Most Attractive Stocks for July 2019

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MONTHLY UPDATE

7/1/2019

Most Attractive Stocks for July 2019

20 Large/Mid Cap and 20 Small Cap Stocks

? Figure 1 shows 10 new stocks that make our July lists.

? Most Attractive Stocks have high and rising returns on capital

(ROIC) and low market expectations for future profits.

? This paper compares our analytics on a mega cap company to

other major providers. The Appendix details exactly how we stack up.

? Our Robo-Analyst technology, featured by Harvard Business

School, analyzes thousands of stocks to help pick the best.

Figure 1: Additions for July

Large Cap Additions

Ticker

Company Name

CHRW H HDS NUE RL WU

C.H. Robinson Worldwide Hyatt Hotels Corp HD Supply Holdings Nucor Corporation Ralph Lauren Western Union

Sources: New Constructs, LLC

Small Cap Additions

Ticker

Company Name

CRMT FIX FN LCI

America's Car-Mart, Inc. Comfort Systems USA Fabrinet Lannett Co, Inc.

Editor's Note: We will provide updated performance results on this portfolio soon.

Please see Appendix A for explanations of additions and deletions to the large and small cap lists.

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MONTHLY UPDATE

7/1/2019

The 20 Most Attractive Large/Mid Cap Stocks for July

We recommend that investors equal-weight holdings in all 20 Large/Mid Cap Most Attractive Stocks.

Figure 2: 20 Most Attractive Large/Mid Cap Stocks for July

Ticker

Company Name

ALV EAF CMA URBN DFS ALSN BKNG WU* BBY NUE* NVR RL* KMB CMI PGR H* FFIV CHRW* HDS* KMX

Autoliv Inc. GrafTech International Comerica Inc. Urban Outfitters, Inc. Discover Financial Services Allison Transmission Holdings Booking Holdings Inc. Western Union Best Buy Nucor Corporation NVR Inc. Ralph Lauren Kimberly-Clark Corp Cummins Inc. The Progressive Corp Hyatt Hotels Corp F5 Networks Inc C.H. Robinson Worldwide HD Supply Holdings CarMax Inc.

Consumer Cyclicals Basic Materials Financials Consumer Cyclicals Financials Industrials Consumer Cyclicals Industrials Consumer Cyclicals Basic Materials Consumer Cyclicals Consumer Cyclicals Consumer Non-cyclicals Consumer Cyclicals Financials Consumer Cyclicals Technology Industrials Industrials Consumer Cyclicals

* Addition to the Large/Mid Cap Most Attractive list in July Most Attractive Stocks are sorted by Risk/Reward rating

Sources: New Constructs, LLC

High-Quality Earnings

As of Last Twelve Months

Positive Economic

EPS

Rising ROIC (% point increase)

High-Ranking ROIC

(by Quintile)

$2.83 $3.23 $2.41 $1.29 $5.44 $2.88 $77.22 $1.41 $3.36 $4.71 $173.01 $2.99 $5.33 $7.98 $3.46 $3.38 $7.29 $3.56 $1.60 $2.62

1% 31%

3% 3% 1% 3% 3% 9% 1% 8% 3% 1% 3% 4% 1% 7% 1% 4% 3% 1%

2nd Top Quintile

2nd 2nd Top Quintile Top Quintile Top Quintile Top Quintile Top Quintile Top Quintile Top Quintile 2nd Top Quintile Top Quintile Top Quintile 2nd Top Quintile Top Quintile 2nd Top Quintile

Positive Free Cash

Flow Yield

23% 18% 16% 12%

9% 7% 6% 6% 6% 5% 5% 5% 5% 4% 4% 3% 4% 4% 4% 4%

Cheap Valuation

as of 06/28/19

Low Price-toEconomic Book

Value 0.9 0.2 0.8 0.6 0.7 0.8 1.4 0.7 1.0 0.6 1.0 1.1 1.0 0.9 1.1 0.8 1.2 1.2 1.2 1.5

Short MarketImplied GAP (years) Less than 1 Less than 1 Less than 1 Less than 1 Less than 1 Less than 1

2 Less than 1 Less than 1 Less than 1

1 2 Less than 1 Less than 1 Less than 1 Less than 1 6 5 Less than 1 6

Market Value ($mm)

$6,150 $3,341 $11,198 $2,229 $25,118 $5,807 $81,159 $8,567 $18,621 $16,794 $12,100 $8,868 $45,821 $26,985 $46,678 $8,019 $8,693 $11,519 $6,881 $14,430

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MONTHLY UPDATE

7/1/2019

The 20 Most Attractive Small Cap Stocks for July

We recommend that investors equal-weight holdings in all 20 Small Cap Most Attractive Stocks.

