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Executive Summary	December 24, 2009

The Economy While it isn't what one would call robust, the economic recovery nonetheless seems to be continuing as we head toward 2010. Since our last newsletter, we've learned that Gross Domestic Product actually grew at a 2.2% pace in the third quarter -- significantly lower than the initial estimate of 3.5%, and still short of the downwardly revised 2.8% figure issued last month. That's much lower than the typical growth seen coming out of recessions, though growth of any kind is welcome news given the breadth and depth of the recession. The good news within the GDP revision was that, while downward adjustments to consumer spending numbers were largely to blame, those adjustments were in large part due to lower spending on health care; spending on clothes, food, gas, and durable goods like automobiles was about as strong as previously thought. Industrial production, meanwhile, continues to increase. According to the Federal Reserve, it grew by 0.8% in November, rising for the fourth time in five months. The report showed that manufacturing activity also increased for the fourth time in five months. And, it showed that industrial capacity utilization -- which tumbled to very low levels earlier this year -- rose again, reaching its highest level of the year. In the housing market, the news has been very mixed. Tuesday, the National Association of Realtors reported that existing-home sales rose 7.4% in November, reaching their highest level since February 2007. Sales are now 44% higher than they were a year ago, the group said. But on Wednesday, a government report showed that sales of new one-family houses plunged 11.3% in November. Sales prices rose, however, increasing from an average of $255,900 in October to $280,300 in November. While they were buying new houses at a slow pace, consumers were on the whole spending more money in November, a good sign. Personal incomes increased at a 0.4% rate -- the highest pace in six months -- and consumers upped their spending by 0.5%, the second straight monthly increase. Consumers' struggles have been at the center of the debate on how strong the recovery will be, with many saying that overleveraged consumers -- who make up about two-thirds of the U.S. economy -- won't spend enough to drive a robust recovery. The increase in consumer spending is thus very good news. Directly connected to consumer spending is another key factor in the recovery: unemployment. The latest jobs data showed that initial claims for unemployment rose slightly in the most recent week (ending Dec. 12), the second straight weekly increase. And, while the figure is about 15% below year-ago levels, it remains high. Another major factor to keep an eye on is the dollar, which over the past fortnight has shown surprising strength. As of yesterday afternoon, the dollar was up more than 5% since Dec. 3 against the Euro, and more than 6% against the Yen. The consensus seemed to be that the dollar was gaining on speculation that the U.S. recovery will lead the Federal Reserve to increase interest rates next summer. The dollar's rise corresponded with gains for the stock market -- an unusual event over the past couple months, when the two have moved in opposite directions from each other. The S&P 500 has gained 2.2% since our last newsletter, while the Hot List was even better, rising 6.9%. Since its inception in July 2003, the Hot List has gained 140.7%, while the S&P is up just 12.0%. What Worked -- and What Didn't All in all, 2009 has been a very strong year for the Hot List, with the portfolio's 46.8% gain nearly doubling the S&P 500's 24.1% rise. It has almost wiped out the losses from a rough 2008 (the portfolio is down about 6% since the start of '08), something the broader market cannot claim (the S&P remains down close to 25% over the same period). Given that this will be the final Hot List issue before the new year, I thought it would be good to take a look back at the past 12 months and see just where the portfolio got the most value, as well as where it misfired. Let's start with the positives. One main area in which the Hot List found a lot of value in 2009 was the retail/consumer discretionary arena. The strength retail showed was a good example of why sticking with a strategy is so important. Many of the year's best picks were retailers, and the Hot List was early in snatching up some of them.. Eventually, however, the value of these bargain stocks shone through, leading to some huge gains. A case in point is one of the year's best performers, The Dress Barn, a women's bargain clothing chain. The Hot List picked up Dress Barn on Jan. 23. At the time, the retail outlook was bleak, and Dress Barn scuffled for the first few weeks it was in the portfolio. But then it took off, and by the time the Hot List sold the stock on April 17, it had gained 70.1%. Dress Barn wasn't through helping the Hot List, however. It returned to the portfolio on July 10, gaining another 23.5% before the Hot List sold it on August 7. (Interestingly, in the April 18-July 9 period in which Dress Barn was out of the portfolio, the stock lost about 11%.) Another retailer that excelled was Jos. A. Bank Clothiers, the men's retailer whose discount-driven promotions helped it keep boosting sales in a rough climate in recent years. The Hot List picked up Bank on Feb. 20 and held it until October 2, earning a 78.2% profit along the way. One of the portfolio's quickest risers of 2009 was another consumer discretionary stock, Deckers, which makes a variety of casual footwear and accessories. Deckers was in the Hot List for just one rebalancing period (May 15-June 12), but it surged 46.2% in