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Executive Summary	September 13, 2013

The Economy While Wall Street was disappointed by the August jobs report, recent data indicates that the U.S. economy is faring better than many investors think. In August, for example, manufacturing activity was strong for the second straight month, according to the Institute for Supply Management. The group's manufacturing index showed that the sector expanded at the fastest pace since June 2011. New orders surged, rising at the fastest rate in more than two years. ISM's service sector index, meanwhile, showed that the sector expanded in August at the fastest pace since the group stayed tracking it at the start of 2008. New orders grew at the fastest rate since February 2011. Home price data also continues to look strong. Prices rose 1.1% on average across 10 major cities in June, according to a new S&P/Case-Shiller report. Both the 10- and 20-city indices were up about 12% compared to the year ago levels. As for the jobs report, the jobs-added number wasn't bad, with the private sector adding 152,000 jobs and the public sector throwing in 17,000 more. The unemployment rate decreased to 7.3%. The problems were that June's and July's gains were revised downward by a total of 74,000, and more than 500,000 workers dropped out of the labor force in August. What's not clear on that second part is why -- it's tempting to assume they've given up looking for work, but the number of discouraged workers declined in August for the second straight month. And the so-called U-6 unemployment rate, which includes discouraged workers and those working part time who want full time work, fell from 14% in July to 13.7% in August. Recent consumer data has been mediocre. In July, a new Commerce Department report showed, real disposable personal income rose just 0.1%, while real personal consumption expenditures were flat. The personal savings rate remained at a healthy 4.4%, though. In terms of macro factors, many investors continue to make bets on what will happen with the Syria conflict, though few, if any, have any idea at all how things will play out. The Syria-driven rise in oil prices hasn't yet played into gas prices, which were at $3.56 for a gallon of regular as of Sept. 11, a penny higher than where they were a month ago. Since our last newsletter, the S&P 500 returned 2.8%, while the Hot List returned 2.8%. So far in 2013, the portfolio has returned 25.9% vs. 18.0% for the S&P. Since its inception in July 2003, the Hot List is far outpacing the index, having gained 241.4% vs. the S&P's 68.3% gain.		Editor-in-Chief: John Reese Since Inception   Hot List 241.4% S&P 500 68.3% Accuracy 56.8% Beta 1.2 YTD   Hot List 25.9% S&P 500 18.0% Since Last Issue   Hot List 2.8% S&P 500 2.8% Avg. Fundamentals   Market Cap (mil) $23,743 PE Ratio 11.2 5 Yr EPS Growth 29.8% Yield 1.3% Rel. Strength 71 Portfolio Sectors Financial 3 Services 3 Capital Goods 1 Conglomerates 1 Consumer Cyclical 1 Energy 1
Advertisement Validea Capital Management - Private Portfolio Management Based on Strategies of Legends Are you looking for an alternative to your underperforming mutual funds or financial advisor? Click here to download Validea Capital's investment kit and learn more about the firm's guru-based portfolios. Get More Information on Validea Capital! ** Validea Capital Management is a separate investment advisory firm managed by Validea.com founder John Reese. Thre information above in not intended as personal investment advice and should not be interpreted as such. Portfolio Update After a tough August, stocks have rebounded in the first half of September, and the Hot List has been doing very well. The portfolio has been led by Florida homeowners insurance firm HCI Group, whose shares have soared more than 15% since our last newsletter (all return data through Sept. 11). The catalyst for the move seemed to be news that its subsidiary, Homeowners Choice Property & Casualty Insurance Company, gained approval from the Florida Office of Insurance Regulation to assume 50,373 policies from Citizens Property Insurance Corporation, Florida's state-operated insurance company. HCI has been adding policies periodically from the state-run firm, which, after growing far larger than planned, has been called upon to divest a substantial portion of its policies. That has allowed firms like HCI to pick and choose from some very profitable policies. Another big winner over the past fortnight: Mining equipment company Joy Global. It jumped 10.4% in an apparent bounce-back -- the firm had reported disappointing earnings and shares had fallen just before the Hot List bought it on Aug. 30. The gains showed how buying low on out-of-favor stocks can help you reap some big gains, because investors often overreact to bad news. All in all, eight of the Hot List's ten holdings were in the black since our last newsletter. The biggest laggard was HollyFrontier Corp., which was down about 6.9%. The refiner was hurt when Morgan Stanley downgraded it on Sept. 9, from overweight to equal weight. Shares had been slipping before that along with those of other refiners, however, perhaps because of the Syria concerns. Next newsletter, we'll rebalance the portfolio, and at that point we'll see if HollyFrontier and the Hot List's other current holdings remain in the portfolio. Guru Spotlight: James O'Shaughnessy To say that James O'Shaughnessy has written the book on quantitative investing strategies might be an exaggeration -- but not much of one. Over the years, O'Shaughnessy has compiled an anthology of research on the historical performance of various stock selection strategies rivaling that of just about anyone. He first published his findings back in 1996, in the first edition of his bestselling What Works on Wall Street, using Standard & Poor's Compustat database to back-test a myriad of quantitative approaches. He has continued to periodically update his findings since then, and today he also serves as a money manager and the manager of several Canadian mutual funds. In addition to finding out