Executive Summary  |   Portfolio  |   Guru Analysis  |   Watch List

Executive Summary	December 5, 2014

The Economy While tumbling oil prices are worrying some investors, the US economy is continuing to push ahead at a solid pace. Private payroll processor ADP said the private sector added 208,000 jobs in November, for example, right in line with the 205,000 average for the first ten months of the year. ADP also revised its October jobs-added estimate slightly higher, from 230,000 to 233,000. The Labor Department is slated to announce its November jobs numbers today, and investors will no doubt be keeping a close eye on the report. New claims for unemployment have risen just a bit over the past two weeks, but in the most recent week were still 8.6% lower than they were in the year-ago period. Continuing claims, the data for which lag new claims by a week, edged very slightly upward since our last newsletter but are 16.5% below year-ago levels. Manufacturing and service sector data also remains very strong. The Institute for Supply Management said manufacturing activity increased in November for the 18th straight month, doing so at about the same rate it did in October. In only two months this year has the rate of increase been higher. The sub-index for new orders remained at an extremely high level, while the employment sub-index remained at a very healthy level. For the second straight month, the prices sub-index declined rather sharply. The November reading indicated that raw materials prices declined for the first time since July 2013. A big part of that is the sharp drop in oil prices we've seen lately. ISM also said the service sector expanded in November for the 58th straight month, doing so at an accelerating pace. The new orders sub-index rose a bit while the employment sub-index fell a bit, but both remained at high levels. Elsewhere, new home sales edged higher by 0.7% in October, according to a new government report. That put them 2.8% above year-ago levels. The latest consumer data from the Commerce Department showed that personal income rose 0.2% in October. Real disposable personal income was up 0.1%, while real personal consumption expenditures rose 0.2%. The personal savings rate remained at a very solid 5.0%. Gas and oil prices, meanwhile, keep tumbling. This past week, US crude fell to its lowest level since July 2009. As for gas, a gallon of regular unleaded on average cost $2.75 as of Dec. 3, down 23 cents from a month earlier, according to AAA. As I noted last month, in an environment in which wage growth has been meager, the gas price declines should give consumers a bit of a boost. But it is a double-edged sword. The energy sector is a big facilitator of job growth, and at some point, if the lower prices lead to less production, all of this could have an impact on the jobs market Since our last newsletter, the S&P 500 returned 0.9%, while the Hot List returned 1.3%. So far in 2014, the portfolio has returned -11.3% vs. 12.1% for the S&P. Since its inception in July 2003, the Hot List is far outpacing the index, having gained 222.7% vs. the S&P's 107.1% gain. Portfolio Update It's been a pretty calm fortnight for the broader market and the Hot List, with the portfolio notching decent gains since our last newsletter (as of mid-afternoon trading on Thursday). Eight of the portfolio's 10 holdings were in the black, with Universal Insurance Holdings leading the way with a 6.6% gain. Not far behind was The Middleby Corporation, which was up 4.5%. The two laggards -- AGCO and Credit Acceptance -- were down just 1.3% and 1.7%, respectively. Universal's jump seemed to be the result of the Dec. 2 announcement that it sold 1 million registered shares of common stock, in a privately negotiated transaction, to Ananke Catastrophe Investments Ltd., an affiliate of Nephila Capital Ltd. Company officials said that by using shares held in treasury from prior repurchases, the transaction would immediately increase Universal's book value per share by 7%. It will also allow the firm to use the proceeds to accelerate its organic growth strategy through both the continued geographic expansion outside its home state of Florida and further quota share reduction. A couple other Hot List holdings announced earnings, though shares of both have been relatively flat since our last newsletter. One was Foot Locker, which announced third-quarter earnings that topped analysts' estimates and were up 22.1% from the prior-year quarter. The improvement was driven by a 6.9% rise in comparable-store sales, and revenues also topped analysts' estimates, according to Zacks Investment Research. Zumiez Inc. also reported third-quarter earnings and revenues that beat analysts' expectations. Two weeks from now, we'll rebalance the portfolio for the final time in 2014. At that point we'll see if Foot Locker's and Zumiez's solid earnings will help keep them in the Hot List as we move into the New Year.		Editor-in-Chief: John Reese Since Inception   Hot List 222.7% S&P 500 107.1% Accuracy 55.0% Beta 1.2 YTD   Hot List -11.3% S&P 500 12.1% Since Last Issue   Hot List 1.3% S&P 500 0.9% Avg. Fundamentals   Market Cap (mil) $6,081 PE Ratio 14.8 5 Yr EPS Growth 19.7% Yield 0.9% Rel. Strength 76 Portfolio Sectors Financial 4 Services 3 Capital Goods 2 Energy 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. Guru Spotlight: Benjamin Graham Today, many investors look to Warren Buffett for advice about the stock market and the economy. But before he became one of the world's richest men and greatest investors, there was someone whose investment advice Buffett himself cherished: Benjamin Graham. And Buffett was far from alone. Known as "The Father of Value Investing", Graham inspired a number of famous "sons" -- Mario Gabelli, John Neff, John Templeton, and, most famously, Buffett are all Graham disciples who went on to their own stock market greatness. So, just who was