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Executive Summary	April 1, 2011

The Economy While concerns about the Libya turmoil and its impact on oil prices are dominating the headlines, the broader U.S. economy continues to rebound, with positive signs coming from the manufacturing and employment arenas over the past fortnight. This week, jobs-tracker ADP said that the private sector added 201,000 jobs in March, the second straight month the figure has topped the 200,000 mark. Over the past four months, on average, private payrolls have increased by 211,000, nearly three times the average of 74,000 for the previous three months. New and continuing claims for unemployment also continue to drop. New claims fell slightly in the most recent week (ending March 26), and are about 14% below year-ago levels, according to new Labor Department data. Continuing claims also fell in the most recent week for which data is available (ending March 19), and are more than 21% lower than they were a year ago. The Labor Department is scheduled to release its March unemployment report today, and, as always, it figures to be widely watched and scrutinized by investors. In terms of economic growth, the latest figures from the Federal Reserve showed that industrial production dropped 0.1% in February. But a closer look at the numbers painted a better picture. First, while the February figure indicated a slight decline in output, the January figure -- initially estimated as a 0.1% drop -- was revised upward to a strong gain of 0.9%. Second, the February decline was caused by a drop in the utility sector's output, which was a result of unseasonably warm temperatures that lowered heating bills, according to the Fed. Manufacturing output actually rose 0.4% in February, while the January manufacturing figure was revised upward from 0.3% to 0.9%, good signs. A new government report also showed that gross domestic product for the fourth quarter was higher than initially estimated. Previously believed to have growth at a 2.8% pace during the quarter, the economy actually grew at a 3.1% annual rate, the Commerce Department said. That means growth accelerated significantly in the quarter -- GDP growth was 2.6% in the previous quarter. There are still reasons for concern about the economy, however. One is, of course, those troublesome oil prices. Oil topped $106 a barrel yesterday amid the Libya fears. But as I've noted before, I think a big piece of the increase in oil prices is fear, not fundamentals. Of a bit more concern are food prices. Extreme weather conditions and rising demand have been causing food prices to surge in recent months, and now some of the U.S.'s biggest food firms are saying that their rising costs threaten to seep through to consumers. Hershey's announced it is raising wholesale prices almost 10% on most of its candy items, for example, saying that rising costs for raw materials, utilities, fuel, and transportation have led to the increases. And Wal-Mart's CEO told USAToday that he sees "serious" inflation coming, with "cost increases starting to come through at a pretty rapid rate." While consumer spending has been strong in recent months, continued surges in food prices could cause consumers to cut back, which could slow down the economic recovery. The housing market, meanwhile, remains on shaky ground. The National Association of Realtors said last week that existing-home sales fell 9.6% in February, while pending home sales rose 2.1%. A government report also showed that new single-family home sales in February were down 16.9% from January. And the S&P/Case-Shiller home prices indices fell again in January, new data showed, with the 20-city index and 10-city index both dropping 0.2%. The 10-city index is now 2.0% below its year-ago level, while the 20-city index is down 3.1%. As for the markets, since our last newsletter, the S&P returned 4.1%, while the Hot List returned 7.0%. So far in 2011, the portfolio stands at 6.3% vs. 5.4% for the S&P. Since its inception in July 2003, the Hot List is far outpacing the index, having gained 186.9% vs. the S&P's 32.5% gain. The Terrible Twos? With all that happened last month in the Middle East and Japan, it was easy to lose sight of the fact that early in March we reached the two-year anniversary of the bull market that began in late Winter 2009. It has been a remarkable run, really. Back in early March of 2009, terms like "depression", "bankruptcy", and "new normal" were popping up at every turn; the entire viability of the American financial system (and that of the globe) was, in fact, in question. But with a huge boost from the government, and the hard work and ingenuity of its citizens, the U.S. has rebounded from the brink of financial disaster. And from March 9, 2009, through March 9 of this year, the S&P 500 rose 95%, coming back to within about 15% of its pre-financial-crisis highs. The magnitude of the rebound, coupled with the events in Japan and the Middle East, have led many pundits to wonder whether the bull is reaching the end of the line. Given the continued improvement in U.S. economic activity, and the recent improvements in the employment situation, I suspect it hasn't. But, of course, I don't know for sure -- no one does, for that matter. What we do know, however, is what bull markets have done historically -- and while history doesn't always repeat itself, it often rhymes. Looking at past bull markets can thus give us at least some insight into this bull's potential. With that in mind, I looked back at the past eight bull runs prior to the current one. The data shows that bulls come in a variety of shapes and sizes. On the shorter end of the spectrum, there was the 1966-68 bull, the shortest and smallest in magnitude of the past half-century's bull markets. It lasted 26 months, and saw the S&P 500 gain 48.0%. The 1970-73 bull was the second-shortest, lasting 32 months and involving a gain of 73.5% for the market. Generally, however, most post-World War II bulls have run further and higher than the current bull. The biggest of the bunch was the 1987-2000 run, which lasted 148 months