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Executive Summary	August 31, 2012

The Economy Though still battling against the stiff headwinds of debt and high unemployment, the U.S. economy has been continuing to improve, according to various data released over the past two weeks. Perhaps the biggest source of encouragement comes from the housing market, which appears to be undergoing its long-awaited rebound. Home prices in 20 major cities rose an average of 2.3% in June (vs. May), according to the S&P/Case-Shiller Home Price Indices. For the entire second quarter, prices were up nearly 7% nation-wide vs. the first quarter; they were up 1.2% vs. the year-ago period. When adjusted for seasonal variations, the numbers weren't as high, but they were still good, with the 20-city composite index up 0.9% in June (vs. May) and the second-quarter national index up 2.2% vs. the year-ago period. "We seem to be witnessing exactly what we needed for a sustained recovery; monthly increases coupled with improving annual rates of change," said David M. Blitzer, Chairman of the Index Committee at S&P Dow Jones Indices. "The market may have finally turned around." The National Association of Realtors, meanwhile, said existing-home sales rose 2.3% in July (vs. June), even though inventory is constrained -- it's down more than 30% from July 2011. (Unless noted, all month-over-month, quarter-over-quarter, or week-over-week figures here and below are seasonally adjusted; year-over-year comparisons are unadjusted.) Existing-home sales are now 11.4% above where they were a year ago, a great sign, and the median sale price is now 9.4% above year-ago levels. It was the fifth straight month that the year-over-year price comparison has shown an increase. On the employment front, new claims for unemployment remained pretty much flat since our last newsletter, as have continuing claims (the data for which lags new claims by a week). New claims are now about 8% below their year-ago level, while continuing claims are about 10.6% below where they stood a year ago. Good news also came in the form of an upward GDP revision. GDP grew 1.7% in the second quarter, according to the Commerce Department, better than the previous estimate of 1.5%. Still, that's pretty anemic growth, and isn't anything to get excited about. Corporate earnings, however, continue to be solid. With 488 of the S&P 500 companies having reported second-quarter earnings, over 75% of firms had met or beaten expectations for operating earnings, according to Standard & Poor's. The results mean that the index is trading for about 14.3 times trailing 12-month earnings (through the Aug. 28 close). The gap between operating and as-reported P/Es is the widest since the fourth quarter of 2008, however, though at about 16, the as-reported trailing 12-month P/E is far from excessive. As for the consumer, the Commerce Department said that personal income rose 0.3% in July, while personal consumption expenditures rose 0.4%.The personal savings rate fell slightly, from 4.3% in June to 4.2% in July, but still remains at a pretty solid level. Since our last newsletter, the S&P 500 returned -1.1%, while the Hot List returned -2.2%. So far in 2012, the portfolio has returned 13.3% vs. 11.3% for the S&P. Since its inception in July 2003, the Hot List is far outpacing the index, having gained 156.0% vs. the S&P's 39.9% gain. Valuation Update A lot has happened in the market and economy over the past few months, so I think it's a good time to check back in on valuations. We'll start with the earnings metrics. As I noted above, the S&P 500 trades for 14.3 times trailing 12-month operating earnings and about 16 times trailing 12-month as-reported earnings (through Aug. 29, as are all the current figures we'll look at). The operating figure is fairly close to where it was when we last looked in-depth at valuation (back in late April), while the as-reported number is up slightly from 15. If we use projected earnings for the next year, the operating figure is about 13.1, up slightly from 12.6 in late April, and the as-reported figure is 14.4, also up slightly from April's 13.5 level, according to S&P data. Still, which they've risen a bit, neither of those figures is particularly high. The S&P's price/sales ratio, meanwhile, is right where it was back in April, at a reasonable 1.3, and its price/book ratio is 2.0, according to Morningstar.com. Its dividend yield is now a solid 2.52%, up slightly from 2.44% in April. That's far above the yield on 10-year Treasury bonds -- a rarity and a good sign. One figure that continues to show the market to be overvalued is the Stock Market/GDP ratio, which compares the market cap of the Wilshire Total Market Index to gross domestic product. It has risen to 97.7%, up from 95.6% in April, according to GuruFocus.com. That puts it in "modestly overvalued" territory (90% to 115%), based on the site's analysis of historical data. The 10-year cyclically adjusted price/earnings ratio also remains high. The ratio, which uses inflation-adjusted average earnings for the past decade to smooth out short-term fluctuations, is at about 21.9, using the Aug. 28 closing price for the S&P 500 and Yale Economist Robert Shiller's earnings data. That's down slightly from April, but is still well above the 16.5 historical average (which dates back to 1871). The figure doesn't look as high, however, when compared to the average of 18.3 since 1946 (which is a significant date because after World War II, inflation became a permanent part of the U.S. economy; since inflation eats away so significantly at fixed-income assets, investors should be willing to pay higher multiples for stocks when inflation is a factor). Another valuation metric that paints a picture of overvaluation is Tobin's Q. Developed by Nobel Laureate James Tobin, it is determined by dividing the total price of the stock market by the replacement cost of all of its companies. The Federal Reserve provides data needed to make the calculation in its Flow of Funds Accounts report, though that only is released once per quarter. As of the most recent report, which came at the end of the first quarter, the Q ratio was 0.96. The historical average is 0.71 using the arithmetic mean and 0.65 using the geometric mean, according to Doug Short of Advisor Perspectives. The current Q thus shows significant overvaluation, though the figure remains below levels seen at other market tops. (It got as high as 1.78 during the tech bubble, according to Short.) In general then, the valuation picture isn't too different from what it was four months ago. Several metrics are showing market to be fairly valued or undervalued, with a couple notable exceptions (the ten-year P/E ratio, Tobin's Q, and the Stock Market/GDP ratio). On the whole, I think all of that means we are probably somewhere near the fair value range for the broader market. Of course, more importantly, numerous individual stocks are trading at very attractive values. Take Hot List newcomer HollyFrontier Corp. The Dallas-based oil and gas firm trades