The ValuEngine Weekly

www.valuengine.com
July 13 2007
Weekly Market Overview
ATTENTION Advanced Investors and Finance Professionals: If you are
reading this you should download ValuEngine Institutional Software to see
how VEs powerful quantitative tools can increase your productivity and
effectiveness.

Index

Mon Open

Thurs Close

Change

Change %

YTD %

DJIA

13,612.66

13861.73

249.07

1.83

11.12

Nasdaq

2668.99

2701.73

32.74

1.23

11.50

Russell2000

853.21

855.18

1.97

.23

8.61

1,530.43

1547.70

17.27

1.13

9.25

S&P500

The ValuEngine Weekly is an Investor Education newsletter focused on the quantitative approach to investing and
the tools available from ValuEngine. In the fast-moving globalized modern financial markets it is easy to get
overloaded with information. The winners will be those who adopt an objective, scientific, independent and
unemotional approach to investing. If you are not yet a member of ValuEngine's stock analysis service, sign up
now for a two-week free trial at www.valuengine.com!

Concerns over interest rates and the sub-prime mortgage meltdown continue to rear their
heads. The midweek S&P and Moodys announcements vis--vis the sub-prime
mortgage sector and CDO downgrades added to jitters over interest rates and concerns
about earnings disappointments driven by giants like Home Depot and Sears. The market
recovered in a strong manner from Tuesdays loses by the end of the week due to betterthan-expected sales reports from some retailersa trend the WSJ called defiant
bullishness by uneasy investors. Some also attribute the markets strong showing
Thursday to bearish hedge-fund managers dumping short positions and buying long
again. But still the question remains, can the market keep up its growth in the face of
long-term uncertainties about the housing market, earnings, interest rates, and what could
turn out to be a deep sea of bad paper in the mortgage market?
ValuEngine's Market Overview
Mispricing Summary of Entire Stock Market July 13 2007
34.38%
Stock Undervalued
Stock Overvalued
12.39%
Stock Undervalued by 20 %
Stock Overvalued by 20 %

65.62%
32.78%

ValuEngine's Sector Overview

Sector Valuation as of July 13, 2007

Sector

Change MTD YTD

Valuation

Last 12-M P/E

Return Ratio

Basic Industries

1.73%

3.76% 26.99% 28.97% overvalued

35.55%

24.63

Transportation

1.14%

2.80% 16.97% 25.40% overvalued

29.42%

24.27

Consumer Durables

0.97%

2.02% 10.96% 24.61% overvalued

16.01%

24.12

Public Utilities

1.41%

1.22% 14.24% 23.89% overvalued

40.98%

22.36

Energy

0.77%

3.15% 14.68% 22.95% overvalued

10.41%

22.16

Capital Goods

0.95%

1.45% 25.30% 20.03% overvalued

33.76%

24.59

Consumer Non-Durables

0.78%

0.64%

6.99% 15.81% overvalued

25.01%

25.95

Consumer Services

0.98%

0.89% 10.95% 12.55% overvalued

23.81%

29.96

Technology

1.21%

2.26% 11.56%

7.89% overvalued

19.70%

30.56

Finance

0.88% -0.17%

3.78%

4.86% overvalued

10.53%

21.28

Health Care

0.58%

0.45% 16.64%

0.87% overvalued

14.98%

30.11

Sector Talk
Ho Hum, once more we see that all sectors are overvalued. Of course, the overvalued
condition has been the case for some time now, and it is useful to recall that the last time
ValuEngines models saw this state of affairs for any length of time was just prior to the
May, 2006 market correction. For this weeks sector talk, lets take a look at the three
least over-valued sectorsTechnology, Finance, and Health Care, and see what the toprated stocks look like.
To do this, lets screen right now, Friday, July 13, with the following criteria:

ValuEngine Rating = 5
Undervalued by at least 1%
Expected gain of at least 1% in the next 3M
Market cap of at least 1 (in billions)
Average volume of at least 100000 shares

For the Health Care Sector We get the following results:

Prev VE
1-Year
Valuation(%) 3M-Forecast Market Average
Symbol
Close Rating Forecast(%) (undervalued)
(%)
Cap(bil.) Volume
5
9.73
-23.55
2.43
2.75
3030620
HMA 11.43

For Finance we get:

