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December 4, 2009
MARKET OVERVIEW

Thursday 4 day 4 day

Index started week ytd
close change change %
DJIA 10309.77 10366.15 56.38 0.55% 18.17%
NASDAQ 2135.93 2173.14 37.21 1.74% 37.64%
RUSSELL 2000 576.94 588.78 11.84 2.05% 17.87%
S&P 500 1091.07 1099.92 8.85 0.80% 21.81%

Summary of VE Stock Universe

Stocks Undervalued 58.31%
Stocks Overvalued 41.69%
Stocks Undervalued by 20% 30.62%
Stocks Overvalued by 20% 19.51%

SECTOR OVERVIEW

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

MReturn
Basic Industries -0.98% 0.29% 79.71% 12.30% overvalued 102.00% 27.21
Capital Goods -0.69% 53.08% 164.81% 3.87% overvalued 45.83% 23.33
Consumer Durables -0.66% -0.10% 71.68% 3.97% overvalued 58.34% 26.21
Consumer Non-Durables -0.27% 0.18% 49.56% 1.58% overvalued 59.62% 20.28
Consumer Services -0.92% -0.23% 52.83% 2.94% undervalued 67.60% 21.48
Energy -1.29% -0.51% 47.14% 4.39% overvalued 58.75% 18.44
Finance -0.43% 0.07% 21.63% 2.52% undervalued 29.64% 19.14
Health Care -0.53% -0.26% 52.76% 12.07% undervalued 61.06% 19.81
Public Utilities -0.44% 0.17% 20.67% 2.93% undervalued 38.00% 16.34
Technology -0.69% 0.20% 68.63% 10.25% undervalued 71.01% 25.12
Transportation -0.27% 0.62% 24.63% 1.15% overvalued 50.84% 20.09
 Sector Talk
--Technology
The tech-heavy NASDAQ index has been the best performer among the major indices we
track for a long time now. Below, we provide key ValuEngine data for the top-twenty short and
long-term forecast Technology tickers--we filtered our results by eliminating sector
components with Average daily volumes of less than 100,00 shares/day.
We see a mixed picture with some overvalued stocks, some undervalued stocks, some
stocks which aren't even buy-rated, and some which present all of the factors we look for in
an investment target--undervalued, positive short and long-term forecast figures, decent P/E
ratio, and good momentum (LTM return).