Graham? Born in England in 1894 as Benjamin Grossbaum (his family later changed its surname to Graham during World War I, when German names were viewed with suspicion), Graham built his reputation -- and fortune -- by using an extremely conservative, low-risk approach to investing. To him, preserving one's original capital was every bit as important as netting big gains, and two factors from his early years may show why. The first was Graham's own family's fall from financial comfort to poverty not long after his father died when he was nine. The second involved his first major business venture, an investment firm he founded with Jerome Newman. Just three years after opening, the stock market crash of 1929 and the Great Depression arrived. Graham's clients, like just about everyone else, were hit hard, according to Graham biographer Janet Lowe, and Graham worked without compensation for five years until his clients' fortunes were fully restored. Having lived through both his own family's financial troubles and the market crash, it's no surprise that the strategy Graham laid out in his classic book The Intelligent Investor was a conservative, loss-averse approach. To Graham, an investment wasn't something that could be turned into quick, easy profits; anything that offers such "easy" rewards also comes with substantial risk, and Graham abhorred risk. True "investment", he wrote, deals with the future "more as a hazard to be guarded against than as a source of profit through prophecy." In terms of specifics, Graham's "Defensive Investor" approach limited risk in a number of ways, and my Graham-based model lays out several of those methods. For example, one key criterion is that a firm's current ratio -- that is, the ratio of its current assets to its current liabilities -- is at least 2.0, showing that the firm is in good financial shape. The approach also targets financially sound firms by requiring that long-term debt not exceed net current assets. Two other criteria the Graham method uses to find low-risk plays: the price/earnings ratio and the price/book ratio. Graham wanted P/E ratios to be no greater than 15 (and, as another signal of his conservative style, he looked not only at trailing 12-month earnings but also at three-year average earnings, to ensure that one-year anomalies didn't skew the P/E ratio). For the price/book ratio, he used a more unusual standard: He believed that the P/E ratio multiplied by the P/B ratio should be no greater than 22. My Graham-inspired strategy tends to find bargains across a variety of areas of the market. Here are the current holdings of the 10-stock Graham portfolio: Cheung Kong Holdings Limited (CHEUY) National-Oilwell Varco (NOV) Carbo Ceramics (CRR) Reliance Steel & Aluminum Co. (RS) Universal Corporation (UVV) Sasol Limited (SSL) AGCO Corporation (AGCO) The Buckle, Inc. (BKE) Liquidity Services, Inc. (LQDT) Tech Data Corp. (TECD) Two types of stocks that you won't find in the Graham portfolio are technology and financial firms. Graham excluded tech stocks from his holdings because they were too risky, and, while many are not as risky today, I do the same. Financial stocks, meanwhile, aren't explicitly excluded from my Graham model. But because of the low-debt requirements in this strategy, it's nearly impossible for a financial firm to garner approval. Since I started tracking my Guru Strategies nearly 10 years ago, the performance of my Graham-based model has been rather remarkable. Even though the strategy Graham outlined is now more than 60 years old, it just keeps on working. Through Dec. 3, the 10-stock Graham-based portfolio was up 279.4% since its July 2003 inception, making it one of my best 10-stock performers. That's a 12.4% annualized return in a period in which the S&P 500 has gained just 6.6% per year. The model's strict balance sheet criteria helped it avoid big losers in 2008, as the portfolio lost less than half of what the broader market lost, and it rebounded big in 2009 and 2010. After two strong years -- the Graham portfolio gained 33.8% in 2012 and 41.4% in 2013 -- the Graham approach has struggled in 2014. It's down 20.5%, a figure that would make for its worst year ever. Even the best strategies go through rough periods; given its exceptional long-term track record, however, I expect that this subpar performance in 2014 is just a blip on the radar for the Graham portfolio. Overall, the Graham strategy's long-term results are a great demonstration of how successful stock investing doesn't need to be incredibly complex or cutting-edge. You don't need fancy theories or gimmicks; you just need to focus on good companies whose stocks are selling at good values. Do that, and you should produce some strong results of your own. News about Validea Hot List Stocks Zumiez Inc. (ZUMZ): On Dec. 4, Zumiez reported fiscal third-quarter earnings of $15.7 million, or 54 cents per share. Adjusting for costs related to mergers and acquisitions, EPS were 56 cents. Those figures beat analysts' expectations of 52 cents per share, the Associated Press reported. Zumiez's revenue was $213.3 million, beating analysts' estimates of $211.5 million. AmTrust Financial Services, Inc. (AFSI): On Nov. 24, AmTrust announced that it had entered into a definitive agreement, pending regulatory approval, to acquire for cash CorePointe Insurance Company, a wholly-owned subsidiary of CorePointe Group LLC. Birmingham, Mich.-based CorePointe is a specialty property/casualty insurance company that markets commercial package insurance products primarily to automobile and motorcycle dealerships and auto repair shops. The dollar value of the deal was not disclosed. AmTrust said the move is expected to be immediately accretive. The Next Issue In two weeks, we will publish another issue of the Hot List, at which time we will rebalance the portfolio. If you have any questions, please feel free to contact us at hotlist@validea.com.

