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Executive Summary	August 2, 2013

The Economy While economic growth remains tepid, it has been better than expected lately. That -- and continuing strength in the housing market -- have helped keep stocks near all-time highs over the past fortnight. The tepid growth was evidenced by the Commerce Department's report that gross domestic product grew at a 1.7% pace in the second quarter. Improvements in nonresidential fixed investment and in exports, a smaller decrease in federal government spending, and an upturn in state and local government spending all helped GDP accelerate a bit from its 1.1% first-quarter pace, however, and exceed analysts' estimates of about 1.0%. For what it's worth, the government also revised past GDP data, which showed that growth was 2.8% last year, vs. previous estimates of 2.2%. The job market, meanwhile, continues to show improvement. Private payroll processor ADP said that 200,000 jobs were added to private, nonfarm payrolls in July, the most this year. New claims for unemployment have declined since our last newsletter, and are now more than 10% below their year-ago level. The Labor Department is slated to announce its overall July job numbers today, and we'll see if its data is similar to ADP's. Elsewhere, manufacturing activity surged in July, according to the Institute for Supply Management. Its manufacturing index jumped from 50.9 to 55.4, the highest it's been in more than two years. The group's new orders and employment sub-indices also jumped, boding well for the future. The housing market continues to be a big bright spot for the economy. New home sales hit a five-year high, rising 8.3% in June, according to the Census Bureau. They are now more than 41% above where they were one year ago, and sales prices are up 7.4% year over year. Existing home sales fell 1.2%in June, according to the National Association of Realtors. But they were still 8.2% above their year-ago pace, and the median sales price was 13.5% above its year-ago level. The S&P/Case-Shiller Home Price Indices also showed that prices are continuing to rise. New data showed that in May, the 10- and 20-city composite indices both rose about 1% on a seasonally adjusted basis. The 10-city is now 11.8% above its year-ago level, while the 20-city is up 12.2%. Since our last newsletter, the S&P 500 returned 1.0%, while the Hot List returned 3.5%. So far in 2013, the portfolio has returned 31.9% vs. 19.7% for the S&P. Since its inception in July 2003, the Hot List is far outpacing the index, having gained 257.7% vs. the S&P's 70.6% gain. Got Value? The stock market seems to have overcome its mid-May to late-June "taper tantrum" -- the decline that appeared to have been sparked by fears that the Federal Reserve would start tapering its huge asset-purchasing program -- with the S&P continuing to flirt with the previously unsurpassed 1,700 mark. The rebound since late June has been bolstered by some solid numbers from the housing, jobs, and industrial areas of the economy, but many are still thinking that, all in all, the market has come too far, too fast. It's been about a full quarter since we last looked at broader market valuations, and the market's recent run makes it a good time to check back in. As always, let's start with earnings. Using the S&P 500's July 30 closing price of 1685.96 the index is trading for about 18.4 times trailing 12-month (TTM) as-reported earnings per share, down slightly from 18.5 in early May, when last we checked in. It trades for 16.9 times TTM operating EPS, up from 16.5 in early May. Using projected earnings for the next year, the operating figure is 14.6, up slightly from 14.4 in May, and the as-reported figure is 15.5, up a decent amount from 14.3. Overall, P/Es are a bit higher than they were a quarter ago, and up significantly over the past nine months or so. But these earnings-related valuations are far from exuberant; they're within what I'd say is the "fair value" range, particularly in a low-interest-rate environment. The S&P's price/sales ratio, meanwhile, remains where it was three months ago, at 1.4, according to Morningstar.com. Its price/book ratio also remains at 2.1. From 1978 through early 2011, the average S&P price/book ratio was about 2.4, according to data from Ned Davis Research and Comstock Partners, so that figure stacks up quite well. The current price/sales ratio is higher than the historical average cited by Comstock and Ned Davis. But again, it doesn't seem exuberant -- my James O'Shaughnessy-based growth model considers P/S ratios of up to 1.5 to be indicative of good values. Dividend yields, meanwhile, remain attractive, thought they've dipped slightly to 2.2% (from 2.3%) over the past three months. But for the first time in a couple years, the S&P's dividend yield is significantly lower than the yield on 10-year Treasury bonds, which is about 2.6%. It's a rarity for the 10-year to