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Executive Summary	October 29, 2010

The Economy The financial news continues to be dominated by talk of quantitative easing, with the Federal Reserve dropping strong hints that a second round of "QE" is in the works. But while "QE2" has been filling the headlines, some encouraging economic signs have been popping up . First, new claims for unemployment fell about 5% for the week ended Oct. 23, the Labor Department reported, reaching their lowest level in more than three months. In fact, with the exception of one week back in July, new claims were the lowest they've been since before the Lehman Brothers' collapse and financial crisis. Continuing claims, meanwhile, fell to their lowest level since November of 2008. Third-quarter earnings results also offered some good news. As of Oct. 27, more than 80% of S&P 500 companies that had reported earnings had beaten estimates, according to Thomson Reuters. And while many investors have been concerned that profit growth has been driven by cost-cutting measures (which can't go on forever) rather than sales growth, a number of bellwether-type firms have reported strong sales increases for the quarter. Caterpillar Inc., for example, reported a 53% jump in revenue and sales, while tech giants Apple (+67%) and Google (+23%) also reported big revenue gains. Even some consumer discretionary-type retailers have been reporting solid demand -- Coach, for example, upped revenue by 20% in the third quarter. Overall, retail sales increased 0.6% in September, according to the Census Bureau. In doing so, they reached their highest level since before the Lehman collapse. Industrial production, meanwhile, declined slightly in September, according to the Federal Reserve, dipping 0.2%. It was the first time in more than a year that production had declined, though the dip was tempered by the fact that August's numbers were revised upward. Overall, that means industrial production remains right where it was back in July -- three straight months of steady numbers is not a great sign, but it's certainly not an uncommon occurrence even in good economic times. As for the housing market, it offered some good news, with the National Association of Realtors announcing that existing-home sales jumped 10% in September. The overall housing picture remains cloudy, however; existing-home sales remain 19.1% below year-ago levels, but the year-ago figures are somewhat inflated because of the homebuyer tax credit program that many buyers were taking advantage of back then. Finally, one factor to keep an eye on is the dollar. With all of the talk of more quantitative easing, the dollar has been declining. That has a number of different implications -- cheaper exports and costlier commodities, to name just two -- that could have a big impact on the economy. The size of the Fed's easing plan, which has yet to be announced, will of course have an impact on the dollar's movement. The market digested all of this news with some ups and downs over the past fortnight, with the S&P 500 returning 0.9%, and the Hot List returning -0.2%. For the year, the portfolio stands at 4.3% vs. 6.2% for the S&P. Since its inception in July 2003, the Hot List is far outpacing the index, having gained 151.4% vs. the S&P's 18.3% gain. To Ease Or Not To Ease While some very positive economic signs, like the unemployment claim declines and the consumer spending increase, have popped up recently, the main focus of many investors and the media continues to be "QE2". To be sure, another round of easing would be a big event, so it's worth taking a look at what it might involve. First off, to be clear, the Fed has not officially said it will engage in more easing. But it and its chairman, Ben Bernanke, have dropped some pretty strong hints that it will do so. Bernanke said earlier this month, for example, that "there would appear -- all else being equal -- to be a case for further action" by the Fed. With nominal interest rates already near zero, the "further action" would likely come in the form of more asset purchases by the Fed. The group's first round of QE already called for the purchase of $300 billion in long-term Treasuries, close to $200 billion in federal agency debt, and up to $1.25 trillion in agency-guaranteed mortgage-backed securities (with the agencies in question being Fannie Mae, Freddie Mac, and Ginnie Mae). The goals of such an asset-purchase program would be two-fold, according to a recent paper published by the Federal Reserve Bank of St. Louis: to decrease long-term interest rates, which, in turn, would spur demand. Sounds good in theory. But in practice, there are some big questions. Perhaps the foremost is whether such a plan really addresses the root