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Executive Summary November 9, 2012

The Economy

While the elections -- and their impact on how the U.S. will deal with the looming "fiscal cliff" -- were foremost on many investors' minds over the past two weeks, the economy was continuing to flash some positive signals.

The October jobs report, for example, was one of the best we've seen in a while, with 184,000 private sector jobs created during the month, according to the Labor Department. The unemployment rate rose slightly, to 7.9%, but that appeared to be because more people were looking for jobs -- the number of people not in the labor force declined by 369,000. The "U-6" rate (which unlike the headline number includes discouraged workers who've given up looking for work and part-time workers who can't get full-time jobs) declined slightly to 14.6%. That's still very elevated, but it's down from 16.0% last year at this time.

Manufacturing activity, meanwhile, increased for the second straight month in October, doing so at a slightly faster pace than it did in September, according to the Institute for Supply Management. The group's New Orders sub-index also increased at an accelerating rate, and the employment sub-index showed that employment conditions continue to improve. ISM's non-manufacturing index showed that the service sector also expanded in October, for the 34th straight month. Its employment sub-index indicated that hiring was improving for the third straight month, while its prices sub-index remained quite elevated -- a sign that inflationary pressures are something to keep an eye on.

The housing market is continuing to show signs of recovery. Home prices in 20 major cities rose on average by 0.9% in August, according to the latest S&P/Case-Shiller Home Price Indices data. Prices were up 2.0% over the year-ago period. While the market isn't booming, it has now been improving for several months, a great sign.

Housing was a major factor in a better-than-expected third-quarter gross domestic product report. GDP was up 2.0% for the quarter, showing that growth accelerated after the second quarter's 1.3% growth. Residential investment accounted for about a sixth of the increase, according to the Commerce Department. Government spending was also a big factor; it jumped nearly 10% in real terms during the quarter, driven by an increase in defense spending. The big driver behind the growth, however, was the U.S. consumer -- personal consumption expenditures accounted for about 70% of the GDP increase.

Speaking of consumers, the Commerce Department's latest monthly consumer data showed that disposable personal income increased 0.4% in September. But real disposable personal income actually declined, by less than 0.1%. Personal consumption expenditures, meanwhile, jumped 0.8%, or 0.4% in real terms. Of course, the data are somewhat of a double-edged sword -- increased spending boosts the economy, at least in the short term, but it seems that Americans are dipping into their savings in order to increase their spending. The personal savings rate fell from 3.7% in August to 3.3% in September, the third lowest monthly reading since the start of 2008.

Since our last newsletter, the S&P 500 returned -2.5%, while the Hot List returned -0.3%. So far in 2012, the portfolio has returned 8.8% vs. 9.5% for the S&P. Since its inception in July 2003, the Hot List is far outpacing the index, having gained 146.0% vs. the S&P's 37.7% gain.

Peering over the Precipice

Following Tuesday's elections, stocks plummeted, with the Dow Jones Industrial Average posting its biggest loss of the year and the S&P 500 enduring its biggest decline in about five months. A number of factors sparked the plunge. Wall Street no doubt was disappointed that President Obama was re-elected instead of Mitt Romney, who was perceived to be more pro-business, and negative debt-related news coming out of Europe didn't help.

Perhaps the biggest reason for the sharp market declines, however, was the fact that the President/Senate/House dynamic was unchanged by the election. We still have a Democratic President and Senate, and a Republican House of Representatives, and, while some of the players have changed, the ideologies on both sides don't seem to have shifted much. With the "fiscal cliff" -- the combination of tax hikes and budget cuts that will go into effect in 2013 if no action is taken -- looming, confidence isn't too high that legislators will finally be able to reach a compromise and put the U.S. on a better fiscal path.

I for one am optimistic -- albeit very cautiously so -- that Congress and the President can get their acts together. But what if they don't? Based on how investors fled the market after the election, and the dire prognostications many pundits have been making, it's easy to think that falling off the cliff will mean disaster for the economy and market. And, no doubt, it would have some big short-term ramifications.

But a look at history shows that failure to avoid the cliff doesn't mean disaster. That's what O'Shaughnessy Asset Management, the firm headed by James O'Shaughnessy (one of the gurus upon whom I base my strategies) found in a recent study. Looking at data going back to 1926, OSAM looked at how the stock market has fared during times of varying tax levels, since tax increases are one of the biggest concerns surrounding the cliff. "Our analysis suggests that, across history, tax rates and changes to those rates generally have not meaningfully impacted equity returns," Travis Fairchild and Patrick O'Shaughnessy wrote in a paper detailing the study. The analysis included tax rates involved with dividends -- which are set to jump dramatically if we go off the cliff. "Surprisingly, dividend-paying stocks performed best when taxes were highest," Fairchild and O'Shaughnessy wrote.