and saw the S&P gain more than 580%. Other powerful bulls included the six-plus year bull that ran from late 1974 to late 1980, with a 125.6% gain for the S&P, and its successor, the 1982-87 bull, which was a bit shorter in duration but more powerful -- the S&P gained 228.8% during its 60-month run. Overall, the average of these past eight bulls has lasted more than five years (62 months, to be exact), and involved a 165.7% gain for the S&P. That's significantly longer and higher than the current bull, which has gained about 95% in a bit under 25 months. Of course, there's no guarantee that this bull will last as long or run as high as the preceding eight bulls have on average. But at the very least, it is an indication that the current bull isn't "due" for an end simply because of its impressive run. And when I look at other aspects of the current market, I'm encouraged that this bull has room to run. Sentiment is a big reason. Many past bulls have come to a screeching halt when sentiment has reached unsustainable levels, and right now I'm just not seeing that. While the market has staged a fierce rebound over the past two years and the economy has come back from the brink, the general mood of investors seems to be one characterized by skepticism and trepidation. Tell many average Americans that the stock market has regained about 85% of the losses it sustained during the last bear market, or that manufacturing activity has increased for 19 straight months, and many will respond with disbelief. It's to be expected -- the depth and breadth of the financial crisis and market meltdown in 2008 left huge scars, and such traumatic events take a long time to fade from people's minds. And that's actually good news for stocks. It means that, while the gains of the past two years have been exceptional, there are plenty of investors who remain underinvested in stocks. Inflows to equity mutual funds and exchange-traded funds have picked up significantly since September, and January's and February's were very strong. But overall we haven't seen the sort of sustained push into equities that would be indicative of overly bullish sentiment. As Yale economist Robert Shiller -- the man who foresaw the crashing of both the late 1990s tech bubble and the recent housing bubble -- recently wrote, "the huge surge in stocks since March 2009 doesn't look like a bubble, but more like the end of the depression scare. The rise in equity prices has not come with a contagious new era story, but rather a 'sigh of relief' story." I agree. That's not to say that all's well and stocks will run upward uninterrupted -- the market is continually barraged by too many unpredictable issues to say with certainty where it will go in the short term, and corrections are a normal part of any bull market. But I do think that, while stocks have run far and fast in the past two years, the broader market remains reasonably priced given the economy's continuing improvement, and there's plenty of fresh powder still waiting on the sidelines. In that sort of environment, I expect my models will be able to pick out some strong, undervalued stocks that should help the Hot List continue to outperform over the long haul.		Editor-in-Chief: John Reese Since Inception   Hot List 186.9% S&P 500 32.5% Accuracy 56.8% Beta 1.2 YTD   Hot List 6.3% S&P 500 5.4% Since Last Issue   Hot List 7.0% S&P 500 4.1% Avg. Fundamentals   Market Cap (mil) $11,947 PE Ratio 38.4 5 Yr EPS Growth 26.6% Yield 2.3% Rel. Strength 53 Portfolio Sectors Services 5 Technology 3 Consumer Cyclical 1 Healthcare 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. Guru Spotlight: John Neff Most investors wouldn't give a fund described as "relatively prosaic, dull, conservative" a second glance. That, however, is exactly how John Neff described the Windsor Fund that he headed for more than three decades. And, while his style may not have been flashy or eye-catching, the returns he generated for clients were dazzling -- so dazzling that Neff's track record may be the greatest ever for a mutual fund manager. By focusing on beaten down, unloved stocks, Neff was able to find value in places that most investors overlooked. And when the rest of the market caught on to his finds, he and his clients reaped the rewards. Over his 31-year tenure (1964-1995), Windsor averaged a 13.7 percent annual return, beating the market by an average of 3.1 percent per year. Looked at another way, a $10,000 investment in the fund the year Neff took the reins would have been worth more than $564,000 by the time he retired (with dividends reinvested); that same $10,000 invested in the S&P 500 (again with dividends reinvested) would have been worth less than half that after 31 years, about $233,000. That type of track record made the understated, low-key Neff a favorite manager of many other professional fund managers -- an "investor's investor", if you will. How did Neff do it? By focusing first and foremost on value, and a key part of how he found value involved the Price/Earnings Ratio. While others have called him a "contrarian" or "value investor", Neff writes in John Neff on Investing that, "Personally, I prefer a different label: 'low price-earnings investor.' It describes succinctly and accurately the investment style that guided Windsor while I was in charge." To Neff, the P/E ratio was key because it involved expectations. If investors were willing to buy stocks with high P/E ratios, they must be expecting a lot from them, because they are willing to pay more for each dollar of future earnings per share; conversely, if a stock has a low P/E ratio, investors aren't expecting much from it. Much like David Dreman, the great contrarian guru who we examined a few newsletters back, Neff found that stocks with lower P/E ratios -- and lower expectations -- tended to outperform, because any hint of improvement exceeded the low expectations investors had for them. Similarly, stocks with high P/Es often flopped, because even strong results couldn't match investors' expectations. To Neff, however, the P/E wasn't always a lower-is-better ratio. If investors knew