Executive Summary  |   Portfolio  |   Guru Analysis  |   Watch List

Executive Summary	June 20, 2014

The Economy Led by a solid jobs report and strong industrial sector growth, economic data has been positive over the past fortnight -- though problems overseas are posing a threat both in the US and abroad. The May jobs report showed that the private sector added 216,000 jobs during month, the third straight month the figure has topped 200,000. The unemployment rate held steady at 6.3%, while the "U-6" rate, which unlike the headline rate takes into account those working part-time who want full-time work and those who have given up looking for a job, dipped slightly to 12.2%. The headline unemployment rate has now fallen 1.2 percentage points over the past year, while the U-6 is down 1.6 points. New claims for unemployment have remained almost unchanged since our last newsletter. They are about 11% below where they were a year ago. Continuing claims, meanwhile, fell slightly. They are close to 14% below year-ago levels. Industrial production also jumped 0.6% in May, according to a new Federal Reserve report, with manufacturing production rising 0.6%. Mining output also rose, by 1.3%. And April's industrial production gain was revised upward from -0.6% to -0.3%. Retail and food service sales increased 0.3% in May, meanwhile, according to the Commerce Department. They are now about 4.5% above where they stood a year ago, a fairly healthy year-over-year increase. Housing market data has been fairly weak. Housing starts fell 6.5% in May, according to the Census Bureau, though they are about 8% above where they were a year ago. Permit issuance for new construction fell 6.4%, and is 6.4% below year-ago levels. Overseas, the emergence of the brutal Independent State of Iraq and Syria group (ISIS) has dominated the news. The primary concern is, of course, the human impact that the conflict has. But investors also need to be aware of the economic impact -- oil prices have risen over the past couple weeks, and could potentially climb further if ISIS gains control of major oil facilities. Since our last newsletter, the S&P 500 returned 1.0%, while the Hot List returned -0.2%. So far in 2014, the portfolio has returned -11.0% vs. 6.0% for the S&P. Since its inception in July 2003, the Hot List is far outpacing the index, having gained 223.8% vs. the S&P's 95.9% gain. Portfolio Update Overall for the past two weeks, the Hot List's performance has been fairly in line with that of the broader market. But there's been a great deal of variation among the portfolio's individual holdings. Through the June 19 market close, seven of the Hot List's holdings were in the black, with just three in the red. Leading the way was USANA Health Sciences, which gained 5.2%. There didn't seem to be a clear catalyst for the firm's bullish fortnight. Because of its size and the controversy over its multilevel marketing approach, the stock tends to be much more volatile than the broader market, so it was likely a case of the broader market conditions (which were generally favorable) helping push USANA higher. Another nice gainer was Robert Half International, which rose almost 4%. It didn't appear that there was a clear stock-specific catalyst for its gain, either, so again it was probably a case of the broader market pushing the stock higher. Two of the portfolio's three losers were down significantly. Anika Therapeutics had lost close to 5%. Again, this move seemed to lack a stock specific catalyst. It was likely just noise, particularly considering that the stock has been on a tear over the past year -- investors may have simply been taking profits. Coach Inc., however, was hit hard because of specific news. It said it will close 70 underperforming stores, and that it expects revenue to fall in low double digits in percentage terms for the year ending June 2015. By the end of the day on Thursday, shares were down close to 10% since our last newsletter, with just about all the drop coming Thursday after the announcement. Finally, one of the stocks that had been a decent winner through Thursday's market close, firearm maker Smith & Wesson Holding Company, was hit very hard in after-hours trading. The company announced quarterly earnings and revenue that beat analysts' expectations, but shares fell around 10% because the firm also announced guidance that was significantly below analysts' projections. While it's been a tough 2014 for the Hot List, it's important to remember that all strategies will go through down periods. Given the stellar long-term track records of the strategies driving the portfolio's picks, I expect that this underperformance will be short term, and that over the long haul the Hot List will continue to extend its sizable lead on the broader market.		Editor-in-Chief: John Reese Since Inception   Hot List 223.8% S&P 500 95.9% Accuracy 55.6% Beta 1.2 YTD   Hot List -11.0% S&P 500 6.0% Since Last Issue   Hot List -0.2% S&P 500 1.0% Avg. Fundamentals   Market Cap (mil) $7,803 PE Ratio 15.2 5 Yr EPS Growth 27.5% Yield 1.2% Rel. Strength 60 Portfolio Sectors Services 3 Consumer Cyclical 2 Consumer/Non-Cyclical 1 Energy 1 Healthcare 1 Capital Goods 1 Conglomerates 1