how certain strategies had performed in terms of returns over the long term, O'Shaughnessy's study also allowed him to find out how risky or volatile each strategy he examined was. So after looking at all sorts of different approaches, he was thus able to find the one that produced the best risk-adjusted returns -- what he called his "United Cornerstone" strategy. The United Cornerstone approach, the basis for my O'Shaughnessy-based Guru Strategy, is actually a combination of two separate models that O'Shaughnessy tested, one growth-focused and one value-focused. His growth method -- "Cornerstone Growth" -- produced better returns than his "Cornerstone Value" approach, and was a little more risky. The Cornerstone Value strategy, meanwhile, produced returns that were a bit lower, but with less volatility. Together, they formed an exceptional one-two punch, averaging a compound return of 17.1 percent from 1954 through 1996, easily beating the S&P 500s 11.5 percent compound return during that time while maintaining relatively low levels of risk. That 5.6 percent spread is enormous when compounded over 42 years: If you'd invested $10,000 using the United Cornerstone approach on the first day of the period covered by O'Shaughnessy's study, you'd have had almost $7.6 million by the end of 1996 -- more than $6.6 million more than you'd have ended up with if you'd invested $10,000 in the S&P for the same period! That seems powerful evidence that stock prices do not -- as efficient market believers suggest -- move in a "random walk," but instead, as O'Shaughnessy writes, with a "purposeful stride." Two-In-One O'Shaughnessy has revamped his strategies over the years, most recently in his new, updated version of What Works on Wall Street (which I reviewed in the Nov. 25, 2011 edition of the Hot List). I've chosen not to tinker with my O'Shaughnessy-based models, however, given the exceptional performance they've had over the long term. The models discussed here are thus based on O'Shaughnessy's 1996 version of What Works on Wall Street. So, let's start with the value stock strategy. O'Shaughnessy's Cornerstone Value approach targeted "market leaders" -- large, well-known firms with sales well above those of the average company -- because he found that these firms' stocks are considerably less volatile than the broader market. He believed that all investors-even the youngest of the bunch -- should hold some value stocks. To find these firms, O'Shaughnessy required stocks to have a market cap greater than $1 billion, a number of shares outstanding greater than the market mean, and trailing 12-month sales that were at least 1.5 times the market mean. Size and market position weren't enough to make a value stock attractive for O'Shaughnessy, however. Another key factor that was a great predictor of a stock's future, he found, was cash flow. My O'Shaughnessy-based value model calls for companies to have cash flows per share greater than the market average. O'Shaughnessy found that, when it came to market leaders, another criterion was even more important than cash flow: dividend yield. He found that high dividend yields were an excellent predictor of success for large, well-known stocks (though not for smaller stocks); large market-leaders with high dividends tended to outperform during bull markets, and didn't fall as far as other stocks during bear markets. The Cornerstone Value model takes all of the stocks that pass the four aforementioned criteria (market cap, shares outstanding, sales, and cash flow) and ranks them according to dividend yield. The 50 stocks with the highest dividend yields get final approval. The Cornerstone Growth approach, meanwhile, isn't strictly a growth approach. That's because one of the interesting things O'Shaughnessy found in his back-testing was that all of the successful strategies he studied -- even growth approaches -- included at least one value-based criterion. The value component of his Cornerstone Growth strategy was the price/sales ratio, a variable that O'Shaughnessy found -- much to the surprise of Wall Street -- was the single best indication of a stock's value, and predictor of its future. The Cornerstone Growth model allows for smaller stocks, using a market cap minimum of $150 million, and requires stocks to have price/sales ratios below 1.5. To avoid outright dogs, the strategy also looks at a company's last five years of earnings, requiring that its earnings per share have increased each year since the first year of that period. The final criterion of this approach is relative strength, the measure of how a stock has performed compared to all other stocks over the past year. A key part of why the growth stock model works so well, according to O'Shaughnessy, is the combination of high relative strengths and low P/S ratios. By targeting stocks with high relative strengths, you're looking for companies that the market is embracing. But by also making sure that a firm has a low P/S ratio, you're ensuring that you're not getting in too late on these popular stocks, after they've become too expensive. "This strategy will never buy a Netscape or Genentech or Polaroid at 165 times earnings," O'Shaughnessy wrote, referring to some of history's well-known momentum-driven, overpriced stocks. "It forces you to buy stocks just when the market realizes the companies have been overlooked." To apply the RS criterion, the Cornerstone Growth model takes all the stocks that pass the three growth criteria I mentioned (market cap, earnings persistence, P/S ratio) and ranks them by RS. The top 50 stocks then get final approval. The Growth/Value Investor model I base on O'Shaughnessy's two-pronged approach has been a one of my best performers since its inception back in 2003, with my 10-stock O'Shaughnessy-based portfolio gaining 157.7 % (9.8% annualized) since inception, while the S&P 500 has gained just 68.3% (5.3% annualized; figures through Sept. 10). The O'Shaughnessy-based portfolio will pick stocks using both the growth and value methods I described above. It picks whatever the best-rated stocks