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Executive Summary	November 13, 2009

The Economy Both in the U.S. and abroad, the economy is continuing to show slow and steady improvement as we work our way out of the worst recession in decades. One of the latest positive signs involves manufacturing data. The Institute for Supply Management reported last week that the manufacturing sector expanded in October for the third straight month, with the group's manufacturing index showing its highest rate of growth in three-and-a-half years. The gains were the result of increased production and employment, and an ISM official said it "appears that inventories are balanced and that manufacturing is in a sustainable recovery mode." Globally, Europe and China both also posted strong industrial growth numbers in October. The housing sector also continues to make strides. Existing home sales increased 11.4% in the third quarter, the National Association of Realtors reported this week. Pending home sales (based on contracts signed in September) also rose 6.1%, the group said, marking the eighth straight month of gains. The pending sales index is now at its highest level in almost three years. The increase in number of sales is coming as average prices fall, however, as the Realtors' group said distressed sales accounted for more than 30% of transactions in the third quarter. But the good news is that foreclosures are slowing, falling in October for the third straight month, according to RealtyTrac. While there were some signs of job growth in the manufacturing sector, the general employment picture remains weak. Unemployment crossed the 10% mark in October, the Labor Department reported last week, reaching its highest level since the early 1980s. Initial jobless claims continue to fall, however, with the Labor Department reporting that for the most recent week (ending Nov. 7) new claims fell to their lowest level in 2009. That's encouraging, but the overall employment situation is a major problem. The high unemployment rate makes it likely that the Federal Reserve will keep interest rates at very low levels -- a good sign for stocks -- some Fed officials say. The presidents of the Atlanta, Boston, and San Francisco Feds all said this week, for example, that the U.S. economy's problems argue against tighter monetary policy, The Wall Street Journal reported. Going forward, there are a number of areas to keep an eye on, including petroleum. Petroleum supplies jumped 1.76 million barrels over the past week, according to the Energy Information Administration, a far greater jump than many expected. That could be a sign of decreased demand for the broader economy, and it's particularly relevant with the Hot List currently heavy on oil stocks. Another area to watch: the government. The federal deficit came in at about $176 billion last month, the government reported -- a record for October. And a new actuRoboto report showed that the Federal Housing Administration's excess reserves available to cover losses fell to about 0.53% of the FHA's total book of business at the end of September-- below the 2% mark Congress has mandated -- as the number of borrowers falling behind on payments to the agency remains high. Government officials say it is highly unlikely the FHA will need a taxpayer rescue, but the issue is another example of the government's coffers being stretched in the recession and its aftermath. All in all, the economic news over the past fortnight was enough to help spur stocks higher, with the S&P 500 gaining 2.0% since our last newsletter. The Hot List outperformed that a bit, gaining 4.5%, and for the year the portfolio remains well ahead of the market, up 39.5% vs. the S&P's 20.4% gain. And since its inception more than six years ago, the portfolio is up 128.7%, while the S&P has gained just 8.7%.		Editor-in-Chief: John Reese Since Inception   Hot List 128.7% S&P 500 8.7% Accuracy 56.5% Beta 1.2 YTD   Hot List 39.5% S&P 500 20.4% Since Last Issue   Hot List 4.5% S&P 500 2.0% Avg. Fundamentals   Market Cap (mil) $5,570 PE Ratio 32.5 5 Yr EPS Growth 45.1% Yield 1.8% Rel. Strength 64 Portfolio Sectors Energy 4 Financial 1 Services 1 Technology 1 Transportation 1 Capital Goods 1 Consumer Cyclical 1
Hot List Editor John Reese Announces Publication of New Book The Guru Investor shows you how to implement the strategies of Wall Street legends like Warren Buffett, Peter Lynch and Benjamin Graham in your own portfolio. Buy Your Copy Now! Guru Spotlight: James O'Shaughnessy To say that James O'Shaughnessy has written the book on quantitative investing strategies might be an exaggeration -- but not much of one. Over the years, O'Shaughnessy has compiled an anthology of research on the historical performance of various stock selection strategies rivaling that of just about anyone. He first published his findings back in 1996, in the first edition of his bestselling What Works on Wall Street, using Standard & Poor's Compustat database to back-test a myriad of quantitative approaches. He has continued to periodically update his findings since then, and today he also serves as a money manager and the manager of several Canadian mutual funds. In addition to finding out how certain strategies had performed in terms of returns over the long term, O'Shaughnessy's study also allowed him to find out how risky or volatile each strategy he examined was. So after looking at all sorts of different approaches, he was thus able to find the one that produced the best risk-adjusted returns -- what he called his "United Cornerstone" strategy. The United Cornerstone approach, the basis for my O'Shaughnessy-based Guru Strategy, is actually a combination of two separate models that O'Shaughnessy tested, one growth-focused and one value-focused. His growth method -- "Cornerstone Growth" -- produced better returns than his "Cornerstone Value" approach, and was a little more risky. The Cornerstone Value strategy, meanwhile, produced returns that were a bit lower, but with less volatility. Together, they formed an exceptional one-two punch, averaging a compound return of 17.1 percent from 1954 through 1996, easily beating the S&P 500s 11.5 percent compound