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Executive Summary	April 17, 2009

The Economy The economy continues to offer a mixed bag of fear and hope. But compared to the fear-filled bag it was giving us not too long ago, this new mixed bag has offered some real encouragement over the past couple weeks -- enough to keep the markets trending upward, at least. On the positive side, first-quarter earnings are rolling in, and several financials -- the most maligned group of stocks in the market -- have been dishing out some pleasant surprises. It started last week with Wells Fargo, which announced a profit of $3 billion, up 50% from a year earlier and more than double analysts' expectations. Then this week, Goldman Sachs reported a first-quarter profit of $1.8 billion. And just yesterday, JPMorgan Chase announced that it took in more than $2 billion in profits in the first quarter, down about 10% from last year's first quarter, but significantly higher than analysts had expected. The three firms' results were a big part of why financials in general have had a big bounce in the past two weeks. But before we get too excited, not all the news in the financial sector has been good. Other banks continue to rack up losses -- UBS this week reported a $1.7 billion first-quarter loss, and said it would be slashing close to 9,000 more jobs. And those first-quarter figures from Wells, Goldman, and JPMorgan come with some caveats. Part of the reason for the big numbers was a surge of refinancings caused by historically low mortgage rates, which won't last forever, notes BusinessWeek's Theo Francis. In addition, the relaxing of market-to-market rules may well have led banks to boost the valuation of beaten-down assets, giving a nice but not repeatable "pop" in earnings. And, as Francis also notes, Goldman Sachs' change from a Nov. 30 year-end fiscal year to a Dec. 31 year-end fiscal year meant its Q4 results from last year went through November, and its Q1 results from this year started in January -- somewhat ridiculously leaving the firm's $780 million December loss out of the equation. Early next month, when the results of the government's bank "stress tests" come in, we may get a better picture of just how well-positioned a lot of the big banks are. Despite those caveats, the profit reports were welcomed, as is other economic news. New claims for unemployment fell about 8% in the week ending April 11, for example. They are still high, but given the current conditions, any decrease is certainly good to see. Wednesday, we saw two of the biggest junk bond deals we've seen in months, showing that lower-rated companies are better able to raise capital and that investors are increasing their appetites for risk. And this week the National Association of Home Builders said its housing index sentiment measurement jumped by more than 50% over the past month, as builders grew more optimistic given low mortgage rates and government home-buying incentives. Some said that was a sign that the housing market could be nearing -- or even at -- a bottom. Of course, the rays of light have been matched by some more clouds. While sentiment in the homebuilding industry rose, it did so as the government reported a 10.8% decline in new housing starts for the month of March, reversing trend after a big jump upward in February. Industrial production also fell 1.5% in March, the government reported this week, as industry continued to contract, while retail sales dropped 1.1% in March, failing to build on the gains of the two previous months. Another concern: commercial real estate. Yesterday, General Growth Properties -- the U.S.'s second-largest mall operator -- filed for bankruptcy amid a weakening commercial real estate market. How widespread problems in that market become is something to keep an eye on. All in all, however, the news of the past two weeks involved enough signs of potential stability and recovery to keep investors feeling bullish. The S&P 500, Dow Jones Industrial Average, and Nasdaq Composite all posted gains for the fortnight, and the Hot List also had a solid two weeks, gaining 6%. That puts the portfolio back in the black for 2009, up 3.4% vs. the S&P's 4.2% decline. Since its inception almost six years ago, the Hot List has gained 69.6%, while the S&P remains well in the red, down 13.5%. This rebalancing, the Hot List is making some minor changes, and taking some major profits. It's selling three stocks -- The Dress Barn, on which it made a 70% profit in less than three months, as well as Exxon Mobil and Lufkin Industries. The portfolio is replacing those with a couple industrial-type stocks (Lincoln Electric and Kennametal) and an oil services company (BJ Services). All three of the new stocks have exceptional fundamentals, getting approval from three of my most successful Guru Strategies: those I base on the writings of Benjamin Graham, Peter Lynch, and Kenneth Fisher. The Road Back The fact that the market continued to push upward these past two weeks and didn't give back the huge gains it made over the previous month was no doubt a good sign. And there are some real indications that this move could stick. As Francois Trahan of the research firm ISI Group recently noted, the current bullish turn is the fifth 10%-plus gain we've seen during this nasty bear -- but the first that has been accompanied by an increase in leading economic indicators. "This is not