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January 2011

FLIR Systems (FLIR) O’Reilly Automotive (ORLY) Thoratec Corporation (THOR)

INVESTMENT COMMENTS

The government has tried a number of stimu- market didn’t wait for the actual impact to be lus measures in an attempt to resuscitate the felt, however. The S&P bottomed out right economy in the past couple of years. This around the time of Mr. Bernanke’s speech in started with President Bush’s small tax rebate August. It has sprinted up an impressive 19% in 2008, President Obama’s $875 billion stimu- in the 3-1/2 months since. lus plan in 2009, and ongoing monetary stimulus from the Federal Reserve Board. Econo- Higher stock prices may be partially responsi- mists argue whether or not these had more ble for improving consumer confidence and than a temporary effect on the economy. The spending. While consumer confidence is still more recent initiative from the Fed seems to low compared to pre-recession levels, it was be having some effect. up an impressive four points in November. Personal income growth was fairly strong, and The Fed’s goal is to return our economy to the spending has remained on a positive trajecto- “virtuous circle.” This term refers to the self- ry. November retail sales were also up signifi- sustaining mechanism whereby solid consum- cantly and have risen at a 7.8% annualized er confidence fuels demand, boosting busi- rate in just the last three months. ness output and employment. It is a little early to be positive that this virtuous circle is em- The stock market responded quickly to this bedding itself in our economy, but there are round of monetary stimulus and the economy some interesting early signs. is responding gradually, but the real confirma- tion that this virtuous circle might be in place is In late August 2010, Federal Reserve Board how the bond market is behaving. Prices of Chairman Ben Bernanke gave a speech in long-term taxable bonds are down about 4% which he revealed a discussion of additional over the past six weeks and municipals are bond purchases to put more money into the down 9% since their peak. The yield on the economy. The Fed started purchasing inter- ten-year Treasury note is up to 3.45%, a rise mediate- to long-term Treasury securities on of more than one percentage point since its November 12. The plan is to purchase $75 low in October. The significance of these de- billion of these securities each month for eight clines is that investors have been piling into months for a total of $600 billion. The stock bonds over the past couple of years, apparent- Page 2 January 2011 ly feeling that the uncertainty over growth bring down unemployment.” This comment is made bonds modest, stable return more valu- particularly significant because the previous able. As investors are becoming more confi- month, the Fed described the pace of recovery dent about a U.S. recovery, a safe 2%, 3%, as “slow.” One rarely gets unambiguous sig- 4% doesn’t sound as appealing as it did when nals from the Fed, but it clearly intended to the stock market was shaky. An economist communicate an improved economic outlook recently told us that the Fed seemed to be tar- through the choice of the words “continuing” geting stock prices specifically as a way to im- versus “slow.” prove consumer confidence. While we have been generally positive about Bond investors may be concerned that the the economic outlook this year, it has been current low rates of inflation may rise if the Fed somewhat puzzling to us that the bond market remains “accommodative” too long. In its most really didn’t share our opinion. It is encourag- recent official pronouncement on December ing to see higher bond yields as an expecta- 14, the Fed noted “The economic recovery is tion that economic growth may be improving. continuing, though ‘not’ at a rate to sufficiently

Key Market Indicators (through December 15, 2010)

Yield on Long-term Treasuries Standard & Poor's 500 6.00 5.50 1500 5.00 1400 1300 4.50 1200 4.00 1100 1000 3.50 900 3.00 800 2.50 700 7/1/05 3/31/06 12/31/06 9/28/07 6/30/08 3/13/09 12/11/09 9/3/10 600 7/ 1/ 05 3/ 31/ 06 12/ 31/ 06 9/ 28/ 07 6/ 30/ 08 3/ 6/ 09 12/ 4/ 09 8/ 20/ 10

Yield on 91-Day Treasury Bills 6.00 5.00 4.00 3.00 2.00 1.00 0.00 7/1/05 3/10/06 11/14/06 7/27/07 4/11/08 12/12/08 8/14/09 4/16/10 12/15/10

NEWS OF COMPANIES

Sale of Stock Recommended tion. As we have frequently mentioned, changes in energy efficiency regulations will Baldor Electric (BEZ) push customers into higher priced motors, Copart, Inc. (CPRT) significantly aiding Baldor’s sales and profits. Progressive Corporation (PGR) We expected to recommend a sale of Baldor Swiss construction giant ABB Group offered given that this growth improvement would an impressive 63.50 in cash for Baldor Elec- have been temporary. We appreciate that ABB tric. This represents a hefty 41% premium to makes the decision even easier. We recom- Baldor’s stock price right before the acquisi- mend that Baldor shareholders either sell Page 3 January 2011 their shares in the open market or tender them ably only a slight boost on top of very modest to ABB. We will discontinue follow-up of BEZ growth figures. Better growth companies are (63.21). available for P/E ratios comparable to or cheaper than Progressive’s trailing P/E of Vehicle auctioneer Copart reported 9.8% rev- 12.8. We recommend that PGR (20.75) be enue growth in the first fiscal quarter, norma- sold and will discontinue coverage. lized for an accounting change. Organic growth was 6.1%. Unfortunately, incremental * * * * * revenue came at the expense of gross mar- Like other investment managers, Eaton gins, which decreased more than 2% year- Vance continues to mount a meaningful re- over-year. Copart is growing again, but not covery reflecting improvement in the stock very profitably. These lower gross margins market. Earnings rose 38% in the October could prove permanent, as the company’s quarter, driven by a 19% increase in revenue. growth is increasingly driven by relationships Earnings figures exclude the impact of a non- with large partners who can negotiate highly cash accounting charge in this year’s third competitive contracts. Acquisition activity has quarter and a one-time tax adjustment in last also been surprisingly slow. year’s quarter. Assets under management hit Meanwhile, SG&A expenses continue to out- a record at October 31, suggesting that con- pace revenue growth. Operating income grew tinued good times are ahead for the company. just 5% year-over-year. Management The annualized growth rate of new assets was attributes the increasing costs to one-time re- disappointing at just 7%, but would have been structuring charges. If these costs indeed a more typical 11% excluding the loss of a prove temporary, and if gross margins stabil- single large customer due to a merger. ize, the company should realize nice operating EV (30.90) is a buy up to 31. leverage in coming years. This is the second quarter of stubbornly high costs, however, and The first fiscal quarter ended November 30, management provides no guidance as to 2010 for FactSet Research Systems showed when investors can reasonably expect cost- continuing recovery. Sales increased 12%, the cutting efforts to help the bottom line. The an- first double digit increase in seven quarters, a swer remains “soon,” as it has for some time clear reflection that the investment manage- now. ment industry has stabilized and is starting to spend again. EPS, was $0.85, up 15% after An eroding growth story and vague promises adjusting for a one-time tax settlement. The of future cost savings add up to a tenuous in- company continues to hire staff in support of vestment thesis, and Copart’s stock now ap- expanding international operations which to- pears unsuitable for growth-oriented investors. day only account for 32% of sales. For the We will therefore discontinue coverage of second fiscal quarter, FactSet projects sales CPRT (36.95) in this newsletter. growth of 11%-14% and EPS of $0.85-$0.87, Progressive’s revenue has been fairly flat for up 13%-16%. four years. The auto insurance market is ex- FDS (91.30) is a buy up to 73. tremely competitive, and price increases have been difficult to obtain. While the company GameStop enjoyed a reasonable third quarter remains one of the better-managed auto in- as it gears up for the critical holiday season. surers, it appears that its efforts and strong Sales for the three months ended October 31 brand name are only producing low single-digit increased 4%, led by a 9% increase in new revenue growth. It is hard to envision profits software sales. However, new hardware sales growing much faster than that. In the third fell 14%. Comparable store sales in the U.S. quarter, adjusted EPS rose 3% with 5% reve- increased 5.3%, but company-wide compara- nue growth. Stronger economic growth might ble stores sales were up only 1.1% as interna- increase overall miles driven, but this is prob- tional hardware sales were weak. EPS, ad- Page 4 January 2011 justed for a charge to retire debt, came in at Payments’ transaction volume is signature $0.38, up 19%. Operating income increased debit. We are concerned about the huge po- only 3%, but EPS enjoyed leverage from lower tential impact of the Fed tinkering with the sig- interest cost, stock buybacks, and a lower tax nature debit product. The price of Visa went rate. down after the Fed announcement. While this reaction makes sense, we disagree with the The firm is optimistic heading into the fiscal extent of its decline, especially considering fourth quarter. EPS is projected in the range of Global Payments’ price move. We will keep $1.53-$1.59, up 19%-23%, based on new you up to date about these developments but hardware platforms from Microsoft and Sony, aren’t drawing conclusions at this time. new software titles, and a well-stocked inven- tory of used games. GPN (44.43) is a buy up to 50.

GME (21.56) is a buy up to 27. JoS. A. Bank Clothiers reported a soft quarter, but early December results look promising. On December 16, the Federal Reserve Board Sales for the third fiscal quarter ended Octo- came out with its response to the Durbin ber 31, 2010 increased 7%. Comparable store Amendment to the Dodd-Frank financial sales increased 3%, and Direct Marketing reform act. The Durbin Amendment required sales (largely those through the Internet) in- the Fed to design a program to ensure that creased 15%. EPS came in at $0.45, up 7%. debit card transactions are priced to reflect the Suit sales suffered during the quarter against cost of the underlying service, and that there some difficult comparisons, but the company would be additional competition in the debit reports that November and December results market. Debit transaction prices will cost mer- have been strong. JoS. A. Bank has ex- chants between seven and twelve cents per panded its tuxedo rental program to all stores transaction, which is actually higher than we and expects meaningful contributions in Fiscal thought. 2011. While this should have been good news for Global Payments and Visa, there were two Investor Advisory Service other troubling aspects of the Fed announce- Investment advice and education since 1973, ment. One is that the Fed doesn’t seem to helping you become a successful lifetime investor. distinguish between PIN and signature debit Published by ICLUBcentral Inc. transactions. We view these as separate 711 W. 13 Mile Rd., Madison Heights, MI 48071 products. PIN debit is just a digital form of 248-654-3100 http://www.iclub.com/ias/ cash while signature debit is like paying cash, EDITOR-IN-CHIEF ...... Douglas Gerlach but with the consumer protections Visa and MasterCard offer. The Fed is also considering Investment Analysis Provided By requiring that each debit card feature two un- SEGER-ELVEKROG INC. affiliated signature debit networks, which ap- CHAIRMAN ...... Maury Elvekrog, Ph.D., CFA pears to be over and above the law’s require- PRESIDENT ...... Scott Horsburgh, CFA ment that each card feature two unaffiliated VICE-PRESIDENT ...... Dan Boyle, CFA debit networks (without distinguishing between Customer Service: For questions about your subscrip- the PIN and signature debit types.) The dan- tion, please contact us on the Web at ger to Global Payments and Visa is that www.iclub.com/support/. You may also contact us by greatly weakening the signature debit market phone at 877-33-ICLUB. would hurt the profits of both companies, since Information presented herein has been obtained the revenue and profit contribution from signa- from sources believed to be reliable, but the accura- ture debit is far higher than from PIN debit. cy and completeness of summaries, conclusions, and opinions based on this information are not guaran- The price of Global Payments actually went teed. It should never be assumed that recommenda- up on this news, so there may be more here tions will be profitable or will equal the past perfor- than meets the eye. About 50% of Global mance of listed or recommended securities. Page 5 January 2011

