Motley Fool Inside Value

TM

TM

 annual Review 
Volume 5, Issue 9, September 2008 insidevalue.fool.com

Dear Fellow Fools,

With
As The Motley Fool celebrates its 15-year anniversary, Inside Value marks
Philip Durell its fourth — and what a tumultuous year it’s been for the stock market and most
Advisor
portfolios. We’re the first to admit that our scorecard suffered mightily (as you
may have noticed) from some of our 2007 recommendations, as the market
punished many of our more contrarian picks. Happily, 2008 has brought better
Recommendations days for our scorecard. Some stocks are still down, but that makes them even
Markel better values today. If you followed our mantra of buying your position over time
(NYSE: MKL) . . . . . . . . . . . . . . . . . . . . . p. 2 (sometimes we refer to it as buying in thirds, although any fraction suffices),
CarMax you’ll have lowered your average cost of ownership and will reap the rewards.
(NYSE: KMX) . . . . . . . . . . . . . . . . . . . . p. 3
The IV team has spent the past month rigorously researching our entire score-
Inside card — and with the market madness in recent days, that was a tough job. We’ve
made some adjustments and ranked companies as admirals (re-recommendations),
Annual Review:
vice admirals, captains, and lieutenants — and there’s even one in the brig.
- The team — Philip Durell, Mike
Olsen, Jean Graham, Ron Gross, and It was tough to choose two admirals out of such a fine fleet this year, but
Andrew Sullivan — share details we’re confident in the two we’ve chosen. Markel (NYSE: MKL) has an excep-
on the 13 best companies on the IV
tional management team and a long track record of building shareholder value.
scorecard (after our re-recommenda-
tions, of course) . . . . . . . . . . . . . . . . . . p. 4 And despite its troubles, CarMax (NYSE: KMX) has a unique position in its
The Inside Value Report Card: industry, and we strongly believe in management’s ability to steer the business
- Buy and hold guidance and well beyond average rates of return over the next 10 to 15 years.
current pricing information
for every company we’ve Putting My Money Where My Mouth Is
recommended . . . . . . . . . . . . . . . .p. 7
I am so certain that these 13 vice admirals will crush the market over the next
three to five years that in the spirit of our current “Mind Over Market” member
Did You Know? challenge, I am committing here and now to buy shares of all of the vice admirals
We’ve Been Selling that I don’t already own. I have to wait another 10 days to buy them because
We said farewell to three stocks from of The Motley Fool’s trading guidelines, but I will make my initial purchases
our scorecard in our Aug. 6 update: between 10 and 40 days after the issue date. I strongly advise you to take a close
Colgate-Palmolive (NYSE: CL), Gap look at the review, as there are some fantastic companies on sale. In particular,
(NYSE: GPS), and Symantec (Nasdaq: there are some serious bargains among the captains — so many that in some
SYMC). Keep an eye on your inbox for
our weekly updates — from sell recom-
cases, we had a hard time separating the vice admirals from the captains. We like
mendations to valuation changes to both UnitedHealth Group (NYSE: UNH) and WellPoint (NYSE: WLP), for
earnings reports, they’re loaded with example, and Moody’s (NYSE: MCO) and McGraw-Hill (NYSE: MHP). But in
stock news you need to know. each case, one company has the edge — and you’ll see why inside.
I guarantee that the IV team is dedicated to rooting through hundreds of compa-
Stock Snapshots Online
nies to unearth the most compelling investments for your portfolio — and perhaps
Want to know even more about your more important, to following all of our recommendations closely so we can give
favorite stocks? Stop by our website at
insidevalue.fool.com and click any you timely advice through our email updates and discussion boards. Thank you for
ticker for an instant snapshot of the being with us — not just as a part of the IV community, but the Foolish community
company’s performance and links to as well. We hope you’ll stay with us and prosper for many years to come.
related articles.
Got subscription questions? Email
membersupport@fool.com
or call 888-665-3665.
 Markel (NYSE: MKL)
By Philip Durell
Markel provides specialty insurance in the U.S. and British markets. Headquarters: Glen Allen, Va.