that time. Another consumer goods firm that had a short stay but big rise was Chinese jeweler Fuqi International. The Hot List snatched up Fuqi on June 12, and sold it on Sept. 4 for a 64.1% profit. There were, however, consumer discretionary picks that didn't fly. Sketchers, the casual footwear maker, had been losing ground while in the Hot List in the latter part of 2008. It continued its downward path in 2009, losing 46% from the start of the year through Feb. 20, when the Hot List cut bait on it. Toymaker JAKKS Pacific also struggled, losing 33% from the point it joined the portfolio (a few days before the new year) until the Hot List sold it on Feb. 20. On the whole, however, these consumer-type stocks were a major boon for the portfolio in '09. Another area that contributed to the Hot List's outperformance: energy. While the energy sector was in the middle of the pack in terms of the broader market's performance, the Hot List found several big winners. Oil services firm Oil States International gained 59.3% while in the portfolio from March 20-May 15. It then returned to the Hot List a month later, gaining 5.1% from June 12-Aug.7, and was then picked up again on Oct. 30 and has gained another 15% (through yesterday). Another oil services firm that had more than one strong stint in the Hot List in '09 was World Fuel Services. The Miami-based firm gained 28.4% while in the portfolio from March 20-May 15, and then returned from Sept. 9-Nov. 27, gaining another 17.7%. (It also lost 10.6% during a June 12-July 10 stint.) Lufkin Industries, yet another oil services firm, packed a similar one-two punch, gaining 23.0% from May 15-June12, and then returning to the Hot List to gain another 22.0% from July 10-Aug.7. (Like World Fuel, Lufkin also had a losing stint in the portfolio, dropping 8% from March 20-April 17.) Other big winners during 2009: Schnitzer Steel, which gained 65.9% while in the portfolio from Jan. 23-June 12; Net 1 UEPS Technologies, which makes card-based payment systems for underserved areas in developing countries and gained 23.9% from Jan. 23-Feb. 20; and Chinese I/T firm VanceInfo Technologies, which gained 28% from Sept. 4-Nov. 27. While there weren't a lot of big losers in 2009, there were some, and several came from the capital goods sector. Industrial firm Kennametal joined the portfolio a few days before the start of 2009, and lost 28.6% by the time it was sold on March 20. The Hot List then snatched it up again on April 17, only to be disappointed again when the stock tumbled another 16.8% before the portfolio cut bait on May 15. Welding and cutting tool specialist Lincoln Electric, meanwhile, lost 18.1% while in the Hot List from Feb. 20-March 20, and manufacturer Esterline Technologies, which serves the aerospace & defense industries, joined the portfolio a few days before the start of 2009 and lost 45% by the time it was sold on March 20. Infrastructure play Astec Industries also lost 14.1% while in the portfolio from Aug. 7-Sept. 4. Other disappointments outside the capital goods sector included Frontier Oil, which lost 20% from June 12-Nov. 27, and clothing retailer Genesco, which dropped 20.1% from June 12-July 10. New Decade, Same Approach Now, as 2009 passes into the rearview mirror, I'm optimistic about 2010. The economy is steadying itself, huge amounts of government stimulus money have yet to make their way into the system, and interest rates remain at or near historically low levels -- all of which bode well for stocks. While I'm not counting on 2010 to feature the same huge gains that we've seen this year, I'm also not ruling it out. Remember, the last time the market had a big rebound year was 2003, when the Hot List surged 57% (vs. 11.1% for the S&P); that didn't mean the portfolio was out of steam, however -- it gained another 23.5% in 2004, more than doubling the S&P. There's a lot of talk that 2010 will be a stock-picker's market; if it is, the Hot List should fare well, given its ability to find the most fundamentally sound, attractively priced stocks in the market. Whatever the case may be for the broader market and economy in the new year, we'll stick to our long-term strategy. By doing that and fighting off the temptation to flee the market when things looked quite dire earlier in the year, the Hot List was able to reap the benefits of one of the best rallies in history, while many skeptics sat on the sidelines. Over the long term, I think that type of discipline will allow the portfolio to continue to beat the market by a substantial margin.		Editor-in-Chief: John Reese Since Inception   Hot List 140.7% S&P 500 12.0% Accuracy 56.5% Beta 1.2 YTD   Hot List 46.8% S&P 500 24.1% Since Last Issue   Hot List 6.7% S&P 500 2.2% Avg. Fundamentals   Market Cap (mil) $18,841 PE Ratio 18.3 5 Yr EPS Growth 38.7% Yield 1.9% Rel. Strength 69 Portfolio Sectors Energy 3 Services 2 Technology 1 Transportation 1 Financial 1 Capital Goods 1 Consumer Cyclical 1
