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July 23, 2010 The ValuEngine Weekly is an Investor Education newsletter focused on the quantitative

July 23, 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.

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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 UNITED PARCEL SERVICE (UPS). ValuEngine has issued a BUY recommendation for UNITED PARCEL SERVICE. Based on the information we have gathered and our resulting research, we feel that UNITED PARCEL SERVICE has the probability to OUTPERFORM average market performance for the next year. The company exhibits ATTRACTIVE company size, volatility and market valuation.

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MARKET OVERVIEW Index started week Thursday Close 4 day change 4 day change % ytd

MARKET OVERVIEW

Index

started week

Thursday Close

4 day change

4 day change %

ytd

DJIA

10098.12

10322.3

224.18

2.22%

-1.04%

NASDAQ

2185.81

2245.89

60.08

2.75%

-2.11%

RUSSELL 2000

612.26

635.48

23.22

3.79%

1.17%

S&P 500

1066.85

1093.67

26.82

2.51%

-2.05%

Summary of VE Stock Universe

Summary of VE Stock Universe

Stocks Undervalued

Stocks Overvalued

Stocks Undervalued by 20%

Stocks Overvalued by 20%

68.95%

31.05%

34.50%

10.75%

SECTOR OVERVIEW

Sector

Change

MTD

YTD

Valuation

Last 12-

P/E Ratio

MReturn

Basic Industries

2.77%

6.47%

34.57%

8.74% undervalued

32.54%

22.72

Capital Goods

2.79%

5.90%

4.06%

10.42% undervalued

24.60%

20.57

Consumer Durables

3.42%

7.13%

3.17%

17.57% undervalued

42.18%

17.16

Consumer Non-Durables

1.90%

4.98%

-0.05%

10.45% undervalued

30.45%

17.24

Consumer Services

2.66%

5.57%

3.34%

14.19% undervalued

27.71%

20.55

Energy

2.79%

8.76%

-5.18%

5.57% undervalued

33.00%

24.4

Finance

2.09%

3.06%

8.65%

10.47% undervalued

15.08%

17.13

Health Care

1.56%

5.83%

1.65%

20.10% undervalued

17.94%

19.82

Public Utilities

2.15%

5.18%

-3.65%

8.49% undervalued

16.16%

17.45

Technology

2.61%

5.42%

5.38%

15.48% undervalued

31.09%

26.66

Transportation

2.56%

6.05%

5.23%

6.29% undervalued

29.61%

19.5

Sector Talk—Transportation Recently, we have seen a plethora of Transportation Sector firms near the top

Sector Talk—Transportation

Recently, we have seen a plethora of Transportation Sector firms near the top of our forecast figures. This may serve as a bullish signal since shipping firms are often considered to be leading indicators of economic recovery--Dow Theory.

Below, we present various top-five lists for the Transportation Sector from our Institutional software package (VEI). We included liquidity or share price requirements of 100k shares/day and $2 share in our screen and we only included results that had full data--forecast and valuation figures present.

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

   

Mkt

Valuation

Last 12-M

Ticker

Name

Price

(%)

Retn(%)

ABFS

ARKANSAS BEST CORP

21.75

-17.19

-9.83

AMR

AMR CORPORATION

6.79

-44.75

59.76

LCC

US AIRWAYS GROUP INC

9.85

-59.7

380.49

UAUA

UAL CORPORATION

22.78

-32.45

577.98

HRZ

HORIZON LINES INC

4.06

-59.84

10.33

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

   

Mkt

Valuation

Last 12-M

Ticker

Name

Price

(%)

Retn(%)

ABFS

ARKANSAS BEST CORP

21.75

-17.19

-9.83

AMR

AMR CORPORATION

6.79

-44.75

59.76

UPS

UNITED PARCEL SERVICE-CL B

63.15

-14.75

24.61

CHRW

CH ROBINSON WORLDWIDE INC

59.4

-4.03

13.38

NSC

NORFOLK SOUTHERN CORP

54.68

-19.67

28.03

Top-Five Transportation Sector Stocks--Composite Score

   

Mkt

Valuation

Last 12-M

Ticker

Name

Price

(%)

Retn(%)