Current Portfolio Ticker Company Name Industry Guru Score AFSI AMTRUST FINANCIAL SERVICES INC Insurance (Prop. & Casualty) 100 UVE UNIVERSAL INSURANCE HOLDINGS, INC. Insurance (Prop. & Casualty) 71 CACC CREDIT ACCEPTANCE CORP. Consumer Financial Services 58 VLO VALERO ENERGY CORPORATION Oil & Gas Operations 56 ZUMZ ZUMIEZ INC. Retail (Apparel) 44 PJC PIPER JAFFRAY COMPANIES Investment Services 40 AGCO AGCO CORPORATION Constr. & Agric. Machinery 29 MIDD MIDDLEBY CORP Misc. Capital Goods 29 JLL JONES LANG LASALLE INC Real Estate Operations 29 FL FOOT LOCKER, INC. Retail (Apparel) 20 Ticker Market Cap Date Added Start Price Current Price Return AFSI $3,935 10/24/2014 $49.37 $52.55 6.4% UVE $684 11/21/2014 $19.30 $19.95 3.4% CACC $3,047 10/24/2014 $135.39 $147.92 9.3% VLO $26,891 4/11/2014 $50.96 $51.59 1.2% ZUMZ $1,036 10/24/2014 $32.97 $35.47 7.6% PJC $949 11/21/2014 $58.18 $58.28 0.2% AGCO $4,014 12/20/2013 $57.62 $43.64 -24.3% MIDD $5,571 11/21/2014 $93.25 $97.29 4.3% JLL $6,449 9/26/2014 $126.57 $143.87 13.7% FL $8,236 11/21/2014 $54.55 $57.31 5.1%

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 AFSI   |   UVE   |   CACC   |   VLO   |   ZUMZ   |   PJC   |   AGCO   |   MIDD   |   JLL   |   FL   |   AMTRUST FINANCIAL SERVICES INC Profile Strategy: Growth Investor Based on: Martin Zweig Amtrust Financial Services, Inc. (AmTrust) underwrites and provides property and casualty insurance. The Company operates in three business segments: Small Commercial Business, Specialty Risk and Extended Warranty and Specialty Program. Small Commercial Business segment provides workers' compensation to small businesses that operate in low and medium hazard classes, such as restaurants, retail stores, physicians and other professional offices, and commercial package and other property and casualty insurance products to small businesses. The Company's Specialty Risk and Extended Warranty segment provides coverage for consumer and commercial goods and custom designed coverages, such as accidental damage plans and payment protection plans. The Company's Specialty Program segment provides workers' compensation, package products, general liability, commercial auto liability, excess and surplus lines programs and other specialty commercial property and casualty insurance Analysis Guru Score: 92% 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. AFSI's P/E is 9.75, based on trailing 12 month earnings, while the current market PE is 18.00. Therefore, it passes the first test. REVENUE GROWTH IN RELATION TO EPS GROWTH: [PASS] Revenue Growth must not be substantially less than earnings growth. For earnings to continue to grow over time they must be supported by a comparable or better sales growth rate and not just by cost cutting or other non-sales measures. AFSI's revenue growth is 37.66%, while it's earnings growth rate is 23.76%, based on the average of the 3, 4 and 5 year historical eps growth rates. Therefore, AFSI passes this criterion. SALES GROWTH RATE: [FAIL] Another important issue regarding sales growth is that the rate of quarterly sales growth is rising. To evaluate this, the change from this quarter last year to the present quarter (47.1%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (55.7%) of the current year. Sales growth for the prior must be greater than the latter. For AFSI this criterion has not been met and fails this test. The earnings numbers of a company should be examined from various different angles. Three of these angles are stability in the trend of earnings, earnings persistence, and earnings acceleration. To evaluate stability, the stock has to pass the following four criteria. CURRENT QUARTER EARNINGS: [PASS] The first of these criteria is that the current EPS be positive. AFSI's EPS ($1.97) pass this test. QUARTERLY EARNINGS ONE YEAR AGO: [PASS] The EPS for the quarter one year ago must be positive. AFSI's EPS for this quarter last year ($0.74) 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. AFSI's growth rate of 166.22% 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 AFSI is 11.88%. This should be less than the growth rates for the 3 previous quarters, which are 43.10%, 15.60%, and 49.44%. AFSI 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, 33.59%, (versus the same three quarters a year earlier) is less than the growth rate of the current quarter earnings, 166.22%, (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, 166.22% must be greater than or equal to the historical growth which is 23.76%. AFSI 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. AFSI, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were 1.56, 1.95, 2.29, 2.34 and 3.67, 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. AFSI's long-term growth rate of 23.76%, based on the average of the 3, 4 and 5 year historical eps growth rates, passes this test. INSIDER TRANSACTIONS: [PASS] A factor that adds to a stock's attractiveness is if insider buy transactions number 3 or more, while insider sell transactions are zero. Zweig calls this an insider buy signal. For AFSI, this criterion has not been met (insider sell transactions are 233, while insiders buying number 171). Despite the fact that insider sells out number insider buys for this company, Zweig considers even one insider buy transaction enough to prevent an insider sell signal, therefore there is not an insider sell signal and the stock passes this criterion.   