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Executive Summary	June 7, 2013

The Economy Economic data has been lackluster over the past fortnight, with continuing improvement in the housing sector not enough to keep the stock market's upward climb from stalling. One area of weakness came in the manufacturing sector, which contracted in May for the first time in six months, according to the Institute for Supply Management. The contraction was not major -- ISM's manufacturing index dipped to 49, just below the 50 mark that separates expansion from contraction -- but it was accompanied by a bigger dip in the New Orders sub-index, which also fell into contraction territory. That could be a sign of more weakness in coming months. The employment sub-index, meanwhile, barely remained in expansion territory. ISM did offer good news when it came to the much-larger service sector, which expanded in May for the 41st straight month, and did so at a slightly faster pace than it had the previous month. ISM's data showed that new orders in the sector also increased at an accelerating pace, though the improvement in employment conditions almost came to a halt. Speaking of employment, early readings on May jobs numbers were disappointing. Private payroll processor ADP said businesses added 135,000 jobs during the month, less than many had expected. In addition, the April increase was revised slightly downward to 113,000. Both those figures are below the job gains made in each of the previous six months. Today, the Labor Department is scheduled to release its data for May, and investors will no doubt be watching closely. As for weekly unemployment claims numbers, new claims remained about flat since our last newsletter, and are nearly 10% below their year-ago level. Continuing claims also remained fairly steady over the most recent two weeks for which data is available. They are 11% below where they stood a year ago, showing nice year-over-year progress. Consumer data, meanwhile, didn't impress, with the Bureau of Economic Analysis saying that personal income was flat in April. Real personal consumption expenditures rose just 0.1% for the month, while the personal savings rate remained steady at 2.5%, which is on the low side by historical standards. The BEA's report also gave some not-so-welcome news regarding inflation. After increasing by just 1.2% during the first quarter -- the lowest reading since the financial crisis of 2008 -- the personal consumption expenditures price index rose just 0.7% in April. It's been reported that the PCE price index is one of the key metrics that the Federal Reserve looks at in assessing inflation. Again, it seems that much of the huge amount of liquidity the Fed has been providing just isn't making its way onto Main Street. While other economic data was mediocre over the past two weeks, the housing sector continued to be a nice bright spot. The latest report from the S&P/Case-Shiller Home Price Indices showed that home prices rose 3.9% in the first quarter vs. last year's fourth quarter, using seasonally adjusted data. For the month of March, prices were up on average 1.1% (seasonally adjusted vs. February) across 20 major cities. Nationally, first-quarter prices were more than 10% above where they were a year ago, a sign of just how solid the housing recovery has been. Pending home sales, a forward-looking indicator, also increased slightly in April, according to a new report from the National Association of Realtors. They rose 0.3% for the month, putting them nearly 14% ahead of where they were a year ago. Amid all of this, the S&P 500 has returned -1.7% since our last newsletter, while the Hot List has returned -3.1%. So far in 2013, the portfolio has returned 22.5% vs. 13.8% for the S&P. Since its inception in July 2003, the Hot List is far outpacing the index, having gained 232.3% vs. the S&P's 62.2% gain. The Rewards -- and Challenges -- of Keeping It Simple Economies and financial markets are incredibly complex mechanisms. Every part -- and every piece of data -- is impacted (and impacts) scores of other parts, creating a giant web of seemingly endless outcomes. Financial advisors like to remind you of this. One ad I saw recently, for example, asks, "How can power consumption in China impact wool exports from New Zealand, textile production in Spain, and the use of medical technology in the U.S.?" Then, of course, it implies that its advisors have the knowledge and experience to fully understand such complicated economic and financial relationships. Perhaps they do, though I'm somewhat skeptical. But here's the more important point: Just because economies and markets are incredibly complex, that doesn't mean your investment approach needs to be. I was reminded of that this week while reading an insightful piece that Robert Seawright wrote for the "Above The Market" blog. "We love complexity," Seawright said. "We should of course go with the simpler explanation or approach unless and until something more complex offers greater explanatory power. But we don't. We want to include our pet political ideas, convoluted conspiracy theories or favored market narratives. We are ideological through-and-through, and the more complex the better." Over the past 10 years, however, he says, while hedge funds (which are often known for using