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Executive Summary	June 6, 2014

The Economy Some of the major market indices are continuing to set new highs, bolstered in part by solid data from the employment, manufacturing, and service sectors. In May, for example, the private sector added 179,000 jobs, according private payroll processor ADP. That wasn't quite as good as the past three months, when the figure averaged 202,000, but it's still a solid increase. Small businesses led the way, accounting for nearly half of the new jobs. The government's May jobs report is due out today, and will no doubt be watched closely by Wall Street. The manufacturing sector expanded in May for the 12th straight month, and did so at an accelerating pace for the fourth straight month, according to the Institute for Supply Management. The survey's New Orders sub-index also rose and remains at a very healthy level. The Employment sub-index showed that conditions continued to improve, though at a slower pace than they did in April. The Prices sub-index, which last month showed that the rate of price increases fell to the slowest place of the year, jumped back up in May. Prices have now been increasing for 10 straight months, doing so at a pretty strong clip most of that period, something to keep an eye on. The service sector also expanded in May for the 52nd straight month, doing so at the fastest pace since last August. The New Orders sub-index continued to rise and is now quite high -- only 10 percent of ISM survey respondents said new orders declined vs. April. The Employment sub-index rose a bit, indicating that employment conditions in the sector keep improving. Inventory levels, which had jumped sharply the previous month, rose at the same rate in May. Prices increased at a very strong rate for the third straight month. Again, something to keep an eye on. Personal income rose at a good pace in April, increasing 0.3 percent, according to a new government report. Real disposable personal income rose 0.2 percent. After increasing their spending more quickly than their income was rising in each of the past two months, consumers tightened their belts in April, with real personal consumption expenditures falling 0.3 percent. That helped boost the personal savings rate from 3.6 percent in March to 4.0 percent in April. Overall since our last newsletter, the S&P 500 returned 2.5%, while the Hot List returned 2.7%. For the year, the portfolio stands at -10.8% vs. 5.0% for the S&P. Since its inception in July 2003, the Hot List is far outpacing the index, having gained 224.6% vs. the S&P's 94.0% gain. The Valuation Situation The market is continuing to climb, with the S&P 500 making several recent record highs. For a value investor, that can be a bit disconcerting. Value investors like Benjamin Graham, Joel Greenblatt, Warren Buffett, and the other gurus I follow tend to get excited when prices are falling - not rising - because they're always on the hunt for bargains. So with the market's continued rise, how do things stand, valuation-wise? Are there bargains left? First, let's check in on broader market valuations. As always, let's start with earnings. As of June 5, the S&P 500 is trading for about 19.4 times trailing 12-month as reported earnings per share, up from 18.4 times last August, when last we check in on valuations. Using projected earnings for next year, the P/E is 15.6. The forward P/E is above the 5-year average forward 12-month P/E of 13.2, and above the 10-year average forward 12-month P/E of 13.8, according to FactSet. Overall, P/Es are thus a bit on the higher side. But these earnings-related valuations are from from exuberant; they're within what I'd say is "fair value" range, particularly in a low-interest rate environment. The S&P's price/sales ratio, meanwhile, is 1.65, according to Morningstar.com, up from 1.4 back in August. Its price/book ratio is 2.33, up from 2.1. From 1978 through early 2011, the average S&P price/book ratio was about 2.4, according to data from Ned Davis Research and Comstock Partners, so that figure stacks up well. The current price/sales ratio is higher than the historical average cited by Comstock and Ned Davis. But again, it doesn't seem exuberant -- my James O'Shaughnessy - based growth model considers P/S ratios of up to 1.5 to be indicative of good values, so 1.65 is probably still in the fair value range. Dividend yields remain attractive, with the S&P yielding 2.3%. That's up slightly from 2.2% in August. One figure that is a bit disconcerting is the Stock Market/GDP ratio, which compares the market cap of the Wilshire Total Market Index to gross domestic product. It is now 119.3%, up from 111.8% in August, according to GuruFocus.com. That puts it in the "Significantly Overvalued" range (over 115%), based on the site's analysis of historical data. It's also more than double what it was at the beginning of the bull market. The 10-year cyclically adjusted price/earnings ratio also remains high. The ratio, which uses inflation-adjusted average earnings for the past decade to smooth out short-term fluctuations, is at about 25.8, using Yale Economist Robert Shiller's earnings data. That's up from 23.9 last August. It's also well above the 16.5 historical average (which dates back to 1871). As I've noted before, it may be more appropriate to look at the figure in the context of its post-World War II average, which is about 18.3 (after World War II, inflation became a permanent part of the U.S. economy; since inflation eats away so significantly at fixed-income assets, investors should be willing to pay higher multiples for stocks when inflation is a factor). Still, the figure is quite elevated, as it has been throughout almost the entire bull market. The Q Ration also indicates that the market is significantly overvalued. Developed by Nobel Laureate James Tobin, the "Q" is determined