Figure 3: 20 Most Attractive Small Cap Stocks for July

Ticker

Company Name

LCI* CATO BKE BLDR FONR NCMI HSII FN* AMSF PDEX GLDD ZUMZ FUNC CVGI WINA MED MPX SAFT CRMT* FIX*

Lannett Co, Inc. The Cato Corp The Buckle, Inc. Builders FirstSource Fonar Corporation National CineMedia Heidrick & Struggles Fabrinet Amerisafe Inc. Pro-Dex Inc. Great Lakes Dredge & Dock Zumiez Inc. First United Corp Commercial Vehicle Group Winmark Corp Medifast Inc. Marine Products Corp Safety Insurance Group America's Car-Mart, Inc. Comfort Systems USA

Healthcare Consumer Cyclicals Consumer Cyclicals Consumer Cyclicals Healthcare Consumer Cyclicals Industrials Technology Financials Healthcare Industrials Consumer Cyclicals Financials Consumer Cyclicals Consumer Cyclicals Consumer Non-cyclicals Consumer Cyclicals Financials Consumer Cyclicals Industrials

* Addition to the Small Cap Most Attractive list in July

Most Attractive Stocks are sorted by Risk/Reward rating

Sources: New Constructs, LLC

High-Quality Earnings

As of Last Twelve Months

Positive Economic

EPS

Rising ROIC (% point increase)

High-Ranking ROIC

(by Quintile)

$1.20 $0.19 $1.26 $0.99 $2.63 $0.91 $1.45 $1.38 $2.33 $0.61 $0.37 $0.78 $0.61 $0.42 $6.95 $4.92 $0.66 $3.86 $3.99 $1.19

1% 2% 1% 3% 3% 2% 4% 2% 3% 4% 10% 2% 3% 5% 7% 78% 1% 4% 4% 3%

3rd 3rd Top Quintile 2nd Top Quintile 2nd 2nd Top Quintile Top Quintile Top Quintile 3rd 3rd 3rd 3rd Top Quintile Top Quintile Top Quintile 2nd 2nd 2nd

Positive Free Cash

Flow Yield

77% 32% 14% 11% 10%

9% 8% 7% 6% 6% 19% 8% 7% 5% 5% 4% 3% 3% 2% 1%

Cheap Valuation

as of 06/28/19

Low Price-toEconomic Book Value

0.2 0.6 0.6 0.8 0.4 0.5 0.7 1.2 1.0 0.6 1.1 0.8 0.6 0.5 1.2 1.6 1.2 0.8 0.7 1.2

Short MarketImplied GAP (years)

Less than 1 Less than 1 Less than 1 Less than 1 Less than 1 Less than 1 Less than 1

2 1 5 9 Less than 1 Less than 1 Less than 1 4 1 2 Less than 1 Less than 1 1

Market Value ($mm)

$238 $305 $852 $1,949 $139 $518 $573 $1,830 $1,229

$53 $700 $672 $140 $251 $651 $1,526 $527 $1,463 $576 $1,882

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MONTHLY UPDATE

7/1/2019

Most Attractive Stocks: Methodology

Stocks make our Most Attractive list because they have: 1. High-Quality Earnings based on: a. Returns on Invested Capital that are rising; and b. Economic Earnings/Cash Flows that are positive. AND 2. Cheap Valuations based on: a. Free-Cash Flow Yields1 that are positive; b. Price-to-Economic Book Value (EBV)2 ratios that are relatively low; and c. Growth Appreciation Periods3 (GAP) that are relatively low.

The above characteristics also qualify stocks for a `Very Attractive' or `Attractive' Rating, according to our Risk/Reward Rating system. Figure 5 shows our Risk/Reward Rating analysis, which we apply to the 3000+ companies that we cover. Stocks get a grade of 1 to 5 for each criterion, 5 being the worst and 1 being the best score. The overall score is based on the average score of all five criteria. Stocks must get an average score of 1.4 or below to be rated Very Attractive. Figure 5: New Constructs Risk/Reward Rating for Stocks

Sources: New Constructs, LLC

1 Free-Cash Flow Yields measure the % of the total value of the firm for which the Free Cash Flows of the firm account. The formula is FCF/Current Enterprise Value. 2 Economic Book Value (EBV) measures the no-growth value of the business based on its annual aftertax cash flow. The Formula for EBV is: (NOPAT / WACC) + Excess Cash + Non-operating assets ? Debt (incl. Operating Leases) - Value of Outstanding Stock Options ? Minority Interests. 3 Growth Appreciation Period measures the number of years, implied by the market-price, that a company will grow its economic earnings. This measure assigns a numerical value to the width of the moat around a firm's business.

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MONTHLY UPDATE

7/1/2019

Appendix A ? Additions and Deletions

Most Attractive Large/Mid Cap Stocks Deletions: MU - Stock price increased 15.7% since June report. WSM - Stock price increased 10.3% since June report. AMGN - Stock price increased 5.6% since June report. PCAR - Stock price increased 3.6% since June report. AZO - Stock price increased 2.9% since June report. SPR - Displaced by improved rank of other stocks.

