Prudent Speculatorthe

Established in March 1977 • 85 Argonaut, Suite 220 • Aliso Viejo, California 92656 • 877.817.4394

Chief Investment Officer

Al Frank Asset Management (AFAM)

AFAM also offers wealth management services. To learn more, contact 888.994.6837 and visit alfrank.com

crowded private-equity deal pipeline…we are short-term

bearish but long-run bullish on the global growth story.”

However, Fortune’s proclamation that we were then in the

greatest economic boom ever coincided al-

most exactly with the zenith of the equity

markets as stocks proceeded to plunge by

more than 50% from June 2007 to the nadir

on March 9, 2009.

Guess what the mainstream publica-

tions then were saying during the first two

weeks of March 2009? The cover of the

March 9, 2009 edition of Time featured the

headline, “Holding on for Dear Life” along

with a graphic of a man’s hands holding

a fraying rope. Inside was an Economic Special Report,

with stories titled: “Foreclosure: Two Tales of Middle-

Class Heartbreak”, “How the SEC Blew Your Savings”,

“Nationalize the Banks? We Already Have” and “The Tox-

ic Mortgages that Broke the System.” Not exactly confi-

dence inspiring, yet triple-digit percentage gains over the

ensuing two years were the norm for many stocks.

There is little doubt about the tone of the media cover-

age these days as fear is definitely the emotion that sells

magazines. True, the sovereign debt mess in Europe and

the bickering in Washington provide plenty of factual fod-

der, but the contrarian in me smiled when I saw the cover

of last week’s The Economist magazine with a streaking

Euro meteor hurtling toward us along with the caption,

“Is this really the end?” As if on cue, stocks then turned in

their best weekly advance since March 2009 (the S&P 500

was up 7.4%), with the primary catalyst being the global

central bank coordination to ease borrowing costs in or-

der to buy some time for European governments to push

through economic and fiscal reform. Hard to imagine vol-

atility dissipating any time soon, but we never forget that

in investing, what is comfortable is rarely profitable!

542

December 2, 2011

“Remember that

the airplane takes

off against the

wind, not with it.”

—Henry Ford

We know that investing can be an emotional roller-

coaster, but the alternating cries of panic and euphoria

heard over the past few years have left even the most

experienced market participants longing

for a smoother ride. To be sure, the equi-

ty markets have been even more volatile

in years gone by as the 1930s, 1970s and

1980s had more than a few periods with

greater standard deviation metrics, but

the Collapse of Lehman Brothers in 2008,

the ‘Flash Crash’ in 2010 and the Down-

grade of the U.S. Credit Rating this year

have made navigating the twists and turns

a difficult proposition.

No doubt, Blackberrys, iPhones and iPads and other

gadgets that provide instant access to up-to-the-second

portfolio values, along with 24/7 coverage of the financial

markets have not made it easy to focus on long-term in-

vestment objectives. Unfortunately, those moments when

anxiety boils over into fear or when prudence gives way to

greed can wreak havoc on a portfolio.

Not surprisingly, perhaps, the financial press has often

done its part to fan the emotional flames. For example,

consider that Fortune Magazine decreed in its July 12,

2007 edition that “Business is Back,” leading off its fea-

ture story as follows: “The greatest economic boom ever.

A lot could go wrong. And it may not feel like a day at

the beach to most Americans. But for your average globe-

trotting Fortune 500 CEO, right now is about as good as it

gets…Just how red-hot is the current worldwide expan-

sion? ‘This is far and away the strongest global economy

I’ve seen in my business lifetime,’ U.S. Treasury Secre-

tary Hank Paulson declared.”