Prev VE
1-Year
Valuation(%) 3M-Forecast Market Average
Symbol
Close Rating Forecast(%) (undervalued)
(%)
Cap(bil.) Volume
5
13.62
-75.00
4.38
4.86
1370800
FHN 38.65
5
17.70
-36.30
5.54
1.94
882962
CXW 31.74
5
11.94
-33.75
2.98
2.07
608568
MRH 18.50
60.98
5
5.43
-31.65
2.68
128.42
1349970
UBS
38.80
5
16.43
-28.19
5.10
1.49
262116
CNS
72.40
5
7.34
-16.18
3.17
76.30
6307170
MS
73.24
5
6.23
-13.44
2.79
40.56
5867230
LEH
5
10.10
-12.01
3.09
2.89
266806
PHLY 40.96
42.58
5
8.76
-11.91
2.33
5.46
713589
SFI
56.37
5
8.38
-11.01
2.85
8.42
134783
AIB
5
4.94
-10.19
2.13
75.37
6033010
MER 85.52
57.32
5
10.89
-8.55
2.84
1.39
155419
RLI
5
9.90
-6.71
2.43
2.01
1043900
KFN 24.96
5
10.43
-5.27
2.42
2.07
641176
IPCR 32.51
5
9.03
-4.58
2.44
3.77
2039320
FMD 39.90
90.62
5
11.02
-4.12
3.71
7.68
307789
AB
5
14.26
-4.11
3.54
2.33
189417
BMA 34.00
And for Technology, we get no Results! So, why dont we do the same screen but ask for
4-engine rated technology-sector companies.
Here they are:
Prev VE
1-Year
Valuation(%) 3M-Forecast Market Average
Symbol
Close Rating Forecast(%) (undervalued)
(%)
Cap(bil.) Volume
4
2.18
-14.87
1.19
3.20
10967800
BRCD 8.03
4
8.60
-8.79
3.03
6.76
6237350
FLEX 11.13
4
6.52
-7.57
2.27
1.25
8758370
RFMD 6.44
4
6.40
-7.23
2.34
1.51
690949
AVCT 29.64
What's Hot

Tuesdays WSJ featured a lengthy article on analog chip maker Linear Technologies
(LLTC). Linear--along with competitors like Analog Devices
(ADI); Intersil (ISIL); Maxim Integrated Products (MXIM), National Semiconductor
Corporation (NSM); and Texas Instruments (TXN), manufactures a variety of low-cost,
high-profit semiconductors utilized in everything from MP3 players to hybrid car
batteries to ultrasound machinesADI designed the motion-sensing chip in Nintendos

Wii game controller. The WSJ called this industry a backwater of high tech but was
quick to note that Linears profits for 2006 were @39% on gross sales of $1.1 billion and
thus exceeded the profitability of better-known tech firms like Google and Microsoft by
about 50%. In fact, for the past five years Linears profits never fell below 38% of
revenues. This profitability in an old school segment of the semiconductor industry is
even causing other companies--such as Freescale Semiconductor (FSL) to enter the lowcost, high-profit analog chip market.
However, do fawning news coverage and high-profit margins automatically create good
investment opportunities for the individual investor?
ValuEngines quantitative tools cannot account for positiveor negativenews
coverage, but they can provide a variety of sophisticated analyses on the underlying data
about a company. This can help cut through the hype and provide you with an objective
and consistent outlook when confronted with what may seem like an obvious buy.
As of Wednesday, July 11, 2007, heres a multi-stock comparison of Linear and its main
rivals. Note that while Linear is listed as undervalued, its long-term forecast does not
seem to provide a better chance of success relative to its overvalued rivals.

Last Trade
Model Price
Valuation
Valuation Rank
Recent 12 Mo Return
Momentum Rank
Sharpe Ratio
Sharpe Ratio Rank
5-Yr Avg Ann Return
5-Yr Avg Ann Rtn Rank
Volatility
Volatility Rank
Market Cap (billion)
Size Rank
P/E Ratio
P/E Ratio Rank
Market/Book Ratio
Market/Book Rank
Price/Sales Ratio
Price/Sales Rank

