September 28, 2012

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The ValuEngine Weekly is an Investor Education newsletter focused on the quantitative approach to investing and the tools available from ValuEngine.com. 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!

MARKET OVERVIEW

Index
DJIA NASDAQ RUSSELL 2000 S&P 500

Week Open
13577.85 3155.35 851.59 1459.76

Thurs. Close
13486 3136.6 843.54 1447.15

Change
-91.85 -18.75 -8.05 -12.61

% Change
-0.68% -0.59% -0.95% -0.86%

YTD
10.38% 20.40% 13.85% 15.07%

Summary of VE Stock Universe

Stocks Undervalued Stocks Overvalued Stocks Undervalued by 20% Stocks Overvalued by 20% 50.70% 49.30% 20.85% 17.90%

SECTOR OVERVIEW
Sector
Aerospace Auto-Tires-Trucks Basic Materials Business Services Computer and Technology Construction Consumer Discretionary Consumer Staples Finance Industrial Products Medical Multi-Sector Conglomerates Oils-Energy Retail-Wholesale Transportation Utilities

Change
1.55% 0.16% 1.53% 0.40% 1.21% 1.01% 0.92% 1.18% 0.75% 0.88% 0.90% 1.21% 1.34% 0.84% 0.69% 0.60%

MTD
3.92% -0.56% 6.87% 4.24% 3.55% 6.84% 4.50% 3.60% 5.78% 2.88% 5.18% 5.76% 3.43% 4.51% 2.59% 3.39%

YTD
7.89% 3.36% 7.17% 10.40% 11.03% 97.42% 17.12% 17.70% 28.78% 8.16% 24.08% 15.58% -4.71% 17.78% 9.02% 4.14%

Valuation
0.44% undervalued 7.36% undervalued 7.30% overvalued 6.67% overvalued 9.55% overvalued 9.52% overvalued 8.05% overvalued 14.52% overvalued 13.41% overvalued 4.40% overvalued 14.89% overvalued 0.63% undervalued 3.63% overvalued 12.93% overvalued 0.32% undervalued 17.85% overvalued

Last 12MReturn
5.98% 6.38% -13.23% 16.93% 6.84% 34.13% 12.27% 10.65% 19.28% 7.44% 11.37% 17.81% -3.06% 21.60% 2.68% 7.11%

P/E Ratio
18.2 16.01 26.67 28.99 42.79 45.99 34.09 20.92 18.88 19.33 44.75 14.24 33.5 21.44 31.98 19.49

Sector TalkConstruction
Below, we present the latest data on leading Aerospace/Defense 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

Ticker
DY URS SHW JEC RYN

Name
DYCOM INDS URS CORP SHERWIN WILLIAM JACOBS ENGIN GR RAYONIER INC

Mkt Price
14.55 35.4 148.73 40.86 48.9

Valuation(%)
-42.58 -21.02 27.54 -26.09 4.21

Last 12-M Retn(%)

-11.06 16.49 98.02 17.28 33.13

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

Ticker
SHW WOSYY WY CBI URI

Name
SHERWIN WILLIAM WOLSELEY -ADR WEYERHAEUSER CO CHICAGO BRIDGE UTD RENTALS INC

Mkt Price
148.73 4.3 26.69 38.15 33.33

Valuation(%)
27.54 N/A 11.24 -21.22 16.43

Last 12-M Retn(%)

98.02 87.77 66.4 24.39 86.51

Top-Five Construction Sector Stocks--Composite Score

Ticker
ICA CBI URS JEC KBR

Name
EMPRESAS ICA CHICAGO BRIDGE URS CORP JACOBS ENGIN GR KBR INC

Mkt Price
7.79 38.15 35.4 40.86 30.1

Valuation(%)
-67.82 -21.22 -21.02 -26.09 -14.94

Last 12-M Retn(%)

58.01 24.39 16.49 17.28 16.89

Top-Five Construction Sector Stocks--Most Overvalued

Ticker
TPC GFA LEN PHM ORN

Name
TUTOR PERINI CP GAFISA SA-ADR LENNAR CORP -A PULTE GROUP ONC ORION MARINE GP

Mkt Price
11.54 4.39 35.26 15.64 7.5

Valuation(%)
300 149.98 64.92 57.09 49.07

Last 12-M Retn(%)

-6.26 -33.59 159.07 275.96 19.81

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What's HotUndervaluation Continues to Decline

It's time for our monthly look at our overall market valuation figures. 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 use this metric to get an overall snapshot of the market and to discern if stocks are a bargain or overpriced. In the past, the valuation figures have correlated fairly well to market tops and have signaled impending pull backs. Whenever we see overvaluation levels in excess of @ 60% for the overall universe, we issue a valuation watch. We do not have a similar metric for the undervaluation levels, but we generally find that when stocks are calculated to be more than 75% undervalued overall it is time to do some bargain hunting. Subscribers Get FULL ACCESS to our Market and Sector Overviews In the chart below, you can see that our Valuation Model finds that the market is split almost right down the middle. We now have 51% stocks calculated to be undervalued and 49% overvalued. This is most certainly "normal" but the trend has changed from what we saw at the beginning of the Summer. Back in early June, we had levels around 80%, but since then they have receded.

From this chart we see that the old maxim of "Sell in May and Go Away" was not good advice. As is typical, in US presidential election years the market bucks the trend and this time we saw some great gains. For example, our ValuEngine View Portfolio Newsletter posted positive returns every month this Summer and is now beating the S&P 500 benchmark with returns of 43.97% to the S&P's 22.77% over the past twelve months. For reference, here is a longer-term chart which tracks the metrics back to March, 2010. Note that undervaluation levels peaked in excess of 90% last Summer and we never saw that sort of very high undervaluation level after our pullback in late Spring of this year.