Hot List Editor John Reese Announces Publication of New Book The Guru Investor shows you how to implement the strategies of Wall Street legends like Warren Buffett, Peter Lynch and Benjamin Graham in your own portfolio. Buy Your Copy Now! The Fallen As we rebalance the Validea Hot List, 2 stocks leave our portfolio. These include: Jacobs Engineering Group Inc. (JEC), Emcor Group, Inc. (EME), . The Keepers 8 stocks remain in the portfolio. They are: Itt Educational Services, Inc. (ESI), Tidewater Inc. (TDW), National-oilwell Varco, Inc. (NOV), Oil States International, Inc. (OIS), Chevron Corporation (CVX), Aeropostale, Inc. (ARO), Dresser-rand Group Inc. (DRC) and Fuqi International, Inc. (FUQI). The Newbies We are adding 2 stocks to the portfolio. These include: World Acceptance Corp. (WRLD), Telvent Git, S.a (TLVT), . Portfolio Changes Additions   WORLD ACCEPTANCE CORP. WRLD TELVENT GIT, S.A TLVT Deletions   JACOBS ENGINEERING GROUP INC. JEC EMCOR GROUP, INC. EME Newcomers to the Validea Hot List Telvent GIT SA (TLVT): This Spain-based global I/T firm focuses on markets involving sustainable use of resources, including the energy, transportation, agricultural and environmental sectors. Some of its work involves helping manage energy sources more efficiently, reducing CO2 emissions by reducing traffic congestion, and optimizing the complete water cycle. The $1.3-billion-market-cap firm has taken in about $1.2 billion in sales in the past year. Telvent gets approval from two of my models, the Momentum Investor approach and my James O'Shaughnessy-based growth strategy. To see why, scroll down to the "Detailed Stock Analysis" section below. World Acceptance Corp. (WRLD): Based in Greenville, S.C., World Acceptance 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. It's a small-cap (about $560 million), and it has taken in about $420 million in sales in the past year. World Acceptance gets approval from four of my Guru Strategies, those I base on the approaches of Peter Lynch, Warren Buffett, Martin Zweig, and James O'Shaughnessy. The "Detailed Stock Analysis" section below explains why. News about Validea Hot List Stocks Chevron Corp (CVX): Chevron said last week that it has closed a deal with Chubu Electric Power Co. of Japan for about 20% of Chevron's share of natural gas from the Gorgon project in Australia. The deal includes a 0.417 percent equity stake and 1.44 million metric tons per year of liquefied natural gas from the $40 billion-plus Gorgon project, which is located on Barrow Island off Western Australia, Reuters reported. Chevron currently owns just over 47% of the project, according to Reuters. Oil States International (OIS): An Oil States subsidiary has received a $460 million contract from Imperial Oil Ltd. to provide lodging for workers during the development of the Kearl oil sands project in Northeast Alberta, Canada, the Associated Press reported. The contract begins April 1 and runs through March 31, 2013, AP said. The Next Issue On Friday, Jan. 8, we will publish another issue of the Hot List, at which time we will take an in-depth look at one of my individual Guru Strategies. If you have any questions, please feel free to contact us at hotlist@validea.com.

Current Portfolio Ticker Company Name Industry Guru Score FUQI FUQI INTERNATIONAL, INC. Jewelry & Silverware 84 WRLD WORLD ACCEPTANCE CORP. Consumer Financial Services 75 TLVT TELVENT GIT, S.A Computer Services 75 ARO AEROPOSTALE, INC. Retail (Apparel) 71 OIS OIL STATES INTERNATIONAL, INC. Oil Well Services & Equipment 63 NOV NATIONAL-OILWELL VARCO, INC. Oil Well Services & Equipment 63 CVX CHEVRON CORPORATION Oil & Gas - Integrated 60 DRC DRESSER-RAND GROUP INC. Misc. Capital Goods 57 ESI ITT EDUCATIONAL SERVICES, INC. Schools 49 TDW TIDEWATER INC. Water Transportation 43 Ticker Market Cap Date Added Start Price Current Price Return FUQI $517 10/30/2009 $20.49 $18.72 -8.6% WRLD $573 12/24/2009 TBD $35.24 TBD TLVT $1,311 12/24/2009 TBD $38.88 TBD ARO $2,199 11/27/2009 $31.49 $33.28 5.7% OIS $1,972 10/30/2009 $34.44 $39.63 15.1% NOV $18,729 10/30/2009 $40.99 $44.77 9.2% CVX $154,563 11/27/2009 $78.17 $77.04 -1.4% DRC $2,637 11/27/2009 $28.46 $31.96 12.3% ESI $3,464 10/30/2009 $90.35 $93.77 3.8% TDW $2,446 10/30/2009 $41.67 $47.30 13.5%

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 FUQI   |   WRLD   |   TLVT   |   ARO   |   OIS   |   NOV   |   CVX   |   DRC   |   ESI   |   TDW   |   FUQI INTERNATIONAL, INC. Profile Strategy: P/E/Growth Investor Based on: Peter Lynch Fuqi International, Inc. (Fuqi) is a designer of precious metal jewelry in China, developing, promoting, and selling a range of products in the Chinese luxury goods market. The Company's products consist of a range of styles and designs made from gold and other precious metals, such as platinum and Karat gold (K-gold). The Company also produce jewelry items that contain diamonds and other precious stones on a custom-order basis. Its design database contains over 30,000 products. The Company operates through its wholly owned subsidiary Fuqi International Holdings Co., Ltd. (Fuqi BVI) and its wholly owned subsidiary, Shenzhen Fuqi Jewelry Co., Ltd. (Fuqi China). As of December 31, 2008, the Company had 69 jewelry retail counters and stores in China. Analysis Guru Score: 93% DETERMINE THE CLASSIFICATION: This methodology would consider FUQI a "fast-grower". P/E/GROWTH RATIO: [PASS] The investor should examine the P/E (8.97) relative to the growth rate (42.99%), based on the average of the 3, 4 and 5 year historical eps growth rates, for a company. This is a quick way of determining the fairness of the price. In this particular case, the P/E/G ratio for FUQI (0.21) 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. FUQI, whose sales are $466.9 million, is not considered large enough to apply the P/E ratio analysis. However, an investor can analyze the P/E ratio relative to the EPS growth rate. INVENTORY TO SALES: [PASS] When inventories increase faster than sales, it is a red flag. However an increase of up to 5% is considered bearable if all other ratios appear attractive. Inventory to sales for FUQI was 20.36% last year, while for this year it is 12.08%. Since inventory to sales has decreased from last year by -8.28%, FUQI passes this test. EPS GROWTH RATE: [PASS] This methodology favors companies that have several years of fast earnings growth, as these companies have a proven formula for growth that in many cases can continue many more years. This methodology likes to see earnings growth in the range of 20% to 50%, as earnings growth over 50% may be unsustainable. The EPS growth rate for FUQI is 43.0%, based on the average of the 3, 4 and 5 year historical eps growth rates, which is considered 'OK'. However, it may be difficult to sustain such a high growth rate. TOTAL DEBT/EQUITY RATIO: [PASS] This methodology would consider the Debt/Equity ratio for FUQI (16.74%) 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 FUQI (-2.24%) 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 FUQI (11.92%) 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.   