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Executive Summary	January 22, 2010

The Economy For anyone looking for a smooth, painless economic recovery, the last two weeks have provided a dose of reality. The biggest piece of that reality check may be the job market. Earlier this month, the government announced that the unemployment rate remained at a very high 10% in December. And, while revised figures showed that the economy in November added jobs for the first time in almost two years, new figures showed that those slight gains reversed in December, with 85,000 jobs being shed. In addition, new claims for unemployment increased 8% last week, and the four-week average rose for the first time since August. New data also showed that retail sales were much weaker than expected in December, falling 0.3%. Analysts had been forecasting a 0.5% gain. The market was also impacted by several big banks' earnings reports, which were mixed. Bank of America reported a $5 billion loss for the fourth quarter, though all but about $200 million of that was related to preferred dividends and payback of TARP funds. Wells Fargo, meanwhile, posted a $2.8 billion profit and said credit quality improved in the quarter. Goldman Sachs' earnings were close to $5 billion, but Citigroup lost almost $8 billion, setting aside more than $8 billion for consumer loan losses. The bottom line: The financial sector is miles ahead of where it was a year ago, but it's still unclear when many of these firms' balance sheets will be healthy. The financial sector also got some big news on the regulatory front, with President Obama proposing new restrictions that would impact big banks. The regulations would limit the scope of financial institutions' endeavors, and also limit the amount of consolidation possible in the sector. That news shouldn't have come as a big surprise -- Obama and legisRobotors have been talking financial sector reform for months now -- but it still drove the market lower. Stepping back, however, the overall economic picture continues to be one of improvement. For starters, while unemployment figures have risen in the past week or two, the overall jobs picture is far better than it was a year ago. In the first three months of 2009, the economy was shedding an average of close to 700,000 jobs per month. Over the past three months, the average has been about a tenth of that, 69,000. In addition, industrial production increased in December for the sixth straight month, with the December reading the highest monthly output of the year, according to Federal Reserve data. The same was true of capacity utilization, another sign that things are moving in the right direction. And while retail sales fell in December, the U.S. consumer -- contrary to popular belief -- doesn't need to lead the recovery. Inventory replenishing has been a big factor in the recovery so far, and exports continue to be a big boost for the economy. AllianceBernstein Chief Economist Joseph Carson recently told CNNMoney.com that exports are now accounting for a record portion of U.S. manufacturing shipments, and that they are growing twice as much as the global average. Exports increased in November for the eighth straight month, according to the Census Bureau, reaching their highest level in a year. Growing middle classes in emerging market countries and the dollar's decline should make that export growth continue, Carson says, which will lead to job growth, and consumer spending gains, within the U.S. The mixed economic news meant an up and down two weeks for stocks, with volatility returning to the market. The S&P 500 was in the red for the fortnight, losing 2.2%. The Hot List also lost some ground, falling 2.6%. So far in a young 2010, the portfolio remains ahead of the S&P, however, having gained 2.7% vs. the index's 0.1% gain. And since its July 2003 inception, the Hot List is now up 147.5%, far outpacing the S&P's 11.6% gain. Quality Additions The Hot List is selling four stocks in today's monthly rebalancing and replacing them with four new companies whose shares now get better ratings from my guru-based models. The four departing stocks -- Chevron, World Acceptance, Telvent GIT, and Oil States International -- on the whole performed well, with World Acceptance and Oil States posting double-digit gains, Telvent ending up in the black, and Chevron ending up slightly in the red. The four newcomers come from a variety of industries. There's a telecom (Telefonica); a video game specialist (GameStop); a retail pharmacy giant (CVS); and a construction services firm (EMCOR Group). While these newbies come from very different segments of the market, they share at least one thing in common: All have demonstrated an excellent ability to grow earnings over the long haul -- even through one of the worst recessions in decades. EMCOR has upped EPS in each year since 2004 -- including 2008; CVS has increased earnings every year since 2002; and GameStop's streak goes back one year further, to 2001. All those firms also have very manageable debt/equity ratios that are well below their industry averages. (Telefonica, which had a slight dip in earnings last year but has otherwise been growing earnings since 2004, is a bit of a different story, since like most telecoms and utilities it carries significant debt.) I mention this because the recession