of the issue. Since March 2009, the Fed has been buying assets not with proceeds from the sale of other assets, but by creating new deposits -- essentially, by printing money. And there already seems to be plenty of money in the financial system, thanks to the first round of QE, government bailouts, and stimulus efforts. The issue, rather, is the velocity of that money, which hasn't gotten back to pre-financial-crisis levels. Essentially, banks are sitting on piles of cash rather than lending it out, while many corporations, feeling uncertain about where we're headed, are sitting on their own piles of cash rather than investing it in ways that could grow their businesses. So, will more QE really increase the velocity of money and spur more demand? Well, I'm not going to try to play economic forecaster. But I think it is worth noting that one of the QE side effects that many see as a concern -- significant inflation -- actually is a reason to be bullish on stocks. History has proven that over the long run stocks are a far better inflation fighter than just about any other investment; because they essentially are pieces of a business, they are able to draw on increasing revenue streams as prices rise. Bonds, bills, and even gold can't do that. For long-term investors, what may be even more important to focus on is that plenty of companies are already generating demand for their products and services, without the aid of more easing from the Fed. In fact, many put up very respectable sales gains throughout the "Great Recession", despite all of the economic turmoil. Take a look at the three new additions this week to the Hot List. One, World Acceptance Corp., is a financial that actually grew revenues by 18.4% in 2008, while also upping earnings. It followed that by upping revenues by 13.3% in 2009, and by 12.4% in its fiscal 2010 (which ended at the end of March). In the first half of fiscal 2011, its revenues rose another 12%. (The firm has also upped earnings per share in each year of the past decade.) Another Hot List newcomer, Eli Lilly, also upped revenues in 2008 and 2009, and it is on pace to do so again in 2010. And the third newbie, China MediaExpress, has been raking in the sales -- revenues more than doubled in the first quarter of 2010, and then nearly tripled in the second quarter. Companies like these show that there are firms that will find a way to generate demand -- and profits -- through even the toughest times. While much of the financial world continues to key on QE2 and other macroeconomic factors, good investors will focus on trying to identify these types of companies, and snatch them up when their shares are cheap. Right now, we are finding plenty such bargains in the market, and over the long haul I'm confident they'll help the Hot List continue its stellar long-term performance.		Editor-in-Chief: John Reese Since Inception   Hot List 151.4% S&P 500 18.3% Accuracy 56.6% Beta 1.2 YTD   Hot List 4.3% S&P 500 6.2% Since Last Issue   Hot List -0.2% S&P 500 0.9% Avg. Fundamentals   Market Cap (mil) $15,138 PE Ratio 9.5 5 Yr EPS Growth 42.0% Yield 4.9% Rel. Strength 66 Portfolio Sectors Services 3 Financial 2 Healthcare 2 Consumer Cyclical 1 Energy 1 Technology 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, 3 stocks leave our portfolio. These include: Jos. A. Bank Clothiers, Inc. (JOSB), Research In Motion Limited (Usa) (RIMM) and Aeropostale, Inc. (ARO). The Keepers 7 stocks remain in the portfolio. They are: Western Digital Corp. (WDC), Sanofi-aventis Sa (Adr) (SNY), China Automotive Systems, Inc. (CAAS), Healthspring, Inc (HS), Gamestop Corp. (GME), Dollar Tree, Inc. (DLTR) and L&l Energy, Inc. (LLEN). The Newbies We are adding 3 stocks to the portfolio. These include: Eli Lilly & Co. (LLY), World Acceptance Corp. (WRLD) and China Mediaexpress Holdings Inc (CCME). Portfolio Changes Additions   ELI LILLY & CO. LLY WORLD ACCEPTANCE CORP. WRLD CHINA MEDIAEXPRESS HOLDINGS INC CCME Deletions   JOS. A. BANK CLOTHIERS, INC. JOSB RESEARCH IN MOTION LIMITED (USA) RIMM AEROPOSTALE, INC. ARO Newcomers to the Validea Hot List Eli Lilly & Co. (LLY): Based in Indiana, this 134-year-old pharmaceutical maker's products are marketed in 143 countries around the globe. Among its most well-known products: anti-depressant/neuropathic pain fighter Cymbalta, erectile dysfunction drug Cialis, and Prozac. Lilly ($40 billion market cap) gets approval from my Peter Lynch- and Joel Greenblatt-inspired strategies. To read more about it, check out the "Detailed Stock Analysis" section below. World Acceptance Corp. (WRLD): Based in Greenville, S.C., World Acceptance ($670 million market cap) specializes in small, short-term loans, and has close to 1,000 offices in the southern and central U.S., and