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ValuEngine Weekly December 10, 2010

|Includes:BA, BEAV, ESL, GD, LDSH, LLL, LMT, NOC, OA, Raytheon Company (RTN), TDG, TGI



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December 10, 2010
The ValuEngine Weekly is an Investor Education newsletter focused on the quantitative approach to investing and the tools available from ValuEngine. In today's fast-moving and globalized financial markets, it is easy to get overloaded with information. The winners will adopt an objective, scientific, independent and unemotional approach to investing. If you are not yet a member of ValuEngine's stock analysis service, sign up now for a two-week free trial at!


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Upcoming Suttmeier Appearance

ValuEngine Chief Market Strategist Richard Suttmeier On the Road in January

  ValuEngine Chief Market Strategist Richard Suttmeier is a financial analyst for media such as Fox News, CNBC,YahooFinance,the Wall Street Journal, New York Times, CNNfn, and Bloomberg, Suttmeier has long been one of ValuEngine's "power users," supporting his own technically-focused analysis with VE's fundamentally-based quant methods. 

   With all of the recent market uncertainties, making the correct stock decisions can be daunting.  ValuEngine Chief Market Strategist Richard Suttmeier will be appearing at the AAII Orlando Chapter meeting on January 19, 2011.  We invite all VE clients in Florida to attend.  At the meeting, Suttmeier will discuss the following topics:

  • How can help investors adapt to volatile and risky market conditions
  • How to implement a hedge fund-type strategy for your own stock investment portfolio
  • How ValuEngine’s research helped me call both the top and the bottom of the market over the past five years


   This meeting will take place at the University Club of Winter Park, 841 N. Park Ave. Winter Park, FL 32789.  It starts at 6:30pm.  Again, all VE clients are invited.  We place a special call out to those seeking individual investment advice, assistance, and portfolio management. 


Subscribers can check out the latest from Suttmeier on a daily basis with his free Four-in Four Daily newsletter.  Sign up HERE.

  ValuEngine Index Overview
Week Open
Thurs. Close
% Change
11381.33 11370.1 -11.23 -0.10% 9.08%
2591.28 2616.67 25.39 0.98% 15.55%
755.29 767.63 12.34 1.63% 21.23%
S&P 500
1223.87 1233 9.13 0.75% 10.73%
ValuEngine Market Overview
Summary of VE Stock Universe
Stocks Undervalued
Stocks Overvalued
Stocks Undervalued by 20%
Stocks Overvalued by 20%


ValuEngine Sector Overview
Last 12-MReturn
P/E Ratio
Basic Materials 0.32% 2.54% 29.07% 25.41% overvalued 70.51% 36.58
Oils-Energy 0.48% 2.76% 16.79% 20.82% overvalued 44.82% 40.13
Auto-Tires-Trucks -0.22% 5.79% 54.69% 12.52% overvalued 57.89% 25.76
Multi-Sector Conglomerates 0.44% 1.98% 23.54% 12.14% overvalued 33.25% 28.81
Industrial Products 0.47% 3.51% 23.62% 11.82% overvalued 31.75% 24.95
Transportation 0.17% 2.27% 24.37% 9.62% overvalued 30.76% 42.30
Retail-Wholesale 0.00% 1.32% 19.19% 9.36% overvalued 65.86% 22.20
Consumer Staples 0.76% 3.11% 11.05% 9.00% overvalued 18.76% 26.73
Computer and Technology 0.35% 3.23% 27.60% 5.94% overvalued 34.74% 43.23
Utilities 0.14% 0.62% 5.75% 5.82% overvalued 14.52% 24.71
Aerospace -0.55% 2.09% 20.02% 5.14% overvalued 31.30% 19.19
Finance 0.38% 2.63% 15.89% 4.85% overvalued 17.59% 24.07
Business Services 0.81% 4.30% 13.42% 4.77% overvalued 23.63% 29.59
Consumer Discretionary 0.44% 1.90% 21.42% 4.46% overvalued 28.47% 30.83
Construction 0.67% 5.57% 8.77% 3.49% overvalued 12.68% 36.19
Medical 0.26% 2.06% 12.94% 7.98% undervalued 25.09% 36.61
  Sector Talk--Aerospace/Defense

  Earlier this week a screen for short-term forecast return leaders provided some interesting results.  We queried our database looking for tickers ranked in the top 2% One-Month Forecast Return category with share prices in excess of $3.00 and average volume of 100k shares/day.  When we sorted the results by composite score--a broader quality measure which takes into account momentum, valuation, p/e ratio, and market cap as well as the short-term forecast return--we found our results dominated by Aerospace-Defense Sector firms.