GOL

GOL LINHAS AEREAS INTELIGENTES S

13.38

-25.79

80.81

CSX

CSX CORPORATION

51.72

-17.88

33.57

LCC

US AIRWAYS GROUP INC

9.85

-59.7

380.49

NSC

NORFOLK SOUTHERN CORP

54.68

-19.67

28.03

SSW

SEASPAN CORP

10.34

-42.17

70.91

Top-Five Transportation Sector Stocks--Most Overvalued     Mkt Valuation Last 12-M Ticker Name

Top-Five Transportation Sector Stocks--Most Overvalued

   

Mkt

Valuation

Last 12-M

Ticker

Name

Price

(%)

Retn(%)

KSP

K-SEA TRANSPORTATION PARTNERS LP

5.53

133.99

-73.38

PACR

PACER INTERNATIONAL INC.

7.66

74.06

314.05

NMM

NAVIOS MARITIME PARTNERS LP

17.82

52.08

85.62

TOO

TEEKAY OFFSHORE PARTNERS LP

23.29

31.8

63.32

LFL

LAN AIRLINES SA

23.02

31.3

86.85

VE Premium Website Stock Analysis subscribers can find complete valuation, forecast, and ratings data on every individual equity in the Transportaion Sector HERE.

Not a ValuEngine Premium Website member? Then please consider signing up for our no obligation, two-week free trial today.

To Sign Up for a FREE TRIAL, Please Click the Logo Below

To Sign Up for a FREE TRIAL, Please Click the Logo Below --The ValuEngine Forecast 22

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Neutral Strategy Newsletter Portfolio, Click the Logo Below Catching Up with TK Ng Explorations of Beta

Catching Up with TK Ng

Explorations of Beta and Market Sentiment Continued

Former ValuEngine Analyst and Quant Guru Tk Ng published the following on his new blog Technifundamentals this week. It has been edited for presentation in our newsletter. The complete version--along with other content of interest, can be found HERE.

Editor's Note: The Following was published by TK Ng on July 17, 2010. The discussion

Editor's Note: The Following was published by TK Ng on July 17, 2010. The discussion applies to market activity for the week ending July 16th, and the predictions provided apply to the market's activity for the past week.

This week, we continue our exercise with ValuEngine and our Viscovery SOMine Software.

NOTE: For a summary of our terms, theory, and practice, see HERE.

The basic method for using Beta calculations and visual finance to gauge market sentiment/direction is this: a SOM of the component stocks of the S&P500 is constructed. This SOM represents the basic topology of the market. We also create six stock portfolios based on the Long and Short sides of the three ValuEngine benchmark portfolio strategy screens. Remember that the VE Standard Strategy= Valuation; VE Forecast Strategy= Growth, and VE Star Strategy= Quality.* We then plot our initial basket against the backdrop of the S&P500 component stocks and examine the clusters of the resultant SOM.

*NOTE: Subscribers can run their own screens for the long sides of the benchmark portfolio strategies HERE

Prior to overlaying on the SOM, each of our ValuEngine picks is labeled with their benchmark strategy, the sector they belong to, and whether they are Long or Short positions. The position of a label is approximately the position of the node on the SOM that the stock occupies. The S&P500 component stocks are not labeled and the empty spaces represent the nodes on the SOM that they occupy.

This week, we have made some improvements to the model. The attribute windows are now much more defined [more colorful] and we plot the transforms of the attributes instead of the original values. Defining nominals and using interpolation, we can now plot Short/Long as well Type [V,G,Q] on the SOM where 1= the presence of a defined nominal and 0= absence. The difference between our indicators and ordinary technical analysis indicators is that our technicals are based on fundamentals viz using ValuEngine pre-screened stocks.

Here is our initial SOM: B=Basic Industries, C=Capital Goods, D=Consumer Durables, ND=ConsumerNonDurables, S=Consumer

Here is our initial SOM:

Here is our initial SOM: B=Basic Industries, C=Capital Goods, D=Consumer Durables, ND=ConsumerNonDurables, S=Consumer

B=Basic Industries, C=Capital Goods, D=Consumer Durables, ND=ConsumerNonDurables, S=Consumer Services, E=Energy, F=Finance, H=HealthCare, T=Technology, TP=Transportation, U=Public Utilities. V=Valuation, G=Growth, Q=Quality.