by dividing the total price of the stock market by the replacement cost of all of its companies. The Federal Research provides data needed to make the calcuation on its Flow of Funds Account report, though that is only released once per quarter. As of the most recent report, which came at the end of Q1, the Q ratio was 1.11, up from 1.08 last August, according to an analysis done by Doug Short of Advisor Perspectives. That was significantly higher than the historical average of 0.68 using the arithmetic mean and 0.63 using the geometric mean. As has been the case for some time, the recent Q indicates the market is significantly overvalue, but it's not nearly as high as it has gotten at some market tops. The current Q is 64% above the historical average; back at the height of the tech bubble, it was 141% above the mean. All in all, the broader market's valuation continues to climb. Looking at the totality of the data, we're probably on the high end of the fair valuation range, or perhaps a bit overvalued. That's not a big cause for concern, though -- this is what happens in bull markets. Prices rise, and valuations go from cheap to average to above average. But we're not seeing wild exuberance in the valuations. Perhaps some areas of the market are bubbly, but based on the data, I don't believe we are experiencing a bubble in the overall market. But keep in mind that as the broader market valuations climb higher, stock-picking strategies become even more important. There are still bargains out there to be had, even in a market that's making all time highs, but they're not as easy to find as they once were. Quantitative screening strategies, like those used by the Hot List, come in hand in that regard. They can scan through thousands of stocks in a matter of seconds to find the picks that remain attractively valued. Take Hot List newcomer Coach, Inc. The luxury retailer, one of four stocks being added to the portfolio today, trades for just 11.9 times trailing 12-month earnings. Its earnings yield, using the EBIT/enterprise value metric my Greenblatt-based model uses, is a stellar 13.7%, which puts it among the 50 cheapest stocks in the market. And for that great price you're getting a company that has upped earnings per share in all but one year of the past decade; has no long-term debt; and has a 40% return on equity. Throw in a 3.5% dividend yield, and my models see a lot to like. While the Hot List has struggled in the early part of 2014, its long-term track record indicates that the weak performance will be short lived. Over the long haul, by investing in strong companies with cheap shares, like Coach, I expect the portfolio will continue to extend its significant long-term outperformance of the broader market.		Editor-in-Chief: John Reese Since Inception   Hot List 224.6% S&P 500 94.0% Accuracy 55.6% Beta 1.2 YTD   Hot List -10.8% S&P 500 5.0% Since Last Issue   Hot List 2.7% S&P 500 2.5% Avg. Fundamentals   Market Cap (mil) $7,792 PE Ratio 15.1 5 Yr EPS Growth 27.5% Yield 1.1% Rel. Strength 62 Portfolio Sectors Services 3 Consumer Cyclical 2 Consumer/Non-Cyclical 1 Energy 1 Healthcare 1 Capital Goods 1 Conglomerates 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, 4 stocks leave our portfolio. These include: Drew Industries, Inc. (DW), Netease, Inc (Adr) (NTES), Bofi Holding, Inc. (BOFI) and Northrop Grumman Corporation (NOC). The Keepers 6 stocks remain in the portfolio. They are: Agco Corporation (AGCO), Bed Bath & Beyond Inc. (BBBY), Robert Half International Inc. (RHI), Valero Energy Corporation (VLO), Anika Therapeutics, Inc. (ANIK) and Smith & Wesson Holding Corp (SWHC). The Newbies We are adding 4 stocks to the portfolio. These include: Williams-sonoma, Inc. (WSM), Nu Skin Enterprises, Inc. (NUS), Usana Health Sciences, Inc. (USNA) and Coach Inc (COH). Portfolio Changes Additions   WILLIAMS-SONOMA, INC. WSM NU SKIN ENTERPRISES, INC. NUS USANA HEALTH SCIENCES, INC. USNA COACH INC COH Deletions   DREW INDUSTRIES, INC. DW NETEASE, INC (ADR) NTES BOFI HOLDING, INC. BOFI NORTHROP GRUMMAN CORPORATION NOC Newcomers to the Validea Hot List Williams-Sonoma Inc. (WSM): This San Francisco-based cookware and kitchen supply store, which also owns home products and furniture stores like Pottery Barn and West Elm, has nearly 600 stores across the U.S. and Canada. Sonoma ($6.4 billion market cap) gets strong interest from my Peter Lynch- and James O'Shaughnessy-based models. To read more about it, scroll down to the "Detailed Stock Analysis" section below. Coach Inc. (COH): This New York City-based luxury goods maker and handbag specialist actually wasn't hit too hard during the Great Recession, and it has fared well since then. The $11-billion-market-cap firm and past Hot List member has long been a favorite of my Warren Buffett-based model, and currently also gets strong interest from my Peter Lynch- and Joel Greenblatt-based models. To read more about it, check out the "Detailed Stock Analysis" section below. Nu Skin Enterprises, Inc. (NUS): Utah-based Nu Skin ($4.4 billion market cap) is a direct selling company that sells personal care, nutrition, and technology products, such as skin creams, supplements intended to fight aging, and a biophotonic scanner that measures carotenoid antioxidant activity. It sells its products through a network of more than 750,000 independent distributors and preferred customers around the world. Nu Skin gets approval from my Peter Lynch-, Joel Greenblatt-, and James O'Shaughnessy-based strategies. To read more about it, scroll down to the "Detailed Stock Analysis" section below. USANA Health Sciences, Inc. (USNA): Utah-based USANA makes nutritional and personal care products such as vitamins, nutrition bars, and skin and hair cleansers. It has customers in the U.S., Canada, Australia, New Zealand, Mexico, the U.K., and a number of countries in Asia. Its subsidiary, BabyCare, Ltd., has a direct selling business in China. USANA ($1 billion in market cap) gets strong interest from my Peter Lynch-, Warren Buffett-, and Joel Greenblatt-based models. To read more about it, scroll down to the "Detailed Stock Analysis" section. News About the Validea Hot List Stocks Northrop Grumman (NOC): NOC has won a five-year contract valued at up to $9.9 billion from the U.S. Air Force to modernize and support the B-2 stealth bomber, Reuters reported. The indefinite-delivery/indefinite-quantity contract cover a range of enhancements, software maintenance, and other support services. The base contract runs through May 2019, and includes an option that would extend it through 2024. AGCO Corp. (AGCO): AGCO has agreed to acquire Intersystems Holdings, an Omaha, Neb.