DJIA:12217.56 · S&P500:1257.60 · Russell 2000:740.92

January 2012

"It may be just the antidepressants, but I'm feeling a bit more optimistic about the market in 2012."
- Overheard in the Financial District

For Wall Street, 2011 probably wasn't worth the cost of car fares and clean shirts. We experienced an unprecedented level of volatility, but the market finished the year nearly exactly where it started.

Investors are caught in a game of economic "Whack-A-Mole": Europe, Double-Dip, Congressional ineptitude. Bad news just keeps popping up. Last year investors took more than $130 billion out of stock mutual funds. In reality, current economic indicators are showing marked improvement. Inflation, unemployment, manufacturing and corporate earnings are all headed in the right direction. But, nobody believes it!

A few years ago my students and I visited with Warren Buffett in Omaha. He told us to "Be fearful when people are greedy, be greedy when people are fearful." It's hard to argue that investors aren't fearful right now.

BURKENROAD REPORTS continues to attract national media attention and serves as a valuable career springboard for Tulane students. Since the inception of this academic program, more than 550 students have moved on to positions in investment related fields.

Our students at BURKENROAD REPORTS meet top management, visit company sites, and publish investment research reports on 40 "stocks under rocks" in Louisiana, Texas, Mississippi, Alabama, Georgia, and Florida. The in-depth research reports, video presentations, and conference registration information are available at www.burkenroad.org.

SAVE THE DATE Please join us for our 16th Annual BURKENROAD REPORTS Investment Conference on Friday, April 27, 2012, at the Westin Hotel in New Orleans. This popular event is free and open to the public and provides individual and institutional investors an opportunity to meet management and to learn more about some of the region's top public companies. Click here to register.

On the Sunny Side of the Street
It truly was a stock picker's market. Conn's Appliances and convenience store owner Susser Holdings topped our list, enjoying the benefits of a resurgent consumer and the relative strength of their core markets of Texas, Oklahoma, and Louisiana.

This year the only energy company enjoying top-tier returns was Hornbeck Offshore. The operator of deepwater service vessels tumbled when drilling came to a halt after the BP oil spill. Activity in the deepwater however, has since rebounded and the stock has more than doubled from its April 2010 lows.

Company	2011 Return	Business
Conn's Appliances	+137%	Retail Electronics
Susser Holdings	+ 63%	Convenience Stores
Hornbeck Offshore	+ 49%	Oilfield Services
Pool Corporation	+ 36%	Pool Products
Amerisafe	+ 33%	Insurance
CLECO	+ 28%	Regional Utility

The Groom's Still Waiting at the Altar
Merger & Acquisition activity appears set to soar, and this is good news for investors. Stock valuations are historically cheap, and interest rates are near record lows. Deals are likely to come from three sources: Strategic Acquisitions, Private Equity, and International Buyouts. There is now a record $2 trillion in corporate coffers, and companies that have been conservatively hoarding cash find themselves as attractive targets.

Corporate earnings are at all-time highs and stocks are selling at historically low levels. The current environment is ripe for more. It's also important to note that small-cap stocks have usually been bought out at higher premiums than their large-cap brethren. We've had 26 of our BURKENROAD REPORTS companies bought out since we started the program in 1993. This fall, ceiling fan and lighting distributor Craftmade International was bought out at a 73% premium by rival Litex Inc.

Honey, They Shrunk the Market!
Stocks are getting scarce. In 2011 public companies in the United States re-purchased $397 billion of their own stocks while issuing only $169 billion of new equity. And why wouldn't they. Stocks are selling at PE's about 20% less than the average level since 1960, and ten-year treasuries are yielding just two percent. Companies are using the debt market to shrink their share base. When management believes their shares are under-valued these moves are an efficient balance sheet tool.

At some point economic growth will return and stabilize. When this happens investors are going to begin noticing that there simply are not enough shares around. Buyouts and share buy-backs will also provide upside leverage to share prices when investor confidence returns.

Classical Gas
Energy has become a truly bifurcated market. Although oil prices rose and closed the year at near $100 per barrel, natural gas prices have sunk like a rock. A barrel of oil produces about 6 times the energy as a thousand cubic feet of natural gas, but now sells at 30 times the price. Compared to crude oil-based fuels, natural gas is cheaper, greener, and is nearly entirely domestically produced. It can be used to heat homes, generate electricity, and to power cars. Louisiana is the nation's second largest producer of natural gas, and longterm we are bullish on the outlook for natural gas and natural gas-relatedstocks.

What's Up Down Here?
Young people have flocked to New Orleans. Newcomers and natives alike have developed hundreds of tech startups and social entrepreneurship ventures. I now co-host a weekly radio show/podcast interviewing the inspiring people developing businesses in the area (www.itsneworleans.com).

The Wall Street Journal credited New Orleans with having the nation's "Most Improved Business Climate," and Forbes called the New Orleans Metro area "America's Brain Magnet."

We would like to thank Aaron Selber and the Burkenroad family for their continued generosity and encouragement through both bull and bear (and even sideways) markets.

STAY OPEN.

Peter Ricchiuti
Founder & Director of Research
BURKENROAD REPORTS