that a firm was a dog, they'd rightly avoid its stock, giving it a low P/E ratio but little in the way of future growth prospects. Because of that, he wrote that Windsor targeted stocks with P/E ratios between 40 and 60 percent of the market average. While it was at the heart of his investment philosophy, the P/E ratio was also by no means the only metric Neff used to judge stocks. He wanted to see earnings growth, but here again it was not a case of more-is-better. A stock with too high a growth rate -- more than 20 percent -- could have trouble sustaining that growth over the long haul. He thus preferred to see growth between 7 and 20 percent per year, the kind of steady, unspectacular growth that could be sustained. Sustainable growth also meant growth that was driven by sales -- not one-time gains or cost-cutting measures. Neff thus liked to see companies whose earnings growth and sales growth were rising at similar rates. (My Neff-based model interprets this as sales growth needing to be at least 7 percent per year, or at least 70 percent of EPS growth.) One more key aspect of Neff's strategy involved dividends. He believed that many investors valued stocks strictly on their price appreciation potential, meaning that you can often essentially get their dividend payouts for free. He estimated that about two-thirds of Windsor's 3 percent per year market outperformance during his tenure came from dividends. To make sure that his analysis captured dividend payments, Neff used the Total Return/PE ratio. This measure divides a stock's total return (that is, its EPS growth rate plus its dividend yield) by its P/E ratio. He looked for stocks whose Total Return/PE ratios doubled either the market average or their industry average. In recent years, my Neff-inspired model has been very stringent, with very few companies passing all of its tests. Here's a look at the stocks that currently make up my 10-stock Neff-based portfolio: China Petroleum & Chemical Corp. (SNP) Alliant Techsystems Inc. (ATK) Aflac Incorporated (AFL) Jos. A. Bank Clothiers (JOSB) Companhia Saneamento Basico (SBS) Telecom Argentina S.A. (TEO) Microsoft Corporation (MSFT) Eli Lilly & Co. (LLY) Hi-Tech Pharmacal Co. (HITK) GameStop Corp. (GME) I began tracking my Neff-based portfolio at the start of 2004. Overall, it has performed substantially better than the broader market, though it's had an up-and-down ride. From its inception through 2007, the portfolio returned about 67%, about double the S&P 500's 32.4% return. The 2008 crash was especially hard on value stocks, however, and the Neff portfolio fell more than 48% for the year, about 10 percentage points behind the S&P. But it bounced back strong in 2009, surging 45.4%. Last year, however, it was barely in the black, gaining just 0.1% vs. the S&P's 12.8% gain. The portfolio has rebounded this year, however, and through Wednesday was up 5.9%, slightly ahead of the S&P. Since its early 2004 inception, it has returned 33.3% vs. the S&P's 19.5% gain. Just like Neff himself, the Neff-based model often treads into the most unloved parts of the market. As you can see above, many of its current holdings come from industries or sectors -- healthcare, financials, telecom -- that have either been lagging or have substantial fears lingering over them. But by ignoring the crowd and focusing on these firms' strong financials and fundamentals, I think the Neff model will end up benefiting significantly from many of these picks. News about Validea Hot List Stocks GameStop Corp. (GME): On March 24, GameStop announced fiscal fourth-quarter earnings of $237 million, or $1.56 a share, up about 10% from $215.9 million, or $1.29 a share, in the year-ago period. Sales were $3.69 billion, up from $3.52 billion. Analysts polled by FactSet Research on average expected earnings of $1.56 a share on sales of $3.71 billion, MarketWatch reported, adding that GameStop also announced a first-quarter forecast that topped analysts' estimates. The Next Issue In two weeks, we will publish another issue of the Hot List, at which time we will rebalance the portfolio. If you have any questions, please feel free to contact us at hotlist@validea.com.

Current Portfolio Ticker Company Name Industry Guru Score BPI BRIDGEPOINT EDUCATION, INC. Schools 85 ARO AEROPOSTALE, INC. Retail (Apparel) 73 GME GAMESTOP CORP. Retail (Technology) 65 OPEN OPENTABLE INC Software & Programming 64 APKT ACME PACKET, INC. Communications Equipment 60 SNY SANOFI-AVENTIS SA (ADR) Biotechnology & Drugs 60 PPD PRE-PAID LEGAL SERVICES, INC. Personal Services 58 SKX SKECHERS USA, INC. Footwear 58 WDC WESTERN DIGITAL CORP. Computer Storage Devices 46 TSCO TRACTOR SUPPLY COMPANY Retail (Home Improvement) 43 Ticker Market Cap Date Added Start Price Return BPI $908 3/18/2011 $18.02 $17.10 -5.1% ARO $1,989 11/26/2010 $26.90 $24.32 -9.6% GME $3,169 9/3/2010 $19.01 $22.52 18.5% OPEN $2,495 3/18/2011 $90.02 $106.35 18.1% APKT $4,668 2/18/2011 $72.92 $70.96 -2.7% SNY $91,619 3/18/2011 $33.37 $35.22 5.5% PPD $644 3/18/2011 $65.78 $66.00 0.3% SKX $990 3/18/2011 $18.46 $20.54 11.3% WDC $8,639 2/18/2011 $33.24 $37.29 12.2% TSCO $4,348 3/18/2011 $53.99 $59.86 10.9%

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 BPI   |   ARO   |   GME   |   OPEN   |   APKT   |   SNY   |   PPD   |   SKX   |   WDC   |   TSCO   |   BRIDGEPOINT EDUCATION, INC. Profile Strategy: P/E/Growth Investor Based on: Peter Lynch Bridgepoint Education, Inc. (Bridgepoint) is a accredited provider of postsecondary education services. The Company offers associate's, bachelor's, master's and doctoral programs in the disciplines of business, education, psychology, social sciences and health sciences. It delivers its programs online, as well as at its traditional campuses located in Clinton, Iowa, and Colorado Springs, Colorado. As of December 31, 2009, it offered approximately 1,150 courses, 60 degree programs and 125 specializations and concentrations. As of December 31, 2009, it had 53,688 students enrolled in its institutions, 99% of whom were attending classes online. Analysis Guru Score: 93% DETERMINE THE CLASSIFICATION: This methodology would consider BPI a "fast-grower". P/E/GROWTH RATIO: [PASS] The investor should examine the P/E (8.00) relative to the growth rate (26.56%), 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 BPI (0.30) 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. BPI, whose sales are $713.2 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 BPI is 26.6%, based on the average of the 3 and 4 year historical eps growth rates using the current fiscal year eps estimate, which is acceptable. TOTAL DEBT/EQUITY RATIO: [PASS] This methodology would consider the Debt/Equity ratio for BPI (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 BPI (16.02%) 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 BPI (28.14%) 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.   