return during that time while maintaining relatively low levels of risk. That 5.6 percent spread is enormous when compounded over 42 years: If you'd invested $10,000 using the United Cornerstone approach on the first day of the period covered by O'Shaughnessy's study, you'd have had almost $7.6 million by the end of 1996 -- more than $6.6 million more than you'd have ended up with if you'd invested $10,000 in the S&P for the same period! That seems powerful evidence that stock prices do not -- as efficient market believers suggest -- move in a "random walk," but instead, as O'Shaughnessy writes, with a "purposeful stride." The Two-Pronged O'Shaughnessy Attack Let's start with O'Shaughnessy's value stock strategy. His Cornerstone Value approach targeted "market leaders" -- large, well-known firms with sales well above those of the average company -- because he found that these firms' stocks are considerably less volatile than the broader market. He believed that all investors-even the youngest of the bunch -- should hold some value stocks. To find these firms, O'Shaughnessy required stocks to have a market cap greater than $1 billion, a number of shares outstanding greater than the market mean, and trailing 12-month sales that were at least 1.5 times the market mean. Size and market position weren't enough to make a value stock attractive for O'Shaughnessy, however. Another key factor that was a great predictor of a stock's future, he found, was cash flow. My O'Shaughnessy-based value model calls for companies to have cash flows per share greater than the market average. O'Shaughnessy found that, when it came to market leaders, another criterion was even more important than cash flow: dividend yield. He found that high dividend yields were an excellent predictor of success for large, well-known stocks (though not for smaller stocks); large market-leaders with high dividends tended to outperform during bull markets, and didn't fall as far as other stocks during bear markets. The Cornerstone Value model takes all of the stocks that pass the four aforementioned criteria (market cap, shares outstanding, sales, and cash flow) and ranks them according to dividend yield. The 50 stocks with the highest dividend yields get final approval. The Cornerstone Growth approach, meanwhile, isn't strictly a growth approach. That's because one of the interesting things O'Shaughnessy found in his back-testing was that all of the successful strategies he studied -- even growth approaches -- included at least one value-based criterion. The value component of his Cornerstone Growth strategy was the price/sales ratio, a variable that O'Shaughnessy found -- much to the surprise of Wall Street -- was the single best indication of a stock's value, and predictor of its future. The Cornerstone Growth model allows for smaller stocks, using a market cap minimum of $150 million, and requires stocks to have price/sales ratios below 1.5. To avoid outright dogs, the strategy also looks at a company's last five years of earnings, requiring that its earnings per share have increased each year since the first year of that period. The final criterion of this approach is relative strength, the measure of how a stock has performed compared to all other stocks over the past year. A key part of why the growth stock model works so well, according to O'Shaughnessy, is the combination of high relative strengths and low P/S ratios. By targeting stocks with high relative strengths, you're looking for companies that the market is embracing. But by also making sure that a firm has a low P/S ratio, you're ensuring that you're not getting in too late on these popular stocks, after they've become too expensive. "This strategy will never buy a Netscape or Genentech or Polaroid at 165 times earnings," O'Shaughnessy wrote, referring to some of history's well-known momentum-driven, overpriced stocks. "It forces you to buy stocks just when the market realizes the companies have been overlooked." To apply the RS criterion, the Cornerstone Growth model takes all the stocks that pass the three growth criteria I mentioned (market cap, earnings persistence, P/S ratio) and ranks them by RS. The top 50 stocks then get final approval. The Growth/Value Investor model I base on O'Shaughnessy's two-pronged approach has been a solid performer since its inception back in 2003, with my 10-stock O'Shaughnessy-based portfolio gaining 50.9 percent since inception, while the S&P 500 has gained 8.7%. The O'Shaughnessy-based portfolio will pick stocks using both the growth and value methods I described above. It picks whatever the best-rated stocks are at the time, regardless of growth/value distinction, meaning the portion of the portfolios made up of growth and value stocks can vary over time. Currently, the strategy is finding more buys using the growth approach, which is responsible for picking eight of the stocks in the 10-stock portfolio. Here's a look at the 10-stock portfolio's holdings (growth/value distinction in parentheses): APOG -- Apogee Enterprises (Growth) NPK -- National Presto Industries (Growth) JOSB -- Jos. A. Bank Clothiers (Growth) INT -- World Fuel Services Corporation (Growth) ARO -- Aeropostale (Growth) OIS -- Oil States International (Growth) CHL -- China Mobile Ltd. (Value) FUQI -- Fuqi International (Growth) MRO -- Marathon Oil Corporation (Value) JST -- Jinpan International Limited (Growth) Beyond The Numbers O'Shaughnessy is a pure quant, but you should be aware that some of his most critical lessons are less about specific criteria and numbers than they are about the general mindset an investor must have. Perhaps more than anything else, O'Shaughnessy believes in picking a good strategy and sticking with it -- no matter what. In What Works on Wall Street, he writes that in order to beat the market, it is crucial that you stay disciplined: "[C]onsistently, patiently, and slavishly stick with a strategy, even when it's performing poorly relative to other methods." The reason involved human emotions, which cause many investors to bail on a good approach and jump onto hot stocks or strategies that are often overhyped and overpriced. "We are a bundle of inconsistencies," he