WORLD ACCEPTANCE CORP. Profile Strategy: P/E/Growth Investor Based on: Peter Lynch World Acceptance Corporation 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. The Company offers standardized installment loans through 944 offices in South Carolina, Georgia, Texas, Oklahoma, Louisiana, Tennessee, Illinois, Missouri, New Mexico, Kentucky, Alabama and Mexico as of March 31, 2009. World Acceptance Corporation serves individuals with limited access to consumer credit from banks, savings and loans, other consumer finance businesses and credit card lenders. The Company also offers income tax return preparation services and access to refund anticipation loans through a third party bank to its customers and others. During the fiscal year ended March 31, 2009 (fiscal 2009), the Company opened 98 new offices, 11 other offices were purchased and three offices were closed or merged into other existing offices. Analysis Guru Score: 93% DETERMINE THE CLASSIFICATION: This methodology would consider WRLD a "fast-grower". P/E/GROWTH RATIO: [PASS] The investor should examine the P/E (8.56) relative to the growth rate (20.85%), based on the average of the 3, 4 and 5 year historical eps growth rates, for a company. This is a quick way of determining the fairness of the price. In this particular case, the P/E/G ratio for WRLD (0.41) 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. WRLD, whose sales are $418.0 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. EPS GROWTH RATE: [PASS] This methodology favors companies that have several years of fast earnings growth, as these companies have a proven formula for growth that in many cases can continue many more years. This methodology likes to see earnings growth in the range of 20% to 50%, as earnings growth over 50% may be unsustainable. The EPS growth rate for WRLD is 20.9%, based on the average of the 3, 4 and 5 year historical eps growth rates, which is considered very good. TOTAL DEBT/EQUITY RATIO: [NEUTRAL] WRLD is a financial company so debt to equity rules are not applied to determine the company's financial soundness. EQUITY/ASSETS RATIO: [PASS] This methodology uses the Equity/Assets Ratio as a way to determine a financial intermediary's health, as it is a better measure than the Debt/Equity Ratio. WRLD's Equity/Assets ratio (57.00%) is extremely healthy and above the minimum 5% this methodology looks for, thus passing the criterion. RETURN ON ASSETS: [PASS] This methodology uses Return on Assets as a way to measure a financial intermediary's profitability. WRLD's ROA (12.21%) is above the minimum 1% that this methodology looks for, thus passing the criterion. FREE CASH FLOW: [NEUTRAL] The Free Cash Flow/Price ratio, though not a requirement, is considered a bonus if it is above 35%. A positive Cash Flow (the higher the better) separates a wonderfully reliable investment from a shaky one. This methodology prefers not to invest in companies that rely heavily on capital spending. This ratio for WRLD (24.55%) 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 WRLD (-39.75%) 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.   TELVENT GIT, S.A Profile Strategy: Growth/Value Investor Based on: James P. O'Shaughnessy Telvent GIT, S.A. is an information technology (IT) company that specializes in value-added real time products, services and integrated solutions to customers in targeted industrial sectors (Energy, Transportation, Environment and Agriculture), as well as Global Services, primarily in Europe, North America, Latin America, the Asia-Pacific region, the Middle-East and Africa. Products and services solutions include systems integration, consulting services, design and engineering services, real-time business-to-business information services and software. The Company has five segments: Energy, Transportation, Environment, Agriculture and Global Services. On October 28, 2008, the Company's subsidiary, Telvent Export, acquired 100% of DTN Holding Company, Inc., a business information service provider in North America, for a purchase price of United States. Analysis Guru Score: 100% MARKET CAP: [PASS] The first requirement of the Cornerstone Growth Strategy is that the company has a market capitalization of at least $150 million. This will screen out the companies that are too illiquid for most investors, but still include a small growth company. TLVT, with a market cap of $1,311 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. TLVT, whose annual EPS before extraordinary items for the last 5 years (from earliest to the most recent fiscal year) were 0.66, 0.70, 1.07, 1.21 and 1.43, 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. TLVT's Price/Sales ratio of 1.10, 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. TLVT, whose relative strength is 87, is in the top 50 and would pass this last criterion.   