strategies described as "complex") have collectively struggled, a simple portfolio with 60% in a broad stock index fund and 40% in bonds has put up annualized returns of more than 7%. Not bad for a decade that included the worst financial crisis in 80 years. At the same time that humans are drawn to complexity, Seawright notes, we are in a "fascinating paradox also drawn to extreme simplicity. "We want sure-thing formulae," he says. "We want black-and-white. We don't want the hassle of fine distinctions and careful analysis." What Seawright really seems to be getting at is that we want to believe we can have control, and I think that's particularly true in the stock market. We want to think that we can master it, whether it's thanks to an incredible amount of esoteric, in-depth knowledge that we've compiled, or the result of some "silver bullet" strategy or variable. The truth, however, is that with so many moving, interconnected parts in the economy and the market, such control is -- and will always be -- beyond our grasp. You can study for decades, soaking up every ounce of investing knowledge you possibly can, and you are still not going to be right on all of the stocks you pick. Nor will you make money and beat the market every year. The good news is, you don't need to. In his book, Winning on Wall Street, the late, great Martin Zweig said that you'll never be perfect when it comes to picking stocks. But, he added, "You can, however, be right more than you are wrong. If you are right 60% of the time, ride your profits, and rein in your losses, you'll find that when you're right you're very right, and when you're wrong you're only moderately wrong. In the long run, a 60% success rate translates into huge gains, a 50% rate into solid gains, and even a 40% rate can beat the market." Zweig found that his approach, which, like that of the Hot List, involved screening thousands of stocks to find those with specific fundamental characteristics, had a built-in error rate of about three-eighths over the long term. "That is, out of eight stocks that I pick, three, or 38 percent, will underperform the market," he wrote. Beating the market 62% of the time still ended up netting him huge profits. I've had similar results with my Guru Strategies. Of the 14 ten-stock portfolios I track on Validea.com, 13 have beaten the market since their inceptions (most of which were July 15, 2003), and on average they have more than doubled the S&P 500. But the most accurate portfolio -- that is, the one that has made money on the highest percentage of its picks -- has an accuracy rate of 61.0% (the Kenneth Fisher-based portfolio). Some have barely been right on more than half their picks -- the Motley Fool-based portfolio, which has returned 14.6% annualized (nearly tripling the S&P) has an accuracy rating of 51.3%. The Momentum Investor model has actually picked more losers than winners, with an accurate rate of 46.0%, but it is far ahead of the S&P (The Hot List, by the way, stands at 56.4%.) All of this is evidence that good investing isn't about finding "The Answer", or figuring it all out. It is, rather, about putting the odds in your favor as much as possible. As Seawright says, "The best we can hope for is to create and test an appropriately probabilistic outlook, recognize its limitations, and act accordingly." That may sound boring, lacking in confidence, and perhaps even a bit defeatist. But the reality is that if you are willing to accept that notion, you can produce returns that are far from boring. For example, had you invested $10,000 in the Hot List portfolio at its inception, you'd have more than tripled your investment today. The Hot List has done that with what in some ways is a very simple approach. It doesn't try to time the market, it doesn't try to sort through the convoluted macroeconomic landscape to make predictions. It simply uses strategies that have identified winning stocks in the past, and employs them today. And the strategies don't employ mysterious, inscrutable methods -- we're not using pork belly prices in the Malaysian market to miraculously forecast inflation expectations for the United States. We're using strategies that focus on good old-fashioned business concepts like earnings and sales growth, debt levels, and returns on equity and capital, as well as valuation metrics like the price/earnings and price/book ratios. That being said, the strategies aren't overly simplistic; they are quite thorough. Even the Joel Greenblatt-based strategy, which at first look may appear very simplistic, digs pretty deep into a company's financials and fundamentals. That's because, while it looks at only earnings yield and return on capital, the way it calculates those two figures encompasses several other data points. (For earnings yield, for example, it uses earnings before interest and taxes and divides that by enterprise value, which includes not only the value of the company's shares but the amount of its debt as well.) Seawright advises using approaches that are "as simple as possible, but no simpler", and I think our strategies fit that description. To be clear though, using strategies like these may make for a relatively simple investment process, but that doesn't mean it's easy. But the hard part comes not in the form of complexity. Instead, it has to do with