Economy

Job growth in the US continues to chug along. In December, 156,000 jobs were added domestically. Throughout 2016, 180,000 new jobs, on average, were created each month. In President-Elect Trump's press conference on Wednesday he said, "I will be the greatest jobs producer that God ever created". Since the end of the financial crisis, about 15 million jobs have been added (see chart below). Time will tell if Trump is going to be able to deliver on his statement.



Speaking of Trump, while the market has cooled off so far this year, investors seem to be waiting until the inauguration to determine how the new Administration's policies will impact the economy. Based on most estimates, a lowering of the corporate tax rate will impact the overall earnings of corporations (we discuss this more below) but the question becomes how much will corporate tax rates change and how quickly will it happen. There there's the impact of protectionist policies, which according to some may hurt the earnings of some companies. One thing for investors to consider, and it partly played out this week with the details about the Intelligence reports among other things, is that if the Administration gets bogged down with issues that aren't top on its agenda (i.e. tax reform, trade deals, infrastructure investments, regulatory reform), equities may consider this a short term negative because it delays some of the policies that could impact the economy positively. Trump seems to have a bias for action, so the first 3-6 months of his term will tell us a lot about how he plans to govern.

Consumers, small business and CEOs are all exhibiting very high levels of confidence. For example, the NFIB Small business confidence reading jumped by 7.4 points, which was the highest monthly increase since 1980 and the reading was the highest since 2002.

The Conference Board Measure of CEO Confidence also jumped considerably in the fourth quarter.. The reading, which stands at 65, showed a 15 point increase over the third quarter reading. This was the highest level for the index in over six years. Confidence across various segments are important as they indicate that consumers and businesses feel good about the future, which most economists say leads to spending, more investment and more risk taking. These are the ingredients for economic expansion, but confidence readings alone don't guarantee higher growth as many other factors will come into play. But overall, higher confidence readings are one important element that impacts future growth.

Two highly respected fixed income investors - Bill Gross of Janus and Jeffery Gundlach of DoubleLine Capital - both came out over the past week calling the end of the great bond bull market. Gross had a phenomenal track record when at PIMCO, and Gundlach is one a top performing bond managers and has been mostly right with market calls. Both say that rates are going higher, with Gundlach saying the 10 year Treasury could top 3% in 2017 (the current yield is 2.38% as of Jan. 10th) and Gross saying that 2.6% on the 10 year effectively starts a new secular bear market in bonds. Gross, who opined about long term US growth rates as well as his view on the valuation levels of risk assets in his Investment Outlook Letter, says "watch the 2.6 per cent level. Much more important than Dow 20,000. Much more important than $US60-a-barrel oil ... It is the key to interest rate levels and perhaps stock price levels in 2017." If bond investors start to take losses on their positions, the question becomes how much of that money will flow into other assets, like stocks. Some argue there is a great rotation taking place, where money will move from bonds to stocks. I partially agree with that, but money will probably move from bonds to cash and then from there some of that will flow into equities. Bonds serve a very important purpose for institutions and investors and if someone has a 60/40 stock and bond allocation, the 40% in bonds may come down but it won't go to 0%. However, on the edges, even if 5% invested in the bond market eventually finds its way into equities it will be a positive for many stocks.

As rates move higher, they signal stronger future expected growth and inflation. This should be a good thing for equities as long as inflation increases moderately and the Federal Reserve doesn't aggressively move rates higher. However, higher rates also mean higher borrowing costs, both for consumers and companies. The ultra-low interest rate environment over the past few years has resulted in many companies, some of them lower quality businesses, being able to borrow at very low cost. As that debt matures and as companies need to go out and borrow more, the cash flow of the businesses also need to improve on a commensurate pace with the increase in borrowing costs. If that doesn't happen, the profitability of some companies could be negatively impacted. This is something we will need to keep an eye on as we move into the next few years.

Performance Update

Since our last newsletter, the S&P 500 returned 0.9%, while the Hot List returned 0.7%. So far in 2016, the portfolio has returned 1.1% vs. 1.4% for the S&P. Since its inception in July 2003, the Hot List is far outpacing the index, having gained 213.1% vs. the S&P's 126.9% gain.

The Fallen

As we rebalance the Validea Hot List, 2 stocks leave our portfolio. These include: American Outdoor Brands Corp (AOBC) and Sturm Ruger & Company Inc (RGR).

The Keepers

8 stocks remain in the portfolio. They are: Thor Industries, Inc. (THO), Sanderson Farms, Inc. (SAFM), Universal Forest Products, Inc. (UFPI), Waddell & Reed Financial, Inc. (WDR), Trex Company Inc (TREX), Banco Macro Sa (Adr) (BMA), Independent Bank Group Inc (IBTX) and Nk Lukoil Pao (Adr) (LUKOY).