AEROPOSTALE, INC. Profile Strategy: Patient Investor Based on: Warren Buffett Aeropostale, Inc. is a mall-based specialty retailer of casual apparel and accessories. The Company designs, markets and sells its own brand of merchandise principally targeting 14 to 17 year-old young women and young men. The Company also sells Aeropostale merchandise through its e-commerce Website, www.aeropostale.com. As of January 31, 2009, it operated 914 stores, consisting of 874 Aeropostale stores in 48 states and Puerto Rico, 29 Aeropostale stores in Canada, and 11 Jimmy'Z stores in 10 states. The Company locates its stores primarily in shopping malls, outlet centers and, to a much lesser degree, lifestyle and off-mall shopping centers. The Company has developed a new retail store concept called P.S. from Aeropostale, which will offer casual clothing and accessories focusing on elementary school children between the ages of seven and 12. It offers a focused collection of apparel, including graphic t-shirts, tops, bottoms, sweaters, jeans, outerwear and accessories. 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 0.11, 0.12, 0.35, 0.36, 0.62, 0.98, 1.00, 1.32, 1.73, 2.21. Buffett would consider ARO's earnings predictable. In fact EPS have increased every year. ARO's long term historical EPS growth rate is 27.1%, based on the average of the 3, 4 and 5 year historical eps growth rates, and it is expected to grow earnings 15.2% per year in the future, based on the analysts' consensus estimated long term growth rate. For the purposes of our analysis, we will use the more conservative of the two EPS growth numbers. LOOK AT THE ABILITY TO PAY OFF DEBT [PASS] Buffett likes companies that are conservatively financed. Nonetheless, he has invested in companies with large financing divisions and in firms with rather high levels of debt. ARO has no long term debt and therefore would pass this criterion. LOOK FOR CONSISTENTLY HIGHER THAN AVERAGE RETURN ON EQUITY: [PASS] Buffett likes companies with above average return on equity of at least 15% or better, as this is an indicator that the company has a durable competitive advantage. US corporations have, on average, returned about 12% on equity over the last 30 years. The average ROE for ARO, over the last ten years, is 30.9%, 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 31.1%, 24.5%, 34.6%, 22.5%, 28.0%, 34.1%, 28.5%, 32.8%, 58.3%, 41.7%, and the average ROE over the last 3 years is 44.3%, 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 ARO, over the last ten years, is 33.6% and the average ROTC over the past 3 years is 44.3%, 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 31.1%, 24.5%, 34.6%, 22.5%, 28.0%, 34.1%, 28.5%, 32.8%, 58.3%, 41.7%, thus passing this criterion. LOOK AT CAPITAL EXPENDITURES: [PASS] Buffett likes companies that do not have major capital expenditures. That is, he looks for companies that do not need to spend a ton of money on major upgrades of plant and equipment or on research and development to stay competitive. ARO's free cash flow per share of $1.76 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 $8.80 and compares it to the gain in EPS over the same period of $2.10. ARO's management has proven it can earn shareholders a 23.9% 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. ARO's shares outstanding have fallen over the past five years from 83,050,003 to 68,000,000, 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 ARO 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 $2.96 and divide it by the current market price of $33.28. An investor, purchasing ARO, could expect to receive a 8.89% initial rate of return. Furthermore, he or she could expect the rate to increase 15.2% per year, based on the analysts' consensus estimated long term growth rate, as this is how fast earnings are growing. COMPARE THE INITIAL RATE OF RETURN WITH THE LONG-TERM TREASURY YIELD: [PASS] Buffett favors companies in which the initial rate of return is around the long-term treasury yield. Nonetheless, he has invested in companies with low initial rates of return, as long as the yield is expected to expand rapidly. Currently, the long-term treasury yield is about 4.60%. Compare this with ARO's initial yield of 8.89%, which will expand at an annual rate of 15.2%, based on the analysts' consensus estimated long term growth rate. The company is the better choice, as the initial rate of return is close to or above the long term bond yield and is expanding. CALCULATE THE FUTURE EPS: [No Pass/Fail] ARO currently has a book value of $6.79. It is safe to say that if ARO can preserve its average rate of return on equity of 30.9% and continues to retain 100.00% of its earnings, it will be able to sustain an earnings growth rate of 30.9% and it will have a book value of $100.23 in ten years. If it can still earn 30.9% on equity in ten years, then expected EPS will be $30.96. CALCULATE THE FUTURE STOCK PRICE BASED ON THE AVERAGE ROE METHOD: [No Pass/Fail] Now take the expected future EPS of $30.96 and multiply them by the lower of the 5 year average P/E ratio (15.6) or current P/E ratio (current P/E in this case), which is 11.2 and you get ARO's projected future stock price of $347.34. CALCULATE THE EXPECTED RATE OF RETURN BASED ON THE AVERAGE ROE METHOD: [No Pass/Fail] Now add in the total expected dividend pool to be paid over the next ten years, which is $0.00. This gives you a total dollar amount of $347.34. These numbers indicate that one could expect to make a 26.4% average annual return on ARO'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 15.2%, based on the analysts' consensus estimated long term growth rate, you can project EPS in ten years to be $12.21. Now multiply EPS in 10 years by the lower of the 5 year average P/E ratio (15.6) or current P/E ratio (current P/E in this case), which is 11.2. This equals the future stock price of $136.95. Add in the total expected dividend pool of $0.00 to get a total dollar amount of $136.95. 