Why Buy: Website: www.markelcorp.com

»» This high-quality company’s shares are available on the cheap. Market Cap (in millions): $3,552.7
»» Markel has talented management with integrity. P/E: 11.9
»» The corporate culture here truly balances the interests of customers, Dividend Yield: n/a
employees, and clients. Return on Equity: 12.2%

$550
Debt/Equity: 23.6%
Recent Price: $360.25
$500
Intrinsic Value: $540.00
$450
Risk Rating: Medium/Low
$400
Buy Below: $450.00
$350
Data as of 8/7/08
$300
8/06 8/07 8/08

What’s better than getting a 33% upside on a company Markel’s values and incentive structures are designed to
valuation? How about nearly 50%? Markel (NYSE: MKL) make sure the best interests of each stakeholder align neatly
was at its cheapest in 10 years when I recommended it just with the next. This has created a culture of accountability
two months ago — and now it’s even cheaper. Were it not rarely seen at the corporate level these days. We see the
for The Motley Fool’s trading rules, I’d already have bought effects of this everywhere in the business — savvy under-
more for my own portfolio. writing, steady relationships with critical suppliers, long and
I’ve followed Markel for years and have written exten- distinguished management tenures, and so on. I strongly
sively about the company, so I won’t spend much ink on the believe this is an organization that is built to last.
information you’ll find in the July 2008 issue and my full It may sound like rhetoric. But a shrewd pairing of
report, “Remarkable Markel,” both available on our website. employee incentives and a consistent reinforcement of
Today I’m focused on the two main factors that set fantastic core philosophies has led the Markel Style to permeate the
insurance companies apart from the rest: management and company — not just in management, but in each and every
corporate culture. employee, best we can tell.
Management, Markel-Style
Valuation
Look no further than Warren Buffett at Berkshire
I have no reason to change my valuation of $540 per
Hathaway (NYSE: BRK-B) to see what great management
share. Book value per share (stockholders’ equity divided
and culture can do for insurance companies. (It also helps to
by shares outstanding) has declined 5% to $252 since Dec.
be really, really smart.) To their credit, the folks at Markel
— which has modeled itself after the Nebraska behemoth — 31, 2007. The change reflects declines in the market value of
have placed a premium on strong leadership and a corporate its portfolio, but it doesn’t affect the long-term prospects for
culture they can be proud of. Markel — or my valuation. In fact, I expect chief investment
officer Tom Gayner to pick up some pretty cool bargains in
Creating a corporate culture is relatively easy, but making today’s equity market that will juice returns to shareholders.
it the heart and soul of an organization is a much greater I recommend you buy below $450.
challenge. Markel management eats, breathes, and sleeps
the so-called “Markel Style,” which emphasizes certain core The Foolish Bottom Line
elements: a zealous commitment to success, fair and honest
It’s rare to find a company whose core attributes bear such
dealings with its stakeholders, a pledge of shareholder value
remarkable parallels to Berkshire Hathaway. To find them so
creation, respect for suppliers, and dedication to local com-
undervalued is not something to let pass you by. Don’t.
munities (among others). It doesn’t hurt that Markel’s six
most senior executives have a collective tenure of more than Philip owns shares of Markel and Berkshire Hathaway.
120 years, giving the company’s traditions some deep roots. The Motley Fool owns shares of Berkshire Hathaway.

2 Motley Fool Inside Value September 2008 insidevalue.fool.com

 CarMax (NYSE: KMX)
By Michael Olsen
CarMax is the largest used-car retailer in the United States. Headquarters: Richmond, Va.

Why Buy: Website: www.carmax.com

»» The company has unrecognized earnings power.
»» Enormous growth potential gives it an edge over other used-car companies.
»» A uniquely customer-friendly business model keeps consumers coming
back for more.
Market Cap (in millions): $3,213.1
P/E: 22.5
Dividend Yield: n/a
Return on Equity: 10.2%

$30
Debt/Equity: 20.5%
Recent Price: $14.58
$25
Intrinsic Value: $23.00
$20 Risk Rating: Medium/High