The New Additions

We are adding 2 stocks to the portfolio. These include: Sun Life Financial Inc (SLF) and Buffalo Wild Wings (BWLD).

Latest Changes

Additions  
SUN LIFE FINANCIAL INC SLF
BUFFALO WILD WINGS BWLD
Deletions  
AMERICAN OUTDOOR BRANDS CORP AOBC
STURM RUGER & COMPANY INC RGR

The Market Valuation Picture

We begin 2017 in the wake of what can certainly be called an eventful year. After a stock market swoon in February of last year, fueled by concerns about China, oil, the U.S. dollar and declining earnings, we ended the year with a surprise election outcome and pursuant stock market rally, an interest rate hike (and promise for 3 more this year), increased earnings and stabilizing oil prices.

Let's review where things are from a valuation perspective:

As of January 9th, the S&P 500 reached 2,272, trading at about 25 times trailing 12-month (TTM) earnings. This is compared to a price of 2,057 and an earnings multiple of 23.4 we reported last May. The price-sales ratio is 1.93, up from 1.76 (according to Morningstar data), while the price-book ratio has also risen during that time (from 2.52 to 2.75). To provide historical context, the price-book ratio hit a high of 5.06 in March of 2000, then sank to 1.78 in the wake of the financial crisis (March 2009), for an average of 2.75 over the past 16 years.

A variation on the P/E ratio - the Shiller P/E - uses inflation-adjusted 10-year historical earnings to account for short-term fluctuations in profit margins during business cycles. If companies experience higher profit margins and earnings during an expansionary period, then the P/E ratio can become artificially low. Similarly, during recessionary periods when profit margins are low, P/E ratios can be high. The current Shiller P/E of 28.2 (up from 25.7 at our last update), is well above its historical mean of 16.7.

A high Shiller P/E can point to an impending correction, as elevated multiples tend to be consistent with lower future returns. The graph below illustrates peaks in the Shiller P/E occurring in 1929 (Great Depression) and 2000 (Technology Bubble):



The market Dividend yield, calculated by dividing total annual dividends by stock price, continues to be attractive at 2.2%, and has held steady since our check-in last May. However, strategists at Mellon Capital warn that, while dividends are an important driver of total returns, "building a portfolio of dividend stocks needs to be carried out with precision, research insights, and a meticulous focus on underlying company financials."

In a rising interest rate environment, increasing bond yields could attract income-focused investors to divert funds from bond-surrogate holdings. But that could take a while, says Matt Toms, the chief investment officer of fixed income at Voya Investment Management, in an interview with Business Insider this week. "We think you've seen the majority of the moves in bond yields," Toms says. "In order to take bond yields higher you're going to have to see even more confidence in the growth outlook, which means either corporate investment will have to improve further, fiscal spending will have to be realized sooner, or regulatory and tax benefits will have to be realized sooner and that's likely to take quite a long time."

The ratio of total market capitalization to domestic GDP -- a metric considered by Warren Buffett as "probably the best single measure of where valuations stand at any given moment," has risen to 127% (versus 116% last May). That, according to gurufocus.com, keeps the market in the "significantly overvalued" category.

Another metric, the Q Ratio, also indicates that the market is overvalued. The metric was created by the late James Tobin, a professor at Yale University and Nobel Laureate who hypothesized that the combined market value of all the companies on the stock exchange should be about equal to the replacement cost of their assets. The Q Ratio, then, is calculated by dividing the market value of total assets by their replacement cost. A low Q Ratio (between 0 and 1) means the cost to replace assets is higher than a stock's value, indicating that stock would be undervalued. The most recent data (provided by Doug Short of Advisor Perspectives) shows the Q Ratio at 1.01, up from .95 last May. This also points to an overvalued market, representing a level 47% higher than the arithmetic mean (the ratio reached a high as 1.61 at the peak of the Tech Bubble).

If we are to believe that the Trump administration's planned tax reform will translate into expanding corporate earnings, then are we also to believe that the earnings growth will somehow substantiate the stretched valuations?

In an interview with CNBC's Bob Pisani in December, Steve Mnunchin, President-elect Trump's nominee for U.S. Treasury secretary, said that the new administration would be targeting a corporate tax rate reduction from 35% to 15%--a 20 percentage point reduction. Michael Thompson, president and chairman of Standard & Poor's investment Advisory Services, estimates that every 1 percentage point reduction in the corporate tax rate could "hypothetically" add $1.31 to 2017 earnings (based on analyst's estimates for the S&P 500 of approximately $131 per share).

If this were to materialize, the additional earnings would be equal to $1.31 X 20, or $26.20. Add that to the 2017 estimate of $131, and you reach an earnings figure of approximately $157. So, the 20-percentage point reduction would effectively translate into a 20 percent hike in earnings and a price on the S&P of approximately 2,669, a substantial jump from where we are today.