To be fair, the piece contained plenty of caveats and

even sounded downright prescient with commentary

like: “The last global good time in the 1970s, of course,

ended in a nasty bout of double-digit inflation, spawning

the worst stock market crash since the Great Depression,

plus other horrors, such as the rise of disco. Is that sorry

past our future? Not necessarily. But with nervousness

rising over everything from Bear Stearns’ battered hedge

funds to tightening lending standards that could clog the

Graphic DetailU.S. Econ Chartbook

are becoming increasingly widespread. If not addressed,

recent contagion to countries thought to have relatively

solid public finances could massively escalate economic

disruption. Another serious downside risk is that no ac-

tion would be agreed to offset the large degree of fiscal

Plenty to worry about in terms of the global econom-

ic picture with the Organization for Economic Co-

operation and Development (OECD) stating this week,

“The euro area crisis remains the key risk to the world

economy. Concerns about sovereign debt sustainability

UNEMPLOYMENT RATE

Many questions about the number of folks leaving the workforce in the latest drop to 8.6%, but even that rate is dismal...

From 01.31.48 to 11.30.11. Seasonally adjusted. United States. SOURCE: Al Frank using data from the U.S. Bureau of Labor Statistics via Capital IQ

Une

mpl

oym

ent

Rat

e

2%

4%

6%

8%

10%

12%

10009080706050

grey areas denote recessions

...and despite a solid bounceback in the latest consumer sentiment read, October’s tally was the worst since ‘09 and ‘74...

From 02.67 through 11.11. SOURCE: Al Frank using data from The Conference Board via FactSet Research Systems

Con

fere

nce

Boa

rd C

onsu

mer

Con

fiden

ce I

ndex

0

30

60

90

120

150

1000908070

Dec ‘74

Oct ‘82May ‘80

Feb ‘09

Feb ‘92

Mar ‘03

Oct ‘11

Jan ‘00

Apr ‘06Dec ‘77

Feb ‘89Dec ‘72

grey areas denote recessions

CONSUMER CONFIDENCE

NEW HOME SALES

...with just about every housing figure proving to be dismal, even as the sector has shown signs of some stabilization.

From 12.31.69 through 10.31.11. Seasonally adjusted. Sales in thousands. SOURCE: Al Frank using data from the U.S. Department of Commerce via FactSet Research Systems

New

Hom

e S

ales

0

250

500

750

1,000

1,250

1,500

1,750

2,000

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

1005009590858075

New

Hom

e Ye

ar o

ver

Year

Cha

nge

in S

ales

grey areas denote recessions

GROSS DOMESTIC PRODUCT

Though some think we are headed down the road to recession, revised Q3 U.S. GDP growth of 2.0% might argue otherwise.

From 01.31.48 to 10.31.11. United States. USD in billions. SOURCE: Al Frank using data from the Bureau of Economic Analysis via Capital IQ

GD

P

GD

P G

row

th

-$6,000

-$3,000

$0

$3,000

$6,000

$9,000

$12,000

$15,000

-6%

-3%

0%

3%

6%

9%

12%

15%

10009080706050

grey areas denote recessions

Graphic Detail continued

tightening implied by current law in the United States.

This could tip the economy into a recession that monetary

policy could do little to counter.”

Despite the Organization’s ominous preamble, its lat-

est economic outlook actually calls for GDP growth across

the 34 OECD countries to slow from 1.9% this year to 1.6%

in 2012, before recovering to 2.3% in 2013. The OECD fore-

cast for U.S. GDP growth is for 1.7% expansion in 2011,

followed by a 2.0% advance in 2012 and another 2.5% gain

in 2013. Those numbers are a bit more pessimistic than

the current U.S. GDP growth estimates (1.6% to 1.7% in

2011; 2.5% to 2.9% in 2012 and 3.0% to 3.5% in 2013) put

forth from our own Federal Reserve.

Still, we can’t overlook the fact that both sets of pro-

jections state that the baseline / central tendency is that

the U.S. economy will avoid recession over the next two

ISM SURVEYS

While the surveys are hardly suggesting that happy days are here again, the factory and service sectors are still in expansionary mode.

From 01.31.83 to 10.31.11. SOURCE: Al Frank using data from the Institute for Supply Management

Inde

x

30

40

50

60

70

80

100500959085

grey areas denote recessions

ISM US Manufacturing Purchasing Managers IndexISM US Non-Manufacturing Index

JOBLESS CLAIMS

Initial requests for unemployment have been holding steady near the important 400,000 range...