yield less than the S&P, so perhaps this is simply a sign of a return to greater normalcy. Still, it does mean a bit more competition for stocks. One figure that continues to rise is the Stock Market/GDP ratio, which compares the market cap of the Wilshire Total Market Index to gross domestic product. It is now 111.8%, up from about 109% in May (and 89.5% last November), according to GuruFocus.com. That puts it in the "Modestly Overvalued" range (90% to 115%), based on the site's analysis of historical data, but it's creeping toward "significantly overvalued" territory (over 115%). The 10-year cyclically adjusted price/earnings ratio also remains high. The ratio, which uses inflation-adjusted average earnings for the past decade to smooth out short-term fluctuations, is at about 23.9, using Yale Economist Robert Shiller's earnings data. That's up a bit from 23.3 in May, and up sharply from 20.9 back in November. It's also well above the 16.5 historical average (which dates back to 1871). As I've noted before, it may be more appropriate to look at the figure in the context of its post-World War II average, which is 18.3 (after World War II, inflation became a permanent part of the U.S. economy; since inflation eats away so significantly at fixed-income assets, investors should be willing to pay higher multiples for stocks when inflation is a factor). Still, the figure is quite elevated, as it has been throughout almost the entire bull market. Tobin's Q also indicates that the market is significantly overvalued. Developed by Nobel Laureate James Tobin, the "Q" Ratio is determined by dividing the total price of the stock market by the replacement cost of all of its companies. The Federal Reserve provides data needed to make the calculation in its Flow of Funds Accounts report, though that only is released once per quarter. As of the most recent report, which came at the end of the first quarter, the Q ratio was 1.08, up from 1.02 in early May, according to an analysis done by Doug Short of Advisor Perspectives. That was significantly higher than the historical average of 0.7 using the arithmetic mean and 0.65 using the geometric mean. As has been the case for some time, the current Q indicates the market is significantly overvalued, but it's not nearly as high as it has gotten at some market tops. All in all, the broader market doesn't look cheap, but it doesn't look overly expensive either; the totality of the data may suggest that prices are on the higher end of the "fair value" range. And that's what you'd expect to see in a mature bull market. You're not going to find market-wide, dirt-cheap valuations four-and-a-half years into a bull. But while valuations are significantly higher than they were, say, nine months ago, they aren't in the "exuberant" range. With valuations having moved higher over the past year, stock-picking strategies become even more important -- you need to have ways to identify areas of value that remain. And they do remain, as the Hot List's strong performance so far this year shows. On today's rebalancing, we're adding four stocks to the portfolio, and their fundamentals are excellent. Valero Energy, for example, has been growing earnings and revenues at a 20% pace over the long term, has a return on equity that is 17 percentage points higher than its industry average, and yet trades for 7.1 times trailing 12-month EPS, 0.14 times trailing 12-month sales, 1.1 times book value, and at a 0.35 P/E-to-Growth ratio. Bridgepoint Education, meanwhile, may be part of the maligned for-profit education industry, but it trades for just 0.93 TTM sales, 7.4 times TTM EPS, and 1.67 times book value -- and you're getting a lot for your dollar. The firm has grown EPS at a 29% long-term rate, has a 27% return on equity, and has no long-term debt. The bottom line is that there are still good companies with attractively priced shares out there. Not as many as there were in the early stages of the bull market, of course, but more than enough to fill out a portfolio. If you use proven, fundamental-focused strategies, you can get a leg up on other investors in finding them.		Editor-in-Chief: John Reese Since Inception   Hot List 257.7% S&P 500 70.6% Accuracy 56.9% Beta 1.2 YTD   Hot List 31.9% S&P 500 19.7% Since Last Issue   Hot List 3.5% S&P 500 1.0% Avg. Fundamentals   Market Cap (mil) $4,758 PE Ratio 12.8 5 Yr EPS Growth 26.9% Yield 1.3% Rel. Strength 83 Portfolio Sectors Consumer Cyclical 2 Energy 2 Financial 2 Services 2 Consumer/Non-Cyclical 1 Conglomerates 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, 4 stocks leave our portfolio. These include: Stamps.com Inc. (STMP), Royal Dutch Shell Plc (Adr) (RDS.A), Western Digital Corp (WDC) and Chevron Corporation (CVX). The Keepers 6 stocks remain in the portfolio. They are: Williams-sonoma, Inc. (WSM), Usana Health Sciences, Inc. (USNA), Amtrust Financial Services, Inc. (AFSI), Lear Corporation (LEA), Hollyfrontier Corp (HFC) and Hci Group Inc (HCI). The Newbies We are adding 4 stocks to the portfolio. These include: Inter Parfums, Inc. (IPAR), Valero Energy Corporation (VLO), Overstock.com, Inc. (OSTK) and Bridgepoint Education Inc (BPI). Portfolio Changes Additions   INTER PARFUMS, INC. IPAR VALERO ENERGY CORPORATION VLO OVERSTOCK.COM, INC. OSTK BRIDGEPOINT EDUCATION INC BPI Deletions   STAMPS.COM INC. STMP ROYAL DUTCH SHELL PLC (ADR) RDS.A WESTERN DIGITAL CORP WDC CHEVRON CORPORATION CVX Newcomers to the Validea Hot List Valero Energy Corporation (VLO): This San Antonio-based oil refiner has taken in $137 billion in sales in the past year. It has 16 petroleum refineries, 10 ethanol plants, and a 50-megawatt wind farm among its assets. Valero ($19 billion market cap) gets strong interest from my Peter Lynch-, Joel Greenblatt-, and James O'Shaughnessy-based models. For more on the stock, see the "Detailed Stock Analysis" section below. Bridgepoint Education, Inc. (BPI): For-profit education companies have gotten a lot of negative press over the past couple years, but my models think this San Diego-based firm, which owns and operates Ashford University and University of the Rockies, has been hit too hard. My Peter Lynch-based model has strong interest in Bridgepoint, which has a market cap of about $900 million. Scroll down to the "Detailed Stock Analysis" section to find out more about the stock. Inter Parfums, Inc. (IPAR): This New York City-based firm makes fragrances and skin care products that are sold under such names as Karl Lagerfeld, Gap, Banana Republic, and Brooks Brothers. The $1-billion-market-cap firm gets strong interest from my Motley Fool-inspired small-cap model, which is based on the writings of Fool co-creators Tom and David Gardner. For more on the stock, see the "Detailed Stock Analysis" section below. Overstock.com, Inc. (OSTK): Salt-Lake-City-based Overstock is an online discount retailer that sells a broad range of products, ranging from furniture and rugs to electronics to clothing and jewelry to automobiles. It sells products in the U.S. and internationally. Overstock ($800 million market cap) has taken in over $1.2 billion in sales in the past year. It gets strong interest from my Momentum Investor model and high marks from several others. Scroll down to the "Detailed Stock Analysis" section to find out more about the stock. News about Validea Hot List Stocks Lear Corporation (LEA): Lear reported second-quarter net income of $137.3 million, down from $145.4 million a year earlier, but excluding one-time items the per-share profit was $1.62, more than the $1.36 average analyst estimate, Bloomberg reported. Lear raised its full-year sales forecast to $15.8 billion, up from a high end of $15.5 billion. Shares rose to their highest level since Lear exited bankruptcy in 2009, Bloomberg said. Western Digital (WDC): Though results beat expectations, Western Digital shares fell after quarterly earnings and sales data came in well below year-ago levels. Revenue for the quarter ended June 28 fell 23% to $3.7 billion, while earnings per share minus items fell 41% to $1.96, Investor's Business Daily reported. The results beat analyst consensus estimates of $3.62 billion in sales and EPS of $1.81. Shares fell about 6% the day after the announcement. The Hot List is selling Western this rebalancing, as other firms' fundamentals have surpassed its fundamentals. 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 USNA USANA HEALTH SCIENCES, INC. Conglomerates 85 BPI BRIDGEPOINT EDUCATION INC Schools 83 VLO VALERO ENERGY CORPORATION Oil & Gas Operations 82 IPAR INTER PARFUMS, INC. Personal & Household Prods. 77 HCI HCI GROUP INC Insurance (Prop. & Casualty) 76 OSTK OVERSTOCK.COM, INC. Retail (Catalog & Mail Order) 76 LEA LEAR CORPORATION Auto & Truck Parts 61 AFSI AMTRUST FINANCIAL SERVICES, INC. Insurance (Prop. & Casualty) 60 HFC HOLLYFRONTIER CORP Oil & Gas Operations 60 WSM WILLIAMS-SONOMA, INC. Furniture & Fixtures 45 Ticker Market Cap Date Added Start Price Current Price Return USNA $1,148 12/21/2012 $33.83 $85.13 151.6% BPI $899 8/2/2013 TBD $16.61 TBD VLO $19,666 8/2/2013 TBD $36.06 TBD IPAR $1,010 8/2/2013 TBD $32.86 TBD HCI $403 6/7/2013 $34.20 $36.94 8.0% OSTK $794 8/2/2013 TBD $33.43 TBD LEA $5,597 5/10/2013 $60.48 $69.40 14.7% AFSI $2,824 7/5/2013 $39.36 $41.90 6.5% HFC $9,406 4/12/2013 $46.83 $46.31 -1.1% WSM $5,828 5/10/2013 $56.93 $59.97 5.3%