LLTC

ADI

ISIL

NSM

TXN

36.86

38.93

32.58

28.41

37.97

37.37

36.33

26.49

24.03

32.49

1.36%
undervalued

7.14%
overvalued

23.00%
overvalued

18.21%
overvalued

16.87%
overvalued

66

53

28

32

36

21.54%

30.29%

50.46%

30.62%

33.04%

65

73

84

73

75

0.16

0.22

0.24

0.43

0.25

36

41

42

57

43

3.87%

6.08%

9.58%

18.21%

7.89%

32

37

46

68

41

24.84%

27.86%

39.44%

42.78%

31.18%

75

69

48

43

62

11.23

12.78

4.39

9.24

56.76

94

95

89

93

99

27.23

24.69

25.91

26.68

22.86

55

59

57

56

62

5.14

3.51

1.80

4.80

5.05

19

31

59

21

20

10.64

5.17

6.75

4.28

4.13

19

31

26

36

37

5.13%
Past 1-Month Return
18.47%
Past 3-Month Return
21.62%
Past 6-Month Return
21.54%
Past 12-Month Return
0.20%
1 Mo Forecast Return
-0.20%
3 Mo Forecast Return
-1.13%
Six Mo Forecast Return
-1.52%
1 Year Forecast Return
-7.84%
2 Year Forecast Return
-16.16%
3 Year Forecast Return
Odds Assessments: Chance of gain
53.88%
One Month
47.83%
Three Months
41.19%
Six Months
41.60%
One Year
21.96%
Two Years
9.66%
Three Years
Odds Assessments: Chance of loss
46.12%
One Month
52.17%
Three Months
58.81%
Six Months
58.40%
One Year
78.04%
Two Years
90.34%
Three Years
LLTC

7.40%

5.30%

-1.79%

6.34%

8.56%

19.82%

18.12%

24.39%

18.69%

38.80%

32.77%

33.09%

30.29%

50.46%

30.62%

33.04%

0.25%

-0.04%

0.20%

-0.01%

0.10%

-0.97%

-0.55%

-0.66%

-0.55%

-2.51%

-1.68%

-1.89%

-0.73%

-4.23%

-2.85%

-3.41%

-6.68%

-10.53%

-10.65%

-12.49%

-15.94%

-18.92%

-19.75%

-24.32%

54.26%

49.47%

52.29%

49.84%

51.01%

43.25%

46.42%

44.20%

46.13%

37.74%

42.38%

38.34%

46.39%

35.50%

40.88%

35.22%

27.86%

25.66%

27.10%

16.33%

12.63%

16.87%

17.78%

5.94%

45.74%

50.53%

47.71%

50.16%

48.99%

56.75%

53.58%

55.80%

53.87%

62.26%

57.62%

61.66%

53.61%

64.50%

59.12%

64.78%

72.14%

74.34%

72.90%

83.67%

87.37%

83.13%

82.22%

94.06%

ADI

ISIL

NSM

TXN

Training Tip
One question we get frequently here at ValuEngine concerns changing forecast numbers
and how to use the information in managing your portfolio. For example, what if you are
holding a stock and the forecast suddenly shifts from hold or buy to sell? Should
you act immediately and dump the stock?
At ValuEngine, we re-balance a portfolio by running the same screening criteria that we
used to create the original portfolio. Then we replace the stocks in the original portfolio
with the new stocks in the new screen. We do this every 30 days or so, not bothering
about what happens to the stocks in the period in-between.

We only re-balance our portfolios once a month because we have found, through careful
analysis, simulations, and rigorous back-testing that our portfolios provide the highest
returns when they are re-balanced monthly rather than bi-weekly, weekly, daily, etc. Our
ValuEngine View newsletter portfolio has run up remarkable gains utilizing this strategy.
This a major tenet of quantitative investing, you detach yourself from the process and
follow the computer, rather than your own emotions and the irrational fluctuations of the
market.
Thus, here at ValuEngine, we would hold the stock if it was in one of our portfolios until
the next adjustment date. In addition to providing higher returns over time, this makes our
strategies and tools more useful for more customers. By trading just once a month via a
low cost broker like our partner Aristonadvisors.com, anyone can use our tools to
duplicate our success.
Of course, if you want to trade faster, you can with ValuEngine. Those with more
advanced trading styles that are interested in stop-losses, gap-limits, etc. should download
a trial copy of ValuEngine Institutional software from ValuEngine.com. This product
features more advanced tools than the website and is designed for finance professionals
and individual investors utilizing advanced trading strategies.

An archive of this weekly newsletter is available at

http://www.valuengine.com/ve/WeeklyNewsletter
ValuEngine, Inc.
www.valuengine.com
support@valuengine.com
1-800-381-5576

The ValuEngine View Newsletter

The ValuEngine View Newsletter is a 15 stock portfolio, adjusted monthly.
Stock selection is based upon the ValuEngine fair market valuation model.
The newsletter is edited by Eric Stokes, fund manager and author.
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This bulletin is intended for informational purposes only and does not constitute a recommendation, or an offer, to buy or sell any
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the bulletin was released. The opinions of ValuEngine are subject to change at any time without notice and without obligation of
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