for just 5.6 times trailing 12-month earnings and 6.2 times projected 12-month earnings. Its price/sales ratio is just 0.41, and its PE-to-growth ratio is a dirt cheap 0.14. All of this for shares of a company that has been growing earnings at a 41% rate over the long haul, has a 47% return on equity, and has more annual earnings than long-term debt. HollyFrontier is far from alone. Overall, the five new stocks being added to the Hot List this week average trailing 12-month P/Es of about 10, price/sales ratios of about 1.2, PE-to-growth ratios of 0.36, and free cash flow yields of nearly 9%. Value is important because many studies have shown that over the long haul, stocks with strong value characteristics have significantly outperformed more expensive stocks. But there's another reason that value is so important, and it's one that Bill Nygren touched on in a recent letter to his Oakmark fund shareholders. Nygren, one of the gurus I keep an eye on at my Guru Investor blog, has posted an excellent track record over the long-term. In his letter, he notes that his fund has been more volatile than usual this year. He offers a couple reasons for the change. One is that "investors today are less willing to accept cyclical risk than usual. Not surprisingly, it is the companies with cyclical exposure that seem to have the most day-to-day volatility, swinging up or down based on the words of various European politicians. The financials, technology and industrial stocks react more sharply than do the utilities, health care and consumer staples. Because valuation differentials have seldom been larger, we own a lot more of the former group than we do the latter." In the years since the financial crisis, we've also seen more volatility for the Hot List. From its 2003 inception through 2008, the portfolio's average annual beta was 1.10. From 2009 through the present, its annual beta has averaged 1.26. But Nygren raises a key question: Does more volatility mean more risk? Often in stock market discussions, risk and volatility are used almost interchangeably. But Nygren thinks they aren't one and the same. "To us, risk means losing money. Not just a daily price quote that goes down, but an error in estimating business value such that we want to sell our position despite the price being lower," he says. "Based on our criteria, risk is highly dependent on the price paid for a stock. When a stock is priced at a premium to its business value, risk is high. When the price is at a large discount to value, risk is low." Nygren's comments echo the "margin of safety" concept that the late, great Benjamin Graham famously touted, and I agree with him. If you are a long-term investor -- and in my mind, if you're not investing for the long term, you shouldn't be investing -- day-to-day volatility really shouldn't be synonymous with risk. David Dreman, one of the gurus upon whom I base my strategies, has tackled this topic at length, with similar conclusions. "It has been known for decades that there is no correlation between risk, as the academics define it, and return," he wrote in Contrarian Investment Strategies: The Next Generation. "Higher volatility does not give better results, nor lower volatility worse." To Dreman, risk was something much different than day-to-day fluctuations. "The major risk is not the short-term stock price volatility that many thousands of academic articles have been written about," he wrote. "Rather it is the possibility of not reaching your long-term investment goal through the growth of your funds in real terms. To measure monthly or quarterly volatility and call it risk -- for investors who have time horizons 5, 10, 15, or even 30 years away -- is a completely inappropriate definition." He said a realistic definition of risk recognizes the potential loss of capital through inflation and taxes, and includes 1) the probability your investment will preserve your capital over your investment time horizon, and 2) the probability your investments will outperform alternative investments during the period. Nygren's and Dreman's comments about risk get to the heart of what good investing is all about. While most investors get caught up in day-to-day market fluctuations, leading them to make emotional decisions that often hurt their portfolios, these gurus focus on the long term, and aren't swayed by faulty conventional wisdom. In order to beat the crowd, you have to think differently from the crowd, and their comments are a great example of such out-of-the-box thinking. As for the current market and risk, while things have been calmer of late, the odds are that sooner or later the European debt crisis, the U.S. fiscal cliff, or some other issue will flare up and lead to significant volatility again. When that happens, remember Dreman's and Nygren's words. Short-term swings in prices of your holdings have little to do with making money over the long term -- and isn't making money over the long haul the point? In my opinion, if you buy shares of good companies trading at attractive valuations, you'll do just that -- make money over the long haul. If, that is, you have the discipline to stick to your strategy and not bail when the market gets volatile; those who do bail more likely than not will end up selling low and buying high. It's what we're hardwired to do as humans: When danger arises, we flee. It's an instinct that in many ways serves us quite well, but in the stock market -- where many "dangers" are unfounded or overhyped -- it leads us astray. That's why we use the disciplined, systematic approach we use in managing the Hot List. By allowing the cold, hard numbers to drive our buy and sell moves, we remove the potential for our own pesky emotions and gut feelings to lead us astray. In doing so, I believe we dramatically cut down on real risk -- that is, the risk of not producing strong returns over the long term -- regardless of what sorts of ups and downs our holdings are having on a day-to-day basis.		Editor-in-Chief: John Reese Since Inception   Hot List 156.0% S&P 500 39.9% Accuracy 56.4% Beta 1.2 YTD   Hot List 13.3% S&P 500 11.3% Since Last Issue   Hot List -2.2% S&P 500 -1.1% Avg. Fundamentals   Market Cap (mil) $13,571 PE Ratio 14.8 5 Yr EPS Growth 21.1% Yield 1.7% Rel. Strength 65 Portfolio Sectors Capital Goods 2 Services 2 Technology 1 Consumer Cyclical 1 Consumer/Non-Cyclical 1 Energy 1 Financial 1 Healthcare 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. The Fallen As we rebalance the Validea Hot List, 5 stocks leave our portfolio. These include: Gamestop Corp. (GME), Main Street Capital Corporation (MAIN), Lkq Corporation (LKQ), Marathon Petroleum Corp (MPC) and Altisource Portfolio Solutions S.a. (ASPS). The Keepers 5 stocks remain in the portfolio. They are: The Tjx Companies, Inc. (TJX), Apollo Group Inc (APOL), Northrop Grumman Corporation (NOC), Autoliv Inc. (ALV) and Solarwinds Inc (SWI). The Newbies We are adding 5 stocks to the portfolio. These include: Nu Skin Enterprises, Inc. (NUS), Triumph Group Inc (TGI), World Acceptance Corp. (WRLD), Astrazeneca