UNIVERSAL INSURANCE HOLDINGS, INC. Profile Strategy: Small-Cap Growth Investor Based on: Motley Fool Universal Insurance Holdings, Inc. (UIH) is a vertically integrated insurance company. The Company's insurance products are offered to the Company's customers through Universal Property & Casualty Insurance Company (UPCIC) and American Platinum Property and Casualty Insurance Company (APPCIC), (collectively the Insurance Entities). Substantially all aspects of insurance underwriting, distribution and claims processing are covered through the Company's subsidiaries. Blue Atlantic Reinsurance Corporation (BARC), a wholly owned subsidiary of UIH, is a reinsurance intermediary broker. The Insurance Entities generate revenues primarily from the collection of premiums. Universal Risk Advisors, Inc. (URA), the Company's managing general agent, generates revenue through policy fee income and other administrative fees from the marketing of the Insurance Entities' insurance products through its distribution network of independent agents. 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. UVE's profit margin of 19.74% 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. UVE, with a relative strength of 91, satisfies this test. COMPARE SALES AND EPS GROWTH TO THE SAME PERIOD LAST YEAR: [PASS] Companies must demonstrate both revenue and net income growth of at least 25% as compared to the prior year. These growth rates give you the dynamic companies that you are looking for. These rates for UVE (52.50% for EPS, and 32.07% for Sales) are good enough to pass. INSIDER HOLDINGS: [PASS] UVE's insiders should own at least 10% (they own 10.94% ) 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. UVE's free cash flow of $3.65 per share passes this test. PROFIT MARGIN CONSISTENCY: [PASS] UVE's profit margin has been consistent or even increasing over the past three years (Current year: 19.58%, Last year: 11.23%, Two years ago: 8.90%), 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 UVE's case. CASH AND CASH EQUIVALENTS: [FAIL] UVE's level of cash and cash equivalents per sales, 1.33 %, does not pass this criteria of roughly 20%(a number we determined to be appropriate based on various examples). UVE will have a more difficult time paying off debt (if it has any) or acquiring other companies than a company that passes this criteria. 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 UVE was 1.01% last year, while for this year it is 1.53%. 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. "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 (UVE's is 0.62), the company demonstrates excellence in its fundamentals and have soundly beat the earnings estimates. UVE passes this test. The following criteria for UVE are less important which means you would place less emphasis on them when making your investment decision using this strategy: AVERAGE SHARES OUTSTANDING: [PASS] UVE has not been significantly increasing the number of shares outstanding within recent years which is a good sign. UVE currently has 35.0 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. UVE's sales of $342.4 million based on trailing 12 month sales, are fine, making this company one such "prospective gem". UVE passes the sales test. DAILY DOLLAR VOLUME: [PASS] UVE passes the Daily Dollar Volume (DDV of $5.9 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. UVE with a price of $19.95 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] UVE's income tax paid expressed as a percentage of pretax income this year was (41.35%) and last year (42.33%) 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.   CREDIT ACCEPTANCE CORP. Profile Strategy: Small-Cap Growth Investor Based on: Motley Fool Credit Acceptance Corporation (Credit Acceptance) is a provider of auto loans to consumers. The Company offers auto loans and related products and services to consumers through its network of Dealer-Partners. It refers to dealers who participate in the Company's programs as Dealer-Partners. Credit Acceptance has two programs: the Portfolio Program and the Purchase Program. Under the Portfolio Program, it advances money to Dealer-Partners (referred to as a Dealer Loan) in exchange for the right to service the underlying Consumer Loans. Under the Purchase Program, Credit Acceptance buys the Consumer Loans from the Dealer-Partners (referred to as a Purchased Loan) and keeps all amounts collected from the consumer. Dealer Loans and Purchased Loans are collectively referred to as Loans. 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. CACC's profit margin of 36.30% 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. CACC, with a relative strength of 73, fails 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 CACC (22.91% for EPS, and 5.21% for Sales) are not good enough to pass. INSIDER HOLDINGS: [PASS] CACC's insiders should own at least 10% (they own 23.26% ) 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. CACC's free cash flow of $13.33 per share passes this test. PROFIT MARGIN CONSISTENCY: [PASS] CACC's profit margin has been consistent or even increasing over the past three years (Current year: 37.11%, Last year: 36.06%, Two years ago: 35.80%), 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 CACC's case. CASH AND CASH EQUIVALENTS: [FAIL] CACC does not have a sufficiently large amount of cash, $4.20 million, on hand relative to its size. Although this criteria does not apply to companies of this size, we defined anything greater than $500 million in cash as having 'a lot of cash' to allow analysis of these companies. CACC will have more of a difficult time paying off debt (if it has any) or acquiring other companies than a company that passes this criterion. 