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 USNA   |   BPI   |   VLO   |   IPAR   |   HCI   |   OSTK   |   LEA   |   AFSI   |   HFC   |   WSM   |   USANA HEALTH SCIENCES, INC. Profile Strategy: Growth Investor Based on: Martin Zweig USANA Health Sciences, Inc. develops and manufactures science-based nutritional and personal care products. The Company has operations in 15 markets worldwide, where it distributes and sells its products by way of direct selling. The Company reports operations in two geographic regions: North America and Asia Pacific, which is further divided into three sub-regions; Southeast Asia/Pacific, Greater China, and North Asia. North America includes the United States, Canada, Mexico, and direct sales from the United States to the United Kingdom and the Netherlands. Southeast Asia/Pacific includes Australia, New Zealand, Singapore, Malaysia, and the Philippines; Greater China includes Hong Kong, Taiwan and China; and North Asia includes Japan and South Korea. The Company's customer base consists of two types of customers: Associates and Preferred Customers. As of December 31, 2011, the Company had 222,000 active Associates and 64,000 active Preferred Customers worldwide. Analysis Guru Score: 92% P/E RATIO: [PASS] The P/E of a company must be greater than 5 to eliminate weak companies, but not more than 3 times the current Market P/E because the situation is much too risky, and never greater than 43. USNA's P/E is 15.62, based on trailing 12 month earnings, while the current market PE is 17.00. 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. USNA's revenue growth is 11.25%, while it's earnings growth rate is 20.73%, based on the average of the 3, 4 and 5 year historical eps growth rates. Therefore, USNA 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 (17.6%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (9.7%) of the current year. Sales growth for the prior must be greater than the latter. For USNA 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. USNA's EPS ($1.72) pass this test. QUARTERLY EARNINGS ONE YEAR AGO: [PASS] The EPS for the quarter one year ago must be positive. USNA's EPS for this quarter last year ($1.11) 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. USNA's growth rate of 54.95% 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 USNA is 10.37%. This should be less than the growth rates for the 3 previous quarters, which are 43.90%, 47.13%, and 42.22%. USNA 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, 44.40%, (versus the same three quarters a year earlier) is less than the growth rate of the current quarter earnings, 54.95%, (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, 54.95% must be greater than or equal to the historical growth which is 20.73%. USNA 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. USNA, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were 1.85, 2.17, 2.86, 3.26 and 4.45, 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. USNA's long-term growth rate of 20.73%, 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. USNA's Debt/Equity (0.00%) is not considered high relative to its industry (160.02%) 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 USNA, this criterion has not been met (insider sell transactions are 145, while insiders buying number 90). 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.   BRIDGEPOINT EDUCATION INC Profile Strategy: Small-Cap Growth Investor Based on: Motley Fool Bridgepoint Education, Inc. (Bridgepoint) is a provider of postsecondary education services. The Company's academic institutions include Ashford University and University of the Rockies. Its institutions deliver programs primarily online, as well as at their traditional campuses. As of December 31, 2011, the Company had 86,642 total students enrolled in its institutions. Bridgepoint's institutions conduct ongoing faculty and student assessment processes and provide a range of student services. The Company is also focused on developing new technologies, such as through Waypoint Outcomes, Constellation, and the development of its institutions' mobile learning platforms. The Company has developed Constellation to replace third party textbooks with digital course materials. Constellation materials are displayed in a browser-based platform. In January 2012, Bridgepoint introduced Thuze. Analysis Guru Score: 76% 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. BPI's profit margin of 12.97% passes this test. RELATIVE STRENGTH: [FAIL] The investor must look at the relative strength of the company in question. Companies whose relative strength is 90 or above (that is, the company outperforms 90% or more of the market for the past year), are considered attractive. Companies whose price has been rising much quicker than the market tend to keep rising. Although BPI's relative strength of 85 is below the acceptable level, yet it is very close. Keep an eye on the stock as it could move into the acceptable range. COMPARE SALES AND EPS GROWTH TO THE SAME PERIOD LAST YEAR: [FAIL] Companies must demonstrate both revenue and net income growth of at least 25% as compared to the prior year. These growth rates give you the dynamic companies that you are looking for. These rates for BPI (-14.04% for EPS, and -11.36% for Sales) are not good enough to pass. INSIDER HOLDINGS: [PASS] BPI's insiders should own at least 10% (they own 66.84% ) 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: [PASS] A positive cash flow is typically used for internal expansion, acquisitions, dividend payments, etc. A company that generates rather than consumes cash is in much better shape to fund such activities on their own, rather than needing to borrow funds to do so. BPI's free cash flow of $2.11 per share passes this test. PROFIT MARGIN CONSISTENCY: [FAIL] The profit margin in the past must be consistently increasing. The profit margin of BPI has been inconsistent in the past three years (Current year: 13.22%, Last year: 18.51%, Two years ago: 17.89%), which is unacceptable. This inconsistency will carryover directly to the company's bottom line, or earnings per share. 