AEROPOSTALE, INC. Profile Strategy: P/E/Growth Investor Based on: Peter Lynch Aeropostale, Inc. is a mall-based specialty retailer of casual apparel and accessories. The Company designs, markets and sells its own brand of merchandise principally targeting 14 to 17 year-old young women and young men. The Company also sells Aropostale merchandise through its e-commerce Website, www.aeropostale.com. During the fiscal year ended January 30, 2010 (fiscal 2009), the Company launched P.S. from Aeropostale, which offers casual clothing and accessories focused on elementary school children between the ages of 7 and 12. During fiscal 2009, the Company completed the closure of its 14 store Jimmy'Z concept. Jimmy'Z Surf Co., Inc., a wholly owned subsidiary of Aeropostale, Inc., was a contemporary lifestyle brand targeting young women and men aged 18 to 25. Analysis Guru Score: 93% DETERMINE THE CLASSIFICATION: This methodology would consider ARO a "fast-grower". P/E/GROWTH RATIO: [PASS] The investor should examine the P/E (9.67) relative to the growth rate (29.59%), based on the average of the 3, 4 and 5 year historical eps growth rates, for a company. This is a quick way of determining the fairness of the price. In this particular case, the P/E/G ratio for ARO (0.33) is very favorable. SALES AND P/E RATIO: [PASS] For companies with sales greater than $1 billion, this methodology likes to see that the P/E ratio remain below 40. Large companies can have a difficult time maintaining a growth high enough to support a P/E above this threshold. ARO, whose sales are $2,400.4 million, needs to have a P/E below 40 to pass this criterion. ARO's P/E of (9.67) is considered acceptable. EPS GROWTH RATE: [PASS] This methodology favors companies that have several years of fast earnings growth, as these companies have a proven formula for growth that in many cases can continue many more years. This methodology likes to see earnings growth in the range of 20% to 50%, as earnings growth over 50% may be unsustainable. The EPS growth rate for ARO is 29.6%, based on the average of the 3, 4 and 5 year historical eps growth rates, which is acceptable. TOTAL DEBT/EQUITY RATIO: [PASS] This methodology would consider the Debt/Equity ratio for ARO (0.00%) to be wonderfully low (equity is at least ten times debt). This ratio is one quick way to determine the financial strength of the company. FREE CASH FLOW: [NEUTRAL] The Free Cash Flow/Price ratio, though not a requirement, is considered a bonus if it is above 35%. A positive Cash Flow (the higher the better) separates a wonderfully reliable investment from a shaky one. This methodology prefers not to invest in companies that rely heavily on capital spending. This ratio for ARO (7.24%) is too low to add to the attractiveness of the stock. Keep in mind, however, that it does not adversely affect the company as it is a bonus criteria. NET CASH POSITION: [NEUTRAL] Another bonus for a company is having a Net Cash/Price ratio above 30%. Lynch defines net cash as cash and marketable securities minus long term debt. According to this methodology, a high value for this ratio dramatically cuts down on the risk of the security. The Net Cash/Price ratio for ARO (12.27%) is too low to add to the attractiveness of this company. Keep in mind, however, that it does not adversely affect the company as it is a bonus criteria.   GAMESTOP CORP. Profile Strategy: Price/Sales Investor Based on: Kenneth Fisher GameStop Corp. (GameStop) is a retailer of video game products and personal computer (PC) entertainment software. The Company sells new and used video game hardware, video game software and accessories, as well as PC entertainment software, and related accessories and other merchandise. As of January 30, 2010, the Company operated 6,450 stores in the United States, Australia, Canada and Europe, primarily under the names GameStop and EB Games. GameStop also operates the electronic commerce Website www.gamestop.com and publish Game Informer, a multi-platform video game magazine in the United States based on circulation, with approximately 4 million subscribers. During the fiscal year ended January 30, 2010 (fiscal 2009), GameStop operated its business in four segments: United States, Canada, Australia and Europe. Analysis Guru Score: 90% PRICE/SALES RATIO: [PASS] The prospective company should have a low Price/Sales ratio. Non-cyclical (non-Smokestack) companies with Price/Sales ratios below 0.75 are tremendous values and should be sought. GME's P/S of 0.33 based on trailing 12 month sales, is below 0.75 which is considered quite attractive. It passes this methodology's P/S ratio test with flying colors. TOTAL DEBT/EQUITY RATIO: [PASS] Less debt equals less risk according to this methodology. GME's Debt/Equity of 8.59% is acceptable, thus passing the test. PRICE/RESEARCH RATIO: [PASS] This methodology considers companies in the Technology and Medical sectors to be attractive if they have low Price/Research ratios. GME is neither a Technology nor Medical company. Therefore the Price/Research ratio is not available and, hence, not much emphasis should be placed on this particular variable. PRELIMINARY GRADE: Some Interest in GME At this Point Is GME a "Super Stock"? NO PRICE/SALES RATIO: [PASS] The prospective company should have a low Price/Sales ratio. Non-cyclical(non-Smokestack) companies