emotional fortitude. Emotions of all sorts will confront you at every turn when you are investing, telling you to buy stocks because some pundit on TV said so, or telling you to sell when you see a scary headline about Europe's debt problems, or telling you to snatch up the hot stock that everyone else seems to be buying. Those emotions will make you think that you need to act now, or else you'll lose your retirement savings, or you won't have enough money to pay for your children's college education, or you'll end up far behind your friends and neighbors in the end. Seawright touches on the "simple-but-hard" concept -- and so does Warren Buffett. Asked by Fortune a few years back for his best investing advice, Buffett offered this: "Investing is simple but it's not easy. The reason it's not easy is because emotions get in people's ways. They get all excited about stocks when they've gone up recently and then the get depressed when they've gone down." Investors can make money, he said, "if they can take the emotion out of it, and just simply stick with good businesses. ... You have to sit back and have a [long-term] philosophy." As usual, Buffett's comments are incredibly wise. That's why we manage the Hot List in such a methodical, unemotional, disciplined manner. We never buy and sell on hunches or headlines. We focus on the fundamentals. And we think long-term. That makes for what may seem like a relatively simple strategy, compared to those who spend their time glued to financial news and/or poring over the latest day-to-day, minute-to-minute market news. But it sure isn't easy, particularly when the negative headlines are piling up and the market is heading downward. But in the end, although it's hard, it's worth it. That's what the gurus we follow and our own experience with our portfolios has taught us.		Editor-in-Chief: John Reese Since Inception   Hot List 232.3% S&P 500 62.2% Accuracy 56.5% Beta 1.2 YTD   Hot List 22.5% S&P 500 13.8% Since Last Issue   Hot List -3.1% S&P 500 -1.7% Avg. Fundamentals   Market Cap (mil) $49,066 PE Ratio 10.1 5 Yr EPS Growth 25.4% Yield 2.1% Rel. Strength 77 Portfolio Sectors Energy 4 Consumer Cyclical 2 Conglomerates 1 Financial 1 Healthcare 1 Services 1
Advertisement Validea Capital Management - Private Portfolio Management Based on Strategies of Legends Are you looking for an alternative to your underperforming mutual funds or financial advisor? Click here to download Validea Capital's investment kit and learn more about the firm's guru-based portfolios. Get More Information on Validea Capital! ** Validea Capital Management is a separate investment advisory firm managed by Validea.com founder John Reese. Thre information above in not intended as personal investment advice and should not be interpreted as such. The Fallen As we rebalance the Validea Hot List, 3 stocks leave our portfolio. These include: The Tjx Companies, Inc. (TJX), Netease, Inc (Adr) (NTES) and Lukoil (Adr) (LUKOY). The Keepers 7 stocks remain in the portfolio. They are: Valero Energy Corporation (VLO), Williams-sonoma, Inc. (WSM), Usana Health Sciences, Inc. (USNA), Chevron Corporation (CVX), Royal Dutch Shell Plc (Adr) (RDS.A), Lear Corporation (LEA) and Hollyfrontier Corp (HFC). The Newbies We are adding 3 stocks to the portfolio. These include: Stamps.com Inc. (STMP), Patterson Companies, Inc. (PDCO) and Hci Group Inc (HCI). Portfolio Changes Additions   STAMPS.COM INC. STMP PATTERSON COMPANIES, INC. PDCO HCI GROUP INC HCI Deletions   THE TJX COMPANIES, INC. TJX NETEASE, INC (ADR) NTES LUKOIL (ADR) LUKOY Newcomers to the Validea Hot List Patterson Companies, Inc. (PDCO): Minnesota-based Patterson is a medical supply firm that provides a range of products for dentists, dental laboratories, and other healthcare providers throughout North America. It's also a major distributor of veterinary supplies in the U.S., and it distributes rehabilitation supplies used in the physical and occupational therapy markets. Patterson ( $4.2 billion market cap) gets strong interest from my Benjamin Graham-based model, and high marks from several other strategies, including my Warren Buffett approach. For more on its fundamentals, see the "Detailed Stock Analysis" section below. Stamps.com Inc. (STMP): This California-based company ($575 million market cap) allows customers to pay for and print postage for a variety of letters and packages online. The 16-year-old firm gets solid marks from several of my models, including my Peter Lynch- and Motley Fool-based strategies. For more on the stock, see the "Detailed Stock Analysis" section below. HCI Group, Inc. (HCI): Tampa-based HCI ($345 million market cap) is the parent of Homeowners Choice Property & Casualty Insurance Company, which provides homeowners insurance in Florida. It has posted some impressive recent growth in both earnings and revenues, part of the reason my Motley Fool-based strategy is high on the stock. My Peter Lynch-based model also has strong interest in HCI. To read more about its fundamentals, scroll down to the "Detailed Stock Analysis" section below. News about Validea Hot List Stocks Chevron Corporation (CVX): Argentina's Supreme Court unfroze Chevron's assets in that country, reversing a months-long embargo, The Motley Fool reported on June 6. Chevron is trying to work with Argentine state-run energy company YPF to develop the Vaca Muerta shale field, which is the world's second-largest shale-oil basin, the site reported. The market didn't respond as well as one might think to the news, as shares fell 0.8% for the day. Lukoil (LUKOY): First-quarter profit at the Russian oil giant fell 32% to $2.58 billion, thanks to Urals crude price declines and income tax increases, Bloomberg reported. Analysts expected $2.75 billion. Sales were down 4.2% to $33.8 billion. Shares of Lukoil were down 8.7% since our last newsletter (through June 6). The Hot List is selling the stock on today's rebalancing, as other stocks now have higher scores than it does. 