shaky one. This methodology prefers not to invest in companies that rely heavily on capital spending. This ratio for HOGS (-5.84%) 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 HOGS (-0.90%) 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.   ASTRAZENECA PLC (ADR) Profile Strategy: Growth/Value Investor Based on: James P. O'Shaughnessy AstraZeneca PLC (AstraZeneca) is a biopharmaceutical company. The Company focuses on the discovery, development and commercialization of prescription medicines for six areas of healthcare. Its six areas of healthcare includes cardiovascular, gastrointestinal, infection, neuroscience, oncology, and respiratory and inflammation. The Company's products include Crestor, Nexium, Synagis, Seroquel, Arimidex and Symbicort. The Company owns and operates a range of research and development (R&D), production and marketing facilities worldwide. Analysis Guru Score: 100% MARKET CAP: [PASS] The Cornerstone Value Strategy looks for large, well known companies whose market cap is greater than $1 billion. These companies exhibit solid and stable earnings. AZN's market cap of $67,150 million passes this test. CASH FLOW PER SHARE: [PASS] The second criterion requires that the company exhibit strong cash flows. Companies with strong cash flow are typically the value oriented investments that this strategy looks for. The company's cash flow per share must be greater than the mean of the market cash flow per share ($1.23). AZN's cash flow per share of $7.90 passes this test. SHARES OUTSTANDING: [PASS] This particular strategy looks for companies whose total number of outstanding shares are in excess of the market average (665 million shares). These are the more well known and highly traded companies. AZN, who has 1,430 million shares outstanding, passes this test. TRAILING 12 MONTH SALES: [PASS] A company's trailing 12 month sales ($33,269 million) are required to be 1.5 times greater than the mean of the market's trailing 12 month sales ($18,244 million). AZN passes this test. DIVIDEND: [PASS] The final step in the Cornerstone Value strategy is to select the 50 companies from the market leaders group (those that have passed the previous four criteria) that have the highest dividend yield. AZN, with a dividend yield of 6.12%, is one of the 50 companies that satisfy this last criterion.   ACME PACKET, INC. Profile Strategy: Growth Investor Based on: Martin Zweig Acme Packet, Inc., incorporated on August 3, 2000, provides session border controllers (SBCs) that enable service providers, enterprises, government agencies and contact centers to deliver interactive communications, such as voice, video and other real-time multimedia sessions, across Internet protocol (IP) network borders. The Company's Net-Net product supports a range of communications applications at multiple network border points and also supports service architectures, such as IP Multimedia Subsystem (IMS). The Company's Net-Net family of products consists of the Net-Net OS software platform, the 2600, 3800, 4250, 4500 and 9200 platforms; 4500 Advanced Telecommunications Computing Architecture blade (ATCA blade); and Element Management System (EMS), Session Analysis System (SAS), and Route Manager Central (RMC), management applications. On April 30, 2009, the Company acquired Covergence Inc. Analysis Guru Score: 85% P/E RATIO: [FAIL] The P/E of a company must be greater than 5 to eliminate weak companies, not more than 3 times the current Market P/E because the situation is much too risky, and never greater than 43. APKT's P/E is 114.69, based on trailing 12 month earnings, while the current market P/E is 15.00. Therefore, it fails the first test. REVENUE GROWTH IN RELATION TO EPS GROWTH: [PASS] Revenue Growth must not be substantially less than earnings growth. For earnings to continue to grow over time they must be supported by a comparable or better sales growth rate and not just by cost cutting or other non-sales measures. APKT's revenue growth is 27.71%, while it's earnings growth rate is 16.85%, based on the average of the 3 and 4 year historical eps growth rates. Therefore, APKT passes this criterion. SALES GROWTH RATE: [PASS] Another important issue regarding sales growth is that the rate of quarterly sales growth is rising. To evaluate this, the change from this quarter last year to the present quarter (70.2%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (55.7%) of the current year. Sales growth for the prior must be greater than the latter. For APKT this criterion has been met. The earnings numbers of a company should be examined from various different angles. Three of these angles are stability in the trend of earnings, earnings persistence, and earnings acceleration. To evaluate stability, the stock has to pass the following four criteria. CURRENT QUARTER EARNINGS: [PASS] The first of these criteria is that the current EPS be positive. APKT's EPS ($0.21) pass this test. QUARTERLY EARNINGS ONE YEAR AGO: [PASS] The EPS for the quarter one year ago must be positive. APKT's EPS for this quarter last year ($0.14) pass this test. POSITIVE EARNINGS GROWTH RATE FOR CURRENT QUARTER: [PASS] The growth rate of the current quarter's earnings compared to the same quarter a year ago must also be positive. APKT's growth rate of 50.00% passes this test. EARNINGS GROWTH RATE FOR THE PAST SEVERAL QUARTERS: [PASS] Compare the earnings growth rate of the previous three quarters with long-term EPS growth rate. Earnings growth in the previous 3 quarters should be at least half of the long-term EPS growth rate. Half of the long-term EPS growth rate for APKT is 8.42%. This should be less than the growth rates for the 3 previous quarters, which are 160.00%, 366.67%, and 150.00%. APKT passes this test, which means that it has good, reasonably steady earnings. This strategy looks at the rate which earnings grow and evaluates this rate of growth from different angles. The 4 tests immediately following are detailed below. EPS GROWTH FOR CURRENT QUARTER MUST BE GREATER THAN PRIOR 3 QUARTERS: [PASS] If the growth rate of the prior three quarter's earnings, 200.00%, (versus the same three quarters a year earlier) is greater than the growth rate of the current quarter earnings, 50.00%, (versus the same quarter one year ago) then the stock fails, with one exception: if the growth rate in earnings between the current quarter and the same quarter one year ago is greater than 30%, then the stock would pass. The growth rate over this period for APKT is 50.0%, and it would therefore pass this test. EPS GROWTH FOR CURRENT QUARTER MUST BE GREATER THAN THE HISTORICAL GROWTH RATE: [PASS] The EPS growth rate for the current quarter, 50.00% must be greater than or equal to the historical growth which is 16.85%. APKT would therefore pass this test. EARNINGS PERSISTENCE: [FAIL] Companies must show persistent yearly earnings growth. To fulfill this requirement a company's earnings must increase each year for a five year period. APKT, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were 0.50, 0.30, 0.18, 0.28, and 0.63, fails this test. LONG-TERM EPS GROWTH: [PASS] One final earnings test required is that the long-term earnings growth rate must be at least 15% per year. APKT's long-term growth rate of 16.85%, based on the average of the 3 and 4 year historical eps growth rates, passes this test. TOTAL DEBT/EQUITY RATIO: [PASS] A final criterion is that a company must not have a high level of debt. A high level of total debt, due to high interest expenses, can have a very negative effect on earnings if business moderately turns down. If a company does have a high level, an investor may want to avoid this stock altogether. APKT's Debt/Equity (0.00%) is not considered high relative to its industry (33.06%) and passes this test. INSIDER TRANSACTIONS: [PASS] A factor that adds to a stock's attractiveness is if insider buy transactions number 3 or more, while insider sell transactions are zero. Zweig calls this an insider buy signal. For APKT, this criterion has not been met (insider sell transactions are 175, while insiders buying number 47). 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.   PRE-PAID LEGAL SERVICES, INC. Profile Strategy: Small-Cap Growth Investor Based on: Motley Fool Pre-Paid Legal Services, Inc. designs, underwrites and markets legal expense plans. The Company's life events legal plans (referred to as Memberships) provide for a range of legal services.The identity theft related benefits include a credit report and related instructional guide, a credit score and related instructional guide, credit report monitoring with daily online and monthly offline notification of any changes in credit information and identity theft restoration services. As of December 31, 2009, the Company had 1,547,585 Memberships in force with members in all 50 states, the District of Columbia and the Canadian provinces of Ontario, British Columbia, Alberta and Manitoba. Approximately 90% of such Memberships were in 29 states and provinces. Analysis Guru Score: 73% PROFIT MARGIN: [PASS] This methodology seeks companies with a minimum trailing 12 month after tax profit margin of 7%. The companies that pass this criterion have strong positions within their respective industries and offer greater shareholder returns. A true test of the quality of a company is that they can sustain this margin. PPD's profit margin of 14.85% passes this test. RELATIVE STRENGTH: [FAIL] The investor must look at the relative strength of the company in question. Companies whose relative strength is 90 or above (that is, the company outperforms 90% or more of the market for the past year), are considered