May 28, 2010

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This week's free download is our report on BEAZER HOMES (BZH). ValuEngine has
issued a BUY recommendation for BEAZER HOMES. Based on the information we have
gathered and our resulting research, we feel that BEAZER HOMES has the probability
to OUTPERFORM average market performance for the next year. The company
exhibits ATTRACTIVE market valuation, P/E ratio and momentum.
BEAZER HOMES designs, builds, and sells single-family and multi-family homes in
the United States. It offers homes for entry-level, move-up, or retirement-oriented
buyers. The company also provides title insurance services to its homebuyers. BEAZER
HOMES sells its homes through commissioned employees and independent brokers.
The company was founded in 1985 and is headquartered in Atlanta, Georgia.
In a screen for buy-rated stocks that are approaching $5.00/share, BZH came
up in the top six in terms of valuation. The $5.00 level is critical as it represents a price
below which many fund managers may not go. So, stocks like BZH that demonstrate
other positive fundamental traits often jump in price after they reach $5.00 as major
institutional investors take positions. While BZH does not currently display positive short
or long-term forecast figures, this may be an artifact of the volatile markets. Recently
we have had good success with other Home Builders-- like Pulte Homes-- in our VE
Forecast 22 MNS portfolio newsletter.
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MARKET OVERVIEW

Index started week Thursday Close 4 day change 4 day change % ytd
DJIA 10193.46 10259 65.54 0.64% -1.65%
NASDAQ 2220.6 2277.68 57.08 2.57% -0.73%
RUSSELL 2000 648.11 670.51 22.4 3.46% 6.75%
S&P 500 1084.78 1103.06 18.28 1.69% -1.21%

Summary of VE Stock Universe

Stocks Undervalued 62.80%
Stocks Overvalued 37.20%
Stocks Undervalued by 20% 29.62%
Stocks Overvalued by 20% 15.06%

SECTOR OVERVIEW
Sector Change MTD YTD Valuation Last 12- P/E Ratio
MReturn
Basic Industries 4.29% -3.99% 17.52% 3.67% undervalued 49.48% 24.56
Capital Goods 3.82% -9.48% 8.31% 1.62% undervalued 41.01% 20.55
Consumer Durables 3.05% -9.51% 5.37% 0.02% overvalued 62.54% 22.96
Consumer Non-Durables 3.23% -6.83% 4.08% 5.45% undervalued 45.58% 18.3
Consumer Services 3.14% -8.61% 9.74% 3.53% undervalued 46.00% 22.63
Energy 4.70% -10.95% -5.83% 2.56% undervalued 34.71% 20.61
Finance 2.42% -7.82% 7.02% 2.30% undervalued 23.17% 18.38
Health Care 2.85% -5.54% 7.19% 10.88% undervalued 33.80% 21.49
Public Utilities 2.95% -8.69% -6.41% 5.00% undervalued 22.28% 16.29
Technology 3.73% -7.53% 5.22% 11.41% undervalued 47.87% 25.46
Transportation 3.00% -8.58% 7.27% 6.62% undervalued 42.55% 20.41
INDUSTRY TALK—The Oil Industry
Below, we present the key ValuEngine data for the Oil Industry from our
Institutional software package (VEI). We did not include any liquidity or share price
requirements in our screen.

Top-Five Oil Industry Stocks--Short-Term Forecast Returns

Last 12-M
Ticker Name Mkt Price Valuation(%)
Retn(%)
MAGNUM HUNTER
MHR 4.8 162.75 1197.3
RESOURCES CORP
USEG US ENERGY CORP. 5.18 -29.76 146.67
GMET GEOMET INC 1.29 -46.49 11.21
TGE TGC INDUSTRIES INC 3.56 0.04 -28.66
RES RPC INCORPORATED 11.56 -23.56 20.67

Top-Five Oil Industry Stocks--Long-Term Forecast Returns

Valuation(% Last 12-M
Ticker Name Mkt Price
) Retn(%)
USEG US ENERGY CORP. 5.18 -29.76 146.67
MAGNUM HUNTER
MHR 4.8 162.75 1197.3
RESOURCES CORP
XOM EXXON MOBIL CORP 61.46 -12.76 -7.72
SLB SCHLUMBERGER LTD 60.02 -9.28 13.95
GMET GEOMET INC 1.29 -46.49 11.21