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 $33.28 and the future expected stock price, including the dividend pool, of $136.95. If you were to invest in ARO at this time, you could expect a 15.2% average annual return on your money. Buffett would consider this a great return. LOOK AT THE RANGE OF EXPECTED RATE OF RETURN: [PASS] Based on the two different methods, you could expect an annual compounding rate of return somewhere between 15.2% and 26.4%. 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 20.8% on ARO stock for the next ten years, based on the current fundamentals. Buffett would consider this a great return, thus passing the criterion.   OIL STATES INTERNATIONAL, INC. Profile Strategy: Price/Sales Investor Based on: Kenneth Fisher Oil States International, Inc. (Oil States) through its subsidiaries, is a provider of specialty products and services to oil and gas drilling and production companies worldwide. The Company operates in a number of oil and gas producing regions, including the Gulf of Mexico, United States onshore, West Africa, the North Sea, Canada, South America and Southeast and Central Asia. Its customers include many of the national oil companies, major and independent oil and gas companies and other oilfield service companies. Oil States operates in three principal business segments: offshore products, tubular services and well site services. The Company's well site services segment includes the accommodations, rental tools and drilling services businesses. On February 1, 2008, Oil States purchased all of Christina Lake Enterprises Ltd., the owners of an accommodations lodge (Christina Lake Lodge) in the Conklin area of Alberta, Canada. Analysis Guru Score: 100% PRICE/SALES RATIO: [PASS] The prospective company should have a low Price/Sales ratio. Smokestack (cyclical) companies with a Price/Sales ratio between .4 and .8 represent good values according to this methodology. OISpasses this test as its P/S of 0.80 based on trailing 12 month sales, falls within the "good values" range for cyclical companies. TOTAL DEBT/EQUITY RATIO: [PASS] Less debt equals less risk according to this methodology. OIS's Debt/Equity of 14.58% 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. OIS 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 OIS At this Point Is OIS a "Super Stock"? YES PRICE/SALES RATIO: [PASS] The prospective company should have a low Price/Sales ratio. Non-Smokestack(non-cyclical) companies with a Price/Sales ratio between .75 and 1.5 are good values. Otherwise, Smokestack(cyclical) companies with a Price/Sales ratio between .4 and .8 represent good values. OIS's P/S ratio of 0.80 falls within the "good values " range for cyclical industries and is considered attractive. LONG-TERM EPS GROWTH RATE: [PASS] This methodology looks for companies that have an inflation adjusted EPS growth rate greater than 15%. OIS's inflation adjusted EPS growth rate of 29.80% 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. OIS's free cash per share of 0.19 passes this criterion. THREE YEAR AVERAGE NET PROFIT MARGIN: [PASS] This methodology looks for companies that have an average net profit margin of 5% or greater over a three year period. OIS, whose three year net profit margin averages 9.19%, passes this evaluation.   NATIONAL-OILWELL VARCO, INC. Profile Strategy: Value Investor Based on: Benjamin Graham National Oilwell Varco, Inc. (NOV) is a provider of equipment and components used in oil and gas drilling and production operations, oilfield services, and supply chain integration services to the upstream oil and gas industry. The Company operates in three segments. The Rig Technology segment designs, manufactures, sells and services systems for the drilling, completion and servicing of oil and gas wells. The Petroleum Services & Supplies segment provides a variety of consumable goods and services used to drill, complete, remediate and workover oil and gas wells, service pipelines, flowlines and other oilfield tubular goods. The Distribution Services segment provides maintenance, repair and operating (MRO) supplies, and spare parts to drill site and production locations worldwide. In April 2009, NOV acquired ASEP Group Holding B.V. and Anson Limited.In December 2009, National-Oilwell Varco, Inc. acquired Hochang Machinery Industries Co., Ltd. and South Seas Inspection (S) Pte. Ltd. Analysis Guru Score: 100% SECTOR: [PASS] NOV is neither a technology nor financial Company, and therefore this methodology is applicable. SALES: [PASS] The investor must select companies of "adequate size". This includes companies with annual sales greater than $340 million. NOV's sales of $13,388.2 million, based on trailing 12 month sales, pass this test. CURRENT RATIO: [PASS] The current ratio must be greater than or equal to 2. Companies that meet this criterion are typically financially secure and defensive. NOV's current ratio of 2.09 passes the test. LONG-TERM DEBT IN RELATION TO NET CURRENT ASSETS: [PASS] For industrial companies, long-term debt must not exceed net current assets (current assets minus current liabilities). Companies that meet this criterion display one of the attributes of a financially secure organization. The long-term debt for NOV is $875.0 million, while the net current assets are $5,418.0 million. NOV passes this test. LONG-TERM EPS GROWTH: [PASS] Companies must increase their EPS by at least 30% over a ten-year period and EPS must not have been negative for any year within the last 5 years. Companies with this type of growth tend to be financially secure and have proven themselves over time. NOV's EPS growth over that period of 1,608.1% passes the EPS growth test. P/E RATIO: [PASS] The Price/Earnings (P/E) ratio, based on the greater of the current PE or the PE using average earnings over the last 3 fiscal years, must be "moderate", which this methodology states is not greater than 15. Stocks with moderate P/Es are more defensive by nature. NOV's P/E of 12.70 (using the 3 year PE) passes this test. PRICE/BOOK RATIO: [PASS] The Price/Book ratio must also be reasonable. That is, the Price/Book multiplied by P/E cannot be greater than 22. NOV's Price/Book ratio is 1.32, while the P/E is 12.70. NOV passes the Price/Book test.   