JOSB (40.04) is a buy up to 39. ever, we feel it offers excellent long-term potential. Medtronic Inc. reported moderate results for the fiscal second quarter ending October 29. MDT (35.99) is a buy up to 35. Earnings per share were up 11% on a 2% increase in sales. While these numbers do not Visa. See comment s under Global Pay- sound very impressive, we believe the comments. pany when it states that Medtronic is building a foundation for the future. In terms of geo- V (76.94) is a buy up to 98. graphical expansion, the firm has been increasing investment in China, where it states * * * * * that it sees itself as the leader for the products “Est. EPS” on the ranking tables found before that it sells. The pipeline of new products is this month’s company write-ups were updated full, with a new product for dealing with hyper- to reflect estimated earnings for the twelve tension and a range of products coming from months ending 12/31/11. Other individual ad- acquisitions. The company’s most recent ac- justments are made when circumstances quisition is a firm called Ardian, which has deem it necessary. Any of these changes can unique competency in catheters. Medtronic is affect the buy and sell prices. We typically continuing R&D efforts in stents, spinal cord forecast approximately twelve months into the stimulators, and cryo products. The core of the future. Good first quarter earnings and brigh- company’s products remains in cardiac rhythm tening outlooks for many companies have re- stimulation. Medtronic is a very large and ex- sulted in substantially higher forecasted earn- tremely high-quality firm whose stock has set- ings than the previous estimates. tled into a stable but not exciting routine. How-

IAS NAMED AGAIN TO INVESTMENT NEWSLETTER HONOR ROLL

In the December 2010 issue of the Hulbert mance. Financial Digest, the publication that tracks the performance of U.S. stock and mutual Fewer than 10% of the newsletters tracked fund newsletters, Editor Mark Hulbert names by Hulbert qualified for the 2011 Investment his 2011 Investment Newsletter Honor Newsletter Honor Roll. According to Hul- Roll. We are pleased to note that the Inves- bert, if newsletters’ ranks in up and down tor Advisory Service has been named to markets were randomly distributed, 25% of this list for the second year in a row. This them would make it onto the list. Since fewer year, just six equity and mutual fund newslet- than 10% actually do make the grade, Hul- ters qualified for the 2011 Honor Roll. bert says that “making it onto the Honor Roll really means something.” To be included on Hulbert's Investment Newsletter Honor Roll, newsletters must In addition, Hulbert notes that investors in- show above-average performance, on a risk- cluded on the 2010 Honor Roll did better adjusted basis, in both up and down markets over the last 12 months than those that did over the past decade. Since Hulbert began not, as they have every year this decade. tracking the Investor Advisory Service in 1998, last year was the first year that the For more information on the Hulbert Finan- Service was eligible for inclusion, so we are cial Digest, call 1-888-HULBERT or visit doubly pleased to have continued to demon- http://www.marketwatch.com/hulbert- strate superior performance. In fact, of the newsletters. fund and equity newsletters named to the On behalf of the staff and analysts of the In- 2011 Investment Newsletter Honor Roll, vestor Advisory Service, we thank all of the IAS has the second-best overall perfor- our subscribers for their continuing support. Page 6 January 2011

Recent Earnings Reports - January 2011 ---Earnings--- Qtr Per Share % Company end This Year Last Year Change Eaton Vance * 10/31 0.47 0.34 38.2% FactSet 11/30 0.85 0.74 14.9% GameStop 10/30 0.38 0.32 18.8% JoS. A. Bank 10/31 0.45 0.42 7.1% Medtronic* 10/24 0.82 0.74 10.8% Progressive * 09/30 0.37 0.36 2.8% * Excludes the effects of nonrecurring items

Dividend Changes % Date Record Company New Old Chng. Payable Date Roper Industries 0.110 0.095 16% 1/28 1/7 Stryker Corporation 0.18 0.15 20% 1/31 31-Dec

Stock Splits None

M a n a g i n g R i s k & D e li v e ri n g S o li d I n v e s t m e n t R e s u l t s f o r O v e r 2 5 Y e a r s C a r e f u ll y F o ll o w i n g B e t t e rI n v e s t i n g M e t h o d s

Scott Maury Dan Horsburgh, Elvekrog, Boyle, CFA CFA CFA

P e a c e o f M i n d Contact Dan Krstevski C o n fi d e n c e 800-449-6970 W e a l t h & L if e s t y l e P r e s e r v a t i o n www.seger-elvekrog.com P/E Ratio Sort Q P/E U December 15, 2010 B Over- Rwd/ as A % Est. Tot. % Curr Buy U valued Risk % Date L Sym Company Name Price Div Yld EPS Ret. Gr. P/E RV Up toY At Ratio Growth Rec. 3 RGA Reinsurance Group 52.85 0.48 0.9% 7.25 22.1 10% 7.3 73% 57.00 B 94.00 3.7 73% 9/10 3 GME Gamestop 21.56 0.00 0.0% 2.87 23.9 10% 7.5 68% 27.00 B 43.00 5.9 75% 8/09 2 CEPH Cephalon 62.88 0.00 0.0% 8.17 37.6 11% 7.7 39% 106.00 B 204.00 9.9 70% 1/10 2 AFL AFLAC Inc. 55.10 1.20 2.2% 6.21 25.6 13% 8.9 74% 64.00 B 97.00 4.6 68% 12/06 2 SFG StanCorp Financial 46.03 0.86 1.9% 5.13 18.5 12% 9.0 86% 48.00 B 65.00 3.5 75% 6/09

2 GILD Gilead Sciences 37.31 0.00 0.0% 4.06 39.2 17% 9.2 43% 63.00 B 107.00 8.6 54% 4/10 3 HCC HCC Insurance 28.50 0.50 1.8% 3.05 16.7 14% 9.3 95% 30.00 B 39.00 3.8 66% 7/09 3 RIMM Research in Motion 59.18 0.00 0.0% 6.23 29.8 15% 9.5 63% 81.00 B 126.00 6.6 63% 1/10 3 TEVA Teva Pharmaceuticals 52.31 0.50 1.0% 5.25 31.1 15% 10.0 55% 76.00 B 116.00 9.3 67% 5/10 1 MDT Medtronic, Inc. 35.99 0.90 2.5% 3.58 32.3 10% 10.1 53% 35.00 91.00 2.3 101% 2/10

1 ABT Abbott Labs 48.12 1.76 3.7% 4.67 27.4 12% 10.3 61% 64.00 B 89.00 9.7 86% 3/10 2 AMGN Amgen 55.67 0.00 0.0% 5.34 24.4 9% 10.4 69% 71.00 B 117.00 7.0 116% 2/09 3 TRLG True Religion Apparel 21.89 0.00 0.0% 2.00 22.3 12% 10.9 78% 26.00 B 38.00 5.8 91% 3/09 3 WDC Western Digital 33.21 0.00 0.0% 3.02 9.5 12% 11.0 138% 24.00 34.00 1.1 92% 7/10 3 AFAM Almost Family 34.95 0.00 0.0% 3.09 26.9 17% 11.3 80% 40.00 B 65.00 4.0 66% 4/10

2 ACM AECOM 27.72 0.00 0.0% 2.38 27.0 15% 11.6 68% 36.00 B 55.00 6.6 77% 2/10 3 JOSB Jos A Bank Clothiers Inc. 40.04 0.00 0.0% 3.40 17.7 12% 11.8 97% 39.00 57.00 2.7 98% 3/10 1 JNJ Johnson & Johnson 62.57 2.16 3.5% 5.01 16.2 8% 12.5 81% 59.00 84.00 2.4 156% 5/09 2 STJ St. Jude Medical 41.71 0.00 0.0% 3.25 22.8 13% 12.8 61% 48.00 B 72.00 4.5 98% 10/10 2 FISV Fiserv, Inc. 59.60 0.00 0.0% 4.45 15.8 12% 13.4 91% 58.00 80.00 2.8 112% 10/07

3 PGR Progressive Corp. 20.75 0.15 0.7% 1.55 11.0 12% 13.4 104% 17.50 23.00 1.5 112% 7/04 3 PRAA Portfolio Recovery 71.90 0.00 0.0% 5.20 18.1 15% 13.8 90% 68.00 100.00 2.6 92% 9/09 2 LH Laboratory Corp 86.64 0.00 0.0% 6.03 17.8 13% 14.4 83% 89.00 B 125.00 3.3 111% 9/09 2 BEN Franklin Resources 116.77 0.88 0.8% 8.05 21.4 16% 14.5 85% 131.00 B 187.00 4.4 91% 3/10 3 OMC Omnicom Group 46.06 0.80 1.7% 3.15 19.1 13% 14.6 91% 37.00 63.00 1.8 112% 9/06

2 SHPGY Shire 71.03 0.35 0.5% 4.87 31.8 16% 14.6 58% 107.00 B 164.00 10.1 91% 12/10 1 SYK Stryker Corp. 53.55 0.72 1.3% 3.64 24.8 14% 14.7 74% 62.00 B 92.00 4.4 105% 7/10 2 BCR C. R. Bard 91.34 0.68 0.7% 6.15 21.7 14% 14.9 78% 105.00 B 149.00 4.9 106% 11/09 2 EBIX EBIX 22.44 0.00 0.0% 1.50 20.2 17% 15.0 100% 23.00 B 35.00 3.6 88% 5/10 3 NSR NeuStar 26.27 0.00 0.0% 1.75 18.2 12% 15.0 88% 29.00 B 39.00 4.4 125% 1/10