writes, "and while that may make us interesting, it plays havoc with our ability to invest our money successfully. Disciplined implementation of active strategies is the key to performance." Wise words, whether you follow O'Shaughnessy's approach or another proven method. News about Validea Hot List Stocks FUQI International (FUQI): On Nov. 9, FUQI announced stronger-than-expected net third-quarter income of $18.8 million, or $0.73 per diluted share, nearly tripling the $6.5 million, or $0.31 per diluted share, it posted in the year-ago period. Revenues jumped 35.8% to $127.2 million, as retail revenue was up more than 208% to $9.7 million and wholesale revenue rose almost 30% to $117.5 million. The firm also said it will be raising revenue and net income guidance for the fourth quarter and full 2009 year. Frontier Oil Corp. (FTO): On Nov. 5, Frontier reported a third-quarter loss of $15.1 million, or 15 cents per share, down from earnings of $72.3 million, or 70 cents per share, in the year-ago period. Revenue fell 45% to $1.2 billion. Excluding special items, the company's adjusted loss totaled 19 cents per share, the Associated Press reported, adding that analysts had expected a loss of 15 cents per share on revenue of $1.26 billion. The results were driven by weak demand and tight margins, as gasoline prices haven't risen as much as crude oil prices since March, AP reported. Humana, Inc. (HUM): Humana on Nov. 2 reported third-quarter earnings of $301.6 million, or $1.78 per share, up 65% from $183 million, or $1.09 per share, in the year-ago period. Revenue increased 8% to $7.72 billion. Analysts on average expected profit of $1.77 per share on $7.82 billion in revenue, the Associated Press reported, adding that Humana's results included big gains in membership and premiums from Medicare Advantage, which overcame declines in its commercial business due to the weak economy. World Fuel Services (INT): On Nov. 3, World Fuel reported third-quarter net income of $29.1 million, or 97 cents a share, which was down from $40.1 million, or $1.37 a share, in the year-ago quarter, but ahead of analysts' expectations. Excluding share-based compensation and amortization of acquired intangible assets, the company earned $1.04 a share on revenue of $3.2 billion, Reuters reported. Analysts had forecast earnings of 81 cents a share on revenue of $3.02 billion. Oil States International (OIS): Oil States on Nov. 3 reported net income of $26.6 million, or 53 cents a share, down from $88.2 million, or $1.68 a share, a year ago, but well ahead of analysts' expectations. Revenue fell 44% to $456.1 million, Reuters reported, adding that analysts on average expected earnings of 40 cents a share, before items, on revenue of $430.6 million. 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 FUQI FUQI INTERNATIONAL, INC. Jewelry & Silverware 100 OIS OIL STATES INTERNATIONAL, INC. Oil Well Services & Equipment 75 NOV NATIONAL-OILWELL VARCO, INC. Oil Well Services & Equipment 75 TDW TIDEWATER INC. Water Transportation 69 ESI ITT EDUCATIONAL SERVICES, INC. Schools 59 HUM HUMANA INC. Insurance (Accident & Health) 54 FTO FRONTIER OIL CORPORATION Oil & Gas Operations 42 INT WORLD FUEL SERVICES CORPORATION Oil & Gas Operations 40 RTN RAYTHEON COMPANY Aerospace & Defense 34 VIT VANCEINFO TECHNOLOGIES INC. Software & Programming 32 Ticker Market Cap Date Added Start Price Current Price Return FUQI $540 10/30/2009 $20.49 $19.56 -4.5% OIS $1,794 10/30/2009 $34.44 $36.05 4.7% NOV $18,478 10/30/2009 $40.99 $44.17 7.8% TDW $2,316 10/30/2009 $41.67 $44.79 7.5% ESI $3,422 10/30/2009 $90.35 $92.62 2.5% HUM $6,929 10/2/2009 $36.68 $40.80 11.2% FTO $1,365 6/12/2009 $14.67 $13.04 -11.1% INT $1,573 9/4/2009 $45.32 $52.94 16.8% RTN $18,609 10/30/2009 $45.28 $48.56 7.2% VIT $671 9/4/2009 $13.07 $17.02 30.2%

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 FUQI   |   OIS   |   NOV   |   TDW   |   ESI   |   HUM   |   FTO   |   INT   |   RTN   |   VIT   |   FUQI INTERNATIONAL, INC. Profile Strategy: Small-Cap Growth Investor Based on: Motley Fool Fuqi International, Inc. (Fuqi) is a designer of precious metal jewelry in China, developing, promoting, and selling a range of products in the Chinese luxury goods market. The Company's products consist of a range of styles and designs made from gold and other precious metals, such as platinum and Karat gold (K-gold). The Company also produce jewelry items that contain diamonds and other precious stones on a custom-order basis. Its design database contains over 30,000 products. The Company operates through its wholly owned subsidiary Fuqi International Holdings Co., Ltd. (Fuqi BVI) and its wholly owned subsidiary, Shenzhen Fuqi Jewelry Co., Ltd. (Fuqi China). As of December 31, 2008, the Company had 69 jewelry retail counters and stores in China. Analysis Guru Score: 85% 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. FUQI's profit margin of 8.25% 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. FUQI, with a relative strength of 94, 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 FUQI (84.00% for EPS, and 50.78% for Sales) are good enough to pass. INSIDER HOLDINGS: [PASS] FUQI's insiders should own at least 10% (they own 59.10% ) of the company's outstanding shares which is extremely attractive since the minimum requirement is 10%. A high percentage indicates that the insiders are confident that the company will do well. CASH FLOW FROM OPERATIONS: [FAIL] 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. FUQI's free cash flow of $-0.42 per share fails this test. PROFIT MARGIN CONSISTENCY: [PASS] FUQI's profit margin has been consistent or even increasing over the past three years (Current year: 7.58%, Last year: 9.29%, Two years ago: 6.28%), 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 FUQI's case. CASH AND CASH EQUIVALENTS: [PASS] FUQI's level of cash $58.0 million passes this criteria. If a company is a cash generator, like FUQI, 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 FUQI was 20.36% last year, while for this year it is 12.08%. Since the inventory to sales is decreasing by -8.28% the stock passes this criterion. 