are at the time, regardless of growth/value distinction, meaning the portions of the portfolio made up of growth and value stocks can vary over time. After leaning strongly to the growth side, the portfolio has shifted back toward a more even balance over the past year or so. Currently six of the ten holdings are growth picks. Here's a look at the portfolio's holdings: TEO -- Telecom Argentina (Growth) LEA -- Lear Corporation (Growth) SNP -- China Petroleum & Chemical Corp. (Value) AFSI -- Amtrust Financial Services Inc. (Growth) RDS.A -- Royal Dutch Shell (Value) CVX -- Chevron Corp. (Value) SIG -- Signet Jewelers (Growth) NOC -- Northrop Grumman Corporation (Growth) JPM -- JPMorgan Chase & Co. (Value) RUE -- Rue21 Inc. (Growth) Not Just Numbers O'Shaughnessy is a pure quant, but you should be aware that some of his most critical lessons are less about specific criteria and numbers than they are about the general mindset an investor must have. Perhaps more than anything else, O'Shaughnessy believes in picking a good strategy and sticking with it -- no matter what. In What Works on Wall Street, he writes that in order to beat the market, it is crucial that you stay disciplined: "[C]onsistently, patiently, and slavishly stick with a strategy, even when it's performing poorly relative to other methods." The reason involved human emotions, which cause many investors to bail on a good approach and jump onto hot stocks or strategies that are often overhyped and overpriced. "We are a bundle of inconsistencies," he writes, "and while that may make us interesting, it plays havoc with our ability to invest our money successfully. Disciplined implementation of active strategies is the key to performance." Wise words, whether you follow O'Shaughnessy's approach or another proven method. News about Validea Hot List Stocks JPMorgan Chase & Co. (JPM): Morgan's CFO said it expects to lose money in its mortgage origination business in the second half of 2013, with the big rise in interest rates having led to a 60% reduction in refinancing applications from their peak, TheStreet.com reported. Marianne Lake told investors that though rates have impacted the mortgage business sooner than expected, the bank's overall business should benefit from rising rates. The capital impact from rising rates is "very manageable", she said, while the incremental earnings impact is "significant". Meanwhile, Morgan increased its litigation reserve by more than $1.5 billion in the third quarter amid a flurry of possible legal claims, Bloomberg reported. Despite the rising rates and increased legal fee pool, Morgan shares fared okay since our last newsletter, gaining about 5% through Sept. 11. 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 HCI HCI GROUP INC Insurance (Prop. & Casualty) 100 AFSI AMTRUST FINANCIAL SERVICES, INC. Insurance (Prop. & Casualty) 83 LEA LEAR CORPORATION Auto & Truck Parts 79 USNA USANA HEALTH SCIENCES, INC. Conglomerates 70 STMP STAMPS.COM INC. Retail (Catalog & Mail Order) 66 HFC HOLLYFRONTIER CORP Oil & Gas Operations 66 BPI BRIDGEPOINT EDUCATION INC Schools 64 JOY JOY GLOBAL INC. Constr. & Agric. Machinery 52 JPM JPMORGAN CHASE & CO Money Center Banks 36 ROST ROSS STORES, INC. Retail (Apparel) 25 Ticker Market Cap Date Added Start Price Current Price Return HCI $413 6/7/2013 $34.20 $36.11 5.6% AFSI $2,680 7/5/2013 $35.78 $36.00 0.6% LEA $5,672 5/10/2013 $60.48 $70.34 16.3% USNA $1,114 12/21/2012 $33.83 $80.78 138.8% STMP $674 8/30/2013 $41.88 $43.10 2.9% HFC $8,356 4/12/2013 $46.83 $41.81 -10.7% BPI $947 8/2/2013 $16.59 $17.48 5.4% JOY $5,685 8/30/2013 $49.12 $53.49 8.9% JPM $196,642 8/30/2013 $50.53 $52.24 3.4% ROST $15,248 8/30/2013 $67.26 $70.37 4.6%

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 HCI   |   AFSI   |   LEA   |   USNA   |   STMP   |   HFC   |   BPI   |   JOY   |   JPM   |   ROST   |   HCI GROUP INC Profile Strategy: Small-Cap Growth Investor Based on: Motley Fool HCI Group Inc, formerly Homeowners Choice, Inc., is a holding company. The Company, through its subsidiaries, is engaged in the property and casualty insurance business. Through Homeowners Choice Property & Casualty Insurance Company, Inc. (HCPC) and subsidiaries, primarily Homeowners Choice Managers, Inc. (HCM), Southern Administration, Inc., Claddaugh Casualty Insurance Company, Ltd., and its subsidiary, HCPCI Holdings LLC, it provides property and casualty homeowners' insurance, condominium-owners' insurance and tenants' insurance to individuals owning property in Florida. Its subsidiaries also include TV Investment Holdings LLC, which owns and operates a marina facility located in Florida; Unthink Technologies Private Limited. During the year ended December 31, 2011, it organized TV Investment Holdings LLC, HCI Holdings LLC and HCI Technical Resources, Inc. Analysis Guru Score: 80% 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. HCI's profit margin of 25.80% passes this test. RELATIVE STRENGTH: [FAIL] The investor must look at the relative strength of the company in question. Companies whose relative strength is 90 or above (that is, the company outperforms 90% or more of the market for the past year), are considered attractive. Companies whose price has been rising much quicker than the market tend to keep rising. HCI, with a relative strength of 83, fails 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 HCI (89.19% for EPS, and 52.72% for Sales) are good enough to pass. INSIDER HOLDINGS: [PASS] HCI's insiders should own at least 10% (they own 29.08% ) of the company's outstanding shares which is the minimum required. A high percentage typically indicates that the insiders are confident that the company will do well. CASH FLOW FROM OPERATIONS: [PASS] A positive cash flow is typically used for internal expansion, acquisitions, dividend payments, etc. A company that generates rather than consumes cash is in much better shape to fund such activities on their own, rather than needing to borrow funds to do so. HCI's free cash flow of $9.84 per share passes this test. PROFIT MARGIN CONSISTENCY: [PASS] HCI's profit margin has