-based manufacturer of commercial material handling solutions sold to grain operations globally. Terms of the deal, which is subject to certain regulatory approvals, were not disclosed. AGCO officials said the move would allow it to expand its grain handling and storage business in the fast growing off-farm segment. 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 ANIK ANIKA THERAPEUTICS, INC. Biotechnology & Drugs 100 VLO VALERO ENERGY CORPORATION Oil & Gas Operations 96 SWHC SMITH & WESSON HOLDING CORP Recreational Products 89 NUS NU SKIN ENTERPRISES, INC. Personal & Household Prods. 86 RHI ROBERT HALF INTERNATIONAL INC. Business Services 64 WSM WILLIAMS-SONOMA, INC. Furniture & Fixtures 58 COH COACH INC Retail (Apparel) 58 BBBY BED BATH & BEYOND INC. Retail (Specialty) 56 USNA USANA HEALTH SCIENCES, INC. Conglomerates 53 AGCO AGCO CORPORATION Constr. & Agric. Machinery 49 Ticker Market Cap Date Added Start Price Current Price Return ANIK $693 5/9/2014 $47.62 $48.05 0.9% VLO $29,691 4/11/2014 $50.96 $55.64 9.2% SWHC $912 4/11/2014 $13.91 $16.60 19.3% NUS $4,434 6/6/2014 TBD $75.22 TBD RHI $6,290 5/9/2014 $44.62 $45.75 2.5% WSM $6,402 6/6/2014 TBD $68.02 TBD COH $10,852 6/6/2014 TBD $39.58 TBD BBBY $12,426 5/9/2014 $61.31 $61.33 0.0% USNA $1,026 6/6/2014 TBD $73.70 TBD AGCO $5,191 12/20/2013 $57.62 $55.27 -4.1%

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 ANIK   |   VLO   |   SWHC   |   NUS   |   RHI   |   WSM   |   COH   |   BBBY   |   USNA   |   AGCO   |   ANIKA THERAPEUTICS, INC. Profile Strategy: P/E/Growth Investor Based on: Peter Lynch Anika Therapeutics, Inc. (Anika) develops, manufactures and commercializes therapeutic products for tissue protection, healing and repair. These products are based on hyaluronic acid (HA), a naturally occurring, biocompatible polymer found throughout the body. As of December 31, 2011, Anika's wholly owned subsidiary, Anika Therapeutics S.r.l., had over 20 products commercialized, primarily in Europe. These products are also all made from hyaluronic acid, based on two technologies: HYAFF, which is a solid form of HA, and ACP gel, an autocross-linked polymer of HA. Analysis Guru Score: 93% DETERMINE THE CLASSIFICATION: This methodology would consider ANIK a "fast-grower". P/E/GROWTH RATIO: [PASS] The investor should examine the P/E (22.38) relative to the growth rate (46.96%), based on the average of the 3, 4 and 5 year historical eps growth rates, for a company. This is a quick way of determining the fairness of the price. In this particular case, the P/E/G ratio for ANIK (0.48) 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. ANIK, whose sales are $93.8 million, is not considered large enough to apply the P/E ratio analysis. However, an investor can analyze the P/E ratio relative to the EPS growth rate. INVENTORY TO SALES: [PASS] When inventories increase faster than sales, it is a red flag. However an increase of up to 5% is considered bearable if all other ratios appear attractive. Inventory to sales for ANIK was 11.60% last year, while for this year it is 14.65%. Since inventory has been rising, this methodology would not look favorably at the stock but would not completely eliminate it from consideration as the inventory increase (3.05%) is below 5%. 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 ANIK is 47.0%, based on the average of the 3, 4 and 5 year historical eps growth rates, which is considered 'OK'. However, it may be difficult to sustain such a high growth rate. TOTAL DEBT/EQUITY RATIO: [PASS] This methodology would consider the Debt/Equity ratio for ANIK (0.00%) to be wonderfully 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 ANIK (3.48%) 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 ANIK (8.24%) 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.   VALERO ENERGY CORPORATION Profile Strategy: Price/Sales Investor Based on: Kenneth Fisher 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: 90% PRICE/SALES RATIO: [PASS] The prospective company should have a low Price/Sales ratio. Non-cyclical (non-Smokestack) companies with Price/Sales ratios below 0.75 are tremendous values and should be sought. VLO's P/S of 0.22 based on trailing 12 month sales, is below 0.75 which is considered quite attractive. It passes this methodology's P/S ratio test with flying colors. TOTAL DEBT/EQUITY RATIO: [PASS] Less debt equals less risk according to this methodology. VLO's Debt/Equity of 32.96% is acceptable, thus passing the test. PRICE/RESEARCH RATIO: [PASS] This methodology considers companies in the Technology and Medical sectors to be attractive if they have low Price/Research ratios. VLO is neither a Technology nor Medical company. Therefore the Price/Research ratio is not available and, hence, not much emphasis should be placed on this particular variable. PRELIMINARY GRADE: Some Interest in VLO At this Point Is VLO a "Super Stock"? NO PRICE/SALES RATIO: [PASS] The prospective company should have a low Price/Sales ratio. Non-cyclical(non-Smokestack) companies with Price/Sales ratios below .75 are tremendous values and should be sought.VLO's P/S ratio of 0.22 is below .75 which is considered extremely attractive. It passes this methodology's P/S ratio test with flying colors. LONG-TERM EPS GROWTH RATE: [PASS] This methodology looks for companies that have an inflation adjusted EPS growth rate greater than 15%. VLO's inflation adjusted EPS growth rate of 28.60% passes the test. FREE CASH PER SHARE: [PASS] This methodology looks for companies that have a positive free cash per share. Companies should have enough free cash available to sustain three years of losses. This is based on the premise that companies without cash will soon be out of business. VLO's free cash per share of 5.44 passes this criterion. THREE YEAR AVERAGE NET PROFIT MARGIN: [FAIL] This methodology looks for companies that have an average net profit margin of 5% or greater over a three year period. VLO, whose three year net profit margin averages 1.71%, fails this evaluation.   SMITH & WESSON HOLDING CORP Profile Strategy: P/E/Growth Investor Based on: Peter Lynch Smith & Wesson Holding Corporation (Smith & Wesson) is a manufacturer of firearms. The Company manufactures a range of handguns, modern sporting rifles, hunting rifles, black powder firearms, handcuffs, and firearm-related products and accessories for sale to a range of customers, including gun enthusiasts, collectors, hunters, sportsmen, competitive shooters, individuals desiring home and personal protection, law enforcement and security agencies and officers, and military agencies in the United States and globally. It sells its products under the Smith & Wesson brand, the M&P brand, the Thompson/Center Arms brand, and the Performance Center brand. The Company manufactures its firearm products at its facilities in Springfield, Massachusetts and Houlton, Maine. In May 2014, the Company through Deep River Plastics LLC, subsidiary purchased substantially all of assets of Tri Town Precision Plastics Inc. Analysis Guru Score: 93% DETERMINE THE CLASSIFICATION: This methodology would consider SWHC a "fast-grower". P/E/GROWTH RATIO: [PASS] The investor should examine the P/E (10.92) relative to the growth rate (44.56%), based on the average of the 3 and 5 year historical eps growth rates, for a company. This is a quick way of determining the fairness of the price. In this particular case, the P/E/G ratio for SWHC (0.25) 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. SWHC, whose sales are $634.9 million, is not considered large enough to apply the P/E ratio analysis. However, an investor can analyze the P/E ratio relative to the EPS growth rate. INVENTORY TO SALES: [PASS] When inventories increase faster than sales, it is a red flag. However an increase of up to 5% is considered bearable if all other ratios appear attractive. Inventory to sales for SWHC was 13.42% last year, while for this year it is 10.72%. Since inventory to sales has decreased from last year by -2.70%, SWHC passes this test. EPS GROWTH RATE: [PASS] This methodology favors companies that have several years of fast earnings growth, as these companies have a proven formula for growth that in many cases can continue many more years. This methodology likes to see earnings growth in the range of 20% to 50%, as earnings growth over 50% may be unsustainable. The EPS growth rate for SWHC is 44.6%, based on the average of the 3 and 5 year historical eps growth rates, which is considered 'OK'. However, it may be difficult to sustain such a high growth rate. TOTAL DEBT/EQUITY RATIO: [PASS] This methodology would consider the Debt/Equity ratio for SWHC (72.54%) to be mediocre. If the Debt/Equity ratio is this high, the other ratios and financial statistics for SWHC should be good enough to compensate. 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 SWHC (5.12%) is too low to add to the attractiveness of the stock. Keep in mind, however, that it does not adversely affect the company as it is a bonus criteria. NET CASH POSITION: [NEUTRAL] Another bonus for a company is having a Net Cash/Price ratio above 30%. Lynch defines net cash as cash and marketable securities minus long term debt. According to this methodology, a high value for this ratio dramatically cuts down on the risk of the security. The Net Cash/Price ratio for SWHC (-0.30%) 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.   NU SKIN ENTERPRISES, INC. Profile Strategy: P/E/Growth Investor Based on: Peter Lynch Nu Skin Enterprises, Inc. is a global direct selling company with operations in 53 markets worldwide. The Company develops and distributes anti-aging personal care products and nutritional supplements under its Nu Skin and Pharmanex brands, respectively. As of December 31, 2012, the Company had more than 950,000 distributors. The Company has two primary product categories, each operating under its own brand. It markets its personal care products under the Nu Skin brand and its nutritional supplements under the Pharmanex brand. During the year ended December 31, 2012, approximately 89% of its revenues came from its markets outside of the United States. The Company's ageLOC skin care products accounted for 23% of its total revenue and 43% of Nu Skin sales during the year ended December 31, 2012. Analysis Guru Score: 93% DETERMINE THE CLASSIFICATION: This methodology would consider NUS a "fast-grower". P/E/GROWTH RATIO: [PASS] The investor should examine the P/E (12.35) relative to the growth rate (42.16%), based on the average of the 3, 4 and 5 year historical eps growth rates, for a company. This is a quick way of determining the fairness of the price. In this particular case, the P/E/G ratio for NUS (0.29) 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. NUS, whose sales are $3,297.7 million, needs to have a P/E below 40 to pass this criterion. NUS's P/E of (12.35) is considered acceptable. INVENTORY TO SALES: [PASS] When inventories increase faster than sales, it is a red flag. However an increase of up to 5% is considered bearable if all other ratios appear attractive. Inventory to sales for NUS was 6.37% last year, while for this year it is 10.69%. Since inventory has been rising, this methodology would not look favorably at the stock but would not completely eliminate it from consideration as the inventory increase (4.32%) is below 5%. 