November 13, 2015

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VALUATION WATCH: Overvalued stocks now make up 47.12% of our stocks assigned a valuation and 16.63% of those equities are calculated tobe overvalued by 20% or more. Nine sectors are calculated to be overvalued--with one overvalued by double digits.

MARKET OVERVIEW

Index Started week Friday AM Change Change % ytd

DJIA 17900.78 17316.5 -584.28 -3.26% -2.84%

NASDAQ 5128.94 4964.77 -164.17 -3.20% 5.03%

RUSSELL 2000 1199.58 1149.16 -50.42 -4.20% -4.61%

S&P 500 2096.56 2032.84 -63.72 -3.04% -1.27%

Summary of VE Stock UniverseStocks Undervalued 52.88%

Stocks Overvalued 47.12%

Stocks Undervalued by 20% 24.30%

Stocks Overvalued by 20% 16.63%

SECTOR OVERVIEW

Sector Change MTD YTD Valuation Last 12-MReturn

P/ERatio

Aerospace -1.88% -1.99% -1.40% 10.08% overvalued -9.76% 17.76

Auto-Tires-Trucks -1.32% -1.21% -5.23% 7.15% undervalued -8.09% 13.57

Basic Materials -2.09% -4.11% -17.73% 13.88% undervalued -21.99% 22.98

Business Services -2.04% -2.41% -1.03% 4.72% overvalued -2.58% 23.9

Computer and Technology -1.16% -0.03% 0.05% 2.95% overvalued -1.42% 27.73

Construction -1.71% -0.66% 1.62% 4.04% undervalued -4.06% 20.11

Consumer Discretionary -0.68% -2.15% 0.35% 1.24% overvalued -2.72% 25.14

Consumer Staples -1.60% -2.51% 5.12% 4.93% overvalued 0.13% 23.89

Finance -1.10% -0.62% 0.65% 3.09% overvalued -3.37% 16.98

Industrial Products -2.23% -2.77% -9.00% 3.19% undervalued -13.80% 19.41

Medical -2.01% -0.18% 2.18% 1.94% overvalued 1.45% 28.2

Multi-Sector Conglomerates -1.38% -0.57% -8.69% 0.11% overvalued -9.16% 17.69

Oils-Energy -2.37% -5.08% -23.73% 8.49% undervalued -44.36% 24.96

Retail-Wholesale -1.26% -1.58% -7.92% 5.64% undervalued -4.10% 21.45

Transportation -1.43% -2.63% -13.31% 12.58% undervalued -17.22% 15.25

Utilities -1.20% -3.90% -7.16% 0.64% overvalued -10.28% 20.84

Sector Talk—FinanceBelow, we present the latest data on leading Finance Sector stocks from our

Professional Stock Analysis Service. These results were filtered by market price and volume--no results below 3$/share or less than 100k shares/day volume.

Top-Five Finance Sector Stocks--Short-Term Forecast Returns

Ticker Company Name Market Price Valuation Last 12-M Retrn

BFR BANCO FRANC-ADR 22.82 N/A 72.62%

NEWT NEWTEK BUS SVCS 17.01 N/A 22.02%

FMCC FREDDIE MAC 2.21 -11.43% 7.28%

LFC CHINA LIFE INS 18.07 N/A 21.14%

WD WALKER & DUNLOP 27.09 3.99% 68.16%

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

Ticker Company Name Market Price Valuation Last 12-M Retrn

BFR BANCO FRANC-ADR 22.82 N/A 72.62%

NEWT NEWTEK BUS SVCS 17.01 N/A 22.02%

FMCC FREDDIE MAC 2.21 -11.43% 7.28%

LFC CHINA LIFE INS 18.07 N/A 21.14%

WD WALKER & DUNLOP 27.09 3.99% 68.16%

Top-Five Finance Sector Stocks--Composite Score

Ticker Company Name Market Price Valuation Last 12-M Retrn

CACC CREDIT ACCEPT 169.26 -15.69% 14.71%

AFSI AMTRUST FIN SVC 58.25 -0.77% 29.82%

FMCC FREDDIE MAC 2.21 -11.43% 7.28%

MTG MGIC INVSTMT CP 9.14 -11.51% 2.47%

PRU PRUDENTIAL FINL 84.69 -6.82% -4.35%

Top-Five Finance Sector Stocks--Most Overvalued

Ticker Company Name Market Price Valuation Last 12-M Retrn

TBBK BANCORP BNK/THE 7.66 269.46% -19.03%

STOR STORE CAPITAL 21.82 127.42% N/A

CPF CENTRAL PAC FIN 23.12 87.09% 22.33%

LTS LADENBURG THALM 2.9 73.67% -32.08%

BMA BANCO MACRO-ADR 61.63 72.56% 45.90%

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VOLKSWAGEN-ADR is the largest automobile manufacturer in Europe. Their activities focus on the automotive market and they offer products and services along the entire automotive value chain. With nine independent brands, they are able to offer a unique range of models from the extremely efficient 3-litre car to the great sporting tradition of Bentley. While each of the brands has a distinct personality, it alsobenefits from its membership of the Volkswagen Group with its global manufacturing base

ValuEngine continues its BUY recommendation on VOLKSWAGEN-ADR for 2015-11-12. Based on the information we have gathered and our resulting research, we feel that VOLKSWAGEN-ADR has the probability to OUTPERFORM average market performance for the next year. The company exhibits ATTRACTIVE P/E Ratio and Company Size.