The L stocks are mostly in cluster S2 but a number of them are also in S3-- which

has a majority of S stocks. This 'dilutes' the strength of the signal, and we have a rather

ambivalent market outlook.

and Q stocks as well stocks from Sectors B,C,D, E,F,H,ND,S,T,TP,or U are distributed almost randomly over the topology of the SOM.

Type-wise or Sector-wise there is no clear pattern. V, G

Here are the individual Cluster stats: The length of the bars denoting our Model variables

Here are the individual Cluster stats:

Here are the individual Cluster stats: The length of the bars denoting our Model variables above

The length of the bars denoting our Model variables above measures the deviation of the cluster Mean from the Mean of the entire data set. Thus, the longer the bars, the more those stocks in the cluster with those bars will differ from the performance of the Index as represented by S1 bars. Here we see that the bars for Short/Long are negative in S1 [which contains most of the S&P500 components] and S3, and only positive in S2. Comparing the length of the bars in S2(L cluster) and S3(S cluster), in general the S3 bars are longer. This implies that Bearish indicators as represented in S3 have a stronger signal strength than the Bullish indicators in S2. On balance the outlook is more Bearish than Bullish.

Here we have a break out of our long and short picks from the VE

Here we have a break out of our long and short picks from the VE screens.

a break out of our long and short picks from the VE screens. B=Basic Industries, C=Capital

B=Basic Industries, C=Capital Goods, D=Consumer Durables, ND=ConsumerNonDurables, S=Consumer Services, E=Energy, F=Finance, H=HealthCare, T=Technology, TP=Transportation, U=Public Utilities. V=Valuation, G=Growth, Q=Quality.

The long picks are in red while the shorts are blue. The red area is slightly bigger than the blue area, but the blue area is more defined-- with our short stocks bunched in a sub-cluster-- i.e. the nodes of our short picks are closer together. On the other hand--besides the sub-cluster of long stocks, the other longs are spread sparsely over the red area. On a SOM this indicates a less homogenous grouping. So again, the outlook is more Bearish than Bullish.

Here is the SOM with the top BETA figures highlighted: B=Basic Industries, C=Capital Goods, D=Consumer

Here is the SOM with the top BETA figures highlighted:

Here is the SOM with the top BETA figures highlighted: B=Basic Industries, C=Capital Goods, D=Consumer Durables,

B=Basic Industries, C=Capital Goods, D=Consumer Durables, ND=ConsumerNonDurables, S=Consumer Services, E=Energy, F=Finance, H=HealthCare, T=Technology, TP=Transportation, U=Public Utilities. V=Valuation, G=Growth, Q=Quality.

The average Beta of S2 Bullish cluster is 2.13 while the average Beta of the S3 Bearish sector is 1.71. This also shows us that the risk is greater on the Bullish side.

Let's take a look at some selected VE screening results that we find plotted in

Let's take a look at some selected VE screening results that we find plotted in S2:

Ticker

Company Name

Mkt

Valuation

P/E

Beta

Sector

Price

(%)

Ratio

AMKR

AMKOR TECHNOLOGY INC

5.76

-41.74

6.13

2.5

TECHNOLOGY

CBT

CABOT CORPORATION

26.23

-36.14

11.37

1.64

BASIC INDUSTRIES

CBI

CHICAGO BRIDGE & IRON

20.33

-40.73

12.07

2.39

CAPITAL GOODS

CLF

CLIFFS NATURAL RESOURCES INC

54.52

-28.73

13.22

2.65

BASIC INDUSTRIES

           

CONSUMER

DDS

DILLARD INC

22.35

-38.33

13.71

2.61

SERVICES

           

CONSUMER

F

FORD MOTOR CO

12.09

8.28

7.85

2.51

DURABLES

GNW

GENWORTH FINANCIAL INC

15

48.48

15.85

3.38

FINANCE

           