just an oversold pop like the other ones," he told Consuelo Mack of WealthTrack. "This is one that is about better economic prospects down the road. So I think it's legitimate, essentially is the way to think about it. And I think it's the first inning of something that's going to last quite a while." That doesn't mean the road to recovery will be an easy ride, and there are certainly other strategists who don't share Trahan's view. With more earnings reports to come -- not to mention the first round of bank stress tests in the coming weeks -- a lot could change in the short term. Nothing guarantees that the economy will keep gaining traction, or that the market will keep gaining ground (doomsday-sayers like Nouriel Roubini and Peter Schiff won't let us forget that). Investors should continue to keep in mind that the depth of breadth of the crisis (i.e., the depth and breadth of the deleveraging and unwinding of bad debt) are great. But while it will take time, I continue to believe that the economy will recover, and recover fully, and that we are not headed into some sort of financial apocalypse that will decimate stocks for the long term. Some great data on this topic comes from Ben Inker of GMO (the investment firm of Jeremy Grantham, whose name I've referenced in other Hot Lists). In a recent report, Inker writes that the he believes the current economic conditions are, in fact, temporary -- not permanent. In justifying his view, he highlighted the long-term productivity of the economy, and the long-term dividend stream that stocks have provided investors throughout history. Both, he says, have proved quite stable over the long run, and have shown a clear tendency to revert to a mean, even after terrible crises. To understand why such mean reversion occurs, one needs to understand just what the economy is, and how it works. Writes Inker, "The productive capacity of the economy comes from the skills and size of the workforce and the country's accumulated intellectual and physical capital. If GDP were to fall by 5%, it would not be because our ability to produce goods and services had fallen by 5%, but because aggregate demand for those goods and services had fallen. When the demand returns, the economy will be able to ramp up production quite quickly." As proof, Inker points to the Great Depression. GDP dropped 25% from 1929 to 1933, he says, a staggering decline. "But that fall, as extraordinary as it was, was a fall in demand relative to potential GDP, not a fall in the economy's productive capacity, and so the economy eventually got back onto its previous growth trend as if the Depression had never happened." There are more extreme examples of economic production reverting to a mean in other countries. World War II, for example, caused incredible devastation in Germany and Japan. But, Inker says, that devastation eventually left the German and Japanese economies "without a noticeable trace", as GDP recovered and settled back into the long-term trend it had been on before the war. Inker's conclusion, with regard to American economic production: "If the Great Depression and two world wars failed to materially change the long run path of GDP or dividends," he says, "then it seems that the safest assumption is that the credit crisis will not, either." I agree. As I've noted in past newsletters, David Dreman and Jeremy Siegel have both presented similar evidence on the resiliency of both the U.S. economy and stock market. Dreman, you'll recall, found stocks showed a remarkable ability to bounce back following traumatic events, including wars and presidential assassinations. Siegel's data showed that, over more than two centuries, the stock market has continued to revert to after-inflation returns of 7%. That covers a period in which huge changes -- the Industrial Revolution, the introduction of the automobile, airplane, television, and Internet, the rise and fall of many different nations -- occurred throughout the globe. I think Inker's data and observations build on Siegel's and Dreman's findings about the resiliency of the economy and stock market. If you believe, as I do, that we'll make it through this crisis without some sort of irreparable harm, the question for the long-term investor thus centers on one thing: value. And I continue to see quite a bit of it in the market. Could valuations get cheaper? Of course. While stocks are cheap based on measures like the 10-year P/E ratio, stock market value/GNP ratio, and Tobin's Q, they are not as inexpensive as they've been at the bottom of past downturns, such as 1932 or 1982. Many are waiting for stocks to turn back down and reach, or come close to reaching, those all-time low levels. Will they? It's a close-to-impossible question to answer, particularly in light of the fact that this downturn involves an unprecedented multi-trillion-dollar government stimulus plan, the full impact of which is yet to be seen. The bottom line is that when stocks are cheap compared to historical standards, it's a good time to buy. And, while they might not be at all-time lows in terms of valuations, stocks are cheap -- and may actually be cheaper than you think. That's what Siegel said in one of his recent columns, in which he contended that Standard & Poor's inaccurately calculates the earnings of the S&P 500. Siegel has taken some hits in the media lately as buy-and-hold strategies have been criticized, but I