we're coming out of crushed the earnings of many companies. Even solid firms like Coca-Cola and Microsoft saw earnings dip in 2008, as overleveraged consumers dug in and closed their wallets. For a company to continue to grow earnings in such a climate was an impressive feat. During the recession and bear market, that type of quality was in many cases rewarded; while the S&P 500 fell 57% in the bear, CVS' shares, for example, fared almost 20 percentage points better. Throughout much of the market's recent rally, however, quality hasn't been rewarded as much as it normally would be. Junk stocks -- those with the worst fundamentals and balance sheets -- have led the rally. That's no surprise. Such stocks tend to get hit hardest during financial crises like the one we've just been through, since they are most likely to go out of business when times get very tough. Their stock prices plunge -- sometimes too far. When the fears subside and investors realize many of those "junk" stocks will survive, however, they pour back into the Armageddon-priced shares. But such junk rallies don't last forever, and we've already begun to see a shift toward an environment in which quality is rewarded. That, too, shouldn't be a big surprise, according to some new data that comes in part from one of the gurus upon whose writings I base my investment models: James O'Shaughnessy. O'Shaughnessy's book What Works on Wall Street details his four-decade-plus study of stock returns and stock-picking strategies, which is one of the most extensive studies of its kind. Just as his book examines what has worked on Wall Street over the long term, O'Shaughnessy's firm recently released details of a new study that examines what works in the second year of bull markets, a point we are fast approaching. In explaining the results of the study, Patrick O'Shaughnessy -- James' son -- says that the O'Shaughnessy's firm's research has found significant trends in the types of stocks that perform well during bear markets and at various stages of the ensuing bull markets. "While the particulars of each bear market are very different, the types of stocks that perform well at various stages surrounding the declines are somewhat consistent around all bear markets and quite consistent around severe bear markets like the one we've just seen", he writes. In the first year following severe bear markets, O'Shaughnessy says, low-momentum stocks crush high-momentum stocks, just as we've seen in the junk rally that started last March. (My models reflected that, with the Momentum Investor approach ranking 2nd-worst of all my individual models, and none of 2009's four best strategies using momentum.) "During the nearly nine months since the March 9th market bottom, market trends have closely mirrored those of other severe bear markets," O'Shaughnessy says, adding that the underperformance of momentum strategies suggests not that such approaches are broken, but that "this year has just been more of the same." Now, on to the part that is of greater immediate importance -- the second year bull market trends. According to O'Shaughnessy, bull markets' second years tend to demonstrate characteristics more consistent with long-term stock movements -- that is, stocks with stronger fundamentals tend to fare better. "The bizarre market dynamics from the first year of recovery subside in year two," O'Shaughnessy writes, "and the expected long-term advantage of buying stocks with our [fundamental] criteria returns." That assessment bodes well for my fundamental-based Guru Strategies, and it got me thinking about how those strategies fared back in the second year of the last bull market, which ran from late 2002 into the fall of 2007. The short answer to that question is, they fared quite well. From Oct. 1, 2003 (this is actually about a week shy of the one-year mark for that bull market, but I'm using Oct. 1 because I track my returns on a monthly basis) through the end of September 2004, the S&P 500 returned about 11.9%. That's a solid return, but less than half the almost 30% return it generated in the first year or so of the bull. The seven original individual guru-based strategies I track on Validea.com, on the other hand, returned between 21.1% and 58.4% in that second year of the bull market; the average was about 38.9%. The Hot List also excelled, returning 57.1%. Quality and fundamentals, it seems, were indeed rewarded as the bull matured. Now, I'm certainly not going to promise 50%+ returns for the Hot List in the second year of the bull market, which, hopefully, will begin on March 10 of this year. As the younger O'Shaughnessy noted, the particulars of bull markets can differ significantly, and the current environment certainly presents some unique challenges. Given how far many junk-type stocks have rallied, and given how much uncertainty remains for the economy and the stock market, however, I do think that a second year of a junk-led rally is unlikely. What's more likely is that we will continue to see a shift back toward quality stocks -- those with strong earnings, low debt, high returns on equity -- and that quality stocks selling at attractive valuations will be of particular interest to investors. How quickly and when exactly such a transition unfolds is dependent on a myriad of factors, of course, and as with any market, there will be bumps in the road. But history has shown that eventually investors always do come back to quality. Over the long haul, that's where I think investors will have the most success, and it's why I'll continue to focus on the type of fundamentally sound, financially secure companies you'll find in the Hot List.		Editor-in-Chief: John Reese Since Inception   Hot List 147.5% S&P 500 11.6% Accuracy 56.6% Beta 1.2 YTD   Hot List 2.7% S&P 500 0.1% Since Last Issue   Hot List -2.6% S&P 500 -2.2% Avg. Fundamentals   Market Cap (mil) $20,171 PE Ratio 10.6 5 Yr EPS Growth 40.0% Yield 2.5% Rel. Strength 52 Portfolio Sectors Services 5 Capital Goods 2 Consumer Cyclical 1 Energy 1 Transportation 1
