ValuEngine Weekly Newsletter January 7, 2011

 

 

January 7, 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. VALUATION WARNING:  Our models find that overvaluation is approaching levels typically seen when a market correction is imminent. Overvalued stocks now make up 64% of our universe and more than 32% of the universe is calculated to be overvalued by 20% or more.  15 of 16 Sectors are now calculated to be overvalued Seeking Alpha Readers should check out our Seeking Alpha VE Investment App HERE 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 Melco Crown Entertainment (MPEL).  This week we reported on a variety of our Forecast Model's recent success stories.  Melco Crown was one of them.   When we completed our last re-balance of the ValuEngine Forecast Model Market Neutral Strategy Portfolio Newsletter, subscribers received two picks from the Consumer Discretionary Sector.    The first pick, Hyatt Hotels (H) is up more than 5%.  The second pick, Melco Crown is an owner and developer of casino gaming and entertainment resort facilities focused on the market found in Macau. Since being selected as one of our top two stocks in the sector 21 days ago, Melco Crown Entertainment is up more than 22%.    Currently, ValuEngine maintains its BUY recommendation for Melco Crown Entertainment. Based on the information we have gathered and our resulting research, we feel that Melco Crown Entertainment has the probability to OUTPERFORM average market performance for the next year. The company exhibits ATTRACTIVE momentum, company size and expected EPS growth.   Based on available data as of today, we believe that MPEL should be trading at $6.05. This makes MPEL 13.60% overvalued. 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 MPEL, we base this on actual earnings per share (EPS) for the previous four quarters of -$0.15, forecasted EPS for the next four quarters of -$0.05, and correlations to the 30- year Treasury bond yield of 4.53%.   Subscribers can check out the latest figures on MPEL from our models HERE.  You can always screen for top-forecast stocks using our VE software package or our website.  Not a ValuEngine Premium Website member?  Then please consider signing up for our no obligation, two-week free trial today.  Weekly Subscribers can download a FREE Detailed Valuation Report on MPEL 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 Wed. Close Change % Change YTD DJIA 11577.43 11697.31 119.88 1.04% 0.88% NASDAQ 2676.65 2709.89 33.24 1.24% 1.92% RUSSELL 2000 793.54 791.42 -2.12 -0.27% 1.07% S&P 500 1257.62 1273.85 16.23 1.29% 1.01% ValuEngine Market Overview Summary of VE Stock Universe Stocks Undervalued 35.46% Stocks Overvalued 64.54% Stocks Undervalued by 20% 16.18% Stocks Overvalued by 20% 32.27% . ValuEngine Sector Overview Sector Change MTD YTD Valuation Last 12-MReturn P/E Ratio Basic Materials -1.35% -2.67% -2.67% 30.54% overvalued 54.70% 37.21 Oils-Energy -0.61% -0.46% -0.46% 28.09% overvalued 28.94% 41.67 Multi-Sector Conglomerates -0.53% -0.19% -0.19% 18.21% overvalued 29.93% 30.41 Industrial Products -0.29% -0.56% -0.56% 17.97% overvalued 28.70% 26.39 Auto-Tires-Trucks -0.71% 1.13% 1.13% 17.88% overvalued 44.18% 26.67 Transportation -0.27% 0.07% 0.07% 15.98% overvalued 28.84% 42.97 Aerospace 0.94% 1.77% 1.77% 12.46% overvalued 32.96% 20.62 Computer and Technology 0.33% 7.71% 1.41% 11.92% overvalued 32.59% 44.85 Consumer Staples -0.31% -1.04% -1.04% 11.84% overvalued 16.32% 27.83 Retail-Wholesale -0.78% -1.20% -1.20% 10.17% overvalued 52.71% 22.19 Finance -0.22% -0.04% -0.04% 10.05% overvalued 19.09% 25.31 Business Services 0.02% 0.85% 0.85% 9.02% overvalued 19.00% 30.17 Construction 0.33% 0.06% 0.06% 8.85% overvalued 10.33% 38.69 Utilities -0.55% -0.75% -0.75% 8.83% overvalued 12.30% 25.61 Consumer Discretionary -0.38% 0.14% 0.14% 8.23% overvalued 23.98% 31.54 Medical 0.10% 0.66% 0.66% 1.44% undervalued 18.49% 37.82   Sector Talk--Computers and Technology   Below, we present top-five lists for the Computers and Technology 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 Computers and Technology Stocks--Short-Term Forecast Returns Ticker Name Mkt Price Valuation(%) Last 12-M Retn(%) SATC SATCON TECH CRP 4.94 -32.34 78.34 INFN