Grow Your Portfolio the Intelligent Way

October 2006 Issue

By Richard C. Young

The Spirit Sound Factor…

It was late September 1959. We were driving south toward Spatz’s Show Bar in Hamilton, Ohio, when I first heard George Tomsco and The Fireballs
record “Torquay.” Could’ve driven off the road. The guitar sound knocked me out. How did
they get it? Well, it would be well over four decades for me to get the complete answer. I had been poking around for a few days getting set to write
to you this month. And you can imagine my surprise when my office told me that George Tomsco was on the line for me. How did The Fireballs get that distinctive
sound was my obvious first question for George. The answer lies, according to George, in “The Spirit Sound Factor,” created at the legendary
Norman Petty Studios in Clovis, New Mexico.

Ampex, Altec & McIntosh

George told me that all the musicians in Clovis loved Norman’s early recording chamber sound, but nobody, including Norman, could exactly explain
why. George continued, “The most awesome impressive memory I have in the music business is hearing our first playback through Norman’s Ampex/Altec/McIntosh
control room equipment. It was absolutely stunning. I honestly questioned for a split second … Is that really us? Cool doesn’t even begin
to describe it!”

Norman Petty’s Sound Chamber

Norman Petty’s early live recording room chamber was housed under the triangular attic space above “Pa Petty’s” auto repair
garage. Buddy Holly’s father, like Buddy, a brick and tile mason, helped Norman tile the recording chamber with all kinds of shapes and sizes,
but all of it “hard surface tile” for sound deflection. For some unknown reason, even to Norman, the recording chamber ended up naturally
harmonically tuned to the key of A. As George told me, this little Spirit Sound factor was probably the key to the success of so many early Norman Petty
master recordings, including, of course, those of The Fireballs and Buddy Holly & The Crickets.

George Tomsco and The Fireballs

The Fireballs sound was indeed unique. It first came to the attention of Rock & Roll America with the release of the recordings “Torquay” and “Bulldog.” Well
known only to serious collectors is the work George and the group did in its 1963 overdubbing of Buddy Holly’s original “Peggy Sue Got Married” (also
a great movie) and “Crying, Waiting, Hoping.” Buddy originally recorded these terrific songs in his New York apartment from December 1958
through January 1959. When Norman Petty got control of the master tapes in 1962, he asked The Fireballs to add new instrumental backing tracks. To this
day, the basic, but oh-so-distinctive, guitar sound the group got with George Tomsco’s white Fender Jazzmaster Guitar and Norman Petty’s
vintage vacuum tube audio equipment and sound chamber has not been recreated. George ended by saying, “I still believe in 100% analog when I have
a chance.”

Simple is Sophisticated

Simple is Sophisticated is about as strong a theme as I can emphasize for you in these letters. George Tomsco and Norman Petty were late-1950s/early-1960s
masters of the simple yet sophisticated approach.

I’ve come up with a brand new Simple is Sophisticated (S/S) feature for you. At Young Research, we use a set of price charts as a tool
in putting together our in-house Retirement Compounders roster. To make our initial list, each company must pay a dividend, be basic and easy to understand,
and be priced at a reasonable value.

We’ve been real happy with the numbers from our Retirement Compounders list. Last year, the Retirement Compounders provided a total return of
9.56% (unaudited) versus the S&P 500’s 4.3% and the NASDAQ’s 1.4% returns. So far in 2006, the Retirement Compounders have returned 10.87%
(unaudited) versus the NASDAQ’s negative 1.8%.

Young Research’s Retirement Compounders

My standard advice is to trade infrequently and think long term to allow the power of compound interest to do its work for you. Yet, I know that there
are those of you who have a timeframe in mind that is a bit shorter than my often decade-or-two timeframe. So what I am going to do is give you a single
stock idea on an ad hoc basis. The stock will come from Young Research’s Retirement Compounders and will be advised with the idea of a timeframe
involving quarters rather than many years. Our four-chart set (shown here) will be your guide. With each special stock idea, I’ll explain the charts
in detail.