Here's what OSAM did: It separated all years from 1926-2011 into three categories -- high, middle, low -- based on the average effective tax rate for a family earning $250,000. It found that in the one-third of years with the lowest effective tax rate, the S&P 500 gained just 3.7% annualized, and produced an average dividend yield of 3.7%. In the third of years with the highest tax rate, the index gained 11.3% annualized, with a yield of 4.5%. In the middle third of years, it gained 13.9%, and yielded 3.3%.

The group also looked at how the market performed during the 10 years when taxes increased the most from the prior year, and the 10 years when taxes decreased the most. On average, in the year after the 10 highest increases occurred, stocks gained 8.4%; the average three-year annualized return was 7.9%, and the average five-year annualized return was 15.7%. Following the largest decreases, one-year returns averaged 13.0%; three-year annualized returns were 8.4%; and five-year annualized returns averaged 13.4%. "Put simply," Fairchild and O'Shaughnessy wrote, "large tax increases or decreases have not foretold doom or boom for equity returns."

OSAM found a similar situation with dividends. The outperformance of high-dividend stocks was basically the same, on average, during periods when dividends were taxed as regular income, periods when dividends were exempt from taxation, and periods when dividends were taxed at 15%. They found just one example of a dividend tax increase in the neighborhood of what the fiscal cliff could cause (1954-55), and found that high-dividend stocks outperformed following that increase as well.

Fairchild and O'Shaughnessy say they aren't arguing that large tax hikes are good for stocks, or that there is a causal relationship between high taxes and strong dividend stock returns. "But it does contradict the projections of those calling for a sell off in dividend-paying stocks as the fiscal cliff nears," they say, adding that they think valuation declines in high-dividend stocks "should be short-term and unsustainable" and would likely lead to a big buying opportunity. They say now is not a time to panic, and that what should drive stock returns in the future is the quality of companies and the price of their shares -- not tax rates. I wholeheartedly agree.

But What About Obama?

For those concerned with the loss of the Presidential candidate who was presumed to be more business-friendly, history paints a similar picture. While the Republican party is generally considered to be more business and market friendly than the Democratic party, the market has actually performed significantly better with Democratic Commanders-in-Chief in charge. Since 1901, the market has averaged 12.1% annual returns under Democratic Presidents, and just 5.1% under Republican Presidents, according to S&P Capital IQ. GDP and corporate profits have also fared better under Democratic Presidents than Republicans.

Of course, there are plenty of examples of Republican Presidents whose terms involved strong market gains. The market averaged nearly 11% annual returns during President Eisenhower's eight years, and more than 10% annually during President Reagan's two terms. And Democratic Presidents have seen sub-par markets, with both John F. Kennedy and Jimmy Carter in office while the market posted annualized returns of less than 7% (all those figures according to Bloomberg Financial Markets data, via The New York Times).

So what does all of that mean? Are Democrats better stewards of the economy and financial markets than Republicans? Trying to answer such a question is nearly impossible. For one thing, no two Democrats are the same, and no two Republicans are the same (no matter what one party will try to tell you about the other). Often, in fact, a President's actions will play against stereotypes. Kennedy, a Democrat, oversaw sharp tax cuts for high-income Americans during his tenure, while the first President Bush raised taxes during his. Clinton's actions showed far more fiscal conservativeness than those of the second President Bush, as he balance the budget while Bush spent far beyond the nation's means.

In addition, a President needs to have a friendly enough Congress to carry out his plans. And, if that's the case, the impact of those plans may not be felt immediately. Some policies championed by one President may not have their full effect until a new President is in office, making it very hard to judge the cause-and-effect relationship a President's policies have on the economy and market?

Even if you could judge the impact of a President's policies on the market with a great degree of accuracy, I'm not sure you'd find much of a pattern. Economic and financial cycles are simply more powerful than any one elected official, and perhaps even more powerful than Congress and the President combined. Does anyone, for example, really believe that the Internet bubble would not have burst, and the country not gone through a recession, had Clinton been able to serve a third term? Would the housing crisis have been averted if John Kerry won the Presidency in 2004? Could John McCain have stopped the financial crisis in its tracks if he captured the White House in '08? I find any of those scenarios highly unlikely. The forces at play were simply too great.

