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January 18, 2010
VALUATION WARNING: Our models find that overvaluation is approaching
levels typically seen when a market correction is imminent. Overvalued
stocks now make up almost 66% of our universe and almost 32% of the
universe is calculated to be overvalued by 20% or more. ALL Sectors are
now calculated to be overvalued.

A Tale of Two Tickers*


Apple (AAPL, $AAPL) and CitiGroup (C, $C) Woes Lead News
The Market open today was roiled by news from two closely-watched stocks--
CitiGroup (C, $C) and Apple (AAPL, $AAPL). However, despite a miss by Citi and the
health issues for Apple CEO Steve Jobs as of this writing stocks are up. For today's
bulletin we provide our model analysis of these two investor favorites.
Apple is a perennial problem for our models because it is tough to quantify the
mystique of Jobs or the dedication of the company's legions of "fanboys." While some
claim that the company is a $1000 stock, others find that the company is too reliant
on the reputation of one man. Does Apple really deserve a market cap in excess of
Wal-Mart and can it pass Exxon-Mobil based on slick gadgets such as the iPad?
Currently, ValuEngine has issued a HOLD recommendation for APPLE INC.
Based on the information we have gathered and our resulting research, we feel that
APPLE INC has the probability to ROUGHLY MATCH average market performance for
the next year. The company exhibits ATTRACTIVE company size and risk, but
UNATTRACTIVE market/book ratio and price/sales ratio.
Based on available data as of Jan. 18, 2011, we believe that AAPL should be
trading at $307.56. This makes AAPL 13.30% 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 AAPL, we base this on actual
earnings per share (EPS) for the previous four quarters of $16.76, forecasted EPS for the
next four quarters of $20.08, and correlations to the 30- year Treasury bond yield of
4.53%.
From our historical ratings chart, we find that the model typically flashes "Buy"
for AAPL during it's few dips--most recently at the end of 2008/beginning of 2009 and
in January 2010. we also had a buy on the stock toward the end of 2010. The stock is
down more than 5% as of this writing. It is too soon to tell if this is a "dip" or the start of
something more serious. On a composite score basis, AAPL is very strong and is
ranked in the top 10% of our universe of more than 5500 equities trading on US
markets.
CitiGroup, on the other hand, does get a buy rating from our model (based on
Friday's closing data.) Based on the information we have gathered and our resulting
research, we feel that CITIGROUP INC has the probability to OUTPERFORM average
market performance for the next year. The company exhibits ATTRACTIVE company
size, market valuation and P/E ratio.
We believe that C should be trading at $13.3. This makes C 61.43%
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 C, we base this on actual earnings per share (EPS) for the previous four
quarters of $0.39, forecasted EPS for the next four quarters of $0.41, and correlations
to the 30- year Treasury bond yield of 4.53%.
On a composite score basis, C is far more attractive than AAPL dues to its very
favorable valuation and 1-Year Forecast Return figures. The company ranks in the top
1% of our entire universe. It remains to be seen how the miss this morning will effect
the model calculations. Keep in mind that the company posted a profit, but missed
estimates by $.03/share.
*NOTE: The writer holds a long position in Citigroup.

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MARKET OVERVIEW
Summary of VE Stock Universe
Stocks Undervalued 34.22%
Stocks Overvalued 65.78%
Stocks Undervalued by 20% 14.89%
Stocks Overvalued by 20% 30.91%
SECTOR OVERVIEW

Sector Change MTD YTD Valuation Last 12- P/E


MReturn Ratio
Aerospace 0.42% 3.52% 3.52% 10.04% overvalued 31.44% 18.96
Auto-Tires-Trucks -0.14% 3.33% 3.33% 17.41% overvalued 63.93% 20.79
Basic Materials -0.48% -1.70% -1.70% 20.53% overvalued 43.40% 39.98
Business Services 0.48% 3.37% 3.37% 15.17% overvalued 17.08% 33.24
Computer and Technology 0.99% 10.95% 4.87% 13.31% overvalued 36.07% 38.1
Construction 1.52% 4.00% 4.00% 3.43% overvalued 10.83% 29.8
Consumer Discretionary 0.22% 1.22% 1.22% 7.31% overvalued 25.65% 30.71
Consumer Staples 0.16% 0.36% 0.36% 7.92% overvalued 17.99% 24.85
Finance 1.00% 1.85% 1.85% 8.98% overvalued 17.75% 28.28
Industrial Products 0.56% 1.88% 1.88% 13.87% overvalued 27.79% 32.7
Medical 0.61% 3.11% 3.11% 1.23% overvalued 15.90% 36.1
Multi-Sector Conglomerates 0.50% 3.25% 3.25% 16.63% overvalued 30.88% 36.16
Oils-Energy 0.09% 3.01% 3.01% 29.13% overvalued 34.73% 48.05
Retail-Wholesale 0.40% -0.34% -0.34% 8.68% overvalued 24.69% 27.1
Transportation 0.19% 1.50% 1.50% 15.82% overvalued 24.47% 28.8
Utilities 0.51% 1.33% 1.33% 7.77% overvalued 13.85% 20.72