January 21, 2011

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VALUATION WATCH: Our models find that overvaluation is approaching

levels typically seen when a market correction is imminent. Overvalued
stocks now make up almost 63% of our universe and 28% of the universe is
calculated to be overvalued by 20% or more. ALL Sectors are now
calculated to be overvalued.

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--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 FirstBanc Corp/FirstBanc Puerto Rico
(FBP, $FBP). Subscribers to our ValuEngine Forecast Model MNS Portfolio Newsletter
received their latest edition on Tuesday for a monthly re-balance. This newsletter
features a long and short side of 16 stocks from each sector we cover. The recent
market unrest over earnings, CEO health issues, and other factors have hit some
financials particularly hard.
This has been a boon to our Forecast MNS subscribers since their short-side
financial sector pick for the month was one of the hardest hit banks, FirstBanc Puerto
Rico (FBP, $FBP). First BanCorp operates as the holding company for FirstBanc Puerto
Rico that provides a range of financial services and products to retail, commercial,
and institutional clients in Puerto Rico, the United States, and the British Virgin
Islands. FirstBanc Puerto Rico distinguished itself by providing innovative marketing
strategies and novel products to attract clients. Besides the branches and lending
offices, the Corporation has offered a telephone information service called
Telebanco since 1983. This was the first telebanking service offered in Puerto Rico. The
Corporation's clients have access to an extensive ATM network all over the world. The
Corporation was the first in Puerto Rico to open on weekends and the first to offer in-
store branches to its clients.
Yesterday, FBP received a downgrade from "Hold" to "Sell" from Cantor
Fitzgerald and was one the NYSE's biggest losers the past few days. The stock was
entered into our Forecast Model MNS Portfolio based on data from last Friday's close
at $7.10/share. It closed yesterday at $5.40/share for a quick 24% gain in just two
days. The model's recalculated 1-Month Forecast Return is now -4.56% for a share
price target of $5.15.
Investors should remember that VE's proprietary Valuation and Forecast Models
recalculate the entire universe of more than 5500 equities every single trading day
and that as FBP's share price fluctuates, there may be additional changes to both the
valuation and forecast return calculations.
ValuEngine has issued a STRONG SELL recommendation for FirstBanc Puerto
Rico. Based on the information we have gathered and our resulting research, we feel
that FirstBanc Puerto Rico has the probability to UNDERPERFORM average market
performance for the next year. The company exhibits UNATTRACTIVE momentum,
volatility and P/E ratio.
Based on available data as of Jan. 21, 2011, we believe that FBP should be
trading at $5.63. This makes FBP 4.00% overvalued. Fair Value indicates what we
believe the stock should be trading at today if the stock market were perfectly
efficient and everything traded at its true worth. For FBP, we base this on actual
earnings per share (EPS) for the previous four quarters of -$2.12, forecasted EPS for the
next four quarters of -$0.07, and correlations to the 30- year Treasury bond yield of
4.62%.

Weekly Subscribers can download a FREE Detailed Valuation Report on FBP 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.
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environment.
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MARKET OVERVIEW
Index started week Thursday Close 3 day change 3 day change % ytd
DJIA 11783.82 11822.8 38.98 0.33% 2.59%
NASDAQ 2744.8 2704.29 -40.51 -1.48% 2.19%
RUSSELL 2000 807.57 778.08 -29.49 -3.65% -0.45%
S&P 500 1293.22 1280.26 -12.96 -1.00% 2.30%

Summary of VE Stock Universe

Stocks Undervalued 37.20%
Stocks Overvalued 62.80%
Stocks Undervalued by 20% 15.93%
Stocks Overvalued by 20% 28.25%

