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Executive Summary	November 22, 2013

The Economy The latest data is showing that the partial government shutdown didn't do nearly as much to harm the economic expansion as feared, with good news coming from the manufacturing, employment, and consumer areas. The private sector, for example, unexpectedly added 212,000 jobs during the October, according to the Labor Department, leaving the unemployment rate essentially unchanged at 7.3%. The bad news was that 932,000 people dropped out of the labor force during the month and the participation rate fell by 0.4 percentage points. It was unclear why so many people exited, as the number of discouraged workers didn't seem to account for much of the change. The jobs-added and participation rates are tabulated through different surveys, which could account for the good news/bad news dichotomy. So far in November, the unemployment data has been very encouraging. New claims for unemployment have fallen since our last newsletter, and are now more than 20% below where they were a year ago. That's an exceptional year-over-year improvement. Manufacturing activity, meanwhile, remained strong in October, with the Institute for Supply Management's manufacturing index coming in at its highest level in two-and-a-half years. New orders remained at very high level, indicating production could remain strong in coming months. ISM's service sector index showed that the sector expanded in October for the 46th straight month, and did so at an accelerating pace. The sector employment sub-index jumped significantly in the month, another good sign. Consumer data was also encouraging, with the latest government report showing that real disposable personal income jumped 0.4% in September. Workers pocketed a big chunk of the increase, pushing the personal savings rate up 0.2 percentage points to a very solid 4.9%. Personal consumption expenditures rose 0.1%. In October, retail and food service sales rose 0.4%, the Commerce Department said. That put them about 4.3% above their year-ago level. Finally, third-quarter earnings season has almost wrapped up, and the results continue to be positive. As of Nov. 15, 92% of S&P 500 companies had reported earnings and 73% had beaten expectations, according to FactSet. Top line results weren't as impressive, but more than half -- 52% -- of companies beat sales estimates. Since our last newsletter, the S&P 500 returned 2.8%, while the Hot List returned 2.6%. So far in 2013, the portfolio has returned 33.6% vs. 25.9% for the S&P. Since its inception in July 2003, the Hot List is far outpacing the index, having gained 262.3% vs. the S&P's 79.5% gain. Bubble Trouble? "Only by learning to live in harmony with your contradictions can you keep it all afloat. You know how fighting fish do it? They blow bubbles and in each one of those bubbles is an egg and they float the egg up to the surface. They keep this whole heavy nest of eggs floating, and they're constantly repairing it. It's as if they live in both elements." -- Poet Audre Lorde For more than five years now, the Federal Reserve has been pumping billions upon billions of dollars of liquidity into the U.S. financial system. Other central banks have followed suit with billions upon billions of their own. It's no secret that one of the Fed's intentions with its ultra-low-interest-rate, ultra-high-liquidity policy was to drive investors into riskier assets -- like stocks -- thereby creating a "wealth effect" scenario in which stocks rise, Americans feel wealthier, Americans spend more, and the economy grows at a strong pace. The growth-generation part of the plan hasn't been too successful. With banks hoarding much of the liquidity provided by the Fed, growth has been average to subpar for most of the last five years. But more and more pundits and analysts are saying that the wealth effect part of the Fed's plan has been working all too well, pushing stocks higher and higher and far beyond what their fundamentals merit. Could stocks, like the fighting fish eggs to which the poet Audre Lorde referred, be supported by little more than bubbles -- in this case dangerous, precarious, bubbles blown by central bankers who want desperately to live in two elements (that is, one world of feel-good, rising markets, the other of harsh economic realities)? A growing crowd seems to think that's the case. I'm not among them. To understand why, let's first look at some measures of the broader market's valuation. The S&P 500's price/earnings ratio based on trailing 12-month operating earnings is 17.6; its forward P/E (using projected operating earnings) is 15.4. Those figures have been climbing, yes, but neither is indicative of major overvaluation. In fact, According to Charles Schwab's Liz Ann Sonders, those are both still shy of the 18.7 and 18.1 averages, respectively, for the past ten bull market peaks. But by some metrics, valuations do seem high. The 10-year cyclically-adjusted P/E ratio, which uses inflation-adjusted average earnings for the past decade to smooth out short-term fluctuations, is at about 24.9, using Yale Economist Robert Shiller's earnings data. That's up from 20.9 a year ago, and well above the historical average of about 18.3 since World War II. But it's still below the 27.5 level seen in mid-2007, and far below the 44.2 seen at the height of the tech bubble. (For what it's worth, Shiller -- one of the few to recognize both the tech bubble and the housing bubble before they burst -- told The Wall Street Journal last week that he doesn't think a stock market bubble exists today.) Other metrics show a reasonably priced market. The S&P trades for about 2.2 times book value, according to Morningstar, for example. That's below the 1978-early 2011 average of about 2.4, according to data from Ned Davis Research and Comstock Partners. The S&P's current price/sales ratio of 1.46, also according to Morningstar, is higher than the historical average cited by Comstock and Ned Davis. But it doesn't seem astronomical -- my James O'Shaughnessy-based growth model considers P/S ratios of up to 1.5 to be indicative of good values. Now, I suppose one could say that they just don't trust the earnings and sales data these days, and that the bubble is less like the ultra-high-valuation tech bubble and more like the stealth 2007-08 bubble, in which huge amounts of leverage propped up earnings and sales to make valuations look deceivingly reasonable. And to be sure there's a bit of that going on, with historically low interest rates helping corporations borrow money on the cheap, and letting homebuyers get very low mortgage rates. But in some cases, the low rates hurt businesses and consumers. PIMCO bond guru Bill Gross has noted several times that the low rates make for low yield spreads, which can actually hurt bank profits. And for consumers, well, just check your bank statement to see what kind of returns your cash is earning. (And, with a personal savings rate of 4.9% in October -- nearly twice what it was before the Great Recession -- Americans do indeed still have a lot of their money in the bank.) As for the sea of liquidity central banks have pumped into the economy, it's pretty well documented that banks haven't passed a whole lot of that through to Main Street. To say that liquidity itself is artificially supporting the economy and markets, to the point that a bubble exists, thus seems a stretch. In fact, it seems many of the same people who say the Fed's policies are creating a bubble are also the same ones who have