From 01.04.08 to 11.25.11. Numbers in thousands. SOURCE: Al Frank using data from the U.S. Department of Labor via Capital IQ

0

100

200

300

400

500

600

700

800

10/114/1110/104/1010/094/0910/084/08

Wee

kly

Firs

t-Ti

me

Cla

ims

grey area denotes a recession

RETAIL SALES

Consumers may say they are pessimistic, but they have not stopped shopping with Black Friday and Cyber Monday fantastic this year.

From 01.31.92 to 10.31.11. USD in billions. SOURCE: Al Frank using data from the U.S. Department of Commerce via Capital IQ

Sal

es

Total Retail Sales

$0

$50

$100

$150

$200

$250

$300

$350

$400

10080604020098969492

Total Retail Sales less Autos

grey areas denote recessions

ADP EMPLOYMENT

...and recent private sector job creation numbers definitely look to be trending in the right direction.

From 12.01 to 11.11. Change in thousands. SOURCE: Al Frank using data from the ADP National Employment Report

ADP

Empl

oym

ent

Chan

ge

-800

-700

-600

-500

-400

-300

-200

-100

0

100

200

300

1008060402

grey areas denote recessions

Graphic Detail continued

years. Interestingly, despite plenty of recent evidence to

support this view, it would appear that many investors are

not buying what the OECD and the Fed are pitching, as

evidenced by the disinterest in equities and the fascina-

tion with U.S. Treasuries. After all, it’s hard to justify a

forward P/E ratio of 12 and a dividend yield of 2.3% on

the S&P 500 compared to a 2.0% yield on the benchmark

10-year U.S. Treasury, unless a recession is in the offing.

No doubt, readers of these pages are well aware of

where we stand on the recession debate. While gains like

those in 2009-2010 when the Great Recession did not be-

come another Great Depression are highly unlikely, we

continue to believe that current stock prices are discount-

ing a far worse economic climate than is likely to materi-

alize. As such, an economy that simply ‘muddles through’

should actually prove supportive of equities.

INFLATION

...with the Federal Reserve, which thinks that long-term inflation expectations are stable, doing what it can to boost the economy...

From 01.31.82 to 10.31.11. Changes are year over year. SOURCE: Al Frank using data from the US Bureau of Labor Statistics

Cons

umer

Pric

e In

dex

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

8%

100500959085

grey areas denote recessions

CPI-U CPI-U less Food & Energy

LEADING ECONOMIC INDICATORS

Indeed, the latest LEI data is “pointing to continued growth this winter, possibly even gaining a little momentum by spring”...

From 01.31.60 to 10.31.11. SOURCE: Al Frank using data from Capital IQ and the Conference Board

Mon

th-o

ver-

Mon

th P

erce

ntag

e C

hang

e

-4%

-3%

-2%

-1%

0%

1%

2%

3%

100090807060

grey areas denote recessions

US Index of Leading Economic Indicators

CORPORATE PROFITS

...which bodes well for continued growth in corporate profits, now standing at all-time highs!

From 01.31.82 to 10.31.11. Seasonally-adjusted USD in billions. SOURCE: Al Frank using data from the US Bureau of Economic Analysis via Capital IQ

Corp

orat

e Pr

ofits

$0

$500

$1,000

$1,500

$2,000

100500959085

Corporate Profits Corporate Profits after Tax

grey areas denote recessions

FEDERAL FUNDS RATE

...by remaining extremely accommodative, saying that it will keep interest rates at historic lows until mid-2013...

From 01.29.71 to 10.31.11. SOURCE: Al Frank using data from the New York Federal Reserve

Fede

ral F

unds

Tar

get

0%

5%

10%

15%

20%

1005009590858075

grey areas denote recessions

Portfolio BuilderResearch Team Favorites

The Prudent Speculator follows an approach to invest-

ing that focuses on broadly diversified investments

in undervalued stocks for their long-term apprecia-

tion potential. Does that mean we build portfolios of 20

stocks...30...? More like 50 and up. We like stocks. And we

like a lot of ‘em. We don’t rely nearly as much on “how

many” as we do “in which,” but we tend to invest in far

more names than most. This expansive diversification,

we find, potentially serves us well in two ways: we can

further minimize the risk of individual stock ownership,

while maximizing the likelihood of finding the truly big

winners among the undervalued masses.