SECTOR OVERVIEW
Sector Change MTD YTD Valuation Last 12- P/E
MReturn Ratio
Aerospace -0.72% 2.66% 2.66% 10.78% overvalued 31.81% 18.9
Auto-Tires-Trucks -2.29% -1.32% -1.32% 14.73% overvalued 32.72% 20.05
Basic Materials -2.08% -5.17% -5.17% 18.55% overvalued 42.31% 39.18
Business Services -1.35% 0.41% 0.41% 13.33% overvalued 15.36% 32.63
Computer and Technology -1.47% 7.48% 1.60% 10.10% overvalued 31.70% 36.72
Construction -0.63% 1.01% 1.01% 2.60% overvalued 9.13% 28.97
Consumer Discretionary -0.79% -1.48% -1.48% 5.56% overvalued 20.87% 30.51
Consumer Staples -0.17% -0.80% -0.80% 6.93% overvalued 16.98% 24.6
Finance -0.56% -0.31% -0.31% 7.55% overvalued 15.39% 27.85
Industrial Products -1.45% -0.92% -0.92% 11.70% overvalued 25.44% 31.85
Medical -0.73% 0.85% 0.85% 0.79% undervalued 14.38% 35.68
Multi-Sector Conglomerates -0.86% 1.37% 1.37% 15.67% overvalued 30.38% 34.09
Oils-Energy -1.15% 0.66% 0.66% 28.50% overvalued 32.56% 47.25
Retail-Wholesale -0.07% -2.40% -2.40% 7.71% overvalued 23.07% 26.63
Transportation -1.24% -2.36% -2.36% 13.30% overvalued 22.76% 27.97
Utilities -0.57% -0.19% -0.19% 7.76% overvalued 14.04% 20.47
Sector Talk--Finance*
As noted above, Finance has had some earnings issues and other surprises this
week. Big players like CitiGroup, Morgan Stanley, Bank of America, and Goldman
Sachs have risen or fallen on the strength of their earnings. Below, we present top-five
lists for the Finance Sector from our Institutional software package (VEI). These results
were filtered by market price and volume--no results below 3$/share or less than 100k
shares/day volume.
Top-Five Finance Stocks--Short-Term Forecast Returns
Last 12-M
Ticker Name Mkt Price Valuation(%)
Retn(%)
FAF FIRST AMER FINL 15.38 4.9 N/A
BFR BANCO FRANC-ADR 12.08 -57.75 95.15
NCT NEWCASTLE INV 6.95 -66.4 235.75
AIG AMER INTL GRP 43.18 -75 54.43
C CITIGROUP INC 4.8 -63.45 38.73

Top-Five Finance Stocks--Long-Term Forecast Returns

Last 12-M
Ticker Name Mkt Price Valuation(%)
Retn(%)
FAF FIRST AMER FINL 15.38 4.9 N/A
ACTG ACACIA RES-TECH 27.96 -0.69 210.32
AIG AMER INTL GRP 43.18 -75 54.43
BEE STRATEGIC HOTEL 5.24 8.6 100.77
GGAL GRUPO GALIC ADR 16.27 30.47 195.28

Top-Five Finance Stocks--Composite Score

Last 12-M
Ticker Name Mkt Price Valuation(%)
Retn(%)
C CITIGROUP INC 4.8 -63.45 38.73
AIG AMER INTL GRP 43.18 -75 54.43
ACAS AMER CAP LTD 8.04 -10.48 83.98
AMP AMERIPRISE FINL 59.62 -7.22 44.6
UBS UBS AG 17.34 -47.28 13.93
Top-Five Finance Stocks--Most Overvalued
Last 12-M
Ticker Name Mkt Price Valuation(%)
Retn(%)
NRF NORTHSTAR RLTY 4.94 256.88 6.7
MPG MPG OFFICE TRST 3.45 191.65 77.84
WL WILMINGTON TRST 4.29 171.72 -70.62
CLP COLONIAL PPTYS 18.5 146.06 56.38
CNO CNO FINL GRP 6.55 144.69 24.05

*NOTE: The author has a long position in CitiGroup.

Subscribers can check out the latest valuation, forecast, and ratings figures on
the Finance Sector from our Models HERE.
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What's Hot--
Suttmeier's Buy and Trade Strategy

ValuEngine Chief Market Strategist Richard Suttmeier is a financial analyst for media such as Fox News,
CNBC,YahooFinance,the Wall Street Journal, New York
Times, CNNfn, and Bloomberg, Suttmeier has long been
one of ValuEngine's "power users," supporting his own
technically-focused analysis with VE's fundamentally-
based quant methods.

This week Richard appeared at the

Orlando, Florida chapter of the American
Association of Individual Investors (AAII) to
discuss his market outlook for 2011, his method
of stock picking using ValuEngine and
Technical Analysis, and the "Buy and Trade"
strategy upon which his popular ValuTrader
Model Portfolio Newsletter is based.
Below, we include some highlights on "Buy and Trade" from his presentation in
Orlando:
Investors Do NOT want to Buy High and Sell Low
When a stock moves lower, the tendency is to sell at or near a bottom. For
equity money managers, they may have to sell to meet redemptions. When a
stock moves higher, many investors try to chase the momentum. For equity
money managers, it’s chasing performance.
Buy and Trade Avoids this Pitfall
A bad reaction to an earnings report typically forces investors to sell a buy-
rated stock. However, with “Buy and Trade” you add to the position at a value
level. Similarly, when investors chase stocks that pop higher on positive earnings
reports, you sell the strength at a risky level and book a nice profit.
A Successful Strategy Leaves some Money on the Table
To Implement Buy and Trade, Combine ValuEngine’s Fundamentally-Based Ratings
System and Technical Analysis for Individual Equities.
Use ValuEngine Buy/Sell/Hold Calls
Establish Technical Levels for Each Equity
A value level is a price at which investors should add to a long position on
share price weakness, or begin to cover a short position.
A risky level is a price at which investors should reduce a long position on
share price strength, or add to a short position.
A pivot is a price that should be a magnet during the time frame
specified. This is a level at which to consider more aggressive positions
adjustments. A violated value level and risky level becomes a pivot for the
remainder of the time horizon and has an 85% chance of being tested in that
time period.
These levels are calculated in weekly (W), monthly (M), quarterly (Q),
semiannual (S) and annual (A) time horizons, based on the past nine closes in
each time horizon. My theory is that the closes over a nine-year period are the
summation of all bullish and bearish events for that market or specific stock.
These levels are the most important element of the Buy and Trade Strategy.

