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Table of Contents
                            Seek Profit, Not Perfection
Sina
Dueling Fools: Profit in 140 Characters
Ameresco
Dueling Fools: Energizing Potential
Roundtable: Which 3 Core Stocks Should You Start With?
Best Buys Now: Netflix, Nike, and 8 More Get the Nod
Company Updates: Sokol Signs Off; optionsXpress and Vasco Move to Hold
Fool’s Tools: Why Most Valuation Models Fail
Scorecard
                        
Document Text Contents
Page 1

Motley Fool Stock Advisor
Volume 10, Issue 5, May 2011 stockadvisor.fool.com

TM

TM

With

David & Tom Gardner
Motley Fool
Co-Founders

Dear Fellow Fools,
“The show doesn’t go on because it’s ready; it goes on because it’s 11:30.”

— Lorne Michaels, creator of Saturday Night Live

Most writers, producers, and actors would agree with Lorne Michaels. At
some point, the house lights turn down, voices turn to whispers, and the curtain
goes up. It’s showtime, ready or not.

I (Tom here) have no idea whether Tina Fey, the gifted and hilarious creator of
30 Rock and former head writer of Saturday Night Live, or Michaels, the creator
of SNL, has ever bought a stock. But reading Fey’s take on SNL in The New Yorker
last month — in which she retells Michaels’ lesson that even if you’re not 100%
ready, when the clock strikes, you have to give up on perfection and put on a
show — got me thinking: Just like actors putting on a live TV show, we Fools
must embrace the unknown.

Get Loose and Go With Your Gut
Investing is akin to predicting the future, and we try to find the clearest crystal

ball we can before making any recommendation for you. We get to know a business
inside out, study the management team, and comb through the competition. But
we can’t know everything that will happen. If we wait for perfect awareness about
what the future might bring, we’ll never invest a single dollar in any company.

Here’s the good news, Fools. Embracing the uncertainty in investing gives
individual investors like you and me the chance to explore the dynamic futures
of companies such as TTM Technologies (Nasdaq: TTMI) and Westport
Innovations (Nasdaq: WPRT), two recent Stock Advisor picks. Over the years,
some of our biggest multibaggers have come from our most transformational
companies: Amazon.com (Nasdaq: AMZN), Marvel, Netflix (Nasdaq: NFLX),
Priceline.com (Nasdaq: PCLN), and Quality Systems (Nasdaq: QSII).

That’s not to say every recommendation we make will be a winner. Every
investor, including David and me, has some duds. But that’s OK, Fool. Just as
we have to embrace uncertainty, we have to embrace failure as well. Our most
valuable lessons come from the mistakes we had the courage to make. In her New
Yorker piece, Fey writes that “while bombing is painful, it doesn’t kill you.” She
urges, “You can’t be that kid standing at the top of the waterslide, overthinking it.
You have to go down the chute.” Without taking a chance, you’ll never win.

This Month, Embrace the Unknown
You’re here because you want to earn your financial freedom. So read through

the next nine pages with an eye to putting some of your money behind the stock
ideas featured here, whether our two new picks, our Best Buys Now, or our Core
Stocks. Consider this month’s issue of Stock Advisor your friendly nudge down
the investing chute. It’s showtime, Fool. You’re on.

Motley Fool Alpha LLC has an options position on Netflix.

New Recommendations
Sina (Nasdaq: SINA)

- David: Sina’s Weibo won’t wobble
when it comes to turning a social-
media profit . . . . . . . . . . . . . . . . . .p . 2

- Dueling Fools: Is the competition
too stiff for Sina? . . . . . . . . . . . . .p . 3

Ameresco (NYSE: AMRC)
- Tom: When this company shows

customers how saving energy
saves money, everyone wins . .p . 4

- Dueling Fools: Is Ameresco’s
experience enough? . . . . . . . . . .p . 5

Inside
Roundtable:
The 3 Core Stocks to Start With

- SA team members spotlight stocks
they’d begin with today . . . . . . .p . 6

Best Buys Now
- See our top 10 buys for your port-

folio today . . . . . . . . . . . . . . . . . . . .p . 7
Company News

- Sokol signs off, Schwab makes a
deal, and Vasco climbs high . . .p . 8

Fool’s Tools:
Why Most Valuation Models Fail

- How to help your brain, not your
model, do the thinking . . . . . . .p . 9

Got Membership questions? Email
[email protected]

or call 888-665-3665.

Seek Profit, Not Perfection

Did You Know?
Get the Berkshire Meeting Buzz
Tag along (virtually) as Foolish analysts
Joe Magyer, Rich Greifner, and Alex
Pape head to Omaha for the Berkshire
Hathaway annual meeting on April 30 .
Coming your way, we’ll have real-time
blogging from the meeting, videos
and pictures on The Motley Fool’s
Facebook page, takeaways on the SA
discussion boards, a dedicated Twitter
feed, and more!