As for the “in which” part, readers should know we dis-

criminate among potential investments primarily by their

relative valuation metrics and our assessments of stock-

specific risk. We buy only those stocks we find underval-

ued along several lines relative to their own trading his-

tory, those of their peers or that of the market in general.

The prices at which we’ll buy and sell stocks incorporate

a range of fundamental risks (e.g. credit, customer and

competitive dynamic) that we believe the companies may

face over our normal 3-to-5-year investing time horizon.

Each month in this column, we suggest to readers a

group of ten stocks with which to populate portfolios. The

list could serve as a portfolio foundation for new inves-

tors or as a pick-list for folks already maintaining well-

diversified holdings. While other themes may be featured

over time, our ongoing consolidation program has created

opportunities (i.e. proceeds of sales) to simply add stocks

each month to our newsletter portfolios.

Note that we are in no way suggesting that these stocks

replace those featured in prior months as we will always

issue a Sales Alert should we choose to exit a position.

This Month’s Theme

Recent sales swelling the coffers of our newsletter

portfolios, we’ll raise the desired position size to $14,000

in PruFolio, where we’ll pick up Anworth Mortgage and

General Dynamics as well as increase the holdings in Ar-

cher Daniels Midland, Stage Stores and Thermo Fisher.

In Millennium Portfolio, we’ll purchase $10,000 of M.D.C.

Holdings and Navios Maritime while in Buckingham

Portfolio we’ll add $4,500 of BHP Billiton. In TPS Port-

folio, we’ll take to $20,000 the stakes in Marathon Petro-

leum and United Online. We’ll transact on December 8.

TargetTicker Company Industry Group Price Price

Archer Daniels Midland (ADM)

ADM is a global leader in the distribution, processing

and merchandising of agricultural products and commod-

ities. We are positive on ADM as we feel confident that

the longer-term global secular growth trends in agricul-

ture are intact. We like that ADM’s product line is diver-

sified and that it continues to expand its global origina-

tion and transportation network. We are also fond of its

16% stake in Wilmar, Asia’s largest agricultural processor.

ADM shares are cheap relative to 5- and 10-year average

multiples. Shares offer a current dividend yield of 2.3%.

Anworth Mortgage Asset (ANH)

Anworth is a mortgage Real Estate Investment Trust

(REIT) focused primarily on U.S. mortgage-backed secu-

rities issued or guaranteed by an agency of the U.S. (Gin-

nie Mae) or a U.S. government sponsored entity (Fannie

Mae or Freddie Mac). We believe the current operating en-

vironment remains favorable for ANH due to a relatively

steep yield curve, available financing, low interest rates,

slower than expected prepayment rates and inexpensive

hedging options. ANH shares trade about 10% below book

value and offer a whopping 14.5% dividend yield.

BHP Billiton Ltd. (BHP)

BHP Billiton, an Australian miner, is one of the world’s

largest with diverse businesses ranging from base met-

als and aluminum to diamonds and coal. Concerns about

the U.S. economy, the Eurozone debt crisis and a Chinese

NEWSLETTER PORTFOLIO PURCHASES

ADM Archer Daniels Midland Food Bev & Tobacco $30.12 $52.14

ANH Anworth Mortgage Real Estate $6.33 $7.64

BHP BHP Billiton Ltd. Materials $75.17 $112.53

GD General Dynamics Capital Goods $66.06 $94.98

MDC M.D.C. Holdings Consumer Dur & App $17.85 $27.01

MPC Marathon Petroleum Energy $33.39 $62.34

NM Navios Maritime Transportation $3.48 $6.66

SSI Stage Stores Retailing $12.54 $21.78

TMO Thermo Fisher Sci Pharma/Biotech/Life Sci $47.25 $95.23

UNTD United Online Software & Services $5.28 $10.96

As of 11.30.11. SOURCE: Al Frank using data from FactSet Research Systems

Portfolio Builder continued

manufacturing slowdown have driven commodity volatil-

ity over the past six months, yet prices have not collapsed.