Plc (Adr) (AZN) and Hollyfrontier Corp (HFC). Portfolio Changes Additions   NU SKIN ENTERPRISES, INC. NUS TRIUMPH GROUP INC TGI WORLD ACCEPTANCE CORP. WRLD ASTRAZENECA PLC (ADR) AZN HOLLYFRONTIER CORP HFC Deletions   GAMESTOP CORP. GME MAIN STREET CAPITAL CORPORATION MAIN LKQ CORPORATION LKQ MARATHON PETROLEUM CORP MPC ALTISOURCE PORTFOLIO SOLUTIONS S.A. ASPS Newcomers to the Validea Hot List Nu Skin Enterprises, Inc. (NUS): Utah-based Nu Skin ($2.5 billion market cap) is a direct selling company that sells personal care, nutrition, and technology products, such as skin creams, supplements intended to fight aging, and a biophotonic scanner that measures carotenoid antioxidant activity. It sells its products through a network of more than 750,000 independent distributors and preferred customers around the world. Nu Skin gets approval from my Peter Lynch-based strategy, and high marks from several of my other models. To read more about it, scroll down to the "Detailed Stock Analysis" section below. HollyFrontier Corp. (HFC): Dallas-based HollyFrontier ($8.1 billion market cap) is one of the U.S.'s largest independent petroleum refiners. It has operations in the Midwest, Southwestern, and Rocky Mountain regions, operating five complex refineries. Its subsidiaries are involved in the manufacture and marketing of lubricants and specialty products, as well as the manufacturing and marketing of asphalt products. HollyFrontier gets approval from three of my models, those I based on the writings of Peter Lynch, Joel Greenblatt, and David Dreman. For more on the stock, see the "Detailed Stock Analysis" section below. World Acceptance Corp. (WRLD): Based in Greenville, S.C., World Acceptance ($960 million market cap) specializes in small, short-term loans, and has close to 1,000 offices in the southern and central U.S., and Mexico. Its loans are generally under $3,000 and have durations of less than 24 months, and much of its business comes from repeat customers. World Acceptance gets strong interest from my Peter Lynch- and Warren Buffett-based models. For more on its fundamentals, see the "Detailed Stock Analysis" section below. AstraZeneca PLC (AZN): The London-based drugmaker ($58 billion market cap) is active in more than 100 countries, and makes a variety of well-known medications, including Crestor and Symbicort. AstraZeneca gets high marks from my Peter Lynch-, Warren Buffett-, and James O'Shaughnessy-based strategies. To learn more about the stock, scroll down to the "Detailed Stock Analysis" section below. Triumph Group, Inc. (TGI): This Pennsylvania-based firm ($2.9 billion market cap) makes, repairs, and sells a variety of aircraft parts. It operates in about 60 locations, mostly in the U.S. but also in Europe and Asia, serving commercial and regional airlines, air cargo carriers, and Original Equipment Manufacturers of commercial, regional, business and military aircraft and aircraft parts. Triumph Group gets strong interest from my Peter Lynch-based strategy, and good marks from several of my other models. To read more about its fundamentals, see the "Detailed Stock Analysis" section below. News about Validea Hot List Stocks The TJX Companies Inc. (TJX): TJX shares hit a new 52-week high on Aug. 29. They closed at $46.64 a share, eclipsing the previous high of $46.17. Through Wednesday, the stock was up more than 23% since joining the Hot List portfolio on March 16. The Next Issue In two weeks, we will publish another issue of the Hot List, at which time we will take a closer look at my strategies and investment approach. If you have any questions, please feel free to contact us at hotlist@validea.com.

Current Portfolio Ticker Company Name Industry Guru Score TJX THE TJX COMPANIES, INC. Retail (Apparel) 71 NOC NORTHROP GRUMMAN CORPORATION Aerospace & Defense 67 SWI SOLARWINDS INC Software & Programming 66 APOL APOLLO GROUP INC Schools 58 HFC HOLLYFRONTIER CORP Oil & Gas Operations 58 ALV AUTOLIV INC. Auto & Truck Parts 53 NUS NU SKIN ENTERPRISES, INC. Personal & Household Prods. 49 WRLD WORLD ACCEPTANCE CORP. Consumer Financial Services 47 TGI TRIUMPH GROUP INC Aerospace & Defense 45 AZN ASTRAZENECA PLC (ADR) Biotechnology & Drugs 43 Ticker Market Cap Date Added Start Price Current Price Return TJX $33,566 3/16/2012 $37.91 $45.60 20.3% NOC $16,454 7/6/2012 $63.47 $66.56 4.9% SWI $4,040 5/11/2012 $44.75 $54.45 21.7% APOL $3,000 7/6/2012 $36.55 $26.46 -27.6% HFC $8,220 8/31/2012 TBD $40.38 TBD ALV $5,613 8/3/2012 $56.58 $58.83 4.0% NUS $2,472 8/31/2012 TBD $41.28 TBD WRLD $954 8/31/2012 TBD $73.01 TBD TGI $2,932 8/31/2012 TBD $58.72 TBD AZN $58,462 8/31/2012 TBD $47.00 TBD

Detailed Stock Analysis Disclaimer: The analysis is from Validea's selection and interpretation of content from the guru's book or published writings, and is not from nor endorsed by the guru. See Full Disclaimer TJX   |   NOC   |   SWI   |   APOL   |   HFC   |   ALV   |   NUS   |   WRLD   |   TGI   |   AZN   |   THE TJX COMPANIES, INC. Profile Strategy: Patient Investor Based on: Warren Buffett The TJX Companies, Inc. (TJX) is the off-price apparel and home fashions retailer in the United States and worldwide. As of January 28, 2012, the Company operated in four business segments. It has two segments in the United States, Marmaxx (T.J. Maxx and Marshalls) and HomeGoods; one in Canada, TJX Canada (Winners, Marshalls and HomeSense) and one in Europe, TJX Europe (T.K. Maxx and HomeSense). As a result of the consolidation of the A.J. Wright chain, all A.J. Wright stores ceased operations by the end of February 2011. It completed the consolidation of A.J. Wright, converting 90 of the A.J. Wright stores to T.J. Maxx, Marshalls or HomeGoods banners and closed the remaining 72 stores, two distribution centers and home office. Analysis Guru Score: 100% STAGE 1: "Is this a Buffett type company?" A bedrock principle for Buffett is that his type of company has a "durable competitive advantage" as compared to being a "price competitive" or "commodity" type of business. Companies with a "durable competitive advantage" are more likely to be found in these sub-industries: Brand Name Fast Food Restaurants, Brand Name Beverages, Brand Name Foods, Brand Name Toiletries and Household Products, Brand Name Clothing, Brand Name Prescription Drugs, Advertising, Advertising Agencies, TV, Newspapers, Magazines, Direct Mail, Repetitive Services for Businesses, Low Cost Producers of Insurance, furniture, or Low Cost Retailers. While you should be easily able to explain where the company's pricing power comes from (i.e. a strong regional brand image, a business tollgate, its main products are #1 or # 2 in its field and has been on the market for years and hasn't changed at all, a consumer or business ends up buying the same product many times in a year, etc. or having the lowest production cost among its competition), there are certain figures that one can look at that can qualify the company as having a durable competitive advantage. LOOK FOR EARNINGS PREDICTABILITY: [PASS] Buffett likes companies to have solid, stable earnings that are