2 V Visa 74.00 0.60 0.8% 4.90 26.2 17% 15.1 76% 98.00 B 142.00 8.1 89% 11/10 2 MHS Medco Health 62.52 0.00 0.0% 4.07 28.0 17% 15.4 68% 76.00 B 122.00 4.7 91% 8/10 3 DGIT DG 27.73 0.00 0.0% 1.74 22.4 15% 15.9 82% 34.00 B 48.00 7.1 106% 10/10 3 GPN Global Payments 44.43 0.08 0.2% 2.79 19.5 15% 15.9 84% 50.00 B 69.00 4.7 106% 5/10 3 PCP Precision Castparts 137.98 0.12 0.1% 8.56 16.3 14% 16.1 100% 131.00 185.00 2.5 115% 4/08

3 CFR Cullen/Frost Bankers 58.93 1.72 2.9% 3.63 10.5 10% 16.2 111% 51.00 63.00 1.4 162% 11/09 1 AAPL Apple 320.36 0.00 0.0% 19.69 23.6 17% 16.3 82% 394.00 B 574.00 6.4 96% 4/10 3 FLIR FLIR Systems 28.39 0.00 0.0% 1.73 19.6 15% 16.4 78% 32.00 B 44.00 4.3 109% 1/11 3 SYNT Syntel 48.16 0.24 0.5% 2.89 15.7 14% 16.7 111% 43.00 63.00 2.4 119% 7/10 2 EV Eaton Vance 30.90 0.72 2.3% 1.84 18.1 15% 16.8 96% 31.00 B 42.00 3.2 112% 6/04

Recommended companies are highlighted P/E Ratio Sort Q P/E U December 15, 2010 B Over- Rwd/ as A % Est. Tot. % Curr Buy U valued Risk % Date L Sym Company Name Price Div Yld EPS Ret. Gr. P/E RV Up toY At Ratio Growth Rec. 3 SYNA Synaptics 30.14 0.00 0.0% 1.78 20.9 15% 16.9 87% 34.00 B 49.00 4.7 113% 12/10 2 CELG Celgene 57.83 0.00 0.0% 3.39 29.5 20% 17.1 36% 77.00 B 122.00 6.2 86% 8/10 1 EMR Emerson 57.94 1.38 2.4% 3.38 13.3 10% 17.1 103% 51.00 67.00 1.8 171% 10/08 3 PX Praxair, Inc. 93.09 1.80 1.9% 5.45 17.5 13% 17.1 97% 90.00 124.00 2.7 132% 6/10 3 LKQX LKQ Corp. 22.85 0.00 0.0% 1.33 20.5 15% 17.2 86% 27.00 B 37.00 5.5 115% 6/10

3 THOR Thoratec 26.01 0.00 0.0% 1.51 29.3 20% 17.2 32% 35.00 B 54.00 6.2 86% 1/11 2 WAT Waters Corp. 79.36 0.00 0.0% 4.61 17.2 14% 17.2 94% 82.00 B 113.00 3.3 123% 10/10 2 DHR Danaher 45.91 0.08 0.2% 2.63 17.3 15% 17.5 94% 49.00 B 67.00 4.5 117% 12/10 3 PRGO Perrigo 66.29 0.22 0.3% 3.79 18.6 15% 17.5 99% 66.00 95.00 2.9 117% 9/10 3 IEX IDEX Corp. 39.43 0.60 1.5% 2.23 15.3 12% 17.7 104% 33.00 48.00 1.8 148% 6/99

3 ORLY O'Reilly Automotive 61.13 0.00 0.0% 3.45 16.8 15% 17.7 96% 64.00 B 91.00 6.3 118% 1/11 1 ADP Automatic Data Proc. 46.60 1.44 3.1% 2.57 18.4 13% 18.1 91% 44.00 61.00 2.5 139% 8/09 3 LOGI Logitech International 19.06 0.00 0.0% 1.05 11.6 12% 18.2 121% 14.50 21.00 1.3 152% 2/05 2 EBAY eBay 30.19 0.00 0.0% 1.62 17.8 14% 18.6 93% 30.00 43.00 3.0 133% 9/10 2 BRLI Bio-Reference 21.46 0.00 0.0% 1.15 22.9 18% 18.7 85% 25.00 B 38.00 6.3 104% 11/10

2 URBN Urban Outfitters 36.62 0.00 0.0% 1.95 18.4 15% 18.8 94% 39.00 B 55.00 3.9 125% 12/08 1 EMC EMC Corp. 22.54 0.00 0.0% 1.19 18.2 15% 18.9 95% 20.00 32.00 3.0 126% 9/08 2 COH Coach 57.68 0.60 1.0% 3.02 18.1 15% 19.1 101% 57.00 81.00 3.1 127% 6/10 3 VAR Varian Medical Systems 68.34 0.00 0.0% 3.50 10.0 12% 19.5 130% 45.00 70.00 0.9 163% 5/09 3 FOSL Fossil 71.36 0.00 0.0% 3.64 15.5 15% 19.6 115% 62.00 92.00 2.2 131% 2/09

3 TSCO Tractor Supply 47.53 0.28 0.6% 2.42 11.6 12% 19.6 119% 38.00 54.00 1.5 163% 7/09 3 BRKR Bruker 17.16 0.00 0.0% 0.87 23.3 17% 19.7 80% 19.00 B 29.00 3.8 116% 11/10 3 BRO Brown & Brown 23.86 0.32 1.3% 1.20 13.3 15% 19.9 116% 20.00 27.00 1.7 133% 4/09 3 DECK Deckers Outdoor 81.78 0.00 0.0% 4.07 9.4 15% 20.1 155% 50.00 76.00 0.8 134% 9/09 3 ROP Roper Ind. 77.19 0.44 0.6% 3.80 16.7 16% 20.3 104% 74.00 105.00 2.8 127% 3/09

2 CHSI Catalyst Health 46.85 0.00 0.0% 2.26 16.9 16% 20.7 104% 37.00 58.00 1.7 129% 7/09 2 MTD Mettler-Toledo 153.36 0.00 0.0% 7.28 12.0 14% 21.1 112% 91.00 160.00 1.0 151% 11/08 1 TROW T. Rowe Price 62.70 1.08 1.7% 2.96 17.9 16% 21.2 110% 56.00 81.00 2.1 133% 8/10 2 PNRA Panera Bread 104.35 0.00 0.0% 4.35 12.0 14% 24.0 120% 84.00 117.00 1.5 171% 2/08 2 ISRG Intuitive Surgical 256.26 0.00 0.0% 10.32 20.2 20% 24.8 99% 258.00 B 421.00 6.9 124% 1/09

2 BEZ Baldor Electric 63.21 0.68 1.1% 2.54 2.9 10% 24.9 150% 32.00 47.00 0.1 249% 1/01 2 FDS FactSet Research Sys 91.30 0.92 1.0% 3.64 12.8 15% 25.1 126% 73.00 103.00 1.5 167% 12/08 1 FAST Fastenal Co. 59.14 0.84 1.4% 2.19 13.8 18% 27.0 124% 48.00 68.00 1.6 150% 1/07 2 SSYS Stratasys 32.13 0.00 0.0% 0.75 -0.3 14% 42.8 214% 15.00 22.00 0.0 306% 12/06

Recommended companies are highlighted Symbol Sort Q P/E U December 15, 2010 B Over- Rwd/ as A % Est. Tot. % Curr Buy U valued Risk % Date L Sym Company Name Price Div Yld EPS Ret. Gr. P/E RV Up toY At Ratio Growth Rec. 1 AAPL Apple 320.36 0.00 0.0% 19.69 23.6 17% 16.3 82% 394.00 B 574.00 6.4 96% 4/10 1 ABT Abbott Labs 48.12 1.76 3.7% 4.67 27.4 12% 10.3 61% 64.00 B 89.00 9.7 86% 3/10 2 ACM AECOM 27.72 0.00 0.0% 2.38 27.0 15% 11.6 68% 36.00 B 55.00 6.6 77% 2/10 1 ADP Automatic Data Proc. 46.60 1.44 3.1% 2.57 18.4 13% 18.1 91% 44.00 61.00 2.5 139% 8/09 3 AFAM Almost Family 34.95 0.00 0.0% 3.09 26.9 17% 11.3 80% 40.00 B 65.00 4.0 66% 4/10

2 AFL AFLAC Inc. 55.10 1.20 2.2% 6.21 25.6 13% 8.9 74% 64.00 B 97.00 4.6 68% 12/06 2 AMGN Amgen 55.67 0.00 0.0% 5.34 24.4 9% 10.4 69% 71.00 B 117.00 7.0 116% 2/09 2 BCR C. R. Bard 91.34 0.68 0.7% 6.15 21.7 14% 14.9 78% 105.00 B 149.00 4.9 106% 11/09 2 BEN Franklin Resources 116.77 0.88 0.8% 8.05 21.4 16% 14.5 85% 131.00 B 187.00 4.4 91% 3/10 2 BEZ Baldor Electric 63.21 0.68 1.1% 2.54 2.9 10% 24.9 150% 32.00 47.00 0.1 249% 1/01

3 BRKR Bruker 17.16 0.00 0.0% 0.87 23.3 17% 19.7 80% 19.00 B 29.00 3.8 116% 11/10 2 BRLI Bio-Reference 21.46 0.00 0.0% 1.15 22.9 18% 18.7 85% 25.00 B 38.00 6.3 104% 11/10 3 BRO Brown & Brown 23.86 0.32 1.3% 1.20 13.3 15% 19.9 116% 20.00 27.00 1.7 133% 4/09 2 CELG Celgene 57.83 0.00 0.0% 3.39 29.5 20% 17.1 36% 77.00 B 122.00 6.2 86% 8/10 2 CEPH Cephalon 62.88 0.00 0.0% 8.17 37.6 11% 7.7 39% 106.00 B 204.00 9.9 70% 1/10

