February 19, 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 US Airways (LCC). US Airways Group, Inc., through its subsidiaries, operates as an airline company in the United States. The company’s primary business activity is the operation of a major network air carrier, through its wholly owned subsidiaries US Airways, Inc. Piedmont Airlines, Inc. (Piedmont), PSA Airlines, Inc. (PSA), Material Services Company, Inc. (MSC), and Airways Assurance Limited. ValuEngine's models predict that this stock will outperform the broader market due to its attractive price/sales ratio, market valuation, and projected EPS growth. Recent Forecast Model projections for Airline Industry stocks have been particularly robust with Forecast Model picks like LCC and UAL (UAUA) providing hefty returns--@22% and 85% respectively-for our Forecast Model-derived portfolios. The VE Detailed Valuation Report features advanced academic research that brings you superior investment strategies in an actionable format. The most comprehensive and useful report available. ValuEngine's three models: Valuation Model, Forecast Model and Ratings Model are incorporated to give you a well-rounded analysis from three different perspectives. Consensus EPS trend and Earnings Surprise statistics provide additional insights. Also, detailed Company Profile, ValuEngine Fair Valuation; 1-3-6 month and 1-2-3 yr forecasts, ValuEngine 1-5 Engine Rating, Multi-stock comparison, Financials, Earnings Estimates, Risk Assessment, Data Summary and much more. Subscribers can download your FREE Detailed Valuation Report on US Airways (LCC) 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 Weekly Newsletter HERE.

MARKET OVERVIEW
Index
DJIA NASDAQ RUSSELL 2000 S&P 500

started week
10100.81 2200.38 613.8 1079.13

Thursday Close
10392.9 2241.71 629.32 1106.75

3 day change
292.09 41.33 15.52 27.62

3 day change %
2.89% 1.88% 2.53% 2.50%

ytd
-0.36% -2.30% -2.78% -0.88%

Summary of VE Stock Universe
Stocks Undervalued Stocks Overvalued Stocks Undervalued by 20% Stocks Overvalued by 20% 51.83% 48.17% 25.61% 22.32%

SECTOR OVERVIEW
Sector
Basic Industries Capital Goods Consumer Durables Consumer Non-Durables Consumer Services Energy Finance Health Care Public Utilities Technology Transportation

Change
0.78% 0.96% 0.85% 0.39% 0.39% 0.68% 0.78% 0.33% 0.46% 0.53% -0.21%

MTD
3.47% 2.30% 2.70% 2.51% 2.87% 1.41% 1.27% 2.76% 0.80% 3.80% 1.50%

YTD
-1.69% 0.48% 0.65% 0.36% 1.01% -2.77% 1.71% -0.14% -3.83% 1.56% -2.51%

Valuation
10.46% overvalued 6.52% overvalued 9.79% overvalued 3.05% overvalued 0.45% overvalued 13.07% overvalued 0.30% undervalued 4.70% undervalued 1.20% overvalued 4.23% undervalued 3.21% undervalued

Last 12MReturn
87.37% 58.90% 97.40% 80.33% 81.98% 78.72% 43.97% 60.37% 44.46% 77.93% 56.26%

P/E Ratio
26.47 23.11 21.46 19.14 22.21 22.05 18.54 21.21 16.12 27.85 20.1

Sector Talk --Valuations Creeping up Again
Our Chief Market Strategist Richard Suttmeier notes that equity valuations have gotten stretched again. Seven of eleven sectors are now overvalued due to market strength and the higher 30-Year bond yield. Energy, which was the cheapest sector in March, is now the most expensive. There is not a single sector undervalued by 5% or more. While the levels of overvaluation have not approached those which existed prior to the the market crash in the Summer of 2007, they do indicate that equities are nowhere near as "cheap" as they were in March of last year.
Sector
Basic Industries Capital Goods Consumer Durables Consumer NonDurables Consumer Services Energy Finance Health Care Public Utilities Technology Transportation

March 6, 2009 Valuation
38.0% undervalued 38.6% undervalued 32.0% undervalued 41.1% undervalued 38.0% undervalued 42.2% undervalued 36.2% undervalued 44.9% undervalued 35.4% undervalued 34.0% undervalued 41.9% undervalued