This stock has been battered by revelations of "defeat devices" and cheating on emissions tests. Since those revelations, sales have taken a nose dive along with the share price. But, according to earnings and past behaviour, those lower share prices indicate a bargain to our quant models. This is another indicator that one has to take every recommendation into consideration along with the headlines and recent news about a company. VW was fighting for position as the largest auto manufacturer in the world prior to the news.

This is similar to what we saw happen to BP in the wake of the Deepwater Horizon spill. The stock plummeted by @50%, which made the oil giant even more attractive to our models. There were many angry phone calls back then. But, once the company shook off the bad news and paid the penalties, it came back big time.

The share price increased @100% from the ultimate bottom. Of course, the timing is the issue. You need to get in at the bottom, and there is still bad news emanating from VW. We simply do not know the ultimate cost will be thanks to this cheating disaster.

Read our Complete Detailed Valuation Report on Volkswagen HERE.

ValuEngine Forecast

TargetPrice*

ExpectedReturn

1-Month 25.54 0.56%

3-Month 25.54 0.55%

6-Month 25.46 0.23%

1-Year 27.11 6.73%

2-Year 20.07 -20.97%

3-Year 24.63 -3.04%

Valuation & RankingsValuation 49.48% undervalued Valuation Rank(?) 93

1-M Forecast Return 0.56% 1-M Forecast Return Rank 87

12-M Return -40.36% Momentum Rank(?) 21

Sharpe Ratio 0.02 Sharpe Ratio Rank(?) 58

5-Y Avg Annual Return 0.78% 5-Y Avg Annual Rtn Rank 59

Volatility 36.90% Volatility Rank(?) 48

Expected EPS Growth 28.39% EPS Growth Rank(?) 67

Market Cap (billions) 37.48 Size Rank 98

Trailing P/E Ratio 5.75 Trailing P/E Rank(?) 98

Forward P/E Ratio 4.48 Forward P/E Ratio Rank 98

PEG Ratio 0.20 PEG Ratio Rank 76

Price/Sales 0.16 Price/Sales Rank(?) 95

Market/Book 0.95 Market/Book Rank(?) 77

Beta 1.91 Beta Rank 11

Alpha -0.48 Alpha Rank 15

What's Hot

Valuations Recover Thanks To Market Leg Up

ValuEngine tracks more than 7000 US equities, ADRs, and foreign stock which trade on US exchanges as well as @1000 Canadian equities. When EPS estimates are available for a given equity, our model calculates a level of mispricing or valuation percentage for that equity based on earnings estimates and what the stock should be worth if the market were totally rational and efficient--an academic exercise to besure, but one which allows for useful comparisons between equities, sectors, and industries. Using our Valuation Model, we can currently assign a VE valuation calculation to more than 2800 stocks in our US Universe.

We combine all of the equities with a valuation calculation to track market valuation figures and use them as a metric for making calls about the overall state of the market. Two factors can lower these figures-- a market pullback, or a significant rise in EPS estimates. Vice-versa, a significant rally or reduction in EPS can raise the figure. Whenever we see overvaluation levels in excess of @ 65% for the overall universe and/or 27% for the overvalued by 20% or more categories, we issue a valuation warning.

We now calculate that 47.12% of the stocks we can assign a valuation are overvalued and 16.63% of those stocks are overvalued by 20% or more. These numbers have increased significantly since the last time we published our monthly valuation study. We are now well within "normal" range. Of course, we're so dead in the middle it is tough to make a call one way or the other from our model's valuation perspective.

Back at the end of September, we were near the end of the Chinese sell off and subsequent market dive. The market had dropped from @2100 to as low as @1850. At that time, overvaluation was at 31.7%--and just 9.89% of those stocks were overvalued by 20% or more.

Since then, the market (we track the SP500 with this dataset) has rebounded well and we have garnered a good amount of positive economic news here in the US. Key data includes last week's jobs report, which showed US unemployment at a level the FED considers to be "full employment"--5% unemployment.

That sort of number will provide a boost for those advocating for a raise in interest rates sooner rather than later on the part of the FED. Of course, those

counseling a delay would like to see some sort of evidence of inflation and stronger upward pressure on wages so that the vast majority of US workers might finally enjoy some of the benefits of the recovery.

It's tough to predict what that potential increase will do to the market. Has it already been priced in? Will investors pile into US equities because it is a sign of FED confidence in the US economy? We might expect a December rally-- as is often typical as money managers seek to improve their results at year's end. But, many analysts argue that the last two months' leg up has removed a lot of upside growth from the table for 2015. Or, will money leave what has been the only game in town since the Obama Administration came into office?

We still believe that the right move is for the FED to hold off on a rate increase until US workers finally garner some benefits from the recovery. But we aren't holding our breath. Bankers have been itching to raise rates for a long time now, and barring some sort of global economic shock between now and next month, we now feel thata rate increase is imminent.

The chart below tracks the valuation metrics from January 2015. It shows levels in excess of 40%.

This chart shows overall universe over valuation in excess of 40% vs the S&P 500 from January 2013

This chart shows overall universe under and over valuation in excess of 40% vs the S&P 500 from March 2007*

*NOTE: Time Scale Compressed Prior to 2011.

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