Steve Hach's  Instablog

Valuation Watch is ON

ValuEngine Issues Market Valuation Watch

The ValuEngine Valuation Model tracks more than 8000 US equities, ADRs, and foreign stock which trade on US exchanges. The model calculates a level of mispricing or valuation percentage for each equity based on what the stock should be worth if the market were totally rational and efficient--an academic exercise to be sure, but one which allows for useful comparisons between equities, sectors, and industries.

We track market valuation figures and use them as a metric for making calls about the overall state of the market. As of last night's close, our overall market overvaluation and overvalued by 20% or more figures have reaches levels which have been correlated with market pull backs in the past. We now calculate that 61.67% of stocks are overvalued and 24.2% of stocks are overvalued by 20% or more.

Whenever we see levels in overvaluation levels in excess of @ 60% for the overall universe and/or 27.5% for the overvalued by 20% or more categories, we issue a valuation watch. ValuEngine has issued a market valuation watch as of today, January 28th. This is a time for investors to keep a close eye on the market and to consider booking some profits and perhaps hedging against a move to the downside.

The chart below tracks the valuation metrics from June 2012 until today.

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This chart shows overall universe valuation in excess of 60% vs the S&P 500 from the end of March 2010 to the present. Here you can see the market metrics from our last series of Valuation Watches and Warnings.

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In addition to the overall valuation metrics, we see that on a sector basis ALL sectors are calculated to be overvalued. Eight of them are calculated to be overvalued by 10% or more with four of them calculated to be more than 20% overvalued. In the past, our Chief Market Strategist Richard Suttmeier has used the sector valuation figures to buttress his macro market calls.

We are keeping a close eye on our overvaluation metrics

MARKET OVERVIEW

SECTOR OVERVIEW

Below, we present the latest data on leading Construction Sector stocks from our Institutional software package (VEI). These results were filtered by market price and volume--no results below 3$/share or less than 100k shares/day volume.

Top-Five Construction Sector Stocks--Short-Term Forecast Returns

Top-Five Construction Sector Stocks--Long-Term Forecast Returns

Top-Five Construction Sector Stocks--Composite Score

Top-Five Construction Sector Stocks--Most Overvalued

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

ValuEngine Chief Market Strategist Richard Suttmeier is an expert on the US Banking System and uses the health of the system as a leading economic indicator. He distills his thoughts on the banking system in our FDIC Report. The latest update of the report is now available.

For the purposes of this report, "problem banks" are publicly traded FDIC insured financial institutions overexposed to Construction & Development Loans and/or Nonfarm nonresidential real estate loans, with "1-Engine"--Strong Sell, or "2-Engine"-Sell. We also include all other engine-rated banks-- and those with "n/a" ratings but forecast figure data points according to our models-- in violation of FDIC guidelines vis-a-vis loan exposures. Those that are not covered by ValuEngine due to poor fundamentals or because there is no available EPS estimate but are still in violation of FDIC guidelines are also listed at the end of this section as a courtesy to our subscribers..

This table tracks bank ratings and the number of problems bank back to Q3 2009. For January 2013, the FDIC Report shows a big improvement in VE Ratings for banks YOY. In January 2012, more than 60% of the tracked banks were rated SELL/STRONG SELL while today that figure is less than 10%. Many of our tracked banks remain overexposed to C&D or CRE loans and may have maxed out pipelines, but still, that is a remarkable shift. 44% of or tracked banks are now rated a BUY or STRONG BUY. Since last month's report, the situation seems rather stable with only slight variations in the number of institutions rated SELL/STRONG SELL vs those rate BUY/STRONG BUY.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.