April 15, 2016

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VALUATION WATCH: Overvalued stocks now make up 43.08% of our

stocks assigned a valuation and 12.99% of those equities are calculated to
be overvalued by 20% or more. Six sectors are calculated to be
overvalued.
MARKET OVERVIEW
Index

Started week

Friday PM

Change

Change %

ytd

DJIA

17586.48

17914.2

327.72

1.86%

2.81%

NASDAQ

4873.39

4944.33

70.94

1.46%

-1.26%

RUSSELL 2000

1097.96

1130.94

32.98

3.00%

-0.44%

S&P 500

2050.23

2081.27

31.04

1.51%

1.83%

Summary of VE Stock Universe

Stocks Undervalued

56.92%

Stocks Overvalued

43.08%

Stocks Undervalued by 20%

24.26%

Stocks Overvalued by 20%

12.99%

SECTOR OVERVIEW
Sector

Change

MTD

YTD

Valuation

Last 12-M
Return

P/E
Ratio

Aerospace

-0.48%

0.83%

-2.63%

2.31% undervalued

-8.12%

20.07

Auto-Tires-Trucks

-0.07%

0.37%

2.05%

8.48% undervalued

-15.99%

12.27

Basic Materials

-0.70%

5.22%

24.59%

10.03% overvalued

0.08%

27.31

Business Services

-0.09%

0.93%

7.05%

2.54% overvalued

-9.30%

22.34

Computer and Technology

-0.22%

0.55%

6.01%

3.07% undervalued

-8.89%

27.21

Construction

0.12%

2.96%

17.90%

1.99% undervalued

-5.88%

20.95

Consumer Discretionary

-0.01%

0.51%

2.50%

4.41% undervalued

-10.22%

24.22

Consumer Staples

-0.21%

0.28%

4.69%

8.83% overvalued

-4.74%

23.89

Finance

0.12%

1.51%

-0.14%

2.78% undervalued

-6.84%

15.98

Industrial Products

0.15%

2.86%

6.68%

3.48% overvalued

-12.22%

19.57

Medical

0.33%

4.49%

-3.58%

10.03% undervalued

-20.24%

26.02

Multi-Sector Conglomerates

0.39%

0.64%

5.40%

4.71% overvalued

-8.54%

17.31

Oils-Energy

-0.89%

4.69%

6.14%

1.53% undervalued

-38.00%

22.08

Retail-Wholesale

-0.18%

-0.55%

0.07%

6.84% undervalued

-14.63%

22.39

Transportation

-0.07%

2.70%

3.71%

10.22% undervalued

-27.45%

13.56

Utilities

-0.16%

-0.55%

6.36%

6.67% overvalued

-3.43%

22.84

Sector TalkAerospace
Below, we present the latest data on leading Aerospace Sector stocks from our
Professional Stock Analysis Service. We applied some basic liquidity criteria--share
price greater than $3 and average daily volume in excess of 100k shares. We have
been following the sector closely of late because it has been correlated so tightly to
overall equity price moves.