Hot List Editor John Reese Announces Publication of New Book The Guru Investor shows you how to implement the strategies of Wall Street legends like Warren Buffett, Peter Lynch and Benjamin Graham in your own portfolio. Buy Your Copy Now! The Fallen As we rebalance the Validea Hot List, 4 stocks leave our portfolio. These include: World Acceptance Corp. (WRLD), Oil States International, Inc. (OIS), Chevron Corporation (CVX), Telvent Git, S.a (TLVT), . The Keepers 6 stocks remain in the portfolio. They are: Itt Educational Services, Inc. (ESI), Tidewater Inc. (TDW), National-oilwell Varco, Inc. (NOV), Aeropostale, Inc. (ARO), Dresser-rand Group Inc. (DRC) and Fuqi International, Inc. (FUQI). The Newbies We are adding 4 stocks to the portfolio. These include: Cvs Caremark Corporation (CVS), Telefonica S.a. (Adr) (TEF), Emcor Group, Inc. (EME), Gamestop Corp. (GME), . Portfolio Changes Additions   CVS CAREMARK CORPORATION CVS TELEFONICA S.A. (ADR) TEF EMCOR GROUP, INC. EME GAMESTOP CORP. GME Deletions   WORLD ACCEPTANCE CORP. WRLD OIL STATES INTERNATIONAL, INC. OIS CHEVRON CORPORATION CVX TELVENT GIT, S.A TLVT Newcomers to the Validea Hot List CVS Caremark Corporation (CVS): Based in Rhode Island, CVS is the nation's largest prescription medication provider, filling or managing more than a billion prescriptions a year. It has more than 7,000 CVS/pharmacy stores in 43 states, and is the nation's largest employer of pharmacists and nurse practitioners. Over the past year, the firm has taken in more than $97 billion in sales. It has a $47.7 billion market cap. CVS gets strong interest from my Peter Lynch-based approach, and some interest from several other of my models. To see why the Lynch model is so high on it, scroll down to the "Detailed Stock Analysis" section below. EMCOR Group, Inc. (EME): Based in Connecticut, this construction and facilities services firm does electrical, mechanical, lighting, air conditioning, heating, security, fire protection and power generation systems work for companies in a wide variety of industries. The $1.7 billion market cap company, which gained 15.6% while in the Hot List from Nov. 27-Dec. 24, has taken in close to $6 billion in sales in the past year. EMCOR gets high marks from my Peter Lynch- and Joel Greenblatt-based models. The "Detailed Stock Analysis" section below explains why. Telefonica (TEF): Based in Madrid, this telecom firm operates in 25 countries and has almost 270 million customers. Its main markets are Latin America and Europe. Over the past year, the $122 billion market cap firm has taken in almost $80 billion in sales. Telefonica gets strong interest from my James O'Shaughnessy-based value strategy, and some interest from three of my other models. To see what the O'Shaughnessy approach likes about it, check out the "Detailed Stock Analysis" section below GameStop Corp. (GME): The world's largest video game retailer, GameStop sells all sorts of Nintendo, Xbox, and PlayStation games and game units, as well as a variety of computer games. The Texas-based company has more than 6,000 stores in the U.S. and 17 other countries, operating under the GameStop, EB Games, and Electronics Boutique names. The firm has a $3.4 billion market cap, and has taken in more than $9 billion in sales over the past 12 months. GameStop gets approval from my Peter Lynch- and Joel Greenblatt-based strategies. To find out why, see the "Detailed Stock Analysis" section below. News about Validea Hot List Stocks ITT Educational Services (ESI): On Jan. 21, ITT announced fourth-quarter earnings of $93.7 million, or $2.56 a share, up 49% from the year-ago period as enrollment jumped more than 30%. Revenues increased 34% to $374.4 million. Both earnings and revenue beat analyst expectations. For the full year, ITT's earnings were $300.3 million, or $7.92 per share, which also represented a 49% gain over 2008. Annual revenue jumped almost 30%. The firm said it expects 2010 earnings per share of between $10 and $10.50; analysts had been expecting $9.48, Reuters reported. Dresser-Rand Group (DRC): A Dresser-Rand subsidiary has agreed to acquire Leading Edge Turbine Technologies in a deal valued at $35 million, the Houston Business Journal reports. Leading Edge specializes in the repair of industrial gas turbines and large utility steam turbine equipment. It is expected to add about $26 million to Dresser-Rand's bottom line in the 2009 fiscal year, the HBJ reported. The Next Issue In two weeks, we will publish another issue of the Hot List, at which time we will take an in-depth look at one of my individual Guru Strategies. If you have any questions, please feel free to contact us at hotlist@validea.com.