Barclays analyst Jonathan Glionna estimates that Trump's tax cuts could lead to an S&P 500 earnings boost in the neighborhood of $180 billion, but notes that the path is not a simple one given the variance in effective tax rates among companies in the index and relative impact on different business sectors.

Tax code is tricky business, and our back-of-the-envelope arithmetic doesn't account for the probability that all tax savings may not make it to the bottom line. Businesses could invest the found funds into equipment, buybacks, or acquisitions. So, while it's fair to say that tax reform could give corporate earnings a boost, it's not clear to what degree, what the mechanics would be or how any reform will translate into share prices.

Given the valuation backdrop, we believe it's important to stay focused on finding value. Right now, the relative value is in a few areas of the market. For starters, stocks that trade at low valuations using price-related variables like the P/E, P/B or P/CF are a good place to start. You'll find some retailers, financials and some energy and commodity related names on most of those lists. International stocks are also trading a much lower valuations vs. US stocks and small caps, despite the recent run, and still look attractive when compared to the valuation of large caps and mega cap names.

Newcomers to the Validea Hot List

BUFFALO WILD WINGS (BWLD):
Buffalo Wild Wings, Inc. (Buffalo Wild Wings) is an owner, operator and franchisor of restaurants featuring various menu items. It passes the tests of my strategies based on the Warren Buffett and Peter Lynch. Full Details

INDEPENDENT BANK GROUP INC (IBTX):
Independent Bank Group, Inc. is a bank holding company. Through the Company's subsidiary, Independent Bank (the Bank), it provides a range of commercial banking products and services tailored to meet the needs of businesses, professionals and individuals. It meets the tests of my strategy based on the Motley Fool and my Momentum Investor model. Full Details

SUN LIFE FINANCIAL INC (SLF):
Sun Life Financial Inc. is the holding company of Sun Life Assurance Company of Canada. The Company is a financial services organization providing a range of protection and wealth products and services. It receives approval from my strategies based on Peter Lynch and the Motley Fool. Full Details

Portfolio Holdings
Ticker Date Added Return
BMA 7/1/2016 -1.6%
SLF 1/13/2017 TBD
BWLD 1/13/2017 TBD
THO 12/16/2016 -2.4%
TREX 12/16/2016 2.7%
IBTX 12/16/2016 -0.9%
UFPI 12/16/2016 -1.4%
LUKOY 12/16/2016 3.5%
SAFM 11/18/2016 15.2%
WDR 11/18/2016 0.0%


Guru 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

BMA   |   SLF   |   BWLD   |   THO   |   TREX   |   IBTX   |   UFPI   |   LUKOY   |   SAFM   |   WDR   |  

BANCO MACRO SA (ADR)

Strategy: Growth Investor
Based on: Martin Zweig

Banco Macro SA is an Argnetina-based financial institution (the Bank) that offers traditional bank products and services to companies, including those operating in regional economies, as well as to individuals. In addition, the Bank performs certain transactions through its subsidiaries, including mainly Banco del Tucuman, Macro Bank Ltd, Macro Securities SA, Macro Fiducia SA and Macro Fondos SGFCI SA. It has approximately two categories of customers, such as retail customers, including individuals and entrepreneurs and corporate customers, which include small, medium and large companies and major corporations. In addition, it provides services to over four provincial governments. It provides its corporate customers with traditional banking products and services, such as deposits, lending (including overdraft facilities), check cashing advances and factoring, guaranteed loans and credit lines for financing foreign trade and cash management services.


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. BMA's P/E is 9.89, based on trailing 12 month earnings, while the current market PE is 17.00. Therefore, it passes the first test.


REVENUE GROWTH IN RELATION TO EPS GROWTH: PASS

Revenue Growth must not be substantially less than earnings growth. For earnings to continue to grow over time they must be supported by a comparable or better sales growth rate and not just by cost cutting or other non-sales measures. BMA's revenue growth is 42.07%, while it's earnings growth rate is 44.10%, based on the average of the 3, 4 and 5 year historical eps growth rates. Therefore, BMA passes this criterion.


SALES GROWTH RATE: PASS

Another important issue regarding sales growth is that the rate of quarterly sales growth is rising. To evaluate this, the change from this quarter last year to the present quarter (16.7%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (-46.2%) of the current year. Sales growth for the prior must be greater than the latter. For BMA this criterion has been met.


The earnings numbers of a company should be examined from various different angles. Three of these angles are stability in the trend of earnings, earnings persistence, and earnings acceleration. To evaluate stability, the stock has to pass the following four criteria.


CURRENT QUARTER EARNINGS: PASS

The first of these criteria is that the current EPS be positive. BMA's EPS ($1.77) pass this test.


QUARTERLY EARNINGS ONE YEAR AGO: PASS

The EPS for the quarter one year ago must be positive. BMA's EPS for this quarter last year ($0.21) 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. BMA's growth rate of 742.86% passes this test.