Mexico. Its loans are generally under $3,000 and have durations of less than 24 months, and much of its business comes from repeat customers. World Acceptance gets approval 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. China MediaExpress Holdings Inc. (CCME): This China-based firm operates a television advertising network on inner-city passenger buses in China. Its network includes digital televisions that show ads on more than 21,000 buses, many of which travel through some of China's most populous regions. China MediaExpress' shares have been hot lately, just about doubling since mid-September. My models think the firm's fundamentals show it has more room to run -- it gets approval from my Joel Greenblatt-based model and the model I base on the writings of Motley Fool creators Tom and David Gardner. Scroll down to the "Detailed Stock Analysis" section to learn more about the stock. News about Validea Hot List Stocks HealthSpring Inc. (HS): HealthSpring announced on Oct. 28 that profits grew 27% in the third quarter vs. the year-ago period. Earnings per diluted share were $0.95 while revenue was $725.2 million. Analysts had predicted earnings of $0.83 on revenue of $737 million, according to the Nashville Business Journal. The firm cited "continued favorable trends in our Medicare Advantage medical expenses and better than expected Part D membership growth and pharmacy rebates" as reasons for the profit gains. Sanofi-Aventis (SNY): Sanofi has announced that it will acquire all outstanding shares of BMP Sunstone Corporation, a Chinese specialty pharmaceutical maker, for about $520.6 million on a fully diluted basis. The acquisition will be structured as a merger of Sunstone and a wholly-owned subsidiary of Sanofi. The price per share -- $10 -- represents a 30% premium above the closing price of Sunstone's shares on Oct. 27. 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 HS HEALTHSPRING, INC Insurance (Accident & Health) 75 WDC WESTERN DIGITAL CORP. Computer Storage Devices 72 CCME CHINA MEDIAEXPRESS HOLDINGS INC Advertising 71 CAAS CHINA AUTOMOTIVE SYSTEMS, INC. Auto & Truck Parts 67 WRLD WORLD ACCEPTANCE CORP. Consumer Financial Services 67 LLEN L&L ENERGY, INC. Coal 60 LLY ELI LILLY & CO. Major Drugs 59 SNY SANOFI-AVENTIS SA (ADR) Biotechnology & Drugs 58 GME GAMESTOP CORP. Retail (Technology) 57 DLTR DOLLAR TREE, INC. Retail (Department & Discount) 57 Ticker Market Cap Date Added Start Price Current Price Return HS $1,570 5/14/2010 $17.18 $27.44 59.7% WDC $7,235 7/9/2010 $31.59 $31.50 -0.3% CCME $512 10/29/2010 TBD $15.38 TBD CAAS $425 4/16/2010 $21.39 $15.69 -26.6% WRLD $652 10/29/2010 TBD $41.63 TBD LLEN $238 10/1/2010 $8.35 $7.97 -4.6% LLY $40,533 10/29/2010 TBD $35.15 TBD SNY $90,782 9/3/2010 $30.20 $34.79 15.2% GME $2,918 9/3/2010 $19.01 $19.41 2.1% DLTR $6,512 9/3/2010 $46.03 $51.29 11.4%

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 HS   |   WDC   |   CCME   |   CAAS   |   WRLD   |   LLEN   |   LLY   |   SNY   |   GME   |   DLTR   |   HEALTHSPRING, INC Profile Strategy: Growth/Value Investor Based on: James P. O'Shaughnessy HealthSpring, Inc. (HealthSpring) is a managed care organization with a primary focus on Medicare, the federal government-sponsored health insurance program for United States citizens aged 65 and older, qualifying disabled persons and persons suffering from end-stage renal disease. As of December 31, 2009, the Company operated coordinated care Medicare Advantage plans in Alabama, Florida, Illinois, Mississippi, Tennessee, and Texas. As of January 1, 2010, it also commenced operations of Medicare Advantage plans in three counties in Northern Georgia. As of December 31, 2009, the Company's Medicare Advantage plans had over 189,000 members. The Company also offers prescription drug benefits in accordance with Medicare Part D to its Medicare Advantage plan members, in addition to providing other medical benefits (MA-PD) plans. It also offers prescription drug benefits nationally on a stand-alone basis in accordance with Medicare Part D (PDP). 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. HS, with a market cap of $1,570 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. HS, whose annual EPS before extraordinary items for the last 5 years (from earliest to the most recent fiscal year) were 0.24, 1.44, 1.51, 2.12 and 2.41, 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. HS's Price/Sales ratio of 0.54, 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. HS, whose relative strength is 95, is in the top 50 and would pass this last criterion.   