We remain optimistic on the long-term demand for BHP’s

stable of commodities as global economies recover and

industrialization continues in China, India and other

emerging markets. The balance sheet is strong and the

shares carry a 2.7% yield.

General Dynamics (GD)

General Dynamics is a defense contractor that builds

combat vehicles and systems, ships, armaments, defense

information systems and technologies. However, the com-

pany is involved in much more than defense, with its avi-

ation unit considered the premiere brand in the industry.

That unit, with its solid returns and strong future pros-

pects, manufacturers Gulfstream jets. GD’s stable firm-

wide backlog of business, strong balance sheet and cash

flow generation should allow management to continue

looking for value added acquisitions, as well as to offer

share buybacks. The stock currently yields 2.8%.

M.D.C. Holdings (MDC)

MDC is a homebuilder focused on the Sunbelt areas:

superb locales during the boom times, not so superb after

the bust. Fortunately, the housing market is beginning

to show signs of bottoming with improving levels of new

home sales, low inventories of new homes, generational

highs in home affordability levels and record low interest

rates. The appeal of MDC lies mostly in its 5.6% dividend

yield and its war chest of $1.1 billion in cash that, when

combined with access to credit facilities, should allow the

company to be opportunistic with distressed-asset acqui-

sitions and marketing as the housing market recovers.

Marathon Petroleum (MPC)

MPC is one of the largest independent refining firms in

the U.S. with its six domestic refineries having through-

put capacity of 1.1 million barrels per day. It also operates

over 5,000 retail gasoline sites and a logistics network that

stores and transports crude products. We like the diversi-

fied earnings mix that helps mitigate refining volatility

and we think the shares are attractively valued, especially

after recent weakness. The yield of 3.0% is also nice.

Navios Maritime (NM)

Navios Maritime is a sea-borne shipping and logistics

company focused on the transport of dry bulk commodi-

ties. Despite a cautious sector outlook and prolonged pe-

riods of charter rate declines, Navios should continue to

benefit from the longer-term charters it has in place and

from ample dividend support from its affiliated compa-

nies. Multiples such as P/E, price-to-book and price-to-

sales are all inexpensive relative to competitors and to

five-year historic averages. Shares yield a hefty 6.9%.

Stage Stores (SSI)

Stage Stores is a department store retailer that focuses

on small and mid-size towns in 39 states. The company’s

small-market niche offers a number of key competitive

advantages. For example, approximately 58% of Stage’s

stores are located in markets where locals would have to

travel 30+ miles for access to the same name-brand mer-

chandise that it offers. Stage generates solid free cash

flow and management has been aggressively buying back

shares. Furthermore, Stage shares are trading at a dis-

count to peer group multiples for book value, sales and

Enterprise Value-to-EBITDA. SSI also yields 2.9%.

Thermo Fisher Scientific (TMO)

TMO is a developer of scientific instruments and a

provider of laboratory consumables, supplying mostly

universities, labs and hospitals. The company’s growth

strategy is focused largely on acquisitions but enhanc-

ing shareholder value is also an emphasis as evidenced

by the recent $750 million share repurchase authorization

(which follows other massive buybacks). With leading

positions throughout an $80 billion market, heavy invest-

ments in R&D, global growth opportunities, solid free

cash flow generation and a strong balance sheet, we think

that TMO remains a fine addition to portfolios looking for

a large-cap medical specialties name.

United Online (UNTD)

Though the parent company is relatively unknown, its

brands are pervasive in the online world: FTD Flowers,

Juno, NetZero and Memory Lane, formerly Classmates.

com. Our investment thesis for UNTD has always fo-

cused on the company’s incredible dividend payout, to-

day standing at 7.6%. Importantly, the dividend continues

to be supported by sizeable cash flows. The company has

also made significant progress in paying down debt over

the past year. While UNTD is still admittedly finding its

footing in some of its newer endeavors, commitment to

its juicy dividend and the extremely inexpensive valua-

tion metrics make it an appealing technology value play,

especially given the stock’s recent underperformance.