3 CFR Cullen/Frost Bankers 58.93 1.72 2.9% 3.63 10.5 10% 16.2 111% 51.00 63.00 1.4 162% 11/09 2 CHSI Catalyst Health 46.85 0.00 0.0% 2.26 16.9 16% 20.7 104% 37.00 58.00 1.7 129% 7/09 2 COH Coach 57.68 0.60 1.0% 3.02 18.1 15% 19.1 101% 57.00 81.00 3.1 127% 6/10 3 DECK Deckers Outdoor 81.78 0.00 0.0% 4.07 9.4 15% 20.1 155% 50.00 76.00 0.8 134% 9/09 3 DGIT DG 27.73 0.00 0.0% 1.74 22.4 15% 15.9 82% 34.00 B 48.00 7.1 106% 10/10

2 DHR Danaher 45.91 0.08 0.2% 2.63 17.3 15% 17.5 94% 49.00 B 67.00 4.5 117% 12/10 2 EBAY eBay 30.19 0.00 0.0% 1.62 17.8 14% 18.6 93% 30.00 43.00 3.0 133% 9/10 2 EBIX EBIX 22.44 0.00 0.0% 1.50 20.2 17% 15.0 100% 23.00 B 35.00 3.6 88% 5/10 1 EMC EMC Corp. 22.54 0.00 0.0% 1.19 18.2 15% 18.9 95% 20.00 32.00 3.0 126% 9/08 1 EMR Emerson 57.94 1.38 2.4% 3.38 13.3 10% 17.1 103% 51.00 67.00 1.8 171% 10/08

2 EV Eaton Vance 30.90 0.72 2.3% 1.84 18.1 15% 16.8 96% 31.00 B 42.00 3.2 112% 6/04 1 FAST Fastenal Co. 59.14 0.84 1.4% 2.19 13.8 18% 27.0 124% 48.00 68.00 1.6 150% 1/07 2 FDS FactSet Research Sys 91.30 0.92 1.0% 3.64 12.8 15% 25.1 126% 73.00 103.00 1.5 167% 12/08 2 FISV Fiserv, Inc. 59.60 0.00 0.0% 4.45 15.8 12% 13.4 91% 58.00 80.00 2.8 112% 10/07 3 FLIR FLIR Systems 28.39 0.00 0.0% 1.73 19.6 15% 16.4 78% 32.00 B 44.00 4.3 109% 1/11

3 FOSL Fossil 71.36 0.00 0.0% 3.64 15.5 15% 19.6 115% 62.00 92.00 2.2 131% 2/09 2 GILD Gilead Sciences 37.31 0.00 0.0% 4.06 39.2 17% 9.2 43% 63.00 B 107.00 8.6 54% 4/10 3 GME Gamestop 21.56 0.00 0.0% 2.87 23.9 10% 7.5 68% 27.00 B 43.00 5.9 75% 8/09 3 GPN Global Payments 44.43 0.08 0.2% 2.79 19.5 15% 15.9 84% 50.00 B 69.00 4.7 106% 5/10 3 HCC HCC Insurance 28.50 0.50 1.8% 3.05 16.7 14% 9.3 95% 30.00 B 39.00 3.8 66% 7/09

3 IEX IDEX Corp. 39.43 0.60 1.5% 2.23 15.3 12% 17.7 104% 33.00 48.00 1.8 148% 6/99 2 ISRG Intuitive Surgical 256.26 0.00 0.0% 10.32 20.2 20% 24.8 99% 258.00 B 421.00 6.9 124% 1/09 1 JNJ Johnson & Johnson 62.57 2.16 3.5% 5.01 16.2 8% 12.5 81% 59.00 84.00 2.4 156% 5/09 3 JOSB Jos A Bank Clothiers Inc. 40.04 0.00 0.0% 3.40 17.7 12% 11.8 97% 39.00 57.00 2.7 98% 3/10 2 LH Laboratory Corp 86.64 0.00 0.0% 6.03 17.8 13% 14.4 83% 89.00 B 125.00 3.3 111% 9/09

Recommended companies are highlighted Symbol Sort Q P/E U December 15, 2010 B Over- Rwd/ as A % Est. Tot. % Curr Buy U valued Risk % Date L Sym Company Name Price Div Yld EPS Ret. Gr. P/E RV Up toY At Ratio Growth Rec. 3 LKQX LKQ Corp. 22.85 0.00 0.0% 1.33 20.5 15% 17.2 86% 27.00 B 37.00 5.5 115% 6/10 3 LOGI Logitech International 19.06 0.00 0.0% 1.05 11.6 12% 18.2 121% 14.50 21.00 1.3 152% 2/05 1 MDT Medtronic, Inc. 35.99 0.90 2.5% 3.58 32.3 10% 10.1 53% 35.00 91.00 2.3 101% 2/10 2 MHS Medco Health 62.52 0.00 0.0% 4.07 28.0 17% 15.4 68% 76.00 B 122.00 4.7 91% 8/10 2 MTD Mettler-Toledo 153.36 0.00 0.0% 7.28 12.0 14% 21.1 112% 91.00 160.00 1.0 151% 11/08

3 NSR NeuStar 26.27 0.00 0.0% 1.75 18.2 12% 15.0 88% 29.00 B 39.00 4.4 125% 1/10 3 OMC Omnicom Group 46.06 0.80 1.7% 3.15 19.1 13% 14.6 91% 37.00 63.00 1.8 112% 9/06 3 ORLY O'Reilly Automotive 61.13 0.00 0.0% 3.45 16.8 15% 17.7 96% 64.00 B 91.00 6.3 118% 1/11 3 PCP Precision Castparts 137.98 0.12 0.1% 8.56 16.3 14% 16.1 100% 131.00 185.00 2.5 115% 4/08 3 PGR Progressive Corp. 20.75 0.15 0.7% 1.55 11.0 12% 13.4 104% 17.50 23.00 1.5 112% 7/04

2 PNRA Panera Bread 104.35 0.00 0.0% 4.35 12.0 14% 24.0 120% 84.00 117.00 1.5 171% 2/08 3 PRAA Portfolio Recovery 71.90 0.00 0.0% 5.20 18.1 15% 13.8 90% 68.00 100.00 2.6 92% 9/09 3 PRGO Perrigo 66.29 0.22 0.3% 3.79 18.6 15% 17.5 99% 66.00 95.00 2.9 117% 9/10 3 PX Praxair, Inc. 93.09 1.80 1.9% 5.45 17.5 13% 17.1 97% 90.00 124.00 2.7 132% 6/10 3 RGA Reinsurance Group 52.85 0.48 0.9% 7.25 22.1 10% 7.3 73% 57.00 B 94.00 3.7 73% 9/10

3 RIMM Research in Motion 59.18 0.00 0.0% 6.23 29.8 15% 9.5 63% 81.00 B 126.00 6.6 63% 1/10 3 ROP Roper Ind. 77.19 0.44 0.6% 3.80 16.7 16% 20.3 104% 74.00 105.00 2.8 127% 3/09 2 SFG StanCorp Financial 46.03 0.86 1.9% 5.13 18.5 12% 9.0 86% 48.00 B 65.00 3.5 75% 6/09 2 SHPGY Shire 71.03 0.35 0.5% 4.87 31.8 16% 14.6 58% 107.00 B 164.00 10.1 91% 12/10 2 SSYS Stratasys 32.13 0.00 0.0% 0.75 -0.3 14% 42.8 214% 15.00 22.00 0.0 306% 12/06

2 STJ St. Jude Medical 41.71 0.00 0.0% 3.25 22.8 13% 12.8 61% 48.00 B 72.00 4.5 98% 10/10 1 SYK Stryker Corp. 53.55 0.72 1.3% 3.64 24.8 14% 14.7 74% 62.00 B 92.00 4.4 105% 7/10 3 SYNA Synaptics 30.14 0.00 0.0% 1.78 20.9 15% 16.9 87% 34.00 B 49.00 4.7 113% 12/10 3 SYNT Syntel 48.16 0.24 0.5% 2.89 15.7 14% 16.7 111% 43.00 63.00 2.4 119% 7/10 3 TEVA Teva Pharmaceuticals 52.31 0.50 1.0% 5.25 31.1 15% 10.0 55% 76.00 B 116.00 9.3 67% 5/10

3 THOR Thoratec 26.01 0.00 0.0% 1.51 29.3 20% 17.2 32% 35.00 B 54.00 6.2 86% 1/11 3 TRLG True Religion Apparel 21.89 0.00 0.0% 2.00 22.3 12% 10.9 78% 26.00 B 38.00 5.8 91% 3/09 1 TROW T. Rowe Price 62.70 1.08 1.7% 2.96 17.9 16% 21.2 110% 56.00 81.00 2.1 133% 8/10 3 TSCO Tractor Supply 47.53 0.28 0.6% 2.42 11.6 12% 19.6 119% 38.00 54.00 1.5 163% 7/09 2 URBN Urban Outfitters 36.62 0.00 0.0% 1.95 18.4 15% 18.8 94% 39.00 B 55.00 3.9 125% 12/08

2 V Visa 74.00 0.60 0.8% 4.90 26.2 17% 15.1 76% 98.00 B 142.00 8.1 89% 11/10 3 VAR Varian Medical Systems 68.34 0.00 0.0% 3.50 10.0 12% 19.5 130% 45.00 70.00 0.9 163% 5/09 2 WAT Waters Corp. 79.36 0.00 0.0% 4.61 17.2 14% 17.2 94% 82.00 B 113.00 3.3 123% 10/10 3 WDC Western Digital 33.21 0.00 0.0% 3.02 9.5 12% 11.0 138% 24.00 34.00 1.1 92% 7/10

Recommended companies are highlighted Total Return Sort Q P/E U December 15, 2010 B Over- Rwd/ as A % Est. Tot. % Curr Buy U valued Risk % Date L Sym Company Name Price Div Yld EPS Ret. Gr. P/E RV Up toY At Ratio Growth Rec. 2 GILD Gilead Sciences 37.31 0.00 0.0% 4.06 39.2 17% 9.2 43% 63.00 B 107.00 8.6 54% 4/10 2 CEPH Cephalon 62.88 0.00 0.0% 8.17 37.6 11% 7.7 39% 106.00 B 204.00 9.9 70% 1/10 1 MDT Medtronic, Inc. 35.99 0.90 2.5% 3.58 32.3 10% 10.1 53% 35.00 91.00 2.3 101% 2/10 2 SHPGY Shire 71.03 0.35 0.5% 4.87 31.8 16% 14.6 58% 107.00 B 164.00 10.1 91% 12/10 3 TEVA Teva Pharmaceuticals 52.31 0.50 1.0% 5.25 31.1 15% 10.0 55% 76.00 B 116.00 9.3 67% 5/10