WESTERN DIGITAL CORP. Profile Strategy: P/E/Growth Investor Based on: Peter Lynch Western Digital Corporation (WD) designs, develops, manufactures and sells hard drives. It sells its products worldwide to original equipment manufacturers (OEMs) and original design manufacturers (ODMs) for use in computer systems, subsystems or consumer electronics (CE) devices, and to distributors, resellers and retailers. Its hard drives are used in desktop computers, notebook computers, and enterprise applications such as servers, workstations, network attached storage, storage area networks and video surveillance equipment. Its hard drives are used in CE applications, such as digital video recorders (DVRs), and satellite and cable set-top boxes (STBs). It also sells its hard drives as stand-alone storage products by integrating them into finished enclosures, embedding application software and offering the products as WD-branded external storage appliances for personal data backup and portable or expanded storage of digital music, video and other digital data. Analysis Guru Score: 100% DETERMINE THE CLASSIFICATION: This methodology would consider WDC a "fast-grower". P/E/GROWTH RATIO: [PASS] The investor should examine the P/E (5.70) relative to the growth rate (38.09%), 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 WDC (0.15) 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. WDC, whose sales are $10,038.0 million, needs to have a P/E below 40 to pass this criterion. WDC's P/E of (5.70) 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 WDC was 5.04% last year, while for this year it is 5.69%. Since inventory has been rising, this methodology would not look favorably at the stock but would not completely eliminate it from consideration as the inventory increase (0.64%) is below 5%. EPS GROWTH RATE: [PASS] This methodology favors companies that have several years of fast earnings growth, as these companies have a proven formula for growth that in many cases can continue many more years. This methodology likes to see earnings growth in the range of 20% to 50%, as earnings growth over 50% may be unsustainable. The EPS growth rate for WDC is 38.1%, 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 WDC (7.67%) 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 WDC (16.41%) 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: [BONUS PASS] 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 WDC (33.54%) is high enough to add to the attractiveness of this company.   CHINA MEDIAEXPRESS HOLDINGS INC Profile Strategy: Growth Investor Based on: Martin Zweig China MediaExpress Holdings, Inc. (CME), through contractual arrangements with Fujian Fenzhong Media Co., Ltd. (Fujian Fenzhong), operates the television advertising network on inter-city express buses in China. The Company and its subsidiaries and variable interest entity (VIE) are engaged in the operation of mobile television advertising networks on passenger buses travelling on highways in the People's Republic of China. The Company does not conduct any substantive operations of its own, but conducts it primary business operations through Fujian Fenzhong, a VIE of a wholly owned subsidiary, Fujian Across Express Information Technology Co, Ltd. (Across Express). On October 15, 2009, CME acquired all of the issued and outstanding capital stock of Hong Kong Mandefu Holding Limited (the HKMDF), its subsidiary and VIE, and as a result, HKMDF became its direct wholly owned subsidiary. Analysis Guru Score: 77% 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. CCME's P/E is 6.71, based on trailing 12 month earnings, while the current market PE is 16.00. 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. CCME's revenue growth is 55.66%, while it's earnings growth rate is 125.51%, based on the average of the 4 and 5 year historical eps growth rates. Sales growth is not at least 85% of EPS growth so the initial part of this criteria is not met, however, since both sales growth and eps growth are greater than 30%, that requirement is waived and the company passes this test. 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 (180.3%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (137.2%) of the current year. Sales growth for the prior must be greater than the latter. For CCME 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. CCME's EPS ($0.80) pass this test. QUARTERLY EARNINGS ONE YEAR AGO: [PASS] The EPS for the quarter one year ago must be positive. CCME's EPS for this quarter last year ($0.40) 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. CCME's growth rate of 100.00% passes this test. EARNINGS GROWTH RATE FOR THE PAST SEVERAL QUARTERS: [FAIL] Compare the earnings growth rate of the past four quarters with long-term EPS growth rate. Earnings growth in the past 4 quarters should be at least half of the long-term EPS growth rate. A stock should not be considered if it posted several quarters of skimpy earnings. CCME had 2 quarters of skimpy growth in the last 2 years. 