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Arden Group Inc. (ARDNA) - Top 100 Overall

Arden Group runs the Gelson's chain of upscale supermarkets in Southern California, primarily Los Angeles. Financially, Arden is in good shape with very little debt and solid free cash flow, and the company pays a respectable dividend. The problem with Arden is revenue growth. They have shown little interest in expanding beyond their 18 supermarkets, and revenue has actually fallen from 2005 levels. MagicDiligence believes growth prospects are crucial to a winning investment. Although a good fundamental stock, there is no clear growth strategy for the company.

Value Line, Inc. (VALU) - Top 100 Overall

Any value investor worth the title knows of Value Line, one of the oldest and most respected fundamental stock research newsletters in existence. The story here is very similar to ARDNA - strong financial underpinnings (no debt, excellent free cash flow, nice dividend), great brand name, questionable growth prospects. In truth, Value Line's biggest problem is it's CEO, Jean Buttner, who has done little to grow or expand on Value Line's competitive advantages. Look at Value Line's website, then look at Morningstar. See the differences? No advertising. No cross selling. Very little in the way of online service at all! With more aggressive, media-savvy competition, Value Line faces the prospect of weakening competitive position and brand value. A CEO shakeup could do wonders here, but Buttner owns a massive (87%) stake in the company and is unlikely to be removed.

Diamond Management & Technology, Inc. (DTPI) - Top 100 Overall

Diamond is a small, independent IT consulting company. The company has good financial health, with no debt, positive free cash flow, and a depressed price that yields a dividend close to 6%. IT consulting is a great business, but that's not exactly a secret. Look at Diamond's roster of competitors - IBM, Accenture, Infosys, Electronic Data Systems (EDS). These are massive, global corporations with huge financial resources and brand awareness. Diamond has no real competitive advantage against these guys, and very real disadvantages. Already the company is having trouble growing revenues, as they are down from 2005 levels. Heavy competition with no strong advantage is a sure way to get rejected at MD.

Steve owns no position in any stocks discussed in this article.

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