3 RIMM Research in Motion 59.18 0.00 0.0% 6.23 29.8 15% 9.5 63% 81.00 B 126.00 6.6 63% 1/10 2 CELG Celgene 57.83 0.00 0.0% 3.39 29.5 20% 17.1 36% 77.00 B 122.00 6.2 86% 8/10 3 THOR Thoratec 26.01 0.00 0.0% 1.51 29.3 20% 17.2 32% 35.00 B 54.00 6.2 86% 1/11 2 MHS Medco Health 62.52 0.00 0.0% 4.07 28.0 17% 15.4 68% 76.00 B 122.00 4.7 91% 8/10 1 ABT Abbott Labs 48.12 1.76 3.7% 4.67 27.4 12% 10.3 61% 64.00 B 89.00 9.7 86% 3/10

2 ACM AECOM 27.72 0.00 0.0% 2.38 27.0 15% 11.6 68% 36.00 B 55.00 6.6 77% 2/10 3 AFAM Almost Family 34.95 0.00 0.0% 3.09 26.9 17% 11.3 80% 40.00 B 65.00 4.0 66% 4/10 2 V Visa 74.00 0.60 0.8% 4.90 26.2 17% 15.1 76% 98.00 B 142.00 8.1 89% 11/10 2 AFL AFLAC Inc. 55.10 1.20 2.2% 6.21 25.6 13% 8.9 74% 64.00 B 97.00 4.6 68% 12/06 1 SYK Stryker Corp. 53.55 0.72 1.3% 3.64 24.8 14% 14.7 74% 62.00 B 92.00 4.4 105% 7/10

2 AMGN Amgen 55.67 0.00 0.0% 5.34 24.4 9% 10.4 69% 71.00 B 117.00 7.0 116% 2/09 3 GME Gamestop 21.56 0.00 0.0% 2.87 23.9 10% 7.5 68% 27.00 B 43.00 5.9 75% 8/09 1 AAPL Apple 320.36 0.00 0.0% 19.69 23.6 17% 16.3 82% 394.00 B 574.00 6.4 96% 4/10 3 BRKR Bruker 17.16 0.00 0.0% 0.87 23.3 17% 19.7 80% 19.00 B 29.00 3.8 116% 11/10 2 BRLI Bio-Reference 21.46 0.00 0.0% 1.15 22.9 18% 18.7 85% 25.00 B 38.00 6.3 104% 11/10

2 STJ St. Jude Medical 41.71 0.00 0.0% 3.25 22.8 13% 12.8 61% 48.00 B 72.00 4.5 98% 10/10 3 DGIT DG 27.73 0.00 0.0% 1.74 22.4 15% 15.9 82% 34.00 B 48.00 7.1 106% 10/10 3 TRLG True Religion Apparel 21.89 0.00 0.0% 2.00 22.3 12% 10.9 78% 26.00 B 38.00 5.8 91% 3/09 3 RGA Reinsurance Group 52.85 0.48 0.9% 7.25 22.1 10% 7.3 73% 57.00 B 94.00 3.7 73% 9/10 2 BCR C. R. Bard 91.34 0.68 0.7% 6.15 21.7 14% 14.9 78% 105.00 B 149.00 4.9 106% 11/09

2 BEN Franklin Resources 116.77 0.88 0.8% 8.05 21.4 16% 14.5 85% 131.00 B 187.00 4.4 91% 3/10 3 SYNA Synaptics 30.14 0.00 0.0% 1.78 20.9 15% 16.9 87% 34.00 B 49.00 4.7 113% 12/10 3 LKQX LKQ Corp. 22.85 0.00 0.0% 1.33 20.5 15% 17.2 86% 27.00 B 37.00 5.5 115% 6/10 2 ISRG Intuitive Surgical 256.26 0.00 0.0% 10.32 20.2 20% 24.8 99% 258.00 B 421.00 6.9 124% 1/09 2 EBIX EBIX 22.44 0.00 0.0% 1.50 20.2 17% 15.0 100% 23.00 B 35.00 3.6 88% 5/10

3 FLIR FLIR Systems 28.39 0.00 0.0% 1.73 19.6 15% 16.4 78% 32.00 B 44.00 4.3 109% 1/11 3 GPN Global Payments 44.43 0.08 0.2% 2.79 19.5 15% 15.9 84% 50.00 B 69.00 4.7 106% 5/10 3 OMC Omnicom Group 46.06 0.80 1.7% 3.15 19.1 13% 14.6 91% 37.00 63.00 1.8 112% 9/06 3 PRGO Perrigo 66.29 0.22 0.3% 3.79 18.6 15% 17.5 99% 66.00 95.00 2.9 117% 9/10 2 SFG StanCorp Financial 46.03 0.86 1.9% 5.13 18.5 12% 9.0 86% 48.00 B 65.00 3.5 75% 6/09

1 ADP Automatic Data Proc. 46.60 1.44 3.1% 2.57 18.4 13% 18.1 91% 44.00 61.00 2.5 139% 8/09 2 URBN Urban Outfitters 36.62 0.00 0.0% 1.95 18.4 15% 18.8 94% 39.00 B 55.00 3.9 125% 12/08 1 EMC EMC Corp. 22.54 0.00 0.0% 1.19 18.2 15% 18.9 95% 20.00 32.00 3.0 126% 9/08 3 NSR NeuStar 26.27 0.00 0.0% 1.75 18.2 12% 15.0 88% 29.00 B 39.00 4.4 125% 1/10 3 PRAA Portfolio Recovery 71.90 0.00 0.0% 5.20 18.1 15% 13.8 90% 68.00 100.00 2.6 92% 9/09

Recommended companies are highlighted Total Return Sort Q P/E U December 15, 2010 B Over- Rwd/ as A % Est. Tot. % Curr Buy U valued Risk % Date L Sym Company Name Price Div Yld EPS Ret. Gr. P/E RV Up toY At Ratio Growth Rec. 2 EV Eaton Vance 30.90 0.72 2.3% 1.84 18.1 15% 16.8 96% 31.00 B 42.00 3.2 112% 6/04 2 COH Coach 57.68 0.60 1.0% 3.02 18.1 15% 19.1 101% 57.00 81.00 3.1 127% 6/10 1 TROW T. Rowe Price 62.70 1.08 1.7% 2.96 17.9 16% 21.2 110% 56.00 81.00 2.1 133% 8/10 2 LH Laboratory Corp 86.64 0.00 0.0% 6.03 17.8 13% 14.4 83% 89.00 B 125.00 3.3 111% 9/09 2 EBAY eBay 30.19 0.00 0.0% 1.62 17.8 14% 18.6 93% 30.00 43.00 3.0 133% 9/10

3 JOSB Jos A Bank Clothiers Inc. 40.04 0.00 0.0% 3.40 17.7 12% 11.8 97% 39.00 57.00 2.7 98% 3/10 3 PX Praxair, Inc. 93.09 1.80 1.9% 5.45 17.5 13% 17.1 97% 90.00 124.00 2.7 132% 6/10 2 DHR Danaher 45.91 0.08 0.2% 2.63 17.3 15% 17.5 94% 49.00 B 67.00 4.5 117% 12/10 2 WAT Waters Corp. 79.36 0.00 0.0% 4.61 17.2 14% 17.2 94% 82.00 B 113.00 3.3 123% 10/10 2 CHSI Catalyst Health 46.85 0.00 0.0% 2.26 16.9 16% 20.7 104% 37.00 58.00 1.7 129% 7/09

3 ORLY O'Reilly Automotive 61.13 0.00 0.0% 3.45 16.8 15% 17.7 96% 64.00 B 91.00 6.3 118% 1/11 3 HCC HCC Insurance 28.50 0.50 1.8% 3.05 16.7 14% 9.3 95% 30.00 B 39.00 3.8 66% 7/09 3 ROP Roper Ind. 77.19 0.44 0.6% 3.80 16.7 16% 20.3 104% 74.00 105.00 2.8 127% 3/09 3 PCP Precision Castparts 137.98 0.12 0.1% 8.56 16.3 14% 16.1 100% 131.00 185.00 2.5 115% 4/08 1 JNJ Johnson & Johnson 62.57 2.16 3.5% 5.01 16.2 8% 12.5 81% 59.00 84.00 2.4 156% 5/09

2 FISV Fiserv, Inc. 59.60 0.00 0.0% 4.45 15.8 12% 13.4 91% 58.00 80.00 2.8 112% 10/07 3 SYNT Syntel 48.16 0.24 0.5% 2.89 15.7 14% 16.7 111% 43.00 63.00 2.4 119% 7/10 3 FOSL Fossil 71.36 0.00 0.0% 3.64 15.5 15% 19.6 115% 62.00 92.00 2.2 131% 2/09 3 IEX IDEX Corp. 39.43 0.60 1.5% 2.23 15.3 12% 17.7 104% 33.00 48.00 1.8 148% 6/99 1 FAST Fastenal Co. 59.14 0.84 1.4% 2.19 13.8 18% 27.0 124% 48.00 68.00 1.6 150% 1/07

3 BRO Brown & Brown 23.86 0.32 1.3% 1.20 13.3 15% 19.9 116% 20.00 27.00 1.7 133% 4/09 1 EMR Emerson 57.94 1.38 2.4% 3.38 13.3 10% 17.1 103% 51.00 67.00 1.8 171% 10/08 2 FDS FactSet Research Sys 91.30 0.92 1.0% 3.64 12.8 15% 25.1 126% 73.00 103.00 1.5 167% 12/08 2 MTD Mettler-Toledo 153.36 0.00 0.0% 7.28 12.0 14% 21.1 112% 91.00 160.00 1.0 151% 11/08 2 PNRA Panera Bread 104.35 0.00 0.0% 4.35 12.0 14% 24.0 120% 84.00 117.00 1.5 171% 2/08

3 LOGI Logitech International 19.06 0.00 0.0% 1.05 11.6 12% 18.2 121% 14.50 21.00 1.3 152% 2/05 3 TSCO Tractor Supply 47.53 0.28 0.6% 2.42 11.6 12% 19.6 119% 38.00 54.00 1.5 163% 7/09 3 PGR Progressive Corp. 20.75 0.15 0.7% 1.55 11.0 12% 13.4 104% 17.50 23.00 1.5 112% 7/04 3 CFR Cullen/Frost Bankers 58.93 1.72 2.9% 3.63 10.5 10% 16.2 111% 51.00 63.00 1.4 162% 11/09 3 VAR Varian Medical Systems 68.34 0.00 0.0% 3.50 10.0 12% 19.5 130% 45.00 70.00 0.9 163% 5/09