Today's Valuation
10.46% overvalued 6.52% overvalued 9.79% overvalued 3.05% overvalued 0.45% overvalued 13.07% overvalued 0.30% undervalued 4.70% undervalued 1.20% overvalued 4.23% undervalued 3.21% undervalued

What's Hot --The VE Forecast 22 MNS Portfolio Newsletter
Below are the most-recent results for our VE Forecast 22 Market Neutral Strategy Newsletter portfolio's short side:
Ticker
TXI TIE CYD

Company Name
TEXAS INDS INC TITANIUM METALS CHINA YUCHAI INTERNATIONAL LTD

Entry Price 1-15-10
36.87 14.03 18.71

Current Price
34.56 11.21 14.18

Change
2.31 2.82 4.53

%Change
6.27 20.10 24.21

Sector
BASIC INDUSTRIES BASIC INDUSTRIES CAPITAL

Ticker

Company Name

Entry Price 1-15-10

Current Price

Change

%Change

Sector
GOODS

TEX DAN CAAS BRFS

TEREX CP DANA HOLDING CORP CHINA AUTOMOTIVE SYSTEMS INC. BRF-BRASIL FOODS SA

23.20 11.83 23.24 53.24

18.78 10.43 16.79 48.17

4.42 1.4 6.45 5.07

19.05 11.83 27.75 9.52

CAPITAL GOODS CONSUMER DURABLES CONSUMER DURABLES CONSUMER NON_DURABLE S CONSUMER NON_DURABLE S CONSUMER SERVICES CONSUMER SERVICES ENERGY ENERGY FINANCE FINANCE HEALTH CARE HEALTH CARE PUBLIC UTILITIES PUBLIC UTILITIES TECHNOLOGY TECHNOLOGY TRANSPORT TRANSPORT

LIZ GET PNK PWE PGH COLB FCE.A VPHM HGSI MWA RRI CIEN PALM AER GNK

LIZ CLAIBORNE INC GAYLORD ENTERTAINMENT CO. PINNACLE ENTERTAINMENT INC PENN WEST ENERGY TRUST PENGROWTH ENERGY TRUST COLUMBIA BKG SYS INC FOREST CITY ENTERPRISES INC VIROPHARMA INC HUMAN GENOME SCIENCES INCORPORAT MUELLER WATER PRODUCTS INC RRI ENERGY INC CIENA CORP PALM INC AERCAP HOLDINGS NV GENCO SHIPPING & TRADING LTD

5.37 21.90 8.81 17.96 10.48 18.60 11.38 9.18 30.15 5.48 5.60 11.98 12.84 10.88 25.33

5.75 22.50 7.60 18.23 10.32 18.67 11.38 10.02 29.39 5.26 4.89 14.38 9.99 7.93 19.03

-0.38 -0.6 1.21 -0.27 0.16 -0.07 0 -0.84 0.76 0.22 0.71 -2.4 2.85 2.95 6.3

-7.08 -2.74 13.73 -1.50 1.53 -0.38 0.00 -9.15 2.52 4.01 12.68 -20.03 22.20 27.11 24.87

SHORT PORTFOLIO GSPC S&P500 1148.46 1075.51 -72.95

8.48 -6.35

While concerns about Chinese monetary policy and the financial health of EU laggards like Greece challenged US equities, our short side handily protected our portfolio. Our shorts beat the S&P 500 by almost 1500 bps! Ten of our shorts posted double digit gains and only six of them failed to provide positive returns. Big gains came from the Transportation, Capital Goods, Consumer Durables, and Basic Industries Sectors. AER, GEN, PAL, CAAS, CYD, and TIE provided gains in excess of 20%.