continue to respect his opinions, both because of his long-term, data-driven approach and his sharp intellect. And in regard to the earnings issue, he raises an intriguing point. Siegel notes that S&P calculates the price of the S&P 500 index by a market-cap-weighted formula. The greater the company's market value, the more impact its price movements have on the index. In calculating earnings, however, S&P weights all earnings equally, simply adding up each of the 500 companies per-share figures. "as a result," he writes, "the billions of dollars of losses racked up by, say, AIG, whose market value is extremely low, is added dollar for dollar to the earnings of the profitable firms, such as Exxon Mobil, whose market value is more than 20 times larger." S&P's methodology [gives] far too much influence to firms with big losses and low market values, and thereby gave a distorted valuation to the S&P 500 Index." S&P says reported earnings for the index for 2008 were just $14.97 per share, Siegel notes, which means the S&P 500 index was selling at 53.3 times earnings as of March 31, when it was valued at 798. Using Siegel's market-weighted earnings method, the index's reported per-share earnings would be $71.50, making for a P/E of just over 11. Using operating earnings, S&P said earnings per share for the index were $49.49 in 2008, resulting in a 16 P/E ratio as of March 31, Siegel says. Using his method, operating earnings were $79.40 per share, making for a P/E of 10. One interesting point in all of this: "Back in 2002 the aggregate earnings of the S&P 500 Index also plummeted when a few firms, such as AOL and JDS Uniphase, took huge writedowns on some of their Internet investments," Siegel writes. "Reported P/E ratios soared into the 60s in the second quarter of 2002, yet rather than being overvalued, the market was just approaching its bear market low." Could we have just come through a similar scenario? Let's hope so. But I think there's a broader point here, that being how the debate between Siegel and S&P (which has tried to refute his argument) highlights just how hard it is to pinpoint an exact valuation for stocks, and for the market as a whole. Can you get a general idea of the market's valuation? Sure, by examining historical data and using any number of valuation metrics, like the 10-year P/E. But there's a margin of error in any valuation assessment. (In fact, in the GMO report I referenced earlier, Inker estimates that about half of the market's "intrinsic value" comes from cash flows that will occur more than 25 years out into the future.) That's something to keep in mind if you're waiting for those "all-time low" valuations to appear before jumping into stocks. I won't be. Stocks are cheap by a number of historical standards, and history shows that investors who buy at times like these far more often than not end up with excellent long-term returns. Could that mean some short-term losses if the market does, in fact, turn around and head lower? Yes. But to me, the alternative -- missing out on a big chunk of a bull market surge -- is a far more dangerous proposition.		Editor-in-Chief: John Reese Since Inception   Hot List 69.6% S&P 500 -13.5% Accuracy 55.2% Beta 1.2 YTD   Hot List 3.4% S&P 500 -4.2% Since Last Issue   Hot List 6.0% S&P 500 3.7% Avg. Fundamentals   Market Cap (mil) $1,280 PE Ratio 8.4 5 Yr EPS Growth 32.7% Yield 1.7% Rel. Strength 57 Portfolio Sectors Capital Goods 4 Energy 3 Services 1 Consumer Cyclical 1 Basic Materials 1
Advertisement The Fallen As we rebalance the Validea Hot List, 3 stocks leave our portfolio. These include: The Dress Barn, Inc. (DBRN), Lufkin Industries, Inc. (LUFK) and Exxon Mobil Corporation (XOM). The Keepers 7 stocks remain in the portfolio. They are: Ameron International Corporation (AMN), Ceradyne, Inc. (CRDN), Fossil, Inc. (FOSL), Jos. A. Bank Clothiers, Inc. (JOSB), Schnitzer Steel Industries, Inc. (SCHN), World Fuel Services Corporation (INT) and Oil States International, Inc. (OIS). The Newbies We are adding 3 stocks to the portfolio. These include: Bj Services Company (BJS), Kennametal Inc. (KMT) and Lincoln Electric Holdings, Inc. (LECO). Portfolio Changes Additions   BJ SERVICES COMPANY BJS KENNAMETAL INC. KMT LINCOLN ELECTRIC HOLDINGS, INC. LECO Deletions   THE DRESS BARN, INC. DBRN LUFKIN INDUSTRIES, INC. LUFK EXXON MOBIL CORPORATION XOM Newcomers to the Validea Hot List Lincoln Electric Holdings, Inc. (LECO): This 114-year-old welding specialist makes a variety of industrial-type products, including arc welding tools, robotic welding systems, and plasma and oxyfuel cutting equipments. Based in Cleveland, it has a presence in more than 160 countries, more than 9,000 employees, and has taken in almost $2.5 billion in sales in the past year. It has a market cap of about $1.5 billion. Lincoln gets approval from three of my Guru Strategies -- those I base on the writings of Peter Lynch, Benjamin Graham, and Kenneth Fisher. To find out why, see the "Detailed Stock Analysis" section below. Kennametal Inc. (KMT): Based in Latrobe, Pennsylvania, Kennametal makes industrial tools and tooling systems, including products involving tungsten carbide powders, high-speed steels, ceramics, industrial diamond, and other materials that are highly durable and heat resistant. The 71-year-old company's products are used by firms in the aerospace, auto, construction, power generation, and oil and gas industries, to