Recommended Stocks

Autos & Components CTB Cooper Tire & Rubber Co. $13.40 $24.74 8.9 0.2 2.0 4.8 74 3.1% 835

Banks BBT BB&T Corp. $23.17 $36.36 14.6 1.6 1.6 nmf 212 2.8% 16,152

HCBK Hudson City Bancorp $5.59 $12.02 -10.8 1.2 0.7 nmf 260 5.7% 2,949

Capital Goods ACET Aceto Corp. $6.85 $11.15 14.3 0.4 2.2 8.4 60 2.9% 183

BGG Briggs & Stratton Corp. $15.07 $27.67 11.6 0.3 1.7 5.0 52 2.9% 759

GD General Dynamics Corp. $66.06 $94.98 9.2 0.7 nmf 5.8 nmf 2.8% 23,525

LMT Lockheed Martin Corp. $78.15 $115.78 9.3 0.5 nmf 6.4 nmf 5.1% 25,287

TPC Tutor Perini Corp. $16.49 $34.40 9.8 0.2 2.3 7.1 256 0.0% 780

Commercial Services MAN ManpowerGroup $36.63 $76.04 12.5 0.1 3.0 5.0 23 2.2% 2,979

WM Waste Management $31.30 $46.41 14.7 1.1 nmf 7.5 nmf 4.3% 14,436

Consumer Dur & App MDC M.D.C. Holdings $17.85 $27.01 -9.9 1.0 1.2 nmf 105 5.6% 847

WHR Whirlpool Corp. $49.06 $90.87 5.3 0.2 5.2 4.4 285 4.1% 3,729

Diversified Financials CS Credit Suisse Group AG $24.21 $40.98 8.5 0.6 1.3 nmf 660 6.1% 29,125

JPM JPMorgan Chase & Co. $30.97 $53.72 6.6 1.0 1.1 nmf 247 3.2% 117,651

Energy APA Apache Corp. $99.44 $178.95 8.8 2.4 1.5 4.1 25 0.6% 38,188

MPC Marathon Petroleum $33.39 $62.34 4.4 0.2 1.4 nmf 36 3.0% 11,920

SFL Ship Finance Int’l $10.01 $15.85 5.6 2.7 1.3 13.6 220 15.6% 792

TOT Total S.A. ADS $51.74 $90.25 7.3 0.5 1.6 3.1 41 5.0% 116,632

WFT Weatherford Int’l $15.16 $31.68 20.5 1.0 2.5 8.1 131 0.0% 11,594

Food & Staples Retail WAG Walgreen Co. $33.72 $50.25 12.8 0.4 2.5 6.2 21 2.7% 29,987

Food Bev & Tobacco ADM Archer Daniels Midland $30.12 $52.14 9.8 0.2 1.1 6.3 38 2.3% 20,120

PEP PepsiCo $64.00 $95.09 14.8 1.6 nmf 10.7 nmf 3.2% 100,352

HealthCare Equip/Srvcs AET Aetna $41.82 $79.37 8.7 0.4 4.6 nmf 126 1.4% 15,151

BAX Baxter Int’l $51.66 $78.30 12.2 2.1 7.5 7.9 108 2.6% 29,092

Insurance PRU Prudential Financial $50.64 $100.71 8.1 0.5 0.8 nmf nmf 2.9% 23,998

Materials BHP BHP Billiton Ltd. ADS $75.17 $112.53 62.4 5.2 2.2 5.7 nmf 2.7% 120,708

Media DIS Walt Disney Co. $35.85 $58.87 14.1 1.5 16.3 8.3 298 1.7% 63,175

Pharma/Biotech/Life Sci MRK Merck & Co I $35.75 $55.06 9.7 2.3 14.9 8.1 221 4.7% 109,107