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 FUQI was 17.83% last year, while for this year it is 20.71%. 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] FUQI'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 (FUQI's is 0.28), the shares are looked upon favorably. These high quality companies can often wind up as the biggest winners. FUQI passes this test. The following criteria for FUQI are less important which means you would place less emphasis on them when making your investment decision using this strategy: AVERAGE SHARES OUTSTANDING: [PASS] FUQI has not been significantly increasing the number of shares outstanding within recent years which is a good sign. FUQI currently has 22.0 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. FUQI's sales of $433.4 million based on trailing 12 month sales, are fine, making this company one such "prospective gem". FUQI passes the sales test. DAILY DOLLAR VOLUME: [FAIL] FUQI does not pass the Daily Dollar Volume (DDV of $39.9 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. FUQI with a price of $20.26 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] FUQI's income tax paid expressed as a percentage of pretax income either this year (19.75%) or last year (13.45%) 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%).   OIL STATES INTERNATIONAL, INC. Profile Strategy: Growth/Value Investor Based on: James P. O'Shaughnessy Oil States International, Inc. (Oil States) through its subsidiaries, is a provider of specialty products and services to oil and gas drilling and production companies worldwide. The Company operates in a number of oil and gas producing regions, including the Gulf of Mexico, United States onshore, West Africa, the North Sea, Canada, South America and Southeast and Central Asia. Its customers include many of the national oil companies, major and independent oil and gas companies and other oilfield service companies. Oil States operates in three principal business segments: offshore products, tubular services and well site services. The Company's well site services segment includes the accommodations, rental tools and drilling services businesses. On February 1, 2008, Oil States purchased all of Christina Lake Enterprises Ltd., the owners of an accommodations lodge (Christina Lake Lodge) in the Conklin area of Alberta, Canada. Analysis Guru Score: 100% MARKET CAP: [PASS] The first requirement of the Cornerstone Growth Strategy is that the company has a market capitalization of at least $150 million. This will screen out the companies that are too illiquid for most investors, but still include a small growth company. OIS, with a market cap of $1,856 million, passes this criterion. EARNINGS PER SHARE PERSISTENCE: [PASS] The Cornerstone Growth methodology looks for companies that show persistent earnings growth without regard to magnitude. To fulfill this requirement, a company's earnings must increase each year for a five year period. OIS, whose annual EPS before extraordinary items for the last 5 years (from earliest to the most recent fiscal year) were 1.19, 2.41, 3.89, 4.00 and 4.33, passes this test. PRICE/SALES RATIO: [PASS] The Price/Sales ratio should be below 1.5. This value criterion, coupled with the growth criterion, identify growth stocks that are still cheap to buy. OIS's Price/Sales ratio of 0.75, based on trailing 12 month sales, passes this criterion. RELATIVE STRENGTH: [PASS] The final criterion for the Cornerstone Growth Strategy requires that the Relative Strength of the company be among the top 50 of the stocks screened using the previous criterion. This gives you the opportunity to buy the growth stocks you are searching for just as the market is embracing them. OIS, whose relative strength is 80, is in the top 50 and would pass this last criterion.   NATIONAL-OILWELL VARCO, INC. Profile Strategy: Growth/Value Investor Based on: James P. O'Shaughnessy National Oilwell Varco, Inc. (NOV) is a provider of equipment and components used in oil and gas drilling and production operations, oilfield services, and supply chain integration services to the upstream oil and gas industry. The Company operates in three segments. The Rig Technology segment designs, manufactures, sells and services systems for the drilling, completion and servicing of oil and gas wells. The Petroleum Services & Supplies segment provides a variety of consumable goods and services used to drill, complete, remediate and workover oil and gas wells, service pipelines, flowlines and other oilfield tubular goods. The Distribution Services segment provides maintenance, repair and operating (MRO) supplies, and spare parts to drill site and production locations worldwide.On April 21, 2008, NOV acquired Grant Prideco, Inc. In December 2008, it acquired Sakhalin Outfitters LLC and Mid-South Machine, Inc. In April 2009, NOV acquired ASEP Group Holding B.V. and Anson Limited. Analysis Guru Score: 100% MARKET CAP: [PASS] The first requirement of the Cornerstone Growth Strategy is that the company has a market capitalization of at least $150 million. This will screen out the companies that are too illiquid for most investors, but still include a small growth company. NOV, with a market cap of $19,076 million, passes this criterion. EARNINGS PER SHARE PERSISTENCE: [PASS] The Cornerstone Growth methodology looks for companies that show persistent earnings growth without regard to magnitude. To fulfill this requirement, a company's earnings must increase each year for a five year period. NOV, whose annual EPS before extraordinary items for the last 5 years (from earliest to the most recent fiscal year) were 0.67, 0.91, 1.93, 3.76 and 4.90, passes this test. PRICE/SALES RATIO: [PASS] The Price/Sales ratio should be below 1.5. This value criterion, coupled with the growth criterion, identify growth stocks that are still cheap to buy. NOV's Price/Sales ratio of 1.42, based on trailing 12 month sales, passes this criterion. RELATIVE STRENGTH: [PASS] The final criterion for the Cornerstone Growth Strategy requires that the Relative Strength of the company be among the top 50 of the stocks screened using the previous criterion. This gives you the opportunity to buy the growth stocks you are searching for just as the market is embracing them. NOV, whose relative strength is 78, is in the top 50 and would pass this last criterion.   