Additions:

HDS - Stock price decreased 5.4% since June report.

CHRW - Addition by decrease in rank of other stocks.

H

- Addition by decrease in rank of other stocks.

NUE - Addition by decrease in rank of other stocks.

RL

- Addition by decrease in rank of other stocks.

WU - Addition by decrease in rank of other stocks.

Most Attractive Small Cap Stocks Deletions: RH - Stock price increased 27.4% since June report. GIII - Stock price increased 20.0% since June report. MC - Stock price increased 7.0% since June report. CORE - Stock price increased 1.2% since June report.

Additions:

FIX - Addition by decrease in rank of other stocks.

FN

- Addition by decrease in rank of other stocks.

LCI - Addition by decrease in rank of other stocks.

CRMT - New filing data on 06/21/19.

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MONTHLY UPDATE

7/1/2019

Explanation of Risk/Reward Rating System

Our Risk/Reward Rating System assigns a rating to every stock under our coverage according to what we believe are the 5 most important criteria for assessing the risk versus reward of stocks. See table that follows for details.

Risk/Reward Rating

Very Unattractive Unattractive Neutral Attractive

Very Attractive

The Risk/Reward Rating provides a final rating based on the equal-weighted average rating of each criterion. FCF Yield is not included in the average. FCF Yield is not included in the average. All criteria are equal-weighted in the average calculation. All criteria are equal-weighted in the average calculation. All criteria are equal-weighted in the average calculation.

Economic vs Reported EPS

Very Unattractive

Unattractive Neutral

Attractive Very Attractive

Rates stocks based on how their Economic Earnings compare to their Reported Earnings. Values based on Latest Fiscal Year. Negative and declining Economic Earnings despite positive and rising Reported Earnings Same as above except Reported Earnings are not rising or Reported Earnings are not positive Negative Economic and Reported Earnings

Economic Earnings are positive

Economic Earnings are positive and rising

Return on Invested Capital (ROIC) Bottom Quintile

4th Quintile

3rd Quintile

2nd Quintile

Top Quintile

Rates stocks based on their ROIC. Values based on Latest Fiscal Year.

Very Unattractive = < 4.8% Unattractive = 4.8% < 7.5% Neutral = 7.5% < 10.5% Attractive = 10.5% < 14.5% Very Attractive = > 14.5%

FCF Yield

3.5 or 2.4 1.1>1.6 0>1.1

Rates stocks based on their Price-to-Economic Book Value Ratio. Values based on Latest Closing Stock price and Latest Fiscal Year. Very Unattractive = greater than or equal to 3.5 or less than 0 but greater than -1 Unattractive = greater than or equal to 2.4 but less than 3.5 and less than or equal to -1 Neutral = greater than or equal to 1.6 but less than 2.4

Attractive = greater than or equal to 1.1 but less than 1.6

Very Attractive = greater than or equal to 0 but less than 1.1

Growth Appreciation Period (yrs)

>50 20>50

10>20

3>10

0>3

Rates stocks based on their Market-Implied Growth Appreciation Period. Values based on Latest Closing Stock price and Default Forecast Scenario. Very Unattractive = greater than or equal to 50 years Unattractive = at least 20 years but less than 50 Neutral = at least 10 years but less than 20 Attractive = at least 3 years but less than 10

Very Attractive = at least 0 years but less than 3

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MONTHLY UPDATE

7/1/2019

New Constructs? - Research to Fulfill the Fiduciary Duty of Care

Ratings & screeners on 3000 stocks, 450 ETFs and 7000 mutual funds help you make prudent investment decisions. New Constructs leverages the latest in machine learning to analyze structured and unstructured financial data with unrivaled speed and accuracy. The firm's forensic accounting experts work alongside engineers to develop proprietary NLP libraries and financial models. Our investment ratings are based on the best fundamental data in the business for stocks, ETFs and mutual funds. Clients include many of the top hedge funds, mutual funds and wealth management firms. David Trainer, the firm's CEO, is regularly featured in the media as a thought leader on the fiduciary duty of care, earnings quality, valuation and investment strategy. To fulfill the Duty of Care, research should be:

1. Comprehensive - All relevant publicly-available (e.g. 10-Ks and 10-Qs) information has been diligently reviewed, including footnotes and the management discussion & analysis (MD&A).

2. Un-conflicted - Clients deserve unbiased research. 3. Transparent - Advisors should be able to show how the analysis

was performed and the data behind it. 4. Relevant - Empirical evidence must provide tangible, quantifiable

correlation to stock, ETF or mutual fund performance. Value Investing 2.0: Diligence Matters: Technology is Key to Value Investing With Scale Accounting data is only the beginning of fundamental research. It must be translated into economic earnings to truly understand profitability and valuation. This translation requires deep analysis of footnotes and the MD&A, a process that our robo-analyst technology empowers us to perform for thousands of stocks, ETFs and mutual funds.

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