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 LUKOY LUKOIL (ADR) Oil & Gas - Integrated 100 USNA USANA HEALTH SCIENCES, INC. Conglomerates 85 HCI HCI GROUP INC Insurance (Prop. & Casualty) 76 VLO VALERO ENERGY CORPORATION Oil & Gas Operations 65 LEA LEAR CORPORATION Auto & Truck Parts 61 RDS.A ROYAL DUTCH SHELL PLC (ADR) Oil & Gas - Integrated 61 HFC HOLLYFRONTIER CORP Oil & Gas Operations 60 PDCO PATTERSON COMPANIES, INC. Medical Equipment & Supplies 50 CVX CHEVRON CORPORATION Oil & Gas - Integrated 47 WSM WILLIAMS-SONOMA, INC. Furniture & Fixtures 45 STMP STAMPS.COM INC. Retail (Catalog & Mail Order) Ticker Market Cap Date Added Start Price Current Price Return LUKOY $49,389 2/15/2013 $66.54 $59.10 -11.2% USNA $903 12/21/2012 $33.83 $66.96 97.9% HCI $361 6/7/2013 TBD $33.13 TBD VLO $21,417 5/10/2013 $38.80 $39.27 1.2% LEA $5,390 5/10/2013 $60.48 $58.29 -3.6% RDS.A $209,294 3/15/2013 $66.20 $65.53 -1.0% HFC $9,706 4/12/2013 $46.83 $47.79 2.0% PDCO $4,080 6/7/2013 TBD $38.41 TBD CVX $233,764 5/10/2013 $123.23 $120.59 -2.1% WSM $5,166 5/10/2013 $56.93 $52.88 -7.1% STMP $581 6/7/2013 TBD $37.60 TBD

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 LUKOY   |   USNA   |   HCI   |   VLO   |   LEA   |   RDS.A   |   HFC   |   PDCO   |   CVX   |   WSM   |   STMP   |   LUKOIL (ADR) Profile Strategy: Contrarian Investor Based on: David Dreman NK Lukoil OAO (Neftyanaya Kompaniya LUKOIL OAO or NK LUKOIL OJSC) is a Russia-based integrated oil and gas company. The Company is engaged in the business of oil exploration, production, refining, marketing and distribution. It is an owner of refineries, gas processing, petrochemical plants and gas stations network located in Russia, Eastern and Western Europe, as well as Africa. The Company's petroleum products are sold in the Russian Federation, the Commonwealth of Independent States (CIS) countries, Eastern and Western Europe, Asia and the United States. NK Lukoil OAO operates through numerous subsidiaries and affiliated companies. As of December 31, 2011, the Company's major shareholder was ING Bank (Eurasia) ZAO with a stake of 75.93%. In April 2013, the Company acquired a 100% of Samara-Nafta ZAO. In April 2013, the Company completed acquisition of CJSC Kama-Oil. Analysis Guru Score: 71% 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. LUKOY has a market cap of $49,389 million, therefore passing the test. EARNINGS TREND: [FAIL] A company should show a rising trend in the reported earnings for the most recent quarters. LUKOY's EPS for the latest quarter is not greater than the prior quarter, (from earliest to most recent quarter) 3.49, 3.33. 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. LUKOY fails this test as its EPS growth rate for the past 6 months (-26.81%) does not beat that of the S&P (0.66%). This methodology would utilize four separate criteria to determine if LUKOY 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. LUKOY's P/E of 4.66, based on trailing 12 month earnings, meets the bottom 20% criterion (below 9.96), 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. LUKOY's P/CF of 2.62 meets the bottom 20% criterion (below 5.58) and therefore passes this test. PRICE/BOOK (P/B) VALUE: [PASS] The P/B value of a company should be in the bottom 20% of the overall market. LUKOY's P/B is currently 0.59, which meets the bottom 20% criterion (below 0.82), and it therefore passes this test. PRICE/DIVIDEND (P/D) RATIO: [PASS] The P/D ratio for a company should be in the bottom 20% of the overall market (that is the yield should be in the top 20%). LUKOY's P/D of 16.23 meets the bottom 20% criterion (below 20.33 or yield above 3.7% ), and it therefore passes this test. This methodology maintains that investors should look for as many healthy financial ratios as possible to ascertain the financial strength of the company. These criteria are detailed below. CURRENT RATIO: [PASS] A prospective company must have a strong Current Ratio (greater than or equal to the average of it's industry [1.33] or greater than 2). This is one identifier of financially strong companies, according to this methodology. LUKOY's current ratio of 1.96 passes the test. PAYOUT RATIO: [FAIL] A good indicator that a company has the ability to raise its dividend is a low payout ratio. The payout ratio for LUKOY is 27.85%, while its historical payout ratio has been 15.20%. Therefore, it fails the payout criterion. RETURN ON EQUITY: [FAIL] 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 largest cap stocks, which is 16.96%, and would consider anything over 27% to be staggering. The ROE for LUKOY of 13.32% is not 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. LUKOY's pre-tax profit margin is 9.50%, thus passing this criterion. YIELD: [PASS] The company in question should have a yield that is high and that can be maintained or increased. LUKOY's current yield is 6.16%, while the market yield is 2.64%. LUKOY passes this test. LOOK AT THE TOTAL DEBT/EQUITY: [PASS] The company must have a low Debt/Equity ratio, which indicates a strong balance sheet. The Debt/Equity ratio should not be greater than 20% or should be less than the average Debt/Equity for its industry of 32.07%. LUKOY's Total Debt/Equity of 8.73% is considered acceptable.   