Current Portfolio Ticker Company Name Industry Guru Score FUQI FUQI INTERNATIONAL, INC. Jewelry & Silverware 84 ARO AEROPOSTALE, INC. Retail (Apparel) 71 EME EMCOR GROUP, INC. Construction Services 63 NOV NATIONAL-OILWELL VARCO, INC. Oil Well Services & Equipment 63 TEF TELEFONICA S.A. (ADR) Communications Services 58 DRC DRESSER-RAND GROUP INC. Misc. Capital Goods 57 CVS CVS CAREMARK CORPORATION Retail (Drugs) 55 GME GAMESTOP CORP. Retail (Technology) 53 ESI ITT EDUCATIONAL SERVICES, INC. Schools 49 TDW TIDEWATER INC. Water Transportation 43 Ticker Market Cap Date Added Start Price Current Price Return FUQI $502 10/30/2009 $20.49 $18.18 -11.3% ARO $2,274 11/27/2009 $31.49 $34.42 9.3% EME $1,651 1/22/2010 TBD $25.04 TBD NOV $18,570 10/30/2009 $40.99 $44.39 8.3% TEF $119,538 1/22/2010 TBD $76.22 TBD DRC $2,551 11/27/2009 $28.46 $30.92 8.6% CVS $46,886 1/22/2010 TBD $33.24 TBD GME $3,365 1/22/2010 TBD $20.42 TBD ESI $3,842 10/30/2009 $90.35 $104.00 15.1% TDW $2,530 10/30/2009 $41.67 $48.93 17.4%

Detailed Stock Analysis Disclaimer: The analysis is from Validea's selection and interpretation of content from the guru's book or published writings, and is not from nor endorsed by the guru. See Full Disclaimer FUQI   |   ARO   |   EME   |   NOV   |   TEF   |   DRC   |   CVS   |   GME   |   ESI   |   TDW   |   FUQI INTERNATIONAL, INC. Profile Strategy: Small-Cap Growth Investor Based on: Motley Fool Fuqi International, Inc. (Fuqi) is a designer of precious metal jewelry in China, developing, promoting, and selling a range of products in the Chinese luxury goods market. The Company's products consist of a range of styles and designs made from gold and other precious metals, such as platinum and Karat gold (K-gold). The Company also produce jewelry items that contain diamonds and other precious stones on a custom-order basis. Its design database contains over 30,000 products. The Company operates through its wholly owned subsidiary Fuqi International Holdings Co., Ltd. (Fuqi BVI) and its wholly owned subsidiary, Shenzhen Fuqi Jewelry Co., Ltd. (Fuqi China). As of December 31, 2008, the Company had 69 jewelry retail counters and stores in China. Analysis Guru Score: 85% 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. FUQI's profit margin of 10.28% 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. FUQI, with a relative strength of 91, 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 FUQI (135.48% for EPS, and 35.77% for Sales) are good enough to pass. INSIDER HOLDINGS: [PASS] FUQI's insiders should own at least 10% (they own 42.95% ) of the company's outstanding shares which is extremely attractive since the minimum requirement is 10%. A high percentage indicates that the insiders are confident that the company will do well. CASH FLOW FROM OPERATIONS: [FAIL] 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. FUQI's free cash flow of $-0.42 per share fails this test. PROFIT MARGIN CONSISTENCY: [PASS] FUQI's profit margin has been consistent or even increasing over the past three years (Current year: 7.58%, Last year: 9.29%, Two years ago: 6.28%), 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 FUQI's case. CASH AND CASH EQUIVALENTS: [PASS] FUQI's level of cash $58.0 million passes this criteria. If a company is a cash generator, like FUQI, it has the ability to pay off debt (if it has any) or acquire other companies. Most importantly, good operations generate cash. 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 FUQI was 20.36% last year, while for this year it is 12.08%. Since the inventory to sales is decreasing by -8.28% the stock passes this criterion. 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 FUQI was 17.83% last year, while for this year it is 20.71%. 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] FUQI'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): [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 (FUQI's is 0.20), the shares are looked upon favorably. These high quality companies can often wind up as the biggest winners. FUQI passes this test. The following criteria for FUQI are less important which means you would place less emphasis on them when making your investment decision using this strategy: AVERAGE SHARES OUTSTANDING: [PASS] FUQI has not been significantly increasing the number of shares outstanding within recent years which is a good sign. FUQI currently has 26.0 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. FUQI's sales of $466.9 million based on trailing 12 month sales, are fine, making this company one such "prospective gem". FUQI passes the sales test. DAILY DOLLAR VOLUME: [FAIL] FUQI does not pass the Daily Dollar Volume (DDV of $27.5 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. FUQI with a price of $18.18 passes the price test. 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: [FAIL] FUQI's income tax paid expressed as a percentage of pretax income either this year (19.75%) or last year (13.45%) is below 20% which is cause for concern. Because the tax rate is below 20% this could mean that the earnings that were reported are unrealistically inflated due to the lower level of income tax paid. However, we have utilized a sophisticated formula so that the appropriate figures reflect a 'normal' tax rate (35%).   