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 NUS is 42.2%, based on the average of the 3, 4 and 5 year historical eps growth rates, which is considered 'OK'. However, it may be difficult to sustain such a high growth rate. TOTAL DEBT/EQUITY RATIO: [PASS] This methodology would consider the Debt/Equity ratio for NUS (22.92%) to be acceptable (equity is three to ten times debt). This ratio is one quick way to determine the financial strength of the company. FREE CASH FLOW: [NEUTRAL] The Free Cash Flow/Price ratio, though not a requirement, is considered a bonus if it is above 35%. A positive Cash Flow (the higher the better) separates a wonderfully reliable investment from a shaky one. This methodology prefers not to invest in companies that rely heavily on capital spending. This ratio for NUS (5.94%) 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 NUS (10.71%) 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.   ROBERT HALF INTERNATIONAL INC. Profile Strategy: Growth/Value Investor Based on: James P. O'Shaughnessy Robert Half International Inc. provides specialized staffing and risk consulting services. The Company operates in three segments: temporary and consultant staffing, permanent placement staffing, and risk consulting and internal audit services. The Company, through its Accountemps, Robert Half Finance & Accounting, and Robert Half Management Resources divisions, is a specialized provider of temporary, full-time, and project professionals in the fields of accounting and finance. OfficeTeam specializes in skilled temporary administrative support personnel. Robert Half Technology provides information technology professionals. Robert Half Legal provides temporary, project, and full-time staffing of attorneys and specialized support personnel within law firms and corporate legal departments. The Creative Group provides project staffing in the advertising, marketing, and Web design fields. Protiviti is a global business consulting and internal audit firm. 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. RHI, with a market cap of $6,290 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. RHI, whose annual EPS before extraordinary items for the last 5 years (from earliest to the most recent fiscal year) were 0.24, 0.44, 1.04, 1.50 and 1.83, 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. RHI's Price/Sales ratio of 1.46, 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. RHI, whose relative strength is 75, is in the top 50 and would pass this last criterion.   WILLIAMS-SONOMA, INC. Profile Strategy: P/E/Growth Investor Based on: Peter Lynch Williams-Sonoma, Inc. is a multi-channel specialty retailer of products for the home. The Company is an e- commerce retailer with brands in home furnishings. It operates retail stores in the United States, Canada and Puerto Rico, and franchises its brands to a third party in a number of countries in the Middle East, including Bahrain, the Kingdom of Saudi Arabia, Kuwait and the United Arab Emirates. Its products are also available to customers through its catalogs and online worldwide. The Company operates in two segments: direct-to-customer and retail. The direct-to-customer segment has seven merchandising concepts (Williams-Sonoma, Pottery Barn, Pottery Barn Kids, PBteen, West Elm, Rejuvenation and Mark and Graham) which sell its products through its seven e-commerce Websites and eight direct-mail catalogs. The retail segment has five merchandising concepts (Williams-Sonoma, Pottery Barn, Pottery Barn Kids, West Elm and Rejuvenation) which sells products through its retail stores. Analysis Guru Score: 91% DETERMINE THE CLASSIFICATION: This methodology would consider WSM a "fast-grower". P/E/GROWTH RATIO: [PASS] The investor should examine the P/E (23.26) relative to the growth rate (38.24%), based on the average of the 3, 4 and 5 year historical eps growth rates, for a company. This is a quick way of determining the fairness of the price. In this particular case, the P/E/G ratio for WSM (0.61) makes it 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. WSM, whose sales are $4,474.4 million, needs to have a P/E below 40 to pass this criterion. WSM's P/E of (23.26) is considered acceptable. INVENTORY TO SALES: [PASS] When inventories increase faster than sales, it is a red flag. However an increase of up to 5% is considered bearable if all other ratios appear attractive. Inventory to sales for WSM was 15.83% last year, while for this year it is 18.53%. Since inventory has been rising, this methodology would not look favorably at the stock but would not completely eliminate it from consideration as the inventory increase (2.70%) is below 5%. 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 WSM is 38.2%, based on the average of the 3, 4 and 5 year historical eps growth rates, which is considered 'OK'. However, it may be difficult to sustain such a high growth rate. TOTAL DEBT/EQUITY RATIO: [PASS] This methodology would consider the Debt/Equity ratio for WSM (0.31%) 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 WSM (2.21%) 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 WSM (5.03%) 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.   