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, -7.41%, (versus the same three quarters a year earlier) is less than the growth rate of the current quarter earnings, 100.00%, (versus the same quarter one year ago) then the stock passes. EPS GROWTH FOR CURRENT QUARTER MUST BE GREATER THAN THE HISTORICAL GROWTH RATE: [FAIL] The EPS growth rate for the current quarter, 100.00% must be greater than or equal to the historical growth which is 125.51%. Since this is not the case CCME would therefore fail 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. CCME, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were 0.04, 0.00, 0.33, 1.26, and 1.81, 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. CCME's long-term growth rate of 125.51%, based on the average of the 4 and 5 year historical eps growth rates, passes this test. TOTAL DEBT/EQUITY RATIO: [PASS] A final criterion is that a company must not have a high level of debt. A high level of total debt, due to high interest expenses, can have a very negative effect on earnings if business moderately turns down. If a company does have a high level, an investor may want to avoid this stock altogether. CCME's Debt/Equity (0.00%) is not considered high relative to its industry (104.51%) 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 CCME, 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.   CHINA AUTOMOTIVE SYSTEMS, INC. Profile Strategy: Growth Investor Based on: Martin Zweig China Automotive Systems, Inc. (China Automotive) is a holding company and has no significant business operations or assets other than its interest in Great Genesis Holdings Limited (Genesis). Through Genesis, the Company manufactures power steering systems and other component parts for automobiles. All operations are conducted through eight Sino-foreign joint ventures in China and a wholly owned subsidiary in the United States. The Company has business relations with more than 60 vehicle manufacturers, including FAW Group and Dongfeng Auto Group, automobile manufacturers in China; Shenyang Brilliance Jinbei Co., Ltd., light vehicle manufacturer in China; Chery Automobile Co., Ltd, state-owned car manufacturer in China, and Xi'an BYD Auto Co., Ltd and Zhejiang Geely Automobile Co., Ltd., car manufacturers. 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. CAAS's P/E is 14.00, based on trailing 12 month earnings, while the current market PE is 16.00. 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. CAAS's revenue growth is 38.10%, while it's earnings growth rate is 42.09%, based on the average of the 3, 4 and 5 year historical eps growth rates. Therefore, CAAS 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 (36.2%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (88.4%) of the current year. Sales growth for the prior must be greater than the latter. For CAAS 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. CAAS's EPS ($0.28) pass this test. QUARTERLY EARNINGS ONE YEAR AGO: [PASS] The EPS for the quarter one year ago must be positive. CAAS's EPS for this quarter last year ($0.19) 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. CAAS's growth rate of 47.37% 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 CAAS is 21.04%. This should be less than the growth rates for the 3 previous quarters, which are 170.00%, 1,050.00%, and 325.00%. CAAS 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, 320.00%, (versus the same three quarters a year earlier) is greater than the growth rate of the current quarter earnings, 47.37%, (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 CAAS is 47.4%, 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, 47.37% must be greater than or equal to the historical growth which is 42.09%. CAAS 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. CAAS, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were 0.15, 0.21, 0.37, 0.46 and 0.78, 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. CAAS's long-term growth rate of 42.09%, 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. CAAS's Debt/Equity (66.19%) is considered high relative to its industry (40.17%) 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 CAAS, this criterion has not been met (insider sell transactions are 2, while insiders buying number 0). Despite the lack of an insider buy signal, there also is not an insider sell signal, so the stock passes this criterion.   