NVS Novartis AG ADS $54.12 $79.11 9.9 2.2 51.1 9.6 514 3.7% 130,900

TMO Thermo Fisher Scientific $47.25 $95.23 11.9 1.6 nmf 11.3 nmf 0.0% 17,874

Real Estate • ANH Anworth Mortgage Asset $6.33 $7.64 6.8 3.7 0.9 nmf 4 14.5% 842

Retailing SPLS Staples $14.41 $27.21 10.6 0.4 4.1 5.3 61 2.8% 10,090

SSI Stage Stores $12.54 $21.78 16.1 0.3 1.3 4.0 25 2.9% 381

Semis & Cap Equipment STM STMicroelectronics N.V. $6.33 $12.71 9.2 0.5 1.0 3.3 14 5.4% 5,602

Software & Services MSFT Microsoft Corp. $25.58 $40.52 9.3 3.0 4.9 5.7 26 3.1% 215,128

UNTD United Online $5.28 $10.96 4.9 0.5 nmf 3.8 nmf 7.6% 469

Technology Hardware BHE Benchmark Electronics $13.81 $23.37 11.4 0.3 0.7 5.5 1 0.0% 800

ERIC Ericsson ADR $10.63 $18.86 12.4 0.9 2.2 5.7 25 2.4% 31,313

Telecommunication Svcs NTT Nippon Telegraph $24.70 $41.25 10.5 0.5 0.9 3.3 67 2.7% 62,521

Transportation NM Navios Maritime $3.48 $6.66 3.4 0.5 0.6 6.4 224 6.9% 354

Target Price Multiples EV/ Debt/ Div MktIndustry Group Ticker1 Company Price Price EPS Sales TBV2 EBITDA3 TE4 Yld Cap

In this space, we list each month 40 of our most attrac-

tively priced recommended stocks. All trade for signifi-

cant discounts to our determination of long-term fair val-

ue and/or offer favorable risk/reward profiles. Note that,

while we always seek substantial capital gains, we require

lower appreciation potential for stocks that we deem to

have more stable earnings streams, more diversified busi-

nesses and stronger balance sheets. The natural corollary

is that riskier companies must offer far greater upside

to warrant a recommendation. Further, as total return is

how performance is ultimately judged, we explicitly fac-

tor dividend payments into our analytical work.

As of 11.30.11. N/A=Not applicable. nmf=Not meaningful. 1 •=First-time recommendation. 2Tangible book value. 3Enterprise value-to-earnings before interest taxes depreciation and amortization. 4Tangible equity. SOURCE: Al Frank using data from Capital IQ and FactSet Research Systems

Since The Prudent Speculator’s launch in March 1977, its 1,753 stock recommendations have returned, on average, an annualized 16.87%, not including dividends.

NEWSLETTER PORTFOLIO PERFORMANCE

November YTD 1-Year 3-Year 5-Year 10-Year

Inception Since Index Date Inception Return Index

As of 11.30.11. All data are total returns, except for that of all recommended stocks, which excludes dividends. Data for periods greater than one year are annualized. The Dow Jones Industrial Average (DJIA or Dow) is a price-weighted average of 30 actively traded “blue chip” stocks, primarily industrials, but in-cludes financials and other service-oriented companies. The Russell 3000 Index measure the performance of the largest 3,000 U.S. companies. The Standard & Poor’s 500 Stock Index (S&P 500) is an unmanaged index of 500 stocks that is generally representative of the performance of larger companies in the U.S. 1The Russell 3000 Index lacks sufficient history to match that of Al Frank’s TPS Portfolio. We therefore have shown the S&P 500 Index for comparison purposes. SOURCE: Al Frank using data from FactSet Research Systems

TPS Portfolio is Al Frank’s actual investment portfolio. Though not presently leveraged, it has been so in the past. Buckingham Portfolio is John Buckingham’s actual investment portfolio. Though not presently leveraged, it has been so in the past. Millennium Portfolio is unleveraged and hypothetical. PruFolio is unleveraged and hypothetical.

All portfolio returns are calculated on a total return basis and reflect the reinvestment of dividends, if any, margin leverage and margin interest charges, trading costs and subscription costs. There are inherent limitations with in hypothetical or model portfolio results as the securities are not actually purchased or sold. They may not reflect the impact, if any, of material market conditions which could have has an impact on AFAMs decision making if the hypothetical portfolios were real. Hypothetical performance is shown for illustrative purposes only and should not be interpreted as an indication of performance of any AFAM portfolio. The use of leverage magnifies gains and losses and increases risk to a portfolio.