Despite losses of almost 6%, our long side still beat the S&P 500. The lone bright spots for our longs came via the Transportation Sector picks AMR and LCC. Our model has scored with airlines of late. LCC returned almost 22%! Losses were run up across the rest of our long side, with the Technology, Capital Goods, Consumer Non-Durables, and Basic Industries Sectors posting average losses ranging from 12.6-15.2%. Even with the market correction last month, we posted a decent return of 2.5%. Overall, the 50-50 portfolio beat the S&P 500 by almost 900 bps. We are achieving excellent returns with the market neutral approach and have significantly lower drawdowns and volatility than our benchmark. For a market neutral strategy with significant volatility-reducing benefits, our newsletter continues to perform remarkably well. In fact, this product has been so successful it was recently selected by Forbes.com for inclusion into its stable of newsletter products. Forbes.com believes that the VE Forecast 22 MNS Portfolio offers a sophisticated newsletter for investors seeking access to hedge fund-type strategies without hefty performance fees and onerous qualified investor requirements. Since inception, we are up 23.23%, our average monthly return is @1.5%, our Sortino Ratio--"good" volatility--beats the S&P 500 by @50%, our max drawdown is 1/3 the S&P's, and our annual volatility is @30% less than the S&P 500!

For more on the VE Forecast 22 Market Neutral Strategy Newsletter Portfolio, Click the Logo Below

Suttmeier Says --Commentary and Analysis from Chief Market Strategist Richard Suttmeier
If you have any comments or questions, send them to Rsuttmeier@Gmail.com Major Indices All major equity averages ended Thursday above weekly pivots at 10,255 Dow, 1098.8 SPX, 2237 NASDAQ, 3927 Dow Transports, 628.44 on Russell 2000, and 336.19 on the Philadelphia Semiconductor Index (SOX). As pivots they are important magnets in Friday’s trade. All major averages ended Thursday above their 21-day simple moving averages at 10,190 Dow, 1088.7 SPX, 2191 NASDAQ, 3955 Dow Transports, 610.87 on Russell 2000, and 330.71 SOX. All major averages straddle 50-day simple moving averages at 10,376 Dow, 1108.5 SPX, 2230 NASDAQ, 4074 Dow Transports, 619.16 on Russell 2000, and 343.19 SOX. The major averages shift to neutral from negative on weekly charts with closes today above 10,252 Dow, 1094.4 SPX, 2205 NASDAQ, 3986 Dow Transports, 614.41 Russell 2000, and 344.66 SOX. ValuEngine List of Problem Banks The list has been updated and is contained in ValuEngine's FDIC Report. The updated report is now available to subscribers and as an individual report from our website. When the FDIC releases its Quarterly Banking Profile for the 4th quarter of 2009 later this month, we will see that away from the easy profits resulting from the zero-percent funds rate, bad loans are rising and reserves for future losses are rising as well. Banks must gradually bring a variety of bad investments back onto their books beginning this year through 2012. Total assets in the banking system should continue to decline. This will serve as a leading indicator that GDP will be vulnerable for a double dip in 2010—despite the strong GDP growth in Q4 2009. Recent housing data for both existing and new home sales were horrific and ignored by the FOMC in a recent Fed Statement. We have a worse economic condition with Adjustable Rate and Negative Amortization Mortgages within their re-set windows. These loans are too far underwater to be helped by mortgage modification programs. Community and regional banks are falling like dominos as bad loans cascade on and off bank balance sheets. This wave is worse than the subprime era, and plants the seeds for the Double-Dip Recession.

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. We also include all other enginerated 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 February 15, 2010, there were 228 publicly traded banks overexposed to C&D and/or CRE loans in the ValuEngine database with full data coverage. Of these overexposed banks, 85 were rated “1-Engine” Strong Sells, 64 were rated “2-Engine” Sells—all of which are predicted to under perform the markets as a whole, 72 were rated “3-Engine” Holds— which are predicted to roughly match the overall market, 7 were rated a “4-Engine” Buy, and none held our highest rating of “5-Engine” Strong Buy—with the 4 and 5-Engine stocks predicted to out perform the overall market. There are 755 publicly traded FDIC insured financial institutions overexposed to C&D Loans or Nonfarm Non-Residential Real Estate loans as per the FDIC's own guidelines. This means that there are currently 149 banks rated Sell or Strong Sell that are also overexposed to C&D and/or CRE loans. There are 186 overexposed institutions with only partial ValuEngine coverage and thus those banks have no rating--these are included in the problem bank list. There are 341 additional institutions carrying C&D and/or CRE loans in excess of the FDIC guidelines that do not appear in the ValuEngine database. To get your copy of the latest ValuEngine FDIC Report, Click the Image Below