name a few. Kennametal ($1.4 billion market cap) is represented in more than 60 countries, and has taken in more than $2.7 billion in sales in the past year. Industrial-type stocks have been hit hard during the global economic slowdown, but three of my models say Kennametal has been hit too hard. Like Lincoln Electric, the stock gets approval from my Benjamin Graham-, Peter Lynch-, and Kenneth Fisher-based approaches. Scroll down to the "Detailed Stock Analysis" section below to find out why. BJ Services (BJS): Based in Houston, BJ Services provides field development and production enhancement services to the energy industry, with particular expertise in shale fracturing for oil and gas firms trying to tap into shale oil and gas wells. It also deals with industrial chemicals and commissioning, and inspection of refineries, pipelines and offshore platforms. BJ has more than 18,000 employees across 50 countries, and over the past year it has taken in more than $5.5 billion in sales. The firm has a $3.4 billion market cap. BJ Services is yet another stock that gets approval from my Benjamin Graham-, Peter Lynch-, and Kenneth Fisher-based models. To see why, check out the "Detailed Stock Analysis" section below. News about Validea Hot List Stocks Jos. A. Bank Clothiers (JOSB): Bank announced on April 8 that its fiscal full-year profit rose 16 percent on the strength of increased sales, despite a woeful retail environment. Bank's earnings for the year ending Jan. 31 were $58.4 million, or $3.17 per share, up from $50.2 million, or $2.72 per share, a year earlier, the Associated Press reported. Sales jumped to $695.9 million from $604 million, as same-store sales rose almost 9 percent, AP stated, adding that analysts expected net income of $3.06 per share on revenue of $674.8 million. Shares soared more than 25 percent from April 7-April 9. Kennametal Inc. (KMT): On April 15, Kennametal announced that it had cut its fiscal third-quarter profit estimate, due to a worse-than-expected downturn in global markets, Reuters reported. The firm now expects earnings per share of about 1 cent, excluding charges, for the quarter ending March 31. It had forecast profit of 5 cents to 15 cents a share before items back in January, and analysts expected earnings of 5 cents, according to Reuters. Shares fell about 7 percent, but are still up more than 25 percent over the past month. The Next Issue In two weeks, we will publish another issue of the Hot List, at which time we will take a closer look at one of my individual Guru Strategies. If you have any questions, please feel free to contact us at hotlist@validea.com.

Current Portfolio Ticker Company Name Industry Guru Score JOSB JOS. A. BANK CLOTHIERS, INC. Retail (Apparel) 88 SCHN SCHNITZER STEEL INDUSTRIES, INC. Iron & Steel 70 AMN AMERON INTERNATIONAL CORPORATION Constr. - Supplies & Fixtures 66 FOSL FOSSIL, INC. Jewelry & Silverware 54 INT WORLD FUEL SERVICES CORPORATION Oil & Gas Operations 53 CRDN CERADYNE, INC. Aerospace & Defense 51 OIS OIL STATES INTERNATIONAL, INC. Oil Well Services & Equipment 51 KMT KENNAMETAL INC. Constr. & Agric. Machinery 51 LECO LINCOLN ELECTRIC HOLDINGS, INC. Misc. Capital Goods 51 BJS BJ SERVICES COMPANY Oil Well Services & Equipment 51 Ticker Market Cap Date Added Start Price Current Price Return JOSB $712 2/20/2009 $23.85 $38.93 63.2% SCHN $1,204 1/23/2009 $37.18 $42.71 14.9% AMN $511 12/26/2008 $56.33 $55.57 -1.3% FOSL $1,199 3/20/2009 $15.60 $17.99 15.3% INT $1,057 3/20/2009 $30.89 $36.01 16.6% CRDN $504 3/20/2009 $18.41 $19.50 5.9% OIS $879 3/20/2009 $13.29 $17.74 33.5% KMT $1,470 4/17/2009 TBD $20.11 TBD LECO $1,653 4/17/2009 TBD $38.89 TBD BJS $3,613 4/17/2009 TBD $12.37 TBD

Detailed Stock Analysis Disclaimer: The analysis is from Validea's selection and interpretation of content from the guru's book or published writings, and is not from nor endorsed by the guru. See Full Disclaimer JOSB   |   SCHN   |   AMN   |   FOSL   |   INT   |   CRDN   |   OIS   |   KMT   |   LECO   |   BJS   |   JOS. A. BANK CLOTHIERS, INC. Profile Strategy: Price/Sales Investor Based on: Kenneth Fisher Jos. A. Bank Clothiers, Inc. (Jos. A. Bank) is a designer, retailer and direct marketer (through stores, catalog and Internet) of men's tailored and casual clothing and accessories. It sells all of its products exclusively under the Jos. A. Bank label through its 460 retail stores (as of January 31, 2009, which includes seven outlet stores and 12 franchise stores) located throughout 42 states and the District of Columbia in the United States, as well as through the Company's nationwide catalog and Internet (www.josbank.com) operations. Its products are targeted at the male career professional and emphasize the Jos. A. Bank brand of tailored and casual clothing and accessories. The Company's products, which range from the original Jos. A. Bank Executive collection to the more luxurious Jos. A. Bank Signature collection to the exclusive Jos. A. Bank Signature Gold collection. Jos. A. Bank operates through two segments: Stores and Direct Marketing. Analysis Guru Score: 90% PRICE/SALES RATIO: [PASS] The prospective company should have a low Price/Sales ratio. Non-cyclical (non-Smokestack) companies with Price/Sales ratio between .75 and 1.5 are good values. JOSB's P/S ratio of 1.02 based on trailing 12 month sales, falls within the "good values" range for non-cyclical companies and is considered attractive. TOTAL