EARNINGS GROWTH RATE FOR THE PAST SEVERAL QUARTERS: FAIL

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 BMA is 22.05%. This should be less than the growth rates for the 3 previous quarters which are 25.00%, 122.22% and -45.45%. BMA does not pass this test, which means that it does not have 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, -1.85%, (versus the same three quarters a year earlier) is less than the growth rate of the current quarter earnings, 742.86%, (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, 742.86% must be greater than or equal to the historical growth which is 44.10%. BMA 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. BMA, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were 0.13, 0.17, 0.26, 0.38 and 0.54, 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. BMA's long-term growth rate of 44.10%, based on the average of the 3, 4 and 5 year historical eps growth rates, passes this test.

SUN LIFE FINANCIAL INC

Strategy: Growth/Value Investor
Based on: James P. O'Shaughnessy

Sun Life Financial Inc. is the holding company of Sun Life Assurance Company of Canada. The Company is a financial services organization providing a range of protection and wealth products and services. It operates in five segments: Sun Life Financial Canada (SLF Canada), Sun Life Financial United States (SLF U.S.), Sun Life Financial Asset Management (SLF Asset Management), Sun Life Financial Asia (SLF Asia) and Corporate. SLF Canada has three main business units: Individual Insurance & Wealth, Group Benefits and Group Retirement Services. SLF U.S. has three business units: Group Benefits, International and In-force Management. SLF Asset Management is an asset management segment, including MFS Investment Management and Sun Life Investment Management. SLF Asia offers individual life insurance products in over seven markets, and group benefits and/or pension and retirement products in the Philippines, China, Hong Kong, India, Malaysia and Vietnam.


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. SLF, with a market cap of $24,029 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. SLF, whose annual EPS before extraordinary items for the last 5 years (from earliest to the most recent fiscal year) were 0.29, 1.70, 2.06, 2.13 and 2.64, 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. SLF's Price/Sales ratio of 0.99, 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. SLF, whose relative strength is 70, is in the top 50 and would pass this last criterion.

BUFFALO WILD WINGS

Strategy: Growth/Value Investor
Based on: James P. O'Shaughnessy

Buffalo Wild Wings, Inc. (Buffalo Wild Wings) is an owner, operator and franchisor of restaurants featuring various menu items. The Company's restaurants feature a bar, which offers a selection of 20 to 30 domestic, imported and craft beers on tap, as well as bottled beers, wine and liquor. The Buffalo Wild Wings restaurants feature various menu items, including its Buffalo, New York-style chicken wings spun in one of its signature sauces from sweet to screamin' hot, which includes Sweet barbeque (BBQ), Teriyaki, Bourbon Honey Mustard, Mild, Parmesan Garlic, Medium, Honey BBQ, Spicy Garlic, Asian Zing, Caribbean Jerk, Thai Curry, Hot BBQ, Hot, Mango Habanero, Wild and Blazin', or signature seasonings, Buffalo, Desert Heat, Chipotle BBQ, Lemon Pepper, and Salt & Vinegar. Its restaurants include a multi-media system, a bar and an open layout. It operates Buffalo Wild Wings, R Taco and PizzaRev restaurants, as well as sells Buffalo Wild Wings and R Taco restaurant franchises.


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. BWLD, with a market cap of $2,791 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. BWLD, whose annual EPS before extraordinary items for the last 5 years (from earliest to the most recent fiscal year) were 2.73, 3.06, 3.79, 4.95 and 4.97, 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. BWLD's Price/Sales ratio of 1.41, based on trailing 12 month sales, passes this criterion.


RELATIVE STRENGTH: FAIL

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. BWLD has a relative strength of 30. This does not pass the final criterion. As a result, this methodology would not consider the stock even though it passed the previous three criteria.

THOR INDUSTRIES, INC.

Strategy: Growth Investor
Based on: Martin Zweig

Thor Industries, Inc. manufactures a range of recreational vehicles (RVs) in the United States and sells those vehicles primarily in the United States and Canada. The Company's segments include towable recreational vehicles, which consists of the operations of Airstream, Inc. (Airstream) (towable); Heartland Recreational Vehicles, LLC (Heartland) (including Bison Coach, LLC (Bison), Cruiser RV, LLC (CRV) and DRV, LLC (DRV)); Jayco, Corp. (Jayco) (including Jayco towable, Starcraft and Highland Ridge), Keystone RV Company (Keystone) (including CrossRoads and Dutchmen) and K.Z., Inc. (KZ) (including Livin' Lite RV, Inc. (Livin' Lite)); motorized recreational vehicles, which consists of the operations of Airstream (motorized), Jayco (including Jayco motorized and Entegra Coach) and Thor Motor Coach, Inc. (Thor Motor Coach), and Other, which includes the operations of its subsidiary, Postle Operating, LLC (Postle).