$15
Buy Below: $16.00
Data as of 8/7/08
$10
8/06 8/07 8/08

In the nearly three years since CarMax (NYSE: KMX) Roughly half of CarMax stores are less than five years
drove into Inside Value’s recommendation lot, the used-car old, so they have a ways to go until they match the sales and
giant has grown sales by almost 40% and store count by earnings potential of their more mature counterparts. But as
newer stores grow their customer base and more shops open
46%, dramatically upgrading its potential. Yet the shares sit
just a notch above our original recommendation price. up in a given market, per-unit costs decline and margins
The culprits are standard these days: weak consumer expand. At today’s prices, CarMax shares are selling like
spending and the credit crunch, which have wrecked results they’re the new kids on the block — and that’s a very good
recently. But we’ve given this company a close inspection thing for value investors.
— and we still love what we see. Valuation and Risks
A No-Haggle Thesis It’s no secret that times have been tough for CarMax, but
we think much of the pessimism is already priced into the
We all have an impression of the stereotypical used-car
shares, providing an excellent buying opportunity. Down
salesman — slick, thickly mustachioed, and all about the
the road, we estimate 15% store growth after fiscal 2010
pressure. Not here. Commissions for CarMax staff aren’t
and operating margins swelling to the high 4% range. After
tied to the size of each sale, and prices are fixed. Without
taking into account near-term economic woes, recently
the customary conflicts of interest, customers are eased into
reduced store openings, and weakness in its financing divi-
a painless experience at CarMax’s 98 stores in 46 markets.
sion, we value the shares at $23.
It must be working — the company sold almost 600,000
Even with the negatives seemingly priced in, though,
cars last year. Yet there’s still huge opportunity here: In
things could get worse in these turbulent economic times.
2005, the Department of Transportation estimated the
Any number of macroeconomic factors may hit results —
number of U.S. passenger cars at 137 million and used-car
and share prices — harder than expected. Because CarMax’s
sales at 44 million. CarMax planned 15% annual growth for
financing division comprises a decent chunk of our valuation,
several years, and although it’s reduced planned openings
higher-than-anticipated defaults may cause us to lower it.
in the near term, its long-term prospects stand. We’re nor- Also, CarMax has an aggressive growth strategy. We believe
mally skeptical of management estimates, but this time, we it can get there, but such an approach carries practical limits
believe they may prove conservative across the long term. and execution risk. Failure to deliver quarter after quarter
CarMax plots information for every car on its lot against would certainly put a dent in our valuation estimate.
all kinds of variables, including buying trends and tastes
and selling prices. This creates a sophisticated inventory The Foolish Bottom Line
management system that makes sure the number of cars on The opportunity to buy a first-class franchise with unbe-
the lots are on target, and it’s also extremely valuable in lievable growth potential at value prices makes CarMax a
determining resource allocations and new store openings. rare model. We recommend you start your position now.

insidevalue.fool.com September 2008 Motley Fool Inside Value 3

 Chesapeake Energy
Annual Review: 13 Standout Stocks Recent Price Buy Below Intrinsic Value Risk
$45.11 $48 $70 Medium/High