WORLD ACCEPTANCE CORP. Profile Strategy: P/E/Growth Investor Based on: Peter Lynch World Acceptance Corporation is engaged in the small-loan consumer finance business, offering short-term small loans, medium-term larger loans, related credit insurance and ancillary products and services to individuals. The Company offers standardized installment loans of between $300 and $4,000 through 990 offices in South Carolina, Georgia, Texas, Oklahoma, Louisiana, Tennessee, Illinois, Missouri, New Mexico, Kentucky, Alabama and Mexico as of March 31, 2010. The Company serves individuals with limited access to consumer credit from banks, savings and loans, other consumer finance businesses and credit card lenders. In the United States offices, the Company also offers income tax return preparation services and access to refund anticipation loans through a third party bank to its customers and others. During the fiscal year ended March 31, 2010 (fiscal 2010), the Company opened 48 offices. Analysis Guru Score: 93% DETERMINE THE CLASSIFICATION: This methodology would consider WRLD a "fast-grower". P/E/GROWTH RATIO: [PASS] The investor should examine the P/E (8.24) relative to the growth rate (21.10%), 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 WRLD (0.39) 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. WRLD, whose sales are $464.7 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. 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 WRLD is 21.1%, based on the average of the 3, 4 and 5 year historical eps growth rates, which is considered very good. TOTAL DEBT/EQUITY RATIO: [NEUTRAL] WRLD is a financial company so debt to equity rules are not applied to determine the company's financial soundness. EQUITY/ASSETS RATIO: [PASS] This methodology uses the Equity/Assets Ratio as a way to determine a financial intermediary's health, as it is a better measure than the Debt/Equity Ratio. WRLD's Equity/Assets ratio (59.00%) is extremely healthy and above the minimum 5% this methodology looks for, thus passing the criterion. RETURN ON ASSETS: [PASS] This methodology uses Return on Assets as a way to measure a financial intermediary's profitability. WRLD's ROA (13.44%) is above the minimum 1% that this methodology looks for, thus passing the criterion. 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 WRLD (25.75%) is too low to add to the attractiveness of the stock. Keep in mind, however, that it does not adversely affect the company as it is a bonus criteria. NET CASH POSITION: [NEUTRAL] Another bonus for a company is having a Net Cash/Price ratio above 30%. Lynch defines net cash as cash and marketable securities minus long term debt. According to this methodology, a high value for this ratio dramatically cuts down on the risk of the security. The Net Cash/Price ratio for WRLD (-35.54%) 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.   L&L ENERGY, INC. Profile Strategy: Growth Investor Based on: Martin Zweig L & L Energy, Inc. (L & L) is engaged in the businesses of coal mining, coal washing, coal coking and coal wholesaling. The Company's operations are conducted in Yunnan and Guizhou provinces in the southwest region of the People's Republic of China. As of April 30, 2010, the Company had three operating subsidiaries: KMC, which has coal wholesale operations and Ping Yi Coal Mine (mining operations PYC); two coal mining operations (DaPuAn Mine and SuTsong Mine), including DaPuAn's coal washing operations (the 2 Mines or LLC), and L&L Yunnan Tianneng Industry Co. Ltd. (including Hong Xing coal washing and ZoneLin coking operations) (TNI). 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. LLEN's P/E is 5.73, based on trailing 12 month earnings, while the current market PE is 16.00. 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. LLEN's revenue growth is 72.62%, while it's earnings growth rate is 149.55%, based on the average of the 3, 4 and 5 year historical eps growth rates. Sales growth is not at least 85% of EPS growth so the initial part of this criteria is not met, however, since both sales growth and eps growth are greater than 30%, that requirement is waived and the company passes this test. 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 (394.5%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (238.9%) of the current year. Sales growth for the prior must be greater than the latter. For LLEN 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. LLEN's EPS ($0.36) pass this test. QUARTERLY EARNINGS ONE YEAR AGO: [PASS] The EPS for the quarter one year ago must be positive. LLEN's EPS for this quarter last year ($0.12) 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. LLEN's growth rate of 200.00% 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 LLEN is 74.78%. This should be less than the growth rates for the 3 previous quarters, which are 180.00%, 277.78%, and 150.00%. LLEN 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, 191.43%, (versus the same three quarters a year earlier) is less than the growth rate of the current quarter earnings, 200.00%, (versus