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Steve Hach is the Senior Editor at ValuEngine.com, a Newtown, Pennsylvania-based stock valuation and forecast service. ValuEngine utilizes Ivy League financial research as the basis for its coverage of more than 7000 US, Japanese, and Canadian, and other foreign stocks. Hach utilizes... More
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  • ValuEngine Weekly December 17, 2010 0 comments
    Dec 17, 2010 11:50 AM | about stocks: RTN, UFS, MERC, MSB, CHOP, DD, ABX, LZ, ADM, ASH, CBT, MVG, NGD, AKS, VRS, SQM

     

     

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    December 17, 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 www.valuengine.com!

    .

    ATTENTION Investors and Finance Professionals:
    If you are reading this you should sign up for ValuEngine's award-winning stock valuation and forecast service at the low price of $19.95/month! 
    NO OBLIGATION, Two Week FREE TRIAL!

    CLICK HERE!

    If the tables in this email do not display properly, please CLICK HERE to download the newsletter.

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

    VALUATION WATCH:  Our models find that overvaluation is approaching levels typically seen when a market correction is imminent. Overvalued stocks now make up almost 63% of our universe and almost 30% of the universe is calculated to be overvalued by 20% or more.  15 of 16 Sectors are now calculated to be overvalued.

    Bonus for Readers
    --Free Individual Stock Report for Weekly Newsletter Subscribers

     As a bonus to our Free Weekly Newsletter subscribers, we are now offering a FREE DOWNLOAD of one of our $ 25.00 Detailed Valuation Reports.  

      This week's free download is our report on RAYTHEON CO (RTN). ValuEngine has issued a STRONG BUY recommendation for RAYTHEON CO. Based on the information we have gathered and our resulting research, we feel that RAYTHEON CO has the probability to OUTPERFORM average market performance for the next year. The company exhibits ATTRACTIVE volatility, company size and P/E ratio.

      Based on available data as of Dec. 17, 2010, we believe that RTN should be trading at $51.21. This makes RTN 11.36% undervalued. Fair Value indicates what we believe the stock should be trading at today if the stock market were perfectly efficient and everything traded at its true worth. For RTN, we base this on actual earnings per share (EPS) for the previous four quarters of $4.91, forecasted EPS for the next four quarters of $4.79, and correlations to the 30- year Treasury bond yield of 4.58%.

      RAYTHEON CO is a global technology company. The company provides products and services in the areas of
    defense and commercial electronics, engineering and construction, and business and special mission aircraft. Raytheon has operations throughout the United States and serves customers in numerous countries around the world.

      Subscribers can check out the latest figures on RTN from our models HERE.

    Weekly Subscribers can download a FREE Detailed Valuation Report on Raytheon HERE.

    If you have not subscribed and want to be able to receive a FREE $ 25.00 Detailed Valuation Report, you can subscribe to our Free Weekly Newsletter HERE.

      ValuEngine Index Overview
    Index
    Week Open
    Thurs. Close
    Change
    % Change
    YTD
    DJIA
    11406.16 11499.2 93.04 0.82% 10.00%
    NASDAQ
    2645.35 2637.31 -8.04 -0.30% 16.32%
    RUSSELL 2000
    777.04 776.56 -0.48 -0.06% 22.00%
    S&P 500
    1242.52 1242.87 0.35 0.03% 11.34%
    ValuEngine Market Overview
    Summary of VE Stock Universe
    Stocks Undervalued
    37.38%
    Stocks Overvalued
    62.62%
    Stocks Undervalued by 20%
    17.75%
    Stocks Overvalued by 20%
    29.71%

    .

    ValuEngine Sector Overview
    Sector
    Change
    MTD
    YTD
    Valuation
    Last 12-MReturn
    P/E Ratio
    Basic Materials 0.40% 3.51% 30.07% 28.64% overvalued 64.08% 37.05
    Oils-Energy 0.24% 2.23% 15.38% 22.70% overvalued 36.49% 39.93
    Industrial Products 0.85% 5.38% 24.18% 16.28% overvalued 32.08% 25.42
    Multi-Sector Conglomerates 0.71% 3.03% 24.70% 14.84% overvalued 32.20% 28.92
    Auto-Tires-Trucks 0.39% 6.24% 57.04% 14.79% overvalued 54.29% 26.02
    Transportation 0.88% 2.49% 24.49% 12.24% overvalued 27.26% 42.36
    Consumer Staples 0.51% 4.29% 12.55% 12.00% overvalued 19.52% 27.27
    Retail-Wholesale 1.07% 1.66% 20.27% 10.64% overvalued 59.50% 22.21
    Utilities 0.71% 1.85% 6.71% 8.53% overvalued 13.90% 25.11
    Computer and Technology 0.92% 3.80% 30.07% 8.09% overvalued 35.94% 43.22
    Aerospace 0.49% 2.83% 21.17% 8.01% overvalued 28.76% 19.51
    Finance 0.56% 3.03% 16.30% 7.58% overvalued 17.56% 24.22
    Business Services 0.09% 4.31% 12.93% 7.16% overvalued 21.98% 29.64
    Construction 0.92% 7.03% 11.55% 6.75% overvalued 12.09% 36.65
    Consumer Discretionary 0.97% 2.14% 21.50% 6.67% overvalued 26.55% 30.88
    Medical 0.96% 5.66% 16.69% 3.76% undervalued 20.18% 37.27
      Sector Talk--

      

      Below, we present various top-five lists for the Basic Materials Sector 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.