  One wonders how these firms can be doing so well given the possibility of future defense cuts, but analysts note that many have been preparing for that eventuality by cutting work forces and paring back on expenses.  Like so many other big firms, the austerity measures are now paying dividends to the bottom line.  The sector as a whole is calculated to be overvalued, but the level of overvaluation is mild compared to that found in the Basic Materials and Energy sectors. 

  Below, we present various top-five lists for the Aerospace-Defense Sector from our Institutional software package (Pending:VEI).  These results were filtered by market price and volume--no results below 3$/share or less than 100k shares/day.

Top-Five Aerospace-Defense Stocks--Short-Term Forecast Returns

Ticker Name Mkt Price Valuation(%) Last 12-M Retn(%)
RTN RAYTHEON CO 45.87 -11.59 -8.88
LLL L-3 COMM HLDGS 71.38 -16.52 -10.28
LMT LOCKHEED MARTIN 68.31 -3.58 -6.1
GD GENL DYNAMICS 68.89 -1.99 3.98
TGI TRIUMPH GRP INC 90.32 45.21 84.97

Top-Five Aerospace-Defense Stocks--Long-Term Forecast Returns

Ticker Name Mkt Price Valuation(%) Last 12-M Retn(%)
LLL L-3 COMM HLDGS 71.38 -16.52 -10.28
ATK ALLIANT TECHSYS 77.69 -10.43 -12.07
RTN RAYTHEON CO 45.87 -11.59 -8.88
NOC NORTHROP GRUMMN 63.61 -10.31 20.61
LMT LOCKHEED MARTIN 68.31 -3.58 -6.1

Top-Five Aerospace-Defense Stocks--Composite Score

Ticker Name Mkt Price Valuation(%) Last 12-M Retn(%)
NOC NORTHROP GRUMMN 63.61 -10.31 20.61
BA BOEING CO 64.61 -8.27 19.38
LLL L-3 COMM HLDGS 71.38 -16.52 -10.28
RTN RAYTHEON CO 45.87 -11.59 -8.88
GD GENL DYNAMICS 68.89 -1.99 3.98

Top-Five Aerospace-Defense Stocks--Most Overvalued

Ticker Name Mkt Price Valuation(%) Last 12-M Retn(%)
LDSH LADISH COMPANY 47.73 105.83 217.78
ESL ESTERLINE TECHN 64.56 45.72 52.01
TGI TRIUMPH GRP INC 90.32 45.21 84.97
TDG TRANSDIGM GROUP 70.46 41.03 53.24
BEAV BE AEROSPACE 37.73 30.54 70.88


  Subscribers can check out the latest valuation, forecast, and ratings figures on the Aerospace-Defense Sector from our Models HERE.

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What's Hot
--FDIC Q3 2010 Report is Posted

Suttmeier's Banking Report Finds A System Under Continuing Stress

  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.


 Suttmeier remains bearish in his outlook for both US banks as well as the US housing market.


  In his summary of the report he notes the following:


The FDIC Quarterly Banking Profile for Q3 2010 essentially shows the banking system in limbo as earnings improve slightly with net income at $14.5 billion up from $2 billion a year earlier, but below the incomes of Q1 and Q2. The rise in net income is a result of lower loan-loss provisions, which masks the fact that the banking system still has significant risk to real estate loans that are kept current as percentage of loans outstanding versus loan commitments increase adding stress to bank balance sheets particularly among community banks

   The Federal Reserve has embarked on a $600 billion QE2 program that is designed to lower US Treasury yields to help consumer rates on Main Street. The yield on the 10-Year was 2.334 on October 8th in anticipation of QE2. That yield was 3.054 on December 3rd, up 72 basis points, which to me defines total failure for the Federal Reserve. 


 We recently learned that the Unemployment Rate in the United States rose to 9.8% as the number of unemployed Americans jumped 300,000 in November. Recent surveys of home prices are showing another round of declines, and 25% on home sales consist of depressed properties sold through foreclosures and short sales.