CHEVRON CORPORATION Profile Strategy: Price/Sales Investor Based on: Kenneth Fisher Chevron Corporation (Chevron) manages its investments in subsidiaries and affiliates, and provides administrative, financial, management and technology support to the United States and International subsidiaries that engage in fully integrated petroleum operations, chemicals operations, mining operations of coal and other minerals, power generation and energy services. Exploration and production (upstream) operations consist of exploring for, developing and producing crude oil and natural gas, and also marketing natural gas. Refining, marketing and transportation (downstream) operations relate to refining crude oil into finished petroleum products; marketing crude oil and the many products derived from petroleum, and transporting crude oil, natural gas and petroleum products by pipeline, marine vessel, motor equipment and rail car. In April 2009, Reliance Industries Limited bought back Chevron Corporation's 5% stake in Reliance Petroleum Limited. Analysis Guru Score: 90% PRICE/SALES RATIO: [PASS] The prospective company should have a low Price/Sales ratio. Non-cyclical (non-Smokestack) companies with Price/Sales ratio between .75 and 1.5 are good values. CVX's P/S ratio of 0.92 based on trailing 12 month sales, falls within the "good values" range for non-cyclical companies and is considered attractive. TOTAL DEBT/EQUITY RATIO: [PASS] Less debt equals less risk according to this methodology. CVX's Debt/Equity of 11.63% 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. CVX 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 CVX At this Point Is CVX a "Super Stock"? NO PRICE/SALES RATIO: [FAIL] The prospective company should have a low Price/Sales ratio. To be considered a "Super Stock", non-cyclical (non-Smokestack) companies should have Price/Sales ratios below .75. However, CVX, who has a P/S of 0.92, does not fall within the "Super Stock" range. It does fall between 0.75 and 1.5, which is considered the "good values" range for non-cyclical companies. Nonetheless, it does not pass this "Super Stock" criterion. LONG-TERM EPS GROWTH RATE: [PASS] This methodology looks for companies that have an inflation adjusted EPS growth rate greater than 15%. CVX's inflation adjusted EPS growth rate of 19.46% 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. CVX's free cash per share of 2.34 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. CVX, whose three year net profit margin averages 8.46%, passes this evaluation.   DRESSER-RAND GROUP INC. Profile Strategy: Growth/Value Investor Based on: James P. O'Shaughnessy Dresser-Rand Group Inc. is the global supplier of custom-engineered rotating equipment solutions for the applications in the oil, gas, petrochemical and process industries. The products and service applications include oil and gas production; high-pressure field injection, gas lift, and enhanced oil recovery; natural gas processing; gas liquefaction; gas transmission and storage; refining; petrochemical production; and general industrial markets, such as paper, steel, sugar, distributed power and United States Navy. The Company operates globally with manufacturing facilities in the United States, France, United Kingdom, Germany, Norway, China and India. It operates a range of products and clients to the global client base in over 140 countries from the global locations in 18 United States states and 26 countries. The Company operates in two business segments: new units, and aftermarket parts and services. Analysis Guru Score: 100% MARKET CAP: [PASS] The first requirement of the Cornerstone Growth Strategy is that the company has a market capitalization of at least $150 million. This will screen out the companies that are too illiquid for most investors, but still include a small growth company. DRC, with a market cap of $2,637 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. DRC, whose annual EPS before extraordinary items for the last 5 years (from earliest to the most recent fiscal year) were 0.13, 0.56, 0.92, 1.25 and 2.36, 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. DRC's Price/Sales ratio of 1.07, 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. DRC, whose relative strength is 78, is in the top 50 and would pass this last criterion.   ITT EDUCATIONAL SERVICES, INC. Profile Strategy: Growth Investor Based on: Martin Zweig ITT Educational Services, Inc. (ITT/ESI), is a provider of postsecondary degree programs in the United States based on revenue and student enrollment. As of December 31, 2008, the Company offered master, bachelor and associate degree programs to approximately 62,000 students. As of December 31, 2008, it had 105 institutes and nine learning sites located in 37 states. All of its institutes are authorized by the applicable education authorities of the states, in which they operate, and are accredited by an accrediting commission recognized by the United States Department of Education (ED). During the year ended December 31, 2008, the Company began its operations at eight new institutes. As of December 31, 2008, the Company offered 33 degree programs in various fields schools of study: information technology (IT); electronics technology; drafting and design; business; criminal justice, and health sciences. 