Have Your Portfolio Managed Using Validea's Investing System Many users know about our research services but are unaware that money management services based on our system are also offered through a separate registered investment advisory firm, Validea Capital Management. If you are thinking about switching advisors or no longer have the time or inclination to manage your investments yourself, find out more about Validea Capital, its portfolio offerings, and its performance below. Request an Investment Consultation Today! ** Validea Capital Management is a separate investment advisory firm managed by Validea.com founder John Reese. The information above is not intended as personal investment advice and should not be interpreted as such. Guru Spotlight: Martin Zweig Generally, my Guru Strategies have a distinct value bias. The majority of these models -- ranging from my Benjamin Graham approach to my Warren Buffett model to my Joseph Piotroski strategy -- are focused on finding good, often beaten-down stocks selling at bargain prices; that is, they target value stocks. But that doesn't mean that all of my gurus were cemented on the value side of the growth/value pendulum. In fact, the guru we'll examine today, Martin Zweig, used a methodology that was dominated by earnings-based criteria. He looked at a stock's earnings from a myriad of angles, wanting to ensure that he was getting stocks that had been producing strong growth over the long haul and even better growth recently -- and that their growth was coming from the right sources. Zweig's thoroughness paid off. His Zweig Forecast was one of the most highly regarded investment newsletters in the country, ranking number one for risk-adjusted returns during the 15 years that Hulbert Financial Digest monitored it. It produced an impressive 15.9 percent annualized return during that time. Zweig also managed several mutual funds, and was co-founder of Zweig Dimenna Partners, a multibillion-dollar New York-based firm that has been ranked in the top 15 of Barron's list of the most successful hedge funds. Before we delve into Zweig's strategy, a few words about the man himself, who sadly passed away last year. While some of the gurus we've looked at in recent Guru Spotlights -- Buffett and John Neff in particular come to mind -- lived modest lifestyles, Zweig put his fortune to use in some pretty fun, flashy ways. He has owned what Forbes reported was the most expensive apartment in New York City, a penthouse atop Manhattan's Pierre Hotel that was at one time valued at more than $70 million. He was also an avid collector of a variety of different kinds of memorabilia. The Wall Street Journal has reported that he owned such one-of-a-kind items as Buddy Holly's guitar, the gun from Dirty Harry, the motorcycle from Easy Rider, and Michael Jordan's jersey from his rookie season with the Chicago Bulls. A Serious Strategy Zweig may have spent his cash on some flashy, fun items, but the strategy he used to compile that cash was a disciplined, methodical approach. His earnings examination of a firm spanned several categories: Trend of Earnings: Earnings should be higher in the current quarter than they were a year ago in the same quarter. Earnings Persistence: Earnings per share should have increased in each year of the past five-year period; EPS should also have grown in each of the past four quarters (vs. the respective year-ago quarters). Long-Term Growth: EPS should be growing by at least 15 percent over the long term; a growth rate over 30 percent is exceptional. Earnings Acceleration: EPS growth for the current quarter (vs. the same quarter last year) should be greater than the average growth for the previous three quarters (vs. the respective three quarters from a year ago). EPS growth in the current quarter also should be greater than the long-term growth rate. These criteria made sure that Zweig wasn't getting in late on a stock that had great long-term growth numbers, but which was coming to the end of its growth run. While Zweig's EPS focus certainly put him on the "growth" side of the growth/value spectrum, his approach was by no means a growth-at-all-costs strategy. Like all of the gurus I follow, he included a key value-based component in his method. He made sure that a stock's price/earnings ratio was no greater than three times the market average, and no greater than 43, regardless of what the market average was. (He also didn't like stocks with P/Es less than 5, because they could be indicative of an outright dog that investors were wisely avoiding.) In addition, Zweig wanted to know that a firm's earnings growth was sustainable over the long haul. And that meant that the growth was coming primarily from sales -- not cost-cutting or other non-sales measures. My Zweig model requires a firm's revenue growth to be at least 85 percent of EPS growth. If a stock fails that test but its revenues are growing by at least 30 percent a year, it passes, however, since that is still a very strong revenue growth rate. Like earnings growth, Zweig believed sales growth should be increasing. My model thus requires that a stock's sales growth for the most recent quarter (vs. the year-ago quarter) to be greater than the previous quarter's sales growth rate (vs. the year-ago quarter). Finally, Zweig also wanted to makes sure a firm's growth wasn't driven by unsustainable amounts of leverage (a key observation given all that's happened recently). Realizing that different industries require different debt loads, he looked for stocks whose debt/equity ratios were lower than their industry average. Macro Issues There's one more thing you should know about Zweig. He relied a good amount on technical factors to adjust how much of his portfolio he put into