AEROPOSTALE, INC. Profile Strategy: P/E/Growth Investor Based on: Peter Lynch Aeropostale, Inc. is a mall-based specialty retailer of casual apparel and accessories. The Company designs, markets and sells its own brand of merchandise principally targeting 14 to 17 year-old young women and young men. The Company also sells Aeropostale merchandise through its e-commerce Website, www.aeropostale.com. As of January 31, 2009, it operated 914 stores, consisting of 874 Aeropostale stores in 48 states and Puerto Rico, 29 Aeropostale stores in Canada, and 11 Jimmy'Z stores in 10 states. The Company locates its stores primarily in shopping malls, outlet centers and, to a much lesser degree, lifestyle and off-mall shopping centers. The Company has developed a new retail store concept called P.S. from Aeropostale, which will offer casual clothing and accessories focusing on elementary school children between the ages of seven and 12. It offers a focused collection of apparel, including graphic t-shirts, tops, bottoms, sweaters, jeans, outerwear and accessories. Analysis Guru Score: 93% DETERMINE THE CLASSIFICATION: This methodology would consider ARO a "fast-grower". P/E/GROWTH RATIO: [PASS] The investor should examine the P/E (11.61) relative to the growth rate (27.13%), based on the average of the 3, 4 and 5 year historical eps growth rates, for a company. This is a quick way of determining the fairness of the price. In this particular case, the P/E/G ratio for ARO (0.43) 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 $2,118.9 million, needs to have a P/E below 40 to pass this criterion. ARO's P/E of (11.61) is considered acceptable. EPS GROWTH RATE: [PASS] This methodology favors companies that have several years of fast earnings growth, as these companies have a proven formula for growth that in many cases can continue many more years. This methodology likes to see earnings growth in the range of 20% to 50%, as earnings growth over 50% may be unsustainable. The EPS growth rate for ARO is 27.1%, based on the average of the 3, 4 and 5 year historical eps growth rates, which is acceptable. TOTAL DEBT/EQUITY RATIO: [PASS] This methodology would consider the Debt/Equity ratio for ARO (0.00%) to be wonderfully low (equity is at least ten times debt). This ratio is one quick way to determine the financial strength of the company. FREE CASH FLOW: [NEUTRAL] The Free Cash Flow/Price ratio, though not a requirement, is considered a bonus if it is above 35%. A positive Cash Flow (the higher the better) separates a wonderfully reliable investment from a shaky one. This methodology prefers not to invest in companies that rely heavily on capital spending. This ratio for ARO (5.11%) 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 (9.76%) 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.   EMCOR GROUP, INC. Profile Strategy: Price/Sales Investor Based on: Kenneth Fisher EMCOR Group, Inc. (EMCOR) is an electrical and mechanical construction and facilities services company in the United States, Canada, the United Kingdom and in the world. The Company's segments include United States electrical construction and facilities services, United States mechanical construction and facilities services, United States facilities services, Canada construction and facilities services, United Kingdom construction and facilities services, and Other international construction and facilities services. The Company specializes in providing construction services relating to electrical and mechanical systems in facilities of all types and in providing services for the operation, maintenance and management of all aspects of such facilities (referred to as facilities services). Analysis Guru Score: 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. EME's P/S of 0.28 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. EME's Debt/Equity of 16.64% 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. EME 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 EME At this Point Is EME 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.EME's P/S ratio of 0.28 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%. EME's inflation adjusted EPS growth rate of 46.49% 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. EME's free cash per share of 4.43 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. EME, whose three year net profit margin averages 2.20%, fails this evaluation.   NATIONAL-OILWELL VARCO, INC. Profile Strategy: Growth/Value Investor Based on: James P. O'Shaughnessy National Oilwell Varco, Inc. (NOV) is a provider of equipment and components used in oil and gas drilling and production operations, oilfield services, and supply chain integration services to the upstream oil and gas industry. The Company operates in three segments. The Rig Technology segment designs, manufactures, sells and services systems for the drilling, completion and servicing of oil and gas wells. The Petroleum Services & Supplies segment provides a variety of consumable goods and services used to drill, complete, remediate and workover oil and gas wells, service pipelines, flowlines and other oilfield tubular goods. The Distribution Services segment provides maintenance, repair and operating (MRO) supplies, and spare parts to drill site and production locations worldwide. In April 2009, NOV acquired ASEP Group Holding B.V. and Anson Limited.In December 2009, National-Oilwell Varco, Inc. acquired Hochang Machinery Industries Co., Ltd. and South Seas Inspection (S) Pte. Ltd. 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. NOV, with a market cap of $18,570 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. NOV, whose annual EPS before extraordinary items for the last 5 years (from earliest to the most recent fiscal year) were 0.67, 0.91, 1.93, 3.76 and 4.90, 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. NOV's Price/Sales ratio of 1.39, 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. NOV, whose relative strength is 73, is in the top 50 and would pass this last criterion.   