DEBT/EQUITY RATIO: [PASS] Less debt equals less risk according to this methodology. JOSB's Debt/Equity of 0.00% is exceptional, thus passing the test. PRICE/RESEARCH RATIO: [PASS] This methodology considers companies in the Technology and Medical sectors to be attractive if they have low Price/Research ratios. JOSB 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 JOSB At this Point Is JOSB a "Super Stock"? NO PRICE/SALES RATIO: [FAIL] The prospective company should have a low Price/Sales ratio. To be considered a "Super Stock", non-cyclical (non-Smokestack) companies should have Price/Sales ratios below .75. However, JOSB, who has a P/S of 1.02, does not fall within the "Super Stock" range. It does fall between 0.75 and 1.5, which is considered the "good values" range for non-cyclical companies. Nonetheless, it does not pass this "Super Stock" criterion. LONG-TERM EPS GROWTH RATE: [PASS] This methodology looks for companies that have an inflation adjusted EPS growth rate greater than 15%. JOSB's inflation adjusted EPS growth rate of 20.29% 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. JOSB's free cash per share of 2.08 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. JOSB, whose three year net profit margin averages 8.20%, passes this evaluation.   SCHNITZER STEEL INDUSTRIES, INC. Profile Strategy: P/E/Growth Investor Based on: Peter Lynch Schnitzer Steel Industries, Inc. is a recycler of ferrous and non-ferrous metals. The Company is a recycler of used and salvaged vehicles, and a manufacturer of finished steel products. The Company provides an end of life cycle solution for a variety of products through its vertically integrated businesses, including sale of used auto parts, procuring autobodies and other metal products and manufacturing them into finished steel products. It operates in three business segments: the Metals Recycling Business (MRB), the Auto Parts Business (APB) and the Steel Manufacturing Business (SMB). In September 2007, the Company acquired a mobile metals recycling business that provides additional sources of scrap metal to the Everett, Massachusetts facility. In February 2008, it acquired the remaining 50% equity interest in Pick-N-Pull Auto Dismantlers, LLC Nevada. In August 2008, the Company acquired a self-service used auto parts business with three locations in the Southern United States. Analysis Guru Score: 93% DETERMINE THE CLASSIFICATION: This methodology would consider SCHN a "fast-grower". P/E/GROWTH RATIO: [PASS] The investor should examine the P/E (8.44) relative to the growth rate (29.43%), 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 SCHN (0.29) 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. SCHN, whose sales are $3,218.4 million, needs to have a P/E below 40 to pass this criterion. SCHN's P/E of (8.44) 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 SCHN was 10.05% last year, while for this year it is 11.78%. 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 (1.73%) 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 SCHN is 29.4%, 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 SCHN (16.02%) 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 SCHN (4.54%) 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 SCHN (-9.67%) 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.   AMERON INTERNATIONAL CORPORATION Profile Strategy: P/E/Growth Investor Based on: Peter Lynch Ameron International Corporation (Ameron) is a multinational manufacturer of engineered products and materials for the chemical, industrial, energy, transportation and infrastructure markets. It has three segments: Fiberglass-Composite Pipe Group, Water Transmission Group and Infrastructure Products Group. The Fiberglass-Composite Pipe Group manufactures and markets filament-wound and molded fiberglass pipe, tubing, fittings and well screens.The Water Transmission Group manufactures and supplies concrete and steel pressure pipe, concrete non-pressure pipe, protective linings for pipe and fabricated steel products, such as large-diameter wind towers. The Infrastructure Products Group consists of two operating segments, which are aggregated: the Hawaii Division and the Pole Products Division. In October 2007, Ameron acquired the business of Polyplaster, Ltda., a Brazilian fiberglass-pipe operation. Analysis Guru Score: 93% DETERMINE THE CLASSIFICATION: This methodology would consider AMN a "fast-grower". P/E/GROWTH RATIO: [PASS] The investor should examine the P/E (9.69) relative to the growth rate (27.58%), 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 AMN (0.35) 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. AMN, whose sales are $663.8 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 AMN was 15.49% last year, while for this year it is 14.33%. Since inventory to sales has decreased from last year by -1.16%, AMN 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 AMN is 27.6%, based on the average of the 3, 4 and 5 year historical eps growth rates, which is acceptable. TOTAL DEBT/EQUITY RATIO: [PASS] This methodology would consider the Debt/Equity ratio for AMN (10.95%) 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 AMN (3.37%) 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 AMN (21.61%) 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.   