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

Ticker

Company Name

Market Price

Valuation

Last 12-M Retrn

LDOS

LEIDOS HOLDINGS

51.14

12.87%

21.99%

OA

ORBITAL ATK INC

86.86

31.04%

14.70%

RTN

RAYTHEON CO

125.15

13.95%

15.40%

NOC

NORTHROP GRUMMN

200.13

25.23%

22.60%

HII

HUNTINGTON INGL

143.62

4.72%

3.32%

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

Ticker

Company Name

Market Price

Valuation

Last 12-M Retrn

LDOS

LEIDOS HOLDINGS

51.14

12.87%

21.99%

OA

ORBITAL ATK INC

86.86

31.04%

14.70%

RTN

RAYTHEON CO

125.15

13.95%

15.40%

NOC

NORTHROP GRUMMN

200.13

25.23%

22.60%

HII

HUNTINGTON INGL

143.62

4.72%

3.32%

Top-Five Aerospace Sector Stocks--Composite Score

Ticker

Company Name

Market Price

Valuation

Last 12-M Retrn

GD

GENL DYNAMICS

133.57

-0.51%

0.35%

LMT

LOCKHEED MARTIN

225.44

1.08%

14.24%

SPR

SPIRIT AEROSYS

47.04

-9.76%

-9.59%

HII

HUNTINGTON INGL

143.62

4.72%

3.32%

LDOS

LEIDOS HOLDINGS

51.14

12.87%

21.99%

Top-Five Aerospace Sector Stocks--Most Overvalued

Ticker

Company Name

Market Price

Valuation

Last 12-M Retrn

OA

ORBITAL ATK INC

86.86

31.04%

14.70%

NOC

NORTHROP GRUMMN

200.13

25.23%

22.60%

AIR

AAR CORP

24.61

20.17%

-19.18%

RTN

RAYTHEON CO

125.15

13.95%

15.40%

LDOS

LEIDOS HOLDINGS

51.14

12.87%

21.99%

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Free Download for Readers

As a bonus to our Free Weekly Newsletter subscribers,
we are offering a FREE DOWNLOAD of one of our Stock Reports
Microsoft (MSFT) is a technology company. Their products include operating
systems for computing devices, servers, phones, and other intelligent devices; server
applications for distributed computing environments; cross-device productivity
applications; business solution applications; desktop and server management tools;
software development tools; video games; and online advertising. They also design
and sell hardware including PCs, tablets, gaming and entertainment consoles,
phones, other intelligent devices, and related accessories. They offer cloud-based
solutions that provide customers with software, services, platforms, and content. They
also provide consulting and product and solution support services, and they train and
certify computer system integrators and developers.
ValuEngine continues its BUY recommendation on MICROSOFT CORP for 201604-14. Based on the information we have gathered and our resulting research, we
feel that MICROSOFT CORP has the probability to OUTPERFORM average market
performance for the next year. The company exhibits ATTRACTIVE Company Size and
Momentum.
Read our Complete Detailed Valuation Report on Microsoft HERE.

ValuEngine Forecast
Target
Price*

Expected
Return

1-Month

55.76

0.73%

3-Month

57.21

3.34%

6-Month

59.15

6.85%

1-Year

60.18

8.70%

2-Year

70.25

26.90%

3-Year

73.25

32.32%

Valuation & Rankings

Valuation

39.12% overvalued

Valuation Rank(?)

1-M Forecast Return

0.73%

1-M Forecast Return Rank

92

12-M Return

32.92%

Momentum Rank(?)

93

Sharpe Ratio

0.72

Sharpe Ratio Rank(?)

93

5-Y Avg Annual Return

15.54%

5-Y Avg Annual Rtn Rank

90

Volatility

21.60%

Volatility Rank(?)

Expected EPS Growth

6.30%

EPS Growth Rank(?)

Market Cap (billions)

454.16

Size Rank

Trailing P/E Ratio

20.50

Trailing P/E Rank(?)

Forward P/E Ratio

19.29

Forward P/E Ratio Rank

72
34
100
57
32

PEG Ratio

3.26

PEG Ratio Rank

Price/Sales

5.16

Price/Sales Rank(?)

17

Market/Book

8.30

Market/Book Rank(?)

14

Beta

0.96

Beta Rank

Alpha

0.31

Alpha Rank

12

47
93

What's Hot
Valuations Back Into Normal Range
ValuEngine tracks more than 7000 US equities, ADRs, and foreign stock which
trade on US exchanges as well as @1000 Canadian equities. When EPS estimates are
available for a given equity, our model calculates a level of mispricing or valuation
percentage for that equity based on earnings estimates and 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. Using our Valuation Model, we can currently assign a VE valuation
calculation to more than 2800 stocks in our US Universe.
We combine all of the equities with a valuation calculation to track market
valuation figures and use them as a metric for making calls about the overall state of
the market. Two factors can lower these figures-- a market pullback, or a significant
rise in EPS estimates. Vice-versa, a significant rally or reduction in EPS can raise the
figure. Whenever we see overvaluation levels in excess of @ 65% for the overall
universe and/or 27% for the overvalued by 20% or more categories, we issue a
valuation warning.

