The Economy

Economic data has disappointed in the two weeks since the last publication of the Hot List Newsletter. Retail sales came in weaker than expected, industrial output declined and housing starts were below expectations. Inflation data also firmed in the month of August.

Retail and food service sales remained weak in the month of August, after a disappointing reading in July. August retail sales declined 0.3% from the July reading, which was revised to +0.1% from a reading of 0.0%, according to the latest report from the Census Bureau. Consensus estimate for the August reading was at -0.1% Excluding autos, retail sales declined 0.1%, after a downwardly revised decline of 0.4% in July (from -0.3%). Compared to August 2015, retail and food services sales are up 1.9%.

Industrial production decreased 0.4% in August after rising 0.6% in July (downwardly revised from +0.7%), according to the latest Federal Reserve report. Manufacturing output, the largest component of the industrial sector, also declined 0.4% in August, reversing its increase in July. Following two consecutive monthly increases, the index for utilities fell 1.4% in August. However, the Index was 1.7% above its year-earlier level, as hot temperatures this summer boosted the usage of air conditioning, according to the report. Mining output increased 1.0% in August, its fourth consecutive monthly increase following an extended downturn. The Index is still about 9% below its year-ago level, according to the Federal Reserve.

Inflation firmed in August, as the Consumer Price Index increased 0.2% in August, according to the latest report from the Department of Labor. This comes after an unchanged reading in July. The core Consumer Price Index (which strips out volatile food and energy prices) increased 0.3% in August, after an increase of 0.1% increase in July. Compared to a year ago, prices are 1.1% higher, versus +0.8% in July. Core prices are 2.3% higher, above the 2.2% year-over-year increase in July.

The housing sector disappointed in August, as Housing starts fell 5.8% from July, according to the Census Bureau. Housing starts are 0.9% above the August 2015 rate. Permit issuance for new construction in August fell 0.4% from July, and is 2.3% below where it stood a year ago.

The Federal Open Market Committee announced on September 21st that interest rates would remain unchanged, keeping the target range for the fed funds rate at 0.25% to 0.50%. The vote was 7-3 on the decision, with seven votes in favor of the policy inaction while three committee members wanted action at the September meeting. The policy statement was essentially noncommittal in terms of the Fed's next steps. It was noted in the policy statement that near-term risks to the economic outlook appear roughly balanced.

Overseas, the Bank of Japan overhauled its monetary policy. The Bank added a long-term interest rate target to its massive asset-buying program, overhauling its policy framework and recommitting to reaching its 2 percent inflation target as quickly as possible. The central bank also kept its policy rate at minus 0.1 percent.

Oil prices remain volatile. After falling to below $44 a barrel, oil prices have rebounded and are now trading above the $46 level. OPEC plans to hold an informal gathering next week in Algeria. Gas price remained steady relative to the level two weeks ago. A gallon of regular unleaded gas, on average, cost $2.21 on September 22nd, up from $2.16 a month earlier, according to AAA. That's about 3% below where it was a year ago.

Since our last newsletter, the S&P 500 returned -0.2%, while the Hot List returned -3.3%. So far in 2016, the portfolio has returned 7.9% vs. 6.5% for the S&P. Since its inception in July 2003, the Hot List is far outpacing the index, having gained 204.1% vs. the S&P's 117.6% gain.

Combining Value and Momentum for a Winning Strategy

After one of the longest stretches of value stock underperformance, most value investors are finally having a good year thus far relative to their growth-investing counterparts, as the Russell 1000 Value Index is beating the performance of the Russell 1000 Growth Index in 2016 by a margin of 2.9% (as of September 19th). I am clearly a proponent of value investing, as most of the strategies I follow on Validea are considered value oriented approaches and the models based on Ken Fisher, Ben Graham, Joseph Piotroski and David Dreman - all value methodologies - are on top so far this year in the Validea model portfolio system. The turn in value strategies is encouraging for many reasons.

The long drought for value stocks vs. growth over the last 10 years has most likely tested the commitment of many investors who subscribe to the value investing discipline. As may be expected, the performance of the two investment styles varies considerably based on the market environment. According to a report published by Bank of America/Merrill Lynch, "growth stocks, in general, have the potential to perform better when interest rates are falling and company earnings are rising. However, they may also be the first to be punished when the economy is cooling. Value stocks, often stocks of cyclical industries, may do well early in an economic recovery, but are typically more likely to lag in a sustained bull market."

Over the long term, however, statistics do indicate that value investing outpaces growth. Findings of another piece from Bank of America/Merrill Lynch show, "over a 90-year period, growth stocks returned an average of 12.6% annually since 1926. However, value stocks generated an average return of 17% per year over the same timeframe." Said Bank of America/Merrill Lynch chief investment strategist Michael Hartnett, "Value has outperformed Growth in roughly three out of every five years over this period." Value in most cases is determined by stocks trading at a low multiple based on earnings or assets. Ratios like the price-to-earnings multiple or price-to-book are two of the more popular metrics used to identify value stocks.