Listen, in the short term, there's no doubt that the emotions raised by the fiscal cliff issue can and probably will have a significant impact on the stock market. We've already seen that. But the point is that investing is about the long term. And there's little evidence showing that an election, or the sort of tax hikes involved in the fiscal cliff, will lead to a long-term destruction of wealth for investors.

Regardless of what policy actions our leaders take (or don't take) in the next four years, good companies should continue to make money, and if their shares are reasonably priced, then many of those stocks will rise. New technologies, and perhaps new industries altogether, will arise and possibly have more impact on markets than any President or Congress could. (Consider, for example, whether any elected official or body has had more of an impact on the market than the invention of the automobile, or of the personal computer.) Companies will take advantage of new, blossoming markets overseas. Cyclical forces beyond the reach of any President will continue to play out. And investors who focus on strong companies with attractively valued shares should continue to fare well over the long haul, even if there are significant bumps in the road over the short term.

 
Editor-in-Chief: John Reese










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Guru Spotlight: Martin Zweig

Generally, my Guru Strategies have a distinct value bias. The majority of these models -- ranging from my Benjamin Graham approach to my Warren Buffett model to my Joseph Piotroski strategy -- are focused on finding good, often beaten-down stocks selling at bargain prices; that is, they target value stocks.

But that doesn't mean that all of my gurus were cemented on the value side of the growth/value pendulum. In fact, the guru we'll examine today, Martin Zweig, used a methodology that was dominated by earnings-based criteria. He looked at a stock's earnings from a myriad of angles, wanting to ensure that he was getting stocks that had been producing strong growth over the long haul and even better growth recently -- and that their growth was coming from the right sources.

Zweig's thoroughness paid off. His Zweig Forecast was one of the most highly regarded investment newsletters in the country, ranking number one for risk-adjusted returns during the 15 years that Hulbert Financial Digest monitored it. It produced an impressive 15.9 percent annualized return during that time. Zweig has also managed several mutual funds, and was co-founder of Zweig Dimenna Partners, a multibillion-dollar New York-based firm that has been ranked in the top 15 of Barron's list of the most successful hedge funds.

Before we delve into Zweig's strategy, a few words about the man himself. While some of the gurus we've looked at in recent Guru Spotlights -- Buffett and John Neff in particular come to mind -- lived modest lifestyles, Zweig put his fortune to use in some pretty fun, flashy ways. He has owned what Forbes reported was the most expensive apartment in New York City, a penthouse atop Manhattan's Pierre Hotel that was at one time valued at more than $70 million. He's also an avid collector of a variety of different kinds of memorabilia. The Wall Street Journal has reported that he's owned such one-of--a-kind items as Buddy Holly's guitar, the gun from Dirty Harry, the motorcycle from Easy Rider, and Michael Jordan's jersey from his rookie season with the Chicago Bulls.

A Serious Strategy

Zweig may spend his cash on some flashy, fun items, but the strategy he used to compile that cash was a disciplined, methodical approach. His earnings examination of a firm spanned several categories:

Trend of Earnings: Earnings should be higher in the current quarter than they were a year ago in the same quarter.

Earnings Persistence: Earnings per share should have increased in each year of the past five-year period; EPS should also have grown in each of the past four quarters (vs. the respective year-ago quarters).

Long-Term Growth: EPS should be growing by at least 15 percent over the long term; a growth rate over 30 percent is exceptional.

Earnings Acceleration: EPS growth for the current quarter (vs. the same quarter last year) should be greater than the average growth for the previous three quarters (vs. the respective three quarters from a year ago). EPS growth in the current quarter also should be greater than the long-term growth rate. These criteria made sure that Zweig wasn't getting in late on a stock that had great long-term growth numbers, but which was coming to the end of its growth run.

While Zweig's EPS focus certainly puts him on the "growth" side of the growth/value spectrum, his approach was by no means a growth-at-all-costs strategy. Like all of the gurus I follow, he included a key value-based component in his method. He made sure that a stock's price/earnings ratio was no greater than three times the market average, and no greater than 43, regardless of what the market average was. (He also didn't like stocks with P/Es less than 5, because they could be indicative of an outright dog that investors were wisely avoiding.)