3 WDC Western Digital 33.21 0.00 0.0% 3.02 9.5 12% 11.0 138% 24.00 34.00 1.1 92% 7/10 3 DECK Deckers Outdoor 81.78 0.00 0.0% 4.07 9.4 15% 20.1 155% 50.00 76.00 0.8 134% 9/09 2 BEZ Baldor Electric 63.21 0.68 1.1% 2.54 2.9 10% 24.9 150% 32.00 47.00 0.1 249% 1/01 2 SSYS Stratasys 32.13 0.00 0.0% 0.75 -0.3 14% 42.8 214% 15.00 22.00 0.0 306% 12/06

Recommended companies are highlighted Guiding investors to success since 1973. Published by ICLUBcentral Inc. 711 W. 13 Mile Rd. Madison Heights, MI 48071 www.iclub.com/IAS

January 2011

FLIR SYSTEMS (FLIR) Fiscal Year ends December 31

Recent Price 28.39 ESTIMATES Buy up to 32 Growth 15% 52 Week Price Range 24.00 to 33.35 Dividend Payout Ratio 0% Quality Average 5 YEAR RISK REWARD ESTIMATE Current Yield None Price Gain 133% to 66 Shares Outstanding 160.9 Mil. Risk of Loss 33% to 19 Total Debt None Potential Gain/Loss 4.0 to 1

EARNINGS PER SHARE & P/E RATIOS

P/E AS FISCAL YEAR E/S P/E RATIO RV % GROWTH

2009 1.43 19.9 105 133 2010 (Est.) 1.54 18.4 97 123 2011 (Est.) 1.73 16.4 86 109

FLIR Systems designs and manufactures shion sales if and when defense budgets technologies for visual imaging, surveil- shrink. The recent acquisition of ICx Tech- lance, and detection. An early leader in nologies has also helped diversify FLIR’s infrared aviation vision systems, the com- national security portfolio away from company’s product line now includes infrared bat-oriented technologies and more toward and thermal cameras, ocular night-vision, border security and general surveillance. and handheld spectrometry and thermogra- These should remain growth areas for some phy devices. Its systems are also installed time. in aircraft, watercraft, automobiles, and a variety of special-purpose vehicles. Besides government and national defense, the company also derives about 45% of The company’s largest end-market is na- sales from consumer and industrial markets. tional security, and its largest single cus- The industrial market has tended to run tomer is the U.S. government, responsible ahead of the consumer market in the past, for 43% of last-year’s sales. Exposure to as businesses have more use for high- government buying patterns introduces vo- priced sensing technologies. Lately, howev- latility. 10% of the company’s sales evapo- er, with economic softness depressing in- rated when a single helicopter contract ran dustrial demand, the company perceives an out. The government can be a fickle patron, emerging trend toward convergence as but FLIR’s technological leadership and consumer markets catch up. As imaging low-cost competitive position should cu- technologies get faster, smaller, and cheap- Page 2 January 2011

er, and as they require less electric power to control in awarding only reasonable levels operate, they are being integrated into much of stock options. The balance sheet is cur- wider markets. In the long run, we believe rently debt-free. Current assets are $700 these applications hold the stock’s real op- million greater than total liabilities. Return- portunity. on-equity has recently been running above 20%. The company generates terrific For example, FLIR currently has relation- amounts of free cash, which it uses to fund ships with BMW and Audi to integrate its acquisitions and to buy back shares. night-vision solutions into luxury cars. Car buyers are embracing this novel feature, With clouds forming over defense spending, and we expect to see more carmakers offer FLIR’s stock carries a speculative compo- it at lower price-points in the future. Security nent. Management warns that quarterly for the home as well as commercial property bookings have been soft lately. The compa- presents another huge emerging opportuni- ny’s backlog of future business is highly ty. weighted toward the government side of the business, so softness in bookings seems to In May, the company purchased the assets confirm some fears about tighter defense of Raymarine, a manufacturer of electronic budgets. devices for recreational and light commercial boats. Raymarine’s products include Future prospects still look quite good, how- navigational aids, night vision cameras, ma- ever. We will project sales and earnings rine radar, fish finders, and a host of boat- growth of 15%, which could prove to be er’s “toys.” We like the acquisition and ex- conservative if things go well and economic pect FLIR to grow Raymarine’s sales and conditions improve. We believe that contin- margins. ued earnings growth and a rekindling of investors’ interest could support a high price FLIR Systems’ stock began trading publicly of 66. in 1993. Investors have seen their share of trouble at times. The company was accused For a low price, we will use 19, the stock’s of accounting irregularities, and even out- low point at the depth of the bear market in right accounting fraud, in 2000, leading to 2009. the dismissal and prosecution of numerous former executives. FLIR Systems is listed on the NASDAQ under the symbol FLIR. Problems for companies can sometimes lead to opportunities for investors. Prior Investor contact is: management’s shenanigans seem not to have undermined the company’s competi- Mr. Shane Harrison tive position. Sales have grown at a com- 2770 SW Parkway Ave pound rate of 23% since 2002, and net in- Wilsonville, OR 97070 come has seen compound growth of 27%. Gross margins, impressively, have hovered Telephone: 503/498-3162 north of 55%. Email: [email protected] Current management appears to have the company nicely on the straight-and-narrow. Website: www.flir.com The company applies conservative accounting practices, such as expensing all research and development costs. Executives and board members have displayed self- Company FLIR Systems, Inc. Price Date 12/03/10 Study by IAS Data Date 12/03/10 Sector Industrial Goods Data Source StkCntrl Stock Industry Aerospace/Defense - Prod Reference Morningstr Preferred($M) 0.0 Study Common(M Shares) 160.9 % Insiders 1.1 Debt($M) 0.0 % Institutions 0.0 % Debt to Tot.Cap. 0.0 Quality 3.0 (IAS) ) 1 Growth Analysis NASDAQ: FLIR 2K FY 2010 Q3 (Ended 9/30/2010) RECENT QUARTERLY FIGURES EARNINGS SALES PER SHARE 1K ($M) ($) Latest Quarter 332.5 0.39 700 600 Year Ago Quarter 285.6 0.38 500 16.4% 4.3% 400 Percentage Change

300 2,307.2 200

s 100 s 1,147.1

70 s 60 s 50 s s 40 30% 30 p 340.6 2.87 s p (Buy) s 25% 20 s s p e p 1.43 p e 20% 10 p e 7 15% 6 p e 5 e p 4 e 10% 3 e p e

2 e 5%

1 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 (1) Historical Sales Growth 24.1 % (3) Historical Earnings Per Share Growth 27.4 % www.iclub.com (2) Estimated Future Sales Growth 15.0 % (4) Estimated Future Earnings Per Share Growth 15.0 % (5) Sales Growth R2 0.99 0.98 (6) Earnings Per Share Growth R 2 0.57 0.99

Printed: 12/17/10 05:49 PM Prepared by: IAS Using Toolkit 6 2 QUALITY ANALYSIS Company FLIR Systems, Inc. (FLIR) 12/03/10 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 5 TREND YEAR AVG. UP / DOWN A % Pre-tax Profit on Sales -14.0 13.4 18.7 20.5 20.7 24.0 23.1 24.5 27.4 29.7 25.7 UP B % ROE (Beginning Yr) 80.8 36.8 25.4 35.3 24.4 23.7 28.3 27.4 24.0 25.6 DOWN

C % Debt to Equity 258.8 0.0 0.0 116.3 55.8 47.1 42.8 28.6 19.7 4.6 28.5 DOWN 3 PRICE, PRICE/EARNINGS RATIO and DIVIDEND ANALYSIS

CURRENT PRICE 28.390 52-WEEK HIGH 33.350 52-WEEK LOW 24.000

Fiscal Year High Price Low Price EPS High P/E Low P/E Dividend % Payout % High Yield

1 2005 18.0 10.3 0.55 32.5 18.6 0.000 0.0 0.0 2 2006 16.9 10.8 0.63 26.7 17.1 0.000 0.0 0.0 3 2007 36.4 15.0 0.86 42.4 17.5 0.000 0.0 0.0 4 2008 45.1 23.7 1.25 36.1 18.9 0.000 0.0 0.0 5 2009 33.2 18.9 1.43 23.3 13.3 0.000 0.0 0.0 6 AVERAGE 15.7 25.0 17.1 0.0 AVERAGE P/E RATIO 21.1 PROJECTED P/E RATIO 16.7 TTM EPS 1.48 CURRENT P/E RATIO 19.2 PEG RATIO 1.1 FTM EPS 1.70 RELATIVE VALUE 91.0% PROJ. RELATIVE VALUE 90.9% AVG TTM + FTM EPS 1.59 4 EVALUATING REWARD and RISK over the next 5 years A F U TU R E HIG H PRIC E AN ALYSIS -- N E XT 5 Y E AR S Selected High P/E 25.0 23.0 X Estimated High Earnings/Share 2.87 = Forecast High Price $ 66.0 B F U TU R E L O W PRIC E AN ALYSIS -- N E XT 5 Y E AR S (a) Sel. Low P/E 17.1 15.0 X Estimated Low Earnings/Share 1.43 = $ 21.4 (as adj.) (b) Average 5-Year Low Price = 15.7 (c) Recent Severe Low Price = 18.9

(d) Price Dividend Will Support = Present Divd. ÷ High Yield = 0.000 ÷ 0.000 = 0.0 Selected Estimated Low Price = $ 18.9 C PRIC E R AN G E S Forecast High Price 66.0 - Estimated Low Price 18.9 = Range 47.1 25% of Range = 11.8

BUY (Lower 25% of Range) = 18.9 to 30.7 MAYBE (Middle 50% of Range) = 30.7 to 54.2 SELL (Upper 25% of Range) = 54.2 to 66.0

Current Price 28.390 is in the Buy Range

D R E W AR D/RISK AN ALYSIS (Potential G ain vs. Risk of Loss)

(Forecast High Price 66.0 - Current Price 28.390 ) ÷ ( Current Price 28.390 - Estimated Low Price 18.9 ) = 4.0 To 1

5 TOTAL RETURN ANALYSIS A C U R R E N T YIELD Present Full Year's Dividend $ 0.000 ÷ Current Price of Stock $ 28.390 = 0.0 % Present Yield or % Returned on Purchase Price