TELEFONICA S.A. (ADR) Profile Strategy: Contrarian Investor Based on: David Dreman Telefonica, S.A. (Telefonica), together with its subsidiaries and investees, operates in the telecommunications, media and contact center industries. The Company is also involved in the media and contact center activities through investments in Telefonica de Contenidos and Atento. The Company operates in three business areas: Telefonica Spain, Telefonica Europe and Telefonica Latin America. In Latin America, Telefonica provides service to more than 158 million customers in Brazil, Argentina, Chile and Peru, and has substantial operations in Colombia, Ecuador, El Salvador, Guatemala, Mexico, Morocco, Nicaragua, Panama, Puerto Rico, Uruguay and Venezuela. In Europe, it has operating companies in the United Kingdom, Ireland, Germany, Czech Republic and Slovakia. On April 3, 2008, Vivo Participacoes, S.A. completed the acquisition of 53.90% of Telemig Celular Participacoes, S.A. In December 2009, the Company acquired JAJAH. Analysis Guru Score: 83% MARKET CAP: [PASS] Medium to large-sized companies (the largest 1500 companies) should be chosen, because they are more in the public eye. Furthermore, the investor is exposed to less risk of "accounting gimmickry", and companies of this size have more staying power. TEF has a market cap of $119,538 million, therefore passing the test. EARNINGS TREND: [PASS] A company should show a rising trend in the reported earnings for the most recent quarters. TEF's EPS for the past 2 quarters, (from earliest to most recent quarter) 0.61, 0.63 have been increasing, and therefore the company passes this test. EPS GROWTH RATE IN THE IMMEDIATE PAST AND FUTURE: [FAIL] This methodology likes to see companies with an EPS growth rate higher than the S&P in the immediate past and a likelihood that this trend will continue in the near future. TEF fails this test as its EPS growth rate for the past 6 months (18.86%) does not beat that of the S&P (32.99%). This methodology would utilize four separate criteria to determine if TEF is a contrarian stock. In order to eliminate weak companies we have stipulated that the stock should pass at least two of the following four major criteria in order to receive "Some Interest". P/E RATIO: [FAIL] The P/E of a company should be in the bottom 20% of the overall market. TEF's P/E of 10.86, based on trailing 12 month earnings, is higher than the bottom 20% criterion (below 10.51), and therefore fails this test. PRICE/CASH FLOW (P/CF) RATIO: [PASS] The P/CF of a company should be in the bottom 20% of the overall market. TEF's P/CF of 5.11 meets the bottom 20% criterion (below 5.79) and therefore passes this test. PRICE/BOOK (P/B) VALUE: [FAIL] The P/B value of a company should be in the bottom 20% of the overall market. TEF's P/B is currently 4.88, which does not meet the bottom 20% criterion (below 0.71), and it therefore fails this test. PRICE/DIVIDEND (P/D) RATIO: [PASS] The P/D ratio for a company should be in the bottom 20% of the overall market (that is the yield should be in the top 20%). TEF's P/D of 17.12 meets the bottom 20% criterion (below 19.53 or yield above 3.7% ), and it therefore passes this test. This methodology maintains that investors should look for as many healthy financial ratios as possible to ascertain the financial strength of the company. These criteria are detailed below. CURRENT RATIO: [FAIL] A prospective company must have a strong Current Ratio (greater than or equal to the average of it's industry [0.98] or greater than 2). This is one identifier of financially strong companies, according to this methodology. TEF's current ratio of 0.76 fails the test. PAYOUT RATIO: [PASS] A good indicator that a company has the ability to raise its dividend is a low payout ratio. The payout ratio for TEF is 30.93%, while its historical payout ratio has been 43.92%. Therefore, it passes the payout criterion. RETURN ON EQUITY: [PASS] The company should have a high ROE, as this helps to ensure that there are no structural flaws in the company. This methodology feels that the ROE should be greater than the top one third of ROE from among the top 1500 large cap stocks, which is 14.09%, and would consider anything over 27% to be staggering. The ROE for TEF of 44.21% is high enough to pass this criterion. PRE-TAX PROFIT MARGINS: [PASS] This methodology looks for pre-tax profit margins of at least 8%, and considers anything over 22% to be phenomenal. TEF's pre-tax profit margin is 19.07%, thus passing this criterion. YIELD: [PASS] The company in question should have a yield that is high and that can be maintained or increased. TEF's current yield is 5.84%, while the market yield is 2.76%. TEF passes this test. LOOK AT THE TOTAL DEBT/EQUITY: [FAIL] The company must have a low Debt/Equity ratio, which indicates a strong balance sheet. The Debt/Equity ratio should not be greater than 20%. TEF's Total Debt/Equity of 317.54% is not acceptable.   