continually expanding. This allows him to accurately predict future earnings. Annual earnings per share from earliest to most recent were 0.53, 0.57, 0.60, 0.71, 0.82, 0.84, 1.04, 1.42, 1.65, 1.93. Buffett would consider TJX's earnings predictable. In fact EPS have increased every year. TJX's long term historical EPS growth rate is 14.7%, based on the 10 year average EPS growth rate, and it is expected to grow earnings 13.4% per year in the future, based on the analysts' consensus estimated long term growth rate. For the purposes of our analysis, we will use the more conservative of the two EPS growth numbers. LOOK AT THE ABILITY TO PAY OFF DEBT [PASS] Buffett likes companies that are conservatively financed. Nonetheless, he has invested in companies with large financing divisions and in firms with rather high levels of debt. TJX has a debt of 774.5 million and earnings of 1,704.8 million, which could be used to pay off the debt in less than two years, which is considered exceptional. LOOK FOR CONSISTENTLY HIGHER THAN AVERAGE RETURN ON EQUITY: [PASS] Buffett likes companies with above average return on equity of at least 15% or better, as this is an indicator that the company has a durable competitive advantage. US corporations have, on average, returned about 12% on equity over the last 30 years. The average ROE for TJX, over the last ten years, is 37.7%, which is high enough to pass. It is not enough that the average be at least 15%. For each of the last 10 years, with the possible exception of the last fiscal year, the ROE must be at least 10% for Buffett to feel comfortable that the ROE is consistent. In addition, the average ROE over the last 3 years must also exceed 15%. The ROE for the last 10 years, from earliest to latest, is 38.9%, 36.9%, 33.2%, 34.4%, 32.7%, 33.8%, 40.2%, 40.2%, 41.4%, 45.0%, and the average ROE over the last 3 years is 42.2%, thus passing this criterion. LOOK FOR CONSISTENTLY HIGHER THAN AVERAGE RETURN ON TOTAL CAPITAL: [PASS] Because some companies can be financed with debt that is many times their equity, they can show a consistently high ROE, yet still be in unattractive price competitive businesses. To screen this out, for non-financial companies Buffett also requires that the average Return On Total Capital (ROTC) be at least 12% and consistent. In addition, the average ROTC over the last 3 years must also exceed 12%. Return On Total Capital is defined as the net earnings of the business divided by the total capital in the business, both equity and debt. The average ROTC for TJX, over the last ten years, is 28.4% and the average ROTC over the past 3 years is 33.6%, which is high enough to pass. It is not enough that the average be at least 12%. For each of the last 10 years, with the possible exception of the last fiscal year, the ROTC must be at least 9% for Buffett to feel comfortable that the ROTC is consistent. The ROTC for the last 10 years, from earliest to latest, is 26.0%, 25.5%, 24.7%, 24.1%, 24.2%, 24.1%, 34.1%, 31.6%, 33.0%, 36.2%, thus passing this criterion. LOOK AT CAPITAL EXPENDITURES: [PASS] Buffett likes companies that do not have major capital expenditures. That is, he looks for companies that do not need to spend a ton of money on major upgrades of plant and equipment or on research and development to stay competitive. TJX's free cash flow per share of $1.08 is positive, indicating that the company is generating more cash that it is consuming. This is a favorable sign, and so the company passes this criterion. LOOK AT MANAGEMENT'S USE OF RETAINED EARNINGS: [PASS] Buffett likes to see if management has spent retained earnings in a way that benefits shareholders. To figure this out, Buffett takes the total amount of retained earnings over the previous ten years of $8.35 and compares it to the gain in EPS over the same period of $1.40. TJX's management has proven it can earn shareholders a 16.8% return on the earnings they kept. This return is more than acceptable to Buffett. Essentially, management is doing a great job putting the retained earnings to work. HAS THE COMPANY BEEN BUYING BACK SHARES: [BONUS PASS] Buffett likes to see falling shares outstanding, which indicates that the company has been repurchasing shares. This indicates that management has been using excess capital to increase shareholder value. TJX's shares outstanding have fallen over the past five years from 855,900,024 to 751,000,000, thus passing this criterion. This is a bonus criterion and will not adversely affect the ability of a stock to pass the strategy as a whole if it is failed. The preceding concludes Buffett's qualitative analysis. If and when he gets positive responses to all the above criteria, he would then proceed with a price analysis. The price analysis will determine whether or not the stock should be bought. The following is how he would evaluate TJX quantitatively. STAGE 2: "Should I buy at this price?" Although a firm may be a Buffett type company, he won't invest in it unless he can get a favorable price that allows him a great long term return. CALCULATE THE INITIAL RATE OF RETURN: [No Pass/Fail] Buffett compares his type of stocks to bonds, and likes to see what a company's initial rate of return is. To calculate the initial rate of return, take the trailing 12-month EPS of $2.27 and divide it by the current market price of $45.60. An investor, purchasing TJX, could expect to receive a 4.98% initial rate of return. Furthermore, he or she could expect the rate to increase 13.4% per year, based on the analysts' consensus estimated long term growth rate, as this is how fast earnings are growing. COMPARE THE INITIAL RATE OF RETURN WITH THE LONG-TERM TREASURY YIELD: [PASS] Buffett favors companies in which the initial rate of return is around the long-term treasury yield. Nonetheless, he has invested in companies with low initial rates of return, as long as the yield is expected to expand rapidly. Currently, the long-term treasury yield is about 2.20%. Compare this with TJX's initial yield of 4.98%, which will expand at an annual rate of 13.4%, based on the analysts' consensus estimated long term growth rate. The company is the better choice, as the initial rate of return is close to or above the long term bond yield and is expanding. CALCULATE THE FUTURE EPS: [No Pass/Fail] TJX currently has a book value of $4.61. It is safe to say that if TJX can preserve its average rate of return on equity of 37.7% and continues to retain 82.04% of its earnings, it will be able to sustain an earnings growth rate of 30.9% and it will have a book value of $68.05 in ten years. If it can still earn 37.7% on equity in ten years, then expected EPS will be $25.64. CALCULATE THE FUTURE STOCK PRICE BASED ON THE AVERAGE ROE METHOD: [No Pass/Fail] Now take the expected future EPS of $25.64 and multiply them by the lower of the 5 year average P/E ratio or current P/E ratio (20.1) (5 year average P/E in this case), which is 14.7 and you get TJX's projected future stock price of $377.61. CALCULATE THE EXPECTED RATE OF RETURN BASED ON THE AVERAGE ROE METHOD: [No Pass/Fail] Now