USANA HEALTH SCIENCES, INC. Profile Strategy: Price/Sales Investor Based on: Kenneth Fisher 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: 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. USNA's P/S ratio of 1.36 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. USNA's Debt/Equity of 0.00% is exceptional, 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. USNA 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 USNA At this Point Is USNA 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, USNA, who has a P/S of 1.36, 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%. USNA's inflation adjusted EPS growth rate of 18.41% 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. USNA's free cash per share of 5.65 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. USNA, whose three year net profit margin averages 9.26%, 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 (8.15) 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 (0.26) 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 (29.70%) 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 (52.13%) is considered very favorable.   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: This methodology would consider VLO a "fast-grower". P/E/GROWTH RATIO: [PASS] The investor should examine the P/E (6.92) relative to the growth rate (28.37%), 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 VLO (0.24) 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. VLO, whose sales are $137,557.0 million, needs to have a P/E below 40 to pass this criterion. VLO's P/E of (6.92) 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 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. 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 VLO is 28.4%, based on the average of the 2 and 5 year historical and the current year eps growth rates, which is acceptable. TOTAL DEBT/EQUITY RATIO: [PASS] This methodology would consider the Debt/Equity ratio for VLO (37.45%) 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 (9.07%) is too low to add to the attractiveness of the stock. Keep in mind, however, that it does not adversely affect the company as it is a bonus criteria. NET CASH POSITION: [NEUTRAL] Another bonus for a company is having a Net Cash/Price ratio above 30%. Lynch defines net cash as cash and marketable securities minus long term debt. According to this methodology, a high value for this ratio dramatically cuts down on the risk of the security. The Net Cash/Price ratio for VLO (-21.71%) 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: Value Investor Based on: Benjamin Graham 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: 71% SECTOR: [PASS] LEA 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. LEA's sales of $14,870.1 million, based on trailing 12 month sales, pass this test. CURRENT RATIO: [FAIL] The current ratio must be greater than or equal to 2. Companies that meet this criterion are typically financially secure and defensive. LEA's current ratio of 1.55 fails 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 LEA is $1,056.8 million, while the net current assets are $1,972.3 million. LEA passes this test. LONG-TERM EPS GROWTH: [FAIL] 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. EPS for LEA were negative within the last 5 years and therefore the company fails this criterion. P/E RATIO: [PASS] The Price/Earnings (P/E) ratio, based on the greater of the current PE or the PE using average earnings over the last 3 fiscal years, must be "moderate", which this methodology states is not greater than 15. Stocks with moderate P/Es are more defensive by nature. LEA's P/E of 8.00 (using the 3 year PE) passes this test. PRICE/BOOK RATIO: [PASS] The Price/Book ratio must also be reasonable. That is, the Price/Book multiplied by P/E cannot be greater than 22. LEA's Price/Book ratio is 1.60, while the P/E is 8.00. LEA passes the Price/Book test.   ROYAL DUTCH SHELL PLC (ADR) Profile Strategy: P/E/Growth Investor Based on: Peter Lynch Royal Dutch Shell plc (Shell) is an independent oil and gas company. The Company owns, directly or indirectly, investments in the numerous companies constituting Shell. Shell is engaged worldwide in the principal aspects of the oil and gas industry and also has interests in chemicals and other energy-related businesses. The Company operates in three segments: Upstream, Downstream and Corporate. Upstream combines the operating segments Upstream International and Upstream Americas, which are engaged in searching for and recovering crude oil and natural gas; the liquefaction and transportation of gas; the extraction of bitumen from oil sands that is converted into synthetic crude oil, and wind energy. Downstream is engaged in manufacturing; distribution and marketing activities for oil products and chemicals. Corporate represents the key support functions, comprising holdings and treasury, headquarters, central functions and Shells self-insurance activities. Analysis Guru Score: 91% DETERMINE THE CLASSIFICATION: According to this methodology, RDS.A is a "Slow Grower", based on its single digit earnings growth of 8.12%, based on the average of the 3, 4 and 5 year historical eps growth rates. SALES: [PASS] RDS.A would fall into the "Dividend Payers" category according to this methodology. The first requirement of a Slow Grower is that its sales exceed one billion. RDS.A's sales are $460,043 million. It passes the test. 