with Price/Sales ratios below .75 are tremendous values and should be sought.GME's P/S ratio of 0.33 is below .75 which is considered extremely attractive. It passes this methodology's P/S ratio test with flying colors. LONG-TERM EPS GROWTH RATE: [PASS] This methodology looks for companies that have an inflation adjusted EPS growth rate greater than 15%. GME's inflation adjusted EPS growth rate of 20.68% passes the test. FREE CASH PER SHARE: [PASS] This methodology looks for companies that have a positive free cash per share. Companies should have enough free cash available to sustain three years of losses. This is based on the premise that companies without cash will soon be out of business. GME's free cash per share of 2.56 passes this criterion. THREE YEAR AVERAGE NET PROFIT MARGIN: [FAIL] This methodology looks for companies that have an average net profit margin of 5% or greater over a three year period. GME, whose three year net profit margin averages 4.33%, fails this evaluation.   OPENTABLE INC Profile Strategy: Small-Cap Growth Investor Based on: Motley Fool OpenTable, Inc. (OpenTable) provides solution that forms an online network connecting reservation-taking restaurants and people who dine at those restaurants. Its solutions include its Electronic Reservation Book (ERB), for restaurant customers and www.opentable.com, a restaurant reservation Website for diners. The OpenTable network includes approximately 12,000 OpenTable restaurant customers spanning all 50 states, as well as select markets outside of the United States. During the year ended December 31, 2009, the Company seated an average of approximately four million diners per month. Restaurants pays OpenTable an one-time installation fee for onsite installation and training, a monthly subscription fee for the use of its software and hardware and a fee for each restaurant guest seated through online reservations. 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. OPEN's profit margin of 14.22% passes this test. RELATIVE STRENGTH: [PASS] The investor must look at the relative strength of the company in question. Companies whose relative strength is 90 or above (that is, the company outperforms 90% or more of the market for the past year), are considered attractive. Companies whose price has been rising much quicker than the market tend to keep rising. OPEN, with a relative strength of 97, satisfies this test. COMPARE SALES AND EPS GROWTH TO THE SAME PERIOD LAST YEAR: [PASS] Companies must demonstrate both revenue and net income growth of at least 25% as compared to the prior year. These growth rates give you the dynamic companies that you are looking for. These rates for OPEN (61.54% for EPS, and 60.51% for Sales) are good enough to pass. INSIDER HOLDINGS: [PASS] OPEN's insiders should own at least 10% (they own 30.70% ) 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. OPEN's free cash flow of $1.00 per share passes this test. PROFIT MARGIN CONSISTENCY: [PASS] OPEN's profit margin has been consistent or even increasing over the past three years (Current year: 14.22%, Last year: 7.39%, Two years ago: -1.83%), passing the requirement. It is a sign of good management and a healthy and competitive enterprise. R&D AS A PERCENTAGE OF SALES: [FAIL] OPEN did not have any R&D expenditures for the current year which is unacceptable. OPEN could be jepordizing the future in order to boost current EPS numbers. CASH AND CASH EQUIVALENTS: [PASS] OPEN's level of cash $42.5 million passes this criteria. If a company is a cash generator, like OPEN, 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 OPEN was 11.11% last year, while for this year it is 13.43%. 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] OPEN'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): [FAIL] The "Fool Ratio" is an extremely important aspect of this analysis. The methodology says consider shorting shares when the company's Fool Ratio is greater than 1.30. OPEN's PEG Ratio of 2.97 is excessively high. The following criteria for OPEN are less important which means you would place less emphasis on them when making your investment decision using this strategy: AVERAGE SHARES OUTSTANDING: [PASS] OPEN has not been significantly increasing the number of shares outstanding within recent years which is a good sign. OPEN currently has 24.0 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. OPEN's sales of $99.0 million based on trailing 12 month sales, are fine, making this company one such "prospective gem". OPEN passes the sales test. DAILY DOLLAR VOLUME: [FAIL] OPEN does not pass the Daily Dollar Volume (DDV of $122.0 million) test. It exceeds the maximum requirement of $25 million. Stocks that fail the test are too liquid for a small individual investor and many institutions have already discovered it. PRICE: [PASS] This is a very insignificant criterion for this methodology. But basically, low prices are chosen because "small numbers multiply more rapidly than large ones" and the potential for big returns expands. OPEN with a price of $106.35 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: [PASS] OPEN's income tax paid expressed as a percentage of pretax income this year was (22.47%) and last year (43.85%) 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.   