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 CACC was 0.18% last year, while for this year it is 0.16%. Since the AR to sales has been flat, CACC passes this test. "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 (CACC's is 0.47), the shares are looked upon favorably. These high quality companies can often wind up as the biggest winners. CACC passes this test. The following criteria for CACC are less important which means you would place less emphasis on them when making your investment decision using this strategy: AVERAGE SHARES OUTSTANDING: [PASS] CACC has not been significantly increasing the number of shares outstanding within recent years which is a good sign. CACC currently has 22.0 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. CACC's sales of $713.7 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] CACC passes the Daily Dollar Volume (DDV of $7.4 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. CACC with a price of $147.92 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] CACC's income tax paid expressed as a percentage of pretax income this year was (36.44%) and last year (35.97%) 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.   VALERO ENERGY CORPORATION Profile Strategy: Contrarian Investor Based on: David Dreman Valero Energy Corporation (Valero) is an independent petroleum refining and marketing company. Valero's refineries can produce conventional gasoline's, distillates, jet fuel, asphalt, petrochemicals, lubricants, and other refined products, as well as a slate of premium products, including conventional blendstock for oxygenate blending and reformulated gasoline blendstock for oxygenate blending, gasoline meeting the specifications of the California Air Resources Board, a diesel fuel, and low-sulfur and ultra-low-sulfur diesel fuel. It also owns 10 ethanol plants in the central plains region of the United States with a combined ethanol nameplate production capacity of about 1.1 billion gallons per year. It operates in three business segments: refining, ethanol, and retail. In May 2013, CST Brands Inc announced that the Company which includes Corner Store and Depanneur du Coin, spun off from Valero Energy Corporation. 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. VLO has a market cap of $26,891 million, therefore passing the test. EARNINGS TREND: [PASS] A company should show a rising trend in the reported earnings for the most recent quarters. VLO's EPS for the past 2 quarters, (from earliest to most recent quarter) 1.22, 2.00 have been increasing, and therefore the company passes this test. EPS GROWTH RATE IN THE IMMEDIATE PAST AND FUTURE: [PASS] This methodology likes to see companies with an EPS growth rate higher than the S&P in the immediate past and a likelihood that this trend will continue in the near future. VLO passes this test as its EPS growth rate over the past 6 months (29.87%) has beaten that of the S&P (9.81%). VLO's estimated EPS growth for the current year is (18.55%), which indicates the company is expected to experience positive earnings growth. As a result, VLO passes this test. This methodology would utilize four separate criteria to determine if VLO 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. VLO's P/E of 7.24, based on trailing 12 month earnings, meets the bottom 20% criterion (below 12.20), 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. VLO's P/CF of 4.85 meets the bottom 20% criterion (below 7.05) 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. VLO's P/B is currently 1.31, 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%). VLO's P/D of 46.95 does not meet the bottom 20% criterion (below 20.53), 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 [1.18] or greater than 2). This is one identifier of financially strong companies, according to this methodology. VLO's current ratio of 1.46 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 VLO is 13.83%, while its historical payout ratio has been 15.43%. Therefore, it passes the payout criterion. RETURN ON EQUITY: [PASS] The company should have a high ROE, as this helps to ensure that there are no structural flaws in the company. This methodology feels that the ROE should be greater than the top one third of ROE from among the top 1500 large cap stocks, which is 17.37%, and would consider anything over 27% to be staggering. The ROE for VLO of 19.70% is high enough to pass this criterion. PRE-TAX PROFIT MARGINS: [FAIL] This methodology looks for pre-tax profit margins of at least 8%, and considers anything over 22% to be phenomenal. VLO's pre-tax profit margin is 4.11%, thus failing this criterion. YIELD: [FAIL] The company in question should have a yield that is high and that can be maintained or increased. VLO's current yield is 2.13%, while the market yield is 2.54%. VLO 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 39.53%. VLO's Total Debt/Equity of 31.06% is considered acceptable.   ZUMIEZ INC. Profile Strategy: Price/Sales Investor Based on: Kenneth Fisher Zumiez Inc. (Zumiez) is a specialty retailer of action sports related apparel, footwear, equipment and accessories operating under the Zumiez brand name. As of January 28, 2012, the Company operated 434 stores in the United States and 10 stores in Canada. In addition, the Company operates a Website that sells merchandise online. At January 28, 2012, its stores averaged approximately 2,900 square feet. Its apparel offerings include tops, bottoms, outerwear and accessories, such as caps, bags and backpacks, belts, jewelry and sunglasses. Zumiez's footwear offerings primarily consist of action sports related athletic shoes and sandals. Its equipment offerings, or hardgoods, include skateboards, snowboards and ancillary gear, such as boots and bindings. The Company also offers a selection of other items, such as miscellaneous novelties. 