    Top-Five Basic Materials Stocks--Short-Term Forecast Returns

    Ticker Name Mkt Price Valuation(%) Last 12-M Retn(%)
    UFS DOMTAR CORP 76.5 -2.52 35.93
    MERC MERCER INTL SBI 6.87 -17.95 171.54
    MSB MESABI TRUST 45.66 -0.36 314.34
    AAUKY ANGLO AMER -PLC 24.34 32.38 13.58
    CHOP CHINA GERUI ADV 6.04 6.52 8.4

    Top-Five Basic Materials Stocks--Long-Term Forecast Returns

    Ticker Name Mkt Price Valuation(%) Last 12-M Retn(%)
    DD DU PONT (EI) DE 49.45 8.33 57.89
    ABX BARRICK GOLD CP 51.63 12.21 30.61
    MSB MESABI TRUST 45.66 -0.36 314.34
    LZ LUBRIZOL CORP 109.41 13.36 50.58
    ADM ARCHER DANIELS 30.35 -17.46 -0.82

    Top-Five Basic Materials Stocks--Composite Score

    Ticker Name Mkt Price Valuation(%) Last 12-M Retn(%)
    UFS DOMTAR CORP 76.5 -2.52 35.93
    ASH ASHLAND INC 52.65 -16.24 31.26
    CBT CABOT CORP 38.26 -6.86 51.29
    DD DU PONT (EI) DE 49.45 8.33 57.89
    LZ LUBRIZOL CORP 109.41 13.36 50.58

    Top-Five Basic Materials Stocks--Most Overvalued

    Ticker Name Mkt Price Valuation(%) Last 12-M Retn(%)
    MVG MAG SILVER CORP 11.24 143.09 83.93
    NGD NEW GOLD INC 9.06 109 150.28
    AKS AK STEEL HLDG 15.36 108.36 -25
    VRS VERSO PAPER CP 3.61 88.18 56.96
    SQM SOC QUIMICA MIN 53.18 85.14 34.8

    .

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

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

    .

    What's Hot
    -- Valuation Watch

    Model Calculations Show Correction May be Imminent

      The ValuEngine Valuation Model tracks more than 5000 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 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 approaching market corrections in the past. 

      Whenever we see levels in overvaluation levels in excess of @ 60% for the overall universe and 27.5% for the overvalued by 20% or more categories, we issue a valuation watch.    ValuEngine issued a market valuation watch this week.  

     This is a time for investors to keep a close eye and the market and to consider booking some profits and perhaps hedging against a move to the downside.

     This chart shows overall universe valuation in excess of 60% vs the S&P 500 from the end of March 2010 to the present. 

      This chart shows universe overvalued by 20% or more levels in excess of 27.5% vs the S&P 500 from the end of March 2010 to the present. 

      In addition to the overall valuation metrics, we see that on a sector basis 15 of 16 sectors are calculated to be overvalued.  In the past, our Chief Market Strategist Richard Suttmeier has used the sector valuation figures to buttress his macro market calls.  Eight sectors are calculated to be overvalued by 10% or more. 

    This is another indicator that stocks are no longer the bargain they were a few months ago and that investors should consider implementing additional risk management tools and/or booking some profits. 

      Of course, as always past performance is no indication of future behavior.  Given the wild gyrations of the markets over the past few years, it has been tough to rely completely on any fundamentally or technically-based mode of analysis.  But as you can see from the charts below, the overvalued indicator has been fairly robust and thus must be considered as we move forward.

      This chart shows universe overvaluation figures in excess of 60% vs the S&P 500 from 1991 up until the end of May 2010.

      This chart shows universe overvalued by 20% or more levels in excess of 30% vs the S&P 500 from 1991 up until the end of May 2010.

      As you can see from the charts, in many cases in the past the spikes in overvaluation provided a timely signal of an impending negative move.  Our most recent valuation watch occurred in late April 2010, just as the market headed down for the Summer.

      If levels of overvaluation continue to climbs and surpass 60% for the overall universe and 30% for the overvalued by 20% or more metric, then we will issue a valuation warning and expect an imminent correction. 

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

     

     An archive of this weekly newsletter is available here.

     
     
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