DRESSER-RAND GROUP INC. Profile Strategy: Price/Sales Investor Based on: Kenneth Fisher Dresser-Rand Group Inc. is the global supplier of custom-engineered rotating equipment solutions for the applications in the oil, gas, petrochemical and process industries. The products and service applications include oil and gas production; high-pressure field injection, gas lift, and enhanced oil recovery; natural gas processing; gas liquefaction; gas transmission and storage; refining; petrochemical production; and general industrial markets, such as paper, steel, sugar, distributed power and United States Navy. The Company operates globally with manufacturing facilities in the United States, France, United Kingdom, Germany, Norway, China and India. It operates a range of products and clients to the global client base in over 140 countries from the global locations in 18 United States states and 26 countries. The Company operates in two business segments: new units, and aftermarket parts and services. Analysis Guru Score: 90% PRICE/SALES RATIO: [PASS] The prospective company should have a low Price/Sales ratio. Non-cyclical (non-Smokestack) companies with Price/Sales ratio between .75 and 1.5 are good values. DRC's P/S ratio of 1.03 based on trailing 12 month sales, falls within the "good values" range for non-cyclical companies and is considered attractive. TOTAL DEBT/EQUITY RATIO: [PASS] Less debt equals less risk according to this methodology. DRC's Debt/Equity of 38.00% is acceptable, thus passing the test. PRICE/RESEARCH RATIO: [PASS] This methodology considers companies in the Technology and Medical sectors to be attractive if they have low Price/Research ratios. DRC is neither a Technology nor Medical company. Therefore the Price/Research ratio is not available and, hence, not much emphasis should be placed on this particular variable. PRELIMINARY GRADE: Some Interest in DRC At this Point Is DRC a "Super Stock"? NO PRICE/SALES RATIO: [FAIL] The prospective company should have a low Price/Sales ratio. To be considered a "Super Stock", non-cyclical (non-Smokestack) companies should have Price/Sales ratios below .75. However, DRC, who has a P/S of 1.03, does not fall within the "Super Stock" range. It does fall between 0.75 and 1.5, which is considered the "good values" range for non-cyclical companies. Nonetheless, it does not pass this "Super Stock" criterion. LONG-TERM EPS GROWTH RATE: [PASS] This methodology looks for companies that have an inflation adjusted EPS growth rate greater than 15%. DRC's inflation adjusted EPS growth rate of 64.68% passes the test. FREE CASH PER SHARE: [PASS] This methodology looks for companies that have a positive free cash per share. Companies should have enough free cash available to sustain three years of losses. This is based on the premise that companies without cash will soon be out of business. DRC's free cash per share of 2.32 passes this criterion. THREE YEAR AVERAGE NET PROFIT MARGIN: [PASS] This methodology looks for companies that have an average net profit margin of 5% or greater over a three year period. DRC, whose three year net profit margin averages 6.89%, passes this evaluation.   CVS CAREMARK CORPORATION Profile Strategy: Price/Sales Investor Based on: Kenneth Fisher CVS Caremark Corporation (CVS Caremark) is a provider of prescriptions and related healthcare services in the United States. It is a pharmacy services company and drives value for its customers through its approximately 6,900 CVS/pharmacy and Longs Drug retail stores; CVS Caremark's pharmacy benefit management, mail order and specialty pharmacy division, Caremark Pharmacy Services; its retail-based health clinic subsidiary, MinuteClinic, and Its online pharmacy, CVS.com. The Company operates in two business segments: Pharmacy Services and Retail Pharmacy. October 20, 2008, CVS Caremark acquired Longs Drug Stores Corporation, which includes 529 retail drug stores (the Longs Drug Stores) and RxAmerica LLC (RxAmerica), which provides pharmacy benefit management services, and certain other related assets. 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. CVS's P/S of 0.48 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. CVS's Debt/Equity of 33.52% 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. CVS 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 CVS At this Point Is CVS 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.CVS's P/S ratio of 0.48 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%. CVS's inflation adjusted EPS growth rate of 15.32% 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. CVS's free cash per share of 0.94 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. CVS, whose three year net profit margin averages 3.41%, fails this evaluation.   GAMESTOP CORP. Profile Strategy: Price/Sales Investor Based on: Kenneth Fisher 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 31, 2009, the Company operated 6,207 stores in the United States, Australia, Canada and Europe, primarily under the names GameStop and EB Games. During the fiscal year ended January 31, 2009, GameStop operated its business in four segments: United States, Canada, Australia and Europe. On April 5, 2008, GameStop acquired Free Record Shop Norway AS. In July 2008, the Company purchased certain assets and Website operations from The Gamesman Limited, a video game and entertainment software retailer, including eight stores in New Zealand. On November 17, 2008, GameStop France SAS, a wholly owned subsidiary of the Company, acquired SFMI Micromania SAS. 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. GME's P/S of 0.37 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. GME's Debt/Equity of 16.94% 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. GME 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 GME At this Point Is GME 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.GME's P/S ratio of 0.37 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%. GME's inflation adjusted EPS growth rate of 38.79% 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. GME's free cash per share of 2.18 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. GME, whose three year net profit margin averages 3.85%, fails this evaluation.   