Top One-Month Forecast Technology Tickers

Last 12- Forecast Forecast

Mkt Valuation VE 5-Yr P/E
Ticker Name M 1-Month 1-Yr Industry
Price (%) Rating Retn(%) Ratio
Retn(%) Retn(%) Retn(%)
AU OPTRONICS SEMICONDUCTORS
AUO 10.68 -5.73 4 80.1 -1.36 15.15 44.4 N/A
CORPORATION COMPONENT
PWER POWER-ONE INC. 3.78 -34.25 4 220.34 -19.92 13.89 32.78 N/A ELECTRONICS
SEMICONDUCTORS
SANM SANMINA-SCI CORP 8.71 9.58 3 222.59 -35.49 3.97 -2.35 N/A
COMPONENT
SEMICONDUCTORS
SPSNQ SPANSION INC 0.16 N/A N/A -96.86 -119.04 2.95 3.19 N/A
COMPONENT
SATYAM COMPUTER SOFTWARE AND
SAY 4.76 N/A N/A -62.34 -36.42 2.55 18.35 3.37
SERVICES LTD EDP SERVICES
OFFICE/COMM
SONS SONUS NETWORKS 2.13 -5.09 3 35.61 -19.23 0.46 -8.9 N/A
EQUIP
APPLIED MATERIALS SEMICONDUCTORS
AMAT 13.07 -7.91 3 43.31 -5.79 0.22 -6.34 N/A
INC COMPONENT
SEMICONDUCTORS
SPWRA SUNPOWER CORP 22.51 -56.35 3 -34.56 -5.55 0.07 -4.06 17.78
COMPONENT
OTHER
NCR NCR CORPORATION 9.25 -34.92 3 -35.18 -26.59 0.03 -3.69 15.5
COMPUTERS
LEXMARK OTHER
LXK 24.9 -18.67 4 -1.19 -25.4 0.02 -2.71 9.05
INTERNATIONAL INC COMPUTERS
CHINA SECURITY & UNDESIGNATED
CSR 6.62 -45 4 30.83 -2.87 -0.06 2.9 3.94
SURVEILLANCE TE TECHNOLOGY
OFFICE/COMM
NOK NOKIA OYJ 12.75 -25.78 4 -0.62 -4.18 -0.09 -1.42 14.39
EQUIP
SOFTWARE AND
ELNK EARTHLINK INC 8.12 -5.07 3 25.31 -7.39 -0.25 -3.02 7.43
EDP SERVICES
KLA-TENCOR PHOTO-OPTICAL
KLAC 34.6 -27.76 3 82.11 -6.07 -0.27 -9.33 N/A
CORPORATION EQUIPMENT
Ticker Name Mkt Valuation VE Last 12- 5-Yr Forecast Forecast P/E Industry
Price (%) Rating M Retn(%) 1-Month 1-Yr Ratio
Retn(%) Retn(%) Retn(%)
L-3 COMMUNICATION OFFICE/COMM
LLL 78.47 -11.37 4 17.24 1.04 -0.27 -2.44 10.24
HOLDINGS INC EQUIP
OTHER
NOVL NOVELL INC 4.04 -35.96 3 -0.98 -10.79 -0.31 -5.34 13.73
COMPUTERS
HPQ HEWLETT PACKARD CO 48.96 4.99 4 41.87 17.21 -0.36 -1.85 12.62 COMPUTER MFRS
SOFTWARE AND
CPWR COMPUWARE CORP 7.1 -11.55 3 19.73 2.97 -0.38 -4.84 10.81
EDP SERVICES
TYCO ELECTRONICS
TEL 23.7 -22.9 4 44.16 -19.47 -0.44 -6.48 25.36 ELECTRONICS
LTD
DELL DELL INC 13.46 -38.17 4 27.58 -22.85 -0.48 -4.18 13.61 COMPUTER MFRS

Top One-Year Forecast Technology Tickers

Last 12- Forecast Forecast

Mkt Valuation VE 5-Yr P/E
Ticker Name M 1-Month 1-Yr Industry
Price (%) Rating Retn(%) Ratio
Retn(%) Retn(%) Retn(%)
AU OPTRONICS SEMICONDUCTORS
AUO 10.68 -5.73 4 80.1 -1.36 15.15 44.4 N/A
CORPORATION COMPONENT
PWER POWER-ONE INC. 3.78 -34.25 4 220.34 -19.92 13.89 32.78 N/A ELECTRONICS
SATYAM COMPUTER SOFTWARE AND
SAY 4.76 N/A N/A -62.34 -36.42 2.55 18.35 3.37
SERVICES LTD EDP SERVICES
SEMICONDUCTORS
SPSNQ SPANSION INC 0.16 N/A N/A -96.86 -119.04 2.95 3.19 N/A
COMPONENT
CHINA SECURITY & UNDESIGNATED
CSR 6.62 -45 4 30.83 -2.87 -0.06 2.9 3.94
SURVEILLANCE TE TECHNOLOGY
OFFICE/COMM
NOK NOKIA OYJ 12.75 -25.78 4 -0.62 -4.18 -0.09 -1.42 14.39
EQUIP
HPQ HEWLETT PACKARD CO 48.96 4.99 4 41.87 17.21 -0.36 -1.85 12.62 COMPUTER MFRS
SEMICONDUCTORS
SANM SANMINA-SCI CORP 8.71 9.58 3 222.59 -35.49 3.97 -2.35 N/A
COMPONENT
L-3 COMMUNICATION OFFICE/COMM
LLL 78.47 -11.37 4 17.24 1.04 -0.27 -2.44 10.24
HOLDINGS INC EQUIP
INTERNATIONAL
IBM 127.55 5.7 4 61.27 5.41 -0.56 -2.45 12.98 COMPUTER MFRS
BUSINESS MACHINES
LEXMARK OTHER
LXK 24.9 -18.67 4 -1.19 -25.4 0.02 -2.71 9.05
INTERNATIONAL INC COMPUTERS
SOFTWARE AND
ELNK EARTHLINK INC 8.12 -5.07 3 25.31 -7.39 -0.25 -3.02 7.43
EDP SERVICES
SOFTWARE AND
ORCL ORACLE CORPORATION 22.64 11.26 3 41.41 9.49 -0.58 -3.17 15.44
EDP SERVICES
SOFTWARE AND
MSFT MICROSOFT CORP 29.83 9.78 3 53.68 1.91 -0.66 -3.32 17.66
EDP SERVICES
Ticker Name Mkt Valuation VE Last 12- 5-Yr Forecast Forecast P/E Industry
Price (%) Rating M Retn(%) 1-Month 1-Yr Ratio
Retn(%) Retn(%) Retn(%)
OFFICE/COMM
CSCO CISCO SYS INC 23.83 -6.58 4 48.84 4.11 -0.49 -3.52 18.34
EQUIP
OTHER
NCR NCR CORPORATION 9.25 -34.92 3 -35.18 -26.59 0.03 -3.69 15.5
COMPUTERS
SEMICONDUCTORS
SPWRA SUNPOWER CORP 22.51 -56.35 3 -34.56 -5.55 0.07 -4.06 17.78
COMPONENT
DELL DELL INC 13.46 -38.17 4 27.58 -22.85 -0.48 -4.18 13.61 COMPUTER MFRS
AUTOMATIC DATA SOFTWARE AND
ADP 43.19 -0.46 3 16.04 -0.48 -0.5 -4.28 18.07
PROCESSING EDP SERVICES
ACTIVISION BLIZZARD SOFTWARE AND
ATVI 11.3 -15.89 3 4.63 15.37 -0.48 -4.31 18.98
INC EDP SERVICES