stocks. Some of the indicators he used to move in and out of the market included the Federal Reserve's discount rate; installment debt levels; and the prime rate. His mottos included "Don't fight the Fed" (meaning investors should be more bullish when interest rates were low or falling) and "Don't fight the tape" (which related to his practice of getting more bullish or bearish based on market trends). Those rules are tough for an individual investor to put into practice; Zweig used what he called a "Super Model" that meshed all of his indicators into a system that determined how bullish or bearish he was. But over the years, I've found that using only the quantitative, fundamental-based criteria Zweig outlined in his book can produce very strong results. My Zweig-inspired 10-stock portfolio has been a very strong performer since its July 2003 inception, returning 188.4%, or 10.2% per year, while the S&P 500 has gained just 95.6%, or 6.3% per year (through June 18). It had its best year in 2013, surging 63%. The strategy also hasn't been much more volatile than the S&P -- its beta since inception is just 1.07. The model tends to choose stocks from a variety of areas -- it goes where the growth is. Right now, it's finding opportunities everywhere from mobile home/RV firms to restaurants to financials. Here are the portfolio's current holdings: Anika Therapeutics, Inc. (ANIK) WSFS Financial Corporation (WSFS) Buffalo Wild Wings, Inc. (BWLD) Manhattan Associates, Inc. (MANH) Drew Industries Incorporated (DW) Performant Financial Corporation (PFMT) Monster Beverage Corporation (MNST) Questcor Pharmaceuticals, Inc (QCOR) Bitauto Holdings Limited (BITA) United Natural Foods, Inc. (UNFI) As you might expect with a growth strategy, the Zweig portfolio tends not to hold on to stocks for a long time. Usually it will hold a stock for a few months, though it is not averse to longer periods if the stock continues to be a prospect for more growth. What I really like about the Zweig strategy is that, while it certainly would qualify as a growth approach, it doesn't look at growth in a vacuum. As you've seen, it examines earnings growth from a variety of angles, making sure that it is strong, improving, and sustainable. In doing so, it allows you to find some fast-growing growth stocks that are not paper tigers, but instead solid prospects for continued long-term success. News about Validea Hot List Stocks Smith & Wesson Holding Company (SWHC): Shares of the firearms maker tumbled in after hours trading on June 19 after its earnings report. The firm reported that net income fell 4.6% to $170.4 million, or 44 cents per diluted share, versus the $178.7 million, or 38 cents per diluted share, a year ago in the fourth quarter ended April 30, TheStreet.com reported. While the quarterly results beat analyst expectations, the firm's announcement that it expects to earn between $1.30 and $1.40 a share for the full 2015 fiscal year fell short of the $1.50 a share analysts projected, and shares fell. Coach Inc. (COH): Coach said it will close 70 underperforming stores, and that it expects revenue to fall in low double digits in percentage terms for the year ending June 2015, Reuters reported. Coach also said that it would "de-emphasize" discounting. 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 ANIK ANIKA THERAPEUTICS, INC. Biotechnology & Drugs 100 VLO VALERO ENERGY CORPORATION Oil & Gas Operations 88 AGCO AGCO CORPORATION Constr. & Agric. Machinery 80 BBBY BED BATH & BEYOND INC. Retail (Specialty) 75 SWHC SMITH & WESSON HOLDING CORP Recreational Products 64 COH COACH INC Retail (Apparel) 63 USNA USANA HEALTH SCIENCES, INC. Conglomerates 58 NUS NU SKIN ENTERPRISES, INC. Personal & Household Prods. 46 WSM WILLIAMS-SONOMA, INC. Furniture & Fixtures 15 RHI ROBERT HALF INTERNATIONAL INC. Business Services 4 Ticker Market Cap Date Added Start Price Current Price Return ANIK $659 5/9/2014 $47.62 $45.69 -4.1% VLO $30,465 4/11/2014 $50.96 $57.09 12.0% AGCO $5,215 12/20/2013 $57.62 $55.52 -3.6% BBBY $12,294 5/9/2014 $61.31 $60.68 -1.0% SWHC $934 4/11/2014 $13.91 $17.00 22.2% COH $9,785 6/6/2014 $39.99 $35.69 -10.8% USNA $1,080 6/6/2014 $74.92 $77.54 3.5% NUS $4,519 6/6/2014 $76.77 $76.66 -0.1% WSM $6,549 6/6/2014 $68.48 $69.58 1.6% RHI $6,526 5/9/2014 $44.62 $47.47 6.4%

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 ANIK   |   VLO   |   AGCO   |   BBBY   |   SWHC   |   COH   |   USNA   |   NUS   |   WSM   |   RHI   |   ANIKA THERAPEUTICS, INC. Profile Strategy: Small-Cap Growth Investor Based on: Motley Fool Anika Therapeutics, Inc. (Anika) develops, manufactures and commercializes therapeutic products for tissue protection, healing and repair. These products are based on hyaluronic acid (HA), a naturally occurring, biocompatible polymer found throughout the body. As of December 31, 2011, Anika's wholly owned subsidiary, Anika Therapeutics S.r.l., had over 20 products commercialized, primarily in Europe. These products are also all made from hyaluronic acid, based on two technologies: HYAFF, which is a solid form of HA, and ACP gel, an autocross-linked polymer of HA. Analysis Guru Score: 93% 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. ANIK's profit margin of 34.67% 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. ANIK, with a relative strength of 93, 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 ANIK (361.90% for EPS, and 123.02% for Sales) are good enough to pass. INSIDER HOLDINGS: [FAIL] ANIK's insiders should own at least 10% (they own 3.78%) of the company's outstanding shares. This does not satisfy the minimum requirement, and companies that do not pass this criteria are less attractive. 