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. THO's P/E is 18.71, based on trailing 12 month earnings, while the current market PE is 17.00. Therefore, it passes the first test.


REVENUE GROWTH IN RELATION TO EPS GROWTH: FAIL

Revenue Growth must not be substantially less than earnings growth. For earnings to continue to grow over time they must be supported by a comparable or better sales growth rate and not just by cost cutting or other non-sales measures. THO's revenue growth is 13.75%, while it's earnings growth rate is 22.61%, based on the average of the 3, 4 and 5 year historical eps growth rates. Therefore, THO fails this criterion.


SALES GROWTH RATE: PASS

Another important issue regarding sales growth is that the rate of quarterly sales growth is rising. To evaluate this, the change from this quarter last year to the present quarter (65.8%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (22.2%) of the current year. Sales growth for the prior must be greater than the latter. For THO this criterion has been met.


The earnings numbers of a company should be examined from various different angles. Three of these angles are stability in the trend of earnings, earnings persistence, and earnings acceleration. To evaluate stability, the stock has to pass the following four criteria.


CURRENT QUARTER EARNINGS: PASS

The first of these criteria is that the current EPS be positive. THO's EPS ($1.49) pass this test.


QUARTERLY EARNINGS ONE YEAR AGO: PASS

The EPS for the quarter one year ago must be positive. THO's EPS for this quarter last year ($0.97) 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. THO's growth rate of 53.61% 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 THO is 11.31%. This should be less than the growth rates for the 3 previous quarters, which are 50.88%, 26.89%, and 19.85%. THO 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, 28.34%, (versus the same three quarters a year earlier) is less than the growth rate of the current quarter earnings, 53.61%, (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, 53.61% must be greater than or equal to the historical growth which is 22.61%. THO 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. THO, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were 2.07, 2.86, 3.29, 3.79 and 4.91, 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. THO's long-term growth rate of 22.61%, based on the average of the 3, 4 and 5 year historical eps growth rates, passes this test.


TOTAL DEBT/EQUITY RATIO: FAIL

A final criterion is that a company must not have a high level of debt. A high level of total debt, due to high interest expenses, can have a very negative effect on earnings if business moderately turns down. If a company does have a high level, an investor may want to avoid this stock altogether. THO's Debt/Equity (25.65%) is considered high relative to its industry (22.30%) and fails this test.


INSIDER TRANSACTIONS: PASS

A factor that adds to a stock's attractiveness is if insider buy transactions number 3 or more, while insider sell transactions are zero. Zweig calls this an insider buy signal. For THO, this criterion has not been met (insider sell transactions are 188, while insiders buying number 22). 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.

TREX COMPANY INC

Strategy: Small-Cap Growth Investor
Based on: Motley Fool

Trex Company, Inc. is a manufacturer of wood-alternative decking and railing products. The Company markets its products under the brand name Trex. The Company offers a set of outdoor living products in the decking, railing, porch, fencing, trim, steel deck framing and outdoor lighting categories. Its decking products include Trex Transcend, Trex Enhance and Trex Select. The Company's railing products include Trex Transcend Railing, Trex Select Railing and Trex Reveal aluminum railing. It offers Trex Transcend Porch Flooring and Railing System, a porch product, and a fencing product called Trex Seclusions. The Company offers TrexTrim product, which is a cellular polyvinyl chloride residential exterior trim product. It offers a triple-coated steel deck framing system called Trex Elevations. The Company offers outdoor lighting systems, including Trex DeckLighting and Trex Landscape Lighting. It also offers Trex Hideaway, which a hidden fastening system for grooved boards.


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. TREX's profit margin of 13.02% 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. TREX, with a relative strength of 91, satisfies this test.


COMPARE SALES AND EPS GROWTH TO THE SAME PERIOD LAST YEAR: FAIL

Companies must demonstrate both revenue and net income growth of at least 25% as compared to the prior year. These growth rates give you the dynamic companies that you are looking for. These rates for TREX (91.67% for EPS, and 12.92% for Sales) are not good enough to pass.


INSIDER HOLDINGS: FAIL

TREX's insiders should own at least 10% (they own 0.32%) of the company's outstanding shares. This does not satisfy the minimum requirement, and companies that do not pass this criteria are less attractive.


CASH FLOW FROM OPERATIONS: PASS

A positive cash flow is typically used for internal expansion, acquisitions, dividend payments, etc. A company that generates rather than consumes cash is in much better shape to fund such activities on their own, rather than needing to borrow funds to do so. TREX's free cash flow of $1.24 per share passes this test.


PROFIT MARGIN CONSISTENCY: PASS

TREX's profit margin has been consistent or even increasing over the past three years (Current year: 10.91%, Last year: 10.60%, Two years ago: 10.10%), 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 TREX's case.