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 BPI's case. CASH AND CASH EQUIVALENTS: [PASS] BPI's level of cash $392.9 million passes this criteria. If a company is a cash generator, like BPI, it has the ability to pay off debt (if it has any) or acquire other companies. Most importantly, good operations generate cash. ACCOUNT RECEIVABLE TO SALES: [PASS] This methodology wants to make sure that a company's accounts receivable do not get significantly out of line with sales. It's a warning sign if a company's accounts receivable relative to sales increases significantly when compared to the previous year. Up to a 30% increase is allowed, but no more. Accounts Receivable to Sales for BPI was 6.86% last year, while for this year it is 7.99%. 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] BPI'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 (BPI's is 0.26), the shares are looked upon favorably. These high quality companies can often wind up as the biggest winners. BPI passes this test. The following criteria for BPI are less important which means you would place less emphasis on them when making your investment decision using this strategy: AVERAGE SHARES OUTSTANDING: [PASS] BPI has not been significantly increasing the number of shares outstanding within recent years which is a good sign. BPI currently has 55.0 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: [FAIL] 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. BPI's sales of $939.7 million based on trailing 12 month sales, are too high and would therefore fail the test. It is companies with $500 million or less in sales that are most likely to double or triple in size in the next few years. DAILY DOLLAR VOLUME: [PASS] BPI passes the Daily Dollar Volume (DDV of $6.8 million) test. It is required that this number be less than $25 million because these are the stocks that remain relatively undiscovered by institutions. "You'll be scoring touchdowns against the big guys on your turf." PRICE: [PASS] This is a very insignificant criterion for this methodology. But basically, low prices are chosen because "small numbers multiply more rapidly than large ones" and the potential for big returns expands. BPI with a price of $16.61 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: [PASS] BPI's income tax paid expressed as a percentage of pretax income this year was (37.91%) and last year (37.52%) are greater than 20% which is an acceptable level. If the tax rate is below 20% this could mean that the earnings that were reported were unrealistically inflated due to the lower level of income tax paid. This is a concern.   VALERO ENERGY CORPORATION Profile Strategy: P/E/Growth Investor Based on: Peter Lynch Valero Energy Corporation (Valero) is an independent petroleum refining and marketing company. Valero's refineries can produce conventional gasoline's, distillates, jet fuel, asphalt, petrochemicals, lubricants, and other refined products, as well as a slate of premium products, including conventional blendstock for oxygenate blending and reformulated gasoline blendstock for oxygenate blending, gasoline meeting the specifications of the California Air Resources Board, a diesel fuel, and low-sulfur and ultra-low-sulfur diesel fuel. It also owns 10 ethanol plants in the central plains region of the United States with a combined ethanol nameplate production capacity of about 1.1 billion gallons per year. It operates in three business segments: refining, ethanol, and retail. In May 2013, CST Brands Inc announced that the Company which includes Corner Store and Depanneur du Coin, spun off from Valero Energy Corporation. Analysis Guru Score: 93% DETERMINE THE CLASSIFICATION: VLO is considered a "True Stalwart", according to this methodology, as its earnings growth of 18.80% lies within a moderate 10%-19% range and its annual sales of $136,929 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. VLO is attractive if VLO 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 VLO was 4.46% last year, while for this year it is 4.28%. Since inventory to sales has decreased from last year by -0.18%, VLO passes this test. YIELD ADJUSTED P/E TO GROWTH (PEG) RATIO: [PASS] The Yield-adjusted P/E/G ratio for VLO (0.34), based on the average of the 2 and 5 year historical and the