Two Practical Examples of Buy and Trade from Suttmeier's ValuTrader Model Portfolio:
Intel (INTC)

Entered the ValuTrader Model Portfolio at $19.40 on Feb 8th, sold at $23.57 on
April 14th for a gain of 21.5%.
Entered again at $20.25 on May 21st, sold at $21.95 on June 3rd for a gain of
8.4%.
Entered again at $20.38 on June 7th and added to on July 1st on weakness to
$19.07. Sold at $19.94 on July 7th for a FIFO loss of 1.7%. The second position
was sold at $22.06 on July 14th for a gain of 15.7%.
Entered again at $19.17 on August 12th, sold at $21.59 on November 12 for a gain
of 12.6%.
Intel returned on January 3rd at $20.80.
Adobe (ADBE)
Entered the ValuTrader Model Portfolio at $32.30 on Feb 8th, sold at $35.96
on April 22nd for a gain of 11.3%.
Entered again at $31.00 on May 21st, sold at $33.46 on June 18th for a gain
of 7.9%.
Entered again at $30.15 on June 24th and added a second position on
weakness to $28.48 on August 11th, both were sold at $29.05 on Sept 2nd
for a loss of 3.6% and a gain of 2.0%.
Entered again at $25.90 on Sept 22nd, sold at $27.89 on October 2nd for a
gain of 7.7%.
Entered again at $27.80 on Dec 14th, sold at $30.98 on Dec 21st for a gain
of 11.4%
Stock currently rates a BUY at $32.14, but is projected to gain less than 7.5%
over the next twelve months.
We will post Suttmeier's entire presentation to our website within the next week or so.
We will include a link to it in next week's bulletin.

With Richard Suttmeier's ValuTrader Newsletter Portfolio, you get timely stock picks
and a strategy designed to profit from today's volatile market environment.

Click HERE to Sign Up for Richard Suttmeier's ValuTrader Newsletter Portfolio

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
10-Year-- (3.451) Weekly, annual and semiannual value levels are
3.609, 3.791 and 4.268. Daily, annual, semiannual and monthly
risky levels are 3.390, 2.690, 2.441, 2.322 and 2.150.

Commodities and Forex

Comex Gold-- ($1345.2) Semiannual and annual value levels are $1300.6 and $1187.2
with annual and daily pivots at $1356.5 and $1364.4, and weekly, monthly, quarterly
and semiannual risky levels at $1409.7, $1439.0, $1441.7 and $1452.6.

Nymex Crude-- ($89.51) Semiannual and monthly value levels are $87.52 and $75.74
with daily, weekly, annual, semiannual and quarterly risky levels at $93.23, $96.45,
$99.91, $101.92, $107.14 and $110.87.

The Euro-- (1.3477) Monthly and weekly value levels are 1.2805 and 1.2806 with a
quarterly pivot at 1.3227 and daily risky level at 1.3651. Semiannual and annual risky
levels are 1.4624, 1.4989, 1.6367 and 1.7312.

Major Indices

The Dow Transportation Average is down 0.5% in January and the Russell 2000 is
down 0.7%. Transports are below my annual pivot at 5179, which corresponds to
11,491 on the Dow Industrial Average. The Russell 2000 is also below its annual pivot at
784.16. This week the only equity average to reach this week’s risky level was the Dow
Industrial Average, which tested 11,858. The other major equity averages are lagging
this week’s risky levels at 1304.9 SPX, 2802 NASDAQ, 5331 Transports and 835.88 on
Russell 2000. Next week there will be another layer of weekly risky levels. The NASDAQ
has a quarterly risky level at 2853.
The Dow

Daily: (11,823) Annual, quarterly, semiannual, monthly and semiannual value levels
are 11,491, 11,395, 10,959, 10,427 and 9,449 with daily and weekly pivots at 11,857 and
11,858, and annual risky level at 13,890.

Our latest ValuEngine FDIC Report is now posted. The report contains
loan exposure and/or ValuEngine datapoints on valuation, forecast, and
ratings for all of the institutions on our List of Problem Banks.

Subscribers can download it HERE.

Others interested in the report may find out more on our website by
clicking the image below.