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. ESI's P/E is 13.27, based on trailing 12 month earnings, while the current market PE is 20.00. 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. ESI's revenue growth is 13.70%, while it's earnings growth rate is 32.12%, based on the average of the 3, 4 and 5 year historical eps growth rates. Therefore, ESI 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 (33.6%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (28.7%) of the current year. Sales growth for the prior must be greater than the latter. For ESI 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. ESI's EPS ($2.00) pass this test. QUARTERLY EARNINGS ONE YEAR AGO: [PASS] The EPS for the quarter one year ago must be positive. ESI's EPS for this quarter last year ($1.28) 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. ESI's growth rate of 56.25% 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 ESI is 16.06%. This should be less than the growth rates for the 3 previous quarters, which are 34.17%, 46.30%, and 55.83%. ESI 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, 45.40%, (versus the same three quarters a year earlier) is less than the growth rate of the current quarter earnings, 56.25%, (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, 56.25% must be greater than or equal to the historical growth which is 32.12%. ESI 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. ESI, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were 1.61, 2.33, 2.72, 3.71 and 5.17, 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. ESI's long-term growth rate of 32.12%, based on the average of the 3, 4 and 5 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. ESI's Debt/Equity (70.26%) is considered high relative to its industry (30.26%) 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 ESI, this criterion has not been met (insider sell transactions are 1, while insiders buying number 1). Despite the lack of an insider buy signal, there also is not an insider sell signal, so the stock passes this criterion.   TIDEWATER INC. Profile Strategy: Value Investor Based on: Benjamin Graham Tidewater Inc. provides offshore supply vessels and marine support services to the offshore energy industry through the operation of offshore marine service vessels. As of March 31, 2008, the Company had a total of 430 vessels, of which 10 were operated through joint ventures, 61 were stacked and 11 vessels withdrawn from service. The Company provides services supporting all phases of offshore exploration, development and production, including towing of and anchor handling of mobile drilling rigs and equipment; transporting supplies and personnel necessary to sustain drilling, workover and production activities; assisting in offshore construction activities, and a variety of specialized services, including pipe laying, cable laying and three-dimensional (3-D) seismic work. The Company operates in two segments: United States and International. Analysis Guru Score: 100% SECTOR: [PASS] TDW is neither a technology nor financial Company, and therefore this methodology is applicable. SALES: [PASS] The investor must select companies of "adequate size". This includes companies with annual sales greater than $340 million. TDW's sales of $1,326.1 million, based on trailing 12 month sales, pass this test. CURRENT RATIO: [PASS] The current ratio must be greater than or equal to 2. Companies that meet this criterion are typically financially secure and defensive. TDW's current ratio of 2.78 passes the test. LONG-TERM DEBT IN RELATION TO NET CURRENT ASSETS: [PASS] For industrial companies, long-term debt must not exceed net current assets (current assets minus current liabilities). Companies that meet this criterion display one of the attributes of a financially secure organization. The long-term debt for TDW is $275.0 million, while the net current assets are $439.2 million. TDW passes this test. LONG-TERM EPS GROWTH: [PASS] Companies must increase their EPS by at least 30% over a ten-year period and EPS must not have been negative for any year within the last 5 years. Companies with this type of growth tend to be financially secure and have proven themselves over time. TDW's EPS growth over that period of 212.9% passes the EPS growth test. P/E RATIO: [PASS] The Price/Earnings (P/E) ratio, based on the greater of the current PE or the PE using average earnings over the last 3 fiscal years, must be "moderate", which this methodology states is not greater than 15. Stocks with moderate P/Es are more defensive by nature. TDW's P/E of 6.90 (using the 3 year PE) passes this test. PRICE/BOOK RATIO: [PASS] The Price/Book ratio must also be reasonable. That is, the Price/Book multiplied by P/E cannot be greater than 22. TDW's Price/Book ratio is 1.03, while the P/E is 6.90. TDW passes the Price/Book test.   Watch List The Watch List contains the highest scoring stocks according to our guru consensus system that are not currently in the Hot List portfolio. We provide this list both for informational purposes and for investors who are not comfortable with a portfolio of ten stocks. Ticker Company Name Industry Guru Score YZC YANZHOU COAL MINING CO. (ADR) Coal 52 ABC AMERISOURCEBERGEN CORP. Biotechnology & Drugs 51 CVS CVS CAREMARK CORPORATION Retail (Drugs) 49 HUM HUMANA INC. Insurance (Accident & Health) 44 TKR THE TIMKEN COMPANY Misc. Fabricated Products 43 TGI TRIUMPH GROUP, INC. Aerospace & Defense 43 TXT TEXTRON INC. Conglomerates 43 LULU LULULEMON ATHLETICA INC. Apparel/Accessories 43 NE NOBLE CORPORATION Oil Well Services & Equipment 43 NUE NUCOR CORPORATION Iron & Steel 43

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