TIDEWATER INC. Profile Strategy: Value Investor Based on: Benjamin Graham Tidewater Inc. provides offshore supply vessels and marine support services to the offshore energy industry through the operation of offshore marine service vessels. As of March 31, 2008, the Company had a total of 430 vessels, of which 10 were operated through joint ventures, 61 were stacked and 11 vessels withdrawn from service. The Company provides services supporting all phases of offshore exploration, development and production, including towing of and anchor handling of mobile drilling rigs and equipment; transporting supplies and personnel necessary to sustain drilling, workover and production activities; assisting in offshore construction activities, and a variety of specialized services, including pipe laying, cable laying and three-dimensional (3-D) seismic work. The Company operates in two segments: United States and International. Analysis Guru Score: 100% SECTOR: [PASS] TDW 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. TDW's sales of $1,326.1 million, based on trailing 12 month sales, pass this test. CURRENT RATIO: [PASS] The current ratio must be greater than or equal to 2. Companies that meet this criterion are typically financially secure and defensive. TDW's current ratio of 2.78 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 TDW is $275.0 million, while the net current assets are $439.2 million. TDW 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. TDW's EPS growth over that period of 212.9% 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. TDW's P/E of 6.70 (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. TDW's Price/Book ratio is 1.00, while the P/E is 6.70. TDW passes the Price/Book test.   ITT EDUCATIONAL SERVICES, INC. Profile Strategy: Patient Investor Based on: Warren Buffett ITT Educational Services, Inc. (ITT/ESI), is a provider of postsecondary degree programs in the United States based on revenue and student enrollment. As of December 31, 2008, the Company offered master, bachelor and associate degree programs to approximately 62,000 students. As of December 31, 2008, it had 105 institutes and nine learning sites located in 37 states. All of its institutes are authorized by the applicable education authorities of the states, in which they operate, and are accredited by an accrediting commission recognized by the United States Department of Education (ED). During the year ended December 31, 2008, the Company began its operations at eight new institutes. As of December 31, 2008, the Company offered 33 degree programs in various fields schools of study: information technology (IT); electronics technology; drafting and design; business; criminal justice, and health sciences. Analysis Guru Score: 100% STAGE 1: "Is this a Buffett type company?" A bedrock principle for Buffett is that his type of company has a "durable competitive advantage" as compared to being a "price competitive" or "commodity" type of business. Companies with a "durable competitive advantage" are more likely to be found in these sub-industries: Brand Name Fast Food Restaurants, Brand Name Beverages, Brand Name Foods, Brand Name Toiletries and Household Products, Brand Name Clothing, Brand Name Prescription Drugs, Advertising, Advertising Agencies, TV, Newspapers, Magazines, Direct Mail, Repetitive Services for Businesses, Low Cost Producers of Insurance, furniture, or Low Cost Retailers. While you should be easily able to explain where the company's pricing power comes from (i.e. a strong regional brand image, a business tollgate, its main products are #1 or # 2 in its field and has been on the market for years and hasn't changed at all, a consumer or business ends up buying the same product many times in a year, etc. or having the lowest production cost among its competition), there are certain figures that one can look at that can qualify the company as having a durable competitive advantage. LOOK FOR EARNINGS PREDICTABILITY: [PASS] Buffett likes companies to have solid, stable earnings that are continually expanding. This allows him to accurately predict future earnings. Annual earnings per share from earliest to most recent were 0.48, 0.57, 0.70, 0.94, 1.27, 1.61, 2.33, 2.72, 3.71, 5.17. Buffett would consider ESI's earnings predictable. In fact EPS have increased every year. ESI's long term historical EPS growth rate is 32.1%, based on the average of the 3, 4 and 5 year historical eps growth rates, and it is expected to grow earnings 16.9% per year in the future, based on the analysts' consensus estimated long term growth rate. For the purposes of our analysis, we will use the more conservative of the two EPS growth numbers. LOOK AT THE ABILITY TO PAY OFF DEBT [PASS] Buffett likes companies that are conservatively financed. Nonetheless, he has invested in companies with large financing divisions and in firms with rather high levels of debt. ESI has no long term debt and therefore would pass this criterion. LOOK FOR CONSISTENTLY HIGHER THAN AVERAGE RETURN ON EQUITY: [PASS] Buffett likes companies with above average return on equity of at least 15% or better, as this is an indicator that the company has a durable competitive advantage. US corporations have, on average, returned about 12% on equity over the last 30 years. The average ROE for ESI, over the last ten years, is 39.5%, which is high enough to pass. It is not enough that the average be at least 15%. For each of the last 10 years, with the possible exception of the last fiscal year, the ROE must be at least 10% for Buffett to feel comfortable that the ROE is consistent. In addition, the average ROE over the last 3 years must also exceed 15%. The ROE for the last 10 years, from earliest to latest, is 40.9%, 41.3%, 41.4%, 47.5%, 39.6%, 31.5%, 34.5%, 107.2%, 208.6%, 106.6%, and the average ROE over the last 3 years is 140.8%, thus passing this criterion. LOOK FOR CONSISTENTLY HIGHER THAN AVERAGE RETURN ON TOTAL CAPITAL: [PASS] Because some companies can be financed with debt that is many times their equity, they can show a consistently high ROE, yet