Page 2

2 Motley Fool Stock Advisor May 2011 stockadvisor .fool .com

$20

$45

$70

$95

$120

4/114/104/09

Headquarters: Shanghai, China

Website: www .sina .com

Recent Price: $119 .95

Risk Level: High

Position in Industry: Leader

Market Cap: $7,341

Cash/Debt: $883 / $99

Revenue (’08/’09/’10): $370 / $359 / $403

Earnings (’08/’09/’10): $81 / $412 / ($19)

Insider Ownership: 0 .3%

Biggest Threat: Government Pressure

The Team Says: We Love Weibo

Data as of 4/13/11

Dollar amounts in millions except recent price

Sina (Nasdaq: SINA)
By DaviD GarDner anD Karl Thiel

When Chinese software company Qihoo 360 (NYSE:
QIHU) spent two weeks drumming up support for its IPO
last month, investors woke up to something Stock Advisor
has known for a long time: China’s old guard of Web compa-
nies is transforming itself with new software and bold plans.

Qihoo’s Wall Street campaign kicked off a remarkable
rally, as investors boosted shares of China’s top search
engine, Baidu (Nasdaq: BIDU) 19%, and lifted portal
Sohu (Nasdaq: SOHU) 25%. This enthusiasm should
only get stronger with the continuing success of Qihoo’s
incredibly popular browser, Sohu’s ubiquitous program for
typing Chinese characters, and Baidu’s development of a
new mobile phone operating system.

But Karl and I are more interested in the opportunity for
a player I’ve recommended twice before in Stock Advisor:
Chinese Internet portal Sina (Nasdaq: SINA). This winning
stock is up 35% in the past month, and it’s primed to push
higher as Sina’s newest service capitalizes on the hottest
trends in social media.

3-Bagger Returns? Yahoo!
We tapped Sina as the “Yahoo of China” in 2004 and

again in 2005, and things have largely played out as we’d
hoped on the way to better than a 370% gain for both
picks. China jumped from the world’s fifth-largest Internet
market to the largest by a long shot (there are about 50%
more Internet users in China as there are people in the
United States), fueling great growth for Sina’s ad-driven
Internet portal as well as for its products for mobile
phones. But Sina’s microblog service is becoming its big-
gest hit yet.

Weibo, known as the “Chinese Twitter,” has grown at a
rate that’s nothing short of incredible. The service launched
in August 2009, and by the end of 2010, its user base had
increased 25 times over, to more than 100 million. That’s
already about half the number of people using Twitter
worldwide — and Sina’s management expects Weibo to
gain another 50 million users by the end of this year.

But we think the “Chinese Twitter” moniker gives Sina’s
platform too little credit. Yes, Weibo works as a 140-char-
acter short-messaging service like Twitter, but it’s built more
along the lines of a social media platform like Facebook. It
allows users to create profiles, post photos and videos, and
exchange threaded messages. It even supports third-party
apps for functions such as voice-to-Weibo on mobile devices.
Another reason Weibo outweighs Twitter: You can say a lot
more with 140 characters in Chinese than you can in English.

We Know Weibo
Like Twitter, Weibo isn’t producing any meaningful

revenue yet. But we think things will start to change this
year as Sina introduces ads and experiments with other
means of monetization — including straight e-commerce
and a Groupon-like deals service.

In 2010, Sina turned in a net loss because a large invest-
ment in its former real estate ad business sank in value, but
operating cash flow was up 19% from 2009. What’s more,
we believe that 19% growth is understated because of the
money Sina is putting toward expanding Weibo. In this
early stage, management has made it clear that it’s more
interested in cementing Weibo’s leadership by attracting
users than it is in generating revenue.

Sina is China’s No . 1 Internet portal, offering online media, advertising, and
mobile services, as well as the social media platform Weibo .

Why Buy:
» Sina is the Web portal of choice in the world’s largest Internet market .

» Weibo, Sina’s social microblog, is fast-growing and serves as a short-
messaging service as well as a social media platform .

» The market is underestimating Weibo’s potential as the company continues
to build out its network and monetize its services.

Page 3

stockadvisor .fool .com May 2011 Motley Fool Stock Advisor 3

Of course, for investors, all this promise leads to one ques-
tion: What’s Weibo worth? Is it on par with Twitter, at $5
billion? Is it closer to the massive $55 billion value attributed
to Facebook? Or, for a better comparison, should we look
to Tencent Media, Sina’s domestic rival with an established
social media presence, valued at $48 billion?

We believe Weibo is easier to monetize than Twitter. Its
social-media platform lends itself better to ads, an area in
which Sina is already an established expert. Even assuming
Weibo is worth $2.6 billion (about half of Twitter), that figure
suggests a $3.6 billion valuation for Sina’s core business and
pegs it at 31 times last year’s operating cash flow, roughly in
line with the multiple it fetched at the end of 2009 — when
Weibo wasn’t yet part of the picture.