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 RDS.A was 6.16% last year, while for this year it is 6.59%. 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 (0.43%) is below 5%. YIELD COMPARED TO THE S&P 500: [PASS] This methodology also maintains that the Yield of a "Slow Grower" should be high, which includes being higher than the S&P average (currently 2.33%), and at least 3%. This yield is required because dividends are the main reason for investing in "Slow Growers". The yield for RDS.A is 5.49% so it passes this test. YIELD ADJUSTED P/E/GROWTH (PEG) RATIO: [PASS] This methodology would consider the Yield-adjusted P/E/G ratio for RDS.A of 0.58, based on the average of the 3, 4 and 5 year historical eps growth rates, to be good. TOTAL DEBT/EQUITY RATIO: [PASS] This methodology would consider the Debt/Equity ratio for RDS.A (19.90%) to be acceptable (equity is three to ten times debt). This ratio is one quick way to determine the financial strength of the company. FREE CASH FLOW: [NEUTRAL] The Free Cash Flow/Price ratio, though not a requirement, is considered a bonus if it is above 35%. A positive Cash Flow (the higher the better) separates a wonderfully reliable investment from a shaky one. This methodology prefers not to invest in companies that rely heavily on capital spending. This ratio for RDS.A (3.01%) 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 RDS.A (-2.45%) 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.   HOLLYFRONTIER CORP Profile Strategy: P/E/Growth Investor Based on: Peter Lynch 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: 74% DETERMINE THE CLASSIFICATION: This methodology would consider HFC a "fast-grower". P/E/GROWTH RATIO: [PASS] The investor should examine the P/E (5.38) relative to the growth rate (209.46%), 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 HFC (0.03) 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. HFC, whose sales are $19,866.8 million, needs to have a P/E below 40 to pass this criterion. HFC's P/E of (5.38) 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 HFC was 7.22% last year, while for this year it is 6.57%. Since inventory to sales has decreased from last year by -0.65%, HFC passes this test. EPS GROWTH RATE: [FAIL] 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 HFC is 209.5%, based on the average of the 3, 4 and 5 year historical eps growth rates, which is considered too fast. TOTAL DEBT/EQUITY RATIO: [PASS] This methodology would consider the Debt/Equity ratio for HFC (20.42%) to be acceptable (equity is three to ten times debt). This ratio is one quick way to determine the financial strength of the company. FREE CASH FLOW: [NEUTRAL] The Free Cash Flow/Price ratio, though not a requirement, is considered a bonus if it is above 35%. A positive Cash Flow (the higher the better) separates a wonderfully reliable investment from a shaky one. This methodology prefers not to invest in companies that rely heavily on capital spending. This ratio for HFC (6.80%) 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 HFC (11.33%) 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.   PATTERSON COMPANIES, INC. Profile Strategy: Contrarian Investor Based on: David Dreman Patterson Companies, Inc. (Patterson) is a distributor serving three markets: the United States companion animal (dogs, cats and other common household pets) and equine veterinary supply, and the worldwide rehabilitation and assistive products supply market. The Company operates in three segments: dental supply, veterinary supply and rehabilitation supply. As Patterson's business, Patterson Dental is a distributor of dental products in North America. Webster Veterinary (Webster) is a distributor of veterinary supplies primarily to companion-pet (dogs, cats and other common household pets) and equine veterinary clinics across the United States. Patterson Medical is a distributor of rehabilitation medical supplies and equipment. During the fiscal year ended April 28 2012 (fiscal 2012), it acquired American Veterinarian Supply Corp., Surgical Synergies Pty Ltd. and Orthoplast. In September 2012, its Patterson Dental acquired Iowa Dental Supply, LLC. Analysis Guru Score: 83% MARKET CAP: [PASS] Medium to large-sized companies (the largest 1500 companies) should be chosen, because they are more in the public eye. Furthermore, the investor is exposed to less risk of "accounting gimmickry", and companies of this size have more staying power. PDCO has a market cap of $4,080 million, therefore passing the test. EARNINGS TREND: [PASS] A company should show a rising trend in the reported earnings for the most recent quarters. PDCO's EPS for the past 2 