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. ZUMZ's P/S ratio of 1.37 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. ZUMZ's Debt/Equity of 0.00% is exceptional, 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. ZUMZ 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 ZUMZ At this Point Is ZUMZ 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, ZUMZ, who has a P/S of 1.37, 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%. ZUMZ's inflation adjusted EPS growth rate of 29.47% 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. ZUMZ's free cash per share of 1.02 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. ZUMZ, whose three year net profit margin averages 6.45%, passes this evaluation.   PIPER JAFFRAY COMPANIES Profile Strategy: P/E/Growth Investor Based on: Peter Lynch Piper Jaffray Companies is an investment bank and asset management firm, serving the needs of corporations, private equity groups, public entities, non-profit entities and institutional investors in the United States and internationally. The Company operates in two segments: Capital Markets and Asset Management. The Capital Markets segment provides investment banking and institutional sales, trading and research services for various equity and fixed income products. The Asset Management segment includes traditional asset management activities and related services. The Company markets the investment banking and institutional securities business under Piper Jaffray name. Its asset management business is marketed under Advisory Research, Inc. In July 2013, Piper Jaffray Companies announced that it has completed its purchase of Seattle-Northwest Securities Corporation. In July 2013, the Company announced that it has completed its purchase of Edgeview Partners L.P. Analysis Guru Score: 93% DETERMINE THE CLASSIFICATION: This methodology would consider PJC a "fast-grower". P/E/GROWTH RATIO: [PASS] The investor should examine the P/E (12.05) relative to the growth rate (29.68%), based on the average of the 3 and 4 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 PJC (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. PJC, whose sales are $709.7 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 PJC is 29.7%, based on the average of the 3 and 4 year historical eps growth rates, which is acceptable. TOTAL DEBT/EQUITY RATIO: [NEUTRAL] PJC 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. PJC's Equity/Assets ratio (31.00%) 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. PJC's ROA (3.62%) 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 PJC (4.75%) 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 PJC (-38.91%) 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.   AGCO CORPORATION Profile Strategy: Value Investor Based on: Benjamin Graham AGCO Corporation is engaged in manufacturing and distributing agricultural equipment and related replacement parts throughout the world. The Company sells a range of agricultural equipment, including tractors, combines, self-propelled sprayers, application equipment, hay tools, forage equipment, tillage, implements, engines, precision farming technologies, grain storage and protein production systems, and replacement parts. Its products are used in the agricultural equipment industry and are marketed under a number of brands, including Challenger, Fendt, GSI, Massey Ferguson and Valtra. The Company distributes most of its products through a combination of approximately 3,100 independent dealers and distributors in more than 140 countries. In addition, the Company provides retail financing, through its retail finance joint ventures with Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A. (Rabobank). Analysis Guru Score: 86% SECTOR: [PASS] AGCO 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. AGCO's sales of $10,098.2 million, based on trailing 12 month sales, pass this test. CURRENT RATIO: [FAIL] The current ratio must be greater than or equal to 2. Companies that meet this criterion are typically financially secure and defensive. AGCO's current ratio of 1.78 fails the test. LONG-TERM DEBT IN RELATION TO NET CURRENT ASSETS: [PASS] For industrial companies, long-term debt must not exceed net current assets (current assets minus current liabilities). Companies that meet this criterion display one of the attributes of a financially secure organization. The long-term debt for AGCO is $1,332.8 million, while the net current assets are $1,841.8 million. AGCO 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. AGCO's EPS growth over that period of 467.8% 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. AGCO's P/E of 8.93 (using the current PE) passes this test. PRICE/BOOK RATIO: [PASS] The Price/Book ratio must also be reasonable. That is, the Price/Book multiplied by P/E cannot be greater than 22. AGCO's Price/Book ratio is 1.08, while the P/E is 8.93. AGCO passes the Price/Book test.   MIDDLEBY CORP Profile Strategy: Patient Investor Based on: Warren Buffett The Middleby Corporation (Middleby) through its operating subsidiary Middleby Marshall Inc. (Middleby Marshall) and its subsidiaries, is engaged in the design, manufacture, marketing, distribution, and service of a line of cooking and warming equipment used in all types of commercial restaurants and institutional kitchens, and food preparation, cooking and packaging equipment for food processing operations. The Company operates in two segments: the Commercial Foodservice Equipment Group and the Food Processing Equipment Group. In April 2014, Middleby Corporation acquired assets of Processing Equipment Solutions, Inc. In September 2014, Middleby Corporation acquires Concordia Coffee Company, Inc. Analysis Guru Score: 96% 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 0.40, 0.66, 0.86, 1.03, 1.25, 1.10, 1.32, 1.72, 2.16, 2.74. Buffett would consider MIDD'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 12.0%. MIDD's long term historical EPS growth rate is 23.3%, 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. MIDD has a debt of 506.6 million and earnings of 192.1 million, which could be used to pay off the debt in less than five years, thus passing this criterion. Buffett would prefer, however, for a company to have sufficient earnings to pay off its debt in less than two years. 