Yes, this is a rough take on Sina’s valuation, but that
doesn’t detract from the big upside we see. Not only does
Weibo have sky-high prospects, but economics in the rest of
the business should also improve as Sina has to invest less in
building out Weibo and its scale continues to climb.

Risks and When We’d Sell
Weibo has claimed dominance in China’s microblogging

market in part because the Chinese government blocks
Twitter, Facebook, and even an earlier domestic competitor,
Fanfou. That’s good for Sina, but it’s a stark reminder that an
authoritarian government can change a company’s fortunes
on a whim. We think our risk is reduced because Weibo has
tacit government support — in fact, it boasts many gov-
ernment users — but this is a sensitive area. The Chinese
government is well aware of the roles Facebook and Twitter
played in the recent Middle East revolutions. If China
suddenly shutters Weibo, we would have to step back and
reasses Sina’s value. A concern that’s more at the forefront
is whether Sina can maintain the right balance of censorship
(to satisfy the government) and outspokenness (to make the
service appealing). If we think it’s drifting too far toward
bland infotainment, we’ll log off.

The Foolish Bottom Line
Although this twice-recommended stock has already per-

formed well for us, we don’t think Sina commands the at-
tention it deserves among Stock Advisor members (it ranks
No. 74 on My Scorecard). We’re hoping that will change.
Surf to your broker and watch Sina transform itself from
a portal of one-way information to an interactive ad- and
commerce-driven juggernaut that might just teach Twitter a
thing or two about turning popularity into profit.

For disclosure information, see page 10.

Dueling Fools: Profit in 140 Characters

Tom: Tell me about Sina’s rival, Tencent Media.
Does it have anything that would challenge Weibo?

David: Tencent is a much bigger company than
Sina, and it has a microblogging service that boasts
almost as many users. But Weibo is pulling ahead
because Sina’s registered users are actually using it.
Tencent has significantly less activity and on-site time,
which tells us that consumers are getting more of what
they want from Weibo.

Tom: You say Sina has a large investment in its
real estate advertising business. But isn’t China
supposed to be in a real estate bubble right now?

David: Sina’s involvement is only arm’s-length —
its stake in China Real Estate Investment (Nasdaq:
CRIC) was part of an ad channel aimed at real estate
and related services, and now it’s just a stake in a sepa-
rate company. We like it that way. China’s government
is trying to slow growth in the real estate market, and
in turn, Sina’s investment lost some value. The com-
pany could take a future earnings hit, but cash flow,
which we care most about, should be just fine.

Tom: Facebook may be banned in China, but
didn’t I hear that it’s partnering with search giant
Baidu? Would that be a big threat to Sina?

David: That’s the rumor, Tom, and Baidu is certainly
a force to be reckoned with. But keep in mind that
Weibo is a different kind of service from Facebook,
and China can have — in fact, it already does have
— multiple winners in social networking. The Baidu-
Facebook partnership could succeed if the companies
can establish a site that meets government censorship
standards, but I don’t believe that will derail Weibo.

Tom: Those are some pretty heady valuations on
Facebook and Twitter! Are they for real, or are we
witnessing a social-networking bubble?

David: It’s true that there are some lofty valua-
tions out there, but many of the services getting filled
with investing hot air are not as proven as Facebook,
Twitter, or, we believe, Weibo. All of these social net-
working companies are just learning how to monetize
their products, but when we look at how entrenched
the top players are in our daily lives, it only reinforces
their value. You know I’m going to be happy when
you tweet to our Stock Advisor fans and post on
Facebook that Team David’s third investment in Sina
is thumping the market!

Follow the Full Sina Story
Add SINA to My Scorecard so you can track your returns
or just follow all our coverage until you’re ready to buy .

Page 4

4 Motley Fool Stock Advisor May 2011 stockadvisor .fool .com

Headquarters: Framingham, Mass .

Website: www .ameresco .com

Recent Price: $14 .35

Risk Level: High

Position in Industry: Leader

Market Cap: $593

Cash/Debt: $45 / $211

Revenue (’08/’09/’10): $396 / $428 / $618

Earnings (‘08/’09/’10): $18 / $20 / $29

Insider Ownership: 71%

Biggest Threat: Municipal Bond Credit Crunch

The Team Says: Green Is Good

Data as of 4/13/11
Dollar amounts in millions except recent price

Ameresco is the largest independent energy-services company in the United
States, focused on energy efficiency and renewable energy projects .

Why Buy:
» Ameresco is the largest independent player in a high-growth business .

» Founder, CEO, and majority owner George Sakellaris is an industry visionary .

» A recent IPO with no public peers, Ameresco is an underfollowed and
underappreciated opportunity .

By Tom GarDner anD alex Scherer, cfa

From solar and wind power to electric cars and natural
gas trucks, the promises of energy independence and clean,
green solutions have politicians and citizens fixed on big
projects — and investors fixed on the players involved. At
Stock Advisor, we’ve got two picks in the field: transmis-
sion utility ITC (NYSE: ITC) and natural gas engine maker
Westport Innovations (Nasdaq: WPRT), both off to strong
starts for us. But despite its equally promising future, the
realm of energy efficiency isn’t getting much attention.