We believe in all the companies on the Inside Value The reasons we first liked Chesapeake Energy (NYSE:
scorecard, but we only have room here to talk about the CHK) — reserve-growth potential, geographically concen-
best of the best — our vice admirals. Our complete report trated assets, and inside ownership — haven’t changed. But
card starts on page 7. the valuation has — to the upside, thankfully. That’s not to
say it’s any less compelling as an investment, though. Energy
American Express companies staged a torrid run in the past year; many doubled
as gas prices rose. While many companies’ fundamentals
Recent Price Buy Below Intrinsic Value Risk
haven’t changed, Chesapeake’s have — and that’s good.
$36.40 $45 $63 Medium/Low
Since our initial recommendation in December 2006,
The fact that American Express’ (NYSE: AXP) share price the company has increased its proven reserves (a key store
has dropped since we first recommended it is great news, as of underlying value) at a blistering 45% rate. Meanwhile,
we believe that this solid franchise will reward shareholders the stock price has increased by roughly the same measure,
for years to come. In fact, if we had room in our fleet for even as natural gas prices have shot up. That makes for a
three admirals, AmEx would have earned a promotion. certain disconnect, from a valuation standpoint.
The short-term scare is rising charge-offs on loans made That, along with all the things we first liked about
to U.S. consumers and the company’s belief that the higher Chesapeake, keeps us intrigued. We like its unrealized
rates will continue at least through 2008. Also, AmEx went asset value, CEO Aubrey McClendon’s knowledge of the
back on earlier guidance calling for 4% to 6% earnings- industry, its prowess as a driller, its skill in capital alloca-
per-share growth and declined to give a new estimate. If tion, and its savvy as a dealmaker. Though share prices
all of this sounds like a short-term focus, that’s because may swing with natural gas prices, we believe the stock
it is. AmEx revenue depends a lot more on income from represents a solid value below $48.
transactions than on consumer loans, and as the charge-offs The Home Depot
eventually revert to long-term averages, the share price will
Recent Price Buy Below Intrinsic Value Risk
rise back to former levels as well. For now, we see no reason
to lower our valuation — although we’ve lowered the buy- $24.48 $30 $40 Medium
below price to $45 and moved the risk rating slightly higher Having missed the rapid rise of The Home Depot
to reflect today’s market. (NYSE: HD) in the early 1990s, we thought the share price
decline in the first half of 2005 offered us a second chance
Berkshire Hathaway to become owners. Unfortunately, the significant downturn
in the housing market has hit operations pretty hard, and
Recent Price Buy Below Intrinsic Value Risk
consequently its valuation has been bruised a bit, too.
$3,854.00 $4,200 $5,050 Low
Does anyone believe in third chances? We do.
In the financial want ads, you might find a placement
The stock is down 37% from its 52-week high, giving
from Warren Buffett: $35 billion in cash looking for dis-
us another chance to buy at a great price. Under the guid-
tressed assets selling at pennies on the dollar. He could add
ance of relatively new CEO Frank Blake, the company is
billions in annual free cash flow as an investing sidekick,
improving its business by closing underperforming stores,
too. Berkshire Hathaway (NYSE: BRK-B) is almost the
cutting back on new store openings, beefing up its in-store
anti-financial company these days — while many finan- signage and product availability, and investing heavily in
cial companies need to raise money to stave off a liquidity customer service and store maintenance. With an intrinsic
crisis, Berkshire is rolling in cash. value of $40 and a dividend yield of 3.7%, we believe
In this market, we can expect Berkshire to report a drop that investors will be rewarded for waiting out the turn in
in the value of its equity holdings, and many of its oper- housing. Buy below $30.
ating companies will report lower earnings — particularly Legg Mason
those related to housing. But like the master himself, we
are in for the long haul, and over time we think this stock Recent Price Buy Below Intrinsic Value Risk
will still add tremendous value. Berkshire Hathaway $39.25 $60 $87 Medium/High
rarely trades 20% below estimates of intrinsic value, and The story of three-time IV recommendation Legg Mason
you should consider adding a share or two under $4,200. (NYSE: LM) has become a wearisome tale. The legend

