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April 1, 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.
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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 BORDERS GROUP (BGP).
ValuEngine has issued a BUY recommendation for BORDERS GROUP. Based on the
information we have gathered and our resulting research, we feel that BORDERS GROUP
has the probability to OUTPERFORM average market performance for the next year. The
company exhibits ATTRACTIVE price/sales ratio, market valuation and expected EPS growth.
While the models have been optimistic about BGP in terms of valuation and forecast
for some time now, qualitatively there was uncertainty about the company. The firm had some
short-term outstanding loans that exceeded the amount of cash held.
However, according to Marketwatch the company paid off one large loan and "closed
on a new $90 million term credit facility and entered a new $700 million asset-based credit
facility." In addition, Q4 profits for the company almost doubled year-over-year (from $
0.49/share to $0.91/share.) The stock jumped hard on the news and gained almost 44%
yesterday. Our models still find it very undervalued and see good short and long-term
forecast figures for the ticker.
The VE Detailed Valuation Report features advanced academic research that brings
you superior investment strategies in an actionable format.
Weekly Subscribers can download a FREE Detailed Valuation Report on BGP 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 Free Weekly Newsletter HERE.
MARKET OVERVIEW

Wednesday 3 day 4 day


Index started week ytd
Close change change %
DJIA 10849.23 10856.6 7.37 0.07% 4.08%
NASDAQ 2403.77 2397.96 -5.81 -0.24% 4.51%
RUSSELL 2000 680.64 678.64 -2 -0.29% 8.04%
S&P 500 1167.71 1169.43 1.72 0.15% 4.74%

Summary of VE Stock Universe


Stocks Undervalued 43.69%
Stocks Overvalued 56.31%
Stocks Undervalued by 20% 20.82%
Stocks Overvalued by 20% 26.65%

Our Chief Market Strategist Richard Suttmeier notes that it is tough to pick stocks to
buy when 43.7% are undervalued and 56.3% are overvalued. Ten of eleven sectors are
overvalued. Only Technology is undervalued, but by only 1%. 12-month and year to
date gains are great, but sustaining them gets more difficult with these overvalued
readings and extended P/E ratios.

SECTOR OVERVIEW

Sector Change MTD YTD Valuation Last 12- P/E Ratio


MReturn
Basic Industries 0.04% 7.27% 10.01% 12.92% overvalued 98.96% 27.92
Capital Goods -0.32% 7.77% 10.15% 12.75% overvalued 78.70% 22.97
Consumer Durables -0.03% 4.10% 6.38% 15.31% overvalued 96.98% 24.44
Consumer Non-Durables -0.47% 5.74% 6.66% 4.20% overvalued 85.37% 20.37
Consumer Services -0.53% 8.03% 10.65% 5.56% overvalued 86.23% 22.61
Energy 0.29% 2.72% 0.17% 9.77% overvalued 87.04% 21.2
Finance -0.25% 5.22% 8.47% 7.99% overvalued 51.27% 19.18
Health Care -0.75% 5.83% 7.57% 0.75% overvalued 68.92% 22.13
Public Utilities -0.45% 3.90% 0.23% 4.38% overvalued 48.61% 17.54
Technology 0.00% 5.15% 8.05% 1.02% undervalued 82.10% 28.25
Transportation -0.48% 5.28% 7.16% 6.54% overvalued 80.99% 23.26
Industry Talk
--Home Building
We had more news of the "things aren't as bad as they used to be so this is good
news" variety from the housing front this week. Case-Shiller data continued to decline, but
the eternal optimists in the real estate field were quick to point out that declines were
"decelerating." It remains unclear what effect the end of the tax credit for buyers will have on
the industry even as some analysts now argue that there will not be a huge impact from the
latest wave of ARM resets.
Below, we present the key ValuEngine data points for the Home Building Industry from
our Institutional software package (VEI). Remember that our ratings system has a bias
toward larger market caps so big companies have a leg up to high ratings due to their size.
As always, remember that in almost all years our ratings are predictive and 4 and 5-Engine
stocks outperform the broader markets.
Valuation( Last 12-M
Ticker Name Mkt Price VE Rating P/E Ratio
%) Retn(%)
AXR AMREP CORPORATION 14.53 19.52 1 -7.45 N/A
BROOKFIELD HOMES
BHS 8.74 N/A N/A 153.33 1.73
CORPORATION
BZH BEAZER HOMES 4.54 -75 3 349.5 N/A
COMSTOCK HOMEBUILDING
CHCI 1.09 N/A N/A 395.45 N/A
COS INC
CVCO CAVCO INDUSTRIES INC 34.14 26.49 2 44.66 N/A
CVGFY CORPORACION GEO SAB DE CV 12.08 N/A N/A 248.13 N/A
DHI D R HORTON INC 12.6 -24.53 3 31.66 N/A
DWAHY DAIWA HOUSE IND LTD 113 16.72 3 39.59 25.79
DESARROLLADORA HOMEX SAB
HXM 28.28 -29.68 3 113.6 8.77
DE CV
KBH KB HOME 16.75 -50.45 3 29.04 N/A
LEN LENNAR CORPORATION 17.21 -39.11 4 132.25 N/A
MDC MDC HOLDINGS 34.61 -16.47 3 14.45 42.21
MHO M/I HOMES INC 14.65 -30.33 3 109.59 N/A
MTH MERITAGE HOMES CORP 21 -15.43 3 83.89 N/A
NVR NVR INC 726.5 33.36 3 69.84 22.16
OHBIQ ORLEANS HOMEBUILDERS INC 0.14 N/A N/A -42.21 N/A
PGTI PGT INC 1.82 -45.38 2 30.94 N/A
PHM PULTEGROUP INC 11.25 -28.9 3 2.93 N/A
RYL RYLAND GROUP INC 22.44 -16.13 3 35.59 N/A
SKHSY SEKISUI HOUSE LIMITED 9.96 -0.55 2 31.23 N/A
SPF STANDARD PACIFIC CORP 4.52 -73.32 3 413.64 N/A
TOL TOLL BROTHERS INC 20.8 1.03 3 14.54 N/A
VE Premium Website Stock Analysis subscribers can sort and search every factor--
including individual forecast figures for the above listed tickers 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

What's Hot
--Catching Up with TK Ng
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.