It’s not a political hot button or a hot new cleantech trend,
but the fast-growing energy-services industry is profiting
from those same desires for alternative energy solutions.
This month, Alex and I will help you capitalize on that
need, bringing you a visionary leader running the industry’s
strongest independent player. Underfollowed and underap-
preciated Ameresco (NYSE: AMRC), fresh off a recent IPO,
gives us a clean shot at some serious green of our own.

Guaranteed Savings for All
Ameresco is the largest independent energy-services

company (the “esco” in Ameresco) in the U.S. Part engineer,
part consultant, and part contractor, Ameresco brings its
customers comprehensive energy-saving solutions — every-
thing from upgrading basic light bulbs and HVAC systems to
building and operating small-scale clean energy installations
right next to a customer’s location. The work brings imme-
diate cost savings, and the setup is a true win-win.

The energy-savings performance contract, pioneered by
Ameresco CEO George Sakellaris, is a key to the industry’s

success. These contracts are guarantees that an energy-ser-
vices company’s project will save customers cash and that
lenders will be repaid out of those savings. This approach
means immediate and permanent budget savings and no
upfront spending from customers, a proposition that’s hard
to refuse. But with real dollars on the line, engineering
expertise is a must. Ameresco’s talented staff makes the
grade, with billions of dollars in cost-savings guarantees
made but less than $100,000 in penalties paid out since the
company’s founding in 2000.

These contracts comprise about 75% of Ameresco’s busi-
ness. The remaining 25% involves renewable energy proj-
ects, primarily partnerships to build landfill gas-to-energy
plants that convert gas leached from garbage dumps into
power for local communities (and removing that rotten-egg
smell, too). These projects are typically followed by long-
term service and supply agreements, giving Ameresco a
steady stream of sales once construction is complete.

Leading the Energy Pack
Talented leadership is key in every company we recom-

mend, but in the energy-services industry, it’s especially
true. This is a people business, similar to engineering or
accounting firms where the companies’ greatest assets walk
out the door every night. And evidence of Sakellaris’ talent
abounds, not just as an industry pioneer but also as a pas-
sionate business leader.

Ameresco is Sakellaris’ second bite of the energy-
services apple — he first founded Noresco in 1989, sold
the company in 2000, and founded Ameresco shortly after.
More than 30 former Noresco executives joined him when
he founded the new company, and today hundreds of ac-

Ameresco (NYSE: AMRC)

$10

$15

$20

4/111/1110/10

Caution: This Is a Thinly Traded Stock
We suggest using a limit order when buying Ameresco .

Page 5

stockadvisor .fool .com May 2011 Motley Fool Stock Advisor 5

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David: You tout President Obama’s Better
Buildings Initiative as a win for Ameresco. But does
the government’s big investment in energy effi-
ciency also mean that we should expect Ameresco’s
competition to heat up?

Tom: Although there are dozens of small energy-
services companies, Ameresco’s chief competitors
are actually equipment manufacturers. These are
much larger companies, such as Carrier and Johnson
Controls, but their energy-services divisions are fo-
cused on selling manufacturing equipment — they’re
not independent givers of advice. Being an experi-
enced consultant in the field is a key advantage that
Ameresco uses to sign up customers, and its success
so far suggests that’s a meaningful edge.

David: Given the sorry state of government fi-
nances, how can Ameresco sustain its growth rate?

Tom: Thanks to the nature of energy-savings
contracts, municipalities and other agencies aren’t
required to sign deals that demand upfront, big-budget
spending. The energy-savings contracts I mentioned
mean that any early costs are financed through long-
term debt arrangements and rely on the energy savings
to pay off whatever is borrowed. Given the guaranteed
savings that energy efficiency can bring, these projects
are actually more in demand when budgets are tight.
It’s a common misunderstanding of the business, and
it’s one we intend to capitalize on.

David: Finally, the recent IPO gives me pause.
Are insiders cashing out just when you want us to
get in?

Tom: Ameresco’s IPO last year was prompted by a
surge of growth and the company’s desire to position
itself to take advantage of it. Notably, Sakellaris held
on to more than 99% of his stock, unlike a great many
IPOs that provide original investors with their big
payday. We expect that commitment to the business to
continue, although Alex and I would not be surprised
to see the company sold for a tidy profit five to 10
years down the road, as Noresco was.

count executives and development engineers specialize in
sourcing profitable projects, primarily from government
and nonprofit agencies.

Financials
Ameresco’s strong performance in 2010 included 44%

gains in revenue and earnings, though the IPO knocked per-
share growth to 14%. A $1.1 billion backlog and another
$1.2 billion in proposals reflect a big opportunity that Alex
and I believe will only get bigger. With proposals acceler-
ating, deals getting bigger, and win rates rising, Ameresco
could achieve sales growth of 15% to 20% for the next
five years, with even better performance on the earnings
line. Management’s 2011 guidance seems conservative at
13% sales and 15% EPS growth, but we’re happy to invest
alongside managers who underpromise and overdeliver.