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. ANIK's free cash flow of $1.67 per share passes this test. PROFIT MARGIN CONSISTENCY: [PASS] ANIK's profit margin has been consistent or even increasing over the past three years (Current year: 27.41%, Last year: 16.48%, Two years ago: 13.08%), passing the requirement. It is a sign of good management and a healthy and competitive enterprise. R&D AS A PERCENTAGE OF SALES: [PASS] ANIK is either maintaining the same levels of R&D expenditures(currently $7.1 million) or increasing these levels which is a good sign. This allows the company to develop the superior technology and new products that will put everyone else out of business. This criterion is particularly important for high-tech and medical stocks because they are so R&D dependant. CASH AND CASH EQUIVALENTS: [PASS] ANIK's level of cash $63.3 million passes this criteria. If a company is a cash generator, like ANIK, 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 ANIK was 11.60% last year, while for this year it is 14.65%. Although the inventory to sales is rising, it is below the max 30% that is allowed. The investor can still consider the stock if all other criteria appear very attractive. ACCOUNT RECEIVABLE TO SALES: [PASS] This methodology wants to make sure that a company's accounts receivable do not get significantly out of line with sales. It's a warning sign if a company's accounts receivable relative to sales increases significantly when compared to the previous year. Up to a 30% increase is allowed, but no more. Accounts Receivable to Sales for ANIK was 30.07% last year, while for this year it is 24.96%. Since the AR to sales is decreasing by -5.11% the stock passes this criterion. LONG TERM DEBT/EQUITY RATIO: [PASS] ANIK'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 (ANIK's is 0.45), the shares are looked upon favorably. These high quality companies can often wind up as the biggest winners. ANIK passes this test. The following criteria for ANIK are less important which means you would place less emphasis on them when making your investment decision using this strategy: AVERAGE SHARES OUTSTANDING: [PASS] ANIK has not been significantly increasing the number of shares outstanding within recent years which is a good sign. ANIK currently has 16.0 million shares outstanding. This means the company is not taking any measures, with regards to the number of shares, that will dilute or devalue the stock. SALES: [PASS] Companies with sales less than $500 million should be chosen. It is among these small-cap stocks that investors can find "an uncut gem", ones that institutions won't be able to buy yet. ANIK's sales of $93.8 million based on trailing 12 month sales, are fine, making this company one such "prospective gem". ANIK passes the sales test. DAILY DOLLAR VOLUME: [PASS] ANIK passes the Daily Dollar Volume (DDV of $16.7 million) test. It is required that this number be less than $25 million because these are the stocks that remain relatively undiscovered by institutions. "You'll be scoring touchdowns against the big guys on your turf." PRICE: [PASS] This is a very insignificant criterion for this methodology. But basically, low prices are chosen because "small numbers multiply more rapidly than large ones" and the potential for big returns expands. ANIK with a price of $45.69 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] ANIK's income tax paid expressed as a percentage of pretax income this year was (36.64%) and last year (39.78%) are greater than 20% which is an acceptable level. If the tax rate is below 20% this could mean that the earnings that were reported were unrealistically inflated due to the lower level of income tax paid. This is a concern.   VALERO ENERGY CORPORATION Profile Strategy: Growth/Value Investor Based on: James P. O'Shaughnessy Valero Energy Corporation (Valero) is an independent petroleum refining and marketing company. Valero's refineries can produce conventional gasoline's, distillates, jet fuel, asphalt, petrochemicals, lubricants, and other refined products, as well as a slate of premium products, including conventional blendstock for oxygenate blending and reformulated gasoline blendstock for oxygenate blending, gasoline meeting the specifications of the California Air Resources Board, a diesel fuel, and low-sulfur and ultra-low-sulfur diesel fuel. It also owns 10 ethanol plants in the central plains region of the United States with a combined ethanol nameplate production capacity of about 1.1 billion gallons per year. It operates in three business segments: refining, ethanol, and retail. In May 2013, CST Brands Inc announced that the Company which includes Corner Store and Depanneur du Coin, spun off from Valero Energy Corporation. Analysis Guru Score: 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. VLO, with a market cap of $30,465 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. VLO, whose annual EPS before extraordinary items for the last 5 years (from earliest to the most recent fiscal year) were -0.51, 1.62, 3.68, 3.74 and 4.96, 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. VLO's Price/Sales ratio of 0.22, 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. VLO, whose relative strength is 81, is in the top 50 and would pass this last criterion.   