When I first launched the model portfolio and developed the Hot List portfolio, I wanted to offer a model portfolio that rewarded value but that also had the ability to add in growth strategies to help offset some of the style risk. The Validea Hot List Portfolio contains both value and growth components, given that it is based on a proprietary system we have developed that combines all of the guru strategies on our site. Some of the gurus are growth-oriented, such as Martin Zweig, while others are value-centric, such as the father of value investing, Benjamin Graham. However, there is a value-tilt to the selection process for inclusion in the Hot List, and I believe this has played has played a big role in its significant outperformance over the broader market, particularly in initial period for the Hot List from 2003-2007, which was a period that was very good for value stocks. Since 2003, the Hot List Portfolio has returned 202.1%, outperforming the market by 88.2%, using its optimal monthly rebalancing period and 10 stock portfolio size. While the last few years haven't been stellar for the portfolio, it's the long term record through various market cycles that is statistically significant and that should be looked at when assessing the effectiveness of a strategy.

In addition to a bias toward the value style of investing, however, another key to the Hot List Portfolio's performance is momentum. Value investing is focused on buying companies on the cheap (based on earnings, assets, cash flow). However, as we have seen over the past few years, value can, and will, go through periods of poor performance as well and that can be challenging for investors trying to follow a value approach over the long term.

But fortunately for all of us, some of history's best stock-pickers have found that stocks with strong momentum, or relative strength, are often good bets to continue rising -- if they're still attractively valued. In fact, one of the gurus I follow, James O'Shaughnessy, in his 1996 bestseller, What Works on Wall Street, discusses Relative Strength in detail in the chapter entitled, "Relative Price Strength: Winners Continue to Win." In this chapter, he presents numerous exhaustive studies of Relative Strength and his concluding advice is this: "unless financial ruin is your goal, avoid the biggest losers."

In a piece published on Investopedia, Michael Carr succinctly summaries O'Shaughnessy's work on value metrics and relative strength:

In What Works on Wall Street (1998), O'Shaughnessy tested more than 60 investment strategies involving various fundamental criteria. His results showed that some fundamental filters beat the stock market as a whole. His test period began with data from 1951 and ran through 1996. For this test, the portfolio consisted of the top 50 stocks determined by the criteria and was revised annually. A summary of these test results are below:



O'Shaughnessy also tested each of these filters with relative strength. The idea behind relative strength is to find the strongest stocks, or the ones that are going up the most in price. For these tests, O'Shaughnessy calculated relative strength by looking at the stocks' returns over the past year. Those with the greatest returns and the lowest fundamental valuations were selected for the portfolio. These results are shown below:



The conclusion from these studies is that value investing works - and so does momentum investing. That is why combining the two factors makes for a viable strategy. Such a combination may prevent a value-only investor or a momentum-only investor from suffering through extended periods of underperformance. To the contrary, a multi-faceted methodology can lead to superior returns.

Investing isn't just about growth or value or momentum; it's about all of them. Each of my Guru Strategies uses a wide array of variables (the exception being the two-variable Joel Greenblatt-based model) to choose stocks. The guru strategies use a wide host of fundamental criteria, ranging from market cap to various earnings assessments to several different valuation metrics to analyses of debt levels, putting a company through a multi-faceted test.

The Hot List then goes a step further, looking for consensus from the gurus' strategies to find its favorite picks. As you've probably noticed, most of the Hot List constituents get approval from more than one of my models, which means that they have really made it through a gauntlet of fundamental investment criteria. To me, that's one of the biggest reasons the portfolio has fared so well over time. Fundamentals matter in stock-picking -- and those fundamentals should be diverse, combining strategies that are value, growth and momentum. Investors that can take a long term view and focus on the fundamentals are putting the odds in their favor that they can beat the market.


The Fallen

As we rebalance the Validea Hot List, 4 stocks leave our portfolio. These include: Supreme Industries, Inc. (STS), Banc Of California Inc (BANC), John B. Sanfilippo & Son, Inc. (JBSS) and Polaris Industries Inc. (PII).

The Keepers

6 stocks remain in the portfolio. They are: Valero Energy Corporation (VLO), Trex Company, Inc. (TREX), Grupo Financiero Galicia S.a. (Adr) (GGAL), Banco Macro Sa (Adr) (BMA), Amtrust Financial Services Inc (AFSI) and Lgi Homes Inc (LGIH).

The New Additions

We are adding 4 stocks to the portfolio. These include: American Woodmark Corporation (AMWD), Insteel Industries Inc (IIIN), Tractor Supply Company (TSCO) and Smith & Wesson Holding Corp (SWHC).

Latest Changes

Additions  
AMERICAN WOODMARK CORPORATION AMWD
INSTEEL INDUSTRIES INC IIIN
TRACTOR SUPPLY COMPANY TSCO
SMITH & WESSON HOLDING CORP SWHC
Deletions  
SUPREME INDUSTRIES, INC. STS
BANC OF CALIFORNIA INC BANC
JOHN B. SANFILIPPO & SON, INC. JBSS
POLARIS INDUSTRIES INC. PII

Newcomers to the Validea Hot List

American Woodmark Corporation (AMWD): American Woodmark Corporation manufactures and distributes kitchen cabinets and vanities for the remodeling and new home construction markets. The company ($1.310 billion market cap) receives a ranking of 100% from my James O'Shaughnessy-inspired investment model and also scores highly in the Validea Momentum Investor model. For details about its fundamentals, see the "Detailed Stock Analysis" section.