B AV E R A G E YIELD - U SIN G F O R E C AST HIG H P/E Avg. % Payout 0.0 ÷ Forecast High P/E 23.0 = Avg. Yield 0.0

C % C OMP O U N D AN N U AL T O TAL R E TU R N - U SIN G F O R E C AST HIG H P/E Average Yield 0.0 % + Annual Appreciation 18.4 % = Compound Annual Total Return%18.4

Printed: 12/17/10 05:50 PM Prepared by: IAS Using Toolkit 6 Guiding investors to success since 1973. Published by ICLUBcentral Inc. 711 W. 13 Mile Rd. Madison Heights, MI 48071 www.iclub.com/IAS

January 2011

O’REILLY AUTOMOTIVE, (ORLY) Fiscal Year ends December 31

Recent Price 61.13 ESTIMATES Buy up to 64 Growth 15% 52 Week Price Range 36.91 to 62.40 Dividend Payout Ratio 0% Quality Above Average 5 YEAR RISK REWARD ESTIMATE Current Yield None Price Gain 75% to 107 Shares Outstanding 139.3 Mil. Risk of Loss 18% to 50 Total Debt $431.3 Mil Potential Gain/Loss 4.0 to 1

EARNINGS PER SHARE & P/E RATIOS

P/E AS FISCAL YEAR E/S P/E RATIO RV % GROWTH

2009 2.23 27.4 134 183 2010 (Est.) 3.00 20.4 100 136 2011 (Est.) 2.89 17.7 86 118

In the mundane industry that is automotive have increased yearly with only one slight parts retailing, O’Reilly Automotive shines. decline recorded in 2008 before resuming The company had long been the third larg- growth. This combination has increased the est retailer in the sector, behind market average age of the entire population of au- leader AutoZone Inc. and number two, Ad- tos, leading to the need for additional after- vance Auto Parts. However, at the end of market parts to keep these older vehicles the third quarter O’Reilly had almost caught on the road. All auto part retailers are bene- Advance Auto Parts for second place based fitting from this growth, including O’Reilly. on store count (3,540 for Advance Auto Parts and 3,536 for O’Reilly). But more im- According to the Automotive Aftermarket portantly, O’Reilly’s performance has re- Industry Association, the total number of sulted in a 60.4% year to date appreciation auto parts retail locations in the United for the stock. States has been stagnant, registering 35,000-36,000 over the past 10 years. While this return is impressive, we think However, the 10 largest firms in the industry there is more room for the stock to run, comprised only 43% of these stores in starting with a tailwind from the aftermarket 2009. O’Reilly believes it can continue to auto parts industry. The deep recession of compete effectively against both its larger 2008-2009 has reduced new light vehicle competitors and smaller firms and take sales from 17.5 million in 2005 to 10.7 mil- market share in this fragmented sector. lion for 2009. However, total miles driven Page 2 January 2011

O’Reilly has built its business on a dual The conversion of CSK stores to the market strategy that sells auto parts to O’Reilly system is projected to be com- commercial installers (repair shops, auto pleted by the middle of 2011. The firm esti- dealers, etc.) and individual do-it- mates that the combined company has re- yourselfers. Since the company is selling duced costs by $100 million per year parts to a higher percentage of possible through the combination of duplicate func- customers, this strategy helps the company tions and greater price discounts due to leverage its existing overhead infrastructure higher purchase volume. Third quarter 2010 and profitably to serve both large and small results back up the positive impact of the markets. It also has the benefit of streng- CSK acquisition, as comparable store sales thening the knowledge of its associates for advanced 11.1% and adjusted operating the do-it-yourself customer, since commer- margin hit a record 14.4%. EPS advanced cial installers tend to demand a higher level 37% to $0.86, and the company generated of service. While not providing specific $143 million in free cash flow. numbers, the company reports that its sales are about evenly split between each cus- Wall Street analysts project long term earn- tomer type. ings growth of 17%. We are more conservative, projecting 15% EPS growth. If O’Reilly has a long history of operational this growth is realized, the price of the stock excellence and has grown both organically could reach 107, assuming EPS of $4.49 in and through acquisition. The company ex- 2014 and an average high P/E of 23.8. If pects to open 150 new stores during 2010 achieved, this would be an annual total re- and is forecasting 170 new stores for 2011. turn of about 12%. The downside risk ap- If the firm hits its target, the percentage pears to be 18% to a stock price of 50, the growth in new stores would be 5% of its product of trailing four quarter EPS of $2.89 base. and the average low P/E of 17.2. The high and low P/E ratios for the 2008 and 2009 In addition to purchasing stand-alone stores years have been excluded, as they were or small chains, the company has made observed during the severe recession. four substantial acquisitions in its history: Hi/Lo in 1998 (182 stores), Mid-state in O’Reilly Automotive is traded over-the- 2001 (82 stores), Midwest in 2005 (72 counter on the NASDAQ under the symbol stores), and the most strategic, CSK Auto, ORLY. in 2008 (1,342 stores). CSK represented an exceptional opportunity for O’Reilly in many Investor contact is: ways. Most of CSK’s stores were located in the western United States, an area with little Mr. Tom McFall, CFO overlap with O’Reilly’s concentration in the O’Reilly Automotive, Inc. Midwest and Southeast. CSK sold only 10% 233 South Patterson of its parts to the commercial installer mar- Springfield, MO 65802 ket. This created an opportunity to add O’Reilly’s commercial sales expertise and Telephone: 417/862-3333 bring significant incremental sales to existing locations without adding much cost. Website: www.oreillyauto.com CSK further suffered from lack of investment in high-dollar parts which carry better margins. Company O'REILLY AUTOMOTIVE I.. Price Date 12/08/10 Study by IAS Data Date 12/08/10 Sector Consumer Discretionary Data Source NAIC Data Stock Industry Automotive Retail Reference Preferred($M) 0.0 Study Common(M Shares) 139.3 % Insiders 3.9 Debt($M) 431.3 % Institutions 90.0 % Debt to Tot.Cap. 13.7 Quality 3.0 (IAS) ) 1 Growth Analysis NASDAQ: ORLY 2K FY 2010 Q3 (Ended 9/30/2010) RECENT QUARTERLY FIGURES EARNINGS SALES 1K PER SHARE ($M) ($) 8,542.2 Latest Quarter 1,425.9 0.86 700 600 Year Ago Quarter 1,258.2 0.63 500 13.3% 36.5% s 4,847.1 400 Percentage Change s 300 s s 200 s s s s 100 s s 70 60 (Buy) 50 4.49 p 496.9 40 30% 30 p p p p 25% 20 e 2.23 p p e e e e p 20% 10 p e e p e 7 15% 6 e 5 e 4 10% 3

2 5%

1 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 (1) Historical Sales Growth 18.7 % (3) Historical Earnings Per Share Growth 16.9 % www.iclub.com (2) Estimated Future Sales Growth 12.0 % (4) Estimated Future Earnings Per Share Growth 15.0 % (5) Sales Growth R2 0.98 (6) Earnings Per Share Growth R 2 0.96

Printed: 12/17/10 05:50 PM Prepared by: IAS Using Toolkit 6 2 QUALITY ANALYSIS Company O'REILLY AUTOMOTIVE INC (ORLY) 12/08/10 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 5 TREND YEAR AVG. UP / DOWN A % Pre-tax Profit on Sales 9.3 9.8 10.0 10.6 10.9 12.3 12.4 12.2 9.0 10.3 11.2 DOWN B % ROE (Beginning Yr) 14.0 14.5 15.1 14.7 16.2 15.2 13.9 11.7 13.2 14.0 DOWN

C % Debt to Equity 19.5 29.8 29.3 15.4 10.6 2.2 8.1 4.7 31.7 25.5 14.4 UP 3 PRICE, PRICE/EARNINGS RATIO and DIVIDEND ANALYSIS

CURRENT PRICE 61.130 52-WEEK HIGH 62.400 52-WEEK LOW 36.910

Fiscal Year High Price Low Price EPS High P/E Low P/E Dividend % Payout % High Yield

1 2005 32.5 22.0 1.39 23.4 15.8 0.000 0.0 0.0 2 2006 38.3 27.5 1.55 24.7 17.7 0.000 0.0 0.0 3 2007 38.8 30.4 1.67 23.2 18.2 0.000 0.0 0.0 4 2008 32.7 20.0 1.61 20.3 12.4 0.000 0.0 0.0 5 2009 42.9 26.5 2.23 19.2 11.9 0.000 0.0 0.0 6 AVERAGE 25.3 23.8 17.2 0.0 AVERAGE P/E RATIO 20.5 PROJECTED P/E RATIO 18.4 TTM EPS 2.89 CURRENT P/E RATIO 21.2 PEG RATIO 1.2 FTM EPS 3.32 RELATIVE VALUE 103.4% PROJ. RELATIVE VALUE 103.2% AVG TTM + FTM EPS 3.11 4 EVALUATING REWARD and RISK over the next 5 years A F U TU R E HIG H PRIC E AN ALYSIS -- N E XT 5 Y E AR S Selected High P/E 23.8 X Estimated High Earnings/Share 4.49 = Forecast High Price $ 106.9 B F U TU R E L O W PRIC E AN ALYSIS -- N E XT 5 Y E AR S (a) Sel. Low P/E 17.2 X Estimated Low Earnings/Share 2.23 2.89 = $ 49.7 (as adj.) (b) Average 5-Year Low Price = 25.3 (c) Recent Severe Low Price = 20.0

(d) Price Dividend Will Support = Present Divd. ÷ High Yield = 0.000 ÷ 0.000 = 0.0 Selected Estimated Low Price = $ 49.7 C PRIC E R AN G E S Forecast High Price 106.9 - Estimated Low Price 49.7 = Range 57.2 25% of Range = 14.3

BUY (Lower 25% of Range) = 49.7 to 64.0 MAYBE (Middle 50% of Range) = 64.0 to 92.6 SELL (Upper 25% of Range) = 92.6 to 106.9

Current Price 61.130 is in the Buy Range

D R E W AR D/RISK AN ALYSIS (Potential G ain vs. Risk of Loss)

(Forecast High Price 106.9- Current Price 61.130 ) ÷ ( Current Price 61.130 - Estimated Low Price 49.7 ) = 4.0 To 1