been consistent or even increasing over the past three years (Current year: 18.50%, Last year: 10.62%, Two years ago: 7.90%), passing the requirement. It is a sign of good management and a healthy and competitive enterprise. R&D AS A PERCENTAGE OF SALES: [NEUTRAL] This criterion is not critically important for companies that are not high-tech or medical stocks because they are not as R&D dependant as companies within those sectors. Not much emphasis should be placed on this test in HCI's case. CASH AND CASH EQUIVALENTS: [PASS] HCI's level of cash $230.2 million passes this criteria. If a company is a cash generator, like HCI, it has the ability to pay off debt (if it has any) or acquire other companies. Most importantly, good operations generate cash. "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 (HCI's is 0.24), the shares are looked upon favorably. These high quality companies can often wind up as the biggest winners. HCI passes this test. The following criteria for HCI are less important which means you would place less emphasis on them when making your investment decision using this strategy: AVERAGE SHARES OUTSTANDING: [PASS] HCI has not been significantly increasing the number of shares outstanding within recent years which is a good sign. HCI currently has 11.0 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. HCI's sales of $203.7 million based on trailing 12 month sales, are fine, making this company one such "prospective gem". HCI passes the sales test. DAILY DOLLAR VOLUME: [PASS] HCI passes the Daily Dollar Volume (DDV of $5.8 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. HCI with a price of $36.11 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] HCI's income tax paid expressed as a percentage of pretax income this year was (39.17%) and last year (39.27%) 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.   AMTRUST FINANCIAL SERVICES, INC. Profile Strategy: P/E/Growth Investor Based on: Peter Lynch Amtrust Financial Services, Inc. is a holding company. The Company is a multinational specialty property and casualty insurer focused on generating consistent underwriting profits. The Company operates in four segments: small commercial business, specialty program and personal lines reinsurance. In January 2013, the Company acquired First Nonprofit Companies, Inc. In February 2013, its subsidiary acquired Car Care Plan (Holdings) Limited from Ally Insurance Holdings, Inc. In April 2013, it acquired Sequoia Insurance Company and its subsidiaries, Sequoia Indemnity Company and Personal Express Insurance Company. In May 2013, the Company acquired Mutual Insurers Holding Company (MIHC) and MIHC's subsidiary, First Nonprofit Insurance Company. Analysis Guru Score: 91% DETERMINE THE CLASSIFICATION: AFSI is considered a "True Stalwart", according to this methodology, as its earnings growth of 14.38% lies within a moderate 10%-19% range and its annual sales of $2,305 million are greater than the multi billion dollar level. This methodology looks for the "Stalwart" securities to gain 30%-50% in value over a two year period if they can be purchased at an attractive price based on the P/E to Growth ratio. AFSI is attractive if AFSI can hold its own during a recession. YIELD ADJUSTED P/E TO GROWTH (PEG) RATIO: [PASS] The Yield-adjusted P/E/G ratio for AFSI (0.66), based on the average of the 3, 4 and 5 year historical eps growth rates, is O.K. EARNINGS PER SHARE: [PASS] The EPS for a stalwart company must be positive. AFSI's EPS ($3.45) would satisfy this criterion. TOTAL DEBT/EQUITY RATIO: [NEUTRAL] AFSI is a financial company so debt to equity rules are not applied to determine the company's financial soundness. EQUITY/ASSETS RATIO: [PASS] This methodology uses the Equity/Assets Ratio as a way to determine a financial intermediary's health, as it is a better measure than the Debt/Equity Ratio. AFSI's Equity/Assets ratio (15.00%) is extremely healthy and above the minimum 5% this methodology looks for, thus passing the criterion. RETURN ON ASSETS: [PASS] This methodology uses Return on Assets as a way to measure a financial intermediary's profitability. AFSI's ROA (3.33%) is above the minimum 1% that this methodology looks for, thus passing the criterion. FREE CASH FLOW: [NEUTRAL] The Free Cash Flow/Price ratio, though not a requirement, is considered a bonus if it is above 35%. A positive Cash Flow (the higher the better) separates a wonderfully reliable investment from a shaky one. This methodology prefers not to invest in companies that rely heavily on capital spending. This ratio for AFSI (17.22%) 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 AFSI (4.62%) is too low to add to the attractiveness of this company. Keep in mind, however, that it does not adversely affect the company as it is a bonus criteria.   LEAR CORPORATION Profile Strategy: Value Investor Based on: Benjamin Graham Lear Corporation is a tier 1 supplier to the global automotive industry. The Company supplies its products to automotive manufacturers with automotive seat systems and related components, as well as electrical distribution systems and related components. The Company has two segments: seating and electrical power management systems (EPMS). The seating segment includes seat systems and related components, such as seat frames, recliner mechanisms, seat tracks, seat trim covers, headrests and seat foam. The EPMS segment includes electrical distribution systems for traditional powertrain vehicles, as well as for hybrid and electric vehicles. As of December 31, 2011, it had 20 joint ventures located throughout Asia, as well as five in North America, two in Europe and Africa and one with operations in all three regions. Analysis Guru Score: 71% SECTOR: [PASS] LEA is neither a technology nor financial Company, and therefore this methodology is applicable. SALES: [PASS] The investor must select companies of "adequate size". This includes companies with annual sales greater than $340 million. LEA's sales of $15,318.2 million, based on trailing 12 month sales, pass this test. CURRENT RATIO: [FAIL] The current