FOSSIL, INC. Profile Strategy: Patient Investor Based on: Warren Buffett Fossil, Inc. is a global design, marketing and distribution company that specializes in consumer fashion accessories. The Company's principal offerings include a line of men's and women's fashion watches and jewelry sold under licensed brands, handbags, small leather goods, belts, sunglasses, footwear, cold weather accessories and apparel. In the watch and jewelry product category, Fossil, Inc. has a diverse portfolio of owned and licensed brand names, under which its products are marketed. The Company's products are distributed globally through various distribution channels, including wholesale, export and direct to the consumer at varying price points to service the needs of its customers. The Company sells its products through diversified distribution networks that includes department stores, specialty retail locations, specialty watch and jewelry stores, owned retail and factory outlet stores, mass market stores, owned and affiliate Internet sites and through its FOSSIL catalog. Analysis Guru Score: 93% 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 0.69, 0.76, 0.62, 0.81, 0.93, 1.23, 1.04, 1.13, 1.75, 2.02. Buffett would consider FOSL's earnings predictable, although earnings have declined 2 time(s) in the past seven years, with the most recent decline 4 years ago. The dips have totaled 33.9%. FOSL's long term historical EPS growth rate is 16.5%, based on the 10 year average EPS growth rate, and it is expected to grow earnings 16.2% 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. FOSL has a debt of 4.7 million and earnings of 134.0 million, which could be used to pay off the debt in less than two years, which is considered exceptional. 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 FOSL, over the last ten years, is 17.3%, 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 26.0%, 23.4%, 16.0%, 16.6%, 15.4%, 16.7%, 13.6%, 12.7%, 15.8%, 16.8%, and the average ROE over the last 3 years is 15.1%, 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 FOSL, over the last ten years, is 17.3% and the average ROTC over the past 3 years is 15.0%, 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 26.0%, 23.4%, 16.0%, 16.6%, 15.4%, 16.6%, 13.6%, 12.7%, 15.8%, 16.7%, 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. FOSL's free cash flow per share of $0.66 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 $10.98 and compares it to the gain in EPS over the same period of $1.33. FOSL's management has proven it can earn shareholders a 12.1% return on the earnings they kept. This return is acceptable to Buffett, but he would prefer to see a return > 15%. Essentially, management is is doing a good 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. FOSL's shares outstanding have fallen over the past five years from 71,110,001 to 66,000,000, 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 FOSL 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 $2.03 and divide it by the current market price of $17.99. An investor, purchasing FOSL, could expect to receive a 11.28% initial rate of return. Furthermore, he or she could expect the rate to increase 16.2% 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 FOSL's initial yield of 11.28%, which will expand at an annual rate of 16.2%, 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] FOSL currently has a book value of $12.07. It is safe to say that if FOSL can preserve its average rate of return on equity of 15.1% and continues to retain 100.00% of its earnings, it will be able to sustain an earnings growth rate of 15.1% and it will have a book value of $49.23 in ten years. If it can still earn 15.1% on equity in ten years, then expected EPS will be $7.43. CALCULATE THE FUTURE STOCK PRICE BASED ON THE AVERAGE ROE METHOD: [No Pass/Fail] Now take the expected future EPS of $7.43 and multiply them by the lower of the 5 year average P/E ratio (17.2) or current P/E ratio (current P/E in this case), which is 8.9 and you get FOSL's projected future stock price of $65.82. 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 $65.82. These numbers indicate that one could expect to make a 13.8% average annual return on FOSL's stock at the present time. Although, the return is slightly below the liking of Buffett, the return would still be somewhat acceptable. CALCULATE THE EXPECTED FUTURE STOCK PRICE BASED ON AVERAGE EPS GROWTH: [No Pass/Fail] If you take the EPS growth of 16.2%, based on the analysts' consensus estimated long term growth rate, you can project EPS in ten years to be $9.09. Now multiply EPS in 10 years by the lower of the 5 year average P/E ratio (17.2) or current P/E ratio (current P/E in this case), which is 8.9. This equals the future stock price of $80.51. Add in the total expected dividend pool of $0.00 to get a total dollar amount of $80.51. 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 $17.99 and the future expected stock price, including the dividend pool, of $80.51. If you were to invest in FOSL at this time, you could expect a 16.2% 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 13.8% and 16.2%. 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 15.0% on FOSL stock for the next ten years, based on the current fundamentals. Buffett would consider this a great return, thus passing the criterion.   