still be in unattractive price competitive businesses. To screen this out, for non-financial companies Buffett also requires that the average Return On Total Capital (ROTC) be at least 12% and consistent. In addition, the average ROTC over the last 3 years must also exceed 12%. Return On Total Capital is defined as the net earnings of the business divided by the total capital in the business, both equity and debt. The average ROTC for ESI, over the last ten years, is 44.6% and the average ROTC over the past 3 years is 56.6%, which is high enough to pass. It is not enough that the average be at least 12%. For each of the last 10 years, with the possible exception of the last fiscal year, the ROTC must be at least 9% for Buffett to feel comfortable that the ROTC is consistent. The ROTC for the last 10 years, from earliest to latest, is 40.9%, 41.3%, 41.4%, 47.5%, 39.6%, 31.5%, 34.5%, 43.9%, 66.7%, 59.3%, thus passing this criterion. LOOK AT CAPITAL EXPENDITURES: [PASS] Buffett likes companies that do not have major capital expenditures. That is, he looks for companies that do not need to spend a ton of money on major upgrades of plant and equipment or on research and development to stay competitive. ESI's free cash flow per share of $3.50 is positive, indicating that the company is generating more cash that it is consuming. This is a favorable sign, and so the company passes this criterion. LOOK AT MANAGEMENT'S USE OF RETAINED EARNINGS: [PASS] Buffett likes to see if management has spent retained earnings in a way that benefits shareholders. To figure this out, Buffett takes the total amount of retained earnings over the previous ten years of $19.50 and compares it to the gain in EPS over the same period of $4.69. ESI's management has proven it can earn shareholders a 24.1% return on the earnings they kept. This return is more than acceptable to Buffett. Essentially, management is doing a great job putting the retained earnings to work. HAS THE COMPANY BEEN BUYING BACK SHARES: [BONUS PASS] Buffett likes to see falling shares outstanding, which indicates that the company has been repurchasing shares. This indicates that management has been using excess capital to increase shareholder value. ESI's shares outstanding have fallen over the past five years from 45,990,002 to 38,000,000, thus passing this criterion. This is a bonus criterion and will not adversely affect the ability of a stock to pass the strategy as a whole if it is failed. The preceding concludes Buffett's qualitative analysis. If and when he gets positive responses to all the above criteria, he would then proceed with a price analysis. The price analysis will determine whether or not the stock should be bought. The following is how he would evaluate ESI quantitatively. STAGE 2: "Should I buy at this price?" Although a firm may be a Buffett type company, he won't invest in it unless he can get a favorable price that allows him a great long term return. CALCULATE THE INITIAL RATE OF RETURN: [No Pass/Fail] Buffett compares his type of stocks to bonds, and likes to see what a company's initial rate of return is. To calculate the initial rate of return, take the trailing 12-month EPS of $7.06 and divide it by the current market price of $93.21. An investor, purchasing ESI, could expect to receive a 7.57% initial rate of return. Furthermore, he or she could expect the rate to increase 16.9% per year, based on the analysts' consensus estimated long term growth rate, as this is how fast earnings are growing. COMPARE THE INITIAL RATE OF RETURN WITH THE LONG-TERM TREASURY YIELD: [PASS] Buffett favors companies in which the initial rate of return is around the long-term treasury yield. Nonetheless, he has invested in companies with low initial rates of return, as long as the yield is expected to expand rapidly. Currently, the long-term treasury yield is about 4.60%. Compare this with ESI's initial yield of 7.57%, which will expand at an annual rate of 16.9%, based on the analysts' consensus estimated long term growth rate. The company is the better choice, as the initial rate of return is close to or above the long term bond yield and is expanding. CALCULATE THE FUTURE EPS: [No Pass/Fail] ESI currently has a book value of $5.78. It is safe to say that if ESI can preserve its average rate of return on equity of 39.5% and continues to retain 100.00% of its earnings, it will be able to sustain an earnings growth rate of 39.5% and it will have a book value of $161.29 in ten years. If it can still earn 39.5% on equity in ten years, then expected EPS will be $63.71. CALCULATE THE FUTURE STOCK PRICE BASED ON THE AVERAGE ROE METHOD: [No Pass/Fail] Now take the expected future EPS of $63.71 and multiply them by the lower of the 5 year average P/E ratio (22.7) or current P/E ratio (current P/E in this case), which is 13.2 and you get ESI's projected future stock price of $840.37. CALCULATE THE EXPECTED RATE OF RETURN BASED ON THE AVERAGE ROE METHOD: [No Pass/Fail] Now add in the total expected dividend pool to be paid over the next ten years, which is $0.00. This gives you a total dollar amount of $840.37. These numbers indicate that one could expect to make a 24.6% average annual return on ESI's stock at the present time. Buffett would consider this an absolutely fantastic expected return. CALCULATE THE EXPECTED FUTURE STOCK PRICE BASED ON AVERAGE EPS GROWTH: [No Pass/Fail] If you take the EPS growth of 16.9%, based on the analysts' consensus estimated long term growth rate, you can project EPS in ten years to be $33.50. Now multiply EPS in 10 years by the lower of the 5 year average P/E ratio (22.7) or current P/E ratio (current P/E in this case), which is 13.2. This equals the future stock price of $441.91. Add in the total expected dividend pool of $0.00 to get a total dollar amount of $441.91. CALCULATE THE EXPECTED RETURN USING THE AVERAGE EPS GROWTH METHOD: [No Pass/Fail] Now you can figure out your expected return based on a current price of $93.21 and the future expected stock price, including the dividend pool, of $441.91. If you were to invest in ESI at this time, you could expect a 16.8% average annual return on your money. Buffett would consider this a great return. LOOK AT THE RANGE OF EXPECTED RATE OF RETURN: [PASS] Based on the two different methods, you could expect an annual compounding rate of return somewhere between 16.8% and 24.6%. To pinpoint the average return a little better, we have taken an average of the two different methods. Investors could expect an average return of 20.7% on ESI stock for the next ten years, based on the current fundamentals. Buffett would consider this a great return, thus passing the criterion.   