ratio must be greater than or equal to 2. Companies that meet this criterion are typically financially secure and defensive. LEA's current ratio of 1.33 fails the test. LONG-TERM DEBT IN RELATION TO NET CURRENT ASSETS: [PASS] For industrial companies, long-term debt must not exceed net current assets (current assets minus current liabilities). Companies that meet this criterion display one of the attributes of a financially secure organization. The long-term debt for LEA is $1,056.9 million, while the net current assets are $1,199.5 million. LEA passes this test. LONG-TERM EPS GROWTH: [FAIL] Companies must increase their EPS by at least 30% over a ten-year period and EPS must not have been negative for any year within the last 5 years. EPS for LEA were negative within the last 5 years and therefore the company fails this criterion. P/E RATIO: [PASS] The Price/Earnings (P/E) ratio, based on the greater of the current PE or the PE using average earnings over the last 3 fiscal years, must be "moderate", which this methodology states is not greater than 15. Stocks with moderate P/Es are more defensive by nature. LEA's P/E of 9.60 (using the 3 year PE) passes this test. PRICE/BOOK RATIO: [PASS] The Price/Book ratio must also be reasonable. That is, the Price/Book multiplied by P/E cannot be greater than 22. LEA's Price/Book ratio is 2.12, while the P/E is 9.60. LEA passes the Price/Book test.   USANA HEALTH SCIENCES, INC. Profile Strategy: Value Investor Based on: Benjamin Graham 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: 71% SECTOR: [PASS] USNA 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. USNA's sales of $691.9 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. USNA's current ratio of 2.22 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 USNA is $0.0 million, while the net current assets are $91.4 million. USNA 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. USNA's EPS growth over that period of 265.7% 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. USNA's P/E of 22.90 (using the 3 year 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. USNA's Price/Book ratio is 5.13, while the P/E is 22.90. USNA fails the Price/Book test.   STAMPS.COM INC. Profile Strategy: Growth Investor Based on: Martin Zweig Stamps.com Inc. is a provider of Internet-based postage solutions. The Company's customers use its service to mail and ship a variety of mail pieces, including postcards, envelopes, flats and packages, using a range of United States Postal Service (the USPS) mail classes, including First Class Mail, Priority Mail, Express Mail, Media Mail, Parcel Post, and others. Its customers include individuals, small businesses, home offices, medium-size businesses and enterprises. Analysis Guru Score: 77% P/E RATIO: [PASS] The P/E of a company must be greater than 5 to eliminate weak companies, but not more than 3 times the current Market P/E because the situation is much too risky, and never greater than 43. STMP's P/E is 21.32, based on trailing 12 month earnings, while the current market PE is 16.00. Therefore, it passes the first test. REVENUE GROWTH IN RELATION TO EPS GROWTH: [FAIL] Revenue Growth must not be substantially less than earnings growth. For earnings to continue to grow over time they must be supported by a comparable or better sales growth rate and not just by cost cutting or other non-sales measures. STMP's revenue growth is 8.71%, while it's earnings growth rate is 53.95%, based on the average of the 3, 4 and 5 year historical eps growth rates. Therefore, STMP fails this criterion. SALES GROWTH RATE: [PASS] Another important issue regarding sales growth is that the rate of quarterly sales growth is rising. To evaluate this, the change from this quarter last year to the present quarter (13.7%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (13.5%) of the current year. Sales growth for the prior must be greater than the latter. For STMP this criterion has been met. The earnings numbers of a company should be examined from various different angles. Three of these angles are stability in the trend of earnings, earnings persistence, and earnings acceleration. To evaluate stability, the stock has to pass the following four criteria. CURRENT QUARTER EARNINGS: [PASS] The first of these criteria is that the current EPS be positive. STMP's EPS ($0.53) pass this test. QUARTERLY EARNINGS ONE YEAR AGO: [PASS] The EPS for the quarter one year ago must be positive. STMP's EPS for this quarter last year ($0.34) pass this test. POSITIVE EARNINGS GROWTH RATE FOR CURRENT QUARTER: [PASS] The growth rate of the current quarter's earnings compared to the same quarter a year ago must also be positive. STMP's growth rate of 55.88% passes this test. EARNINGS GROWTH RATE FOR THE PAST SEVERAL QUARTERS: [FAIL] Compare the earnings growth rate of the past four quarters with long-term EPS growth rate. Earnings growth in the past 4 quarters should be at least half of the long-term EPS growth rate. A stock should not be considered if it posted several quarters of skimpy earnings. STMP had 2 quarters of skimpy growth in the last 2 years. This strategy looks at the rate which earnings grow and evaluates this rate of growth from different angles. The 4 tests immediately following are detailed below. EPS GROWTH FOR CURRENT QUARTER MUST BE GREATER THAN PRIOR 3 QUARTERS: [PASS] If the growth rate of the prior three quarter's earnings, -27.67%, (versus the same three quarters a year earlier) is less than the growth rate of the current quarter earnings, 55.88%, (versus the same quarter one year ago) then the stock passes. EPS GROWTH FOR CURRENT QUARTER MUST BE GREATER THAN THE HISTORICAL GROWTH RATE: [PASS] The EPS growth rate for the current quarter, 55.88% must be greater than or equal to the historical growth which is 53.95%. STMP would therefore pass this test. EARNINGS PERSISTENCE: [FAIL] Companies must show persistent yearly earnings growth. To fulfill this requirement a company's earnings must increase each year for a five year period. STMP, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were 0.52, 