the same quarter one year ago) then the stock passes. EPS GROWTH FOR CURRENT QUARTER MUST BE GREATER THAN THE HISTORICAL GROWTH RATE: [PASS] The EPS growth rate for the current quarter, 200.00% must be greater than or equal to the historical growth which is 149.55%. LLEN 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. LLEN, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were 0.03, 0.06, 0.01, 0.47, and 1.21, 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. LLEN's long-term growth rate of 149.55%, based on the average of the 3, 4 and 5 year historical eps growth rates, passes this test. TOTAL DEBT/EQUITY RATIO: [PASS] A final criterion is that a company must not have a high level of debt. A high level of total debt, due to high interest expenses, can have a very negative effect on earnings if business moderately turns down. If a company does have a high level, an investor may want to avoid this stock altogether. LLEN's Debt/Equity (4.57%) is not considered high relative to its industry (79.05%) 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 LLEN, this criterion has not been met (insider sell transactions are 2, while insiders buying number 1). Despite the fact that insider sells out number insider buys for this company, Zweig considers even one insider buy transaction enough to prevent an insider sell signal, therefore there is not an insider sell signal and the stock passes this criterion.   ELI LILLY & CO. Profile Strategy: Contrarian Investor Based on: David Dreman Eli Lilly and Company discovers, develops, manufactures, and sells products in one business segment, pharmaceutical products. The Company also has an animal health business segment. It manufactures and distributes its products through facilities in the United States, Puerto Rico, and 17 other countries. Its products are sold in approximately 128 countries. The Company's products include Neuroscience products, Endocrinology products, Oncology products, Cardiovascular products, Animal health products, and other pharmaceuticals. In the United States, Eli Lilly and Company distributes pharmaceutical products principally through independent wholesale distributors, with some sales directly to pharmacies. In July 2010, the Company acquired Alnara Pharmaceuticals, Inc. Analysis Guru Score: 76% 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. LLY has a market cap of $40,533 million, therefore passing the test. EARNINGS TREND: [FAIL] A company should show a rising trend in the reported earnings for the most recent quarters. LLY's EPS for the latest quarter is not greater than the prior quarter, (from earliest to most recent quarter) 1.22, 1.18. Hence the stock fails this test, but the investor should evaluate this company qualitatively to see if it qualifies under this methodology's "exception rule". 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. LLY fails this test as its EPS growth rate for the past 6 months (4.42%) does not beat that of the S&P (24.08%). This methodology would utilize four separate criteria to determine if LLY 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: [PASS] The P/E of a company should be in the bottom 20% of the overall market. LLY's P/E of 8.06, based on trailing 12 month earnings, meets the bottom 20% criterion (below 9.30), and therefore passes this test. PRICE/CASH FLOW (P/CF) RATIO: [FAIL] The P/CF of a company should be in the bottom 20% of the overall market. LLY's P/CF of 7.17 does not meet the bottom 20% criterion (below 5.65), and therefore fails 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. LLY's P/B is currently 4.08, which does not meet the bottom 20% criterion (below 0.78), 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%). LLY's P/D of 17.92 meets the bottom 20% criterion (below 20.66 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: [PASS] A prospective company must have a strong Current Ratio (greater than or equal to the average of it's industry [1.74] or greater than 2). This is one identifier of financially strong companies, according to this methodology. LLY's current ratio of 1.97 passes the test. PAYOUT RATIO: [FAIL] A good indicator that a company has the ability to raise its dividend is a low payout ratio. The payout ratio for LLY is not available, and hence no opinion can be rendered on this variable. 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 17.28%, and would consider anything over 27% to be staggering. The ROE for LLY of 47.55% 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. LLY's pre-tax profit margin is 27.40%, thus passing this criterion. YIELD: [PASS] The company in question should have a yield that is high and that can be maintained or increased. LLY's current yield is 5.58%, while the market yield is 2.71%. LLY passes this test. LOOK AT THE TOTAL DEBT/EQUITY: [PASS] 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% or should be less than the average Debt/Equity for its industry of 123.96%. LLY's Total Debt/Equity of 72.33% is considered acceptable.   