From time to time, I will include my one-stock idea It will not be a regular feature. Timely updates will be posted on the Intelligence Report website
when changes are necessary, such as a sale. That way, you will be covered between issues. If we both like the way my new idea plays out, I may continue
it in the future. So here we go.

Elegant In Its Simplicity

Simple is Sophisticated is a nice guide/motto for my brand-new single-stock program. It’s simple for you to understand and use and sophisticated
in the methodology behind it. And did I mention expensive? Not for you, but it is for Young Research. The databases alone cost over $17,000 per year,
and that’s before staff time, including any in-house programs or tinkering with the basic databases. This sophisticated work will give you an end
product that is indeed elegant in its simplicity for the end user—you!

#1 Wrigley

So, we begin with the world’s biggest gum manufacturer. Since 1981, the Wrigley family has concentrated its efforts on a single line of business—chewing
gum. Wrigley (NYSE: WWY) accounts for approximately 40% of worldwide gum sales. In 2005, new products accounted for 17% of total sales,
compared to a 19% contribution in 2004. The new products target should be higher. Last year, Wrigley diversified a little out of the company’s
basic gum business by acquiring Lifesavers and Altoids from Kraft Foods.

The company is run by family member W. Wrigley, Jr. and includes on the board R.K. Smucker. I much like the Smucker brothers family-run business culture
and can’t think of a better board member. The stable nature of Wrigley’s business sectors, combined with a strong balance sheet and strong
cash flow, appeals to a conservative investor like Dick Young, and I hope to you. I also like the company’s A+ rating as to quality from S&P.
Revenues tend to increase annually, as do earnings. Perhaps best of all is that the Wrigley board likes to take care of shareholders by authorizing annual
dividend increases. I’ve included a bar chart tracking Wrigley’s dividend over the last decade. I think you’ll like the look.

Four-Chart Set Battle Plan

Now let’s look at Young Research’s four-chart strategy set.

Chart #1 shows the actual price of the stock. To make the cut in my new S/S program, I want to see a stock that has taken a nasty hit. In this case,
as you will see, Wrigley has been torched for a 25% reversal. Now Wrigley looks to be basing and recovering. One never knows in advance, of course, whether
or not such basing will actually lead to a meaningful reversal to the upside. But I want to see at least the initial basing and upswing. Wrigley meets
test #1.

Chart #2 shows Wrigley’s stock performance versus the S&P 1500. Here, I am looking at relative performance. Like chart #1, I want to see a
pattern where my given stock has had rotten performance for an extended period, but is now giving an early indication of a reversal. As I outlined for
Chart #1, an initial reversal is no sure indication of a major reversal, but at least some indication of life in the corpse is present. Wrigley passes
test #2.

Chart #3 portrays the year-to-year rate of change. The horizontal boundary lines represent two standard deviations (+ and -). As noted regularly in
my Economic Analysis, the empirical rule is that 95.5% of observations should fall within two standard deviations of mean. Rarely does any stock sell
above or below two standard deviations for any extended time. In my new S/S plan, I’m looking for a stock that has suffered so mightily that the
year-to-year rate of change has approached two negative standard deviations. As you can see, Wrigley’s stock is so far under water that the stock
has collapsed to the empirical rule of two negative standard deviations. Still with me? We are now three for three.

Chart #4 shows stocks that are selling below trend, and the further below trend the better. I’m not necessarily looking for any basing here. I
simply want the relative margin of safety that comes naturally when buying a stock below its long-term trend line. How does Wrigley look? Well, rotten.
The stock is further below trend than at any time in the last two-plus decades. Here’s a stock flat on its back. OK then, no debate on Chart #4.
Wrigley is way below trend and meets test #4.

Wrigley’s Dividends

You just won’t get a much better look from the charts. Now look at Wrigley’s 10-year dividend record in the display provided. Companies
that increase dividends year after year are going to see a long-term increase in the price of their stock. With such a pattern of dividend increases,
you are buttressed with a nice margin of safety.