IMPORTANT DISCLOSURES

The Prudent Speculator is published by

10-Y

ear C

umul

ativ

e Re

turn

MILL

TPS

50%

100%

150%

200%

250%

300%

11100908070605040302

R3000

PRU

Nothing presented herein is, or is intended to constitute, specific investment advice or marketing material. Information provided reflects the views of Al Frank Asset Management (AFAM) as of a particular time. Such views are subject to change at any point and AFAM shall not be obligated to provide notice of any change. Any securities information regarding holdings, allocations and other characteristics are presented to illustrate examples of the types of investments or allocations that AFAM may have bought or pursued as of a particular date. It may not be representative of any current or future investments or allocations and nothing should be construed as a recommendation to follow any invest-ment strategy or allocation. Any forward looking statements or forecasts are based on assumptions and actual results are ex-pected to vary from any such statements or forecasts. No reli-ance should be placed on any such statements or forecasts when making any investment decision. While AFAM has used reason-able efforts to obtain information from reliable sources, we make no representations or warranties as to the accuracy, reliability or completeness of third-party information presented herein. No guarantee of investment performance is being provided and no inference to the contrary should be made. There is a risk of loss from an investment in securities. Past performance is not a guar-antee of future performance.

AFAM is an Investment Adviser, registered with the SEC, is no-tice filed in the State of CA and various other states, and serves as editor to The Prudent Speculator and the weekly e-mail up-dates; (TPS: ISSN 0743-0809). AFAM is sub-adviser to two propri-etary mutual funds and serves as manager to separate managed accounts. Many of the securities contained within this newslet-ter mentioned are analyzed, recommended and transacted in by AFAM and/or its associated persons for client and personal ac-counts. It is also possible that AFAM and/or its associated per-sons may take a position in a security that is inconsistent with the recommendations provided in TPS or may purchase securi-ties not mentioned in TPS without notice to its subscribers.

Past specific recommendations: Investment recommenda-tions provided herein are subject to change at any time. Past and current recommendations that are profitable are not in-dicative of future results, which may in fact result in a loss. See prudentspeculator.com or contact AFAM at tps@alfrank.com for a list of all past specific investment recommendations. Perfor-mance and characteristics of AFAM portfolios and securities are subject to risks and uncertainties. The stocks selected for listing and discussion in the newsletter were based on proprietary ana-lytical work performed by AFAM, and not based on performance, meaning that they are chosen irrespective of profits or losses. The securities presented do not represent all of the securities bought, sold or recommended.

Privacy: TPS periodically rents its mailing list to unaffiliated third-parties. Telephone marketing is prohibited. Subscribers who wish to have their names removed from the mailing list should contact TPS by e-mailing tps@alfrank.com.

Subscriptions: TPS is published monthly, with weekly e-mail updates, at the following rates: 1-year: $295; 2-years: $495. Sub-scriptions are not assignable. For subscribing, please contact us at tps@alfrank.com or call 877.817.4394.

Newsletter Portfolios

Buckingham -0.40 -2.03 4.91 23.76 -4.09

Millennium 0.44 1.50 7.88 23.03 -0.90 6.81

PruFolio -0.97 -1.13 6.13 21.28 -1.21 9.14

TPS 0.60 -2.04 4.98 19.73 -1.16 8.69

Major Indexes

Russell 3000 -0.27 0.22 6.99 15.30 0.09 3.60

S&P 500 -0.22 1.18 7.83 14.13 -0.17 2.90

Dow Jones Industrial Avg 1.18 7.34 12.38 14.14 2.47 4.59

Buckingham 01.21.03 11.11 6.68 Russell 3000

Millennium 12.31.99 7.62 1.19 Russell 3000

PruFolio 12.29.00 12.78 2.02 Russell 3000

TPS 03.10.77 18.37 10.81 S&P 5001