0.38, 0.38, 1.73, and 2.30, fails this test. LONG-TERM EPS GROWTH: [PASS] One final earnings test required is that the long-term earnings growth rate must be at least 15% per year. STMP's long-term growth rate of 53.95%, based on the average of the 3, 4 and 5 year historical eps growth rates, passes this test. TOTAL DEBT/EQUITY RATIO: [PASS] A final criterion is that a company must not have a high level of debt. A high level of total debt, due to high interest expenses, can have a very negative effect on earnings if business moderately turns down. If a company does have a high level, an investor may want to avoid this stock altogether. STMP's Debt/Equity (0.00%) is not considered high relative to its industry (86.57%) and passes this test. INSIDER TRANSACTIONS: [PASS] A factor that adds to a stock's attractiveness is if insider buy transactions number 3 or more, while insider sell transactions are zero. Zweig calls this an insider buy signal. For STMP, this criterion has not been met (insider sell transactions are 154, while insiders buying number 207). Despite the lack of an insider buy signal, there also is not an insider sell signal, so the stock passes this criterion.   HOLLYFRONTIER CORP Profile Strategy: Contrarian Investor Based on: David Dreman HollyFrontier Corporation (HollyFrontier), formerly Holly Corporation, is a petroleum refiner, which produces light products, such as gasoline, diesel fuel, jet fuel, specialty lubricant products, and specialty and modified asphalt. HollyFrontier operates in two segments: Refining and Holly Energy Partners, L.P. (HEP). The Refining segment includes the operations of its El Dorado, Tulsa, Navajo, Cheyenne and Woods Cross Refineries and NK Asphalt. The HEP segment involves all of the operations of HEP. As of December 31, 2011, it operated five refineries having a combined crude oil processing capacity of 443,000 barrels per day that serve markets throughout the Mid-Continent, Southwest and Rocky Mountain regions of the United States. The Company merged with Frontier Oil Corporation (Frontier), on July 1, 2011. On November 9, 2011, HEP acquired from the Company certain tankage, loading rack and crude receiving assets located at its El Dorado and Cheyenne Refineries. Analysis Guru Score: 76% MARKET CAP: [PASS] Medium to large-sized companies (the largest 1500 companies) should be chosen, because they are more in the public eye. Furthermore, the investor is exposed to less risk of "accounting gimmickry", and companies of this size have more staying power. HFC has a market cap of $8,356 million, therefore passing the test. EARNINGS TREND: [FAIL] A company should show a rising trend in the reported earnings for the most recent quarters. HFC's EPS for the latest quarter is not greater than the prior quarter, (from earliest to most recent quarter) 1.63, 1.27. Hence the stock fails this test, but the investor should evaluate this company qualitatively to see if it qualifies under this methodology's "exception rule". EPS GROWTH RATE IN THE IMMEDIATE PAST AND FUTURE: [FAIL] This methodology likes to see companies with an EPS growth rate higher than the S&P in the immediate past and a likelihood that this trend will continue in the near future. HFC fails this test as its EPS growth rate for the past 6 months (-33.85%) does not beat that of the S&P (13.61%). This methodology would utilize four separate criteria to determine if HFC is a contrarian stock. In order to eliminate weak companies we have stipulated that the stock should pass at least two of the following four major criteria in order to receive "Some Interest". P/E RATIO: [PASS] The P/E of a company should be in the bottom 20% of the overall market. HFC's P/E of 5.39, based on trailing 12 month earnings, meets the bottom 20% criterion (below 11.14), and therefore passes this test. PRICE/CASH FLOW (P/CF) RATIO: [PASS] The P/CF of a company should be in the bottom 20% of the overall market. HFC's P/CF of 4.42 meets the bottom 20% criterion (below 6.34) and therefore passes this test. PRICE/BOOK (P/B) VALUE: [FAIL] The P/B value of a company should be in the bottom 20% of the overall market. HFC's P/B is currently 1.34, which does not meet the bottom 20% criterion (below 0.94), and it therefore fails this test. PRICE/DIVIDEND (P/D) RATIO: [FAIL] The P/D ratio for a company should be in the bottom 20% of the overall market (that is the yield should be in the top 20%). HFC's P/D of 34.84 does not meet the bottom 20% criterion (below 20.00 or yield above 3.7%), and it therefore fails this test. This methodology maintains that investors should look for as many healthy financial ratios as possible to ascertain the financial strength of the company. These criteria are detailed below. CURRENT RATIO: [PASS] A prospective company must have a strong Current Ratio (greater than or equal to the average of it's industry [0.99] or greater than 2). This is one identifier of financially strong companies, according to this methodology. HFC's current ratio of 2.37 passes the test. PAYOUT RATIO: [PASS] A good indicator that a company has the ability to raise its dividend is a low payout ratio. The payout ratio for HFC is 30.79%, while its historical payout ratio has been 44.31%. Therefore, it passes the payout criterion. RETURN ON EQUITY: [PASS] The company should have a high ROE, as this helps to ensure that there are no structural flaws in the company. This methodology feels that the ROE should be greater than the top one third of ROE from among the top 1500 large cap stocks, which is 16.48%, and would consider anything over 27% to be staggering. The ROE for HFC of 27.30% is high enough to pass this criterion. PRE-TAX PROFIT MARGINS: [PASS] This methodology looks for pre-tax profit margins of at least 8%, and considers anything over 22% to be phenomenal. HFC's pre-tax profit margin is 12.57%, thus passing this criterion. YIELD: [FAIL] The company in question should have a yield that is high and that can be maintained or increased. HFC's current yield is 2.87%, while the market yield is 2.65%. HFC fails this test. LOOK AT THE TOTAL DEBT/EQUITY: [PASS] The company must have a low Debt/Equity ratio, which indicates a strong balance sheet. The Debt/Equity ratio should not be greater than 20% or should be less than the average Debt/Equity for its industry of 36.25%. HFC's Total Debt/Equity of 15.80% is considered acceptable.   