attractive. Companies whose price has been rising much quicker than the market tend to keep rising. Although PPD's relative strength of 89 is below the acceptable level, yet it is very close. Keep an eye on the stock as it could move into the acceptable range. COMPARE SALES AND EPS GROWTH TO THE SAME PERIOD LAST YEAR: [FAIL] Companies must demonstrate both revenue and net income growth of at least 25% as compared to the prior year. These growth rates give you the dynamic companies that you are looking for. These rates for PPD (53.70% for EPS, and -6.30% for Sales) are not good enough to pass. INSIDER HOLDINGS: [FAIL] PPD's insiders ownership is not available at the current time. Insiders of a company should own at least 15% of the outstanding shares. A high percentage typically indicates that the insiders are confident that the company will do well. CASH FLOW FROM OPERATIONS: [PASS] A positive cash flow is typically used for internal expansion, acquisitions, dividend payments, etc. A company that generates rather than consumes cash is in much better shape to fund such activities on their own, rather than needing to borrow funds to do so. PPD's free cash flow of $7.21 per share passes this test. PROFIT MARGIN CONSISTENCY: [PASS] PPD's profit margin has been consistent or even increasing over the past three years (Current year: 14.85%, Last year: 12.03%, Two years ago: 12.95%), passing the requirement. It is a sign of good management and a healthy and competitive enterprise. R&D AS A PERCENTAGE OF SALES: [NEUTRAL] This criterion is not critically important for companies that are not high-tech or medical stocks because they are not as R&D dependant as companies within those sectors. Not much emphasis should be placed on this test in PPD's case. CASH AND CASH EQUIVALENTS: [FAIL] PPD's level of cash and cash equivalents per sales, 11.14 %, does not pass this criteria of roughly 20%(a number we determined to be appropriate based on various examples). PPD will have a more difficult time paying off debt (if it has any) or acquiring other companies than a company that passes this criteria. INVENTORY TO SALES: [PASS] This methodology strongly believes that companies, especially small ones, should have tight control over inventory. It's a warning sign if a company's inventory relative to sales increases significantly when compared to the previous year. Up to a 30% increase is allowed, but no more. Inventory to Sales for PPD was 0.28% last year, while for this year it is 0.26%. Since the inventory to sales has been flat, PPD passes this test. ACCOUNT RECEIVABLE TO SALES: [PASS] This methodology wants to make sure that a company's accounts receivable do not get significantly out of line with sales. It's a warning sign if a company's accounts receivable relative to sales increases significantly when compared to the previous year. Up to a 30% increase is allowed, but no more. Accounts Receivable to Sales for PPD was 1.66% last year, while for this year it is 1.38%. Since the AR to sales is decreasing by -0.28% the stock passes this criterion. LONG TERM DEBT/EQUITY RATIO: [PASS] PPD's trailing twelve-month Debt/Equity ratio (0.94%) is a little higher than what this methodology is looking for, but is still at an acceptable level. The superior companies that you are looking for don't need to borrow money in order to grow. This company has borrowed very little which is still OK. "THE FOOL RATIO" (P/E TO GROWTH): [PASS] The "Fool Ratio" is an extremely important aspect of this analysis. If the company has attractive fundamentals and its Fool Ratio is 0.5 or less (PPD's is 0.47), the shares are looked upon favorably. These high quality companies can often wind up as the biggest winners. PPD passes this test. The following criteria for PPD are less important which means you would place less emphasis on them when making your investment decision using this strategy: AVERAGE SHARES OUTSTANDING: [PASS] PPD has not been significantly increasing the number of shares outstanding within recent years which is a good sign. PPD currently has 10.0 million shares outstanding. This means the company is not taking any measures, with regards to the number of shares, that will dilute or devalue the stock. SALES: [PASS] Companies with sales less than $500 million should be chosen. It is among these small-cap stocks that investors can find "an uncut gem", ones that institutions won't be able to buy yet. PPD's sales of $453.9 million based on trailing 12 month sales, are fine, making this company one such "prospective gem". PPD passes the sales test. DAILY DOLLAR VOLUME: [PASS] PPD passes the Daily Dollar Volume (DDV of $5.2 million) test. It is required that this number be less than $25 million because these are the stocks that remain relatively undiscovered by institutions. "You'll be scoring touchdowns against