In addition, Zweig wanted to know that a firm's earnings growth was sustainable over the long haul. And that meant that the growth was coming primarily from sales -- not cost-cutting or other non-sales measures. My Zweig model requires a firm's revenue growth to be at least 85 percent of EPS growth. If a stock fails that test but its revenues are growing by at least 30 percent a year, it passes, however, since that is still a very strong revenue growth rate.

Like earnings growth, Zweig believed sales growth should be increasing. My model thus requires that a stock's sales growth for the most recent quarter (vs. the year-ago quarter) to be greater than the previous quarter's sales growth rate (vs. the year-ago quarter).

Finally, Zweig also wanted to makes sure a firm's growth wasn't driven by unsustainable amounts of leverage (a key observation given all that's happened recently). Realizing that different industries require different debt loads, he looked for stocks whose debt/equity ratios were lower than their industry average.

Macro Issues

There's one more thing you should know about Zweig. He relied a good amount on technical factors to adjust how much of his portfolio he put into stocks. Some of the indicators he used to move in and out of the market included the Federal Reserve's discount rate; installment debt levels; and the prime rate. His mottos included "Don't fight the Fed" (meaning investors should be more bullish when interest rates were low or falling) and "Don't fight the tape" (which related to his practice of getting more bullish or bearish based on market trends).

Those rules are tough for an individual investor to put into practice; Zweig used what he called a "Super Model" that meshed all of his indicators into a system that determined how bullish or bearish he was. But over the years, I've found that using only the quantitative, fundamental-based criteria Zweig outlined in his book can produce very strong results. My Zweig-inspired 10-stock portfolio has been a very strong performer since its July 2003 inception, returning 87.3%, or 7.0% per year, while the S&P 500 has gained just 39.4%, or 3.6% per year (through Nov. 7). This year has been a difficult one for the portfolio, which is down about 2% while the S&P is up about 11%. But its stellar long-term track record indicates that it should bounce back strong.

The model tends to choose stocks from a variety of areas -- it goes where the growth is. Here are the portfolio's current holdings:

Altisource Portfolio Solutions S.A. (ASPS)
Fred's, Inc. (FRED)
Monster Beverage Corp. (MNST)
MWI Veterinary Supply (MWIV)
Syntel, Inc. (SYNT)
Triumph Group Inc. (TGI)
World Acceptance Corp. (WRLD)
LKQ Corporation (LKQ)
Nu Skin Enterprises, Inc. (NUS)
Duff & Phelps Corp. (DUF)


As you might expect with a growth strategy, the Zweig portfolio tends not to hold on to stocks for a long time. Usually it will hold a stock for a few months, though it is not averse to longer periods if the stock continues to be a prospect for more growth.

What I really like about the Zweig strategy is that, while it certainly would qualify as a growth approach, it doesn't look at growth in a vacuum. As you've seen, it examines earnings growth from a variety of angles, making sure that it is strong, improving, and sustainable. In doing so, it allows you to find some fast-growing growth stocks that are not paper tigers, but instead solid prospects for continued long-term success.



News about Validea Hot List Stocks

The TJX Companies Inc. (TJX): For the four-week period ended October 27, consolidated same-store sales at TJX rose 7.0% vs. the previous year, Zacks Equity Research reported, citing higher customer traffic in the U.S., Europe, and Canada. Total sales were up 11.0%. TJX also raised its third-quarter and full-year outlooks. The firm expects adjusted earnings of about 63 cents per share in the third quarter, up from the higher end of the 56 to 59 cents per share range. It expects adjusted earnings of $2.46 to $2.49 per share for the fiscal year.

SolarWinds Inc. (SWI): On Oct. 25, SolarWinds announced third-quarter diluted third-quarter earnings per share of $0.29, up from $0.28 in the year-ago period. Total revenue was a record $71.7 million, up from $53.9 million a year earlier. The firm also said it was raising its full-year 2012 guidance, according to Reuters.



The Next Issue

In two weeks, we will publish another issue of the Hot List, at which time we will rebalance the portfolio. If you have any questions, please feel free to contact us at hotlist@validea.com.