Insteel Industries Inc. (IIIN): Insteel Industries, Inc. (Insteel) is a manufacturer of steel wire reinforcing products for concrete construction applications. The stock ($675 million market cap) scores highly in my Validea Momentum Investor model, as well as in the Martin Zweig- and Motley Fool-based models. Scroll down to the "Detailed Stock Analysis" section to learn more about the stock.

Smith & Wesson Holding Corp. (SWHC): Smith & Wesson Holding Corporation is a manufacturer of firearms and a provider of accessory products for the shooting, hunting and rugged outdoor enthusiast. The Company operates through two segments: firearms and accessories. The stock ($1.563 billion market cap) receives a ranking of 93% in my Peter Lynch-inspired investment model, which considers the company a "fast-grower". The company also scores highly in my Joel Greenblatt-based model, as well as in the Validea Momentum Investor model. Scroll down to the "Detailed Stock Analysis" section to learn more about the stock.

Tractor Supply Company (TSCO): Tractor Supply Company is an operator of rural lifestyle retail stores in the United States. The stock ($9.058 billion market cap) receives high scores from my Warren Buffett- and Kenneth Fisher-based investment models. The company's Price/Sales Ratio of 1.41, based on trailing 12 month sales, falls within the "good values" range for non-cyclical companies. For details about the company's fundamentals, see the "Detailed Stock Analysis" section below.

News about Validea Hot List Stocks

LGI Homes (LGIH): LGI Homes entered into an equity distribution agreement to issue and sell up to $25 mln in common stock. The Company expects to use the net proceeds from any sale of the Shares for general corporate purposes, which may include, among other things, capital expenditures, acquisitions, land purchases, working capital and repayment or refinancing of debt, including, without limitation, borrowings under the Company's revolving credit facility.

Smith & Wesson Holding Corp. (SWHC): On September 1st, SWCH reported Q1 earnings of $0.62 per share, revenues rose 40.1% year/year to $207 mln. The company also issued upside guidance for Q2 and FY17.

The Next Issue

In two weeks, we will publish another issue of the Hot List, at which time we will take an in-depth look at my investment strategies. If you have any questions, please feel free to contact us at hotlist@validea.com.

Portfolio Holdings
Ticker Date Added Return
GGAL 8/26/2016 0.5%
BMA 7/1/2016 3.3%
VLO 6/3/2016 0.8%
SWHC 9/23/2016 TBD
IIIN 9/23/2016 TBD
AFSI 8/26/2016 4.1%
LGIH 7/1/2016 12.3%
TSCO 9/23/2016 TBD
TREX 8/26/2016 -5.2%
AMWD 9/23/2016 TBD


Guru 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

GGAL   |   BMA   |   VLO   |   SWHC   |   IIIN   |   AFSI   |   LGIH   |   TSCO   |   TREX   |   AMWD   |  

GRUPO FINANCIERO GALICIA S.A. (ADR)

Strategy: Growth/Value Investor
Based on: James P. O'Shaughnessy

Grupo Financiero Galicia S.A. (Grupo Financiero Galicia) is a financial services holding company. The Company's segments include Banking, Regional Credit Cards, CFA, Insurance and Other Grupo Galicia Businesses. Banco de Galicia y Buenos Aires S.A. (Banco Galicia) is a subsidiary of the Company. Its banking business segment represents Banco Galicia consolidated line by line with Banco Galicia Uruguay S.A. (Galicia Uruguay). It operates the regional credit cards segment through Tarjetas Regionales S.A. and its subsidiaries. Its CFA business segment extends unsecured personal loans to low and middle-income segments of the Argentine population. The Company operates the insurance segment through Sudamericana Holding S.A. and its subsidiaries. Its Other Grupo Galicia Businesses segment includes the results of Galicia Warrants S.A., Galicia Administradora de Fondos S.A. Sociedad Gerente de Fondos Comunes de Inversion and Net Investment S.A.


MARKET CAP: PASS

The first requirement of the Cornerstone Growth Strategy is that the company has a market capitalization of at least $150 million. This will screen out the companies that are too illiquid for most investors, but still include a small growth company. GGAL, with a market cap of $3,102 million, passes this criterion.


EARNINGS PER SHARE PERSISTENCE: PASS

The Cornerstone Growth methodology looks for companies that show persistent earnings growth without regard to magnitude. To fulfill this requirement, a company's earnings must increase each year for a five year period. GGAL, whose annual EPS before extraordinary items for the last 5 years (from earliest to the most recent fiscal year) were 0.05, 0.07, 0.10, 0.17 and 0.22, passes this test.


PRICE/SALES RATIO: PASS

The Price/Sales ratio should be below 1.5. This value criterion, coupled with the growth criterion, identify growth stocks that are still cheap to buy. GGAL's Price/Sales ratio of 1.39, based on trailing 12 month sales, passes this criterion.