Ameresco’s bread-and-butter government channels have a
long runway of growth. Similar programs for commercial and
industrial clients bring huge expansion potential, prompted
by President Obama’s Better Buildings Initiative. The plan
calls for 20% more efficiency and a $40 billion reduction
in businesses’ energy bills by 2020. Even with that kind of
opportunity, Ameresco’s $14 stock is trading at a reasonable
21 times earnings — a fine place to start building your stake.

Risks and Why We’d Sell
Sakellaris’ shares give him an 80% vote, so confidence in

his leadership is paramount. He’s committed to delivering
long-term profit, but given his lock on the company, any
moves that harm shareholders would be a red flag. Much
of Ameresco’s work involves expensive upgrades, so credit
markets must remain healthy for its municipal clients to
benefit from cost savings without committing big chunks
of cash up front. We’d more likely lick our wounds and sell
than stick around through a municipal bond credit crunch.

The Foolish Bottom Line
Ameresco combines some of the best features of Stock

Advisor’s previous alternative-energy winners. Like ITC,
it’s taking advantage of favorable government policies.
And like Westport, it has a big growth opportunity primed
by a visionary’s search for green domestic energy solutions.
As we push toward energy independence, Ameresco should
profit mightily from the benefits of energy efficiency. Put
some green behind this efficiency machine.

Dueling Fools: Energizing Potential

Page 6

6 Motley Fool Stock Advisor May 2011 stockadvisor .fool .com

Alex: Amazon, Berkshire Hathaway, and Coach
Although I might not buy it in bulk at today’s price, I’d

feel great about averaging into Amazon.com (Nasdaq:
AMZN) over the long term. Amazon is far and away
the fastest-growing recipient of my family’s spending,
including diapers and toys, (multiple) Kindles, and pretty
much all of my holiday shopping. I think families world-
wide are in the same boat as me, so Amazon is an easy
choice as a “buy what you know” Core holding.

I cut my investing teeth studying Berkshire Hathaway
(NYSE: BRK-B) and know this company better than any
other. That’s why I’m comfortable sitting through the mar-
ket’s ups and downs in exchange for long-term gains from
Warren Buffett’s tremendous collection of business gems.
That’s exactly what I want from a Core stock.

If I slept through the next 10 years, the biggest difference
I’d see when I woke up would be the emergence of a huge
middle class in China. Nike’s growth opportunity there is
big, but I think the impact of market growth and potential
market share gains for Coach (NYSE: COH) outstrips
that of the already more successful Nike. So Coach is my
“emerging markets for the long term” Core pick.

Jason: Apple, Berkshire Hathaway, and Nike
I love global powerhouse brands, and Nike is no excep-

tion. Nike has dominated in the U.S. for years, but the world
is bigger, and growth in emerging markets is what seals the
deal for me. With exposure to just about every sport in the
world and a reputation for excellence, Nike is a brand that
should stand the test of time.

I’ve followed Berkshire for years and own the stock.
Buffett is reason enough to invest, but he won’t be there
forever. Although questions about who will lead when
Buffett leaves remain, one of this company’s greatest
strengths is its diversity and the culture Uncle Warren has
created through the years. With Berkshire, the whole is
truly more than the sum of its parts.

Apple has one of the most profound effects on our daily
lives of almost any company I know. It’s much more than
just consumer electronics. Today’s iPods, iPhones, and
iPads are just links in the chain of what this company can
do. One day I expect to retire in my iHouse.

Which Did You Choose?
Once you’ve bought your first three (or more) Core

stocks, come share your thinking on the SA discussion
boards at stockadvisor.fool.com.

For disclosure information, see page 10.

When we unveiled our renovated list of Core stocks last
month, it led to a great Stock Advisor community debate
about our decision-making. One question from our live chat
(get the full transcript on stockadvisor.fool.com) sparked a
discussion for the SA team:

“I’m new and don’t have any Core positions. Which
three would you suggest I start with?”

Broadly, we suggest you select the Core stocks that
resonate the most with you. Which do you think have the
best growth opportunities over the next decade? Do you
understand some more than others? Which Core stocks
would you feel comfortable holding for years and years?

To help guide you, SA analysts Bryan White and Jason
Moser and associate advisor Alex Scherer asked themselves
which three Core companies they’d start their portfolios
with today. Here’s what they had to say.

Bryan: Apple, Costco, and Nike
Apple’s (Nasdaq: AAPL) relevance in consumer elec-

tronics keeps growing as innovative gadgets expand the
brand beyond its loyal followers. Don’t be fooled by what
appears to be a premium price tag; this stock is far from
expensive. A shortage of materials after the devastation in
Japan could open up an even better buying opportunity.