COACH INC Profile Strategy: Patient Investor Based on: Warren Buffett Coach, Inc. (Coach) is a marketer of accessories and gifts for women and men. The Company offers a range of modern, fashionable handbags and accessories. Its product offerings include women's and men's bags, accessories, footwear, wearables, jewelry, travel bags, sunwear, watches and fragrance. The Company operates in two segments: North America, which includes sales to North American consumers through Company-operated stores, including the Internet, and sales to wholesale customers and distributors and International, which includes sales to consumers through Company-operated stores in Japan and mainland China, including the Internet, Hong Kong, Macau, Singapore, Taiwan, Malaysia and Korea and sales to wholesale customers and distributors in 25 countries. Analysis Guru Score: 100% STAGE 1: "Is this a Buffett type company?" A bedrock principle for Buffett is that his type of company has a "durable competitive advantage" as compared to being a "price competitive" or "commodity" type of business. Companies with a "durable competitive advantage" are more likely to be found in these sub-industries: Brand Name Fast Food Restaurants, Brand Name Beverages, Brand Name Foods, Brand Name Toiletries and Household Products, Brand Name Clothing, Brand Name Prescription Drugs, Advertising, Advertising Agencies, TV, Newspapers, Magazines, Direct Mail, Repetitive Services for Businesses, Low Cost Producers of Insurance, furniture, or Low Cost Retailers. While you should be easily able to explain where the company's pricing power comes from (i.e. a strong regional brand image, a business tollgate, its main products are #1 or # 2 in its field and has been on the market for years and hasn't changed at all, a consumer or business ends up buying the same product many times in a year, etc. or having the lowest production cost among its competition), there are certain figures that one can look at that can qualify the company as having a durable competitive advantage. LOOK FOR EARNINGS PREDICTABILITY: [PASS] Buffett likes companies to have solid, stable earnings that are continually expanding. This allows him to accurately predict future earnings. Annual earnings per share from earliest to most recent were 0.62, 0.86, 1.19, 1.69, 2.17, 1.91, 2.33, 2.92, 3.53, 3.61. Buffett would consider COH'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%. COH's long term historical EPS growth rate is 14.5%, based on the average of the 3, 4 and 5 year historical eps growth rates, and it is expected to grow earnings 3.6% per year in the future, based on the analysts' consensus estimated long term growth rate. For the purposes of our analysis, we will use the more conservative of the two EPS growth numbers. LOOK AT THE ABILITY TO PAY OFF DEBT [PASS] Buffett likes companies that are conservatively financed. Nonetheless, he has invested in companies with large financing divisions and in firms with rather high levels of debt. COH 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 COH, over the last ten years, is 38.0%, 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 29.9%, 30.9%, 37.2%, 32.9%, 49.1%, 35.9%, 45.9%, 52.3%, 50.5%, 42.3%, and the average ROE over the last 3 years is 48.4%, 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 COH, over the last ten years, is 40.4% and the average ROTC over the past 3 years is 48.1%, 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 29.8%, 30.8%, 37.1%, 32.9%, 49.0%, 35.4%, 45.2%, 51.5%, 50.5%, 42.3%, 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. COH's free cash flow per share of $2.91 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 $17.88 and compares it to the gain in EPS over the same period of $2.99. COH's management has proven it can earn shareholders a 16.7% 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. COH's shares outstanding have fallen over the past five years from 318,010,010 to 279,000,000, 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 COH 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 $3.28 and divide it by the current market price of $39.58. An investor, purchasing COH, could expect to receive a 8.29% initial rate of return. Furthermore, he or she could expect the rate to increase 3.6% per year, based on the analysts' consensus estimated long term growth rate, as this is how fast earnings are growing. COMPARE THE INITIAL RATE OF RETURN WITH THE LONG-TERM TREASURY YIELD: [PASS] Buffett favors companies in which the initial rate of return is around the long-term treasury yield. Nonetheless, he has invested in companies with low initial rates of return, as long as the yield is expected to expand rapidly. Currently, the long-term treasury yield is about 2.75%. Compare this with COH's initial yield of 8.29%, which will expand at an annual rate of 3.6%, based on the analysts' consensus estimated long term growth rate. The company is the better choice, as the initial rate of return is close to or above the long term bond yield and is expanding. CALCULATE THE FUTURE EPS: [No Pass/Fail] COH currently has a book value of $8.72. It is safe to say that if COH can preserve its average rate of return on equity of 38.0% and continues to retain 83.01% of its earnings, it will be able to sustain an earnings growth rate of 31.5% and it will have a book value of $135.30 in ten years. If it can still earn 38.0% on equity in ten years, then expected EPS will be $51.42. CALCULATE THE FUTURE STOCK PRICE BASED ON THE AVERAGE ROE METHOD: [No Pass/Fail] Now take the expected future EPS of $51.42 and multiply them by the lower of the 5 year average P/E ratio (17.1) or current P/E ratio (current P/E in this case), which is 12.1 and you get COH's projected future stock price of $620.14. 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 $6.79. This gives you a total dollar amount of $626.93. These numbers indicate that one could expect to make a 31.8% average annual return on COH'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 3.6%, based on the analysts' consensus estimated long term growth rate, you can project EPS in ten years to be $4.65. Now multiply EPS in 10 years by the lower of the 5 year average P/E ratio (17.1) or current P/E ratio (current P/E in this case), which is 12.1. This equals the future stock price of $56.12. Add in the total expected dividend pool of $6.79 to get a total dollar amount of $62.91. 