RELATIVE STRENGTH: PASS

The final criterion for the Cornerstone Growth Strategy requires that the Relative Strength of the company be among the top 50 of the stocks screened using the previous criterion. This gives you the opportunity to buy the growth stocks you are searching for just as the market is embracing them. GGAL, whose relative strength is 91, is in the top 50 and would pass this last criterion.

BANCO MACRO SA (ADR)

Strategy: Contrarian Investor
Based on: David Dreman

Banco Macro S.A. offers traditional bank products and services to companies, including those operating in regional economies, as well as to individuals. In addition, the Bank performs certain transactions through its subsidiaries, including mainly Banco del Tucuman, Macro Bank Limited, Macro Securities S.A., Macro Fiducia S.A. and Macro Fondos S.G.F.C.I. S.A. It has approximately two categories of customers, such as retail customers, including individuals and entrepreneurs and corporate customers, which include small, medium and large companies and major corporations. In addition, it provides services to over four provincial governments. It provides its corporate customers with traditional banking products and services, such as deposits, lending (including overdraft facilities), check cashing advances and factoring, guaranteed loans and credit lines for financing foreign trade and cash management services.

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. BMA has a market cap of $4,589 million, therefore passing the test.


EARNINGS TREND: PASS

A company should show a rising trend in the reported earnings for the most recent quarters. BMA's EPS for the past 2 quarters, (from earliest to most recent quarter) 0.21, 2.04 have been increasing, and therefore the company passes this test.


EPS GROWTH RATE IN THE IMMEDIATE PAST AND FUTURE: PASS

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. BMA passes this test as its EPS growth rate over the past 6 months (1,175.00%) has beaten that of the S&P (10.38%). BMA's estimated EPS growth for the current year is (1,194.83%), which indicates the company is expected to experience positive earnings growth. As a result, BMA passes this test.


This methodology would utilize four separate criteria to determine if BMA 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. BMA's P/E of 10.76, based on trailing 12 month earnings, meets the bottom 20% criterion (below 12.60), and therefore passes this test.


PRICE/CASH FLOW (P/CF) RATIO: FAIL

The P/CF of a company should be in the bottom 20% of the overall market. BMA's P/CF of 10.44 does not meet the bottom 20% criterion (below 7.28), and therefore fails 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. BMA's P/B is currently 3.60, which does not meet the bottom 20% criterion (below 0.98), 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%). BMA's P/D of 103.09 does not meet the bottom 20% criterion (below 20.49), 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.


PAYOUT RATIO: FAIL

A good indicator that a company has the ability to raise its dividend is a low payout ratio. The payout ratio for BMA is 10.23%, while its historical payout ratio has been 9.75%. Therefore, it fails 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 15.99%, and would consider anything over 27% to be staggering. The ROE for BMA of 39.80% 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. BMA's pre-tax profit margin is 43.92%, thus passing this criterion.


YIELD: FAIL

The company in question should have a yield that is high and that can be maintained or increased. BMA's current yield is 0.97%, while the market yield is 2.70%. BMA fails this test.

VALERO ENERGY CORPORATION

Strategy: Price/Sales Investor
Based on: Kenneth Fisher

Valero Energy Corporation (Valero), through Valero Energy Partners LP (VLP), owns, operates, develops and acquires crude oil and refined petroleum products pipelines, terminals, and other transportation and logistics assets. The Company operates in two segments: refining and ethanol. Its refining segment includes refining and marketing operations in the United States, Canada, the United Kingdom, Aruba and Ireland. Its ethanol segment includes ethanol and marketing operations in the United States. VLP's assets include crude oil and refined petroleum products pipeline and terminal systems in the United States Gulf Coast and the United States Mid-Continent regions. Its refineries can produce conventional gasolines, premium gasolines, gasoline meeting the specifications of the California Air Resources Board (CARB), diesel, low-sulfur diesel, ultra-low-sulfur diesel, CARB diesel, other distillates, jet fuel, asphalt, petrochemicals, lubricants and other refined products.


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. VLO's P/S of 0.34 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. VLO's Debt/Equity of 36.50% 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. VLO 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 VLO At this Point

Is VLO a "Super Stock"? NO


PRICE/SALES RATIO: PASS

The prospective company should have a low Price/Sales ratio. Non-cyclical(non-Smokestack) companies with Price/Sales ratios below .75 are tremendous values and should be sought.VLO's P/S ratio of 0.34 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%. VLO's inflation adjusted EPS growth rate of 21.41% passes the test.


FREE CASH PER SHARE: PASS

This methodology looks for companies that have a positive free cash per share. Companies should have enough free cash available to sustain three years of losses. This is based on the premise that companies without cash will soon be out of business. VLO's free cash per share of 6.29 passes this criterion.


THREE YEAR AVERAGE NET PROFIT MARGIN: FAIL

This methodology looks for companies that have an average net profit margin of 5% or greater over a three year period. VLO, whose three year net profit margin averages 3.09%, fails this evaluation.