quarters, (from earliest to most recent quarter) 0.52, 6.90 have been increasing, and therefore the company passes this test. EPS GROWTH RATE IN THE IMMEDIATE PAST AND FUTURE: [FAIL] This methodology likes to see companies with an EPS growth rate higher than the S&P in the immediate past and a likelihood that this trend will continue in the near future. PDCO's EPS growth rate over the past 6 months (1,468.18%) has beaten that of the S&P (0.66%), but PDCO's estimated EPS growth for the current year is (-91.48%) while that of the S&P is (-4.30%), therefore failing this test. This methodology would utilize four separate criteria to determine if PDCO 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. PDCO's P/E of 4.63, based on trailing 12 month earnings, meets the bottom 20% criterion (below 9.96), 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. PDCO's P/CF of 4.55 meets the bottom 20% criterion (below 5.58) 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. PDCO's P/B is currently 3.00, which does not meet the bottom 20% criterion (below 0.82), 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%). PDCO's P/D of 59.88 does not meet the bottom 20% criterion (below 20.33 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 [3.28] or greater than 2). This is one identifier of financially strong companies, according to this methodology. PDCO's current ratio of 3.06 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 PDCO is 7.43%, while its historical payout ratio has been 11.15%. 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 16.96%, and would consider anything over 27% to be staggering. The ROE for PDCO of 61.55% is high enough to pass this criterion. PRE-TAX PROFIT MARGINS: [PASS] This methodology looks for pre-tax profit margins of at least 8%, and considers anything over 22% to be phenomenal. PDCO's pre-tax profit margin is 26.44%, thus passing this criterion. YIELD: [FAIL] The company in question should have a yield that is high and that can be maintained or increased. PDCO's current yield is 1.67%, while the market yield is 2.64%. PDCO 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 54.17%. PDCO's Total Debt/Equity of 52.15% is considered acceptable.   CHEVRON CORPORATION Profile Strategy: Price/Sales Investor Based on: Kenneth Fisher Chevron Corporation (Chevron) manages its investments in subsidiaries and affiliates and provides administrative, financial, management and technology support to the United States and international subsidiaries that engage in petroleum operations, chemicals operations, mining operations, power generation and energy services. Upstream operations consist primarily of exploring for, developing and producing crude oil and natural gas; processing, liquefaction, transportation and regasification associated with liquefied natural gas; transporting crude oil by international oil export pipelines; transporting, storage and marketing of natural gas; and a gas-to-liquids project. Downstream operations consist primarily of refining crude oil into petroleum products; marketing of crude oil and refined products; transporting crude oil by pipeline, motor equipment and rail car, and manufacturing and marketing of commodity petrochemicals, plastics for industrial uses and fuel and lubricant additives. Analysis Guru Score: 80% 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. CVX's P/S ratio of 0.98 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. CVX's Debt/Equity of 10.09% 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. CVX 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 CVX At this Point Is CVX 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, CVX, who has a P/S of 0.98, 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: [FAIL] This methodology looks for companies that have an inflation adjusted EPS growth rate greater than 15%. CVX's inflation adjusted EPS growth rate of 13.73% fails 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. CVX's free cash per share of 0.52 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. CVX, whose three year net profit margin averages 10.23%, passes this evaluation.   WILLIAMS-SONOMA, INC. Profile Strategy: Price/Sales Investor Based on: Kenneth Fisher 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: 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. WSM's P/S ratio of 1.26 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. WSM's Debt/Equity of 0.42% 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. WSM 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 WSM At this Point Is WSM 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, WSM, who has a P/S of 1.26, 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%. WSM's inflation adjusted EPS growth rate of 41.93% 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. WSM's free cash per share of 0.70 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. WSM, whose three year net profit margin averages 6.14%, passes this evaluation.   