4 Motley Fool Inside Value September 2008 insidevalue.fool.com

of fund manager Bill Miller’s 15-year winning streak
has been replaced by dreadful underperformance from
its flagship franchise, Legg Mason Capital Management;
practically nonstop capital raises to support Western Asset
Management’s structured investment vehicle exposure; and
ongoing outflows from its funds. In painful capital markets,
these factors have sent stock prices to a five-year low.
Legg’s near future will certainly be an adventure, but
we’re excited for the next chapter. The company’s man-
agers are an experienced bunch with battle-tested philoso-
phies. All investors suffer bouts of underperformance, and
Legg’s ranks are still populated by some of the keenest
investment thinkers out there.
We expect the very process — and resourcefulness — that
contributed to Legg’s previous outperformance to lead its
return, even if it doesn’t quite recreate the dramatic days of
yore. The shares are dirt cheap — at roughly 0.6% of assets
under management — and we’re confident that Legg’s next
story line will be a good one. Buy below $60.
Lloyds TSB
Recent Price Buy Below Intrinsic Value
$24.50 $32 $45
The profits announced in Lloyds TSB’s (NYSE: LYG)
recent half-year earnings report came in at the lower end of
our expectations. Add to this a slowing U.K. economy that
could possibly slip into a recession, and we are lowering
our medium-term growth expectations.
We consider Lloyds one of the most conservatively run
banks, but no bank is immune from current pressures in
the financial markets. Still, we don’t see Lloyds having to
raise money to maintain its capital ratios, and the recent 2%
increase in the interim dividend confirms management’s
confidence. Additionally, the bank intends to hold marked-
down investments to maturity, which means that much of
the charges could be reversed down the line
We lowered the valuation to $45 and the buy-below to $32
and upped the risk rating to medium to reflect today’s market.
In the meantime, Philip, a proud shareholder, is enjoying the
huge dividend yield — and we think you should too!
its highs when we first recommended it in October 2007
— is down almost 20%. We call this an even better buying
opportunity. The financial bubble took company earnings
into the stratosphere, and the subsequent pop left them
slipping. Today, McGraw-Hill seems to be stabilizing at
more sustainable earnings levels. We loved the diversi-
fication and revenue from its publishing and non-ratings
financial services a year ago, and now they’ve given the
company strength even as the ratings market dissolved.
And as one of the big three ratings agencies, McGraw-Hill
will see its ratings business pick up when the financial
markets recover. Ratings revenue is likely to bounce as
the credit markets even out over the next few months or
longer, and we’re comfortable with our valuation assump-
tions. With revenue shoring up, we believe McGraw-Hill
makes a good long-term investment. Buy below $45.
Microsoft
Recent Price Buy Below Intrinsic Value Risk
$27.39 $28.50 $36 Low
Microsoft (Nasdaq: MSFT) had a lot going for it when
Risk
we first recommended it in November 2005: a highly touted
Medium Vista launch, continued dominance from its Office fran-
chise, SQL Server’s success, and Xbox 360 taking gamers
by storm. The company’s utter ubiquity made it a no-brainer
to underscore our conviction by re-recommending the stock
twice. Cut to the present, and the plan has been fulfilled:
Phenomenal Vista, Office, and SQL Server launches have
propelled Microsoft’s profits to record heights.
But too often, good comes with bad: an on-again/off-
again Yahoo! (Nasdaq: YHOO) courtship, concerns over
the economy, and consistent panning of Vista (despite its
financial success) have pushed share prices to levels down
near our initial recommendation prices. A Yahoo! acquisi-
tion is risky, and Vista sales might slow with the economy.
But today’s share price factors in those negatives and
more — Microsoft shares have been brutally and unduly
discounted. Though longer-term threats to Microsoft’s
dominance linger, the company’s inextricable ties to com-
puting are intact. Buy below $28.50.

McGraw-Hill Nasdaq OMX Group

Recent Price Buy Below Intrinsic Value Risk Recent Price Buy Below Intrinsic Value Risk
$41.95 $45 $64 Medium $31.40 $33 $43 Medium/High
As the financial markets continue their mighty kaboom, If you were to plot Nasdaq OMX Group’s (Nasdaq:
McGraw-Hill (NYSE: MHP) — which was already off NDAQ) year on a chart, it would look like, well, the Nasdaq

Motley Fool Inside Value™ (ISSN: 1551-9902 print version, 1553-0884 online version) is published monthly by The Motley Fool, Inc., 2000 Duke Street, Alexandria, VA 22314. Application to mail at Periodical
rates is Pending at Alexandria, VA and additional mailing offices. POSTMASTER: Send change of address to: Motley Fool Inside Value™, 2000 Duke St., Alexandria, VA 22314. Phone (toll-free): 1-888-665-
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Ursula Dimmling, Designer: Sara Klieger, Business Manager: Kate Ward, Distribution Manager: Barry Chambers, CEO: Tom Gardner. Subscription $199 per year. © Copyright 2008 by The Motley Fool, Inc. All
rights reserved. Photocopying, reproduction, quotation, or redistribution of any kind is strictly prohibited without written permission of the publisher. Motley Fool Inside Value™ bases recommendations
and forecasts on techniques and sources believed to be reliable in the past and cannot guarantee future accuracy and results. The Motley Fool is a company of investors writing for investors and, as
such, its analysts may own stocks mentioned in the Inside Value newsletter. The Motley Fool, Fool, and Foolish are registered trademarks of The Motley Fool, Inc. For a complete list of stocks owned
by any Motley Fool writer or analyst, please visit http://www.fool.com/help/disclosure.htm. Unless otherwise indicated, the authors do not own shares of the companies discussed in this issue.