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 MIDD, over the last ten years, is 23.6%, 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 248.5%, 64.8%, 40.6%, 28.7%, 28.0%, 17.8%, 17.3%, 18.8%, 18.8%, 18.7%, and the average ROE over the last 3 years is 18.8%, 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 MIDD, over the last ten years, is 15.7% and the average ROTC over the past 3 years is 14.4%, 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 14.9%, 20.1%, 24.5%, 19.0%, 14.0%, 10.0%, 11.6%, 18.8%, 13.4%, 11.1%, 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. MIDD's free cash flow per share of $2.25 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 $13.18 and compares it to the gain in EPS over the same period of $2.34. MIDD's management has proven it can earn shareholders a 17.8% return on the earnings they kept. This return is more than acceptable to Buffett. Essentially, management is doing a great job putting the retained earnings to work. HAS THE COMPANY BEEN BUYING BACK SHARES: [BONUS PASS] Buffett likes to see falling shares outstanding, which indicates that the company has been repurchasing shares. This indicates that management has been using excess capital to increase shareholder value. MIDD's shares outstanding have fallen in the current year from 57,369,999 to 57,000,000, 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 MIDD 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 $3.37 and divide it by the current market price of $97.29. An investor, purchasing MIDD, could expect to receive a 3.46% initial rate of return. Furthermore, he or she could expect the rate to increase 23.3% 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 MIDD's initial yield of 3.46%, which will expand at an annual rate of 23.3%, 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] MIDD currently has a book value of $16.83. It is safe to say that if MIDD can preserve its average rate of return on equity of 18.8% and continues to retain 99.22% of its earnings, it will be able to sustain an earnings growth rate of 18.6% and it will have a book value of $92.86 in ten years. If it can still earn 18.8% on equity in ten years, then expected EPS will be $17.43. CALCULATE THE FUTURE STOCK PRICE BASED ON THE AVERAGE ROE METHOD: [No Pass/Fail] Now take the expected future EPS of $17.43 and multiply them by the lower of the 5 year average P/E ratio or current P/E ratio (28.9) (5 year average P/E in this case), which is 22.0 and you get MIDD's projected future stock price of $382.75. 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 $1.00. This gives you a total dollar amount of $383.75. These numbers indicate that one could expect to make a 14.7% average annual return on MIDD's stock at the present time. Although, the return is slightly below the liking of Buffett, the return would still be somewhat acceptable. CALCULATE THE EXPECTED FUTURE STOCK PRICE BASED ON AVERAGE EPS GROWTH: [No Pass/Fail] If you take the EPS growth of 23.3%, based on the average of the 3, 4 and 5 year historical eps growth rates, you can project EPS in ten years to be $27.35. Now multiply EPS in 10 years by the lower of the 5 year average P/E ratio or current P/E ratio (28.9) (5 year average P/E in this case), which is 22.0. This equals the future stock price of $600.70. Add in the total expected dividend pool of $1.00 to get a total dollar amount of $601.70. 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 $97.29 and the future expected stock price, including the dividend pool, of $601.70. If you were to invest in MIDD at this time, you could expect a 19.99% 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 14.7% and 20.0%. To pinpoint the average return a little better, we have taken an average of the two different methods. Investors could expect an average return of 17.3% on MIDD stock for the next ten years, based on the current fundamentals. Buffett would consider this a great return, thus passing the criterion.   JONES LANG LASALLE INC Profile Strategy: Growth/Value Investor Based on: James P. O'Shaughnessy Jones Lang LaSalle Incorporated (Jones Lang LaSalle), is a financial and professional services firm specializing in real estate. Jones Lang LaSalle has over 200 corporate offices worldwide and operations in more than 1,000 locations in 70 countries. The Company offers integrated real estate and investment management services on a local, regional and global basis to owner, occupier and investor clients. It delivers an array of Real Estate Services (RES) across its three geographic business segments: the Americas, Europe, Middle East and Africa (EMEA), and Asia Pacific. LaSalle Investment Management, a wholly owned member of the Jones Lang LaSalle group that consists of its fourth business segment, is a diversified real estate investment management company. In July 2014, Jones Lang LaSalle Inc acquired CLEO Construction Management (CLEO), a construction project management services firm that specializes in medical facilities. 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. JLL, with a market cap of $6,449 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. JLL, whose annual EPS before extraordinary items for the last 5 years (from earliest to the most recent fiscal year) were -0.11, 3.48, 3.70, 4.63 and 5.98, 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. JLL's Price/Sales ratio of 1.24, 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. JLL, whose relative strength is 87, is in the top 50 and would pass this last criterion.   