In the early 60s, I was a broker with my much loved Clayton Securities at 147 Milk Street in Boston’s financial district. Ed Rosenberg, one of
my all-time favorite people in the securities business, ran this little firm. Back then, we all knew a broker named Andy M. Andy was a great guy who
did a ton of business. When asked what he was doing, he smiled and responded, “Well, I’m buying the ones that are going up and selling the
ones that are going down.” Isn’t Andy M’s strategy for stocks really all there is to it? I hope that my S/S plan puts you on track.

Buy Wrigley here at $46.37. What about your upside target and when do you sell? I’m not giving an upside target. Instead, I’m going to look
to sell once the following conditions are in place:

(Chart #1) Actual price data begins to look dangerously toppy. Included here would be a breakdown from the current basing. No doubt, there will be losers
as well as winners. And if Wrigley or any other stock breaks down below its initial basing, it will be a candidate for sale.

(Chart #2) Basically the same plan as for Chart #1.

(Chart #3) An advance in the year-to-year rate of change above the mean, and certainly if two standard deviations on the upside are threatened.

(Chart #4) A move above trend.

So, what do you think? I’ve laid out a clear plan for you. When it’s time to sell, you’ll know. In the interim, I’ll add these
charts to the Intelligence Report website archives so you will have a running inventory.

Retirement Compounders

Given how well Young Research has done with its Retirement Compounders work, I have the utmost confidence that my brand-new S/S plan will offer pleasing
results for you. There are no guarantees, and it would, of course, be just my bad luck to have to sell the first name on my S/S list with a loss. Welcome
to my new S/S program. You should be able to sleep with comfort and bring to your portfolio some Simple is Sophisticated returns over time.

Battle Lines

The WSJ of 27 June 2006 featured an editorial by Mr. Mutual fund Jack Bogle and Burton G. Malkiel, author of A Random Walk Down Wall Street (Norton
2004). Jack is simply the most important contributor to the mutual fund industry in history. BGM’s book is one of a scant handful of investment
books you must read. In JCB and BGM’s editorial “Turn on a Paradigm,” the authors contend the following:
(1) “All the stocks in the market must be held by someone, thus investors as a whole must earn the market return when that return is measured by
a capitalization-weighted total stock market index.” (2) “For every investor who outperforms the market, there must be another investor who
underperforms. Beating the market, in principle, must be a zero-sum game.” (3) “Effective annual costs (to mutual fund holders) are… perhaps
as much as 200 to 250 basis points.” (4) “Purveyors of fundamentally weighted indexes also tend to charge management fees well above the
typical index fund.” (Note: The expense ratio for Vanguard Growth Index and Value Index funds ($100,000 minimum Admiral Shares) is 0.11%.) (5) “All
fundamentally weighted indexes must incur turnover costs to align the weights of
the portfolio with changing fundamental factors.”
(6) “Fundamental weighting also fails to provide
the tax efficiency of market weighting.” (7) “Every method of fundamental indexing tends to overweight smaller capitalization stocks and
so-called value stocks.” (8) “While we have witnessed
many ‘new paradigms’ over the years, none have persisted.”

Messrs. Bogle and Malkiel note that (A) “Eugene Fama and Kenneth French have suggested that higher returns can be generated by indexed portfolios
of stocks with small capitalizations and low price-to-book ratios.” (B) “Robert Arnott has argued that a better method for indexing is to
weight the stocks in the index not by their total capitalization, but rather by certain ‘fundamental’ factors such as sales, earnings and
book value.” (C) “Jeremy Siegel has proposed that the ‘fundamental factor’ should be the dividend that companies pay.” All
three of the above, as JCB and BGM point out, argue that fundamentally weighted indexes represent the “new paradigm” for index investing.

As a matter of reference, I would note that Mr. Siegel, a Wharton finance professor and author of Stocks for the Long Run, is affiliated with
Wisdom Tree Investing, an ETF start-up company. At present, Wisdom Tree’s expense ratios run between 0.28% and 0.58%.

I’ve outlined a series of valuable insights offered by outstanding individuals in the field of mutual fund investing. But as you can see, there
is a debate regarding capitalization-weighted indexing versus fundamentally weighted index exchange traded funds (ETFs). What should you, the individual
investor, conclude? How should you react? What’s your best bet for an index mutual fund program?