argued that the liquidity provided by quantitative easing has been failing to make it's way into the economy. You can't have it both ways. I don't think you can't say the liquidity isn't making it through the system and then say that things like earnings and sales and book values are being propped up by QE -- not to the point that a bubble exists. Then there's the issue of sentiment. Back during past bubbles, investors have poured into stocks at incredible paces for extended periods. In the four years leading up to the tech bubble peak, investors pumped more than $470 billion into U.S. equity funds, according to The Wall Street Journal (citing Morningstar data). This year, investors through October had put a net of $111 billion into U.S. stock mutual and exchange traded funds -- a big number, yes, but not big enough to even make up for the $134 billion they'd taken from those funds since 2009. To me, the bubble talk seems to be more of a reflection of investors' psyches than a reflection of reality. For most of their lives, today's investors knew of stock market bubbles only through history books. Then, within an eight-year span, their portfolios were rocked by two traumatizing bursting bubbles, the latter of which came along with a global financial crisis that threatened to decimate the entire financial system and lead to another Great Depression. The fear that those events caused isn't something that disappears overnight, or even over a couple years. Wells Capital Management's James Paulsen has said, in fact, that the scars have led to a "post traumatic-Armageddon-hypochondria" among investors -- just as a medical hypochondriac's mind immediately goes to the worst-case scenario when they get a minor ache or cough, so too do many investors' minds now go to disastrous scenarios at the slightest sign of trouble. With the economy having weathered so many storms and appearing to be on decent footing for the moment, I think many people's market hypochondria has shifted away from economic ailments and toward valuation. And there's no doubt, valuations have been rising. Around this time last year, the S&P 500's trailing 12 month operating P/E ratio was 14.2, and its forward operating P/E was 12.7. Its price/sales ratio was 1.3, while its price/book ratio was 2.0. All of those figures have increased over the past year, some by fairly significant margins. But taken in their totality, these measures just don't paint a picture of a bubble, or anything close to it. Confirmation bias also may be at play here. During the 2008 market crash, many pundits and prognosticators said that the U.S. economy was headed for oblivion, along with U.S. stocks. The Federal Reserve, they said, could keep things afloat for a little while, but soon things would fall apart. Well, we are now five years past the financial crisis, and the economy, while far from spectacular, continues its slow, steady improvement. And stocks have been a great investment over the past several years. Those who had been calling for doom and chaos don't want to admit that they were wrong, so they dig their heels in deeper and deeper and look for any data that will confirm their gloomy predictions, regardless of new data that shows that the economy is hanging in there and stocks are decently valued. It's hard not to cling to your beliefs, even in the face of changing information. We try hard not to do that. We try to stick to the facts and figures, and right now, in my opinion, the totality of the data seems to show that the market is somewhere on the higher side of the fair value range. You might even say that it's gotten a bit ahead of itself. But guess what? That's what happens in bull markets. Valuations go up. They pass their historical averages -- by definition, you're sometimes going to be on the high side of an average. But "a bit ahead of itself" is not the stuff of which bubbles are made. Perhaps because they by and large missed the last two bubbles, however, the media seems to be fearful of getting blindsided a third time. The slightest hint of overvaluation thus leads to the "B" word getting thrown around. The reality is that, while some stocks and areas of the market are looking pricey, we're still finding plenty of individual companies whose shares are trading at very reasonable values. Take Hot List newcomer Chevron. This well-established energy giant trades for just 10 times earnings and just over 1.0 times sales, despite having grown earnings at a 26% pace over the long haul, having a debt/equity ratio of about 13%, and having a 17% return on equity. Chevron is far, far from the only strong business with cheap shares out there. That doesn't mean the broader market is going to continue higher without any hiccups, of course. As I always say, predicting the market is incredibly hard, particularly in the short term. Could a correction be just around the corner? Perhaps. But given all of the evidence, I feel comfortable as a long-term investor owning the types of stocks that are in the Hot List today.		Editor-in-Chief: John Reese Since Inception   Hot List 262.3% S&P 500 79.5% Accuracy 57.0% Beta 1.2 YTD   Hot List 33.6% S&P 500 25.9% Since Last Issue   Hot List 2.6% S&P 500 2.8% Avg. Fundamentals   Market Cap (mil) $31,461 PE Ratio 13.0 5 Yr EPS Growth 27.3% Yield 1.6% Rel. Strength 71 Portfolio Sectors Energy 3 Services 3 Financial 2 Conglomerates 1 Consumer Cyclical 1
Have Your Portfolio Managed Using Validea's Investing System Many users know about our research services but are unaware that money management services based on our system are also offered through a separate registered investment advisory firm, Validea Capital Management. If you are thinking about switching advisors or no longer have the time or inclination to manage your investments yourself, find out more about Validea Capital, its portfolio offerings, and its performance below. Request an Investment Consultation Today! ** Validea Capital Management is a separate investment advisory firm managed by Validea.com founder John Reese. The information above is not intended as personal investment advice and should not be interpreted as such. The Fallen As we rebalance the Validea Hot List, 2 stocks leave our portfolio. These include: Xinyuan Real Estate Co., Ltd. (Adr) (XIN) and Coach, Inc. (COH). The Keepers 8 stocks remain in the portfolio. They are: Usana Health Sciences, Inc. (USNA), Stamps.com Inc. (STMP), Lukoil (Adr) (LUKOY), Amtrust Financial Services, Inc. (AFSI), Bridgepoint Education Inc (BPI), Lear Corporation (LEA), Hollyfrontier Corp (HFC) and Hci Group Inc (HCI). The Newbies We are adding 2 stocks to the portfolio. These include: Papa John's Int'l, Inc. (PZZA) and Chevron Corporation (CVX). Portfolio Changes Additions   PAPA JOHN'S INT'L, INC. PZZA CHEVRON CORPORATION CVX Deletions   XINYUAN REAL ESTATE CO., LTD. (ADR) XIN COACH, INC. COH Newcomers to the Validea Hot List Chevron Corporation (CVX): In addition to its oil and gas businesses, this California-based firm ($235 billion market cap) is involved in the lubricant, petrochemical products, geothermal energy, and biofuels markets. Over the past 12 months, it has taken in about $225 billion in sales. Chevron is a favorite of my Peter Lynch- and James O'Shaughnessy-based models. For more on the stock, see the "Detailed Stock Analysis" section below. Papa John's International Inc. (PZZA): This Louisville-based chain ($1.8 billion market cap) is the world's third-largest pizza delivery company. It owns or franchises approximately 4,200 restaurants in all 50 states and 35 countries, and has taken in about $1.4 billion in sales in the past year. Papa John's gets high marks from my James O'Shaughnessy-based growth model and my Momentum Investor model. For more on its fundamentals, see the "Detailed Stock Analysis" section below. News about Validea Hot List Stocks Bridgepoint Education, Inc. (BPI): The for-profit education firm announced it has commenced a tender offer to purchase up to 10,250,000 shares of its common stock at a price of $19.50 per share, making for a $200 million buyback plan. That represents about 18.8% of its total common shares outstanding. Xinyuan Real Estate Co., Ltd. (XIN): Xinyuan announced third-quarter revenues of $240.7 million, a 6.5% increase from the third quarter of 2012 and 12% above previous guidance estimates. Net income was $28.7 million ($0.39 per diluted share), down 10.0% from the third quarter of 2012. The Hot List is selling the stock today on its regularly scheduled rebalancing, as the scores of other stocks have surpassed it since our last newsletter. 