We now calculate that 43.08% of the stocks we can assign a valuation are
overvalued and 12.99% of those stocks are overvalued by 20% or more. These
numbers are just a bit higher than what we saw the last time we published our
valuation study at the beginning of March. We saw values climbing well into "normal"
range--between 40-60%--during the market rally since then, but they declined a bit
with the latest pull back, and then jumped up once more with the rally over the past
few days.
In case you hadn't noticed, the US is in a presidential election cycle, which has
often correlated to a good year for stocks in the past. However, this year we see a
variety of challenges. Every bit of good news about the US economy gets negated
by something in China, or on the world-wide commodities markets, or in the energy
sector, etc.
We need to wait and see what happens this cycle. We remain confident that if
the Fed manages to curb its appetite for rate increases in order to allow US workers to
benefit from the recovery--finally--we will see decent growth here. Of course, this presupposes election results which do not end up in new austerity measures, government
shut downs, etc.
The chart below tracks the valuation metrics from April 2015. It shows levels in excess
of 40%.

This chart shows overall universe over valuation in excess of 40% vs the S&P 500 from
April 2013

This chart shows overall universe under and over valuation in excess of 40% vs the S&P
500 from March 2007*

*NOTE: Time Scale Compressed Prior to 2011.

ValuEngine In The News

Editor's Note: The Following Article Was Posted By Integrity Research This Week

ValuEngine Offers Money Management On Top Of Research

Recently, Melbourne Florida-based quantitative research firm ValuEngine,
formed a separate registered investment advisory firm called ValuEngine Capital
Management to provide investment management services to retail clients based on
ValuEngines time tested independent research.
ValuEngine Capital Management (VECM) initially rolled out three (3) different
portfolios based on unique strategies developed by ValuEngine reflecting the riskreward profiles of different investors. These strategies include the ValuEngine View
Strategy, the ValuEngine Market Neutral Strategy, and the ValuEngine Diversified
Strategy.
VECM is targeting retail customers with a minimum $20,000 to invest, and fees
for VCMs management services run 1.5% of assets invested. In addition to receiving
professional investment management services, VCM clients all receive a
complimentary subscription to VEs proprietary research services.
ValuEngine (VE) is a stock valuation and forecasting service founded by Ivy
League finance academics and Wall Street professionals in 1996 which forecasts
more than 7,000 stocks, REITS, ADRs, and foreign stocks actively traded on US
exchanges. The service has traditionally been available to retail and professional
investors who subscribe to it from the ValuEngine website (www.valuengine.com).
For the past 15 years, ValuEngine has toyed with the idea of providing clients
the ability to directly invest based on their research. Unfortunately, life as a small
business always got in the way. However, after the market crash of 2008, retail
investors became less interested in conducting their own investment research, settling
on the free information available from Yahoo Finance or Google. Consequently, as
individual subscriptions plummeted, ValuEngine looked for other ways to grow its
business of serving retail investors.
This led the firm to start aggressively licensing its research to large banks and
brokerage firms who then redistribute it to their retail clients. A few of these partners
include Wells Fargo, Scotia Capital, Forbes.com and Fidelity.
While investors were not interested in paying for third-party research services,
they did indicate that they were more open to a full-service offering bundling both
ValuEngines independent research services with money management. Hence
ValuEngine Capital Management was born.