insidevalue.fool.com September 2008 Motley Fool Inside Value 5

— up, down, up, down, and down some more. After ap-
preciating nicely since our recommendation in May 2007,
the stock has fallen about 37% from its high in December.
When we originally recommended the stock, its depressed
valuation was one of the things we loved about it — and we
now find ourselves with the same opportunity.
Nasdaq has always had a strong competitive position, but
after the acquisition of OMX, the Philadelphia and Boston
Stock Exchanges, and the Nord Pool, the company is in a
great position to capture trading volume and increase its
share of the new listings market. Management should make
business even better with a few significant cost cuts — done
right, savings should exceed $150 million annually.
A sustained bear market is the biggest risk to Nasdaq’s
valuation, but we believe the risk/reward relationship is
favorable at these levels. Accordingly, we are bumping up
our intrinsic value estimate to $43. Buy below $33.
Sears Holdings
Recent Price Buy Below Intrinsic Value Risk
$88.42 $100 $170 High
We’ve been careful to note that an investment in Sears
(Nasdaq: SHLD) isn’t based on the success of its retail opera-
tions. It’s an investment in the value of the company’s various
assets and Chairman Eddie Lampert’s ability to squeeze great
value out of them. It can be tough to stay disciplined as we
watch Sears’ retail business struggle and hear questions about
its ability to make money — but we encourage patience. We
think Sears has enough liquidity to weather this storm (about
$3.8 billion, as of last quarter’s end).
More important, there’s still serious value in Sears’ assets
— specifically in its real estate and brands. We also believe
that Sears’ new operating model, which calls for each divi-
sion to be independently managed, will do its part to unlock
this value over time.
We’re lowering our valuation to $170 to account for
disappointing retail results. Nonetheless, we find the stock
quite compelling: They currently trade below our estimate
of its real estate assets’ value — let alone any other pro-
spective value sources. We heartily recommend purchase
below $100. its rock-solid moat: You can’t mass produce quarries. Our
opinion of the company is rock-solid, too, even in the face
Starbucks of housing troubles, a potential slowdown in commercial
Recent Price Buy Below Intrinsic Value Risk building, higher fuel prices, and the credit crisis — all risks
$14.52 $19 $28.50 Medium/Low on some level for a building materials company.
Since we recommended Starbucks (Nasdaq: SBUX)
just a few months ago, the company has been pinched by
rising commodity costs and crimped consumer spending.
The result is declining same-store sales and an immediate
earnings future that looks pretty bleak. Under the leadership
of newly returned CEO Howard Schultz, the company has
dramatically slowed new store growth in the United States
and announced the closure of 600 U.S. stores.
The cut in capital expenditures and the focus on more prof-
itable stores should significantly boost Starbucks’ free cash
flows, so we’re sticking with our valuation. International
expansion was always the major growth driver here, and
once the U.S. economy gets a bit stronger, the company
should reap the full benefits of its reorganization. Starbucks
will never be the powerhouse 20%-plus earnings-per-share
grower it once was, but it’s still a premium brand with
considerable growth runway ahead.
UnitedHealth Group
Recent Price Buy Below Intrinsic Value Risk
$29.16 $39 $56 Medium
When we first recommended UnitedHealth Group
(NYSE: UNH) in June 2006, the company was rushing
toward a 52-week low on a steady stream of bad headlines:
an options backdating investigation, restated earnings, and
multiple lawsuits. It was a good entry point for us. The bad
news faded, and UnitedHealth recovered on strong earnings
and cash flow.
Recently, storm clouds have gathered over the entire
health insurance industry, which — like all insurance —
goes in cycles. Hard cycles see increased earnings, more
business, and premium income exceeding claim payouts by
high margins. Health insurance now is transitioning to a soft
cycle with higher medical care costs, difficulty matching
premium prices to costs, and lost business.
UnitedHealth is not alone — the whole sector is suffering.
Yet our investment thesis is the same, and we’re confident
the cycle will turn. UnitedHealth is still the largest insurer
and can leverage its costs, making it a tough business com-
petitor and helping it turn a profit (and then some, perhaps).
Buy below $39.
Vulcan Materials
Recent Price Buy Below Intrinsic Value Risk
$68.20 $67 $90 Medium/Low
We pegged Vulcan (NYSE: VMC) just last month for
But we see little reason to fret. For one, we believe the
shares have already been discounted to reflect these risks.
And Vulcan isn’t just housing and commercial construction
— it supports a critical need in this country: infrastructure.
Bridges, roads, and railways are vital to our economy’s
health. For that reason alone, spending should grow by