ITT EDUCATIONAL SERVICES, INC. Profile Strategy: Growth Investor Based on: Martin Zweig ITT Educational Services, Inc. (ITT/ESI), is a provider of postsecondary degree programs in the United States based on revenue and student enrollment. As of December 31, 2008, the Company offered master, bachelor and associate degree programs to approximately 62,000 students. As of December 31, 2008, it had 105 institutes and nine learning sites located in 37 states. All of its institutes are authorized by the applicable education authorities of the states, in which they operate, and are accredited by an accrediting commission recognized by the United States Department of Education (ED). During the year ended December 31, 2008, the Company began its operations at eight new institutes. As of December 31, 2008, the Company offered 33 degree programs in various fields schools of study: information technology (IT); electronics technology; drafting and design; business; criminal justice, and health sciences. Analysis Guru Score: 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. ESI's P/E is 14.72, based on trailing 12 month earnings, while the current market PE is 19.00. Therefore, it passes the first test. REVENUE GROWTH IN RELATION TO EPS GROWTH: [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. ESI's revenue growth is 13.70%, while it's earnings growth rate is 32.12%, based on the average of the 3, 4 and 5 year historical eps growth rates. Therefore, ESI 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 (33.6%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (28.7%) of the current year. Sales growth for the prior must be greater than the latter. For ESI 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. ESI's EPS ($2.00) pass this test. QUARTERLY EARNINGS ONE YEAR AGO: [PASS] The EPS for the quarter one year ago must be positive. ESI's EPS for this quarter last year ($1.28) 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. ESI's growth rate of 56.25% 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 ESI is 16.06%. This should be less than the growth rates for the 3 previous quarters, which are 34.17%, 46.30%, and 55.83%. ESI 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, 45.40%, (versus the same three quarters a year earlier) is less than the growth rate of the current quarter earnings, 56.25%, (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, 56.25% must be greater than or equal to the historical growth which is 32.12%. ESI would therefore pass this test. EARNINGS PERSISTENCE: [PASS] Companies must show persistent yearly earnings growth. To fulfill this requirement a company's earnings must increase each year for a five year period. ESI, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were 1.61, 2.33, 2.72, 3.71 and 5.17, passes this test. LONG-TERM EPS GROWTH: [PASS] One final earnings test required is that the long-term earnings growth rate must be at least 15% per year. ESI's long-term growth rate of 32.12%, based on the average of the 3, 4 and 5 year historical eps growth rates, passes this test. TOTAL DEBT/EQUITY RATIO: [FAIL] 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. ESI's Debt/Equity (70.26%) is considered high relative to its industry (26.50%) and fails 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 ESI, 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.   TIDEWATER INC. Profile Strategy: P/E/Growth Investor Based on: Peter Lynch Tidewater Inc. provides offshore supply vessels and marine support services to the offshore energy industry through the operation of offshore marine service vessels. As of March 31, 2008, the Company had a total of 430 vessels, of which 10 were operated through joint ventures, 61 were stacked and 11 vessels withdrawn from service. The Company provides services supporting all phases of offshore exploration, development and production, including towing of and anchor handling of mobile drilling rigs and equipment; transporting supplies and personnel necessary to sustain drilling, workover and production activities; assisting in offshore construction activities, and a variety of specialized services, including pipe laying, cable laying and three-dimensional (3-D) seismic work. The Company operates in two segments: United States and International. Analysis Guru Score: 93% DETERMINE THE CLASSIFICATION: This methodology would consider TDW a "fast-grower". P/E/GROWTH RATIO: [PASS] The investor should examine the P/E (6.82) relative to the growth rate (43.35%), 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 TDW (0.16) 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. TDW, whose sales are $1,326.1 million, needs to have a P/E below 40 to pass this criterion. TDW's P/E of (6.82) 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 TDW was 3.65% last year, while for this year it is 3.50%. Since inventory to sales has decreased from last year by -0.15%, TDW 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 TDW is 43.3%, 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 TDW (12.66%) 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 TDW (0.04%) 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 TDW (-0.95%) 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 TGI TRIUMPH GROUP, INC. Aerospace & Defense 51 PPD PRE-PAID LEGAL SERVICES, INC. Personal Services 51 APOL APOLLO GROUP, INC. Schools 49 PRA PROASSURANCE CORPORATION Insurance (Prop. & Casualty) 47 ESV ENSCO INTERNATIONAL INCORPORATED Oil Well Services & Equipment 47 HCC HCC INSURANCE HOLDINGS, INC. Insurance (Prop. & Casualty) 46 MANT MANTECH INTERNATIONAL CORPORATION Computer Services 46 HUM HUMANA INC. Insurance (Accident & Health) 45 BKE THE BUCKLE, INC. Retail (Apparel) 44 CPWR COMPUWARE CORPORATION Software & Programming 43

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