It’s Dollars—Not Investors

In a paper on indexing, Young Research’s Jeremy Jones, CFA, notes, “The market is only zero sum if you disregard investors’ objectives,
risk tolerances, liability schedules, and time horizons. Second, even if the market is zero sum, it is not true that for every investor who
outperforms one must underperform. It’s for every dollar that outperforms a dollar must underperform.”

Remember that the Messrs. Bogle, Malkiel, Arnott, and Siegel, while extraordinary individuals of integrity, have finely honed axes to grind. Each is
attached, at least philosophically, to a management company that has much to gain by getting you to go for either cap-weighted index funds or exchange-traded
funds. The concept of a managed fund versus just an academic index (not a fund) is where the rubber meets the road. I cannot agree with Mr. Bogle and
Malkiel that for every investor who outperforms the market there must be another investor who underperforms. As Mr. Jones notes, the correct view is
that for every winning dollar, there must be a losing dollar.

Here’s a second issue of concern. It’s one thing to run back-testing data on various categories of stocks, a la Fama and French. It is quite
another, however, to look at actual vehicles, like a fund. Fund entities have a way of taking on a life of their own. First, investors do not think long
term. For most investors, long term is the elapsed time between brokerage statements. Should value stocks, for example, get clobbered by growth stocks
for a few quarters, investors would hit the bricks with a vengeance. I’ve seen this repeatedly in the over four decades since I started in this
business at Clayton Securities in 1964. Investors as a group have never and will never learn. And a wave of redemptions forces a fund manager to make
moves that are not planned, are not accounted for in back-testing data, and are expensive and disruptive to a fund and its shareholders. As I’ve
told you, activity, especially activity generated not by the manager but by herd-oriented investors, is a first-class nightmare—and an expensive
one at that.

A third issue is that investors are easily led by the pronouncements (especially when on a paid commercial) from profound and oh-so-erudite professors.
Least we remember the wonderful contribution from the Nobel Prize-winning crowd at Long-Term Capital Management. Those pompous, wide-of-the-mark folk
nearly bankrupted the world.

Remember my guiding light for you—Simple is Sophisticated. Common sense most often trumps erudite. There is every reason to think that
small-cap value stocks are the way to go long term, especially if all are dividend-payers. But when you lump in expense ratios and turnover expenses,
the advantage gained long term over large-cap growth stocks, for example, is perhaps lost. In the end, the one-two punch of expense ratios/transaction
costs, along with taxes, can overwhelm the game of theory.

I conclude that were Mr. Bogle and Mr. Makiel to hang their hat over a decade or two on Admiral Shares for Vanguard Value Index Fund (0.11% expense
ratio), they would no doubt beat the competition. And the longer the time horizon, the more likely that the Vanguard Admiral Shares, with rock-bottom
expenses and tax efficiency, would win the day. Over shorter times, of five years, for example, it’s a coin flip.

Astounding Results

Here are some five-year actual mutual fund total returns that may surprise you. My comparison includes four funds: (1) Bill Miller’s widely quoted
Legg Mason Value Trust; (2) Fidelity’s Magellan Fund, for years the most famous fund in history;
(3) the ultra-conservative Vanguard Wellington Fund (VWELX) (about 40% fixed income); and (4) the tiny, high-expense-ratio Holland
Balanced Fund (HOLBX)(about 40% fixed income).

For most investors five years equals a lifetime. Here are the five-year annual returns. The winner is Vanguard’s conservative Wellington Fund
at 7.5%. Well back of the leader and just a hair ahead of the #3 and #4 players, is Legg Mason Value Trust (#2) at 3.4%. At #3, just behind Bill Miller,
is the tiny Holland Balanced Fund at 2.9%. And bringing up the rear is Magellan Fund at 1.7%.

What does all this tell you? The best fund for you may not be the obvious choice. It’s clear that ultra-blue-chip and conservative balanced funds,
the type investors can sleep well with, have provided extremely competitive results. For example, Legg Mason’s heavily hyped and written about
Value Trust, a fund with, shall we say, a gamey portfolio, has not offered any compelling edge over the last five years.