SMITH & WESSON HOLDING CORP

Strategy: Growth Investor
Based on: Martin Zweig

Smith & Wesson Holding Corporation is a manufacturer of firearms and a provider of accessory products for the shooting, hunting and rugged outdoor enthusiast. The Company operates through two segments: firearms and accessories. The firearm segment includes firearms, handcuffs and other related products sold through a distribution chain and direct sales to consumers and international, state and federal governments. The accessories segment consists of shooting, hunting and outdoor accessories. It manufactures an array of handguns, including revolvers and pistols; long guns, including modern sporting rifles, bolt action rifles and single shot rifles; handcuffs, and firearm-related products and accessories. It also provides shooting, hunting and outdoor accessories, including reloading, gunsmithing, gun cleaning supplies, tree saws and vault accessories. The Company sells its products under the Smith & Wesson, M&P, Thompson/Center Arms and Wheeler Engineering, among other brands.


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. SWHC's P/E is 13.79, based on trailing 12 month earnings, while the current market PE is 15.00. 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. SWHC's revenue growth is 12.77%, while it's earnings growth rate is 40.37%, based on the average of the 3, 4 and 5 year historical eps growth rates. Therefore, SWHC 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 (40.1%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (22.2%) of the current year. Sales growth for the prior must be greater than the latter. For SWHC 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. SWHC's EPS ($0.57) pass this test.


QUARTERLY EARNINGS ONE YEAR AGO: PASS

The EPS for the quarter one year ago must be positive. SWHC's EPS for this quarter last year ($0.26) 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. SWHC's growth rate of 119.23% 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 SWHC is 20.19%. This should be less than the growth rates for the 3 previous quarters, which are 144.44%, 280.00%, and 57.50%. SWHC 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, 121.88%, (versus the same three quarters a year earlier) is greater than the growth rate of the current quarter earnings, 119.23%, (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 SWHC is 119.2%, 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, 119.23% must be greater than or equal to the historical growth which is 40.37%. SWHC 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. SWHC, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were 0.40, 1.22, 1.47, 0.90, and 1.68, 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. SWHC's long-term growth rate of 40.37%, 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. SWHC's Debt/Equity (50.39%) is not considered high relative to its industry (97.66%) 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 SWHC, this criterion has not been met (insider sell transactions are 217, while insiders buying number 82). Despite the fact that insider sells out number insider buys for this company, Zweig considers even one insider buy transaction enough to prevent an insider sell signal, therefore there is not an insider sell signal and the stock passes this criterion.

INSTEEL INDUSTRIES INC

Strategy: Growth Investor
Based on: Martin Zweig

Insteel Industries, Inc. (Insteel) is a manufacturer of steel wire reinforcing products for concrete construction applications. The Company manufactures and markets PC strand and welded wire reinforcement (WWR), including Engineered Structural Mesh (ESM), concrete pipe reinforcement (CPR) and standard welded wire reinforcement (SWWR). The Company's products are sold to manufacturers of concrete products that are used in nonresidential construction. Insteel has two wholly owned subsidiaries, Insteel Wire Products Company (IWP), an operating subsidiary, and Intercontinental Metals Corporation, an inactive subsidiary. The Company's concrete reinforcing products consist of PC strand and WWR. PC strand provides reinforcement for bridges, parking decks, buildings and other concrete structures. Welded Wire Reinforcement produces engineered reinforcing product for use in nonresidential and residential construction.


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. IIIN's P/E is 18.28, based on trailing 12 month earnings, while the current market PE is 15.00. 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. IIIN's revenue growth is 11.64%, while it's earnings growth rate is 116.12%, based on the average of the 3 and 5 year historical eps growth rates. Therefore, IIIN fails this criterion.


SALES GROWTH RATE: FAIL

Another important issue regarding sales growth is that the rate of quarterly sales growth is rising. To evaluate this, the change from this quarter last year to the present quarter (-1.2%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (5.5%) of the current year. Sales growth for the prior must be greater than the latter. For IIIN this criterion has not been met and fails this test.


The earnings numbers of a company should be examined from various different angles. Three of these angles are stability in the trend of earnings, earnings persistence, and earnings acceleration. To evaluate stability, the stock has to pass the following four criteria.


CURRENT QUARTER EARNINGS: PASS

The first of these criteria is that the current EPS be positive. IIIN's EPS ($0.71) pass this test.


QUARTERLY EARNINGS ONE YEAR AGO: PASS

The EPS for the quarter one year ago must be positive. IIIN's EPS for this quarter last year ($0.29) 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. IIIN's growth rate of 144.83% 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 IIIN is 58.06%. This should be less than the growth rates for the 3 previous quarters, which are 112.50%, 63.64%, and 171.43%. IIIN 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, 108.33%, (versus the same three quarters a year earlier) is less than the growth rate of the current quarter earnings, 144.83%, (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, 144.83% must be greater than or equal to the historical growth which is 116.12%. IIIN 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. IIIN, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were -0.02, 0.10, 0.64, 0.89 and 1.16, 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. IIIN's long-term growth rate of 116.12%, based on the average of the 3 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. IIIN's Debt/Equity (0.00%) is not considered high relative to its industry (114.38%) 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 IIIN, this criterion has not been met (insider sell transactions are 171, while insiders buying number 160). Despite the fact that insider sells out number insider buys for this company, Zweig considers even one insider buy transaction enough to prevent an insider sell signal, therefore there is not an insider sell signal and the stock passes this criterion.