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 USNA USANA HEALTH SCIENCES, INC. Conglomerates 85 BPI BRIDGEPOINT EDUCATION INC Schools 83 HCI HCI GROUP INC Insurance (Prop. & Casualty) 76 STMP STAMPS.COM INC. Retail (Catalog & Mail Order) 74 LUKOY LUKOIL (ADR) Oil & Gas - Integrated 66 PZZA PAPA JOHN'S INT'L, INC. Restaurants 62 LEA LEAR CORPORATION Auto & Truck Parts 61 AFSI AMTRUST FINANCIAL SERVICES, INC. Insurance (Prop. & Casualty) 60 HFC HOLLYFRONTIER CORP Oil & Gas Operations 60 CVX CHEVRON CORPORATION Oil & Gas - Integrated 58 Ticker Market Cap Date Added Start Price Current Price Return USNA $981 12/21/2012 $33.83 $70.72 109.0% BPI $974 8/2/2013 $16.59 $17.84 7.5% HCI $543 6/7/2013 $34.20 $47.27 38.2% STMP $778 8/30/2013 $41.88 $48.30 15.3% LUKOY $53,414 9/27/2013 $64.52 $63.17 -2.1% PZZA $1,839 11/22/2013 TBD $85.34 TBD LEA $6,511 5/10/2013 $60.48 $80.68 33.4% AFSI $3,059 7/5/2013 $35.78 $40.98 14.5% HFC $9,079 4/12/2013 $46.83 $45.62 -2.6% CVX $237,435 11/22/2013 TBD $123.46 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 USNA   |   BPI   |   HCI   |   STMP   |   LUKOY   |   PZZA   |   LEA   |   AFSI   |   HFC   |   CVX   |   USANA HEALTH SCIENCES, INC. Profile Strategy: Patient Investor Based on: Warren Buffett USANA Health Sciences, Inc. develops and manufactures science-based nutritional and personal care products. The Company has operations in 15 markets worldwide, where it distributes and sells its products by way of direct selling. The Company reports operations in two geographic regions: North America and Asia Pacific, which is further divided into three sub-regions; Southeast Asia/Pacific, Greater China, and North Asia. North America includes the United States, Canada, Mexico, and direct sales from the United States to the United Kingdom and the Netherlands. Southeast Asia/Pacific includes Australia, New Zealand, Singapore, Malaysia, and the Philippines; Greater China includes Hong Kong, Taiwan and China; and North Asia includes Japan and South Korea. The Company's customer base consists of two types of customers: Associates and Preferred Customers. As of December 31, 2011, the Company had 222,000 active Associates and 64,000 active Preferred Customers worldwide. Analysis Guru Score: 93% STAGE 1: "Is this a Buffett type company?" A bedrock principle for Buffett is that his type of company has a "durable competitive advantage" as compared to being a "price competitive" or "commodity" type of business. Companies with a "durable competitive advantage" are more likely to be found in these sub-industries: Brand Name Fast Food Restaurants, Brand Name Beverages, Brand Name Foods, Brand Name Toiletries and Household Products, Brand Name Clothing, Brand Name Prescription Drugs, Advertising, Advertising Agencies, TV, Newspapers, Magazines, Direct Mail, Repetitive Services for Businesses, Low Cost Producers of Insurance, furniture, or Low Cost Retailers. While you should be easily able to explain where the company's pricing power comes from (i.e. a strong regional brand image, a business tollgate, its main products are #1 or # 2 in its field and has been on the market for years and hasn't changed at all, a consumer or business ends up buying the same product many times in a year, etc. or having the lowest production cost among its competition), there are certain figures that one can look at that can qualify the company as having a durable competitive advantage. LOOK FOR EARNINGS PREDICTABILITY: [PASS] Buffett likes companies to have solid, stable earnings that are continually expanding. This allows him to accurately predict future earnings. Annual earnings per share from earliest to most recent were 0.98, 1.50, 2.03, 2.20, 2.65, 1.85, 2.17, 2.86, 3.26, 4.45. Buffett would consider USNA's earnings predictable, although earnings have declined 1 time(s) in the past seven years, with the most recent decline 5 years ago. The dips have totaled 30.2%. USNA's long term historical EPS growth rate is 20.7%, based on the average of the 3, 4 and 5 year historical eps growth rates. 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. USNA 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 USNA, over the last ten years, is 36.0%, 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 42.8%, 59.4%, 81.4%, 65.4%, 130.4%, 89.3%, 44.8%, 31.2%, 28.0%, 33.2%, and the average ROE over the last 3 years is 30.8%, 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 USNA, over the last ten years, is 49.5% and the average ROTC over the past 3 years is 30.8%, 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 42.8%, 59.4%, 81.4%, 65.4%, 70.5%, 42.6%, 40.9%, 31.2%, 28.0%, 33.2%, 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. USNA's free cash flow per share of $5.65 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 $23.95 and compares it to the gain in EPS over the same period of $3.47. USNA's management has proven it can earn shareholders a 14.5% return on the earnings they kept. This return is acceptable to Buffett, but he would prefer to see a return > 15%. Essentially, management is is doing a good job putting the retained earnings to work. HAS THE COMPANY BEEN BUYING BACK SHARES: [BONUS PASS] Buffett likes to see falling shares outstanding, which indicates that the company has been repurchasing shares. This indicates that management has been using excess capital to increase shareholder value. USNA's shares outstanding have fallen over the past five years from 15,350,000 to 14,000,000, 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 USNA 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 $5.44 and divide it by the current market price of $70.72. An investor, purchasing USNA, could expect to receive a 7.69% initial rate of return. Furthermore, he or she could expect the rate to increase 20.7% per year, based on the average of the 3, 4 and 5 year historical eps growth rates, 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 2.75%. Compare this with USNA's initial yield of 7.69%, which will expand at an annual rate of 20.7%, based on the average of the 3, 4 and 5 year historical eps growth rates. 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] USNA currently has a book value of $17.21. It is safe to say that if USNA can preserve its average rate of return on equity of 30.8% and continues to retain 100.00% of its earnings, it will be able to sustain an earnings growth rate of 30.8% and it will have a book value of $251.90 in ten years. If it can still earn 30.8% on equity in ten years, then expected EPS will be $77.54. CALCULATE THE FUTURE STOCK PRICE BASED ON THE AVERAGE ROE METHOD: [No Pass/Fail] Now take the expected future EPS of $77.54 and multiply them by the lower of the 5 year average P/E ratio or current P/E ratio (13.0) (5 year average P/E in this case), which is 11.7 and you get USNA's projected future stock price of $906.47. 