INFINERA CORP 11.06 16.58 21.41 SNIC SONIC SOLUTIONS 14.88 83.34 27.51 ZSTN ZST DIGITAL NET 6.74 1.35 -29.42 TSTC TELESTONE TECH 10.35 4.54 -57.13 Top-Five Computers and Technology Stocks--Long-Term Forecast Returns Ticker Name Mkt Price Valuation(%) Last 12-M Retn(%) SATC SATCON TECH CRP 4.94 -32.34 78.34 INFN INFINERA CORP 11.06 16.58 21.41 SNIC SONIC SOLUTIONS 14.88 83.34 27.51 ZSTN ZST DIGITAL NET 6.74 1.35 -29.42 TSTC TELESTONE TECH 10.35 4.54 -57.13 Top-Five Computers and Technology Stocks--Composite Score Ticker Name Mkt Price Valuation(%) Last 12-M Retn(%) LXK LEXMARK INTL 35.05 -29.62 31.42 XRX XEROX CORP 11.46 -18.21 36.27 ICGE INTERNET CAP GP 13.74 -75 115.7 XRTX XYRATEX LTD 17.12 -20.83 25.42 NCR NCR CORP-NEW 16.62 -47.43 43.77 Top-Five Computers and Technology Stocks--Most Overvalued Ticker Name Mkt Price Valuation(%) Last 12-M Retn(%) MSI MOTOROLA INC 39.68 256.79 17.4 ARMH ARM HOLDNGS ADR 21.78 157.84 140.93 MIPS MIPS TECH INC 17.34 141.94 285.33 TMRK TERREMARK WRLWD 14.08 126.25 88.99 N NETSUITE INC 28.59 116.12 77.36  Seeking Alpha Readers should check out our Seeking Alpha VE Investment App HERE   Currently, you research more than 400 ADRs and other foreign stocks with ValuEngine's software and website!  We also offer research reports on more than 700 Canadian Companies on our Research Report Web Page. . What's Hot Model Calculations Show Overvaluation Hitting Critical Levels   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 reached levels strongly correlated with market corrections in the past.    Whenever we see levels in overvaluation levels in excess of @ 65% for the overall universe and 30% for the overvalued by 20% or more categories, we issue a valuation warning.    ValuEngine issued a market valuation watch on December 15th.  Since then the market has continued to climb and our models have only increased the levels of calculated overvaluation.   We hit the 65%/30% metric yesterday.    Based on yesterday's model calculations, ValuEngine has issued a market valuation warning.  We reiterate again that this is a time for investors to keep a close eye on the market, tighten their stop losses, book some profits, and hedge 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% 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.  As you can see from the chart below, the level of overvaluation for many sectors has also increased since we issued our valuation watch December 15th. Sector 12/15/2010 1/7/2011 Aerospace 7.51% overvalued 12.46% overvalued Auto-Tires-Trucks 14.28% overvalued 17.88% overvalued Basic Materials 29.55% overvalued 30.54% overvalued Business Services 6.52% overvalued 9.02% overvalued Computer and Technology 7.22% overvalued 11.92% overvalued Construction 5.94% overvalued 8.85% overvalued Consumer Discretionary 6.24% overvalued 8.23% overvalued Consumer Staples 11.45% overvalued 11.84% overvalued Finance 7.25% overvalued 10.05% overvalued Industrial Products 15.30% overvalued 17.97% overvalued Medical 5.48% undervalued 1.44% undervalued Multi-Sector Conglomerates 14.70% overvalued 18.21% overvalued Oils-Energy 22.95% overvalued 28.09% overvalued Retail-Wholesale 9.36% overvalued 10.17% overvalued Transportation 12.04% overvalued 15.98% overvalued Utilities 8.23% overvalued 8.83% overvalued SP 500 1241.59 1273.85   VAL WATCH VAL WARNING   In the past, our Chief Market Strategist Richard Suttmeier has used the sector valuation figures to buttress his macro market calls.  Almost 14 of the 16 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 yesterday.   This chart shows universe overvalued by 20% or more levels in excess of 30% vs the S&P 500 from 1991 up until yesterday.   As you can see from the charts, in many cases in the past the spikes in overvaluation--particularly the overvalued by 20% or more metric--provided a timely signal of an impending correction.   Our most recent valuation watch occurred in late April 2010, just as the market headed down for the Summer.Seeking Alpha Readers should check out our Seeking Alpha VE Investment App HERE   . Click the icon below to hear VE Chief Market Strategist Richard Suttmeier on TheStreet.com's "The Real Story" Podcast      An archive of this weekly newsletter is available here.