SANOFI-AVENTIS SA (ADR) Profile Strategy: P/E/Growth Investor Based on: Peter Lynch 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. The Company is also present in animal health products through Merial Limited (Merial). In its pharmaceutical activity, the Company 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 in Consumer Health Care (CHC) and other prescription drugs, including generics. 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. Analysis Guru Score: 93% DETERMINE THE CLASSIFICATION: SNY is considered a "True Stalwart", according to this methodology, as its earnings growth of 17.68% lies within a moderate 10%-19% range and its annual sales of $44,515 million are greater than the multi billion dollar level. This methodology looks for the "Stalwart" securities to gain 30%-50% in value over a two year period if they can be purchased at an attractive price based on the P/E to Growth ratio. SNY is attractive if SNY can hold its own during a recession. 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 SNY was 12.46% last year, while for this year it is 14.45%. Since inventory has been rising, this methodology would not look favorably at the stock but would not completely eliminate it from consideration as the inventory increase (1.99%) is below 5%. YIELD ADJUSTED P/E TO GROWTH (PEG) RATIO: [PASS] The Yield-adjusted P/E/G ratio for SNY (0.48), based on the average of the 3 and 4 year historical eps growth rates, is excellent. EARNINGS PER SHARE: [PASS] The EPS for a stalwart company must be positive. SNY's EPS ($3.32) would satisfy this criterion. TOTAL DEBT/EQUITY RATIO: [PASS] This methodology would consider the Debt/Equity ratio for SNY (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 SNY (5.92%) 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 SNY (-0.11%) 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.   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 (8.29) relative to the growth rate (31.10%), 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 (0.27) 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 $9,240.5 million, needs to have a P/E below 40 to pass this criterion. GME's P/E of (8.29) 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 31.1%, 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 GME (16.94%) 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 GME (14.73%) 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 (15.31%) 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.   DOLLAR TREE, INC. Profile Strategy: Value Investor Based on: Benjamin Graham Dollar Tree, Inc. (Dollar Tree) is an operator of discount variety stores offering merchandise at the fixed price of one dollar. At January 30, 2010, the Company operated 3,806 discount variety retail stores. Approximately 3,650 of these stores sell substantially all items for one dollar or less. The remaining stores, operating as Deal$, sell items for one dollar or less but also sell items for more than one dollar. Dollar Tree's stores operate under the names of Dollar Tree, Deal$ and Dollar Bills. Analysis Guru Score: 71% SECTOR: [PASS] DLTR 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. DLTR's sales of $5,537.8 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. DLTR's current ratio of 2.56 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 DLTR is $250.0 million, while the net current assets are $769.8 million. DLTR 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. DLTR's EPS growth over that period of 131.5% passes the EPS growth test. P/E RATIO: [FAIL] 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. DLTR's P/E of 19.57 (using the current PE) fails this test. PRICE/BOOK RATIO: [FAIL] The Price/Book ratio must also be reasonable. That is, the Price/Book multiplied by P/E cannot be greater than 22. DLTR's Price/Book ratio is 4.73, while the P/E is 19.57. DLTR fails 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 JOSB JOS. A. BANK CLOTHIERS, INC. Retail (Apparel) 69 MICC MILLICOM INTERNATIONAL CELLULAR SA (USA) Communications Services 60 T AT&T INC. Communications Services 57 RTN RAYTHEON COMPANY Aerospace & Defense 56 LULU LULULEMON ATHLETICA INC. Apparel/Accessories 55 EZPW EZCORP, INC. Consumer Financial Services 53 ARO AEROPOSTALE, INC. Retail (Apparel) 52 EME EMCOR GROUP, INC. Construction Services 51 CSH CASH AMERICA INTERNATIONAL, INC. Misc. Financial Services 49 ARCC ARES CAPITAL CORPORATION Misc. Financial Services 48

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