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 $906.47. These numbers indicate that one could expect to make a 29.1% average annual return on USNA'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 20.7%, based on the average of the 3, 4 and 5 year historical eps growth rates, you can project EPS in ten years to be $35.80. Now multiply EPS in 10 years by the lower of the 5 year average P/E ratio or current P/E ratio (13.0) (5 year average P/E in this case), which is 11.7. This equals the future stock price of $418.49. Add in the total expected dividend pool of $0.00 to get a total dollar amount of $418.49. 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 $70.72 and the future expected stock price, including the dividend pool, of $418.49. If you were to invest in USNA at this time, you could expect a 19.46% 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 19.5% and 29.1%. 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 24.3% on USNA stock for the next ten years, based on the current fundamentals. Buffett would consider this an exceptional return, thus passing the criterion.   BRIDGEPOINT EDUCATION INC Profile Strategy: Small-Cap Growth Investor Based on: Motley Fool Bridgepoint Education, Inc. (Bridgepoint) is a provider of postsecondary education services. The Company's academic institutions include Ashford University and University of the Rockies. Its institutions deliver programs primarily online, as well as at their traditional campuses. As of December 31, 2011, the Company had 86,642 total students enrolled in its institutions. Bridgepoint's institutions conduct ongoing faculty and student assessment processes and provide a range of student services. The Company is also focused on developing new technologies, such as through Waypoint Outcomes, Constellation, and the development of its institutions' mobile learning platforms. The Company has developed Constellation to replace third party textbooks with digital course materials. Constellation materials are displayed in a browser-based platform. In January 2012, Bridgepoint introduced Thuze. Analysis Guru Score: 76% 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. BPI's profit margin of 7.80% passes this test. RELATIVE STRENGTH: [FAIL] The investor must look at the relative strength of the company in question. Companies whose relative strength is 90 or above (that is, the company outperforms 90% or more of the market for the past year), are considered attractive. Companies whose price has been rising much quicker than the market tend to keep rising. Although BPI's relative strength of 87 is below the acceptable level, yet it is very close. Keep an eye on the stock as it could move into the acceptable range. COMPARE SALES AND EPS GROWTH TO THE SAME PERIOD LAST YEAR: [FAIL] 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 BPI (-66.67% for EPS, and -26.37% for Sales) are not good enough to pass. INSIDER HOLDINGS: [PASS] BPI's insiders should own at least 10% (they own 66.13% ) of the company's outstanding shares which is extremely attractive since the minimum requirement is 10%. A high percentage indicates that the insiders are confident that the company will do well. CASH FLOW FROM OPERATIONS: [PASS] A positive cash flow is typically used for internal expansion, acquisitions, dividend payments, etc. A company that generates rather than consumes cash is in much better shape to fund such activities on their own, rather than needing to borrow funds to do so. BPI's free cash flow of $2.11 per share passes this test. PROFIT MARGIN CONSISTENCY: [FAIL] The profit margin in the past must be consistently increasing. The profit margin of BPI has been inconsistent in the past three years (Current year: 13.22%, Last year: 18.51%, Two years ago: 17.89%), which is unacceptable. This inconsistency will carryover directly to the company's bottom line, or earnings per share. R&D AS A PERCENTAGE OF SALES: [NEUTRAL] This criterion is not critically important for companies that are not high-tech or medical stocks because they are not as R&D dependant as companies within those sectors. Not much emphasis should be placed on this test in BPI's case. CASH AND CASH EQUIVALENTS: [PASS] BPI's level of cash $392.9 million passes this criteria. If a company is a cash generator, like BPI, 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 BPI was 6.86% last year, while for this year it is 7.99%. Although the AR to sales is rising, it is below the max 30% that is allowed. The investor can still consider the stock if all other criteria appear very attractive. LONG TERM DEBT/EQUITY RATIO: [PASS] BPI'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): [PASS] The "Fool Ratio" is an extremely important aspect of this analysis. If the company's Fool Ratio is between 0.5 and 0.65 (BPI's is 0.54), the company demonstrates excellence in its fundamentals and have soundly beat the earnings estimates. BPI passes this test. The following criteria for BPI are less important which means you would place less emphasis on them when making your investment decision using this strategy: AVERAGE SHARES OUTSTANDING: [PASS] BPI has not been significantly increasing the number of shares outstanding within recent years which is a good sign. BPI currently has 56.0 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: [FAIL] 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. BPI's sales of $814.5 million based on trailing 12 month sales, are too high and would therefore fail the test. It is companies with $500 million or less in sales that are most likely to double or triple in size in the next few years. DAILY DOLLAR VOLUME: [PASS] BPI passes the Daily Dollar Volume (DDV of $6.5 million) test. It is required that this number be less than $25 million because these are the stocks that remain relatively undiscovered by institutions. "You'll be scoring touchdowns against the big guys on your turf." PRICE: [PASS] This is a very insignificant criterion for this methodology. But basically, low prices are chosen because "small numbers multiply more rapidly than large ones" and the potential for big returns expands. BPI with a price of $17.84 passes the price test. 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] BPI's income tax paid expressed as a percentage of pretax income this year was (37.91%) and last year (37.52%) 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.   