the big guys on your turf." PRICE: [PASS] This is a very insignificant criterion for this methodology. But basically, low prices are chosen because "small numbers multiply more rapidly than large ones" and the potential for big returns expands. PPD with a price of $66.03 passes the price test, even though it doesn't fall in the preferred range. The price should be above $7 in order to eliminate penny stocks and below $20 since most stocks in this price range are undiscovered by the institutions. INCOME TAX PERCENTAGE: [PASS] PPD's income tax paid expressed as a percentage of pretax income this year was (39.68%) and last year (39.19%) are greater than 20% which is an acceptable level. If the tax rate is below 20% this could mean that the earnings that were reported were unrealistically inflated due to the lower level of income tax paid. This is a concern.   OPENTABLE INC Profile Strategy: Small-Cap Growth Investor Based on: Motley Fool OpenTable, Inc. (OpenTable) provides solution that forms an online network connecting reservation-taking restaurants and people who dine at those restaurants. Its solutions include its Electronic Reservation Book (ERB), for restaurant customers and www.opentable.com, a restaurant reservation Website for diners. The OpenTable network includes approximately 12,000 OpenTable restaurant customers spanning all 50 states, as well as select markets outside of the United States. During the year ended December 31, 2009, the Company seated an average of approximately four million diners per month. Restaurants pays OpenTable an one-time installation fee for onsite installation and training, a monthly subscription fee for the use of its software and hardware and a fee for each restaurant guest seated through online reservations. Analysis Guru Score: 83% PROFIT MARGIN: [PASS] This methodology seeks companies with a minimum trailing 12 month after tax profit margin of 7%. The companies that pass this criterion have strong positions within their respective industries and offer greater shareholder returns. A true test of the quality of a company is that they can sustain this margin. OPEN's profit margin of 14.22% passes this test. RELATIVE STRENGTH: [PASS] The investor must look at the relative strength of the company in question. Companies whose relative strength is 90 or above (that is, the company outperforms 90% or more of the market for the past year), are considered attractive. Companies whose price has been rising much quicker than the market tend to keep rising. OPEN, with a relative strength of 97, satisfies this test. COMPARE SALES AND EPS GROWTH TO THE SAME PERIOD LAST YEAR: [PASS] Companies must demonstrate both revenue and net income growth of at least 25% as compared to the prior year. These growth rates give you the dynamic companies that you are looking for. These rates for OPEN (61.54% for EPS, and 60.51% for Sales) are good enough to pass. INSIDER HOLDINGS: [PASS] OPEN's insiders should own at least 10% (they own 30.70% ) of the company's outstanding shares which is the minimum required. A high percentage typically indicates that the insiders are confident that the company will do well. CASH FLOW FROM OPERATIONS: [PASS] A positive cash flow is typically used for internal expansion, acquisitions, dividend payments, etc. A company that generates rather than consumes cash is in much better shape to fund such activities on their own, rather than needing to borrow funds to do so. OPEN's free cash flow of $1.00 per share passes this test. PROFIT MARGIN CONSISTENCY: [PASS] OPEN's profit margin has been consistent or even increasing over the past three years (Current year: 14.22%, Last year: 7.39%, Two years ago: -1.83%), passing the requirement. It is a sign of good management and a healthy and competitive enterprise. R&D AS A PERCENTAGE OF SALES: [FAIL] OPEN did not have any R&D expenditures for the current year which is unacceptable. OPEN could be jepordizing the future in order to boost current EPS numbers. CASH AND CASH EQUIVALENTS: [PASS] OPEN's level of cash $42.5 million passes this criteria. If a company is a cash generator, like OPEN, it has the ability to pay off debt (if it has any) or acquire other companies. Most importantly, good operations generate cash. ACCOUNT RECEIVABLE TO SALES: [PASS] This methodology wants to make sure that a company's accounts receivable do not get significantly out of line with sales. It's a warning sign if a company's accounts receivable relative to sales increases significantly when compared to the previous year. Up to a 30% increase is allowed, but no more. Accounts Receivable to Sales for OPEN was 11.11% last year, while for this year it is 13.43%. Although the AR to sales is rising, it is below the max 30% that is allowed. The investor can still consider the stock if all other criteria appear very