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January 15, 2010
MARKET OVERVIEW
SECTOR OVERVIEW
Sector Change MTD YTD Valuation Last 12- P/E Ratio
MReturn
Basic Industries 0.25% 3.77% 3.77% 19.86% overvalued 99.97% 26.22
Capital Goods 0.53% 4.75% 4.75% 10.25% overvalued 50.11% 24.25
Consumer Durables 1.37% 3.63% 3.63% 18.07% overvalued 77.29% 24.88
Consumer Non-Durables 0.28% 1.26% 1.26% 5.81% overvalued 69.22% 19.8
Consumer Services 0.49% 2.35% 2.35% 3.26% overvalued 74.19% 23.92
Energy -0.64% 3.93% 3.93% 18.58% overvalued 68.14% 21.64
Finance 0.70% 2.59% 2.59% 2.61% overvalued 30.15% 18.62
Health Care 1.51% 2.67% 2.67% 3.19% undervalued 61.49% 20.94
Public Utilities -0.01% 0.22% 0.22% 4.54% overvalued 42.64% 17.32
Technology 0.68% 3.40% 3.40% 0.18% overvalued 78.26% 26.58
Transportation 0.37% 3.09% 3.09% 6.64% overvalued 43.31% 22.55
Sector Talk
--Finance Sector Stocks
The Wall Street Journal noted this week that things may not be looking so rosy for
the Financial Sector as big banks face major decreases in earnings due to an "early
Christmas slowdown on the back of falling fixed-income revenues." Both JP Morgan and
Morgan Stanley issued reports that indicated a revenue let down during the last quarter of
2009. Analysts are predicting decreases of almost one-third for fixed-income divisions.
In addition to some poor earnings predictions, the big banksters also faced
Congressional hearings into some rather touchy issues--such as why they were selling
products to investors that their own traders were shorting, how they managed to garner 100%
payouts from AIG, why they withheld key info on bonuses and salaries from shareholders,
etc. Banks also may be hit with new taxes on both bonuses AND operations--the so-called
"TBTF Tax"--as the Obama Administration seeks to garner some benefit from the massive
government efforts to backstop the financial sector last year via the "Financial Crisis
Responsibility Fee."
Below, we present the key ValuEngine data points for major players from our
Institutional software package (VEI). We used some basic liquidity criteria to filetr our
results--share price > $3.00 and Volume > 100k/Day. Remember that our ratings system
places a premium on both market cap and LTM return so huge financial players have a leg up
to high ratings due to their size and the fact that many of them bounced back so strongly from
the market crash. Both long and short-term forecast calculations remain lackluster for the
majority of the players in the news right now.
* Remember that rankings are determined by momentum (LTM), valuation, market cap, forecast, and P/E
Ratio so high figures overall may be enough to overcome weak performance in other categories--for
example, with good LTM, valuation, and size, a given equity may be predicted to out perform the overall
market despite a negative short or long-term forecast.
Top-Ten Finance Sector Stocks--Most Overvalued
Last
Forecast Forecast
Mkt Valuation VE 12-M Comp P/E
Ticker Name 1-Month 1-Yr Industry
Price (%) Rating Retn Rank Ratio
Retn(%) Retn(%)
(%)
FIRST COMMONWEALTH
FCF 4.83 300 1 -53.42 194 -7.09 -48.9 N/A BANKING
FINANCIAL CP
SUSQUEHANNA
SUSQ 7.33 300 1 -37.35 222 -7.36 -46.07 N/A BANKING
BANCSHARES INC
HUNTINGTON
HBAN 4.41 300 1 -9.63 226 -6.77 -38.95 N/A BANKING
BANCSHARES INC
BOSTON PRIVATE FINL FINANCE AND
BPFH 7 300 1 40.28 288 -6.57 -31.08 N/A
HOLDING LOAN
135.5
MTG MGIC INVT CORP WIS 6.69 300 2 332 -9.01 -37.23 N/A INSURANCE
6
ASTORIA FINANCIAL SAVINGS AND
AF 13.13 228.4 2 -1.2 308 -5.09 -31.86 31.11
CORPORATION LOANS
SUNSTONE HOTEL
SHO 9.63 228.25 2 86.63 352 -5.56 -22.59 N/A INVESTMENTS
INVESTORS INC
FINANCIAL
ACAS AMERICAN CAPITAL LTD 3.95 172.36 2 -16.84 376 -5.84 -44.2 6.33
SERVICES
HARTFORD FINANCIAL 100.5
HIG 27.26 157.86 3 514 -3.75 -15.08 30.66 INSURANCE
SERVICES GP 9
NATIONAL PENN FINANCE AND
NPBC 6.84 146.3 1 -37.53 220 -4.84 -33.71 N/A
BANCSHARES, INC LOAN
What's Hot
--The ValuEngine Forecast 22 MNS Newsletter
We now have a year's worth of history for our portfolio and the trailing 12-month
percentage gain for the newsletter is a very healthy 25.31%. This is a great gain for a
market neutral strategy that has lower volatility and higher Sharpe and Sortino ratios than the
benchmark. In addition, our max drawdown was only 4.05% vs the S&P's 12.9%.