6 Motley Fool Inside Value September 2008 insidevalue.fool.com

leaps and bounds. Having a position in some of the fastest- consigned to a miserable fate because of an ongoing lack
growing economies helps, too. of information that makes it impossible for us to accurately
It’s hard to imagine a circumstance where Vulcan’s com- determine its value.
petitive edge — or pricing power — will dull. Even with Pay close attention to the risk rating listed with each
shares trading a bit above our buy-below, it’s a great time to company as you make your investing decisions. Considered
build a position in Vulcan. Buy below $67. along with the cheapness of a given company, the risk rating
could be the last piece of the puzzle as you decide where
An Explanation of Our Report Card to put your money. And remember to buy in thirds — in
Here at Inside Value, we award the admiral rank to our today’s market, these stocks may get even cheaper!
most respected stocks — those we believe in so strongly
that we’re confident in re-recommending them. As re-recs, Philip owns shares of Berkshire Hathaway, Chesapeake
they will be tracked on our scorecard. This year’s 13 vice Energy, CarMax, Markel, Lloyds, Legg Mason, and
admirals represent our recommendations for new money Starbucks. Michael owns shares of Chesapeake, McGraw-
now — after the admirals, of course. Hill, Microsoft, and UnitedHealth. Jean owns shares of
McGraw-Hill. Ron owns shares of Berkshire Hathaway.
Farther down the list, you’ll find our captains — typi-
The Motley Fool owns shares of American Express,
cally, companies we’d really like if they were just a little
Berkshire Hathaway, Legg Mason, and Starbucks.
cheaper. Right now, some of our captains are indeed selling
above their buy-belows. Yet many of the captains are good
buys just as they are and don’t need to get cheaper before Average Returns
we’d buy — but for the reasons spelled out in the previous
section, we prefer the vice admirals.
Philip’s Returns 7.12%
Next we have the lieutenants, which are our least favorite
stocks right now — either because they’ve run up to a share
price that’s close to our valuation or because they haven’t S&P 500 3.35%
fully demonstrated our investment thesis yet. We’re recom-
mending that you hold these if you own them.
0% 2% 4% 6% 8% 10% 12%
And finally, the dreaded brig. Just one company landed
Since inception, includes sold positions. As of 8/8/08.
here this year — First Marblehead (NYSE: FMD) —

Inside Value Report Card

Company Recent Price Buy Below Intrinsic Value Buy/Hold Risk Level Issue Date
Admirals Markel $360.25 $450.00 $540.00 Buy Med/Low July 2008
CarMax $14.58 $16.00 ↓ $23.00 ↓ Buy Med/High January 2006
Vice Admirals American Express $36.40 $45.00 ↓ $63.00 Buy Med/Low April 2008
Berkshire Hathaway $3,854.00 $4,200.00 $5,050.00 Buy Low October 2006
Chesapeake Energy $45.11 $48.00 $70.00 Buy Med/High December 2006
The Home Depot $24.48 $30.00 $40.00 Buy Med June 2005
Legg Mason $39.25 $60.00 $87.00 Buy Med/High Dec. ’06, Jan. ’08, June ’08
Lloyds TSB $24.50 $32.00 ↓ $45.00 ↓ Buy Med November 2004
McGraw-Hill $41.95 $45.00 $64.00 Buy Med October 2007
Microsoft $27.39 $28.50 $36.00 Buy Low Nov. ’05, June ’06, Sept. ’06
Nasdaq OMX Group $31.40 $33.00 ↑ $43.00 ↑ Buy Med/High May 2007
Sears Holdings $88.42 $100.00 ↓ $170.00 ↓ Buy High December 2007
Starbucks $14.52 $19.00 ↓ $28.50 Buy Med/Low March 2008
UnitedHealth Group $29.16 $39.00 $56.00 Buy Med June ’06, Sept. ’06, Aug. ’08
Vulcan Materials $68.20 $67.00 $90.00 Buy Med/Low August 2008

Data as of 8/7/08. ↑ indicates an increase. ↓ indicates a decrease.