CASH AND CASH EQUIVALENTS: FAIL

TREX does not have a sufficiently large amount of cash, $6.00 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. TREX 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.


INVENTORY TO SALES: PASS

This methodology strongly believes that companies, especially small ones, should have tight control over inventory. It's a warning sign if a company's inventory relative to sales increases significantly when compared to the previous year. Up to a 30% increase is allowed, but no more. Inventory to Sales for TREX was 6.06% last year, while for this year it is 5.24%. Since the inventory to sales is decreasing by -0.82% the stock 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 TREX was 9.29% last year, while for this year it is 11.91%. Although the AR to sales is rising, it is below the max 30% that is allowed. The investor can still consider the stock if all other criteria appear very attractive.


LONG TERM DEBT/EQUITY RATIO: PASS

TREX's trailing twelve-month Debt/Equity ratio (0.00%) is at a great level according to this methodology because the superior companies that you are looking for don't need to borrow money in order to grow.


"THE FOOL RATIO" (P/E TO GROWTH): PASS

The "Fool Ratio" is an extremely important aspect of this analysis. If the company has attractive fundamentals and its Fool Ratio is 0.5 or less (TREX's is 0.39), the shares are looked upon favorably. These high quality companies can often wind up as the biggest winners. TREX passes this test.

The following criteria for TREX are less important which means you would place less emphasis on them when making your investment decision using this strategy:

AVERAGE SHARES OUTSTANDING: PASS

TREX has not been significantly increasing the number of shares outstanding within recent years which is a good sign. TREX currently has 29.0 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. TREX's sales of $473.5 million based on trailing 12 month sales, are fine, making this company one such "prospective gem". TREX passes the sales test.


DAILY DOLLAR VOLUME: PASS

TREX passes the Daily Dollar Volume (DDV of $19.2 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. TREX with a price of $68.58 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

TREX's income tax paid expressed as a percentage of pretax income this year was (37.36%) and last year (37.98%) 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.

INDEPENDENT BANK GROUP INC

Strategy: Small-Cap Growth Investor
Based on: Motley Fool

Independent Bank Group, Inc. is a bank holding company. Through the Company's subsidiary, Independent Bank (the Bank), it provides a range of commercial banking products and services tailored to meet the needs of businesses, professionals and individuals. Its commercial lending products include owner-occupied commercial real estate loans, interim construction loans, commercial loans to a mix of small and midsized businesses, and loans to professionals, particularly medical practices. Its retail lending products include residential first and second mortgage loans and consumer installment loans, such as loans to purchase cars, boats and other recreational vehicles. The Company operates approximately 40 banking offices in the Dallas-Fort Worth metropolitan area, the Austin/Central Texas area, and the Houston metropolitan area. The Company also provides wealth management services to its customers, including investment advisory and other related services.


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. IBTX's profit margin of 24.91% 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. IBTX, with a relative strength of 91, satisfies this test.


COMPARE SALES AND EPS GROWTH TO THE SAME PERIOD LAST YEAR: FAIL

Companies must demonstrate both revenue and net income growth of at least 25% as compared to the prior year. These growth rates give you the dynamic companies that you are looking for. These rates for IBTX (65.96% for EPS, and 22.28% for Sales) are not good enough to pass.


INSIDER HOLDINGS: PASS

IBTX's insiders should own at least 10% (they own 15.93% ) 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. IBTX's free cash flow of $1.56 per share passes this test.


PROFIT MARGIN CONSISTENCY: FAIL

The profit margin in the past must be consistently increasing. The profit margin of IBTX has been inconsistent in the past three years (Current year: 22.29%, Last year: 20.68%, Two years ago: 22.70%), which is unacceptable. This inconsistency will carryover directly to the company's bottom line, or earnings per share.


R&D AS A PERCENTAGE OF SALES: NEUTRAL

This criterion is not critically important for companies that are not high-tech or medical stocks because they are not as R&D dependant as companies within those sectors. Not much emphasis should be placed on this test in IBTX's case.


CASH AND CASH EQUIVALENTS: PASS

IBTX's level of cash $151.3 million passes this criteria. If a company is a cash generator, like IBTX, it has the ability to pay off debt (if it has any) or acquire other companies. Most importantly, good operations generate cash.


"THE FOOL RATIO" (P/E TO GROWTH): FAIL

The "Fool Ratio" is an extremely important aspect of this analysis. The methodology says consider shorting shares when the company's Fool Ratio is greater than 1.30. IBTX's PEG Ratio of 14.59 is excessively high.

The following criteria for IBTX are less important which means you would place less emphasis on them when making your investment decision using this strategy:

AVERAGE SHARES OUTSTANDING: FAIL

IBTX has either issued a significant amount of new shares over the past year or has been issuing more and more shares over the past five years. IBTX currently has 18.0 million shares outstanding. Neither of these are a good sign. Generally when a small-cap company issues more stock, the existing stock becomes devalued by the market, and hence diluted.