attractive. LONG TERM DEBT/EQUITY RATIO: [PASS] OPEN's trailing twelve-month Debt/Equity ratio (0.00%) is at a great level according to this methodology because the superior companies that you are looking for don't need to borrow money in order to grow. "THE FOOL RATIO" (P/E TO GROWTH): [FAIL] The "Fool Ratio" is an extremely important aspect of this analysis. The methodology says consider shorting shares when the company's Fool Ratio is greater than 1.30. OPEN's PEG Ratio of 2.93 is excessively high. The following criteria for OPEN are less important which means you would place less emphasis on them when making your investment decision using this strategy: AVERAGE SHARES OUTSTANDING: [PASS] OPEN has not been significantly increasing the number of shares outstanding within recent years which is a good sign. OPEN currently has 24.0 million shares outstanding. This means the company is not taking any measures, with regards to the number of shares, that will dilute or devalue the stock. SALES: [PASS] Companies with sales less than $500 million should be chosen. It is among these small-cap stocks that investors can find "an uncut gem", ones that institutions won't be able to buy yet. OPEN's sales of $99.0 million based on trailing 12 month sales, are fine, making this company one such "prospective gem". OPEN passes the sales test. DAILY DOLLAR VOLUME: [FAIL] OPEN does not pass the Daily Dollar Volume (DDV of $123.8 million) test. It exceeds the maximum requirement of $25 million. Stocks that fail the test are too liquid for a small individual investor and many institutions have already discovered it. PRICE: [PASS] This is a very insignificant criterion for this methodology. But basically, low prices are chosen because "small numbers multiply more rapidly than large ones" and the potential for big returns expands. OPEN with a price of $104.74 passes the price test, even though it doesn't fall in the preferred range. The price should be above $7 in order to eliminate penny stocks and below $20 since most stocks in this price range are undiscovered by the institutions. INCOME TAX PERCENTAGE: [PASS] OPEN's income tax paid expressed as a percentage of pretax income this year was (22.47%) and last year (43.85%) are greater than 20% which is an acceptable level. If the tax rate is below 20% this could mean that the earnings that were reported were unrealistically inflated due to the lower level of income tax paid. This is a concern.   SANOFI-AVENTIS SA (ADR) Profile Strategy: Value Investor Based on: Benjamin Graham Sanofi-Aventis is a pharmaceutical group engaged in the research, development, manufacture and marketing of healthcare products. The Company's business includes two main activities: pharmaceuticals and human vaccines through sanofi pasteur. It is also present in animal health products through Merial Limited (Merial). In its pharmaceutical activity, it specializes in six therapeutic areas: diabetes, oncology, thrombosis and cardiovascular, central nervous system (CNS), and internal medicine. The global portfolio of sanofi-aventis also consists of a range of other pharmaceutical products. It offers vaccines in five areas: pediatric combination vaccines, influenza vaccines, adult and adolescent booster vaccines, meningitis vaccines and travel and endemic vaccines. In October 2010, Siegfried Holding AG sold its PulmoJet Inhalation Project to the Company. In February 2011, the Company acquired BMP Sunstone Corp. In April 2011, the Company acquired Genzyme Corporation. Analysis Guru Score: 100% SECTOR: [PASS] SNY 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. SNY's sales of $46,412.1 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. SNY's current ratio of 2.30 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 SNY is $9,699.7 million, while the net current assets are $22,195.5 million. SNY 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. SNY's EPS growth over that period of 141.4% 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. SNY's P/E of 12.30 (using the current PE) passes this test. PRICE/BOOK RATIO: [PASS] The Price/Book ratio must also be reasonable. That is, the Price/Book multiplied by P/E cannot be greater than 22. SNY's Price/Book ratio is 1.26, while the P/E is 12.30. SNY passes the Price/Book test.   