add in the total expected dividend pool to be paid over the next ten years, which is $8.69. This gives you a total dollar amount of $386.31. These numbers indicate that one could expect to make a 23.8% average annual return on TJX's stock at the present time. Buffett would consider this an absolutely fantastic expected return. CALCULATE THE EXPECTED FUTURE STOCK PRICE BASED ON AVERAGE EPS GROWTH: [No Pass/Fail] If you take the EPS growth of 13.4%, based on the analysts' consensus estimated long term growth rate, you can project EPS in ten years to be $8.00. Now multiply EPS in 10 years by the lower of the 5 year average P/E ratio or current P/E ratio (20.1) (5 year average P/E in this case), which is 14.7. This equals the future stock price of $117.79. Add in the total expected dividend pool of $8.69 to get a total dollar amount of $126.49. CALCULATE THE EXPECTED RETURN USING THE AVERAGE EPS GROWTH METHOD: [No Pass/Fail] Now you can figure out your expected return based on a current price of $45.60 and the future expected stock price, including the dividend pool, of $126.49. If you were to invest in TJX at this time, you could expect a 10.7% average annual return on your money. Buffett likes to see a 15% return, and would even go down to 12%. LOOK AT THE RANGE OF EXPECTED RATE OF RETURN: [PASS] Based on the two different methods, you could expect an annual compounding rate of return somewhere between 10.7% and 23.8%. To pinpoint the average return a little better, we have taken an average of the two different methods. Investors could expect an average return of 17.3% on TJX stock for the next ten years, based on the current fundamentals. Buffett would consider this a great return, thus passing the criterion.   NORTHROP GRUMMAN CORPORATION Profile Strategy: P/E/Growth Investor Based on: Peter Lynch Northrop Grumman Corporation (Northrop Grumman) provides products, services, and integrated solutions in aerospace, electronics, information and services to its global customers. As of December 31, 2011, the Company operated in four segments: Aerospace Systems, Electronic Systems, Information Systems and Technical Services. The Company conducts most of its business with the United States Government, principally the Department of Defense (DoD) and intelligence community. It also conducts business with local, state, and foreign Governments and domestic and international commercial customers. Effective as of March 31, 2011, the company completed the spin-off of Huntington Ingalls Industries, Inc. (HII). HII operates the Company's former shipbuilding business. Analysis Guru Score: 93% DETERMINE THE CLASSIFICATION: NOC is considered a "True Stalwart", according to this methodology, as its earnings growth of 18.60% lies within a moderate 10%-19% range and its annual sales of $25,590 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. NOC is attractive if NOC can hold its own during a recession. 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 NOC was 3.18% last year, while for this year it is 3.31%. Since inventory has been rising, this methodology would not look favorably at the stock but would not completely eliminate it from consideration as the inventory increase (0.12%) is below 5%. YIELD ADJUSTED P/E TO GROWTH (PEG) RATIO: [PASS] The Yield-adjusted P/E/G ratio for NOC (0.39), based on the average of the 3, 4 and 5 year historical eps growth rates, is excellent. EARNINGS PER SHARE: [PASS] The EPS for a stalwart company must be positive. NOC's EPS ($7.80) would satisfy this criterion. TOTAL DEBT/EQUITY RATIO: [PASS] This methodology would consider the Debt/Equity ratio for NOC (36.70%) 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 NOC (5.78%) 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 NOC (-5.48%) 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.   SOLARWINDS INC Profile Strategy: Small-Cap Growth Investor Based on: Motley Fool SolarWinds, Inc. (SolarWinds) designs, develops, markets, sells and supports enterprise information technology (IT), infrastructure management software to IT professionals in organizations of all sizes. The Company's product offerings range from individual software tools to more comprehensive software products that solve problems encountered by IT professionals. Its products are designed to help management of their infrastructure, including networks, applications, storage and physical and virtual servers, as well as products for log and event management. It offers a portfolio of products for IT infrastructure management. Its products operate in three categories: Free Tools, Transactional Products and Core Products. In January 2011, it acquired Hyper9, Inc. (Hyper9). In July 2011, it acquired TriGeo Network Security, Inc. (TriGeo). In October 2011, it acquired DNS Enterprise, Inc. (DNS). In December 2011, it acquired certain assets of DameWare Development LLC (DameWare). Analysis Guru Score: 83% 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. SWI's profit margin of 31.61% passes this test. RELATIVE STRENGTH: [PASS] The investor must look at the relative strength of the company in question. Companies whose relative strength is 90 or above (that is, the company outperforms 90% or more of the market for the past year), are considered attractive. Companies whose price has been rising much quicker than the market tend to keep rising. SWI, with a relative strength of 97, satisfies this test. COMPARE SALES AND EPS GROWTH TO THE SAME PERIOD LAST YEAR: [PASS] Companies must demonstrate both revenue and net income growth of at least 25% as compared to the prior year. These growth rates give you the dynamic companies that you are looking for. These rates for SWI (44.44% for EPS, and 39.76% for Sales) are good enough to pass. INSIDER HOLDINGS: [FAIL] SWI's insiders should own at least 10% (they own 0.63%) of the company's outstanding shares. This does not satisfy the minimum requirement, and companies that do not pass this criteria are less attractive. CASH FLOW FROM OPERATIONS: [PASS] A positive cash flow is typically used for internal expansion, acquisitions, dividend payments, etc. A company that generates rather than consumes cash is in much better shape to fund such activities on their own, rather than needing to borrow funds to do so. SWI's free cash flow of $1.45 per share passes this test. PROFIT MARGIN CONSISTENCY: [PASS] SWI's profit margin has been consistent or even increasing over the past three years (Current year: 31.48%, Last year: 29.37%, Two years ago: 25.34%), passing the requirement. It is a sign of good management and a healthy and competitive enterprise. R&D AS A PERCENTAGE OF SALES: [PASS] SWI is either maintaining the same levels of R&D expenditures(currently $21.3 million) or increasing these levels which is a good sign. This allows the company to develop the superior technology and new products that will put everyone else out of business. This criterion is particularly important for high-tech and medical stocks because they are so R&D dependant. CASH AND CASH EQUIVALENTS: [PASS] SWI's level of cash $152.4 million passes