Visual Finance and Health Care Stocks


Self-Organizing Maps [SOMs] are a class of Artificial Intelligence that cluster objects
according to their degree of similarity. SOMs are able to simultaneously take into account
many variables representing the characteristics of the objects, and place them in clusters.
Within each cluster and on the map as a whole, the distance of an object [node] on the map
relative to all other nodes, is a measure of the degree of similarity of the object to its 'siblings'.

When we use VE data to construct a SOM, there are more than 20 variables
[characteristics] of each stock that are taken into account. These include fundamentals like P/
E, M/B, analyst estimates and surprise, volatility, Sharpe Ratio, 5-year return etc.

Since Health Care is in the spotlight, today we present a SOM of the sector. The
image below is a SOM of Health Care Sector stocks with market cap>$1 billion, and daily
average volume > 500,000.
When we ask the Viscovery software to map out the Health Care Sector we find that
it is less diverse than the oil industry we looked at last week--as shown by the fewer number
of clusters in the SOM (4 for Health Care Sector vs 11 for the Oil Industry.) One of the clusters
is a loner and only has one ticker in it--S4 with ISIS.
Cluster three looks the most promising in terms of Valuation (the more negative the
Valuation the more desirable), 1-month Forecast Return, and market cap (the bigger the
better in terms of risk and liquidity). We can also look at any particular datapoint and make a
SOM of that. In this manner you can also look at the Valuation and 1-month Forecast Returns
% maps and pinpoint the ticker symbols that occupy the space you like. Here is the forecast
map. "Hotter" is better. So the area around SNY is best.
Here is the valuation map. "Cooler" is better. Again, we see that cluster three and the
area around SNY shows a lot of promise.

Interested in further explorations of visual finance and anxious to see how it can be
applied to your investment needs? TK Ng is offering ValuEngine Free Weekly Newsletter
readers a free SOM of any industry covered by ValuEngine. Contact TK HERE to let him
know what industry group you are interested in and ask him to construct a SOM for you.
The ValuEngine Forecast 22 MNS Newsletter
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 30%, 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

Treasuries

The yield on the 10-Year US Treasury shows risk of rising to


4.250 with the 120-month simple moving average at 4.331. With the
Federal Reserve no longer buying GSE mortgages and debt, mortgage
rates should start to rise again. The spread between the 10-Year and
mortgage rates have declined to between 100 and 125 basis points,
which should keep mortgages stable for now, but refinancings will
become more difficult to justify. Remember that a higher 30-Year bond
yield is a direct drag on equity valuations making stocks less
undervalued and more overvalued.

Commodities and Forex

Gold and crude oil are well above their 120-month simple moving averages. This
is a sign of bubbles reforming.

Comex Gold shows a new quarterly support at $1052.8 with my annual pivot at
$1115.2 and semiannual and monthly resistances at $1186.5 and $1202.5, so the trading
range continues.

Nymex Crude Oil shows a new monthly pivot at $84.54, which was tested as the
second quarter begins. My annual support is $77.05 with annual resistance at $97.29.

Whenever the Fed keeps the Federal Funds Rate below 3%, commodity
speculation becomes a problem, which eventually creates bubbles, which then burst
and kill economic growth.

The euro remains well above its 120-month simple moving average after an extremely
weak first quarter. My new quarterly support is 1.2450 with monthly resistance at 1.4081.
Major Indices

The Dow has become overbought on its monthly chart with the 120-month simple
moving average as support at 10,460. My annual pivot is 10,379 with monthly, annual and
semiannual resistances at 11,228, 11,235 and 11,442. Quarterly support lags at 7,490.

The S&P 500 ended the first quarter overbought on its monthly chart and just below its
120-month simple moving average at 1178.79, which lines up with my annual pivot at 1179. I
show tight semiannual and monthly resistances at 1194.6 and 1199.6 with semiannual
resistance at 1281.1. My quarterly support lags at 805.4.

The Dow has broken out above its 120-month simple moving average, and the S&P
500 is just below its 120 month SMA. Both are now overbought on their monthly chart. 2010
is beginning to take on the look and feel of 2007.

The ValuEngine View Newsletter


It was an outstanding month for the ValuEngine
View. Editor Eric Stokes has recently made some changes
to our strategy in order to boost performance. We now
generate investment ideas from our Forecast model and
our Valuation model.
Utilizing the best ideas from both of our cutting-edge
benchmark portfolio strategies along with his stock-picking
and market expertise, Stokes has increased returns
significantly. The past month's results are some of the best
we have ever seen. The portfolio almost doubled the
S&P's return for the month! Stokes' ability to refine the
model picks was on full display as his portfolio selections outperformed the straight model
picks by several hundred bps.

Since the refinement of our stock picking strategy, the ValuEngine View has
outperformed the S&P every single month!
Since the market bottom in March, 2009, the ValuEngine View is beating the S&P 500
by almost 20%!
To find out more about the ValuEngine View, click the logo below

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