ACME PACKET, INC. Profile Strategy: Growth Investor Based on: Martin Zweig Acme Packet, Inc., incorporated on August 3, 2000, provides session border controllers (SBCs) that enable service providers, enterprises, government agencies and contact centers to deliver interactive communications, such as voice, video and other real-time multimedia sessions, across Internet protocol (IP) network borders. The Company's Net-Net product supports a range of communications applications at multiple network border points and also supports service architectures, such as IP Multimedia Subsystem (IMS). The Company's Net-Net family of products consists of the Net-Net OS software platform, the 2600, 3800, 4250, 4500 and 9200 platforms; 4500 Advanced Telecommunications Computing Architecture blade (ATCA blade); and Element Management System (EMS), Session Analysis System (SAS), and Route Manager Central (RMC), management applications. On April 30, 2009, the Company acquired Covergence Inc. Analysis Guru Score: 85% P/E RATIO: [FAIL] The P/E of a company must be greater than 5 to eliminate weak companies, not more than 3 times the current Market P/E because the situation is much too risky, and never greater than 43. APKT's P/E is 111.75, based on trailing 12 month earnings, while the current market P/E is 16.00. Therefore, it fails the first test. REVENUE GROWTH IN RELATION TO EPS GROWTH: [PASS] Revenue Growth must not be substantially less than earnings growth. For earnings to continue to grow over time they must be supported by a comparable or better sales growth rate and not just by cost cutting or other non-sales measures. APKT's revenue growth is 27.71%, while it's earnings growth rate is 16.85%, based on the average of the 3 and 4 year historical eps growth rates. Therefore, APKT passes 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 (70.2%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (55.7%) of the current year. Sales growth for the prior must be greater than the latter. For APKT 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. APKT's EPS ($0.21) pass this test. QUARTERLY EARNINGS ONE YEAR AGO: [PASS] The EPS for the quarter one year ago must be positive. APKT's EPS for this quarter last year ($0.14) 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. APKT's growth rate of 50.00% passes this test. EARNINGS GROWTH RATE FOR THE PAST SEVERAL QUARTERS: [PASS] Compare the earnings growth rate of the previous three quarters with long-term EPS growth rate. Earnings growth in the previous 3 quarters should be at least half of the long-term EPS growth rate. Half of the long-term EPS growth rate for APKT is 8.42%. This should be less than the growth rates for the 3 previous quarters, which are 160.00%, 366.67%, and 150.00%. APKT 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, 200.00%, (versus the same three quarters a year earlier) is greater than the growth rate of the current quarter earnings, 50.00%, (versus the same quarter one year ago) then the stock fails, with one exception: if the growth rate in earnings between the current quarter and the same quarter one year ago is greater than 30%, then the stock would pass. The growth rate over this period for APKT is 50.0%, and it would therefore pass this test. EPS GROWTH FOR CURRENT QUARTER MUST BE GREATER THAN THE HISTORICAL GROWTH RATE: [PASS] The EPS growth rate for the current quarter, 50.00% must be greater than or equal to the historical growth which is 16.85%. APKT would therefore pass this test. EARNINGS PERSISTENCE: [FAIL] Companies must show persistent yearly earnings growth. To fulfill this requirement a company's earnings must increase each year for a five year period. APKT, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were 0.50, 0.30, 0.18, 0.28, and 0.63, fails this test. LONG-TERM EPS GROWTH: [PASS] One final earnings test required is that the long-term earnings growth rate must be at least 15% per year. APKT's long-term growth rate of 16.85%, based on the average of the 3 and 4 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. APKT's Debt/Equity (0.00%) is not considered high relative to its industry (33.61%) 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 APKT, this criterion has not been met (insider sell transactions are 160, while insiders buying number 44). 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.   SANOFI-AVENTIS SA (ADR) Profile Strategy: Value Investor Based on: Benjamin Graham Sanofi-Aventis is a pharmaceutical group engaged in the research, development, manufacture and marketing of healthcare products. The Company's business includes two main activities: pharmaceuticals and human vaccines through sanofi pasteur. It is also present in animal health products through Merial Limited (Merial). In its pharmaceutical activity, it specializes in six therapeutic areas: diabetes, oncology, thrombosis and cardiovascular, central nervous system (CNS), and internal medicine. The global portfolio of sanofi-aventis also consists of a range of other pharmaceutical products in Consumer Health Care (CHC) and other prescription drugs, including generics. It offers vaccines in five areas: pediatric combination vaccines, influenza vaccines, adult and adolescent booster vaccines, meningitis vaccines and travel and endemic vaccines. In October 2010, Siegfried Holding AG sold its PulmoJet Inhalation Project to the Company. In February 2011, the Company acquired BMP Sunstone Corp. Analysis Guru Score: 100% SECTOR: [PASS] SNY 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. SNY's sales of $45,377.3 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. SNY's current ratio of 2.30 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 SNY is $9,483.4 million, while the net current assets are $21,700.6 million. SNY 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. SNY's EPS growth over that period of 141.9% passes the EPS growth test. 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. SNY's P/E of 11.90 (using the current 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. SNY's Price/Book ratio is 1.22, while the P/E is 11.90. SNY passes the Price/Book test.   