AMTRUST FINANCIAL SERVICES INC

Strategy: Growth/Value Investor
Based on: James P. O'Shaughnessy

Amtrust Financial Services, Inc. (AmTrust) is an insurance holding company. The Company, through its subsidiaries, provides specialty property and casualty insurance focusing on workers' compensation and commercial package coverage for small business, specialty risk and extended warranty coverage, and property and casualty coverage for middle market business. Its segments include Small Commercial Business, Specialty Risk and Extended Warranty, and Specialty Program. The Small Commercial Business segment is engaged in providing workers' compensation, commercial package and other commercial insurance lines produced by wholesale agents, retail agents and brokers in the United States. The Specialty Risk and Extended Warranty segment is engaged in providing coverage for consumer and commercial goods and custom designed coverages. The Specialty Program segment is engaged in writing commercial insurance for defined classes of insureds through general and other wholesale agents.


MARKET CAP: PASS

The first requirement of the Cornerstone Growth Strategy is that the company has a market capitalization of at least $150 million. This will screen out the companies that are too illiquid for most investors, but still include a small growth company. AFSI, with a market cap of $4,605 million, passes this criterion.


EARNINGS PER SHARE PERSISTENCE: PASS

The Cornerstone Growth methodology looks for companies that show persistent earnings growth without regard to magnitude. To fulfill this requirement, a company's earnings must increase each year for a five year period. AFSI, whose annual EPS before extraordinary items for the last 5 years (from earliest to the most recent fiscal year) were 1.14, 1.17, 1.78, 2.72 and 2.80, passes this test.


PRICE/SALES RATIO: PASS

The Price/Sales ratio should be below 1.5. This value criterion, coupled with the growth criterion, identify growth stocks that are still cheap to buy. AFSI's Price/Sales ratio of 0.90, based on trailing 12 month sales, passes this criterion.


RELATIVE STRENGTH: FAIL

The final criterion for the Cornerstone Growth Strategy requires that the Relative Strength of the company be among the top 50 of the stocks screened using the previous criterion. This gives you the opportunity to buy the growth stocks you are searching for just as the market is embracing them. AFSI has a relative strength of 38. This does not pass the final criterion. As a result, this methodology would not consider the stock even though it passed the previous three criteria.

LGI HOMES INC

Strategy: Growth Investor
Based on: Martin Zweig

LGI Homes, Inc. is a homebuilder. The Company is engaged in the design, construction, marketing and sale of new homes in markets in Texas, Arizona, Florida, Georgia, New Mexico, South Carolina, North Carolina, Colorado, Washington and Tennessee. The Company has five segments: the Texas division, the Southwest division, the Southeast division, the Florida division and the Northwest division. The Texas division includes homebuilding operations in Houston, Dallas/Fort Worth, San Antonio and Austin locations. The Southwest division includes homebuilding operations in Phoenix, Tucson, Albuquerque, Denver and Colorado Springs locations. The Southeast division includes homebuilding operations in Atlanta, Charlotte and Nashville locations. The Florida division includes homebuilding operations in Tampa, Orlando, Fort Myers and Jacksonville locations. The Northwest division includes homebuilding operations in Seattle location. Its product offerings include entry-level homes and move-up homes.


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. LGIH's P/E is 12.26, based on trailing 12 month earnings, while the current market PE is 15.00. Therefore, it passes the first test.


REVENUE GROWTH IN RELATION TO EPS GROWTH: PASS

Revenue Growth must not be substantially less than earnings growth. For earnings to continue to grow over time they must be supported by a comparable or better sales growth rate and not just by cost cutting or other non-sales measures. LGIH's revenue growth is 94.39%, while it's earnings growth rate is 81.68%, based on the average of the 3 and 4 year historical eps growth rates. Therefore, LGIH passes this criterion.


SALES GROWTH RATE: PASS

Another important issue regarding sales growth is that the rate of quarterly sales growth is rising. To evaluate this, the change from this quarter last year to the present quarter (40.2%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (34.6%) of the current year. Sales growth for the prior must be greater than the latter. For LGIH 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. LGIH's EPS ($0.96) pass this test.


QUARTERLY EARNINGS ONE YEAR AGO: PASS

The EPS for the quarter one year ago must be positive. LGIH's EPS for this quarter last year ($0.66) 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. LGIH's growth rate of 45.45% 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 LGIH is 40.84%. This should be less than the growth rates for the 3 previous quarters, which are 123.53%, 111.76%, and 72.73%. LGIH 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, 102.97%, (versus the same three quarters a year earlier) is greater than the growth rate of the current quarter earnings, 45.45%, (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 LGIH is 45.5%, and it would therefore pass this test.