STAMPS.COM INC. Profile Strategy: Small-Cap Growth Investor Based on: Motley Fool Stamps.com Inc. is a provider of Internet-based postage solutions. The Company's customers use its service to mail and ship a variety of mail pieces, including postcards, envelopes, flats and packages, using a range of United States Postal Service (the USPS) mail classes, including First Class Mail, Priority Mail, Express Mail, Media Mail, Parcel Post, and others. Its customers include individuals, small businesses, home offices, medium-size businesses and enterprises. Analysis Guru Score: 83% PROFIT MARGIN: [PASS] This methodology seeks companies with a minimum trailing 12 month after tax profit margin of 7%. The companies that pass this criterion have strong positions within their respective industries and offer greater shareholder returns. A true test of the quality of a company is that they can sustain this margin. STMP's profit margin of 25.20% 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 STMP's relative strength of 86 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 STMP (-48.42% for EPS, and 13.47% for Sales) are not good enough to pass. INSIDER HOLDINGS: [PASS] STMP's insiders should own at least 10% (they own 11.03% ) of the company's outstanding shares which is the minimum required. A high percentage typically indicates that the insiders are confident that the company will do well. CASH FLOW FROM OPERATIONS: [PASS] A positive cash flow is typically used for internal expansion, acquisitions, dividend payments, etc. A company that generates rather than consumes cash is in much better shape to fund such activities on their own, rather than needing to borrow funds to do so. STMP's free cash flow of $0.05 per share passes this test. PROFIT MARGIN CONSISTENCY: [PASS] STMP's profit margin has been consistent or even increasing over the past three years (Current year: 33.34%, Last year: 25.85%, Two years ago: 6.46%), passing the requirement. It is a sign of good management and a healthy and competitive enterprise. R&D AS A PERCENTAGE OF SALES: [NEUTRAL] This criterion is not critically important for companies that are not high-tech or medical stocks because they are not as R&D dependant as companies within those sectors. Not much emphasis should be placed on this test in STMP's case. CASH AND CASH EQUIVALENTS: [PASS] STMP's level of cash $35.9 million passes this criteria. If a company is a cash generator, like STMP, it has the ability to pay off debt (if it has any) or acquire other companies. Most importantly, good operations generate cash. INVENTORY TO SALES: [PASS] This methodology strongly believes that companies, especially small ones, should have tight control over inventory. It's a warning sign if a company's inventory relative to sales increases significantly when compared to the previous year. Up to a 30% increase is allowed, but no more. Inventory to Sales for STMP was 2.17% last year, while for this year it is 2.94%. Although the inventory 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. 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 STMP was 10.31% last year, while for this year it is 12.48%. 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] STMP'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 (STMP's is 0.38), the shares are looked upon favorably. These high quality companies can often wind up as the biggest winners. STMP passes this test. The following criteria for STMP are less important which means you would place less emphasis on them when making your investment decision using this strategy: AVERAGE SHARES OUTSTANDING: [PASS] STMP has not been significantly increasing the number of shares outstanding within recent years which is a good sign. STMP currently has 16.0 million shares outstanding. This means the company is not taking any measures, with regards to the number of shares, that will dilute or devalue the stock. SALES: [PASS] Companies with sales less than $500 million should be chosen. It is among these small-cap stocks that investors can find "an uncut gem", ones that institutions won't be able to buy yet. STMP's sales of $119.5 million based on trailing 12 month sales, are fine, making this company one such "prospective gem". STMP passes the sales test. DAILY DOLLAR VOLUME: [PASS] STMP passes the Daily Dollar Volume (DDV of $6.7 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. STMP with a price of $37.60 passes the price test, even though it doesn't fall in the preferred range. The price should be above $7 in order to eliminate penny stocks and below $20 since most stocks in this price range are undiscovered by the institutions. INCOME TAX PERCENTAGE: [FAIL] STMP's income tax paid expressed as a percentage of pretax income either this year (-56.11%) or last year (-47.67%) is below 20% which is cause for concern. Because the tax rate is below 20% this could mean that the earnings that were reported are unrealistically inflated due to the lower level of income tax paid. However, we have utilized a sophisticated formula so that the appropriate figures reflect a 'normal' tax rate (35%).   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 STO STATOIL ASA(ADR) Oil & Gas - Integrated 47 VALE VALE SA (ADR) Metal Mining 46 ROST ROSS STORES, INC. Retail (Apparel) 42 OSTK OVERSTOCK.COM, INC. Retail (Catalog & Mail Order) 42 DLTR DOLLAR TREE, INC. Retail (Department & Discount) 42 TJX THE TJX COMPANIES, INC. Retail (Apparel) 40 KORS MICHAEL KORS HOLDINGS LTD Apparel/Accessories 40 BBBY BED BATH & BEYOND INC. Retail (Specialty) 39 UHAL AMERCO Trucking 39 DORM DORMAN PRODUCTS INC. Auto & Truck Parts 37

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