Top-Five Oil Industry Stocks--Composite Score

Last 12-M
Ticker Name Mkt Price Valuation(%)
Retn(%)
SDRL SEADRILL LTD 21.66 -13.8 59.26
BP BP PLC 45.38 -26.31 0.46
CHESAPEAKE ENERGY
CHK 22.22 -27.32 8.02
CORP
PRECISION DRILLING
PDS 6.38 -37.35 23.4
TRUST
LUKOY LUKOIL 49.2 -29.27 5.13
Top-Five Oil Industry Stocks--Most Overvalued
Last 12-M
Ticker Name Mkt Price Valuation(%)
Retn(%)
KAZ BMB MUNAI INC 0.7 700 -48.91
ALJ ALON USA ENERGY INC 6.76 300 -44.32
PRIMEENERGY
PNRG 19.12 245.93 -47.62
CORPORATION
AEZ AMERICAN OIL & GAS INC 6.51 220.94 656.98
PARK-OHIO HOLDINGS
PKOH 14.73 204.97 306.91
CORP

VE Premium Website Stock Analysis subscribers can find complete valuation,

forecast, and ratings data on every individual equity in the Oil Industry HERE
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What's Hot
--Catching Up with TK Ng
Using Visual Finance for a Market Neutral Strategy
Formr 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.
The aim of a market neutral strategy is to go Long on the best stocks, and Short
on the worst stocks. It is a good strategy when markets are very unpredictable, as the
gains come not from market direction, but the 'spread' between best and worst. In
theory, the best stocks will outperform the market positively when the market rises,
and outperform the market negatively when the market falls. But for a quantitative
strategy, 'Best' and 'Worst" has to be quantitatively defined.
 ValuEngine's Engine Ratings in turn are based on a Composite Ranking score
system. Using ValuEngine's Engine Rating system, we could have a market neutral
portfolio where the longs are the Long portfolio comprising, say, the x number best
stocks and a Short portfolio of the y number worst stocks, where x=y.

In this post, we use a SOM to find the 10 best stocks and the 10 worst stocks,
and we compare the list of stocks that the SOM identifies with ValuEngine's list. A SOM
offers a more holistic way of looking at 'best' and 'worst'. It simultaneously takes into
account all the relevant model variables and their non-linear inter-relationship with
each other. Using the self-clustering properties of the SOM, and Euclidean distance
on the SOM to measure degrees of similarity, it was hypothetised that the SOM's list of
'best' and worst' would be different from ValuEngine's list.

Some of the assumptions we used in this exercise are:

1.Our Universe of stocks comprises only the component stocks of the SP500 Index
because (a) we want stocks with good liquidity and reasonable size [market cap].(b)
Having only Index component stocks will also lower the volatility of the portfolio,
making our strategy more suitable for ordinary folks who don't like to trade a lot.
2. An arbitrary 10 stocks per portfolio is used, because a 20-stock portfolio is
manageable and affordable for the average investor with an investment capital of
$20000 and yet offers sufficient diversification.
3. The portfolios are equal weighted in terms of $, as I feel that trying to give
weightings for each stock is a futile exercise in optimization and is a case of false
precision. Optimization can be done, but I prefer the use of Genetic Algorithms rather
than traditional statistical methods for optimization.
 For today's post, I plotted the ValuEngine model variables of the SP500
component stocks on a Self-Organizing Map [SOM] using our Viscovery SOMine
Software. Below we see a heat map that tracks the ValuEngine composite ranking
scores of SP500 stocks. Higher scores tend towards the color Red.
Viscovery SOMine Software divides the stocks into seven distinct clusters based on
their degree of similarity in overall characteristics using algorithmic thresholds to
determine cluster boundaries.

Let's have a look at each cluster's statistics. Our cluster stats show that cluster
S4 [Green] has the highest average composite score--713, and cluster S6 [Pink] has
the lowest average composite score--525. Overall, Cluster S7 actually has the highest
score of 884, but this is a one-stock cluster which consists solely of Kodak (EK) and it
has very volatile characteristics.
 Here we have the long side and can see the SOM's 10 best stocks--1st-- and
ValuEngine's 10 best stocks--2nd. Note the differences and how the SOM puts more
emphasis on the big cap technology sector e.g. Intel, Apple, Cisco and on raw
materials e.g. Noble, Corning, Freeport-Mcmoran.