AGCO CORPORATION Profile Strategy: Price/Sales Investor Based on: Kenneth Fisher AGCO Corporation (AGCO) is a manufacturer and distributor of agricultural equipment and related replacement parts globally. The Company sells a range of agricultural equipment, including tractors, combines, self-propelled sprayers, hay tools, forage equipment and implements. It also manufactures and distributes grain storage and handling equipment systems, as well as protein production systems. Its products are recognized in the agricultural equipment industry and are marketed under a range of brands, including Challenger, Fendt, Massey Ferguson and Valtra. The Company distributes its products through a combination of approximately 3,100 independent dealers and distributors in more than 140 countries. In September 2013, Grain Systems, Inc. (GSI), a global brand of the Company announced that it has purchased Johnson System Inc. (JSI), manufacturer of catwalks, towers and support structures based in Marshall, Michigan. Analysis Guru Score: 100% PRICE/SALES RATIO: [PASS] The prospective company should have a low Price/Sales ratio. Smokestack (cyclical) companies with a Price/Sales ratio between .4 and .8 represent good values according to this methodology. AGCOpasses this test as its P/S of 0.49 based on trailing 12 month sales, falls within the "good values" range for cyclical companies. TOTAL DEBT/EQUITY RATIO: [PASS] Less debt equals less risk according to this methodology. AGCO's Debt/Equity of 33.42% is acceptable, thus passing the test. PRICE/RESEARCH RATIO: [PASS] This methodology considers companies in the Technology and Medical sectors to be attractive if they have low Price/Research ratios. AGCO 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 AGCO At this Point Is AGCO a "Super Stock"? YES PRICE/SALES RATIO: [PASS] The prospective company should have a low Price/Sales ratio. Non-Smokestack(non-cyclical) companies with a Price/Sales ratio between .75 and 1.5 are good values. Otherwise, Smokestack(cyclical) companies with a Price/Sales ratio between .4 and .8 represent good values. AGCO's P/S ratio of 0.49 falls within the "good values " range for cyclical industries and is considered attractive. LONG-TERM EPS GROWTH RATE: [PASS] This methodology looks for companies that have an inflation adjusted EPS growth rate greater than 15%. AGCO's inflation adjusted EPS growth rate of 27.41% passes the test. FREE CASH PER SHARE: [PASS] This methodology looks for companies that have a positive free cash per share. Companies should have enough free cash available to sustain three years of losses. This is based on the premise that companies without cash will soon be out of business. AGCO's free cash per share of 3.68 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. AGCO, whose three year net profit margin averages 5.81%, passes this evaluation.   BED BATH & BEYOND INC. Profile Strategy: Growth/Value Investor Based on: James P. O'Shaughnessy Bed Bath & Beyond Inc. is a chain of retail stores, operating under the names Bed Bath & Beyond (BBB), Christmas Tree Shops (CTS), Harmon and Harmon Face Values (Harmon), buybuy BABY and World Market or Cost Plus World Market (World Market). In addition, it is a partner in a joint venture, which operates three stores in the Mexico City market under the name Bed Bath & Beyond. The Company sells a range of domestics merchandise and home furnishings. Domestics merchandise includes categories, such as bed linens and related items, bath items and kitchen textiles. Home furnishings include categories, such as kitchen and tabletop items, fine tabletop, basic housewares and general home. During fiscal year ended March 2, 2013 (fiscal 2012), the Company opened a total of 38 stores, including 12 BBB stores throughout the United States and Canada, five CTS stores, one Harmon store and 18 buybuy BABY stores, and six World Market stores throughout the United States and closed one BBB store. Analysis Guru Score: 75% 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. BBBY, with a market cap of $12,294 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. BBBY, whose annual EPS before extraordinary items for the last 5 years (from earliest to the most recent fiscal year) were 2.31, 3.07, 4.06, 4.56 and 4.79, 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. BBBY's Price/Sales ratio of 1.07, based on trailing 12 month sales, passes this criterion. RELATIVE STRENGTH: [FAIL] 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. BBBY has a relative strength of 27. This does not pass the final criterion. As a result, this methodology would not consider the stock even though it passed the previous three criteria.   SMITH & WESSON HOLDING CORP Profile Strategy: P/E/Growth Investor Based on: Peter Lynch Smith & Wesson Holding Corporation (Smith & Wesson) is a manufacturer of firearms. The Company manufactures a range of handguns, modern sporting rifles, hunting rifles, black powder firearms, handcuffs, and firearm-related products and accessories for sale to a range of customers, including gun enthusiasts, collectors, hunters, sportsmen, competitive shooters, individuals desiring home and personal protection, law enforcement and security agencies and officers, and military agencies in the United States and globally. It sells its products under the Smith & Wesson brand, the M&P brand, the Thompson/Center Arms brand, and the Performance Center brand. The Company manufactures its firearm products at its facilities in Springfield, Massachusetts and Houlton, Maine. In May 2014, the Company through Deep River Plastics LLC, subsidiary purchased substantially all of assets of Tri Town Precision Plastics Inc. Analysis Guru Score: 93% DETERMINE THE CLASSIFICATION: This methodology would consider SWHC a "fast-grower". P/E/GROWTH RATIO: [PASS] The investor should examine the P/E (11.18) relative to the growth rate (44.56%), based on the average of the 3 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 SWHC (0.25) 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. SWHC, whose sales are $634.9 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. 