CEO Jim Sinegal and the fine folks at Costco (Nasdaq:
COST) represent everything I look for in a Core stock. As
food and material costs rise, discount retailers will gain im-
portance because they can buy in large quantities and offer
consumers low prices. Costco might not knock anyone’s
socks off with growth, but it makes a great low-risk holding.

It doesn’t get much more “green circle” than Nike
(NYSE: NKE). Pricing power will become more important
as the economic recovery trudges along, and Nike has it.
Down the road, emerging markets will present great growth
prospects for the iconic sports-apparel brand. Nike already
has the No. 1 market share in China.

Roundtable: Which 3 Core Stocks Should You Start With?
By The Stock AdviSor Team

Rewind: What Makes a Core a Core?
1. Green Circle: Like a beginner’s ski slope . Easy to grasp .

2. So Team David or Team Tom: Represents the heart and soul
of the Gardner brothers’ investing philosophies .

3. Room to Grow: Has a big opportunity to expand .

4. High Conviction: Has strong potential to beat the market .

5. Worldly: Braves the international waters or will someday .

6. Community-Happy: Generates discussion among Fools .

7. Innovative Culture: Marches to the beat of its own drummer .

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stockadvisor .fool .com May 2011 Motley Fool Stock Advisor 7

Video Extra: Tom and the Team’s Favorites!
Go to stockadvisor.fool.com to watch Tom and the SA team
offer up their top Best Buys Now of the month .

Best Buys Now: Netflix, Nike, and 8 More Get the Nod
By The Stock AdviSor Team

Fresh Favorites
CORE Netflix (Nasdaq: NFLX) is the biggest disruptive

innovator among our recommendations. Not only did it
change the way we rent movies, but it’s now also pushing
change on how and where we get content. Successful
expansion in Canada will help lead Netflix’s streaming
service into another country later this year and, assuming
that also goes well, more rapid expansion in 2012. Don’t let
the high stock price scare you away from this winner.

CORE Nike (NYSE: NKE) expects rising input costs
to crimp margins for the next few quarters — news that
prompted the market to crimp the stock price. But inno-
vation is driving sales, with Nike Free, Lunar, and other
brands leading to strong demand. Nike is building more
capacity to meet that demand, and even more important,
Nike can handle the pressure of rising costs better than any
competitor because of the pricing power it enjoys as the
worldwide brand leader. Run toward this opportunity.

TTM Technologies (Nasdaq: TTMI) had a great 2010,
bringing its purchase of Meadville into the fold. It’s ex-
panded the market for its printed circuit boards and reduced
its reliance on selling to just a few customers. We expect
2011 to be another great year as TTM rides the coattails
of Apple, a major customer. The company is building up
its Asian capacity, which adds all kinds of possibilities for
future growth.

Titanium Metals (NYSE: TIE) continues to fly under
the radar, and that’s OK by us. Advancements in plane con-
struction technology mean big business for the company,
and although the Boeing Dreamliner has been slow to take
off, once it does, this stock should reach higher altitudes.
Investors will want to get in before it’s wheels-up.

CORE Whole Foods’ (Nasdaq: WFMI) high-quality organic
treats are resonating with an increasing number of health-
conscious consumers despite rising food prices. CEO John
Mackey and friends still have plenty of room to spread the
Whole Foods brand, so put some in your cart.

Repeats, Threepeats, and More
CORE Amazon.com (Nasdaq: AMZN) keeps boosting its

relevance with consumers after its introduction of free
streaming videos for Prime members and the Cloud Drive
for music aficionados. Although it’s the e-commerce king’s
dominant position in a growing retail market that attracts
us, it’s the added services that make the platform stickier
and the network potentially larger.

CORE Berkshire Hathaway’s (NYSE: BRK-B) recent
fiasco — ending in the resignation of Warren Buffett
lieutenant David Sokol — had the world chattering. We
took a step back, reconsidered our investment case, and
came out still convinced that there’s plenty of opportunity
in this Core holding. The stream of cash pouring into the
Berkshire fold will be a high-class problem for Buffett’s
eventual successor, but we’ll take problems like that any
day, especially at such an attractive price.

Dolby (NYSE: DLB) lands on our Best Buys list for the
third month in a row. The sound technology pioneer re-
cently showcased how much traction its Dolby Digital Plus
service has in movie theaters, homes, and mobile devices,
and the blogosphere has been buzzing about Dolby’s third-
party licenses. We don’t think the Via subsidiary on its own
is a reason to buy, but it does demonstrate what we love
about this three-time recommendation — an innovative
culture and a breadth of opportunity well beyond today’s
apparent borders.

Techne (Nasdaq: TECH) signed a small acquisition last
week that demonstrates exactly what this biotech darling
does best — carefully expanding its reach through both
research and smart buys of smaller competitors. Techne
will grow its mountain of products by about 800 from the
Boston Biochem purchase — small potatoes in isolation, but
one more reason to be confident Techne is headed higher.