5 TOTAL RETURN ANALYSIS A C U R R E N T YIELD Present Full Year's Dividend $ 0.000 ÷ Current Price of Stock $ 61.130 = 0.0 % Present Yield or % Returned on Purchase Price

B AV E R A G E YIELD - U SIN G F O R E C AST HIG H P/E Avg. % Payout 0.0 ÷ Forecast High P/E 23.8 = Avg. Yield 0.0

C % C OMP O U N D AN N U AL T O TAL R E TU R N - U SIN G F O R E C AST HIG H P/E Average Yield 0.0 % + Annual Appreciation 11.8 % = Compound Annual Total Return%11.8

Printed: 12/17/10 05:50 PM Prepared by: IAS Using Toolkit 6 Guiding investors to success since 1973. Published by ICLUBcentral Inc. 711 W. 13 Mile Rd. Madison Heights, MI 48071 www.iclub.com/IAS

January 2011

THORATEC CORPORATION (THOR) Fiscal Year ends January 2

Recent Price 26.01 ESTIMATES Buy up to 35 Growth 20% 52 Week Price Range 24.3 to 47.9 Dividend Payout Ratio 0% Quality Average 5 YEAR RISK REWARD ESTIMATE Current Yield 0 Price Gain 258% to 93 Shares Outstanding 58.5 Mil. Risk of Loss 42% to 15 Total Debt 136.1 Potential Gain/Loss 6.1 to 1

EARNINGS PER SHARE & P/E RATIOS

P/E AS FISCAL YEAR E/S P/E RATIO RV % GROWTH

2009 0.89 29.2 66 146 2010 (Est.) 1.25 20.8 47 104 2011 (Est.) 1.51 17.2 72 86

Heart disease is one of the most common pumping function. This is a treatment that is and most serious medical problems, espe- called for only when the cardiac problem is cially as people get older. In the United severe and the heart is unable to do its States, 20% of the population over the age work normally. It can be a life saver for a of 40 has some problem with heart disease. person on the waiting list for a heart trans- The severity of these problems has been plant. recognized for many years and has been the cause of a great deal of research. Many One of the advantages of the Thoratec mi- drugs, particularly statins, have been devel- niaturized blood pump, HeartMate II, is that oped to try to help those with heart condi- it does not normally require that the patient tions. take anticoagulant drugs. This is not just a matter of convenience, but spares the indi- The ability to construct ever more defined vidual from the risks of possible hemorrhag- miniaturized appliances has also been a ic stroke and other side effects that can oc- field for development. One of the most intri- cur with long-term anticoagulant drug ad- guing devices has been a product devel- ministration. oped by Thoratec Corporation. This company has developed mechanical products The use of the implanted heart pump has which are implanted in or near the heart and been growing dramatically in recent times. actually take over some of the heart’s The Mayo Clinic reports that four years ago Page 2 January 2011

it was implanting one such pump per month growth as we project possible future devel- and that last year they implanted three per opments. In bracketing price expectations month and expects that this year the num- for the next five years, we will use 30 as the ber will be close to doubling from the pre- expected potential high P/E even though vious year. the actual P/E in recent years has always been higher than that. In the effort to be Last November, it was announced that Tho- conservative in the face of an uncertain ratec will have an active competitor— competitive situation, we will use 15 as the HeartWare. HeartWare is not a competitor low P/E even though 32 is the lowest P/E presently as its pump is not cleared by the the stock has actually experienced. Calcu- FDA for sale in the U.S., but it is approved lating on this basis produces a potential for sale in Europe. It is expected that it will high price of 93 and with a low price of 15 only be a matter of time until it is introduced produces a 6.1 to 1 ratio of potential gain here. However, approval will take some versus risk of loss. time, usually at least a couple of years. For our calculations we have used the How much of a competitor HeartWare will $1.25 earnings per share expected for turn out to be is uncertain at this point. 2010. We are so close to the end of the There has not been a head-to-head re- year that the projection is quite firm. We search comparison of the effect of the two consider Thoratec a high potential, but vo- company’s products and there is an ongo- latile and rather aggressive investment. ing disagreement about the implications of what research there is. HeartWare is a Thoratec Corporation is listed on the much smaller company—it is almost a start- NASDAQ under the symbol THOR. up., as its sales last year were only $24 million. HeartWare’s project is much more ex- Investor contact is: pensive than Thoratec’s selling for almost Thoratec Corporation $90,000, more than three times Thoratec’s 6035 Stoneridge Drive product cost. Pleasanton, CA 94588 How this competitive situation will shake out is uncertain at present, but Thoratec does Telephone: 925/847-8600 have the advantage of being first with an established record with medical people that Website: www.thoratec.com are trained in the product’s use. With 550,000 new cases of heart attacks reported each year currently, we expect that the market for Thoratec’s products will remain. Presently, HeartWare’s pump has the advantage of being half the size of Thora- tec’s, but Thoratec is also working on a smaller pump, the HeartMate III.

As we project likely developments for the future, we observe that for the last five years, sales growth has been over 31% per year. We don’t expect that growth can continue at that rate, however, and we’ll use a much more conservative figure of 20% Company THORATEC CORP Price Date 12/06/10 Study by IAS Data Date 12/06/10 Sector Healthcare Data Source NAIC Data Stock Industry Health Care Equipment Reference Preferred($M) 0.0 Study Common(M Shares) 58.5 % Insiders 5.0 Debt($M) 136.1 % Institutions 48.0 % Debt to Tot.Cap. 18.2 Quality 3.0 (IAS) ) 1 Growth Analysis NASDAQ: THOR 2K FY 2010 Q3 (Ended 9/30/2010) RECENT QUARTERLY FIGURES EARNINGS SALES PER SHARE 1K ($M) ($) 958.0 Latest Quarter 91.0 0.26 700 600 Year Ago Quarter 65.1 0.21 500 39.7% 23.8% 400 Percentage Change s s 385.0 3.11 300 s s 200 s s s s s e s 1.25 100 p 111.9

70 60 e 50 p 40 (Buy) e 30% 30 e p 25% 20 p

20% 10 e e p e e 7 15% 6 5 p 4 p 10% 3 pe p 2 5%

1 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 (1) Historical Sales Growth 15.0 % (3) Historical Earnings Per Share Growth 73.9 % www.iclub.com (2) Estimated Future Sales Growth 20.0 % (4) Estimated Future Earnings Per Share Growth 20.0 % (5) Sales Growth R2 0.99 (6) Earnings Per Share Growth R 2 0.71

Printed: 12/17/10 05:51 PM Prepared by: IAS Using Toolkit 6 2 QUALITY ANALYSIS Company THORATEC CORP (THOR) 12/06/10 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 5 TREND YEAR AVG. UP / DOWN A % Pre-tax Profit on Sales -6.3 2.2 5.2 3.1 10.3 1.9 1.1 9.8 14.2 29.1 11.2 UP B % ROE (Beginning Yr) 0.5 1.3 1.2 4.8 1.3 1.1 5.2 7.6 13.6 5.8 UP

C % Debt to Equity 14.7 0.0 0.0 49.2 41.3 39.4 36.1 31.6 25.1 0.0 26.4 DOWN 3 PRICE, PRICE/EARNINGS RATIO and DIVIDEND ANALYSIS

CURRENT PRICE 26.010 52-WEEK HIGH 47.930 52-WEEK LOW 24.250

Fiscal Year High Price Low Price EPS High P/E Low P/E Dividend % Payout % High Yield

1 2006 25.4 11.6 0.09 282.2 128.9 0.000 0.0 0.0 2 2007 21.7 16.5 0.08 271.3 206.3 0.000 0.0 0.0 3 2008 32.7 12.9 0.38 86.1 33.9 0.000 0.0 0.0 4 2009 33.4 20.2 0.61 54.8 33.1 0.000 0.0 0.0 5 2010 47.9 24.3 1.25 38.3 19.4 0.000 0.0 0.0 6 AVERAGE 17.1 59.7 28.8 0.0 AVERAGE P/E RATIO 44.3 PROJECTED P/E RATIO 22.6 TTM EPS 0.96 CURRENT P/E RATIO 27.1 PEG RATIO 1.1 FTM EPS 1.15 RELATIVE VALUE 61.2% PROJ. RELATIVE VALUE 61.2% AVG TTM + FTM EPS 1.06 4 EVALUATING REWARD and RISK over the next 5 years A F U TU R E HIG H PRIC E AN ALYSIS -- N E XT 5 Y E AR S Selected High P/E 59.7 30.0 X Estimated High Earnings/Share 3.11 = Forecast High Price $ 93.3 B F U TU R E L O W PRIC E AN ALYSIS -- N E XT 5 Y E AR S (a) Sel. Low P/E 28.8 20.0 X Estimated Low Earnings/Share 1.25 = $ 25.0 (as adj.) (b) Average 5-Year Low Price = 17.1 (c) Recent Severe Low Price = 20.2

(d) Price Dividend Will Support = Present Divd. ÷ High Yield = 0.000 ÷ 0.000 = 0.0 Selected Estimated Low Price = $ 15.0 C PRIC E R AN G E S Forecast High Price 93.3 - Estimated Low Price 15.0 = Range 78.3 25% of Range = 19.6

BUY (Lower 25% of Range) = 15.0 to 34.6 MAYBE (Middle 50% of Range) = 34.6 to 73.7 SELL (Upper 25% of Range) = 73.7 to 93.3

Current Price 26.010 is in the Buy Range

D R E W AR D/RISK AN ALYSIS (Potential G ain vs. Risk of Loss)

(Forecast High Price 93.3 - Current Price 26.010 ) ÷ ( Current Price 26.010 - Estimated Low Price 15.0 ) = 6.1 To 1

5 TOTAL RETURN ANALYSIS A C U R R E N T YIELD Present Full Year's Dividend $ 0.000 ÷ Current Price of Stock $ 26.010 = 0.0 % Present Yield or % Returned on Purchase Price

B AV E R A G E YIELD - U SIN G F O R E C AST HIG H P/E Avg. % Payout 0.0 ÷ Forecast High P/E 30.0 = Avg. Yield 0.0

C % C OMP O U N D AN N U AL T O TAL R E TU R N - U SIN G F O R E C AST HIG H P/E Average Yield 0.0 % + Annual Appreciation 29.1 % = Compound Annual Total Return%29.1

Printed: 12/17/10 05:51 PM Prepared by: IAS Using Toolkit 6