The Motley Fool owns shares of American Express, Bed Bath & Beyond, Best Buy, Berkshire Hathaway, Legg Mason, and Starbucks.

insidevalue.fool.com September 2008 Motley Fool Inside Value 7

 Company Recent Price Buy Below Intrinsic Value Buy/Hold Risk Level Issue Date
Captains 3M $71.18 $77.00 $92.00 Buy Med/Low August 2005, March 2006
Administaff $27.64 $36.00 $46.00 Buy Med April 2007
American Reprographics $17.01 $20.00 $28.00 Buy Med/High November 2007
Bed Bath & Beyond $28.53 $35.00 $45.00 Buy Med/High August 2006
Best Buy $40.43 $48.00 $60.00 Buy Med/High August 2007
Borders Group $5.33 $7.00 ↓ $14.00 ↓ Buy High February 2007
Brookfield Infrastructure $17.65 $20.00 $25.00 Buy Med/Low April 2008
Corporate Executive Board $37.59 $55.00 $78.00 Buy Med January 2008
Discover Financial $14.29 $18.00 $27.00 Buy Med September 2007
Dr. Pepper Snapple Group $21.07 $25.00 $33.00 Buy Med/Low October 2007
Federated Investors $30.84 $33.50 $44.50 Buy Med April 2005
First American $22.85 $29.00 ↓ $45.00 ↓ Buy Med/High October 2004, April 2006
Jack in the Box $23.65 $28.00 $38.00 Buy Med July 2008
Jackson Hewitt $15.49 $18.00 $30.00 Buy High November 2007
Limited Brands $17.10 $20.00 ↓ $28.00 ↓ Buy Med August 2007
Marsh & McLennan $29.43 $30.00 $42.00 Buy Med/Low June 2007
Moody’s $37.86 $41.00 $58.00 Buy Med February 2008
Pfizer $19.21 $19.00 $27.00 Buy Med/Low March 2005
Quest Diagnostics $54.44 $54.00 $68.00 Buy Med/Low May 2007, July 2007
SAIC $18.82 $19.50 $25.00 Buy Med/Low March 2007
Thomson Reuters $33.05 $39.00 $51.00 Buy Med/Low June 2008
USG $26.50 $39.00 $52.00 Buy Med/High Jan. 2007, Sept. 2007
Waste Management $35.01 $39.50 $49.50 Buy Med/Low June 2007
WellPoint $53.94 $54.00 $80.00 Buy Med May 2008
Lieutenants Accenture $41.67 $35.00 $45.00 Hold Med July 2005
Advance America $5.59 $5.50 $9.50 Hold High October 2005
Builders FirstSource $4.89 $4.50 $10.50 Hold High March 2007
Cadbury $47.50 $43.00 $56.00 Hold Low October 2007
Carter’s $17.92 $15.50 ↓ $22.00 ↓ Hold Med/High April 2007
Coca-Cola $54.01 $48.00 $60.00 Hold Low January 2005
Covidien $51.78 $45.00 ↑ $60.00 ↑ Hold Med December 2005
Dell $24.99 $23.00 $32.50 Hold Med/Low Feb. 2006, March 2006
Diebold $37.51 $35.00 $50.00 Hold Med/High December 2005
Endurance Specialty $32.08 $27.00 ↓ $40.00 ↓ Hold Med/High February 2005
Intel $23.67 $20.50 $26.00 Hold Med/Low April 2006
ITT $66.74 $63.00 $84.00 Hold Med May 2008
Printed on Rolland Enviro100.

Metavante Technologies $22.31 $22.00 $28.00 Hold Med/Low February 2008

Omnicare $29.23 $22.00 $30.00 Hold Med/High January 2007
Rent-A-Center $22.24 $18.00 $25.00 Hold High November 2005
Sprint Nextel $7.79 $10.00 $17.00 Buy Med/High December 2007
Teleflex $63.29 $61.00 $76.00 Hold Med August 2006
Tyco Electronics $33.43 $32.00 $42.00 Hold Med December 2005
100%

Tyco International $43.48 $37.00 $49.00 Hold Med December 2005

Wal-Mart $56.96 $54.00 ↑ $68.00 ↑ Hold Low May 2006
Western Union $26.72 $25.00 $33.00 Hold Med/Low Dec. 04, Sept. 05, Nov. 06
The Brig First Marblehead $2.74 N/A N/A N/A N/A July 2007

8 Motley Fool Inside Value September 2008 insidevalue.fool.com