EPS GROWTH FOR CURRENT QUARTER MUST BE GREATER THAN THE HISTORICAL GROWTH RATE: FAIL

The EPS growth rate for the current quarter, 45.45% must be greater than or equal to the historical growth which is 81.68%. Since this is not the case LGIH would therefore fail 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. LGIH, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were 0.17, 0.50, 1.07, 1.33 and 2.44, 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. LGIH's long-term growth rate of 81.68%, based on the average of the 3 and 4 year historical eps growth rates, passes this test.


TOTAL DEBT/EQUITY RATIO: FAIL

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. LGIH's Debt/Equity (111.05%) is considered high relative to its industry (51.05%) and fails 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 LGIH, this criterion has not been met (insider sell transactions are 59, while insiders buying number 33). Despite the fact that insider sells out number insider buys for this company, Zweig considers even one insider buy transaction enough to prevent an insider sell signal, therefore there is not an insider sell signal and the stock passes this criterion.

TRACTOR SUPPLY COMPANY

Strategy: Contrarian Investor
Based on: David Dreman

Tractor Supply Company is an operator of rural lifestyle retail stores in the United States. The Company operates in the retail sale of products that support the rural lifestyle segment. The Company focuses on supplying the lifestyle needs of recreational farmers and ranchers, as well as tradesmen and small businesses. It operates over 1,490 retail stores in over 50 states under the names Tractor Supply Company, Del's Feed & Farm Supply and HomeTown Pet. It also operates a Website under the name TractorSupply.com. The Company's stores offer merchandise, which includes equine, livestock, pet and small animal products; hardware, truck, towing and tool products; seasonal products, including heating, lawn and garden items, power equipment, gifts and toys; work/recreational clothing and footwear, and maintenance products for agricultural and rural use. The Company's products are offered under various brands, which include 4health, Blue Mountain and Countyline.

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. TSCO has a market cap of $9,123 million, therefore passing the test.


EARNINGS TREND: PASS

A company should show a rising trend in the reported earnings for the most recent quarters. TSCO's EPS for the past 2 quarters, (from earliest to most recent quarter) 0.50, 1.16 have been increasing, and therefore the company passes this test.


EPS GROWTH RATE IN THE IMMEDIATE PAST AND FUTURE: PASS

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. TSCO passes this test as its EPS growth rate over the past 6 months (41.46%) has beaten that of the S&P (10.38%). TSCO's estimated EPS growth for the current year is (8.00%), which indicates the company is expected to experience positive earnings growth. As a result, TSCO passes this test.


This methodology would utilize four separate criteria to determine if TSCO 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: FAIL

The P/E of a company should be in the bottom 20% of the overall market. TSCO's P/E of 21.81, based on trailing 12 month earnings, is higher than the bottom 20% criterion (below 12.60), and therefore fails this test.


PRICE/CASH FLOW (P/CF) RATIO: FAIL

The P/CF of a company should be in the bottom 20% of the overall market. TSCO's P/CF of 16.48 does not meet the bottom 20% criterion (below 7.28), and therefore fails 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. TSCO's P/B is currently 6.08, which does not meet the bottom 20% criterion (below 0.98), 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%). TSCO's P/D of 70.92 does not meet the bottom 20% criterion (below 20.49), 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 [1.40] or greater than 2). This is one identifier of financially strong companies, according to this methodology. TSCO's current ratio of 2.19 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 TSCO is 12.77%, while its historical payout ratio has been 20.19%. 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 15.99%, and would consider anything over 27% to be staggering. The ROE for TSCO of 29.33% 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. TSCO's pre-tax profit margin is 10.33%, thus passing this criterion.


YIELD: FAIL

The company in question should have a yield that is high and that can be maintained or increased. TSCO's current yield is 1.41%, while the market yield is 2.70%. TSCO 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 590.31%. TSCO's Total Debt/Equity of 14.57% is considered acceptable.

TREX COMPANY, INC.

Strategy: P/E/Growth Investor
Based on: Peter Lynch

Trex Company, Inc. is a manufacturer of wood-alternative decking and railing products. The Company markets its products under the brand name Trex. The Company offers a set of outdoor living products in the decking, railing, porch, fencing, trim, steel deck framing and outdoor lighting categories. Its decking products include Trex Transcend, Trex Enhance and Trex Select. The Company's railing products include Trex Transcend Railing, Trex Select Railing and Trex Reveal aluminum railing. It offers Trex Transcend Porch Flooring and Railing System, a porch product, and a fencing product called Trex Seclusions. The Company offers TrexTrim product, which is a cellular polyvinyl chloride residential exterior trim product. It offers a triple-coated steel deck framing system called Trex Elevations. The Company offers outdoor lighting systems, including Trex DeckLighting and Trex Landscape Lighting. It also offers Trex Hideaway, which a hidden fastening system for grooved boards.


DETERMINE THE CLASSIFICATION:

This methodology would consider TREX a "fast-grower".