While it is still too early to tell whether VCM will be a success, in its early days
management says that they are finding it much easier and more lucrative to set up
new money management accounts than it is to sell research.
Of course, providing money management is substantially more expensive an
undertaking than just providing research given the regulatory, compliance, and
customer support overhead required. In addition, the money management space is
an extremely crowded one with thousands of traditional active managers, and the
plethora of much cheaper passively managed investment products.
However, VECM does not need to attract billions of dollars in assets under
management to make it a success for ValuEngine. Rather, VECM just provides
another way for ValuEngine to commercialize its valuable research IP. The interesting
question for us is whether other independent research firms will try to diversify their
revenues by getting into the money management business. We will wait and see.
MICHAEL MAYHEW
APRIL 11, 2016

ValuEngine Capital Money Management Services

We are pleased to announce that ValuEngine Capital has begun trading for
our clients. ValuEngine Capital, a registered investment advisory firm, offers our clients
investment-management services based on industry-leading ValuEngine research.
ValuEngine Capital melds the cutting-edge financial theory of ValuEngine's awardwinning quantitative independent research with the best real-world Wall St. practices.
ValuEngine Capital offers refined investment portfolios for investors of all risk-reward
profiles.
ValuEngine Capital is offering three investment strategies to clients, the
ValuEngine View Strategy, the ValuEngine Market Neutral Strategy, and the
ValuEngine Diversified Strategy.
ValuEngine View Strategy: The ValuEngine View Strategy is the product of a
sophisticated stock valuation model that was first developed by
ValuEngine's academic research team. It utilizes a three factor approach:
fundamental variables such as a company's trailing 12-month Earnings-PerShare (EPS), the analyst consensus estimate of the company's future 12month EPS, and the 30-year Treasury yield are all used to create a more
accurate reflection of a company's fair value. A total of eleven additional

firm specific variables are also used. The ValuEngine View portfolio is
constructed by integrating both our Aggressive Growthbased on the
Valuation Model--and Diversified Growthbased on the Forecast Model-Portfolio Strategies.

Professional Portfolio Management Services

The ValuEngine View Strategy is constructed by integrating this model along
with some basic rules for market capitalization and industry diversification.
The portfolio has 15 stocks and is rebalanced once each month.
Automatically Trade Our Portfolio Strategies ValuEngine Market Neutral
Strategy: The ValuEngine Market Neutral Strategy is the product of
ValuEngine's Forecast Model. This model was developed by a team of PhD's
and is based on the cutting edge economic theories of Wall Street
professionals and Ivy League academics. We carefully examine dozens of
fundamental and technical factors for over 8,000 individual stocks,
synthesize the data, and then come up with a sector-diverse list of our best
and worst forecast 1-month return stocks. Short and long-term historic
factors in the VE Forecast model's calculation include past-valuation levels
of the stock and its recent price-momentum factor relative to other stocks.
The ValuEngine Market Neutral Strategy utilizes Forecast Model outputs
along with market capitalization, price, and sector diversification rules to
construct a monthly portfolio made up of 16 stocks for both the long and
short sides.

Strategies To Suit All Investor Types

The ValuEngine Diversified Strategy: The ValuEngine Diversified Strategy
invests in a variety of asset classes in order to provide investors with stable
returns and a high- dividend yield coupled with significantly lower risk than
single-asset products. The ValuEngine Diversified Strategy may include ETFs
focused on commodities, stock indices, REITS, bonds, emerging markets,
and other suitable products. By reaping the benefits of diversification, the
ValuEngine Diversified Strategy seeks to remain resilient during times of
market volatility. The ValuEngine Diversified Strategy is designed for investors
seeking management for their IRA and other retirement funds as well as
those whose risk-profile is not suitable for our other strategies.

Please contact us if you would like to put the power of ValuEngine to work
for you at our new full-service money management firm-ValuEngine Capital

For more information, please contact us by email at

info@ValuEngineCapital.com or by phone at (407) 308-5686.
ValuEngine.com is an independent research provider, producing
buy/hold/sell recommendations, target price, and valuations on over 7,000
US and Canadian equities every trading day.
Visit www.ValuEngine.com for more information and a free trial.