PRE-PAID LEGAL SERVICES, INC. Profile Strategy: P/E/Growth Investor Based on: Peter Lynch Pre-Paid Legal Services, Inc. designs, underwrites and markets legal expense plans. The Company's life events legal plans (referred to as Memberships) provide for a range of legal services.The identity theft related benefits include a credit report and related instructional guide, a credit score and related instructional guide, credit report monitoring with daily online and monthly offline notification of any changes in credit information and identity theft restoration services. As of December 31, 2009, the Company had 1,547,585 Memberships in force with members in all 50 states, the District of Columbia and the Canadian provinces of Ontario, British Columbia, Alberta and Manitoba. Approximately 90% of such Memberships were in 29 states and provinces. Analysis Guru Score: 93% DETERMINE THE CLASSIFICATION: This methodology would consider PPD a "fast-grower". P/E/GROWTH RATIO: [PASS] The investor should examine the P/E (9.72) relative to the growth rate (20.88%), 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 PPD (0.47) 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. PPD, whose sales are $453.9 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 PPD is 20.9%, based on the average of the 3, 4 and 5 year historical eps growth rates, which is considered very good. TOTAL DEBT/EQUITY RATIO: [PASS] This methodology would consider the Debt/Equity ratio for PPD (0.97%) to be exceptionally low (equity is at least ten times debt). This ratio is one quick way to determine the financial strength of the company. FREE CASH FLOW: [NEUTRAL] The Free Cash Flow/Price ratio, though not a requirement, is considered a bonus if it is above 35%. A positive Cash Flow (the higher the better) separates a wonderfully reliable investment from a shaky one. This methodology prefers not to invest in companies that rely heavily on capital spending. This ratio for PPD (10.92%) is too low to add to the attractiveness of the stock. Keep in mind, however, that it does not adversely affect the company as it is a bonus criteria. NET CASH POSITION: [NEUTRAL] Another bonus for a company is having a Net Cash/Price ratio above 30%. Lynch defines net cash as cash and marketable securities minus long term debt. According to this methodology, a high value for this ratio dramatically cuts down on the risk of the security. The Net Cash/Price ratio for PPD (7.53%) 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.   SKECHERS USA, INC. Profile Strategy: Price/Sales Investor Based on: Kenneth Fisher Skechers U.S.A., Inc. (Skechers) design and market Skechers-branded contemporary footwear for men, women and children under several lines. addition to Skechers-branded lines, the Company also offers several designer, fashion and street-focused footwear lines for men, women and children. These lines are branded and marketed separately from Skechers and appeal to specific audiences. Its brands are sold through department stores, specialty stores, athletic retailers, and boutiques as well as catalog and Internet retailers. Along with wholesale distribution, its footwear is available at its e-commerce Website and its own retail stores. Skechers operates 90 concept stores, 92 factory outlet stores and 37 warehouse outlet stores in the United States, and 22 concept stores and five factory outlets internationally. The Company operates in four reportable segments: domestic wholesale sales, international wholesale sales, retail sales, and e-commerce sales. 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 ratios below 0.75 are tremendous values and should be sought. SKX's P/S of 0.49 based on trailing 12 month sales, is below 0.75 which is considered quite attractive. It passes this methodology's P/S ratio test with flying colors. TOTAL DEBT/EQUITY RATIO: [PASS] Less debt equals less risk according to this methodology. SKX's Debt/Equity of 9.03% 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. SKX 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 SKX At this Point Is SKX a "Super Stock"? NO PRICE/SALES RATIO: [PASS] The prospective company should have a low Price/Sales ratio. Non-cyclical(non-Smokestack) companies with Price/Sales ratios below .75 are tremendous values and should be sought.SKX's P/S ratio of 0.49 is below .75 which is considered extremely attractive. It passes this methodology's P/S ratio test with flying colors. LONG-TERM EPS GROWTH RATE: [PASS] This methodology looks for companies that have an inflation adjusted EPS growth rate greater than 15%. SKX's inflation adjusted EPS growth rate of 16.66% passes the test. FREE CASH PER SHARE: [FAIL] 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. SKX's free cash per share of -2.64 fails this criterion. THREE YEAR AVERAGE NET PROFIT MARGIN: [FAIL] This methodology looks for companies that have an average net profit margin of 5% or greater over a three year period. SKX, whose three year net profit margin averages 4.81%, fails this evaluation.   WESTERN DIGITAL CORP. Profile Strategy: P/E/Growth Investor Based on: Peter Lynch Western Digital Corporation (WD) designs, develops, manufactures and sells hard drives. It sells its products worldwide to original equipment manufacturers (OEMs) and original design manufacturers (ODMs) for use in computer systems, subsystems or consumer electronics (CE) devices, and to distributors, resellers and retailers. Its hard drives are used in desktop computers, notebook computers, and enterprise applications such as servers, workstations, network attached storage, storage area networks and video surveillance equipment. Its hard drives are used in CE applications, such as digital video recorders (DVRs), and satellite and cable set-top boxes (STBs). It also sells its hard drives as stand-alone storage products by integrating them into finished enclosures, embedding application software and offering the products as WD-branded external storage appliances for personal data backup and portable or expanded storage of digital music, video and other digital data. Analysis Guru Score: 93% DETERMINE THE CLASSIFICATION: This methodology would consider WDC a "fast-grower". P/E/GROWTH RATIO: [PASS] The investor should examine the P/E (8.04) relative to the growth rate (38.09%), based on the average of the 3, 4 and 5 year historical eps growth rates, for a company. This is a quick way of determining the fairness of the price. In this particular case, the P/E/G ratio for WDC (0.21) is very favorable. SALES AND P/E RATIO: [PASS] For companies with sales greater than $1 billion, this methodology likes to see that the P/E ratio remain below 40. Large companies can have a difficult time maintaining a growth high enough to support a P/E above this threshold. WDC, whose sales are $9,894.0 million, needs to have a P/E below 40 to pass this criterion. WDC's P/E of (8.04) is considered acceptable. INVENTORY TO SALES: [PASS] When inventories increase faster than sales, it is a red flag. However an increase of up to 5% is considered bearable if all other ratios appear attractive. Inventory to sales for WDC was 5.04% last year, while for this year it is 5.69%. Since inventory has been rising, this methodology would not look favorably at the stock but would not completely eliminate it from consideration as the inventory increase (0.64%) is below 5%. EPS GROWTH RATE: [PASS] This methodology favors companies that have several years of fast earnings growth, as these companies have a proven formula for growth that in many cases can continue many more years. This methodology likes to see earnings growth in the range of 20% to 50%, as earnings growth over 50% may be unsustainable. The EPS growth rate for WDC is 38.1%, based on the average of the 3, 4 and 5 year historical eps growth rates, which is considered 'OK'. However, it may be difficult to sustain such a high growth rate. TOTAL DEBT/EQUITY RATIO: [PASS] This methodology would consider the Debt/Equity ratio for WDC (6.78%) to be exceptionally low (equity is at least ten times debt). This ratio is one quick way to determine the financial strength of the company. FREE CASH FLOW: [NEUTRAL] The Free Cash Flow/Price ratio, though not a requirement, is considered a bonus if it is above 35%. A positive Cash Flow (the higher the better) separates a wonderfully reliable investment from a shaky one. This methodology prefers not to invest in companies that rely heavily on capital spending. This ratio for WDC (13.86%) 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 WDC (28.56%) 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.   TRACTOR SUPPLY COMPANY Profile Strategy: Growth Investor Based on: Martin Zweig Tractor Supply Company is an operator of retail farm and ranch stores in the United States. The Company operates retail stores under the names Tractor Supply Company and Del's Farm Supply and operate a Website under the name TractorSupply.com. Its stores are located in towns outlying metropolitan markets and in rural communities, and offer a selection of merchandise, which include equine, pet and small animal products, including items necessary for their health, care, growth and containment; hardware and seasonal products, including lawn and garden power equipment; truck, towing and tool products; work/recreational clothing and footwear for the entire family; maintenance products for agricultural and rural use, and home decor, candy, snack food and toys. Analysis Guru Score: 85% P/E RATIO: [PASS] The P/E of a company must be greater than 5 to eliminate weak companies, but not more than 3 times the current Market P/E because the situation is much too risky, and never greater than 43. TSCO's P/E is 26.55, based on trailing 12 month earnings, while the current market PE is 16.00. Therefore, it passes the first test. REVENUE GROWTH IN RELATION TO EPS GROWTH: [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. TSCO's revenue growth is 11.19%, while it's earnings growth rate is 18.90%, based on the average of the 3, 4 and 5 year historical eps growth rates. Therefore, TSCO 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 (19.7%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (11.1%) of the current year. Sales growth for the prior must be greater than the latter. For TSCO 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. TSCO's EPS ($0.67) pass this test. QUARTERLY EARNINGS ONE YEAR AGO: [PASS] The EPS for the quarter one year ago must be positive. TSCO's EPS for this quarter last year ($0.51) 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. TSCO's growth rate of 31.37% passes this test. EARNINGS GROWTH RATE FOR THE PAST SEVERAL QUARTERS: [PASS] Compare the earnings growth rate of the previous three quarters with long-term EPS growth rate. Earnings growth in the previous 3 quarters should be at least half of the long-term EPS growth rate. Half of the long-term EPS growth rate for TSCO is 9.45%. This should be less than the growth rates for the 3 previous quarters, which are 1,200.00%, 36.00%, and 40.71%. TSCO 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, 44.97%, (versus the same three quarters a year earlier) is greater than the growth rate of the current quarter earnings, 31.37%, (versus the same quarter one year ago) then the stock fails, with one exception: if the growth rate in earnings between the current quarter and the same quarter one year ago is greater than 30%, then the stock would pass. The growth rate over this period for TSCO is 31.4%, and it would therefore pass this test. EPS GROWTH FOR CURRENT QUARTER MUST BE GREATER THAN THE HISTORICAL GROWTH RATE: [PASS] The EPS growth rate for the current quarter, 31.37% must be greater than or equal to the historical growth which is 18.90%. TSCO 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. TSCO, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were 1.15, 1.24, 1.44, 1.63 and 2.25, 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. TSCO's long-term growth rate of 18.90%, 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. TSCO's Debt/Equity (0.15%) is not considered high relative to its industry (70.37%) 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 TSCO, this criterion has not been met (insider sell transactions are 42, while insiders buying number 48). Despite the lack of an insider buy signal, there also is not an insider sell signal, so the stock passes this criterion.   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 TECD TECH DATA CORPORATION Computer Hardware 62 MWIV MWI VETERINARY SUPPLY, INC. Biotechnology & Drugs 58 AZN ASTRAZENECA PLC (ADR) Biotechnology & Drugs 56 CHSI CATALYST HEALTH SOLUTIONS, INC. Insurance (Accident & Health) 52 LLY ELI LILLY & CO. Major Drugs 49 SBS COMPANHIA DE SANEAMENTO BASICO (ADR) Water Utilities 49 TI TELECOM ITALIA S.P.A. (ADR) Communications Services 47 MELI MERCADOLIBRE, INC. Computer Services 47 LPS LENDER PROCESSING SERVICES, INC. Software & Programming 47 VSH VISHAY INTERTECHNOLOGY Semiconductors 46

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