HUMANA INC. Profile Strategy: P/E/Growth Investor Based on: Peter Lynch Humana Inc. (Humana) is a health and supplemental benefits company. The Company is a full-service benefits solutions company, offering an array of health and supplemental benefit plans for employer groups, government benefit programs and individuals. The Company operates in two segments: Government and Commercial. The Government segment consists of beneficiaries of government benefit programs, and includes three lines of business: Medicare, Military and Medicaid. The Commercial segment consists of members enrolled in its medical and specialty products marketed to employer groups and individuals. On October 31, 2008, the Company acquired PHP Companies, Inc. (doing business as Cariten Healthcare). On August 29, 2008, the Company acquired Metcare Health Plans, Inc. On May 22, 2008, it acquired OSF Health Plans, Inc. On April 30, 2008, the Company acquired UnitedHealth Group's Las Vegas, Nevada individual SecureHorizons Medicare Advantage health maintenance organization (HMO) business. Analysis Guru Score: 100% DETERMINE THE CLASSIFICATION: This methodology would consider HUM a "fast-grower". P/E/GROWTH RATIO: [PASS] The investor should examine the P/E (7.31) relative to the growth rate (24.55%), 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 HUM (0.30) 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. HUM, whose sales are $30,815.0 million, needs to have a P/E below 40 to pass this criterion. HUM's P/E of (7.31) 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 HUM is 24.6%, based on the average of the 3, 4 and 5 year historical eps growth rates, which is considered very good. TOTAL DEBT/EQUITY RATIO: [NEUTRAL] HUM 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. HUM's Equity/Assets ratio (39.00%) 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. HUM's ROA (7.20%) 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 HUM (10.21%) 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 HUM (63.75%) is considered very favorable.   FRONTIER OIL CORPORATION Profile Strategy: Price/Sales Investor Based on: Kenneth Fisher Frontier Oil Corporation (Frontier) is an independent energy company engaged in crude oil refining and the wholesale marketing of refined petroleum products. The Company operates refineries (the Refineries) in Cheyenne, Wyoming and El Dorado, Kansas with a total annual average crude oil capacity of approximately 182,000 barrels per day (bpd). Frontier's Cheyenne Refinery has a permitted crude oil capacity of 52,000 bpd on a 12-month average. The Company markets its refined products primarily in the eastern slope of the Rocky Mountain region, which encompasses eastern Colorado (including the Denver metropolitan area), eastern Wyoming and western Nebraska (the Eastern Slope). The Cheyenne Refinery has a coking unit, which allows the refinery to process amounts of heavy crude oil for use as a feedstock. During the year ended December 31, 2008, heavy crude oil constituted approximately 76% of the Cheyenne Refinery's total crude oil charge. Analysis Guru Score: 100% 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. FTO's P/S of 0.31 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. FTO's Debt/Equity of 30.51% 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. FTO 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 FTO At this Point Is FTO a "Super Stock"? YES 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.FTO's P/S ratio of 0.31 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%. FTO's inflation adjusted EPS growth rate of 23.59% 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. FTO's free cash per share of 0.62 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. FTO, whose three year net profit margin averages 6.25%, passes this evaluation.   WORLD FUEL SERVICES CORPORATION Profile Strategy: Price/Sales Investor Based on: Kenneth Fisher World Fuel Services Corporation is engaged in the marketing and sale of marine, aviation and land fuel products and related services on a worldwide basis. The Company operates in three segments: marine, aviation and land. In its marine segment it offers fuel and related services to maritime customers, including international container and tanker fleets, commercial cruise lines and time-charter operators. In its aviation segment, it offers fuel and related services to major commercial airlines, second and third-tier airlines, cargo carriers, regional and low-cost carriers, corporate fleets, fractional operators, private aircraft, military fleets. In its land segment, it offers fuel and related services to petroleum distributors operating in the land transportation market. In June 2008, it acquired certain assets of Texor Petroleum Company, Inc. In April 2009, the Company acquired the Henty Oil Group of Companies. 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. INT's P/S of 0.15 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. INT's Debt/Equity of 6.31% 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. INT 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 INT At this Point Is INT 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.INT's P/S ratio of 0.15 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%. INT's inflation adjusted EPS growth rate of 28.54% 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. INT's free cash per share of 13.17 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. INT, whose three year net profit margin averages 0.54%, fails this evaluation.   