HCI GROUP INC Profile Strategy: Small-Cap Growth Investor Based on: Motley Fool HCI Group Inc, formerly Homeowners Choice, Inc., is a holding company. The Company, through its subsidiaries, is engaged in the property and casualty insurance business. Through Homeowners Choice Property & Casualty Insurance Company, Inc. (HCPC) and subsidiaries, primarily Homeowners Choice Managers, Inc. (HCM), Southern Administration, Inc., Claddaugh Casualty Insurance Company, Ltd., and its subsidiary, HCPCI Holdings LLC, it provides property and casualty homeowners' insurance, condominium-owners' insurance and tenants' insurance to individuals owning property in Florida. Its subsidiaries also include TV Investment Holdings LLC, which owns and operates a marina facility located in Florida; Unthink Technologies Private Limited. During the year ended December 31, 2011, it organized TV Investment Holdings LLC, HCI Holdings LLC and HCI Technical Resources, Inc. Analysis Guru Score: 93% PROFIT MARGIN: [PASS] This methodology seeks companies with a minimum trailing 12 month after tax profit margin of 7%. The companies that pass this criterion have strong positions within their respective industries and offer greater shareholder returns. A true test of the quality of a company is that they can sustain this margin. HCI's profit margin of 27.81% 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. HCI, with a relative strength of 90, satisfies this test. COMPARE SALES AND EPS GROWTH TO THE SAME PERIOD LAST YEAR: [FAIL] Companies must demonstrate both revenue and net income growth of at least 25% as compared to the prior year. These growth rates give you the dynamic companies that you are looking for. These rates for HCI (-5.04% for EPS, and 7.07% for Sales) are not good enough to pass. INSIDER HOLDINGS: [PASS] HCI's insiders should own at least 10% (they own 10.64% ) of the company's outstanding shares which is the minimum required. A high percentage typically indicates that the insiders are confident that the company will do well. CASH FLOW FROM OPERATIONS: [PASS] A positive cash flow is typically used for internal expansion, acquisitions, dividend payments, etc. A company that generates rather than consumes cash is in much better shape to fund such activities on their own, rather than needing to borrow funds to do so. HCI's free cash flow of $9.84 per share passes this test. PROFIT MARGIN CONSISTENCY: [PASS] HCI's profit margin has been consistent or even increasing over the past three years (Current year: 18.50%, Last year: 10.62%, Two years ago: 7.90%), passing the requirement. It is a sign of good management and a healthy and competitive enterprise. R&D AS A PERCENTAGE OF SALES: [NEUTRAL] This criterion is not critically important for companies that are not high-tech or medical stocks because they are not as R&D dependant as companies within those sectors. Not much emphasis should be placed on this test in HCI's case. CASH AND CASH EQUIVALENTS: [PASS] HCI's level of cash $230.2 million passes this criteria. If a company is a cash generator, like HCI, it has the ability to pay off debt (if it has any) or acquire other companies. Most importantly, good operations generate cash. "THE FOOL RATIO" (P/E TO GROWTH): [PASS] The "Fool Ratio" is an extremely important aspect of this analysis. If the company has attractive fundamentals and its Fool Ratio is 0.5 or less (HCI's is 0.27), the shares are looked upon favorably. These high quality companies can often wind up as the biggest winners. HCI passes this test. The following criteria for HCI are less important which means you would place less emphasis on them when making your investment decision using this strategy: AVERAGE SHARES OUTSTANDING: [PASS] HCI has not been significantly increasing the number of shares outstanding within recent years which is a good sign. HCI currently has 11.0 million shares outstanding. This means the company is not taking any measures, with regards to the number of shares, that will dilute or devalue the stock. SALES: [PASS] Companies with sales less than $500 million should be chosen. It is among these small-cap stocks that investors can find "an uncut gem", ones that institutions won't be able to buy yet. HCI's sales of $226.9 million based on trailing 12 month sales, are fine, making this company one such "prospective gem". HCI passes the sales test. DAILY DOLLAR VOLUME: [PASS] HCI passes the Daily Dollar Volume (DDV of $9.0 million) test. It is required that this number be less than $25 million because these are the stocks that remain relatively undiscovered by institutions. "You'll be scoring touchdowns against the big guys on your turf." PRICE: [PASS] This is a very insignificant criterion for this methodology. But basically, low prices are chosen because "small numbers multiply more rapidly than large ones" and the potential for big returns expands. HCI with a price of $47.27 passes the price test, even though it doesn't fall in the preferred range. The price should be above $7 in order to eliminate penny stocks and below $20 since most stocks in this price range are undiscovered by the institutions. INCOME TAX PERCENTAGE: [PASS] HCI's income tax paid expressed as a percentage of pretax income this year was (39.17%) and last year (39.27%) are greater than 20% which is an acceptable level. If the tax rate is below 20% this could mean that the earnings that were reported were unrealistically inflated due to the lower level of income tax paid. This is a concern.   STAMPS.COM INC. Profile Strategy: Small-Cap Growth Investor Based on: Motley Fool Stamps.com Inc. is a provider of Internet-based postage solutions. The Company's customers use its service to mail and ship a variety of mail pieces, including postcards, envelopes, flats and packages, using a range of United States Postal Service (the USPS) mail classes, including First Class Mail, Priority Mail, Express Mail, Media Mail, Parcel Post, and others. Its customers include individuals, small businesses, home offices, medium-size businesses and enterprises. Analysis Guru Score: 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. STMP's profit margin of 27.55% passes this test. RELATIVE STRENGTH: [FAIL] The investor must look at the relative strength of the company in question. Companies whose relative strength is 90 or above (that is, the company outperforms 90% or more of the market for the past year), are considered attractive. Companies whose price has been rising much quicker than the market tend to keep rising. Although STMP's relative strength of 85 is below the acceptable level, yet it is very close. Keep an eye on the stock as it could move into the acceptable range. COMPARE SALES AND EPS GROWTH TO THE SAME PERIOD LAST YEAR: [FAIL] 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 STMP (28.57% for EPS, and 7.46% for Sales) are not good enough to pass. INSIDER HOLDINGS: [PASS] STMP's insiders should own at least 10% (they own 11.51% ) of the company's outstanding shares which is the minimum required. A high percentage typically indicates that the insiders are confident that the company will do well. CASH FLOW FROM OPERATIONS: [PASS] A positive cash flow is typically used for internal expansion, acquisitions, dividend payments, etc. A company that generates rather than consumes cash is in much better shape to fund such activities on their own, rather than needing to borrow funds to do so. STMP's free cash flow of $0.89 per share passes this test. PROFIT MARGIN CONSISTENCY: [PASS] STMP's profit margin has been consistent or even increasing over the past three years (Current year: 33.34%, Last year: 25.85%, Two years ago: 6.46%), passing the requirement. It is a sign of good management and a healthy and competitive enterprise. R&D AS A PERCENTAGE OF SALES: [NEUTRAL] This criterion is not critically important for companies that are not high-tech or medical stocks because they are not as R&D dependant as companies within those sectors. Not much emphasis should be placed on this test in STMP's case. CASH AND CASH EQUIVALENTS: [PASS] STMP's level of cash $35.9 million passes this criteria. If a company is a cash generator, like STMP, it has the ability to pay off debt (if it has any) or acquire other companies. Most importantly, good operations generate cash. INVENTORY TO SALES: [PASS] This methodology strongly believes that companies, especially small ones, should have tight control over inventory. It's a warning sign if a company's inventory relative to sales increases significantly when compared to the previous year. Up to a 30% increase is allowed, but no more. Inventory to Sales for STMP was 2.17% last year, while for this year it is 2.94%. Although the inventory to sales is rising, it is below the max 30% that is allowed. The investor can still consider the stock if all other criteria appear very attractive. 