current year eps growth rates, is excellent. EARNINGS PER SHARE: [PASS] The EPS for a stalwart company must be positive. VLO's EPS ($5.03) would satisfy this criterion. TOTAL DEBT/EQUITY RATIO: [PASS] This methodology would consider the Debt/Equity ratio for VLO (38.09%) to be normal (equity is approximately twice debt). FREE CASH FLOW: [NEUTRAL] The Free Cash Flow/Price ratio, though not a requirement, is considered a bonus if it is above 35%. A positive Cash Flow (the higher the better) separates a wonderfully reliable investment from a shaky one. This methodology prefers not to invest in companies that rely heavily on capital spending. This ratio for VLO (9.87%) 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 VLO (-23.99%) 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.   INTER PARFUMS, INC. Profile Strategy: Price/Sales Investor Based on: Kenneth Fisher Inter Parfums, Inc. operates in the fragrance business, and manufactures, markets and distributes an array of fragrances and fragrance related products. The Company operates in two segments: European based operations and United States based operations. Its prestige fragrance products are produced and marketed by its European operations through its 74% owned subsidiary in Paris, Interparfums SA. The Company's specialty retail and mass market fragrance and fragrance related products are marketed through its United States operations These fragrance products are sold under trademarks owned by the Company or pursuant to license or other agreements with the owners of brands which include the Gap, Banana Republic, Anna Sui, Brooks Brothers, bebe, Betsey Johnson, Nine West, Lane Bryant and Jordache. 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. IPAR's P/S ratio of 1.44 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. IPAR's Debt/Equity of 6.68% 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. IPAR 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 IPAR At this Point Is IPAR 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, IPAR, who has a P/S of 1.44, 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%. IPAR's inflation adjusted EPS growth rate of 55.25% 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. IPAR's free cash per share of 0.71 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. IPAR, whose three year net profit margin averages 10.36%, passes this evaluation.   HCI GROUP INC Profile Strategy: P/E/Growth Investor Based on: Peter Lynch HCI Group Inc, formerly Homeowners Choice, Inc., is a holding company. The Company, through its subsidiaries, is engaged in the property and casualty insurance business. Through Homeowners Choice Property & Casualty Insurance Company, Inc. (HCPC) and subsidiaries, primarily Homeowners Choice Managers, Inc. (HCM), Southern Administration, Inc., Claddaugh Casualty Insurance Company, Ltd., and its subsidiary, HCPCI Holdings LLC, it provides property and casualty homeowners' insurance, condominium-owners' insurance and tenants' insurance to individuals owning property in Florida. Its subsidiaries also include TV Investment Holdings LLC, which owns and operates a marina facility located in Florida; Unthink Technologies Private Limited. During the year ended December 31, 2011, it organized TV Investment Holdings LLC, HCI Holdings LLC and HCI Technical Resources, Inc. Analysis Guru Score: 100% DETERMINE THE CLASSIFICATION: This methodology would consider HCI a "fast-grower". P/E/GROWTH RATIO: [PASS] The investor should examine the P/E (9.08) relative to the growth rate (31.66%), 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 HCI (0.29) 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. HCI, whose sales are $183.2 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 HCI is 31.7%, based on the average of the 3, 4 and 5 year historical eps growth rates, which is acceptable. TOTAL DEBT/EQUITY RATIO: [NEUTRAL] HCI 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. HCI's Equity/Assets ratio (34.00%) 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. HCI's ROA (13.86%) 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 HCI (26.64%) 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 HCI (46.75%) is considered favorable.   OVERSTOCK.COM, INC. Profile Strategy: P/E/Growth Investor Based on: Peter Lynch Overstock.com, Inc. (Overstock) is an online retailer offering discount brand name, non-brand name and closeout merchandise, including bed-and-bath goods, home decor, kitchenware, furniture, watches and jewelry, apparel, electronics and computers, sporting goods, and designer accessories, among other products. The Company is also a channel through, which customers can purchase cars, insurance and travel products and services. Overstock sells advertising. The Company also sells books, magazines, compact discs (CDs), digital versatile discs (DVDs) and video games (BMMG). Overstock sells these products through its Internet Websites located at www.overstock.com, www.o.co and www.o.biz. Overstock operates in two segments: direct business and fulfillment partner business. As of December 31, 2011, the Company offered approximately 251,000 non-BMMG products and approximately 637,000 BMMG products. Analysis Guru Score: 87% DETERMINE THE CLASSIFICATION: This methodology would consider OSTK a "fast-grower". P/E/GROWTH RATIO: [PASS] The investor should examine the P/E (35.14) relative to the growth rate (24.75%), based on the average of the 3 and 4 year historical eps growth rates using the current fiscal year eps estimate, 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 OSTK (1.42) is on the high side, but is acceptable if all the other tests are met. 