RAYTHEON COMPANY Profile Strategy: P/E/Growth Investor Based on: Peter Lynch Raytheon Company designs, develops, manufactures, integrates, supports and provides a range of products, services and solutions for principally governmental customers in the United States and worldwide. The Company operates in six business segments: Integrated Defense Systems (IDS), Intelligence and Information Systems (ibis'), Missile Systems (MS), Network Centric Systems (NCS), Space and Airborne Systems (SAS) and Technical Services (TS). In April 2008, the Company acquired SI Government Solutions. In July 2008, Raytheon Company acquired Telemus Solutions, Inc., a provider of information security, intelligence and technical services to defense, intelligence and other federal customers.In October 2009, the Company acquired BBN Technologies. Analysis Guru Score: 93% DETERMINE THE CLASSIFICATION: This methodology would consider RTN a "fast-grower". P/E/GROWTH RATIO: [PASS] The investor should examine the P/E (10.58) relative to the growth rate (32.50%), 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 RTN (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. RTN, whose sales are $24,300.0 million, needs to have a P/E below 40 to pass this criterion. RTN's P/E of (10.58) 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 RTN was 19.75% last year, while for this year it is 17.77%. Since inventory to sales has decreased from last year by -1.98%, RTN 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 RTN is 32.5%, 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 RTN (24.05%) 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 RTN (5.69%) 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 RTN (-0.18%) 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.   VANCEINFO TECHNOLOGIES INC. Profile Strategy: Growth Investor Based on: Martin Zweig VanceInfo Technologies Inc. is an information technology (IT) service provider and one of the offshore software development companies in China. The Company's range of IT services includes research and development services (R&D services), enterprise solutions, application development and maintenance (ADM), quality assurance and testing, as well as globalization and localization. It provides these services primarily to corporations headquartered in the United States, Europe, Japan and China, targeting industries, such as technology, telecommunications, financial services, manufacturing, retail and distribution. The Company operates a range of offshore development centers in China (CDCs). Its major clients include Microsoft, IBM, Huawei, TIBCO, and a European mobile handset manufacturer. In July 2009, the Company acquired the operating subsidiaries of TP Corporation Limited (TP), a provider of customer relationship management (CRM) solutions and call center services. 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. VIT's P/E is 38.07, based on trailing 12 month earnings, while the current market PE is 19.00. Therefore, it passes the first test. REVENUE GROWTH IN RELATION TO EPS GROWTH: [PASS] Revenue Growth must not be substantially less than earnings growth. For earnings to continue to grow over time they must be supported by a comparable or better sales growth rate and not just by cost cutting or other non-sales measures. VIT's revenue growth is 54.21%, while it's earnings growth rate is 34.10%, based on the average of the 3, 4 and 5 year historical eps growth rates. Therefore, VIT passes this criterion. SALES GROWTH RATE: [FAIL] Another important issue regarding sales growth is that the rate of quarterly sales growth is rising. To evaluate this, the change from this quarter last year to the present quarter (41.5%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (46.8%) of the current year. Sales growth for the prior must be greater than the latter. For VIT this criterion has not been met and fails this test. The earnings numbers of a company should be examined from various different angles. Three of these angles are stability in the trend of earnings, earnings persistence, and earnings acceleration. To evaluate stability, the stock has to pass the following four criteria. CURRENT QUARTER EARNINGS: [PASS] The first of these criteria is that the current EPS be positive. VIT's EPS ($0.13) pass this test. QUARTERLY EARNINGS ONE YEAR AGO: [PASS] The EPS for the quarter one year ago must be positive. VIT's EPS for this quarter last year ($0.09) 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. VIT's growth rate of 44.44% 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 VIT is 17.05%. This should be less than the growth rates for the 3 previous quarters, which are 83.33%, 160.00%, and 25.00%. VIT 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, 78.95%, (versus the same three quarters a year earlier) is greater than the growth rate of the current quarter earnings, 44.44%, (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 VIT is 44.4%, 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, 44.44% must be greater than or equal to the historical growth which is 34.10%. VIT 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. VIT, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were 0.05, 0.13, 0.07, 0.19, and 0.40, 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. VIT's long-term growth rate of 34.10%, 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. VIT's Debt/Equity (0.00%) is not considered high relative to its industry (20.80%) 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 VIT, this criterion has not been met (insider sell transactions are 0, while insiders buying number 0). Despite the lack of an insider buy signal, there also is not an insider sell signal, so the stock passes this criterion.   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 BRP BRASIL TELECOM PARTICIPACOES SA (ADR) Communications Services 83 EME EMCOR GROUP, INC. Construction Services 73 WRLD WORLD ACCEPTANCE CORP. Consumer Financial Services 67 ARO AEROPOSTALE, INC. Retail (Apparel) 67 PNRA PANERA BREAD COMPANY Restaurants 61 YZC YANZHOU COAL MINING CO. (ADR) Coal 54 JOSB JOS. A. BANK CLOTHIERS, INC. Retail (Apparel) 48 ASIA ASIAINFO HOLDINGS, INC. Software & Programming 46 ESV ENSCO INTERNATIONAL INCORPORATED Oil Well Services & Equipment 45 NE NOBLE CORPORATION Oil Well Services & Equipment 45

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