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 SWHC was 13.42% last year, while for this year it is 10.72%. Since inventory to sales has decreased from last year by -2.70%, SWHC 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 SWHC is 44.6%, based on the average of the 3 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 SWHC (72.54%) to be mediocre. If the Debt/Equity ratio is this high, the other ratios and financial statistics for SWHC should be good enough to compensate. 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 SWHC (5.00%) 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 SWHC (-0.30%) 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.   COACH INC Profile Strategy: Patient Investor Based on: Warren Buffett Coach, Inc. (Coach) is a marketer of accessories and gifts for women and men. The Company offers a range of modern, fashionable handbags and accessories. Its product offerings include women's and men's bags, accessories, footwear, wearables, jewelry, travel bags, sunwear, watches and fragrance. The Company operates in two segments: North America, which includes sales to North American consumers through Company-operated stores, including the Internet, and sales to wholesale customers and distributors and International, which includes sales to consumers through Company-operated stores in Japan and mainland China, including the Internet, Hong Kong, Macau, Singapore, Taiwan, Malaysia and Korea and sales to wholesale customers and distributors in 25 countries. 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 0.62, 0.86, 1.19, 1.69, 2.17, 1.91, 2.33, 2.92, 3.53, 3.61. Buffett would consider COH's earnings predictable, although earnings have declined 1 time(s) in the past seven years, with the most recent decline 5 years ago. The dips have totaled 12.0%. COH's long term historical EPS growth rate is 14.5%, based on the average of the 3, 4 and 5 year historical eps growth rates, and it is expected to grow earnings 3.6% 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. COH 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 COH, over the last ten years, is 38.0%, 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 29.9%, 30.9%, 37.2%, 32.9%, 49.1%, 35.9%, 45.9%, 52.3%, 50.5%, 42.3%, and the average ROE over the last 3 years is 48.4%, 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 COH, over the last ten years, is 40.4% and the average ROTC over the past 3 years is 48.1%, 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 29.8%, 30.8%, 37.1%, 32.9%, 49.0%, 35.4%, 45.2%, 51.5%, 50.5%, 42.3%, 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. COH's free cash flow per share of $2.91 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 $17.88 and compares it to the gain in EPS over the same period of $2.99. COH's management has proven it can earn shareholders a 16.7% 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. COH's shares outstanding have fallen over the past five years from 318,010,010 to 279,000,000, 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 COH 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 $3.28 and divide it by the current market price of $35.69. An investor, purchasing COH, could expect to receive a 9.19% initial rate of return. Furthermore, he or she could expect the rate to increase 3.6% 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 2.75%. Compare this with COH's initial yield of 9.19%, which will expand at an annual rate of 3.6%, 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] COH currently has a book value of $8.70. It is safe to say that if COH can preserve its average rate of return on equity of 38.0% and continues to retain 83.01% of its earnings, it will be able to sustain an earnings growth rate of 31.5% and it will have a book value of $135.09 in ten years. If it can still earn 38.0% on equity in ten years, then expected EPS will be $51.34. CALCULATE THE FUTURE STOCK PRICE BASED ON THE AVERAGE ROE METHOD: [No Pass/Fail] Now take the expected future EPS of $51.34 and multiply them by the lower of the 5 year average P/E ratio (17.1) or current P/E ratio (current P/E in this case), which is 10.9 and you get COH's projected future stock price of $558.62. 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 $6.79. This gives you a total dollar amount of $565.41. These numbers indicate that one could expect to make a 31.8% average annual return on COH'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 3.6%, based on the analysts' consensus estimated long term growth rate, you can project EPS in ten years to be $4.65. Now multiply EPS in 10 years by the lower of the 5 year average P/E ratio (17.1) or current P/E ratio (current P/E in this case), which is 10.9. This equals the future stock price of $50.63. Add in the total expected dividend pool of $6.79 to get a total dollar amount of $57.42. 