Where to Start

So, some lessons have been learned. Where should you put new money today? Be sure your gold sector is up to speed. American Century Global Gold (BGEIX)
is a good choice. The fund’s #3 holding, Gold Corp, has just agreed to take over the fund’s #5 holding, Glamis Gold. I’d await the
closing of the deal or a better offer for Glamis. Gold Corp. was off 9% on the news, which is nut-so. Also add streetTRACKS Gold Shares (GLD).
Add to your IRA the two Black Rock Enhanced Dividend funds on my list, BDJ and BOE. Buy the Dow Diamonds (DIA) and Vanguard’s
Value Index (VIVAX). Add Vanguard’s Wellington to your super-conservative balanced fund list. And for international counterbalancing,
add Fidelity Canada (FICDX)and iShares MSCI Singapore (EWS). Singapore is fast becoming a powerful competitor in the
private banking field. And Singapore is competing fiercely for multinationals. Over the next two quarters, I will draw from this list for my own portfolio
additions.

Your Volatility Barricade

Your portfolio’s fixed-income position does two things for you. (1) It either throws off cash for you to spend at Ace or True Value (not Wal-Mart
or Home Depot) in retirement or, instead, allows your interest to compound in an IRA. (2) Your fixed-income holdings (short and medium term) will most
often zig when stocks zag. You benefit with a counterbalancing teeter-totter. Please turn to your enclosed Economic Analysis. Go to Chart #50. Here you
will see that since 1950, in 12 of the 13 years that the S&P 500 has been down, intermediate-term government bonds advanced. That’s a .923
batting average. And in the only exception year, intermediate-term government bonds were down a scant 0.74%. Nice counterbalancing, wouldn’t you
say?

Now look Vanguard Wellington Fund (Chart #51). I earlier explained how this ultra-conservative balanced fund has done over the last five years versus
the well-hyped Legg Mason Value Trust. There have been lots of really good years and a paucity of down years. Chart #52 shows a 50/50 balance of stocks
and bonds is targeted from two most conservative funds. Once again, lots of years to cheer about and even fewer down years. In your retirement, you want
to consider the counterbalancing value of a 50/50 stock/bond mix.

To boot up your yield above Treasuries, I want you to include blue-chip A-rated or better preferreds. Today, Young Research’s buy list shows an
average yield of about 6.3%. Add the following:
(1) General Electric Capital 6.45% (Aaa/AAA).
(2) Goldman Sachs 6.20% (A2/A-). (3) HSBC Financial 6.36% (A3/A). Each will suit you well. And finally, most of your
bond funds must come from Vanguard. See my most recent mutual fund’s Monster Master List.

Monster Master List

Harley-Davidson (NYSE: HDI) is up nearly six points, or over 10%, in the short period since my re-buy. For touring riders, Harley’s
brand new 96-cubic-inch six-speed engine makes the 2007 Harleys a better first choice than ever. And the Screaming Eagle Ultra Classic Electra Glide
highway cruiser now comes stock with a monster 110-cubic-inch engine, an advanced Harman Kardon audio system, and a neat new leather-covered tour pack,
incorporating two-position front-and-back adjustability. A heated touring seat and heated hand grips, along with available hands-free cell phone modules,
make this great new touring Harley the standard-setter. The three tests I want met for my own touring bike are (1) an extended leg position for my knees,
(2) low seat height and center of gravity, along with a lot of weight, and (3) a low-revving engine to reduce road fatigue. The new 96-cubic-inch Harley
meets all my tests (70–75 mph at below 3,000 RPMs). A great new 2007 lineup of Harleys, backed by 650 country-wide dealers, puts Harley at the
top of the list for all those 76 million babyboomers about to retire in 2008. Head to your Harley dealer for a Screaming Eagle Ultra cruiser, and buy
Harley’s high-momentum reasonably priced stock.

Polaris Industries (NYSE: PII). Next year, Polaris is going to announce a revolutionary new luxury-touring bike. I have seen artist
renderings, and the bike has a futuristic look. Polaris’ stock 100-cubic-inch six-speed bikes are OK-ish with a little help from Arlen Ness. I’m
not keen on the bike’s styling, and why the company bothered with its own engines rather than bolting on stock S&S engines beats me. Polaris
has a great marketing network and should have approached its motorcycle deal a lot differently. Although today the stock looks foul on our charts, it
also looks real close to a turn. Within the next quarter, I’ll most likely have some strong re-buy advice. Meanwhile, the stock is bargain priced,
so stay with it.