GAMESTOP CORP. Profile Strategy: P/E/Growth Investor Based on: Peter Lynch GameStop Corp. (GameStop) is a retailer of video game products and personal computer (PC) entertainment software. The Company sells new and used video game hardware, video game software and accessories, as well as PC entertainment software, and related accessories and other merchandise. As of January 30, 2010, the Company operated 6,450 stores in the United States, Australia, Canada and Europe, primarily under the names GameStop and EB Games. GameStop also operates the electronic commerce Website www.gamestop.com and publish Game Informer, a multi-platform video game magazine in the United States based on circulation, with approximately 4 million subscribers. During the fiscal year ended January 30, 2010 (fiscal 2009), GameStop operated its business in four segments: United States, Canada, Australia and Europe. Analysis Guru Score: 93% DETERMINE THE CLASSIFICATION: This methodology would consider GME a "fast-grower". P/E/GROWTH RATIO: [PASS] The investor should examine the P/E (9.54) relative to the growth rate (23.00%), based on the average of the 3, 4 and 5 year historical eps growth rates, for a company. This is a quick way of determining the fairness of the price. In this particular case, the P/E/G ratio for GME (0.41) 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. GME, whose sales are $9,473.7 million, needs to have a P/E below 40 to pass this criterion. GME's P/E of (9.54) is considered acceptable. EPS GROWTH RATE: [PASS] This methodology favors companies that have several years of fast earnings growth, as these companies have a proven formula for growth that in many cases can continue many more years. This methodology likes to see earnings growth in the range of 20% to 50%, as earnings growth over 50% may be unsustainable. The EPS growth rate for GME is 23.0%, 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 GME (8.59%) to be exceptionally low (equity is at least ten times debt). This ratio is one quick way to determine the financial strength of the company. FREE CASH FLOW: [NEUTRAL] The Free Cash Flow/Price ratio, though not a requirement, is considered a bonus if it is above 35%. A positive Cash Flow (the higher the better) separates a wonderfully reliable investment from a shaky one. This methodology prefers not to invest in companies that rely heavily on capital spending. This ratio for GME (10.07%) is too low to add to the attractiveness of the stock. Keep in mind, however, that it does not adversely affect the company as it is a bonus criteria. NET CASH POSITION: [NEUTRAL] Another bonus for a company is having a Net Cash/Price ratio above 30%. Lynch defines net cash as cash and marketable securities minus long term debt. According to this methodology, a high value for this ratio dramatically cuts down on the risk of the security. The Net Cash/Price ratio for GME (11.96%) 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.   SKECHERS USA, INC. Profile Strategy: Value Investor Based on: Benjamin Graham Skechers U.S.A., Inc. (Skechers) design and market Skechers-branded contemporary footwear for men, women and children under several lines. addition to Skechers-branded lines, the Company also offers several designer, fashion and street-focused footwear lines for men, women and children. These lines are branded and marketed separately from Skechers and appeal to specific audiences. Its brands are sold through department stores, specialty stores, athletic retailers, and boutiques as well as catalog and Internet retailers. Along with wholesale distribution, its footwear is available at its e-commerce Website and its own retail stores. Skechers operates 90 concept stores, 92 factory outlet stores and 37 warehouse outlet stores in the United States, and 22 concept stores and five factory outlets internationally. The Company operates in four reportable segments: domestic wholesale sales, international wholesale sales, retail sales, and e-commerce sales. Analysis Guru Score: 100% SECTOR: [PASS] SKX 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. SKX's sales of $2,006.9 million, based on trailing 12 month sales, pass this test. CURRENT RATIO: [PASS] The current ratio must be greater than or equal to 2. Companies that meet this criterion are typically financially secure and defensive. SKX's current ratio of 3.17 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 SKX is $51.7 million, while the net current assets are $666.1 million. SKX 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. SKX's EPS growth over that period of 47.8% 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. SKX's P/E of 11.90 (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. SKX's Price/Book ratio is 1.08, while the P/E is 11.90. SKX 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 SBS COMPANHIA DE SANEAMENTO BASICO (ADR) Water Utilities 62 STRA STRAYER EDUCATION, INC. Schools 60 INTC INTEL CORPORATION Semiconductors 58 CHSI CATALYST HEALTH SOLUTIONS, INC. Insurance (Accident & Health) 58 GPS THE GAP INC. Retail (Apparel) 56 LLY ELI LILLY & CO. Major Drugs 55 TI TELECOM ITALIA S.P.A. (ADR) Communications Services 53 ASYS AMTECH SYSTEMS, INC. Semiconductors 52 TECD TECH DATA CORPORATION Computer Hardware 52 MELI MERCADOLIBRE, INC. Computer Services 52

Disclaimer

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