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 $35.69 and the future expected stock price, including the dividend pool, of $57.42. If you were to invest in COH at this time, you could expect a 4.87% average annual return on your money. Buffett likes to see a 15% return, and would even go down to 12%. 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 4.9% and 31.8%. 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 18.3% on COH stock for the next ten years, based on the current fundamentals. Buffett would consider this a great return, thus passing the criterion.   USANA HEALTH SCIENCES, INC. Profile Strategy: Growth/Value Investor Based on: James P. O'Shaughnessy USANA Health Sciences, Inc. develops and manufactures science-based nutritional and personal care products. The Company has operations in 15 markets worldwide, where it distributes and sells its products by way of direct selling. The Company reports operations in two geographic regions: North America and Asia Pacific, which is further divided into three sub-regions; Southeast Asia/Pacific, Greater China, and North Asia. North America includes the United States, Canada, Mexico, and direct sales from the United States to the United Kingdom and the Netherlands. Southeast Asia/Pacific includes Australia, New Zealand, Singapore, Malaysia, and the Philippines; Greater China includes Hong Kong, Taiwan and China; and North Asia includes Japan and South Korea. The Company's customer base consists of two types of customers: Associates and Preferred Customers. As of December 31, 2011, the Company had 222,000 active Associates and 64,000 active Preferred Customers worldwide. Analysis Guru Score: 75% 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. USNA, with a market cap of $1,080 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. USNA, whose annual EPS before extraordinary items for the last 5 years (from earliest to the most recent fiscal year) were 2.17, 2.86, 3.26, 4.45 and 5.56, 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. USNA's Price/Sales ratio of 1.48, based on trailing 12 month sales, passes this criterion. RELATIVE STRENGTH: [FAIL] 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. USNA has a relative strength of 48. This does not pass the final criterion. As a result, this methodology would not consider the stock even though it passed the previous three criteria.   NU SKIN ENTERPRISES, INC. Profile Strategy: Growth/Value Investor Based on: James P. O'Shaughnessy Nu Skin Enterprises, Inc. is a global direct selling company with operations in 53 markets worldwide. The Company develops and distributes anti-aging personal care products and nutritional supplements under its Nu Skin and Pharmanex brands, respectively. As of December 31, 2012, the Company had more than 950,000 distributors. The Company has two primary product categories, each operating under its own brand. It markets its personal care products under the Nu Skin brand and its nutritional supplements under the Pharmanex brand. During the year ended December 31, 2012, approximately 89% of its revenues came from its markets outside of the United States. The Company's ageLOC skin care products accounted for 23% of its total revenue and 43% of Nu Skin sales during the year ended December 31, 2012. Analysis Guru Score: 75% 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. NUS, with a market cap of $4,519 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. NUS, whose annual EPS before extraordinary items for the last 5 years (from earliest to the most recent fiscal year) were 1.40, 2.11, 2.38, 3.52 and 5.94, 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. NUS's Price/Sales ratio of 1.37, based on trailing 12 month sales, passes this criterion. RELATIVE STRENGTH: [FAIL] 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. NUS has a relative strength of 67. This does not pass the final criterion. As a result, this methodology would not consider the stock even though it passed the previous three criteria.   WILLIAMS-SONOMA, INC. Profile Strategy: P/E/Growth Investor Based on: Peter Lynch Williams-Sonoma, Inc. is a multi-channel specialty retailer of products for the home. The Company is an e- commerce retailer with brands in home furnishings. It operates retail stores in the United States, Canada and Puerto Rico, and franchises its brands to a third party in a number of countries in the Middle East, including Bahrain, the Kingdom of Saudi Arabia, Kuwait and the United Arab Emirates. Its products are also available to customers through its catalogs and online worldwide. The Company operates in two segments: direct-to-customer and retail. The direct-to-customer segment has seven merchandising concepts (Williams-Sonoma, Pottery Barn, Pottery Barn Kids, PBteen, West Elm, Rejuvenation and Mark and Graham) which sell its products through its seven e-commerce Websites and eight direct-mail catalogs. The retail segment has five merchandising concepts (Williams-Sonoma, Pottery Barn, Pottery Barn Kids, West Elm and Rejuvenation) which sells products through its retail stores. Analysis Guru Score: 91% DETERMINE THE CLASSIFICATION: This methodology would consider WSM a "fast-grower". P/E/GROWTH RATIO: [PASS] The investor should examine the P/E (23.79) relative to the growth rate (38.24%), 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 WSM (0.62) makes it 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. WSM, whose sales are $4,474.4 million, needs to have a P/E below 40 to pass this criterion. WSM's P/E of (23.79) 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 WSM was 15.83% last year, while for this year it is 18.53%. 