CONSUMER

HAR

HARMAN INTL INDS INC

31.26

-45.61

33.33

2.06

SERVICES

HIG

HARTFORD FINANCIAL SERVICES GP

23.04

-11.96

5.64

3.13

FINANCE

JBL

JABIL CIRCUIT INCORPORATED

15.09

-34.15

16.7

1.94

TECHNOLOGY

LSI

LSI CORP

4.86

-45.2

11.42

1.71

TECHNOLOGY

MWV

MEADWESTVACO CORP

23.91

-27.16

20.65

1.77

BASIC INDUSTRIES

SNDK

SANDISK CORPORATION

43.1

-30.57

12.13

1.69

TECHNOLOGY

SLG

SL GREEN REALTY CP

56.3

-22.78

14.31

2.63

FINANCE

           

CONSUMER

HOT

STARWOOD HOTELS & RESORTS WORL

45.45

9.35

44.34

2.02

SERVICES

THC

TENET HEALTHCARE CORPORATION

4.28

-38.92

13.38

2.08

HEALTH CARE

TXT

TEXTRON INC

20.2

-14.85

54.05

2.83

CAPITAL GOODS

UIS

UNISYS CORPORATION

22.29

-41.49

4.89

3.72

TECHNOLOGY

           

CONSUMER

WYN

WYNDHAM WORLDWIDE CORP

22.07

23.91

12.64

3.27

SERVICES

The S&P was down by about 1 % last week--while we had predicted a mild Bullish outlook. Most of the down action happened on Friday (-2.88 %), so our prediction was not such a disaster. But, being based on fundamentals means that it's not unusual to see selected stocks fall-- as short-term noise clouds the fundamentals-- only to rise again the week after. This is the case for one of last week's stocks- Gannet GCI. Gannett posted decent results earning 61 cents per share--up from last year's 30 cents a share-- and beat analysts' estimates of 53 cents a share. However, despite the beat the share price took a dive of more than 10%.

In my mind, this week's exercise perfectly illustrates the market at this point in time--a slightly bearish outlook with more risk to longs. If you must play the market, it may be wise to avoid picking stocks for the short term and consider something safer and less volatile--like buying a reverse ETF of the S&P500.

--New FREE Daily Newsletter Now Available Richard Suttmeier is ValuEngine's Chief Market Strategist. With our

--New FREE Daily Newsletter Now Available

Richard Suttmeier is ValuEngine's Chief Market Strategist.

With our new FREE ValuEngine Four-in-Four Daily Newsletter, you'll start your trading day with critical market information from the Chief Market Strategist who:

market information from the Chief Market Strategist who: 1. Correctly called the bottom of the market

1. Correctly called the bottom of the market downturn in March, 2009

2. Warned of an impending housing meltdown in early 2005

3. Predicted the most recent market correction in April, 2010.

Our Four-in-Four brings you ValuEngine Chief Market Strategist Richard Suttmeier's latest thoughts and analysis on market trends, key indices, individual stocks, the regulatory environment, and much, much more.

Richard uses his 35 years of experience as a bond-trader, technical analysis, and the fundamentally-powered, quant-based systems at ValuEngine to write his Four-in-Four newsletter every trading day. We are offering it FREE to you now because Richard's insights have been so helpful to the investment strategies of our clients in the past.

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Suttmeier Says --Commentary and Analysis from Chief Market Strategist Richard Suttmeier If you have any

Suttmeier Says

--Commentary and Analysis from Chief Market Strategist Richard Suttmeier

If you have any comments or questions, send them to Rsuttmeier@Gmail.com

ATTENTION ValuEngine Clients:

featured speaker at the Market Technicians Association Meeting to be held at Bloomberg Headquarters at 5:30 PM on Monday, August 9, 2010.

Richard Suttmeier will be the

Topics will Include the Following:

Suttmeier will be the Topics will Include the Following: • Prospects for the Housing Market •

Prospects for the Housing Market

The Community Banking Sector

Are We in a Multi-Year Bear Market?

Is Buy and Hold Dead as an Investment Strategy?

ValuEngine clients in the New York area interested in attending should contact Suttmeier. To attend, please RSVP to rsuttmeier@gmail.com and include your first and last name, company name, address, email address, and phone number. You must RSVP to Suttmeier with your info no later than Friday August 6th so that your info can be processed by Bloomberg security prior to the event.