this criteria. If a company is a cash generator, like SWI, it has the ability to pay off debt (if it has any) or acquire other companies. Most importantly, good operations generate cash. ACCOUNT RECEIVABLE TO SALES: [PASS] This methodology wants to make sure that a company's accounts receivable do not get significantly out of line with sales. It's a warning sign if a company's accounts receivable relative to sales increases significantly when compared to the previous year. Up to a 30% increase is allowed, but no more. Accounts Receivable to Sales for SWI was 20.08% last year, while for this year it is 13.65%. Since the AR to sales is decreasing by -6.43% the stock passes this criterion. LONG TERM DEBT/EQUITY RATIO: [PASS] SWI's trailing twelve-month Debt/Equity ratio (0.00%) is at a great level according to this methodology because the superior companies that you are looking for don't need to borrow money in order to grow. "THE FOOL RATIO" (P/E TO GROWTH): [FAIL] The "Fool Ratio" is an extremely important aspect of this analysis. The methodology says consider shorting shares when the company's Fool Ratio is greater than 1.30. SWI's PEG Ratio of 1.59 is very high. The following criteria for SWI are less important which means you would place less emphasis on them when making your investment decision using this strategy: AVERAGE SHARES OUTSTANDING: [PASS] SWI has not been significantly increasing the number of shares outstanding within recent years which is a good sign. SWI currently has 76.0 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. SWI's sales of $233.3 million based on trailing 12 month sales, are fine, making this company one such "prospective gem". SWI passes the sales test. DAILY DOLLAR VOLUME: [FAIL] SWI does not pass the Daily Dollar Volume (DDV of $62.9 million) test. It exceeds the maximum requirement of $25 million. Stocks that fail the test are too liquid for a small individual investor and many institutions have already discovered it. PRICE: [PASS] This is a very insignificant criterion for this methodology. But basically, low prices are chosen because "small numbers multiply more rapidly than large ones" and the potential for big returns expands. SWI with a price of $54.45 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] SWI's income tax paid expressed as a percentage of pretax income this year was (26.37%) and last year (26.82%) 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.   APOLLO GROUP INC Profile Strategy: P/E/Growth Investor Based on: Peter Lynch Apollo Group, Inc. (Apollo Group) is a private education provider. The Company offers educational programs and services both online and on-campus at the undergraduate, master's and doctoral levels through its wholly owned subsidiaries, The University of Phoenix, Inc. (University of Phoenix); Institute for Professional Development (IPD); The College for Financial Planning Institutes Corporation (CFFP), and Meritus University, Inc. (Meritus). Apollo Group also formed a joint venture with The Carlyle Group (Carlyle), called Apollo Global, Inc. (Apollo Global), to pursue investments primarily in the international education services industry. As of August 31, 2011, Apollo Group owned 85.6% of Apollo Global, with Carlyle owning the remaining 14.4%. During the year ended December 31, 2011, the Other Schools segment includes IPD and CFFP, as well as Meritus University, Inc. (Meritus), which ceased operations. Analysis Guru Score: 98% DETERMINE THE CLASSIFICATION: APOL is considered a "True Stalwart", according to this methodology, as its earnings growth of 12.07% lies within a moderate 10%-19% range and its annual sales of $4,401 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. APOL is attractive if APOL can hold its own during a recession. YIELD ADJUSTED P/E TO GROWTH (PEG) RATIO: [PASS] The Yield-adjusted P/E/G ratio for APOL (0.53), 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. APOL's EPS ($4.15) would satisfy this criterion. TOTAL DEBT/EQUITY RATIO: [PASS] This methodology would consider the Debt/Equity ratio for APOL (13.94%) to be acceptable (equity is three to ten times debt). This ratio is one quick way to determine the financial strength of the company. FREE CASH FLOW: [NEUTRAL] The Free Cash Flow/Price ratio, though not a requirement, is considered a bonus if it is above 35%. A positive Cash Flow (the higher the better) separates a wonderfully reliable investment from a shaky one. This methodology prefers not to invest in companies that rely heavily on capital spending. This ratio for APOL (19.58%) is too low to add to the attractiveness of the stock. Keep in mind, however, that it does not adversely affect the company as it is a bonus criteria. NET CASH POSITION: [BONUS PASS] Another bonus for a company is having a Net Cash/Price ratio above 30%. Lynch defines net cash as cash and marketable securities minus long term debt. According to this methodology, a high value for this ratio dramatically cuts down on the risk of the security. The Net Cash/Price ratio for APOL (47.05%) is considered favorable.   HOLLYFRONTIER CORP Profile Strategy: Price/Sales Investor Based on: Kenneth Fisher 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: 90% PRICE/SALES RATIO: [PASS] The prospective company should have a low Price/Sales ratio. Non-cyclical (non-Smokestack) companies with Price/Sales ratios below 0.75 are tremendous values and should be sought. HFC's P/S of 0.41 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. HFC's Debt/Equity of 24.30% 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. HFC 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 HFC At this Point Is HFC 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.HFC's P/S ratio of 0.41 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%. HFC's inflation adjusted EPS growth rate of 38.26% 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. HFC's free cash per share of 4.47 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. HFC, whose three year net profit margin averages 2.76%, fails this evaluation.   