Next up we have our shorts. We can compare the SOM's 10 worst stocks--1st--
with ValuEngine's 10 worst stocks--2nd. Goodyear, Office Depot, SprintNextel and
Tesoro appear in both list but other stocks are not in both list. The 'worst' list seems to
be more stock-specific and less sector-specific.
 Last thoughts: Each week--or even each day, a stock's Engine rating may
change. Those near the boundary between discrete Engine ratings may bounce
back and forth between two ratings--"ratings drift." This is because the ratings system
works on a hard bell curve and is re-calculated every night after close. The Viscovery
SOMine Software has tools for displaying the finer details of the properties of a cluster
and the stocks within it e.g it's centroid, its neighborhood, slope of the cluster
boundaries, contour, and U-matrix. using these tools will further enhance knowledge
of a cluster's characteristics and enable us to better select the stocks for the
Long/Short portfolios.
Keep in mind too that this theoretical MNS strategy will not yield as good a
return as ValuEngine's Forecast 22 MNS newsletter portfolio. But it may be a more
suitable strategy for conservative investors with steady longer-term returns in mind
because it features fewer positions and less rebalancing--which both contribute to
lower trading costs .

--The ValuEngine Forecast 22 MNS Portfolio

Our Forecast 22 Market Neutral Strategy Newsletter portfolio posted a gain of .

22% while the benchmark took a big hit of more than 6%, Since inception, our market
neutral portfolio is up almost 31% while the S&P 500 is up @ 29% for the same time
frame.

This was truly a month for the market neutral approach to shine as our short side
protected our portfolio from the extreme market volatility. Our short side beat the S&P
500 by almost 1500 bps! 18 of our 22 long selections made money and 10 of them
provided double-digit returns. Our best short-side pick was Human Genome Sciences
(HGSI) which returned almost 25%.
 Below we present our short results for the latest edition of the portfolio:

Entry Price
Ticker Company Name Exit Price Change %Change Sector
4-16-10
CX CEMEX SAB DE CV 10.81 10.98 -0.17 -1.57 BASIC INDUSTRIES

TIE TITANIUM METALS 16.94 16.63 0.31 1.83 BASIC INDUSTRIES

AIXG AIXTRON 37.17 32.63 4.54 12.21 CAPITAL GOODS

OSK OSHKOSH CORP 43.79 38.30 5.49 12.54 CAPITAL GOODS

CONSUMER
DAN DANA HOLDING CORP 13.67 11.41 2.26 16.53 DURABLES

CONSUMER
TEN TENNECO INC 25.36 22.33 3.03 11.95 DURABLES

CONSUMER
BRFS BRF-BRASIL FOODS SA 13.70 12.76 0.94 6.86 NON_DURABLES

COLUMBIA SPORTSWEAR CONSUMER

COLM 56.44 52.20 4.24 7.51 NON_DURABLES
COMPANY
CONSUMER
H HYATT HOTELS CORP 39.93 40.46 -0.53 -1.33 SERVICES

CONSUMER
LBTYA LIBERTY GLOBAL INC 29.36 25.60 3.76 12.81 SERVICES

TSO TESORO CORP 12.98 12.57 0.41 3.16 ENERGY

CRK COMSTOCK RESOURCES 35.48 30.59 4.89 13.78 ENERGY

ASBC ASSOCIATED BANC CORP 15.25 14.34 0.91 5.97 FINANCE

DEVELOPERS DIVERSIFIED REALTY FINANCE

DDR 12.78 12.18 0.6 4.69
CP
DNDN DENDREON CORP 39.64 43.40 -3.76 -9.49 HEALTH CARE

HUMAN GENOME SCIENCES HEALTH CARE

HGSI 33.26 25.02 8.24 24.77
INCORPORAT
CHU CHINA UNICOM (HK) LTD 11.26 11.60 -0.34 -3.02 PUBLIC UTILITIES

TNE TELE NORTE LESTE PARTICIPACOES 18.83 15.11 3.72 19.76 PUBLIC UTILITIES

VECO VEECO INSTRUMENTS INC 49.25 45.50 3.75 7.61 TECHNOLOGY

JDSU JDS UNIPHASE CORP 13.74 11.68 2.06 14.99 TECHNOLOGY

AMR AMR CORPORATION 9.10 7.31 1.79 19.67 TRANSPORT

GOL LINHAS AEREAS INTELIGENTES TRANSPORT

GOL 13.65 12.45 1.2 8.79
S
SHORT PORTFOLIO 8.64
GSPC S&P500 1211.67 1136.94 -74.73 -6.17
 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 more than 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

Training Tip
--Check the Web for ValuEngine Updates, Bulletins, and Stock Picks

We provide a variety of content for our clients and potential clients every
trading day. Here are just a few places you can find out the latest news from
ValuEngine's Team of Analysts.