Current Portfolio






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

GES   |   HFC   |   NOC   |   ALV   |   ROST   |   TJX   |   MWIV   |   WRLD   |   NUS   |   SWI   |  



Guess?, Inc. (GUESS?) designs, markets, distributes and licenses apparel and accessories for men, women and children. The Company operates in five: Europe, North American Retail, Asia, North American Wholesale and Licensing. Its products are sold through retail, wholesale, e-commerce and licensing distribution channels. The lines include full collections of clothing, including jeans, pants, skirts, dresses, shorts, blouses, shirts, jackets, knitwear and intimate apparel. It also grant licenses to manufactures and distributes a range of products, including eyewear, watches, handbags, footwear, kids' and infants' apparel, leather apparel, swimwear, fragrance, jewelry and other fashion accessories. In fiscal 2012, it, along with its distributors and licensees, opened 224 stores in all concepts combined outside of the United Sates and Canada, which consisted of 120 stores in Europe and the Middle East, 89 stores in Asia and 15 stores in the combined area of Central and South America.





HollyFrontier Corporation (HollyFrontier), formerly Holly Corporation, is a petroleum refiner, which produces light products, such as gasoline, diesel fuel, jet fuel, specialty lubricant products, and specialty and modified asphalt. HollyFrontier operates in two segments: Refining and Holly Energy Partners, L.P. (HEP). The Refining segment includes the operations of its El Dorado, Tulsa, Navajo, Cheyenne and Woods Cross Refineries and NK Asphalt. The HEP segment involves all of the operations of HEP. As of December 31, 2011, it operated five refineries having a combined crude oil processing capacity of 443,000 barrels per day that serve markets throughout the Mid-Continent, Southwest and Rocky Mountain regions of the United States. The Company merged with Frontier Oil Corporation (Frontier), on July 1, 2011. On November 9, 2011, HEP acquired from the Company certain tankage, loading rack and crude receiving assets located at its El Dorado and Cheyenne Refineries.





Northrop Grumman Corporation (Northrop Grumman) provides products, services, and integrated solutions in aerospace, electronics, information and services to its global customers. As of December 31, 2011, the Company operated in four segments: Aerospace Systems, Electronic Systems, Information Systems and Technical Services. The Company conducts most of its business with the United States Government, principally the Department of Defense (DoD) and intelligence community. It also conducts business with local, state, and foreign Governments and domestic and international commercial customers. Effective as of March 31, 2011, the company completed the spin-off of Huntington Ingalls Industries, Inc. (HII). HII operates the Company's former shipbuilding business. In September 2012, it acquired M5 Network Security Pty Ltd.





Autoliv, Inc. (Autoliv) is a holding company. Autoliv is the supplier of automotive safety systems, with a range of product offerings, including modules and components for passenger and driver-side airbags, side-impact airbag protection systems, seatbelts, steering wheels, safety electronics, whiplash protection systems and child seats, as well as night vision systems, radar and other active safety systems. Autoliv has two main operating segments: airbags/seatbelt (including restraint electronics) products and active safety electronics products. In addition, in April 2010, Autoliv Inc.'s Automotive Holding AS increased its stake in Norma AS from 51% to 93.74%. Additionally, Skandinaviska Enskilda Banken AB and ING Luxembourg SA sold their 6.67% and 10% stake, respectively, held in Norma AS. In November 2011, the Company acquired the airbag cushion cut&sew assets from Milliken. In June 2012, the Company sold its subsidiary Autoliv Mekan AB to Verktygs Allians i Hassleholm AB.





Ross Stores, Inc., along with its subsidiaries, operates two brands of off-price retail apparel and home fashion stores. As of January 28, 2012, the Company operated a total of 1,125 stores, of which 1,037 were Ross Dress for Less (Ross) locations in 29 states, the District of Columbia, and Guam, and 88 were dd's DISCOUNTS stores in seven states: 48 in California, 19 in Texas, 12 in Florida, four in Arizona, two in Georgia, two in Nevada, and one in Maryland. Ross focuses on customers primarily from middle income households, while dd's DISCOUNTS focuses on customers from more moderate income households. During the fiscal year ended January 28, 2012 (fiscal 2012), it opened 59 new Ross stores and closed ten existing stores. During fiscal 2011, it opened 21 new dd's DISCOUNTS stores. The average approximate dd's DISCOUNTS store size is 23,900 square feet. In April 2011, it purchased a 449,000 square foot warehouse for packaway storage in Riverside, California.





The TJX Companies, Inc. (TJX) is the off-price apparel and home fashions retailer in the United States and worldwide. As of January 28, 2012, the Company operated in four business segments. It has two segments in the United States, Marmaxx (T.J. Maxx and Marshalls) and HomeGoods; one in Canada, TJX Canada (Winners, Marshalls and HomeSense) and one in Europe, TJX Europe (T.K. Maxx and HomeSense). As a result of the consolidation of the A.J. Wright chain, all A.J. Wright stores ceased operations by the end of February 2011. It completed the consolidation of A.J. Wright, converting 90 of the A.J. Wright stores to T.J. Maxx, Marshalls or HomeGoods banners and closed the remaining 72 stores, two distribution centers and home office.