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. IBTX's sales of $203.6 million based on trailing 12 month sales, are fine, making this company one such "prospective gem". IBTX passes the sales test.


DAILY DOLLAR VOLUME: PASS

IBTX passes the Daily Dollar Volume (DDV of $6.2 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. IBTX with a price of $61.70 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

IBTX's income tax paid expressed as a percentage of pretax income this year was (32.89%) and last year (33.99%) 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.

UNIVERSAL FOREST PRODUCTS, INC.

Strategy: Price/Sales Investor
Based on: Kenneth Fisher

Universal Forest Products, Inc. is a holding company. The Company, through its subsidiaries, supplies wood, wood composite and other products to three primary markets: retail, construction and industrial. Its industrial market serves as industrial manufacturers and other customers for packaging, material handling and other applications. The Company's segments include North, South, West, Alternative Materials, International and Corporate divisions. The Company designs, manufactures and markets wood and wood-alternative products for national home centers and other retailers, structural lumber and other products for the manufactured housing industry, engineered wood components for residential and commercial construction, and specialty wood packaging, components and packing materials for various industries. The Company's construction market consists of customers in three submarkets, including manufactured housing, residential construction and commercial construction.


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. UFPIpasses this test as its P/S of 0.67 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. UFPI's Debt/Equity of 15.04% 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. UFPI 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 UFPI At this Point

Is UFPI a "Super Stock"? NO


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. UFPI's P/S ratio of 0.67 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%. UFPI's inflation adjusted EPS growth rate of 60.12% 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. UFPI's free cash per share of 5.45 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. UFPI, whose three year net profit margin averages 2.23%, fails this evaluation.

NK LUKOIL PAO (ADR)

Strategy: Growth/Value Investor
Based on: James P. O'Shaughnessy

NK LUKOIL PAO is an energy company. The primary activities of LUKOIL and its subsidiaries are oil exploration, production, refining, marketing and distribution. The Company's segments include Exploration and Production; Refining, Marketing and Distribution, and Corporate and other. The Exploration and Production segment includes its exploration, development and production operations relating to crude oil and gas. These activities are located within Russia, with additional activities in Azerbaijan, Kazakhstan, Uzbekistan, the Middle East, Northern and Western Africa, Norway, Romania and Mexico. In addition to its production, the Company purchases crude oil in Russia and on international markets. The Refining, Marketing and Distribution segment includes refining, petrochemical and transport operations, marketing and trading of crude oil, natural gas and refined products, generation, transportation and sales of electricity, heat and related services.


MARKET CAP: PASS

The Cornerstone Value Strategy looks for large, well known companies whose market cap is greater than $1 billion. These companies exhibit solid and stable earnings. LUKOY's market cap of $47,027 million passes this test.


CASH FLOW PER SHARE: PASS

The second criterion requires that the company exhibit strong cash flows. Companies with strong cash flow are typically the value oriented investments that this strategy looks for. The company's cash flow per share must be greater than the mean of the market cash flow per share ($1.46). LUKOY's cash flow per share of $10.43 passes this test.


SHARES OUTSTANDING: PASS

This particular strategy looks for companies whose total number of outstanding shares are in excess of the market average (627 million shares). These are the more well known and highly traded companies. LUKOY, who has 713 million shares outstanding, passes this test.


TRAILING 12 MONTH SALES: PASS

A company's trailing 12 month sales ($86,993 million) are required to be 1.5 times greater than the mean of the market's trailing 12 month sales ($20,779 million). LUKOY passes this test.


DIVIDEND: PASS

The final step in the Cornerstone Value strategy is to select the 50 companies from the market leaders group (those that have passed the previous four criteria) that have the highest dividend yield. LUKOY, with a dividend yield of 6.59%, is one of the 50 companies that satisfy this last criterion.

SANDERSON FARMS, INC.

Strategy: P/E/Growth Investor
Based on: Peter Lynch

Sanderson Farms, Inc. is a poultry processing company. The Company is engaged in the production, processing, marketing and distribution of fresh and frozen chicken, and also preparation, processing, marketing and distribution of processed and minimally prepared chicken. It sells ice pack, chill pack, bulk pack and frozen chicken, in whole, cut-up and boneless form, under the Sanderson Farms brand name to retailers, distributors, casual dining operators, customers reselling frozen chicken into export markets. The Company, through its subsidiaries, Sanderson Farms, Inc. (Production Division) and Sanderson Farms, Inc. (Processing Division), conducts its chicken operations. Sanderson Farms, Inc. (Production Division) is engaged in the production of chickens to the broiler-stage. Sanderson Farms, Inc. (Foods Division) is engaged in the processing, sale and distribution of chickens. The Company, through Sanderson Farms, Inc. (Foods Division), conducts its prepared chicken business.