BRIDGEPOINT EDUCATION INC Profile Strategy: Value Investor Based on: Benjamin Graham Bridgepoint Education, Inc. (Bridgepoint) is a provider of postsecondary education services. The Company's academic institutions include Ashford University and University of the Rockies. Its institutions deliver programs primarily online, as well as at their traditional campuses. As of December 31, 2011, the Company had 86,642 total students enrolled in its institutions. Bridgepoint's institutions conduct ongoing faculty and student assessment processes and provide a range of student services. The Company is also focused on developing new technologies, such as through Waypoint Outcomes, Constellation, and the development of its institutions' mobile learning platforms. The Company has developed Constellation to replace third party textbooks with digital course materials. Constellation materials are displayed in a browser-based platform. In January 2012, Bridgepoint introduced Thuze. Analysis Guru Score: 86% SECTOR: [PASS] BPI 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. BPI's sales of $881.0 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. BPI's current ratio of 2.88 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 BPI is $0.0 million, while the net current assets are $353.4 million. BPI passes this test. LONG-TERM EPS GROWTH: [FAIL] Companies must increase their EPS by at least 30% over a ten-year period and EPS must not have been negative for any year within the last 5 years. EPS for BPI were negative within the last 5 years and therefore the company fails this criterion. P/E RATIO: [PASS] The Price/Earnings (P/E) ratio, based on the greater of the current PE or the PE using average earnings over the last 3 fiscal years, must be "moderate", which this methodology states is not greater than 15. Stocks with moderate P/Es are more defensive by nature. BPI's P/E of 11.43 (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. BPI's Price/Book ratio is 1.76, while the P/E is 11.43. BPI passes the Price/Book test.   JOY GLOBAL INC. Profile Strategy: P/E/Growth Investor Based on: Peter Lynch Joy Global Inc. is a manufacturer and servicer of high productivity mining equipment for the extraction of coal and other minerals and ores. The Company's equipment is used in mining regions throughout the world to mine coal, copper, iron ore, oil sands, and other minerals. The Company's underground mining machinery segment (Joy Mining Machinery) is a manufacturer of underground mining equipment for the extraction of coal and other bedded minerals and offers service locations near mining regions worldwide. The Company's surface mining equipment segment (P&H Mining Equipment) is a producer of surface mining equipment for the extraction of ores and minerals and provides operational support for many types of equipment used in surface mining. During the fiscal year ended October 28, 2011, the Company completed the acquisition of LeTourneau. On December 30, 2011, it acquired approximately 41.1% of Int'l Mining Machinery Holdings Limited's common stock to 69.2%. Analysis Guru Score: 93% DETERMINE THE CLASSIFICATION: This methodology would consider JOY a "fast-grower". P/E/GROWTH RATIO: [PASS] The investor should examine the P/E (7.97) relative to the growth rate (20.35%), 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 JOY (0.39) 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. JOY, whose sales are $5,425.8 million, needs to have a P/E below 40 to pass this criterion. JOY's P/E of (7.97) 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 JOY was 30.29% last year, while for this year it is 25.00%. Since inventory to sales has decreased from last year by -5.29%, JOY 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 JOY is 20.3%, based on the average of the 3, 4 and 5 year historical eps growth rates, which is considered very good. TOTAL DEBT/EQUITY RATIO: [PASS] This methodology would consider the Debt/Equity ratio for JOY (44.27%) 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 JOY (2.22%) 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 JOY (-17.57%) 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.   JPMORGAN CHASE & CO Profile Strategy: Growth Investor Based on: Martin Zweig JPMorgan Chase & Co. (JPMorgan Chase) is a financial holding company. The Company is a global financial services firm and a banking institution in the United States, with global operations. The Company is engaged in investment banking, financial services for consumers and small businesses, commercial banking, financial transaction processing, asset management and private equity. JPMorgan Chase's principal bank subsidiaries are JPMorgan Chase Bank, National Association (JPMorgan Chase Bank, N.A.), and Chase Bank USA, National Association (Chase Bank USA, N.A.). JPMorgan Chase's activities are organized into four business segments, as well as Corporate/Private Equity. The Company's consumer business is the Consumer & Community Banking segment. The Corporate & Investment Bank, Commercial Banking, and Asset Management segments consists of the Company's wholesale businesses. Analysis Guru Score: 85% P/E RATIO: [PASS] The P/E of a company must be greater than 5 to eliminate weak companies, but not more than 3 times the current Market P/E because the situation is much too risky, and never greater than 43. JPM's P/E is 8.72, based on trailing 12 month earnings, while the current market PE is 16.00. Therefore, it passes the first test. REVENUE GROWTH IN RELATION TO EPS GROWTH: [FAIL] Revenue Growth must not be substantially less than earnings growth. For earnings to continue to grow over time they must be supported by a comparable or better sales growth rate and not just by cost cutting or other non-sales measures. JPM's revenue growth is -4.73%, while it's