Goldcorp (NYSE: GG), Barrick Gold (NYSE: ABX), and Newmont Mining (NYSE: NEM) all benefit from the
wave of cash flow being generated by top-flight gold companies. Barrick ended the most recent period with $1.4 billion in cash and only $2.9 billion
in debt. Profit margins for gold mines are continuing to look better. I mentioned earlier Goldcorp’s bid to buy Glamis. Previously, Glamis had
attempted to acquire Goldcorp. The two would create a combined company with the third biggest market cap among global gold producers after Barrick and
Newmont Mining. I’d buy all three.

Falconbridge (NYSE: FAL) has thrown in the towel and looks like it will now be acquired by Swiss Xstrata. Falconbridge had previously
snubbed Inco’s (NYSE: N) friendly bid. Teck Cominco (TORONTO: TEK-SVB.TO) has an existing cash-and-share offer
on the table for Inco. Phelps Dodge has a conditional offer on the table for Inco. Teck’s offer for Inco is hostile in that Inco has already agreed
to merge with Phelps Dodge. Meanwhile, Companhia Vale do Rio Tinto Doce (CVRD), the Brazilian iron-ore giant, has made an $86/share all-cash bid for
Inco. Although Inco management appears committed to its planned cash-and-share purchase by Phelps Dodge, it seems willing to listen to CVRD. I would
hold on to any of these companies you currently own at the one-half position I had previously advised. None of the above is on my stocks-to-buy list
today. The whole commodity sector, especially copper, is still overheated.

General Electric (NYSE: GE) is a depressed buy. CEO Jeff Immelt has identified five new businesses that he expects to be platforms
for long-term growth: (1) water treatment, (2) Hispanic television, (3) security equipment, (4) health-care information technology, and (5) oil and gas
services. Last quarter saw a near 60% jump in orders for GE’s infrastructure businesses, which includes gas turbines, locomotives, and aircraft
engines. Overall, revenues increased by a satisfactory 9%. Our four-chart momentum set shows that GE’s stock is about as far below trend as it
will ever get. And year-to-year rate of change comparisons are well below mean. It’s early to be real enthusiastic, but the stock sure is cheap
with a long-term view.

Coca-Cola (NYSE: KO) is one of my favorites, a Top 10 Countdown regular, on the new 52-week high list, and ranked as the #1 global
brand in the world in BusinessWeek/Interbrand‘s Top 100 Global Brands. If you missed the recent BusinessWeek cover story on Mary
Minnick, Coke’s head of marketing strategy and innovation, you missed a beauty. Here’s what you would have learned: (1) Coke is rolling out
a set of designer aluminum bottles with etched graphics that glow in the dark. Pretty neat if you are part of the nightclubbing set. (2) Coke has a new
wellness drink labeled HealthWorks. It is infused with traditional Chinese herbs and is packed with antioxidants. (3) Look for Coke’s introduction
of Godiva, a line of outrageous mocha and latte drinks licensed by Godiva. (4) Already rolling is a neat new tea called Gold Peak. And Coke is running
hard and fast testing the health benefits of a raft of new ingredients to put in upcoming drinks. Look for Coke to begin to dump its former image as
a sugar king. I like what MM is up to, and I like the stock. Buy it.

Yankee Candle (NYSE: YCC). Debbie and I stopped at the company’s flagship retail monster store in Deerfield, Massachusetts, on
a recent Harley trip. Let me tell you, there is no shortage of cash flow to spend on Yankee’s spectacular gardens and grounds. Talk about awesome
attention to detail. The stock is well-below trend on our charts and recently nearly hit two standard deviations on the downside. All in all, not great
acting, but (a) cheap and (b) a takeover candidate. Buy the shares today.