DETERMINE THE CLASSIFICATION:

This methodology would consider SAFM a "fast-grower".


P/E/GROWTH RATIO: PASS

The investor should examine the P/E (11.16) relative to the growth rate (25.52%), 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 SAFM (0.44) 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. SAFM, whose sales are $2,816.1 million, needs to have a P/E below 40 to pass this criterion. SAFM's P/E of (11.16) 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 SAFM was 7.09% last year, while for this year it is 7.82%. Since inventory has been rising, this methodology would not look favorably at the stock but would not completely eliminate it from consideration as the inventory increase (0.73%) 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 SAFM is 25.5%, based on the average of the 3 and 4 year historical eps growth rates, which is acceptable.


TOTAL DEBT/EQUITY RATIO: PASS

This methodology would consider the Debt/Equity ratio for SAFM (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 SAFM (2.37%) 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 SAFM (11.40%) 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.

WADDELL & REED FINANCIAL, INC.

Strategy: Growth Investor
Based on: Martin Zweig

Waddell & Reed Financial, Inc. is a mutual fund and asset management company. The Company provides investment management, investment advisory, investment product underwriting and distribution and shareholder services administration to Waddell & Reed Advisors group of mutual funds, Ivy Funds, Ivy Funds Variable Insurance Portfolios, InvestEd Portfolios and 529 college savings plan (collectively, the Funds), and the Ivy Global Investors Fund SICAV and its Ivy Global Investors sub-funds (the IGI Funds), and institutional and separately managed accounts. Its retail products are distributed through third parties, such as other broker/dealers, registered investment advisors and various retirement platforms or through its sales force of independent financial advisors. The Company also markets its investment advisory services to institutional investors, either directly or through consultants. It operates its investment advisory business through Waddell & Reed Investment Management Company.


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. WDR's P/E is 8.44, based on trailing 12 month earnings, while the current market PE is 17.00. Therefore, it passes the first test.


REVENUE GROWTH IN RELATION TO EPS GROWTH: PASS

Revenue Growth must not be substantially less than earnings growth. For earnings to continue to grow over time they must be supported by a comparable or better sales growth rate and not just by cost cutting or other non-sales measures. WDR's revenue growth is 8.60%, while it's earnings growth rate is 9.88%, based on the average of the 3, 4 and 5 year historical eps growth rates. Therefore, WDR 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 (-19.4%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (-19%) of the current year. Sales growth for the prior must be greater than the latter. For WDR 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. WDR's EPS ($0.65) pass this test.


QUARTERLY EARNINGS ONE YEAR AGO: PASS

The EPS for the quarter one year ago must be positive. WDR's EPS for this quarter last year ($0.58) 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. WDR's growth rate of 12.07% passes this test.


EARNINGS GROWTH RATE FOR THE PAST SEVERAL QUARTERS: FAIL

Compare the earnings growth rate of the past four quarters with long-term EPS growth rate. Earnings growth in the past 4 quarters should be at least half of the long-term EPS growth rate. A stock should not be considered if it posted several quarters of skimpy earnings. WDR had 3 quarters of skimpy growth in the last 2 years.


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, -36.96%, (versus the same three quarters a year earlier) is less than the growth rate of the current quarter earnings, 12.07%, (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, 12.07% must be greater than or equal to the historical growth which is 9.88%. WDR would therefore pass this test.


EARNINGS PERSISTENCE: FAIL

Companies must show persistent yearly earnings growth. To fulfill this requirement a company's earnings must increase each year for a five year period. WDR, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were 2.01, 2.25, 2.96, 3.71, and 2.94, fails this test.


LONG-TERM EPS GROWTH: FAIL

The final important criterion in this approach is that Earnings Growth be at least 15% per year. WDR's long-term growth rate of 9.88%, based on the average of the 3, 4 and 5 year historical eps growth rates, fails the minimum required.


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 WDR, this criterion has not been met (insider sell transactions are 89, while insiders buying number 7). 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.


Watch List

The top scoring stocks not currently in the Hot List portfolio.

Ticker Company Name Current
Score
GGAL GRUPO FINANCIERO GALICIA S.A. (ADR) 50%
CSTE CAESARSTONE LTD 48%
BAP CREDICORP LTD. (USA) 48%
UVE UNIVERSAL INSURANCE HOLDINGS, INC. 48%
CATO CATO CORP 47%
MEI METHODE ELECTRONICS INC. 46%
SUPN SUPERNUS PHARMACEUTICALS INC 45%
RGR STURM RUGER & COMPANY INC 45%
FIZZ NATIONAL BEVERAGE CORP. 45%
TARO TARO PHARMACEUTICAL INDUSTRIES LTD. 45%



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