WORLD FUEL SERVICES CORPORATION Profile Strategy: P/E/Growth Investor Based on: Peter Lynch 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: 96% DETERMINE THE CLASSIFICATION: This methodology would consider INT a "fast-grower". P/E/GROWTH RATIO: [PASS] The investor should examine the P/E (9.98) relative to the growth rate (30.86%), 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 INT (0.32) 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. INT, whose sales are $18,509.4 million, needs to have a P/E below 40 to pass this criterion. INT's P/E of (9.98) 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 INT was 0.75% last year, while for this year it is 0.16%. Since inventory to sales has decreased from last year by -0.60%, INT 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 INT is 30.9%, 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 INT (16.40%) 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: [BONUS PASS] The Free Cash Flow/Price ratio, though not a requirement, is considered a bonus if it 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 INT (36.57%) is high enough to add to the attractiveness of the stock. 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 INT (29.96%) 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.   CERADYNE, INC. Profile Strategy: Price/Sales Investor Based on: Kenneth Fisher Ceradyne, Inc. develops, manufactures and markets advanced technical ceramic products, ceramic powders and components for defense, industrial, automotive/diesel and commercial applications. The Company's products include lightweight ceramic armor for soldiers and other military applications; ceramic industrial components for erosion and corrosion resistant applications; ceramic powders, including boron carbide, boron nitride, titanium diboride, calcium hexaboride, zirconium diboride, and fused silica, which are used in manufacture of armor and a range of industrial products and consumer products; evaporation boats for metallization of materials for food packaging and other products; reduced friction, ceramic diesel engine components; functional and frictional coatings primarily for automotive applications; translucent ceramic orthodontic brackets, and ceramic-impregnated dispenser cathodes for microwave tubes, lasers and cathode ray tubes. 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. CRDN's P/S of 0.74 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. CRDN's Debt/Equity of 19.26% 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. CRDN 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 CRDN At this Point Is CRDN 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.CRDN's P/S ratio of 0.74 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%. CRDN's inflation adjusted EPS growth rate of 36.74% 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. CRDN's free cash per share of 4.19 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. CRDN, whose three year net profit margin averages 18.04%, passes this evaluation.   OIL STATES INTERNATIONAL, INC. Profile Strategy: P/E/Growth Investor Based on: Peter Lynch 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: 93% DETERMINE THE CLASSIFICATION: This methodology would consider OIS a "fast-grower". P/E/GROWTH RATIO: [PASS] The investor should examine the P/E (4.13) relative to the growth rate (32.12%), 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 OIS (0.13) 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. OIS, whose sales are $2,948.5 million, needs to have a P/E below 40 to pass this criterion. OIS's P/E of (4.13) 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 OIS was 16.73% last year, while for this year it is 20.77%. 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 (4.04%) 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 OIS is 32.1%, 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 OIS (39.37%) to be normal (equity is approximately twice debt). FREE CASH FLOW: [NEUTRAL] The Free Cash Flow/Price ratio, though not a requirement, is considered a bonus if it is above 35%. A positive Cash Flow (the higher the better) separates a wonderfully reliable investment from a shaky one. This methodology prefers not to invest in companies that rely heavily on capital spending. This ratio for OIS (1.07%) is too low to add to the attractiveness of the stock. Keep in mind, however, that it does not adversely affect the company as it is a bonus criteria. NET CASH POSITION: [NEUTRAL] Another bonus for a company is having a Net Cash/Price ratio above 30%. Lynch defines net cash as cash and marketable securities minus long term debt. According to this methodology, a high value for this ratio dramatically cuts down on the risk of the security. The Net Cash/Price ratio for OIS (-50.14%) is too low to add to the attractiveness of this company. Keep in mind, however, that it does not adversely affect the company as it is a bonus criteria.   