  The National Association of Home Builders complains that they would start to build more homes if community banks would provide construction loans. Community banks are reluctant to do so as C&D loans continue to be the bulk of their problem loans dating back to 2003 through 2007.


 Thus I conclude that the “Great Credit Crunch” continues and private investors need an FDIC program to help clear the pipeline and provide capital to return banks back to the business of lending.

 Without a housing recovery—which is necessary to improve the health of the community banks, Main Street USA will remain under duress as high unemployment will continue to retard economic growth.


  A critical portion of this report is the ValuEngine List of Problem Banks.  Problem banks are publicly traded FDIC insured financial institutions who are overexposed to Construction & Development Loans and/or Nonfarm nonresidential real estate loans, with “1-Engine”--Strong Sell, or “2-Engine”—Sell.  The report also includes a listing of 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.

  As of December 9, 2010, there were 240 banks overexposed to C&D and/or CRE loans in the ValuEngine database with full data coverage. There were four additional overexposed banks with partial data coverage.

   Of these overexposed banks, 62 were rated “1-Engine” Strong Sells, 64 were rated “2-Engine” Sells, 106 were rated “3-Engine” Holds, seven were rated a “4-Engine” Buy, and one was rated a “5-Engine” Strong Buy.

   This means that there are currently 126 banks rated Sell or Strong Sell that are also overexposed to C&D and/or CRE loans.

  There are 280 additional institutions listed as a problem bank list but do not appear in the ValuEngine database but are carrying C&D and/or CRE loans in excess of the FDIC guidelines.

Our latest ValuEngine FDIC Report is now posted. The report contains loan exposure and/or ValuEngine datapoints on valuation, forecast, and ratings for all of the institutions on our List of Problem Banks. 

Subscribers can download it HERE.

Others interested in the report may find out more on our website by clicking the image below.

Seeking Alpha Readers should check out our Seeking Alpha VE Investment App HERE


Suttmeier Says
--Commentary and Analysis from Chief Market Strategist Richard Suttmeier

If you have any comments or questions, send them to 


Treasury Yields
  10-Year--   (3.225) Daily and semiannual value levels are 3.306 and 3.479 with a weekly pivot at
3.142, and annual pivots at 2.999 and 2.813, and quarterly, semiannual and monthly risky levels at 2.265, 2.249 and 1.949. The US Treasury yields have stabilized since the $21 billion 10-Year note auction that came at 3.340 on Wednesday.


Commodities and Forex 


 Comex Gold--  ($1385.9) Quarterly, semiannual and annual value levels are $1306.4, $1260.8, $1218.7 and $1115.2 with a weekly pivot at $1400.5, and daily and monthly risky levels at $1422.9 and $1443.5.  Comex Gold reached that all time high at $1432.5 on Tuesday and remains above its 50-day simple moving average now at $1361.9. Gold has been above the rising 50-day since August 12th.


Nymex Crude--  ($88.45) Semiannual, annual and monthly value levels are $83.94, $77.05 and $75.50 with a weekly pivot at $86.30, and daily, semiannual and annual risky levels at $89.85, $96.53 and $97.29.   Nymex Crude oil traded to a 52-week high at $90.76 on Tuesday and my semiannual value level remains at $83.94.  Note that Tuesday was a Key Reversal Day.


 The Euro-- (1.3244) My monthly value level is 1.2500 with daily and quarterly pivots at 1.3339 and 1.3318, and weekly and semiannual risky levels at 1.3473 and 1.4733.The euro remains below my quarterly pivot at 1.3318 with the 200-day at 1.3115.


Major Indices

.The S&P 500 closed above its 61.8% Fibonacci Retracement at 1228.74, but will that be enough to pull the Dow Industrials to a close above 11444.08 to confirm another Dow Theory Buy Signal? Or, will the S&P fail with the Dow having a double-top at 11,450 instead?


The Dow--

  Daily:    (11,370) Semiannual, annual, monthly and quarterly value levels are 10,558, 10,379, 10,325 and 8,523 with annual and semiannual pivots at 11,235 and 11,296, and weekly and daily risky levels at 11,440 and 11,579. The Dow Industrial Average needs a close above 11444.08 to confirm another Dow Theory Buy Signal. If not the Dow risks a double-top at 11,450 instead.


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