Disney (NYSE: DIS). Can you believe that Pirates of the Caribbean has hauled in nearly $800 million in worldwide sales? Merchandise
sales for Pirates and Cars contribute plenty of cash. Talk about gangbuster cross-platform marketing. In the future, Disney will focus
on branded fare like Pirates and Cars, and it has been hacking jobs like crazy in areas deemed not central to the mission. Domestic
theme parks and ESPN continue to cook along. Look for Disney to announce a broad-ranging partnership with either Google or Yahoo. In the interim, the
company has been buying a gang of its own shares. And I look for the buybacks to continue. Even with the company buying stock, however, I don’t
like the looks of it on our charts. Remain a shareholder, but for now, not a new share buyer.

Prologis (NYSE: PLD). Industrial REITs are good places to be. They own simple businesses. What’s so complicated about warehouses?
Stay with your Prologis shares.

PepsiCo (NYSE: PEP) is a buy. I much like new CEO Indra K. Nooyi. After all, while in college, she was the front person for an all-female
rock band. Nooyi, 50, led negotiations for the $13.8 billion acquisition of Quaker Oats. She is strong on the international front and has stayed close
with her motherland, India. For many years, PepsiCo has been a featured stock on my Top 10 Countdown. The stock is on the new 52-week high list, yet
is still below trend on a long-term basis. And the year-to-year rate of change is only at an average level, leaving lots of room for potential upside
momentum. PepsiCo came in #22 on the recent BusinessWeek/Interbrand‘s Top 100 Global Brands. Over the last tough 36 months, you have averaged
nearly 13% per year on your investment in PepsiCo. Buy.

Delta & Pine (NYSE: DLP). Monsanto is to buy the company. Stay with D&P until the deal closes or a higher bid is announced.
Over the last tough 36 months, you have averaged 15% per year on D&P.

Top-10 Countdown

Always go here first to add new names to your list. Beyond the names above from the countdown are Forest City (NYSE: FCEa), Piedmont
Natural Gas (NYSE: PNY), Johnson & Johnson (NYSE: JNJ), McCormick (NYSE: MKC), and Marvel Enterprises (NYSE:
MVL). All should treat you well.

Saudi Oil Bonanza

Saudi Arabia has huge but hard-to-get-at reserves of heavy crude oil. Saudi’s official reserves are listed at 260 billion/bbls of recoverable
reserves, but the country’s many heavy-oil fields are not included in these official reserves. I’ve put expanded info on the significant
potential here on Young Research’s website (www.youngresearch.com). Considering that the U.S. geological survey estimates that the world
has over one trillion barrels (bbls) of heavy oil, it’s a big deal. You may be surprised where most of it is. All in all, good potential for official
reserves counts.

Saber Rattling

Japan has a strike force of 40 modified F-16 fighter bombers known as the Mitsubishi F-2. And now Japan is considering changing its constitution to
allow Tokyo to use force. This would include a preemptive strike against N. Korea prior to a missile launch.

Good-Bye Hard Drives?

For over a decade, researchers have been working on magnetoresistive random access memory (MRAM). This digital-age technology combines the permanence
of flash memory with the speed of dynamic random access memory (DRAM). There is the potential here to replace both DRAM and hard-disk drives in your
computer. Freescale Semiconductor has just announced a commercial version of a MRAM chip.

First VLJs’ Full Type Certification

In this issue, I had hoped to write about DayJet’s FAA certification for the Eclipse Microjet. But I’m still awaiting final FAA notification
and will post the info on the Young Research website the day I receive it. Meanwhile, I can report that you will be able to buy a single seat (not charter
a whole plane) at a cost to you of $1 to $3 per mile based on the window of time you give DayJet for your flight needs. All trips will be booked one
way. DayJet has announced its initial roster of DayPorts as Gainesville Regional, Boca Raton, Lakeland Linder Regional, Pensacola Regional, and Tallahassee
Regional. The company also has an expanded list of potential DayPorts, all in Tennessee, N.C., Mississippi, Alabama, Georgia, S.C., and Florida, which
includes Key West, Naples, Fernandina Beach, and Daytona Beach.