earnings growth rate is 31.81%, based on the average of the 3, 4 and 5 year historical eps growth rates. Therefore, JPM fails this criterion. SALES GROWTH RATE: [PASS] Another important issue regarding sales growth is that the rate of quarterly sales growth is rising. To evaluate this, the change from this quarter last year to the present quarter (-6.8%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (-8.7%) of the current year. Sales growth for the prior must be greater than the latter. For JPM this criterion has been met. The earnings numbers of a company should be examined from various different angles. Three of these angles are stability in the trend of earnings, earnings persistence, and earnings acceleration. To evaluate stability, the stock has to pass the following four criteria. CURRENT QUARTER EARNINGS: [PASS] The first of these criteria is that the current EPS be positive. JPM's EPS ($1.60) pass this test. QUARTERLY EARNINGS ONE YEAR AGO: [PASS] The EPS for the quarter one year ago must be positive. JPM's EPS for this quarter last year ($1.21) pass this test. POSITIVE EARNINGS GROWTH RATE FOR CURRENT QUARTER: [PASS] The growth rate of the current quarter's earnings compared to the same quarter a year ago must also be positive. JPM's growth rate of 32.23% passes this test. EARNINGS GROWTH RATE FOR THE PAST SEVERAL QUARTERS: [PASS] Compare the earnings growth rate of the previous three quarters with long-term EPS growth rate. Earnings growth in the previous 3 quarters should be at least half of the long-term EPS growth rate. Half of the long-term EPS growth rate for JPM is 15.91%. This should be less than the growth rates for the 3 previous quarters, which are 37.25%, 54.44%, and 33.61%. JPM passes this test, which means that it has good, reasonably steady earnings. This strategy looks at the rate which earnings grow and evaluates this rate of growth from different angles. The 4 tests immediately following are detailed below. EPS GROWTH FOR CURRENT QUARTER MUST BE GREATER THAN PRIOR 3 QUARTERS: [PASS] If the growth rate of the prior three quarter's earnings, 40.84%, (versus the same three quarters a year earlier) is greater than the growth rate of the current quarter earnings, 32.23%, (versus the same quarter one year ago) then the stock fails, with one exception: if the growth rate in earnings between the current quarter and the same quarter one year ago is greater than 30%, then the stock would pass. The growth rate over this period for JPM is 32.2%, and it would therefore pass this test. EPS GROWTH FOR CURRENT QUARTER MUST BE GREATER THAN THE HISTORICAL GROWTH RATE: [PASS] The EPS growth rate for the current quarter, 32.23% must be greater than or equal to the historical growth which is 31.81%. JPM would therefore pass this test. EARNINGS PERSISTENCE: [PASS] Companies must show persistent yearly earnings growth. To fulfill this requirement a company's earnings must increase each year for a five year period. JPM, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were 0.80, 2.24, 3.96, 4.48 and 5.20, passes this test. LONG-TERM EPS GROWTH: [PASS] One final earnings test required is that the long-term earnings growth rate must be at least 15% per year. JPM's long-term growth rate of 31.81%, based on the average of the 3, 4 and 5 year historical eps growth rates, passes this test.   ROSS STORES, INC. Profile Strategy: P/E/Growth Investor Based on: Peter Lynch Ross Stores, Inc., along with its subsidiaries, operates two brands of off-price retail apparel and home fashion stores. As of January 28, 2012, the Company operated a total of 1,125 stores, of which 1,037 were Ross Dress for Less (Ross) locations in 29 states, the District of Columbia, and Guam, and 88 were dd's DISCOUNTS stores in seven states: 48 in California, 19 in Texas, 12 in Florida, four in Arizona, two in Georgia, two in Nevada, and one in Maryland. Ross focuses on customers primarily from middle income households, while dd's DISCOUNTS focuses on customers from more moderate income households. During the fiscal year ended January 28, 2012 (fiscal 2012), it opened 59 new Ross stores and closed ten existing stores. During fiscal 2011, it opened 21 new dd's DISCOUNTS stores. The average approximate dd's DISCOUNTS store size is 23,900 square feet. In April 2011, it purchased a 449,000 square foot warehouse for packaway storage in Riverside, California. Analysis Guru Score: 91% DETERMINE THE CLASSIFICATION: This methodology would consider ROST a "fast-grower". P/E/GROWTH RATIO: [PASS] The investor should examine the P/E (18.28) relative to the growth rate (29.23%), 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 ROST (0.63) 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. ROST, whose sales are $10,114.6 million, needs to have a P/E below 40 to pass this criterion. ROST's P/E of (18.28) is considered acceptable. EPS GROWTH RATE: [PASS] This methodology favors companies that have several years of fast earnings growth, as these companies have a proven formula for growth that in many cases can continue many more years. This methodology likes to see earnings growth in the range of 20% to 50%, as earnings growth over 50% may be unsustainable. The EPS growth rate for ROST is 29.2%, 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 ROST (7.77%) 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 ROST (2.74%) 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 ROST (3.26%) 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.   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 TJX THE TJX COMPANIES, INC. Retail (Apparel) 59 AFOP ALLIANCE FIBER OPTIC PRODUCTS INC Semiconductors 59 RGR STURM, RUGER & COMPANY Recreational Products 57 HIBB HIBBETT SPORTS, INC. Retail (Specialty) 57 IPAR INTER PARFUMS, INC. Personal & Household Prods. 54 MPC MARATHON PETROLEUM CORP Oil & Gas Operations 53 SIG SIGNET JEWELERS LTD. Retail (Specialty) 52 AGCO AGCO CORPORATION Constr. & Agric. Machinery 51 CVX CHEVRON CORPORATION Oil & Gas - Integrated 51 BOFI BOFI HOLDING, INC. S&Ls/Savings Banks 49

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