As of right now, we do NOT see the sort of overvalued condition which has preceded steep pull backs in the past. We must also contend with the market effects of the Fed's QE III program. So far, markets appear to be following the established pattern of a slight pull back as traders "sell the news." With prior Fed interventions, these slight dips were followed by another leg up for equities.

Finally, here is the updated chart tracking the levels back to March, 2007. Here you see that we can have severe levels of undervaluation persist for long periods of time whereas the red overvaluation warning signals provide a more timely sell signal.

Suttmeier Says
--Commentary and Analysis from Chief Market Strategist Richard Suttmeier
If you have any comments or questions, send them to Rsuttmeier@Gmail.com Treasury Yields 10-Year--(1.639) Weekly, quarterly and semiannual value levels are 1.854, 1.869, 1.853 and 2.502 with a monthly pivot at 1.620, and daily and semiannual risky levels at 1.588 and 1.389. The weekly chart favors higher yields give a weekly close above the five-week modified moving average at 1.697.

Commodities and Forex Comex Gold ($1779.8) Semiannual, and annual value levels are $1702.5, $1643.3 and $1575.8 with monthly, daily and weekly pivots at $1753.7, $1779.9 and $1768.3, and quarterly risky levels at $1805.8 and $1856.6. The weekly chart stays positive but overbought on a weekly close above the five-week modified moving average at $1697.8. Nymex Crude Oil ($92.10) Daily and semiannual value levels are $88.21 and $76.71 with my monthly pivot at $93.30, and weekly, annual and quarterly risky levels at $99.84, $103.58, $107.63 and $117.00. The weekly chart shifts to negative on a weekly close below the five-week modified moving average at $94.26. The Euro (1.2911) Daily and monthly value levels 1.2793 and 1.2714 with a semiannual pivot at 1.2917, and weekly, annual and quarterly risky levels at 1.3028, 1.4239 and 1.4583. The weekly chart stays positive on a weekly close above the fiveweek modified moving average at 1.2700. Major Indices Daily Dow: (13,486) Annual and semiannual value levels are 12,312 and 10,738 with a daily pivot at 13,496, and weekly monthly, annual and quarterly risky levels at 13,566, 13,666, 14,032 and 14,493. The weekly chart profile stays positive but overbought on a weekly close above the five-week modified moving average at 13,268. S&P 500 (1447.2) Annual and semiannual value levels are 1363.2 and 1059.7 with a daily pivot at 1442.6, and weekly, monthly, quarterly and annual risky levels at 1471.1, 1486.7, 1539.8 and 1562.9. The weekly chart profile stays positive but overbought on a weekly close above the five-week modified moving average at 1422.2. NASDAQ (3137) Annual and semiannual value levels are 2698 and 2527 with a daily pivot at 3124, and weekly, annual, monthly and quarterly risky levels at 3238, 3232, 3340 and 3348. The weekly chart profile stays positive but overbought on a weekly close above the five-week MMA at 3085. NASDAQ 100 (NDX) (2822) Annual and semiannual value levels are 2603, 2300 and 2239 with a daily pivot at 2814, and weekly, quarterly and monthly risky levels at 2938, 2991 and 3033. The weekly chart profile stays positive but overbought on a weekly close above the five-week MMA at 2775.

Dow Transports (4941) Daily and semiannual value levels are 4800, 4449 and 4129 with weekly, monthly, quarterly and annual risky levels at 5002, 5279, 5410 and 5861. The weekly level was tested on Tuesday. The weekly chart profile stays negative on a weekly close below the five-week MMA at 5075. The all time high is 5627.85 set on July 7, 2011. Russell 2000 (843.54) My semiannual value level lags at 686.25 with daily and annual pivots at 837.08 and 836.15, and weekly, monthly, quarterly and annual risky levels at 859.38, 864.06, 877.61, 933.42 and 969.09. The weekly chart profile stays positive but overbought with a weekly close above the five-week MMA at 827.66. The all time high is 868.57 set on May 2, 2011 was nearly tested on September 14, 2012. The SOX (385.46) Daily and semiannual value levels are 376.49 and 326.30 with weekly, monthly and quarterly risky levels at 414.54, 438.90 and 450.28. The weekly chart profile shifts to negative on a weekly close below the fiveweek modified moving average at 395.54.

Stock of the Day One of the more popular features of Richard Suttmeier's Morning Briefing for investors is his stock of the day. In every issue, Suttmeier highlights one stock and provides VE data as well as his own proprietary technical data. Here is today's stock of the day from Richard Suttmeier's Morning Briefing Newsletter. Caterpillar (CAT) ($86.92) has a Buy rating according to ValuEngine with fair value at $107.18, which makes the stock 18.9% undervalued. The ValuEngine oneyear price target is $92.79. ValuEngine Profile Caterpillar Inc is the world's largest manufacturer of construction and mining equipment, diesel and natural gas engines and industrial gas turbines. The company is one of only a handful of U.S. companies that leads its industry while competing globally from a principally domestic manufacturing base. The company records more than half of its sales to overseas customers. Their products are used in the construction, road building, mining, forestry, energy, transportation and material-handling industries.

Analysis The daily chart for CAT shows declining momentum with the stock below its 21-day simple moving average at $88.47, on the cusp of its 50-day SMA at $87.10 and below its 200-day SMA at $96.23. My semiannual value level is $71.80 with my annual risky level at $96.65.

Richard Suttmeier's Morning Briefing, you get daily analysis of US Treasury Yields, Gold, Crude Oil, and Currency Exchange Rates--Dollar, Yen, Pound, and Euro-as well as key technical indicators for the major equity averages.

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