KENNAMETAL INC. Profile Strategy: Value Investor Based on: Benjamin Graham Kennametal Inc. is a supplier of tooling, engineered components and advanced materials consumed in production processes. End users of the Company's products include metalworking manufacturers and suppliers in the aerospace, automotive, machine tool, light machinery and heavy machinery industries, as well as manufacturers and suppliers in the highway construction, coal mining, quarrying and oil and gas exploration. Its end users' products include items ranging from airframes to coal, medical implants to oil wells and turbochargers to motorcycle parts. The Company specializes in developing and manufacturing metalworking tools and wear-resistant parts using a specialized type of powder metallurgy. Its metalworking tools are made of cemented tungsten carbides, ceramics, cermets, high-speed steel and other hard materials. The Company operated two global business units consisting of Metalworking Solutions & Services Group (MSSG) and Advanced Materials Solutions Group (AMSG). Analysis Guru Score: 100% SECTOR: [PASS] KMT 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. KMT's sales of $2,680.6 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. KMT's current ratio of 2.43 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 KMT is $479.6 million, while the net current assets are $590.9 million. KMT 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. KMT's EPS growth over that period of 179.6% 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. KMT's P/E of 11.49 (using the current PE) passes this test. PRICE/BOOK RATIO: [PASS] The Price/Book ratio must also be reasonable. That is, the Price/Book multiplied by P/E cannot be greater than 22. KMT's Price/Book ratio is 1.03, while the P/E is 11.49. KMT passes the Price/Book test.   LINCOLN ELECTRIC HOLDINGS, INC. Profile Strategy: P/E/Growth Investor Based on: Peter Lynch Lincoln Electric Holdings, Inc. (Lincoln Electric) is a full-line manufacturer and reseller of welding and cutting products. Welding products include welding power sources, wire feeding systems, robotic welding packages, fume extraction equipment, consumable electrodes and fluxes. The Company's welding product offering also includes reguRobotors and torches used in oxy-fuel welding and cutting. Lincoln Electric has wholly owned subsidiaries or joint venture manufacturing facilities located in the United States, Australia, Brazil, Canada, Colombia, United Kingdom, France, Germany, Indonesia, Ireland, Italy, Mexico, the Netherlands, People's Republic of China, Poland, Spain, Taiwan, Turkey, Venezuela and Vietnam. Lincoln Electric manages its operations by geographic location and has two segments: North America and Europe, and combines all other operating segments as Other Countries. Analysis Guru Score: 93% DETERMINE THE CLASSIFICATION: This methodology would consider LECO a "fast-grower". P/E/GROWTH RATIO: [PASS] The investor should examine the P/E (7.90) relative to the growth rate (25.25%), 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 LECO (0.31) 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. LECO, whose sales are $2,479.1 million, needs to have a P/E below 40 to pass this criterion. LECO's P/E of (7.90) 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 LECO was 15.08% last year, while for this year it is 13.99%. Since inventory to sales has decreased from last year by -1.08%, LECO 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 LECO is 25.3%, 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 LECO (14.29%) 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 LECO (8.49%) 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 LECO (11.53%) is too low to add to the attractiveness of this company. Keep in mind, however, that it does not adversely affect the company as it is a bonus criteria.   BJ SERVICES COMPANY Profile Strategy: Price/Sales Investor Based on: Kenneth Fisher BJ Services Company is a provider of pressure pumping and oilfield services for the petroleum industry. Pressure pumping services consist of cementing and stimulation services used in the completion of new oil and natural gas wells and in remedial work on existing wells, both onshore and offshore. Oilfield services include casing and tubular services; precommissioning, maintenance and turnaround services in the pipeline and process business, including pipeline inspection; chemical services; completion tools, and completion fluids. The Company conducts its operations through four segments: U.S./Mexico Pressure Pumping Services; Canada Pressure Pumping Services; International Pressure Pumping Services, and Oilfield Services Group. On May 21, 2008, the Company acquired Innicor Subsurface Technologies Inc. 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. BJSpasses this test as its P/S of 0.65 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. BJS's Debt/Equity of 15.79% 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. BJS 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 BJS At this Point Is BJS 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. BJS's P/S ratio of 0.65 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%. BJS's inflation adjusted EPS growth rate of 17.67% 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. BJS's free cash per share of 0.79 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. BJS, whose three year net profit margin averages 15.11%, passes this evaluation.   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 NTES NETEASE.COM, INC. (ADR) Computer Services 44 CVX CHEVRON CORPORATION Oil & Gas - Integrated 43 XOM EXXON MOBIL CORPORATION Oil & Gas Operations 43 UMBF UMB FINANCIAL CORPORATION Regional Banks 40 PDLI PDL BIOPHARMA INC. Biotechnology & Drugs 35 RTN RAYTHEON COMPANY Conglomerates 35 WIRE ENCORE WIRE CORPORATION Misc. Fabricated Products 34 LUFK LUFKIN INDUSTRIES, INC. Oil Well Services & Equipment 34 ARO AEROPOSTALE, INC. Retail (Apparel) 34 ANF ABERCROMBIE & FITCH CO. Retail (Apparel) 33

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