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 STMP was 10.31% last year, while for this year it is 12.48%. Although the AR to sales is rising, it is below the max 30% that is allowed. The investor can still consider the stock if all other criteria appear very attractive. LONG TERM DEBT/EQUITY RATIO: [PASS] STMP'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): [PASS] The "Fool Ratio" is an extremely important aspect of this analysis. If the company has attractive fundamentals and its Fool Ratio is 0.5 or less (STMP's is 0.42), the shares are looked upon favorably. These high quality companies can often wind up as the biggest winners. STMP passes this test. The following criteria for STMP are less important which means you would place less emphasis on them when making your investment decision using this strategy: AVERAGE SHARES OUTSTANDING: [PASS] STMP has not been significantly increasing the number of shares outstanding within recent years which is a good sign. STMP currently has 16.0 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. STMP's sales of $125.5 million based on trailing 12 month sales, are fine, making this company one such "prospective gem". STMP passes the sales test. DAILY DOLLAR VOLUME: [PASS] STMP passes the Daily Dollar Volume (DDV of $5.4 million) test. It is required that this number be less than $25 million because these are the stocks that remain relatively undiscovered by institutions. "You'll be scoring touchdowns against the big guys on your turf." PRICE: [PASS] This is a very insignificant criterion for this methodology. But basically, low prices are chosen because "small numbers multiply more rapidly than large ones" and the potential for big returns expands. STMP with a price of $48.30 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: [FAIL] STMP's income tax paid expressed as a percentage of pretax income either this year (-56.11%) or last year (-47.67%) is below 20% which is cause for concern. Because the tax rate is below 20% this could mean that the earnings that were reported are unrealistically inflated due to the lower level of income tax paid. However, we have utilized a sophisticated formula so that the appropriate figures reflect a 'normal' tax rate (35%).   LUKOIL (ADR) Profile Strategy: Contrarian Investor Based on: David Dreman NK Lukoil OAO (Neftyanaya Kompaniya LUKOIL OAO or NK LUKOIL OJSC) is a Russia-based integrated oil and gas company. The Company is engaged in the business of oil exploration, production, refining, marketing and distribution. It is an owner of refineries, gas processing, petrochemical plants and gas stations network located in Russia, Eastern and Western Europe, as well as Africa. The Company's petroleum products are sold in the Russian Federation, the Commonwealth of Independent States (CIS) countries, Eastern and Western Europe, Asia and the United States. NK Lukoil OAO operates through numerous subsidiaries and affiliated companies. In April 2013, the Company acquired a 100% of Samara-Nafta ZAO and completed acquisition of CJSC Kama-Oil. In June 2013, it sold a 99.57% stake in Lukoil Odes'kyi NPZ PAT. The Company's major shareholder is NKO ZAO NRD with a stake of 91.60%. Analysis Guru Score: 71% 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. LUKOY has a market cap of $53,414 million, therefore passing the test. EARNINGS TREND: [FAIL] A company should show a rising trend in the reported earnings for the most recent quarters. LUKOY's EPS for the latest quarter is not greater than the prior quarter, (from earliest to most recent quarter) 3.33, 2.73. 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. LUKOY fails this test as its EPS growth rate for the past 6 months (-21.77%) does not beat that of the S&P (13.45%). This methodology would utilize four separate criteria to determine if LUKOY 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. LUKOY's P/E of 4.48, based on trailing 12 month earnings, meets the bottom 20% criterion (below 11.84), and therefore passes this test. PRICE/CASH FLOW (P/CF) RATIO: [PASS] The P/CF of a company should be in the bottom 20% of the overall market. LUKOY's P/CF of 2.94 meets the bottom 20% criterion (below 6.77) and therefore passes this test. PRICE/BOOK (P/B) VALUE: [PASS] The P/B value of a company should be in the bottom 20% of the overall market. LUKOY's P/B is currently 0.62, which meets the bottom 20% criterion (below 0.98), and it therefore passes 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%). LUKOY's P/D of 20.58 meets the bottom 20% criterion (below 20.62 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: [PASS] A prospective company must have a strong Current Ratio (greater than or equal to the average of it's industry [1.42] or greater than 2). This is one identifier of financially strong companies, according to this methodology. LUKOY's current ratio of 1.77 passes the test. PAYOUT RATIO: [FAIL] A good indicator that a company has the ability to raise its dividend is a low payout ratio. The payout ratio for LUKOY is 35.75%, while its historical payout ratio has been 15.20%. Therefore, it fails the payout criterion. RETURN ON EQUITY: [FAIL] 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 largest cap stocks, which is 16.81%, and would consider anything over 27% to be staggering. The ROE for LUKOY of 15.02% is not 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. LUKOY's pre-tax profit margin is 9.72%, thus passing this criterion. YIELD: [PASS] The company in question should have a yield that is high and that can be maintained or increased. LUKOY's current yield is 4.86%, while the market yield is 2.52%. LUKOY 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 36.81%. LUKOY's Total Debt/Equity of 12.17% is considered acceptable.   PAPA JOHN'S INT'L, INC. Profile Strategy: Growth Investor Based on: Martin Zweig Papa John's International, Inc. (Papa John's) operates and franchises pizza delivery and carryout restaurants and, in certain international markets, dine-in and restaurant-based delivery restaurants under the trademark Papa John's. The Company operates in six segments: domestic Company-owned restaurants, domestic commissaries (Quality Control Centers), North America franchising, international operations, variable interest entities (VIEs) and all other business units. Its Company owned restaurants includes 182 restaurants operated under four joint venture arrangements. The Company also owns and operates restaurants in Beijing and North China. In April 2012, it acquired 56 franchised Papa John's restaurants in the Denver and Minneapolis markets. 