Panera Bread (Nasdaq: PNRA) makes the list for the
second month in a row thanks to concerns over potential
food cost inflation. Although higher costs in dairy, wheat,
and coffee may lead to incremental price increases,
chairman Ronald Shaich sees the company’s ability to
maintain stable margins as a source of strength — and so
do we. If you haven’t added Panera to your portfolio yet,
now is an excellent time to take a bite.

For disclosure information, see page 10.

David’s Best Buys
Company Recent Price

Amazon.com CORE $182 .29

Netflix CORE $238 .75

Panera Bread $123 .38

Titanium Metals $17 .87

Whole Foods CORE $64 .59

Tom’s Best Buys
Company Recent Price

Berkshire Hath. CORE $80 .76

Dolby $49 .87

Nike CORE $79 .41

Techne $73 .70

TTM Technologies $16 .89

Data as of 4/13/11

Page 8

Company Updates: Sokol Signs Off; optionsXpress and Vasco Move to Hold
By The Stock AdviSor Team

8 Motley Fool Stock Advisor May 2011 stockadvisor .fool .com

commerce leaders such as Amazon.com (Nasdaq: AMZN)
on a global scale. EBay is counting on its role as a partner
rather than a retail competitor to help it stand out from the
pack. We love eBay’s position as a payment processor with
PayPal and firmly believe there’s room for more than one
winner in e-commerce — and that both eBay and Amazon
will help Stock Advisor investors win.

Embraer
Although Embraer (NYSE: ERJ) wrapped up a strong

2010 by delivering 101 commercial and 145 executive jets
to customers, management lowered guidance for 2011.
Embraer might have to shutter its Chinese manufacturing
plant after expected orders didn’t materialize and the
Chinese government created a mid-sized jet competitor.
Even though Embraer faces short-term turbulence, we still
like the flight plan and are keeping this company as a buy.

optionsXpress: Now on Hold
In an arrangement that we think makes sense for both

parties, Charles Schwab (NYSE: SCHW) agreed to buy
optionsXpress (Nasdaq: OXPS) in an all-stock deal worth
about $1 billion. Schwab, the largest retail broker, gains a
dedicated options platform, while optionsXpress gets access
to Schwab’s broader audience. Both stocks are selling at a
discount because of low interest rates and stalled activity
from retail investors after the financial crisis, but we’re
moving optionsXpress to Hold as a result of the deal. Don’t
buy more, but if you own optionsXpress, take the shares of
Schwab after the deal closes in the third quarter. Schwab
remains a buy on David’s side of the scorecard.

Vasco Data Security: Now on Hold
Online security expert Vasco Data Security’s (Nasdaq:

VDSI) stock has run up about 40% during the past month,
and we’re at a loss to explain why. With security breaches at
rival RSA Security and online marketer Epsilon, investors
may be hopeful that Vasco will have a big leg up competing
for new business. But no concrete news has come out of
Vasco or any other reliable source. The run-up has left
Vasco’s stock looking pricey given its modest long-term
growth expectations. We’ve moved the stock to Hold until
we can get comfortable that Vasco’s future is indeed signifi-
cantly brighter — or until we determine that it’s not.

For disclosure information, see page 10.

It was an eventful month filled with ethical goofs, stock
run-ups, winning deals, and earnings hits and misses. Here’s
a roundup of the top news we believe Fools shouldn’t miss
about their Stock Advisor companies.

Berkshire Hathaway
It’s not often that a corporate middle-manager’s

resignation lights up the press. But when David Sokol
— the presumptive successor to CEO Warren Buffett at
Berkshire Hathaway (NYSE: BRK-B) — abruptly left
his roost, it was different. Sokol, who was instrumental in
putting together Berkshire’s Lubrizol (NYSE: LZ) acqui-
sition, bought about $10 million worth of Lubrizol shares
while he was conducting the initial due diligence for the
deal. That trade landed him a $3 million payday when the
merger was announced — and it also landed him squarely
in the ethical crosshairs. Buffett cautions his leaders to
conduct themselves in a manner that wouldn’t tarnish
Berkshire’s reputation if their actions were splashed
across the front page of The New York Times, and although
Buffett never came right out and said it, Sokol failed that
test. This controversy is still reverberating, but we rate
Berkshire a Best Buy Now.

Best Buy
Best Buy (NYSE: BBY) continues to struggle because

of sluggish sales for high-end TVs and laptops. Same-store
sales fell despite solid growth among smartphones and
voice and broadband plans. Management expects the lag-
ging demand to hamper sales and earnings growth in the
year ahead. If you’re comfortable buying a company with
a few short-term troubles knowing that they often lead to
great entry points, Best Buy is for you.

Cintas
Cintas (Nasdaq: CTAS) has momentum in its favor.