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 $39.58 and the future expected stock price, including the dividend pool, of $62.91. If you were to invest in COH at this time, you could expect a 4.74% average annual return on your money. Buffett likes to see a 15% return, and would even go down to 12%. LOOK AT THE RANGE OF EXPECTED RATE OF RETURN: [PASS] Based on the two different methods, you could expect an annual compounding rate of return somewhere between 4.7% and 31.8%. To pinpoint the average return a little better, we have taken an average of the two different methods. Investors could expect an average return of 18.3% on COH stock for the next ten years, based on the current fundamentals. Buffett would consider this a great return, thus passing the criterion.   BED BATH & BEYOND INC. Profile Strategy: Patient Investor Based on: Warren Buffett Bed Bath & Beyond Inc. is a chain of retail stores, operating under the names Bed Bath & Beyond (BBB), Christmas Tree Shops (CTS), Harmon and Harmon Face Values (Harmon), buybuy BABY and World Market or Cost Plus World Market (World Market). In addition, it is a partner in a joint venture, which operates three stores in the Mexico City market under the name Bed Bath & Beyond. The Company sells a range of domestics merchandise and home furnishings. Domestics merchandise includes categories, such as bed linens and related items, bath items and kitchen textiles. Home furnishings include categories, such as kitchen and tabletop items, fine tabletop, basic housewares and general home. During fiscal year ended March 2, 2013 (fiscal 2012), the Company opened a total of 38 stores, including 12 BBB stores throughout the United States and Canada, five CTS stores, one Harmon store and 18 buybuy BABY stores, and six World Market stores throughout the United States and closed one BBB store. Analysis Guru Score: 79% 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 1.65, 1.92, 2.08, 2.10, 1.64, 2.31, 3.07, 4.06, 4.56, 4.79. Buffett would consider BBBY's earnings predictable, although earnings have declined 1 time(s) in the past seven years, with the most recent decline 6 years ago. The dips have totaled 21.9%. BBBY's long term historical EPS growth rate is 13.8%, based on the 10 year average EPS growth rate, and it is expected to grow earnings 9.3% per year in the future, based on the analysts' consensus estimated long term growth rate. For the purposes of our analysis, we will use the more conservative of the two EPS growth numbers. LOOK AT THE ABILITY TO PAY OFF DEBT [PASS] Buffett likes companies that are conservatively financed. Nonetheless, he has invested in companies with large financing divisions and in firms with rather high levels of debt. BBBY 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 BBBY, over the last ten years, is 21.3%, 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 22.0%, 23.8%, 21.8%, 21.2%, 14.2%, 16.6%, 19.6%, 24.4%, 24.7%, 25.0%, and the average ROE over the last 3 years is 24.7%, 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 BBBY, over the last ten years, is 21.3% and the average ROTC over the past 3 years is 24.7%, 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 22.0%, 23.8%, 21.8%, 21.2%, 14.2%, 16.6%, 19.6%, 24.4%, 24.7%, 25.0%, 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. BBBY's free cash flow per share of $5.00 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: [FAIL] 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 $28.18 and compares it to the gain in EPS over the same period of $3.14. BBBY's management has earned shareholders a 11.1% return on the earnings they kept. This is unacceptable to Buffett, as management is not profitably allocating retained earnings. Essentially, investors would be better off if the company paid all earnings out to shareholders and let them invest the earnings on their own. 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. BBBY's shares outstanding have fallen over the past five years from 262,899,994 to 208,000,000, 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 BBBY 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 $4.81 and divide it by the current market price of $61.33. An investor, purchasing BBBY, could expect to receive a 7.84% initial rate of return. Furthermore, he or she could expect the rate to increase 9.3% per year, based on the analysts' consensus estimated long term growth rate, as this is how fast earnings are growing. COMPARE THE INITIAL RATE OF RETURN WITH THE LONG-TERM TREASURY YIELD: [PASS] Buffett favors companies in which the initial rate of return is around the long-term treasury yield. Nonetheless, he has invested in companies with low initial rates of return, as long as the yield is expected to expand rapidly. Currently, the long-term treasury yield is about 2.75%. Compare this with BBBY's initial yield of 7.84%, which will expand at an annual rate of 9.3%, based on the analysts' consensus estimated long term growth rate. The company is the better choice, as the initial rate of return is close to or above the long term bond yield and is expanding. CALCULATE THE FUTURE EPS: [No Pass/Fail] BBBY currently has a book value of $19.17. It is safe to say that if BBBY can preserve its average rate of return on equity of 21.3% and continues to retain 100.00% of its earnings, it will be able to sustain an earnings growth rate of 21.3% and it will have a book value of $132.50 in ten years. If it can still earn 21.3% on equity in ten years, then expected EPS will be $28.26. CALCULATE THE FUTURE STOCK PRICE BASED ON THE AVERAGE ROE METHOD: [No Pass/Fail] Now take the expected future EPS of $28.26 and multiply them by the lower of the 5 year average P/E ratio (14.6) or current P/E ratio (current P/E in this case), which is 12.8 and you get BBBY's projected future stock price of $360.62. 