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. OSTK, whose sales are $1,202.6 million, needs to have a P/E below 40 to pass this criterion. OSTK's P/E of (35.14) 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 OSTK is 24.8%, based on the average of the 3 and 4 year historical eps growth rates using the current fiscal year eps estimate, which is considered very good. TOTAL DEBT/EQUITY RATIO: [PASS] This methodology would consider the Debt/Equity ratio for OSTK (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 OSTK (1.97%) 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 OSTK (12.04%) 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.   LEAR CORPORATION Profile Strategy: P/E/Growth Investor Based on: Peter Lynch Lear Corporation is a tier 1 supplier to the global automotive industry. The Company supplies its products to automotive manufacturers with automotive seat systems and related components, as well as electrical distribution systems and related components. The Company has two segments: seating and electrical power management systems (EPMS). The seating segment includes seat systems and related components, such as seat frames, recliner mechanisms, seat tracks, seat trim covers, headrests and seat foam. The EPMS segment includes electrical distribution systems for traditional powertrain vehicles, as well as for hybrid and electric vehicles. As of December 31, 2011, it had 20 joint ventures located throughout Asia, as well as five in North America, two in Europe and Africa and one with operations in all three regions. Analysis Guru Score: 93% DETERMINE THE CLASSIFICATION: This methodology would consider LEA a "fast-grower". P/E/GROWTH RATIO: [PASS] The investor should examine the P/E (5.35) relative to the growth rate (24.83%), based on the average of the 2 and 5 year historical and the current year 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 LEA (0.22) 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. LEA, whose sales are $15,318.2 million, needs to have a P/E below 40 to pass this criterion. LEA's P/E of (5.35) 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 LEA was 4.51% last year, while for this year it is 4.99%. 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 (0.49%) 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 LEA is 24.8%, based on the average of the 2 and 5 year historical and the current year eps growth rates, which is considered very good. TOTAL DEBT/EQUITY RATIO: [PASS] This methodology would consider the Debt/Equity ratio for LEA (39.60%) to be normal (equity is approximately twice debt). FREE CASH FLOW: [NEUTRAL] The Free Cash Flow/Price ratio, though not a requirement, is considered a bonus if it is above 35%. A positive Cash Flow (the higher the better) separates a wonderfully reliable investment from a shaky one. This methodology prefers not to invest in companies that rely heavily on capital spending. This ratio for LEA (3.13%) 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 LEA (5.79%) 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.   AMTRUST FINANCIAL SERVICES, INC. Profile Strategy: Growth/Value Investor Based on: James P. O'Shaughnessy Amtrust Financial Services, Inc. is a holding company. The Company is a multinational specialty property and casualty insurer focused on generating consistent underwriting profits. The Company operates in four segments: small commercial business, specialty program and personal lines reinsurance. In January 2013, the Company acquired First Nonprofit Companies, Inc. In February 2013, its subsidiary acquired Car Care Plan (Holdings) Limited from Ally Insurance Holdings, Inc. In April 2013, it acquired Sequoia Insurance Company and its subsidiaries, Sequoia Indemnity Company and Personal Express Insurance Company. In May 2013, the Company acquired Mutual Insurers Holding Company (MIHC) and MIHC's subsidiary, First Nonprofit Insurance Company. 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. AFSI, with a market cap of $2,824 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. AFSI, whose annual EPS before extraordinary items for the last 5 years (from earliest to the most recent fiscal year) were 1.37, 1.72, 2.14, 2.52 and 2.58, 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. AFSI's Price/Sales ratio of 1.40, 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. AFSI, whose relative strength is 79, is in the top 50 and would pass this last criterion.   