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. PZZA's P/E is 29.33, based on trailing 12 month earnings, while the current market PE is 15.00. Therefore, it passes the first test. REVENUE GROWTH IN RELATION TO EPS GROWTH: [FAIL] Revenue Growth must not be substantially less than earnings growth. For earnings to continue to grow over time they must be supported by a comparable or better sales growth rate and not just by cost cutting or other non-sales measures. PZZA's revenue growth is 5.58%, while it's earnings growth rate is 15.85%, based on the average of the 3, 4 and 5 year historical eps growth rates. Therefore, PZZA 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 (9.6%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (7.3%) of the current year. Sales growth for the prior must be greater than the latter. For PZZA 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. PZZA's EPS ($0.77) pass this test. QUARTERLY EARNINGS ONE YEAR AGO: [PASS] The EPS for the quarter one year ago must be positive. PZZA's EPS for this quarter last year ($0.59) 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. PZZA's growth rate of 30.51% 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 PZZA is 7.93%. This should be less than the growth rates for the 3 previous quarters, which are 27.91%, 303.13%, and 21.43%. PZZA 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, 124.86%, (versus the same three quarters a year earlier) is greater than the growth rate of the current quarter earnings, 30.51%, (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 PZZA is 30.5%, 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, 30.51% must be greater than or equal to the historical growth which is 15.85%. PZZA 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. PZZA, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were 1.30, 1.93, 1.99, 2.16 and 2.58, 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. PZZA's long-term growth rate of 15.85%, 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. PZZA's Debt/Equity (79.42%) is not considered high relative to its industry (132.46%) 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 PZZA, this criterion has not been met (insider sell transactions are 107, while insiders buying number 174). Despite the lack of an insider buy signal, there also is not an insider sell signal, so the stock passes this criterion.   LEAR CORPORATION Profile Strategy: Price/Sales Investor Based on: Kenneth Fisher Lear Corporation is a tier 1 supplier to the global automotive industry. The Company supplies its products to automotive manufacturers with automotive seat systems and related components, as well as electrical distribution systems and related components. The Company has two segments: seating and electrical power management systems (EPMS). The seating segment includes seat systems and related components, such as seat frames, recliner mechanisms, seat tracks, seat trim covers, headrests and seat foam. The EPMS segment includes electrical distribution systems for traditional powertrain vehicles, as well as for hybrid and electric vehicles. As of December 31, 2011, it had 20 joint ventures located throughout Asia, as well as five in North America, two in Europe and Africa and one with operations in all three regions. Analysis Guru Score: 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. LEA's P/S of 0.42 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. LEA's Debt/Equity of 37.57% 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. LEA 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 LEA At this Point Is LEA 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.LEA's P/S ratio of 0.42 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%. LEA's inflation adjusted EPS growth rate of 23.39% 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. LEA's free cash per share of 2.17 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. LEA, whose three year net profit margin averages 5.43%, passes this evaluation.   AMTRUST FINANCIAL SERVICES, INC. Profile Strategy: Growth/Value Investor Based on: James P. O'Shaughnessy Amtrust Financial Services, Inc. is a holding company. The Company is a multinational specialty property and casualty insurer focused on generating consistent underwriting profits. The Company operates in four segments: small commercial business, specialty program and personal lines reinsurance. In January 2013, the Company acquired First Nonprofit Companies, Inc. In February 2013, its subsidiary acquired Car Care Plan (Holdings) Limited from Ally Insurance Holdings, Inc. In April 2013, it acquired Sequoia Insurance Company and its subsidiaries, Sequoia Indemnity Company and Personal Express Insurance Company. In May 2013, the Company acquired Mutual Insurers Holding Company (MIHC) and MIHC's subsidiary, First Nonprofit Insurance Company. Analysis Guru Score: 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. AFSI, with a market cap of $3,059 million, passes this criterion. EARNINGS PER SHARE PERSISTENCE: [PASS] The Cornerstone Growth methodology looks for companies that show persistent earnings growth without regard to magnitude. To fulfill this requirement, a company's earnings must increase each year for a five year period. AFSI, whose annual EPS before extraordinary items for the last 5 years (from earliest to the most recent fiscal year) were 1.24, 1.56, 1.95, 2.29 and 2.34, passes this test. PRICE/SALES RATIO: [PASS] The Price/Sales ratio should be below 1.5. This value criterion, coupled with the growth criterion, identify growth stocks that are still cheap to buy. AFSI's Price/Sales ratio of 1.33, 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. AFSI, whose relative strength is 78, is in the top 50 and would pass this last criterion.   HOLLYFRONTIER CORP Profile Strategy: Contrarian Investor Based on: David Dreman HollyFrontier Corporation (HollyFrontier), formerly Holly Corporation, is a petroleum refiner, which produces light products, such as gasoline, diesel fuel, jet fuel, specialty lubricant products, and specialty and modified asphalt. HollyFrontier operates in two segments: Refining and Holly Energy Partners, L.P. (HEP). The Refining segment includes the operations of its El Dorado, Tulsa, Navajo, Cheyenne and Woods Cross Refineries and NK Asphalt. The HEP segment involves all of the operations of HEP. As of December 31, 2011, it operated five refineries having a combined crude oil processing capacity of 443,000 barrels per day that serve markets throughout the Mid-Continent, Southwest and Rocky Mountain regions of the United States. The Company merged with Frontier Oil Corporation (Frontier), on July 1, 2011. On November 9, 2011, HEP acquired from the Company certain tankage, loading rack and crude receiving assets located at its El Dorado and Cheyenne Refineries. Analysis Guru Score: 76% MARKET CAP: [PASS] Medium to large-sized companies (the largest 1500 companies) should be chosen, because they are more in the public eye. Furthermore, the investor is exposed to less risk of "accounting gimmickry", and companies of this size have more staying power. HFC has a market cap of $9,079 million, therefore passing the test. EARNINGS TREND: [FAIL] A company should show a rising trend in the reported earnings for the most recent quarters. HFC's EPS for the latest quarter is not greater than the prior quarter, (from earliest to most recent quarter) 1.27, 0.41. Hence the stock fails this test, but the investor should evaluate this company qualitatively to see if it qualifies under this methodology's "exception rule". EPS GROWTH RATE IN THE IMMEDIATE PAST AND FUTURE: [FAIL] This methodology likes to see companies with an EPS growth rate higher than the S&P in the immediate past and a likelihood that this trend will continue in the near future. HFC fails this test as its EPS growth rate for the past 6 months (-74.84%) does not beat that of the S&P (13.45%). This methodology would utilize four separate criteria to determine if HFC is a contrarian stock. In order to eliminate weak companies we have stipulated that the