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 $360.62. These numbers indicate that one could expect to make a 19.4% average annual return on BBBY's stock at the present time. Buffett would consider this a great return. CALCULATE THE EXPECTED FUTURE STOCK PRICE BASED ON AVERAGE EPS GROWTH: [No Pass/Fail] If you take the EPS growth of 9.3%, based on the analysts' consensus estimated long term growth rate, you can project EPS in ten years to be $11.75. Now multiply EPS in 10 years by the lower of the 5 year average P/E ratio (14.6) or current P/E ratio (current P/E in this case), which is 12.8. This equals the future stock price of $149.89. Add in the total expected dividend pool of $0.00 to get a total dollar amount of $149.89. 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 $61.33 and the future expected stock price, including the dividend pool, of $149.89. If you were to invest in BBBY at this time, you could expect a 9.35% average annual return on your money. Buffett likes to see a 15% return, and would even go down to 12%. LOOK AT THE RANGE OF EXPECTED RATE OF RETURN: [PASS] Based on the two different methods, you could expect an annual compounding rate of return somewhere between 9.3% and 19.4%. To pinpoint the average return a little better, we have taken an average of the two different methods. Investors could expect an average return of 14.4% on BBBY stock for the next ten years, based on the current fundamentals. Buffett likes to see a 15% return, but nonetheless would accept this return, thus passing the criterion.   USANA HEALTH SCIENCES, INC. Profile Strategy: Price/Sales Investor Based on: Kenneth Fisher 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: 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. USNA's P/S ratio of 1.40 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. USNA'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. USNA 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 USNA At this Point Is USNA 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, USNA, who has a P/S of 1.40, 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%. USNA's inflation adjusted EPS growth rate of 22.90% 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. USNA's free cash per share of 6.40 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. USNA, whose three year net profit margin averages 9.99%, passes this evaluation.   AGCO CORPORATION Profile Strategy: Price/Sales Investor Based on: Kenneth Fisher AGCO Corporation (AGCO) is a manufacturer and distributor of agricultural equipment and related replacement parts globally. The Company sells a range of agricultural equipment, including tractors, combines, self-propelled sprayers, hay tools, forage equipment and implements. It also manufactures and distributes grain storage and handling equipment systems, as well as protein production systems. Its products are recognized in the agricultural equipment industry and are marketed under a range of brands, including Challenger, Fendt, Massey Ferguson and Valtra. The Company distributes its products through a combination of approximately 3,100 independent dealers and distributors in more than 140 countries. In September 2013, Grain Systems, Inc. (GSI), a global brand of the Company announced that it has purchased Johnson System Inc. (JSI), manufacturer of catwalks, towers and support structures based in Marshall, Michigan. Analysis Guru Score: 100% PRICE/SALES RATIO: [PASS] The prospective company should have a low Price/Sales ratio. Smokestack (cyclical) companies with a Price/Sales ratio between .4 and .8 represent good values according to this methodology. AGCOpasses this test as its P/S of 0.48 based on trailing 12 month sales, falls within the "good values" range for cyclical companies. TOTAL DEBT/EQUITY RATIO: [PASS] Less debt equals less risk according to this methodology. AGCO's Debt/Equity of 33.42% 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. AGCO 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 AGCO At this Point Is AGCO a "Super Stock"? YES PRICE/SALES RATIO: [PASS] The prospective company should have a low Price/Sales ratio. Non-Smokestack(non-cyclical) companies with a Price/Sales ratio between .75 and 1.5 are good values. Otherwise, Smokestack(cyclical) companies with a Price/Sales ratio between .4 and .8 represent good values. AGCO's P/S ratio of 0.48 falls within the "good values " range for cyclical industries and is considered attractive. LONG-TERM EPS GROWTH RATE: [PASS] This methodology looks for companies that have an inflation adjusted EPS growth rate greater than 15%. AGCO's inflation adjusted EPS growth rate of 27.41% passes the test. FREE CASH PER SHARE: [PASS] This methodology looks for companies that have a positive free cash per share. Companies should have enough free cash available to sustain three years of losses. This is based on the premise that companies without cash will soon be out of business. AGCO's free cash per share of 3.68 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. AGCO, whose three year net profit margin averages 5.81%, passes this evaluation.   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 ROST ROSS STORES, INC. Retail (Apparel) 61 PJC PIPER JAFFRAY COMPANIES Investment Services 51 MNST MONSTER BEVERAGE CORP Beverages (Non-Alcoholic) 50 TEDU TARENA INTERNATIONAL INC(ADR) Schools 50 HY HYSTER-YALE MATERIALS HANDLING INC Auto & Truck Manufacturers 48 LQDT LIQUIDITY SERVICES, INC. Retail (Catalog & Mail Order) 48 DW DREW INDUSTRIES, INC. Mobile Homes & RVs 47 AFSI AMTRUST FINANCIAL SERVICES, INC. Insurance (Prop. & Casualty) 45 OIS OIL STATES INTERNATIONAL, INC. Oil Well Services & Equipment 45 TJX THE TJX COMPANIES, INC. Retail (Apparel) 45

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