AUTOLIV INC. Profile Strategy: Price/Sales Investor Based on: Kenneth Fisher Autoliv, Inc. (Autoliv) is a holding company. Autoliv is the supplier of automotive safety systems, with a range of product offerings, including modules and components for passenger and driver-side airbags, side-impact airbag protection systems, seatbelts, steering wheels, safety electronics, whiplash protection systems and child seats, as well as night vision systems, radar and other active safety systems. Autoliv has two main operating segments: airbags/seatbelt (including restraint electronics) products and active safety electronics products. In addition, in April 2010, Autoliv Inc.'s Automotive Holding AS increased its stake in Norma AS from 51% to 93.74%. Additionally, Skandinaviska Enskilda Banken AB and ING Luxembourg SA sold their 6.67% and 10% stake, respectively, held in Norma AS. In November 2011, the Company acquired the airbag cushion cut&sew assets from Milliken. In June 2012, the Company sold its subsidiary Autoliv Mekan AB to Verktygs Allians i Hassleholm AB. Analysis Guru Score: 100% PRICE/SALES RATIO: [PASS] The prospective company should have a low Price/Sales ratio. Non-cyclical (non-Smokestack) companies with Price/Sales ratios below 0.75 are tremendous values and should be sought. ALV's P/S of 0.67 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. ALV's Debt/Equity of 18.07% 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. ALV 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 ALV At this Point Is ALV a "Super Stock"? YES PRICE/SALES RATIO: [PASS] The prospective company should have a low Price/Sales ratio. Non-cyclical(non-Smokestack) companies with Price/Sales ratios below .75 are tremendous values and should be sought.ALV's P/S ratio of 0.67 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%. ALV's inflation adjusted EPS growth rate of 19.24% 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. ALV's free cash per share of 2.52 passes this criterion. THREE YEAR AVERAGE NET PROFIT MARGIN: [PASS] This methodology looks for companies that have an average net profit margin of 5% or greater over a three year period. ALV, whose three year net profit margin averages 5.34%, passes this evaluation.   NU SKIN ENTERPRISES, INC. Profile Strategy: Growth Investor Based on: Martin Zweig Nu Skin Enterprises, Inc. is a global direct selling company with operations in 52 markets worldwide. The Company develops and distributes anti-aging personal care products and nutritional supplements under its Nu Skin and Pharmanex brands, respectively. The Company operates through a direct selling model with independent distributors in all of its markets except Mainland China. As of December 31, 2011, the Company had more than 850,000 distributors. The Company has two primary product categories, each operating under its own brand. It markets its personal care products under the Nu Skin brand and its nutritional supplements under the Pharmanex brand. During the year ended December 31, 2011, approximately 88% of its revenues came from its markets outside of the United States. On December 13, 2011, the Company acquired LifeGen Technologies, LLC (LifeGen). 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. NUS's P/E is 13.05, based on trailing 12 month earnings, while the current market PE is 17.00. 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. NUS's revenue growth is 10.61%, while it's earnings growth rate is 36.16%, based on the average of the 3, 4 and 5 year historical eps growth rates. Therefore, NUS 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 (39.8%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (16.7%) of the current year. Sales growth for the prior must be greater than the latter. For NUS 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. NUS's EPS ($0.94) pass this test. QUARTERLY EARNINGS ONE YEAR AGO: [PASS] The EPS for the quarter one year ago must be positive. NUS's EPS for this quarter last year ($0.65) 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. NUS's growth rate of 44.62% 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 NUS is 18.08%. This should be less than the growth rates for the 3 previous quarters, which are 30.91%, 31.03%, and 208.33%. NUS 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, 62.04%, (versus the same three quarters a year earlier) is greater than the growth rate of the current quarter earnings, 44.62%, (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 NUS is 44.6%, and it would therefore pass this test. EPS GROWTH FOR CURRENT QUARTER MUST BE GREATER THAN THE HISTORICAL GROWTH RATE: [PASS] The EPS growth rate for the current quarter, 44.62% must be greater than or equal to the historical growth which is 36.16%. NUS 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. NUS, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were 0.67, 1.02, 1.40, 2.11 and 2.38, 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. NUS's long-term growth rate of 36.16%, 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. NUS's Debt/Equity (38.57%) is not considered high relative to its industry (121.71%) 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 NUS, this criterion has not been met (insider sell transactions are 87, while insiders buying number 79). 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.   WORLD ACCEPTANCE CORP. Profile Strategy: Growth Investor Based on: Martin Zweig World Acceptance Corporation operates a small-loan consumer finance business in 12 states and Mexico. The Company is engaged in the small-loan consumer finance business, offering short-term small loans, medium-term larger loans, related credit insurance and ancillary products and services to individuals. As of March 31, 2012, the Company offered standardized installment loans through 1,137 offices in South Carolina, Georgia, Texas, Oklahoma, Louisiana, Tennessee, Illinois, Missouri, New Mexico, Kentucky, Alabama, Wisconsin, and Mexico. The Company serves individuals with limited access to consumer credit from banks, credit unions, other consumer finance businesses and credit card lenders. In the United States offices, the Company also offers income tax return preparation services to its customers and others. 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. WRLD's P/E is 10.45, based on trailing 12 month earnings, while the current market PE is 17.00. 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. WRLD's revenue growth is 11.99%, while it's earnings growth rate is 22.74%, based on the average of the 3, 4 and 5 year historical eps growth rates. Therefore, WRLD 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 (7.9%) 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 WRLD 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. WRLD's EPS ($1.63) pass this test. QUARTERLY EARNINGS ONE YEAR AGO: [PASS] The EPS for the quarter one year ago must be positive. WRLD's EPS for this quarter last year ($1.27) 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. WRLD's growth rate of 28.35% 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 WRLD is 11.37%. This should be less than the growth rates for the 3 previous quarters, which are 20.63%, 16.07%, and 20.38%. WRLD 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, 19.38%, (versus the same three quarters a year earlier) is less than the growth rate of the current quarter earnings, 28.35%, (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, 28.35% must be greater than or equal to the historical growth which is 22.74%. WRLD 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. WRLD, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were 2.89, 3.43, 4.45, 5.63 and 6.59, 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. WRLD's long-term growth rate of 22.74%, based on the average of the 3, 4 and 5 year historical eps growth rates, 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 WRLD, this criterion has not been met (insider sell transactions are 127, while insiders buying number 73). 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.   