stock should pass at least two of the following four major criteria in order to receive "Some Interest". P/E RATIO: [PASS] The P/E of a company should be in the bottom 20% of the overall market. HFC's P/E of 8.72, based on trailing 12 month earnings, meets the bottom 20% criterion (below 11.84), and therefore passes this test. PRICE/CASH FLOW (P/CF) RATIO: [PASS] The P/CF of a company should be in the bottom 20% of the overall market. HFC's P/CF of 6.55 meets the bottom 20% criterion (below 6.77) and therefore passes this test. PRICE/BOOK (P/B) VALUE: [FAIL] The P/B value of a company should be in the bottom 20% of the overall market. HFC's P/B is currently 1.47, which does not meet the bottom 20% criterion (below 0.98), and it therefore fails this test. PRICE/DIVIDEND (P/D) RATIO: [FAIL] The P/D ratio for a company should be in the bottom 20% of the overall market (that is the yield should be in the top 20%). HFC's P/D of 38.02 does not meet the bottom 20% criterion (below 20.62 or yield above 3.7%), and it therefore fails this test. This methodology maintains that investors should look for as many healthy financial ratios as possible to ascertain the financial strength of the company. These criteria are detailed below. CURRENT RATIO: [PASS] A prospective company must have a strong Current Ratio (greater than or equal to the average of it's industry [1.09] or greater than 2). This is one identifier of financially strong companies, according to this methodology. HFC's current ratio of 2.33 passes the test. PAYOUT RATIO: [PASS] A good indicator that a company has the ability to raise its dividend is a low payout ratio. The payout ratio for HFC is 29.41%, while its historical payout ratio has been 44.31%. Therefore, it passes the payout criterion. RETURN ON EQUITY: [PASS] The company should have a high ROE, as this helps to ensure that there are no structural flaws in the company. This methodology feels that the ROE should be greater than the top one third of ROE from among the top 1500 large cap stocks, which is 16.81%, and would consider anything over 27% to be staggering. The ROE for HFC of 17.83% is high enough to pass this criterion. PRE-TAX PROFIT MARGINS: [PASS] This methodology looks for pre-tax profit margins of at least 8%, and considers anything over 22% to be phenomenal. HFC's pre-tax profit margin is 8.48%, thus passing this criterion. YIELD: [FAIL] The company in question should have a yield that is high and that can be maintained or increased. HFC's current yield is 2.63%, while the market yield is 2.52%. HFC fails this test. LOOK AT THE TOTAL DEBT/EQUITY: [PASS] The company must have a low Debt/Equity ratio, which indicates a strong balance sheet. The Debt/Equity ratio should not be greater than 20% or should be less than the average Debt/Equity for its industry of 39.11%. HFC's Total Debt/Equity of 16.20% is considered acceptable.   CHEVRON CORPORATION Profile Strategy: Contrarian Investor Based on: David Dreman 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 activities, power generation and energy services. Upstream operations consist primarily of exploring for, developing and producing crude oil and natural gas; processing, transportation and regasification associated with liquefied natural gas; transporting crude oil by international oil export pipelines; transporting, storage and marketing of natural gas, and a gas-to-liquids project. Downstream operations consist primarily of refining crude oil into petroleum products; transporting crude oil and refined products by pipeline, marine vessel, motor equipment and rail car, and manufacturing and marketing of commodity petrochemicals, plastics for industrial uses and fuel and lubricant additives. Analysis Guru Score: 83% 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. CVX has a market cap of $237,435 million, therefore passing the test. EARNINGS TREND: [PASS] A company should show a rising trend in the reported earnings for the most recent quarters. CVX's EPS for the past 2 quarters, (from earliest to most recent quarter) 2.05, 2.56 have been increasing, and therefore the company passes this test. 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. CVX fails this test as its EPS growth rate for the past 6 months (2.81%) does not beat that of the S&P (13.45%). This methodology would utilize four separate criteria to determine if CVX 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. CVX's P/E of 10.10, based on trailing 12 month earnings, meets the bottom 20% criterion (below 11.84), and therefore passes this test. PRICE/CASH FLOW (P/CF) RATIO: [PASS] The P/CF of a company should be in the bottom 20% of the overall market. CVX's P/CF of 6.24 meets the bottom 20% criterion (below 6.77) and therefore passes this test. PRICE/BOOK (P/B) VALUE: [FAIL] The P/B value of a company should be in the bottom 20% of the overall market. CVX's P/B is currently 1.64, which does not meet the bottom 20% criterion (below 0.98), and it therefore fails this test. PRICE/DIVIDEND (P/D) RATIO: [FAIL] The P/D ratio for a company should be in the bottom 20% of the overall market (that is the yield should be in the top 20%). CVX's P/D of 30.86 does not meet the bottom 20% criterion (below 20.62 or yield above 3.7%), and it therefore fails this test. This methodology maintains that investors should look for as many healthy financial ratios as possible to ascertain the financial strength of the company. These criteria are detailed below. CURRENT RATIO: [PASS] A prospective company must have a strong Current Ratio (greater than or equal to the average of it's industry [1.42] or greater than 2). This is one identifier of financially strong companies, according to this methodology. CVX's current ratio of 1.60 passes the test. PAYOUT RATIO: [PASS] A good indicator that a company has the ability to raise its dividend is a low payout ratio. The payout ratio for CVX is 30.97%, while its historical payout ratio has been 65.75%. Therefore, it passes the payout criterion. RETURN ON EQUITY: [PASS] The company should have a high ROE, as this helps to ensure that there are no structural flaws in the company. This methodology feels that the ROE should be greater than the top one third of ROE from among the top 1500 large cap stocks, which is 16.81%, and would consider anything over 27% to be staggering. The ROE for CVX of 17.10% 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. CVX's pre-tax profit margin is 17.58%, thus passing this criterion. YIELD: [FAIL] The company in question should have a yield that is high and that can be maintained or increased. CVX's current yield is 3.24%, while the market yield is 2.52%. CVX fails this test. LOOK AT THE TOTAL DEBT/EQUITY: [PASS] The company must have a low Debt/Equity ratio, which indicates a strong balance sheet. The Debt/Equity ratio should not be greater than 20% or should be less than the average Debt/Equity for its industry of 36.81%. CVX's Total Debt/Equity of 12.83% 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 TLK PT TELEKOMUNIKASI INDONESIA (ADR) Communications Services 61 TBI TRUEBLUE INC Business Services 60 JOY JOY GLOBAL INC. Constr. & Agric. Machinery 59 AGCO AGCO CORPORATION Constr. & Agric. Machinery 58 BOFI BOFI HOLDING, INC. S&Ls/Savings Banks 56 WOR WORTHINGTON INDUSTRIES, INC. Iron & Steel 53 COP CONOCOPHILLIPS Oil & Gas Operations 53 HIBB HIBBETT SPORTS, INC. Retail (Specialty) 53 NUS NU SKIN ENTERPRISES, INC. Personal & Household Prods. 49 AFOP ALLIANCE FIBER OPTIC PRODUCTS INC Semiconductors 48

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