P/E/GROWTH RATIO: PASS

The investor should examine the P/E (29.96) relative to the growth rate (81.60%), based on the average of the 3 and 4 year historical eps growth rates using the current fiscal year eps estimate, for a company. This is a quick way of determining the fairness of the price. In this particular case, the P/E/G ratio for TREX (0.37) 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. TREX, whose sales are $461.4 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 TREX was 6.06% last year, while for this year it is 5.24%. Since inventory to sales has decreased from last year by -0.82%, TREX passes this test.


EPS GROWTH RATE: FAIL

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 TREX is 81.6%, based on the average of the 3 and 4 year historical eps growth rates using the current fiscal year eps estimate, which is considered too fast.


TOTAL DEBT/EQUITY RATIO: PASS

This methodology would consider the Debt/Equity ratio for TREX (38.30%) 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 TREX (2.12%) 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 TREX (0.35%) 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.

AMERICAN WOODMARK CORPORATION

Strategy: Growth/Value Investor
Based on: James P. O'Shaughnessy

American Woodmark Corporation manufactures and distributes kitchen cabinets and vanities for the remodeling and new home construction markets. The Company offers framed stock cabinets in approximately 500 different cabinet lines, ranging in price from relatively inexpensive to medium-priced styles. Styles vary by design and color from natural wood finishes to low-pressure laminate surfaces. The product offering of stock cabinets includes approximately 90 door designs in over 20 colors. Stock cabinets consist of cabinet interiors of varying dimensions and construction options, and a maple, oak, cherry, or hickory front frame, door and/or drawer front. The Company's products are sold under the brand names of American Woodmark, Simply Woodmark, Timberlake, Shenandoah Cabinetry, Shenandoah Value Series and Waypoint Living Spaces. The Company's primary raw materials used include hard maple, soft maple, oak, cherry, and hickory lumber and plywood.


MARKET CAP: PASS

The first requirement of the Cornerstone Growth Strategy is that the company has a market capitalization of at least $150 million. This will screen out the companies that are too illiquid for most investors, but still include a small growth company. AMWD, with a market cap of $1,325 million, passes this criterion.


EARNINGS PER SHARE PERSISTENCE: PASS

The Cornerstone Growth methodology looks for companies that show persistent earnings growth without regard to magnitude. To fulfill this requirement, a company's earnings must increase each year for a five year period. AMWD, whose annual EPS before extraordinary items for the last 5 years (from earliest to the most recent fiscal year) were -1.45, 0.66, 1.31, 2.21 and 3.57, passes this test.


PRICE/SALES RATIO: PASS

The Price/Sales ratio should be below 1.5. This value criterion, coupled with the growth criterion, identify growth stocks that are still cheap to buy. AMWD's Price/Sales ratio of 1.36, based on trailing 12 month sales, passes this criterion.


RELATIVE STRENGTH: PASS

The final criterion for the Cornerstone Growth Strategy requires that the Relative Strength of the company be among the top 50 of the stocks screened using the previous criterion. This gives you the opportunity to buy the growth stocks you are searching for just as the market is embracing them. AMWD, whose relative strength is 73, is in the top 50 and would pass this last criterion.


Watch List

The top scoring stocks not currently in the Hot List portfolio.

Ticker Company Name Current
Score
UFPI UNIVERSAL FOREST PRODUCTS, INC. 44%
JBSS JOHN B. SANFILIPPO & SON, INC. 43%
FIZZ NATIONAL BEVERAGE CORP. 41%
WGO WINNEBAGO INDUSTRIES, INC. 41%
WDR WADDELL & REED FINANCIAL, INC. 41%
WAL WESTERN ALLIANCE BANCORPORATION 37%
SIMO SILICON MOTION TECHNOLOGY CORP. (ADR) 37%
THO THOR INDUSTRIES, INC. 36%
PII POLARIS INDUSTRIES INC. 36%
ANIK ANIKA THERAPEUTICS INC 35%



Disclaimer

The names of individuals (i.e., the 'gurus') appearing in this report are for identification purposes of his methodology only, as derived by Validea.com from published sources, and are not intended to suggest or imply any affiliation with or endorsement or even agreement with this report personally by such gurus, or any knowledge or approval by such persons of the content of this report. All trademarks, service marks and tradenames appearing in this report are the property of their respective owners, and are likewise used for identification purposes only.

Validea is not registered as a securities broker-dealer or investment advisor either with the U.S. Securities and Exchange Commission or with any state securities regulatory authority. Validea is not responsible for trades executed by users of this site based on the information included herein. The information presented on this website does not represent a recommendation to buy or sell stocks or any financial instrument nor is it intended as an endorsement of any security or investment. The information on this website is generic by nature and is not personalized to the specific situation of any individual. The user therefore bears complete responsibility for their own investment research and should seek the advice of a qualified investment professional prior to making any investment decisions.

Performance results are based on model portfolios and do not reflect actual trading. Actual performance will vary based on a variety of factors, including market conditions and trading costs. Past performance is not necessarily indicative of future results. Individual stocks mentioned throughout this web site may be holdings in the managed portfolios of Validea Capital Management, a separate asset management firm founded by Validea.com founder John Reese. Validea Capital Management, which is a separate legal entity and an SEC registered investment advisory firm, uses, in part, the strategies on the web site to select stocks for its clients.