Treasury Yields The 10-Year is at (2.926) The weekly chart shows that the decline in yields is overdone. The low yield for the move was 2.853 set on July 21st, and was a failed test of my 2.999 and 2.813 annual risky levels. Next week the US Treasury auctions $39 billion in 2-Year notes on Tuesday, $37 billion 5-Year notes on Wednesday and $29 billion 7-Year notes on Thursday.

Commodities and Forex

Comex Gold--($1194.8) The weekly chart for gold stays negative on a weekly close below the five-week modified moving average at $1206.3. The all time high of $1266.5 set on June 21st was a test of June’s monthly resistance, as a significant top for gold.

Nymex Crude---($78.96) A close today above my annual pivot at $77.05 and my monthly risky

Nymex Crude---($78.96) A close today above my annual pivot at $77.05 and my monthly risky level at $79.36, which was tested on Thursday indicates upside to my semiannual risky level at $83.94.

The Euro--(1.2886) The weekly chart stays positive on a weekly close above the five- week modified moving average at 1.2674.

Major Indices

The Dow--

(10,322) This week’s pivot is 10,019 with daily and annual pivots at 10,303 and

10,379, and semiannual and monthly risky levels at 10,558 and 10,891. My quarterly value level is 7,812 with my annual risky level at 11,235, which was tested at the April 26th high at 11,258. This test marked the end of the bear market rally that began in March 2009. We are in the second leg of the multi-year bear market that began in October 2007 targeting 8,500 before 11,500.

Daily:

Weekly: The April 26th high of 11,258 was a test of the 61.8% Fibonacci Retracement of the decline from October 2007 high to the March 2009 low. Note also the failed test of the 200-week simple moving average now at 11,071 and the failed test of my annual risky level at 11,235. MOJO is flat and a weekly closes above the 5-week modified moving average at 10,190 shifts the weekly chart profile to positive.

Monthly: The monthly chart now shows declining technical momentum after being oversold and monthly closes below the five-month modified moving average at 10,169 keeps the monthly chart to negative. The 120-month simple moving average is a resistance at 10,452.

Housing

Housing Starts fell 5% in June led by a 21.5% decline in multifamily units. Single- family housing starts were essentially unchanged for the month-- at an annual rate of 454,000 units. The total annual production rate was at a 549,000. This was followed by a decline in the National Association of Home Builders Housing Market Index--which fell to 14 from 16 in July. Building permits rose 2.1% in June-- with permits for single- family homes down 3.4%.

The Obama Administration’s program to help homeowners refinance (HAMP) has hit a snag. Last month,

The Obama Administration’s program to help homeowners refinance (HAMP) has hit a snag. Last month, 530,000 mortgage borrowers dropped out of the program--which is more than 40% of the nearly 1.3 million who enrolled since March 2009. This is a clear sign that another wave of foreclosures are on the horizon.

The game changer seems to be that homeowners dropped out rather than provide proof of income--which is a direct link between having a job and owning a home. Borrowers have also been complain about paperwork snafus-- saying that banks are losing documentation.

In addition, many who get proposals for modifications from their bank say "thanks but no thanks" because they still cannot afford the proposed lower payment. Data from the Government Accountability Office (GAO) indicates that through mid-May only $132 million of the $75 billion allocated for the program has been distributed.

The bottom line is that housing activity continues to suffer.

--The ValuTrader Model Portfolio Newsletter

The ValuTrader Model Portfolio Newsletter is based on ValuEngine Chief Market Strategist Richard Suttmeier's proprietary market analytics. Suttmeier combines his technical analysis expertise with ValuEngine's proprietary valuation, forecast, and ratings data for more than 4000 equities trading on US markets to come up with a 20 stock portfolio tailored to current market conditions. With ValuTrader, subscribers access Suttmeier's "Buy and Trade" strategy with a portfolio designed to function well in both up and down markets.

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function well in both up and down markets. For more on the Suttmeier ValuTrader Newsletter Portfolio,
function well in both up and down markets. For more on the Suttmeier ValuTrader Newsletter Portfolio,