HOLLYFRONTIER CORP Profile Strategy: Contrarian Investor Based on: David Dreman 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. 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. HFC has a market cap of $9,406 million, therefore passing the test. EARNINGS TREND: [FAIL] A company should show a rising trend in the reported earnings for the most recent quarters. HFC's EPS for the latest quarter is not greater than the prior quarter, (from earliest to most recent quarter) 1.92, 1.63. 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. HFC fails this test as its EPS growth rate for the past 6 months (-44.55%) does not beat that of the S&P (12.89%). This methodology would utilize four separate criteria to determine if HFC 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. HFC's P/E of 5.22, based on trailing 12 month earnings, meets the bottom 20% criterion (below 11.44), and therefore passes 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. HFC's P/CF of 4.45 meets the bottom 20% criterion (below 6.42) 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. HFC's P/B is currently 1.50, which does not meet the bottom 20% criterion (below 0.93), and it therefore fails this test. PRICE/DIVIDEND (P/D) RATIO: [FAIL] 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%). HFC's P/D of 38.61 does not meet the bottom 20% criterion (below 20.62 or yield above 3.7%), and it therefore fails 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 [1.01] or greater than 2). This is one identifier of financially strong companies, according to this methodology. HFC's current ratio of 2.70 passes 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 HFC is 30.76%, while its historical payout ratio has been 44.31%. 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 16.51%, and would consider anything over 27% to be staggering. The ROE for HFC of 31.78% 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. HFC's pre-tax profit margin is 14.75%, thus passing this criterion. YIELD: [FAIL] The company in question should have a yield that is high and that can be maintained or increased. HFC's current yield is 2.59%, while the market yield is 2.57%. HFC fails 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 36.29%. HFC's Total Debt/Equity of 20.42% is considered acceptable.   WILLIAMS-SONOMA, INC. Profile Strategy: Value Investor Based on: Benjamin Graham Williams-Sonoma, Inc. is a multi-channel specialty retailer of products for the home. The direct-to-customer segment of the Company's business sells its products through its six e-commerce Websites (williams-sonoma.com, potterybarn.com, potterybarnkids.com, pbteen.com, westelm.com and rejuvenation.com) and seven direct-mail catalogs (Williams-Sonoma, Pottery Barn, Pottery Barn Kids, Pottery Barn Bed and Bath, PBteen, West Elm and Rejuvenation). Its e-commerce platform is available to customers in more than 75 countries, while its catalogs reach customers throughout the United States. The retail segment of its business sells products through its five retail store concepts (Williams-Sonoma, Pottery Barn, Pottery Barn Kids, West Elm and Rejuvenation). As of January 29, 2012, it operated 576 stores in 44 states, Washington, D.C., Canada and Puerto Rico. On November 1, 2011, the Company acquired Rejuvenation Inc. Analysis Guru Score: 71% SECTOR: [PASS] WSM 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. WSM's sales of $4,113.1 million, based on trailing 12 month sales, pass this test. CURRENT RATIO: [PASS] The current ratio must be greater than or equal to 2. Companies that meet this criterion are typically financially secure and defensive. WSM's current ratio of 2.12 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 WSM is $3.8 million, while the net current assets are $628.8 million. WSM 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. WSM's EPS growth over that period of 66.4% 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. WSM's P/E of 22.71 (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. WSM's Price/Book ratio is 4.55, while the P/E is 22.71. WSM 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 CVX CHEVRON CORPORATION Oil & Gas - Integrated 61 TJX THE TJX COMPANIES, INC. Retail (Apparel) 58 RGR STURM, RUGER & COMPANY Recreational Products 52 STMP STAMPS.COM INC. Retail (Catalog & Mail Order) 51 AGCO AGCO CORPORATION Constr. & Agric. Machinery 50 SIG SIGNET JEWELERS LTD. Retail (Specialty) 50 VALE VALE SA (ADR) Metal Mining 50 JOY JOY GLOBAL INC. Constr. & Agric. Machinery 45 AFOP ALLIANCE FIBER OPTIC PRODUCTS INC Semiconductors 45 MKTX MARKETAXESS HOLDINGS INC. Investment Services 40

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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.