Terrorism #1

The National Association for Business Economists recent biannual survey ranks terrorism the greatest short-term risk to the economy. I am in this camp,
but would extend the time to intermediate and long term as well. Nothing else comes close to terrorism, and, at Young Research, we focus on terrorism.
Task Force 145 is now hot on bin Laden’s trail, thanks to breaking intelligence from Pakistan. Under President Bush’s leadership, the Pentagon
has now established a high-level taskforce for counter terrorism.

General Thabit is Confident

Do you know that 80% of the violence in Iraq today is occurring in Baghdad? Major General Adnan Thabit (Mr. Anti-Terrorism in the flesh) is optimistic
that, by the end of 2006, Baghdad will be much more secure. Hundreds of Iraqi tribal chiefs have signed a unity plan. Disbanding anti-U.S. cleric Muqtada
al-Sadr’s Mahdi Army is on the top of everybody’s list. The two leaders who exercised control of all death squad cell activity in one Shiite
and two Sunni districts of Baghdad have now been captured—all of which is not brought to you by CNN, et al.

The Oval Office Nightmare

Should the Democrats gain control of the House this fall and some misfortune befall President Bush, the only person standing between the ultra-liberal
Nancy Pelosi (who opposed the Gulf War) and the Oval Office is a vice president with a serious heart condition. In the Democratic bargain, Americans
would get a new head of the Appropriations Committee whose primary goal is to spend less on defense and more on entitlements. And if that’s
not bad enough, how about a new head of the House Intelligence Committee who was previously impeached after having been convicted by a Democrat Congress
for lying to beat a bribery rap? God bless America.

Buy Wrigley. Keep up to date on Intelligence Report’s website. Stick with my gold-and-blue (as in chips) theme. Focus on 2007 as a presidential
election year likely to be good for the stock market. And read this month’s Big Picture on stock market valuation with care.

Make it a good month.

Warm regards,

Richard Young signature

Richard C. Young

P.S. Israel has appointed a top general to oversee a war against Iran, and, in concert with the U.S., will by next year have in place a missile defense
system capable of taking out Katyusha rockets. More next month. Don’t miss this special issue.

P.P.S. Iran has now thumbed its nuclear nose at the U.N.’s deadline to give up its bomb program. Go to Young Research’s website for expanded
coverage, plus a move the U.S. could make tomorrow that would give Iran pause.

P.P.P.S. Also on Young Research’s website is my special profile on George Tomsco and The Fireballs, Norman Petty and the Clovis sound, Buddy Holly,
some great info on The Band’s Levon Helm, and a neat hurricane map showing just one of many reasons I like Costa Rica as a haven.

Richard C. Young’s Intelligence Report® (ISSN 0884-3031) is published monthly by Phillips Investment Resources, LLC, 9420 Key West Ave., Rockville, MD 20850. Please write or call if you have any questions. Phone: 301/424-3700 or 800/301-8968. E-mail: service@intelligencereport.com. Web address: . Editor: Richard C. Young; Group Publisher: Michael Bell; Chairman: Thomas L. Phillips; Associate Editor: Deborah L. Young; Marketing Manager: Jim Brinkhoff; President: John J. Coyle; Research Director: Jeremy Jones, CFA; Sr. Managing Editor: Shannon Miller; Business Manager: Thomas C. Burne; Research Associate: Rebecca L. Young; Editorial Assistant: Danielle Hart; Sr. Vice President: Christopher Marett; Subscriptions: $249 per year. © 2006 by Phillips Investment Resources, LLC, Founding Member of the Newsletter Publishers Association of America. Photocopying, reproduction or quotation strictly prohibited without the written permission of the publisher. While the information provided is based upon sources believed to be reliable, its accuracy cannot be guaranteed, nor can the publication be considered liable for the investment performance of any securities or strategies mentioned. Subscribers should review the full disclaimer and securities holdings disclosure policy at /disclosure.php or call 800/219-8592 for a mailed copy. Periodicals postage rates paid at Rockville, MD, and at additional mailing offices. Postmaster: Send address changes to Richard C. Young’s Intelligence Report, Phillips Investment Resources, LLC, 2420A Gehman Lane, Lancaster, PA 17602.

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