TRIUMPH GROUP INC Profile Strategy: Growth Investor Based on: Martin Zweig Triumph Group, Inc. (Triumph) designs, engineers, manufactures, repairs, overhauls and distributes a portfolio of aerostructures, aircraft components, accessories, subassemblies and systems. The Company serves a range of the aviation industry, including original equipment manufacturers (OEMs), of commercial, regional, business and military aircraft and aircraft components, as well as commercial and regional airlines and air cargo carriers. The Company offers a range of products and services to the aerospace industry through three groups of operating segments: Triumph Aerostructures Group, whose companies' revenues are derived from the design, manufacture, assembly and integration of metallic and composite aerostructures and structural components for the global aerospace OEM, market; Triumph Aerospace Systems Group, and Triumph Aftermarket Services Group, whose companies serve aircraft fleets. 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. TGI's P/E is 9.96, based on trailing 12 month earnings, while the current market PE is 17.00. 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. TGI's revenue growth is 33.40%, while it's earnings growth rate is 27.23%, based on the average of the 3, 4 and 5 year historical eps growth rates. Therefore, TGI 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 (5%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (3%) of the current year. Sales growth for the prior must be greater than the latter. For TGI 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. TGI's EPS ($1.46) pass this test. QUARTERLY EARNINGS ONE YEAR AGO: [PASS] The EPS for the quarter one year ago must be positive. TGI's EPS for this quarter last year ($0.99) 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. TGI's growth rate of 47.47% 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 TGI is 13.61%. This should be less than the growth rates for the 3 previous quarters, which are 34.52%, 44.32%, and 93.33%. TGI 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, 59.93%, (versus the same three quarters a year earlier) is greater than the growth rate of the current quarter earnings, 47.47%, (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 TGI is 47.5%, 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, 47.47% must be greater than or equal to the historical growth which is 27.23%. TGI 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. TGI, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were 2.04, 2.80, 2.56, 3.21, and 5.43, 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. TGI's long-term growth rate of 27.23%, 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. TGI's Debt/Equity (58.99%) is not considered high relative to its industry (118.94%) 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 TGI, this criterion has not been met (insider sell transactions are 21, while insiders buying number 20). 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.   ASTRAZENECA PLC (ADR) Profile Strategy: Contrarian Investor Based on: David Dreman AstraZeneca PLC (AstraZeneca) is a global biopharmaceutical company. AstraZeneca discovers, develops and commercializes prescription medicines for six areas of healthcare: Cardiovascular, Gastrointestinal, Infection, Neuroscience, Oncology, and Respiratory and Inflammation. It has a range of medicines that includes treatments for illnesses, such as its antibiotic, Merrem/Meronem and Losec/Prilosec for acid related diseases. AstraZeneca's products include Crestor, Atacand,Seloken/Toprol-XL, Plendil, Onglyza, Zestril, Symbicort and Zoladex. The Company owns and operates a range of research and development (R&D), production and marketing facilities worldwide. AstraZeneca operates in over 100 countries, including China, Mexico, Brazil and Russia. In August 2012, Alliance Pharma plc's subsidiary, Alliance Pharmaceuticals Limited, acquired the antimalRoboto brands. In August 2012, the Company announced the acquisition of Amylin Pharmaceuticals, Inc. by Bristol-Myers Squibb Company. 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. AZN has a market cap of $58,462 million, therefore passing the test. EARNINGS TREND: [FAIL] A company should show a rising trend in the reported earnings for the most recent quarters. AZN's EPS for the latest quarter is not greater than the prior quarter, (from earliest to most recent quarter) 1.28, 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. AZN's EPS growth rate over the past 6 months (12.38%) has beaten that of the S&P (5.37%), but AZN's estimated EPS growth for the current year is (-16.85%) while that of the S&P is (13.81%), therefore failing this test. This methodology would utilize four separate criteria to determine if AZN 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. AZN's P/E of 7.54, based on trailing 12 month earnings, meets the bottom 20% criterion (below 8.60), 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. AZN's P/CF of 5.43 does not meet the bottom 20% criterion (below 4.75), 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. AZN's P/B is currently 2.69, which does not meet the bottom 20% criterion (below 0.71), and it therefore fails this test. PRICE/DIVIDEND (P/D) RATIO: [PASS] 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%). AZN's P/D of 16.50 meets the bottom 20% criterion (below 18.76 or yield above 3.7% ), and it therefore passes 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: [FAIL] A prospective company must have a strong Current Ratio (greater than or equal to the average of it's industry [1.79] or greater than 2). This is one identifier of financially strong companies, according to this methodology. AZN's current ratio of 1.34 fails 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 AZN is 44.47%, while its historical payout ratio has been 45.36%. 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 17.14%, and would consider anything over 27% to be staggering. The ROE for AZN of 36.00% 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. AZN's pre-tax profit margin is 32.51%, thus passing this criterion. YIELD: [PASS] The company in question should have a yield that is high and that can be maintained or increased. AZN's current yield is 6.06%, while the market yield is 2.82%. AZN passes 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 52.40%. AZN's Total Debt/Equity of 42.30% is considered acceptable.   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 CSTR COINSTAR, INC. Recreational Activities 54 LKQ LKQ CORPORATION Auto & Truck Parts 54 BRLI BIO-REFERENCE LABORATORIES INC Healthcare Facilities 42 STX SEAGATE TECHNOLOGY PLC Computer Storage Devices 40 ASPS ALTISOURCE PORTFOLIO SOLUTIONS S.A. Consumer Financial Services 39 STO STATOIL ASA(ADR) Oil & Gas - Integrated 38 MNST MONSTER BEVERAGE CORP Beverages (Non-Alcoholic) 38 GME GAMESTOP CORP. Retail (Technology) 37 FRX FOREST LABORATORIES, INC. Biotechnology & Drugs 36 USTR UNITED STATIONERS INC. Office Supplies 36

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