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 (2.70%) 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 WSM is 38.2%, 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 WSM (0.31%) 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 WSM (2.16%) 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 WSM (4.91%) 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.   ROBERT HALF INTERNATIONAL INC. Profile Strategy: Value Investor Based on: Benjamin Graham Robert Half International Inc. provides specialized staffing and risk consulting services. The Company operates in three segments: temporary and consultant staffing, permanent placement staffing, and risk consulting and internal audit services. The Company, through its Accountemps, Robert Half Finance & Accounting, and Robert Half Management Resources divisions, is a specialized provider of temporary, full-time, and project professionals in the fields of accounting and finance. OfficeTeam specializes in skilled temporary administrative support personnel. Robert Half Technology provides information technology professionals. Robert Half Legal provides temporary, project, and full-time staffing of attorneys and specialized support personnel within law firms and corporate legal departments. The Creative Group provides project staffing in the advertising, marketing, and Web design fields. Protiviti is a global business consulting and internal audit firm. Analysis Guru Score: 71% SECTOR: [PASS] RHI 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. RHI's sales of $4,306.6 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. RHI's current ratio of 2.21 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 RHI is $1.3 million, while the net current assets are $649.8 million. RHI 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. RHI's EPS growth over that period of 98.6% passes the EPS growth test. P/E RATIO: [FAIL] The Price/Earnings (P/E) ratio, based on the greater of the current PE or the PE using average earnings over the last 3 fiscal years, must be "moderate", which this methodology states is not greater than 15. Stocks with moderate P/Es are more defensive by nature. RHI's P/E of 25.18 (using the current PE) fails this test. PRICE/BOOK RATIO: [FAIL] The Price/Book ratio must also be reasonable. That is, the Price/Book multiplied by P/E cannot be greater than 22. RHI's Price/Book ratio is 7.00, while the P/E is 25.18. RHI fails the Price/Book test.   Watch List The Watch List contains the highest scoring stocks according to our guru consensus system that are not currently in the Hot List portfolio. We provide this list both for informational purposes and for investors who are not comfortable with a portfolio of ten stocks. Ticker Company Name Industry Guru Score REX REX AMERICAN RESOURCES CORP Chemical Manufacturing 77 XRS TAL EDUCATION GROUP (ADR) Schools 71 TJX THE TJX COMPANIES, INC. Retail (Apparel) 70 ROST ROSS STORES, INC. Retail (Apparel) 68 TECD TECH DATA CORP Retail (Technology) 68 LCI LANNETT COMPANY, INC. Biotechnology & Drugs 57 PJC PIPER JAFFRAY COMPANIES Investment Services 57 TEDU TARENA INTERNATIONAL INC(ADR) Schools 57 MNST MONSTER BEVERAGE CORP Beverages (Non-Alcoholic) 54 HY HYSTER-YALE MATERIALS HANDLING INC Auto & Truck Manufacturers 53

Disclaimer

The names of individuals (i.e., the 'gurus') appearing in this report are for identification purposes of his methodology only, as derived by Validea.com from published sources, and are not intended to suggest or imply any affiliation with or endorsement or even agreement with this report personally by such gurus, or any knowledge or approval by such persons of the content of this report. All trademarks, service marks and tradenames appearing in this report are the property of their respective owners, and are likewise used for identification purposes only. Validea is not registered as a securities broker-dealer or investment advisor either with the U.S. Securities and Exchange Commission or with any state securities regulatory authority. Validea is not responsible for trades executed by users of this site based on the information included herein. The information presented on this website does not represent a recommendation to buy or sell stocks or any financial instrument nor is it intended as an endorsement of any security or investment. The information on this website is generic by nature and is not personalized to the specific situation of any individual. The user therefore bears complete responsibility for their own investment research and should seek the advice of a qualified investment professional prior to making any investment decisions. Performance results are based on model portfolios and do not reflect actual trading. Actual performance will vary based on a variety of factors, including market conditions and trading costs. Past performance is not necessarily indicative of future results. Individual stocks mentioned throughout this web site may be holdings in the managed portfolios of Validea Capital Management, a separate asset management firm founded by Validea.com founder John Reese. Validea Capital Management, which is a separate legal entity and an SEC registered investment advisory firm, uses, in part, the strategies on the web site to select stocks for its clients.