Stabilizing demand and a keen focus on cost controls
helped the uniform supplier improve margins on its way to
a solid third quarter. An improved outlook for the rest of the
year spells brighter days ahead. Cintas is a buy.

eBay
In a deal worth about $2.4 billion, eBay (Nasdaq: EBAY)

is acquiring e-commerce service provider GSI Commerce
(Nasdaq: GSIC). GSI helps big retailers and brands such as
Bed Bath & Beyond (Nasdaq: BBBY) and Timberland
(NYSE: TBL) reach more buyers through better website
management, fulfillment, and marketing. The combination
of GSI, eBay’s marketplace, and payment processor PayPal
will form a complete suite for retailers to compete with e-

More Stocks, More Updates
Follow your favorites online with My Scorecard, discussion
boards, and weekly updates — all at stockadvisor.fool.com.

Page 9

stockadvisor .fool .com May 2011 Motley Fool Stock Advisor 9

more shipments or pay for some products it had received,
American Superconductor’s stock dropped more than 40%
— losing nearly half its value in a single day.

2. Blockbuster was flying high in 2002, only to enter
bankruptcy a few short years later. Investors who didn’t
recognize the size of Netflix’s (Nasdaq: NFLX) threat
— with its new way of connecting movies and viewers —
weren’t paying attention. Netflix’s mailing model trumped
Blockbuster’s local store model. Result? A 99.8% drop
from Blockbuster’s high.

3. Eastman Kodak was a stock market stalwart for decades,
but today it’s a shadow of its former self. It was the king of
film products and processing in 2000. And did you see that
4.5% dividend yield?! No-brainer buy, right? However, the
dividend had been flat since 1997, and free cash flow had not
been enough to cover the payments. Plus, sales growth had
declined for three of the previous four years. Investors who
looked no further than the high yield were shocked when
the company slashed its dividend by more than 70% in 2003
before eliminating it in 2009. Digital cameras overtook this
former blue chip, a potential development that was visible to
those who did some digging back in late 2000.

As these blowups show, we can’t afford to shut off our
minds — it puts our financial future at risk.

Enroll and Learn
In my course, I’m demonstrating how to look more deeply

at a company, using Dolby (NYSE: DLB) as the case study.
The two central lessons focus on SWOT (strengths, weak-
nesses, opportunities, and threats) and Porter’s Five Forces.
At Stock Advisor, we find these frameworks helpful when
investigating companies. At the course’s end, we’ll put to-
gether what we’ve learned and build a DCF model for Dolby.

Valuation models aren’t the be-all, end-all of investing.
It’s the thinking that’s behind the model that’s critical. And
while you don’t have to do the full-blown analysis that we
do at Stock Advisor or build a valuation model for every
company you own, if you join my DCF valuation course
you’ll almost certainly learn something that will make you
a better investor. And if you just ask the questions I opened
this article with, you’ll be light years ahead of 90% of
investors out there — and I’ll be a happy Fool.

For disclosure information, see page 10.

When you’re considering a potential investment, what’s
the first thing you look at? The stock price? The price-to-
earnings ratio? Maybe the dividend yield?

At Stock Advisor, the first thing we look at is the under-
lying company itself. What does it do? How does it make
money? And how will it make more in the future?

We read annual and quarterly reports, go over earn-
ings releases and conference calls, and delve into proxy
statements to make sure management is aligned with
shareholders. We look at the industry to determine trends,
watching for both opportunities and threats. We compare
what the management team says with what it actually does.

Only after all this digging do we begin to value the
company’s stock and how that compares with its price. But
using valuation models Foolishly takes practice.

How We Approach Value
In the course I’m currently teaching on the SA website

and our Becoming an Investing Master discussion board,
we’re going through the mechanics of building a discounted
cash flow (aka DCF) model Foolishly.

Investors use DCF models to project growth in revenue,
earnings, and cash flow — so it’s good for companies that
sell things, such as Ford (NYSE: F) and Costco (Nasdaq:
COST). There are other ways to value a company, too,
including comparing the stock price with a company’s book
value — the preferred way to determine what banks and
insurance companies, such as Safety Insurance Group
(Nasdaq: SAFT), are worth. You can also measure assets
under management, a good choice for companies that invest
people’s money, such as Legg Mason.

All of these valuation methods involve building a model
of what we expect a company to do in the future. More
important, in my class I cover why you might build this
model, what the model does — and does not — tell you,
and how to build a model that has a reasonable chance of
being in the same ballpark as reality.

3 Model Meltdowns
That “how” part is key. It’s what helps Fools like us avoid

the Wall Street trap of letting the models do the thinking. To
demonstrate, here are three examples of what can happen
when investors choose metrics over meaning:

1. Many investors who bought shares of American
Superconductor only saw two years of growing revenue
and earnings. They didn’t realize that nearly 75% of that
revenue came from a single customer, Sinovel. On April
6, when news broke that Sinovel had refused to accept any

Fool’s Tools: Why Most Valuation Models Fail
By Jim mueller

Join Jim’s DCF Class Online
Come to stockadvisor.fool.com to download the PDF
of Jim’s class or join the discussion on our boards .

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