Follow us on Twitter HERE

Our Website features Daily Bulletins most trading days that can be found
HERE

Our Scribd.com Page features our Daily Bulletins as well as Chief Market
Strategist Richard Suttmeier's Four-in-Four Report HERE
Suttmeier Says
--Commentary and Analysis from Chief Market
Strategist Richard Suttmeier

If you have any comments or questions, send them to Rsuttmeier@Gmail.com

Treasury Yields
Thursday’s $31 billion 7-Year auction gets a “C” grade as
the yield came in at 2.815, which is cheaper than my annual pivot
at 2.684. The bid to cover was strong at 2.88 and the indirect bid
was 51%, above my 30% to 40% neutral zone. After testing 3.061
on Tuesday the yield on the 10-Year rose above my weekly pivot
at 3.320. My quarterly support is 3.467 with my weekly pivot at
3.320 and daily resistance at 3.083.

Commodities and Forex

Comex Gold-- has become currency of last resort primarily on euro weakness. The
50-day simple moving average is $1162.4 with the May 14th peak at $1249.7 on May
14th.

Nymex Crude Oil--is no longer oversold and in a trading range now between my
quarterly value level at $68.03 and the 200-day simple moving average and my
annual risky level at $76.64 and $77.05.

The Euro-- has formed a trading range around my quarterly pivot at 1.2450 with this
week’s resistance at 1.2690. The euro is no longer oversold, but it’s not on the rise
either. A monthly close below the 120-month simple moving average at 1.206 would
be the first since April 2003
Major Indices

The Dow--

Daily: There’s an up trend resistance line that connects highs going back to
November 2009 that was tested at the April 26th high. The daily chart profile is
negative with the Dow below its 21-day simple moving average at 10,573. The Dow is
below its 50-day and 200-day simple moving averages at 10,807 and 10,278. It seems
that the April 26th high at 11,258 ends the bear market rally since March 2009, and
starts the second leg of the multi-year bear market.

Weekly: The Dow ended last week below its 200-week simple moving average at
11,121, after testing the 61.8% Fibonacci Retracement of the October 2007 to March
2009 low at 11,246 with the April 26th high at 11,258. This is 1,000 points away from
Thursday’s close. MOJO is now declining and weekly closes below the 5-week
modified moving average at 10,561 keeps the weekly chart profile negative. I still
predict Dow 8,500 before Dow 11,500.

Monthly: Back in March 2009 the Dow held the up trend that goes back to the low
following “The Crash of 1987”. The Dow also held its 61.8% Fibonacci Retracement of
the rally from the 1987 low and the October 2007 high. ValuEngine showed all eleven
sectors as 32% to 45% undervalued. These were the reasons I predicted a 40% to 50%
rally for stocks on March 6, 2009. The Dow is below its 120-month simple moving
average at 10,460 with overbought monthly technical momentum.

Sector Valuations
Over the past month sector valuations have shifted from eleven overvalued
sectors to eleven undervalued sectors. The reasons for improved fundamentals
include: improved 12-month trailing EPS, upgraded forward 12-month EPS estimates
from Wall Street, lower stock prices and a lower 30-Year bond yield. My prediction is
that the technicals will outweigh the fundamentals until the valuations return to where
they were in March 2009.

Bulls vs. Bears

All of this talk today on Financial TV about a bull market correction, and that
stocks are oversold is bunk. What are positive are equity valuations--which are
cheaper now than on April 26th. The problem is the negative technicals on the daily
and weekly charts and knowing that the monthly chart remains overbought. Right
now sector valuations are cheap-- but not nearly as cheap as in March 2009.
 I cringe when I hear “dollar cost averaging” as that strategy cost the average
investor his equity wealth over the past ten years. Investors need to learn how to "Buy
and Trade" using GTC Limit Orders to buy on weakness to a value level and to sell on
strength to a risky level. I provide this guidance in the ValuTrader Model Portfolio and
the Weekly ETF Report.

--The ValuTrader Model Portfolio Newsletter

The ValuTrader Model Portfolio Newsletter is based on ValuEngine Chief Market
Strategist Richard Suttmeier's proprietary market analytics. Suttmeier combines his
technical analysis expertise with ValuEngine's proprietary valuation, forecast, and
ratings data for more than 4000 equities trading on US markets to come up with a 20
stock portfolio tailored to current market conditions. With ValuTrader, subscribers
access Suttmeier's "Buy and Trade" strategy with a portfolio designed to function well
in both up and down markets.
For more on the Suttmeier ValuTrader Newsletter Portfolio, Click the Logo Below