FOOT LOCKER, INC. Profile Strategy: P/E/Growth Investor Based on: Peter Lynch Foot Locker, Inc. is a global retailer of athletic shoes and apparel. As of August 02, 2014, the Company operated 3,460 stores, including 74 franchised stores. The Company operates in two segments. The Athletic Stores segment is an athletic footwear and apparel retailer whose formats include Foot Locker, Lady Foot Locker, Kids Foot Locker, Champs Sports, Footaction and SIX:02, as well as the retail stores of Runners Point Group, including Runners Point, Sidestep and Run2. The Direct-to-Customers segment operates the websites for eastbay.com, final-score.com, eastbayteamsales.com, ccs.com, as well as websites aligned with the brand names of its store banners (footlocker.com, ladyfootlocker.com, kidsfootlocker.com, champssports.com, footaction.com, and six02.com). Additionally, this segment includes the direct-to-customer subsidiary of Runners Point Group, which operates the websites for runnerspoint.com, sidestep-shoes.com, and sp24.com. Analysis Guru Score: 74% DETERMINE THE CLASSIFICATION: This methodology would consider FL a "fast-grower". P/E/GROWTH RATIO: [PASS] The investor should examine the P/E (17.03) relative to the growth rate (56.65%), based on the average of the 3 and 4 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 FL (0.30) is very favorable. SALES AND P/E RATIO: [PASS] For companies with sales greater than $1 billion, this methodology likes to see that the P/E ratio remain below 40. Large companies can have a difficult time maintaining a growth high enough to support a P/E above this threshold. FL, whose sales are $7,031.0 million, needs to have a P/E below 40 to pass this criterion. FL's P/E of (17.03) is considered acceptable. EPS GROWTH RATE: [FAIL] This methodology favors companies that have several years of fast earnings growth, as these companies have a proven formula for growth that in many cases can continue many more years. This methodology likes to see earnings growth in the range of 20% to 50%, as earnings growth over 50% may be unsustainable. The EPS growth rate for FL is 56.7%, based on the average of the 3 and 4 year historical eps growth rates, which is considered too fast. TOTAL DEBT/EQUITY RATIO: [PASS] This methodology would consider the Debt/Equity ratio for FL (5.19%) to be exceptionally low (equity is at least ten times debt). This ratio is one quick way to determine the financial strength of the company. FREE CASH FLOW: [NEUTRAL] The Free Cash Flow/Price ratio, though not a requirement, is considered a bonus if it is above 35%. A positive Cash Flow (the higher the better) separates a wonderfully reliable investment from a shaky one. This methodology prefers not to invest in companies that rely heavily on capital spending. This ratio for FL (2.39%) 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 FL (8.78%) is too low to add to the attractiveness of this company. Keep in mind, however, that it does not adversely affect the company as it is a bonus criteria.   Watch List The Watch List contains the highest scoring stocks according to our guru consensus system that are not currently in the Hot List portfolio. We provide this list both for informational purposes and for investors who are not comfortable with a portfolio of ten stocks. Ticker Company Name Industry Guru Score STWD STARWOOD PROPERTY TRUST, INC. Consumer Financial Services 60 SWKS SKYWORKS SOLUTIONS INC Semiconductors 51 SSL SASOL LIMITED (ADR) Chemical Manufacturing 47 MNST MONSTER BEVERAGE CORP Beverages (Non-Alcoholic) 43 USNA USANA HEALTH SCIENCES, INC. Conglomerates 38 SIMO SILICON MOTION TECHNOLOGY CORP. (ADR) Semiconductors 35 YHOO YAHOO! INC. Computer Services 32 EDU NEW ORIENTAL EDUCATION & TECH GRP (ADR) Schools 32 ALL ALLSTATE CORP Insurance (Prop. & Casualty) 31 PII POLARIS INDUSTRIES INC. Recreational Products 30

Disclaimer

The names of individuals (i.e., the 'gurus') appearing in this report are for identification purposes of his methodology only, as derived by Validea.com from published sources, and are not intended to suggest or imply any affiliation with or endorsement or even agreement with this report personally by such gurus, or any knowledge or approval by such persons of the content of this report. All trademarks, service marks and tradenames appearing in this report are the property of their respective owners, and are likewise used for identification purposes only. Validea is not registered as a securities broker-dealer or investment advisor either with the U.S. Securities and Exchange Commission or with any state securities regulatory authority. Validea is not responsible for trades executed by users of this site based on the information included herein. The information presented on this website does not represent a recommendation to buy or sell stocks or any financial instrument nor is it intended as an endorsement of any security or investment. The information on this website is generic by nature and is not personalized to the specific situation of any individual. The user therefore bears complete responsibility for their own investment research and should seek the advice of a qualified investment professional prior to making any investment decisions. Performance results are based on model portfolios and do not reflect actual trading. Actual performance will vary based on a variety of factors, including market conditions and trading costs. Past performance is not necessarily indicative of future results. Individual stocks mentioned throughout this web site may be holdings in the managed portfolios of Validea Capital Management, a separate asset management firm founded by Validea.com founder John Reese. Validea Capital Management, which is a separate legal entity and an SEC registered investment advisory firm, uses, in part, the strategies on the web site to select stocks for its clients.