MWI Veterinary Supply, Inc. (MWI) is a distributor animal health products to veterinarians across the United States and United Kingdom. The Company's products include pharmaceuticals, vaccines, parasiticides, diagnostics, capital equipment, supplies, specialty products, veterinary pet food and nutritional products. MWI markets the products to veterinarians in both the companion animal and production animal markets. The Company also offers its customers a variety of value-added services, including e-commerce platform, pharmacy fulfillment, inventory management system, equipment procurement consultation, special order fulfillment, educational seminars and pet cremation. On March 21, 2011, The Company acquired Nelson Laboratories Limited Partnership (Nelson). On October 31, 2011, the Company acquired substantially all of the assets of Micro Beef Technologies, Ltd. (Micro).





World Acceptance Corporation operates a small-loan consumer finance business in 12 states and Mexico. The Company 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. As of March 31, 2012, the Company offered standardized installment loans through 1,137 offices in South Carolina, Georgia, Texas, Oklahoma, Louisiana, Tennessee, Illinois, Missouri, New Mexico, Kentucky, Alabama, Wisconsin, and Mexico. The Company serves individuals with limited access to consumer credit from banks, credit unions, other consumer finance businesses and credit card lenders. In the United States offices, the Company also offers income tax return preparation services to its customers and others.





Nu Skin Enterprises, Inc. is a global direct selling company with operations in 52 markets worldwide. The Company develops and distributes anti-aging personal care products and nutritional supplements under its Nu Skin and Pharmanex brands, respectively. The Company operates through a direct selling model with independent distributors in all of its markets except Mainland China. As of December 31, 2011, the Company had more than 850,000 distributors. The Company has two primary product categories, each operating under its own brand. It markets its personal care products under the Nu Skin brand and its nutritional supplements under the Pharmanex brand. During the year ended December 31, 2011, approximately 88% of its revenues came from its markets outside of the United States. On December 13, 2011, the Company acquired LifeGen Technologies, LLC (LifeGen).





SolarWinds, Inc. (SolarWinds) designs, develops, markets, sells and supports enterprise information technology (IT), infrastructure management software to IT professionals in organizations of all sizes. The Company's product offerings range from individual software tools to more comprehensive software products that solve problems encountered by IT professionals. Its products are designed to help management of their infrastructure, including networks, applications, storage and physical and virtual servers, as well as products for log and event management. It offers a portfolio of products for IT infrastructure management. Its products operate in three categories: Free Tools, Transactional Products and Core Products. In January 2011, it acquired Hyper9, Inc. (Hyper9). In July 2011, it acquired TriGeo Network Security, Inc. (TriGeo). In October 2011, it acquired DNS Enterprise, Inc. (DNS). In December 2011, it acquired certain assets of DameWare Development LLC (DameWare).





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.





Disclaimer


The names of individuals (i.e., the 'gurus') appearing in this report are for identification purposes of his methodology only, as derived by Validea.com from published sources, and are not intended to suggest or imply any affiliation with or endorsement or even agreement with this report personally by such gurus, or any knowledge or approval by such persons of the content of this report. All trademarks, service marks and tradenames appearing in this report are the property of their respective owners, and are likewise used for identification purposes only.

Validea is not registered as a securities broker-dealer or investment advisor either with the U.S. Securities and Exchange Commission or with any state securities regulatory authority. Validea is not responsible for trades executed by users of this site based on the information included herein. The information presented on this website does not represent a recommendation to buy or sell stocks or any financial instrument nor is it intended as an endorsement of any security or investment. The information on this website is generic by nature and is not personalized to the specific situation of any individual. The user therefore bears complete responsibility for their own investment research and should seek the advice of a qualified investment professional prior to making any investment decisions.

Performance results are based on model portfolios and do not reflect actual trading. Actual performance will vary based on a variety of factors, including market conditions and trading costs. Past performance is not necessarily indicative of future results. Individual stocks mentioned throughout this web site may be holdings in the managed portfolios of Validea Capital Management, a separate asset management firm founded by Validea.com founder John Reese. Validea Capital Management, which is a separate legal entity and an SEC registered investment advisory firm, uses, in part, the strategies on the web site to select stocks for its clients.