For the current month, our Forecast 22 Market Neutral Strategy Newsletter portfolio
posted a gain of @1% and trailed the S&P benchmark by 269 bps. Our long side more
than doubled the S&P with gains of 7.43%! Our largest gain came via UAL. Since our
model picked UAL in November, the stock is up 85%! Other big winners were BRKS,
TREX, NG, and HWD.
VE Forecast 22 MNS Newsletter Portfolio Long-Side Results
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
Major Indices
The Bull leads the Bear in the Dow title bout. The score stands
at 8 to 1 favoring the Bull. My annual support is 10,379 with monthly and
annual resistances at 10,997 and 11,235. A knock out bunch by the Bear
requires a weekly close below 10,379.
Housing
2009 was a record year for foreclosures. This negative trend is expected to continue
in 2010 following a record 2.8 million threatened with foreclosure in 2009. Foreclosures were
up 21% in 2009 versus 2008. One of the best measures of Main Street woes is the drag on
homeowners caused by foreclosures and high unemployment. As the economy supposedly
improves 349,000 households received a foreclosure-related notice in December alone, up
14% from November and 15% year over year. This is in spite of the "Home for the Holiday"
pause. Banks actually repossessed 92,000 homes in December up 19% from November.
This process cascades throughout communities as an empty home is not paying property
taxes and causes appraised values to decline straining Main Street, USA. This process is
expected to worsen in 2010 with another 3 to 3.5 million homes facing some kind of phase of
foreclosure during the year.
Labor
The number of employed persons is at the lowest point since 2003. The average
duration of unemployment has expanded to 29.1 weeks. The real unemployment rate is at
least 17.3%.
Policy
The unintended consequences may involve FDIC insured financial institutions that have
assets around $50 billion--as these banks may opt to shrink their balance sheets to below that
threshold. In addition, the institutions paying the big bonuses will likely discourage risk
trading, which is an important component of Wall Street risk taking--or what some would call
"greed." This could reduce market liquidity.
Small community banks will not be affected by the “Wall Street Greed Tax” even though
nearly 3000 thousand of them are overexposed to C&D and CRE loans, and with 55
community banks reneging on making their TARP dividend payments. Most of the 167 banks
that have failed since the end of 2007 are community and regional banks. The “Wall Street
Greed Tax” represents 0.15 percent on the liabilities of the large financial institutions, those
with $50 billion of assets, which is estimated at 50 companies.
--The ValuEngine Quarterly FDIC Report UPDATED
Our Chief Market Strategist Richard Suttmeier is an expert on the banking system, and
he has been closely following the banking and credit crisis for several years now. In fact, he
predicted the current difficulties YEARS before they began. Every quarter, he takes the
FDIC's own Quarterly Banking profile, combines it with VE's powerful quant tools, adds
additional proprietary data from the FDIC on loan exposures, and collates the info into an
exhaustive report on the state of the US banking system.
We have updated the FDIC Report to include the latest VE datapoints on all problem
banks as well as Suttmeier's latest predictions for the US banking system and economy.
There are currently 759 publicly traded FDIC insured financial institutions
overexposed to CD Loans or Nonfarm Non-Residential Real Estate loans as per the
FDIC's own guidelines.
As of January 8, 2010, there were 221 banks overexposed to C&D and/or CRE loans in the
ValuEngine database with full data coverage. Of these overexposed banks, 82 were rated “1-
Engine” Strong Sells, 73 were rated “2-Engine” Sells—all of which are predicted to under
perform the markets as a whole, 63 were rated “3-Engine” Holds—which are predicted to
roughly match the overall market, 3 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.
This means that there are currently 155 banks rated Sell or Strong Sell that are also
overexposed to C&D and/or CRE loans.
There are 198 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. These are also listed in
the report following the VE List of Problem Banks.
For more on the ValuEngine Quarterly FDIC Report, Click the Image Below