What's Hot
--The ValuEngine Quarterly FDIC Report
Our Chief Market Strategist Richard Suttmeier is an expert on the banking system, and he
has been closely following the banking and credit crisis for several years now. In fact, he
predicted the current difficulties YEARS before they began. Every quarter, he takes the
FDIC's own Quarterly Banking profile, combines it with VE's powerful quant tools, adds
additional proprietary data from the FDIC on loan exposures, and collates the info into an
exhaustive report on the state of the US banking system.
Suttmeier now predicts that several hundred more US banks will fail in the next few years
due to a variety of factors--in fact, many banks highlighted in past FDIC reports have already
failed. In addition to the valuable VE and FDIC data, the report also contains critical
ValuEngine data points on the home building industry, technical levels for a variety of banking
and housing indices, policy prescriptions, and other analysis.
This quarter's report will be available for purchase soon. It will provide subscribers with
critical VE datapoints and FDIC loan exposure data for more than 700 tickers. It will also
contain the ValuEngine List of Problem Banks--which is a compendium of banks in danger of
failing based on their fundamentals and their FDIC loan data.
For more on the ValuEngine Quarterly FDIC Report, Click the Image Below
Training Tip
--Reading a ValuEngine Stock Analysis Report

The ValuEngine research team spent four years and millions of dollars to develop three
proprietary quant models--Valuation, Forecast, and Rating. These models take fundamental
data on each particular ticker along with a variety of other information--such as the interest
rate--and then perform a series of calculations and simulations based on complex stochastic
calculus formulas via computers.

Each of our models takes a view of the market from different perspectives and then the
various outputs are combined in order to rate and rank each ticker in our universe of 4000
stocks--of which @ 400 are ADRs and foreign companies that trade on US exchanges. These
models are fast, efficient, systematic, and--above all--objective. Because ValuEngine is an
independent research provider (IRP), conflicts of interest are avoided and the attempts of
investor relations people and others to garner "optimistic" coverage are mitigated.

New ValuEngine clients often get confused by all of the proprietary data that our quant-
based models provide for them. For this week's training tip, we provide a discussion of some
of the more common questions asked by new users when it comes to VE:

"What is the difference between 'Fair Value' and 'Forecast Target Price?'"

"Why is the Fair Value so different from the Forecast Target Price?"

"How come you have a "Buy" on this stock when it is overvalued and/or has a negative
Forecast Target Price?"

If you pull up a ValuEngine report or a single stock valuation analysis from our website, you
may find that there is a lot of information to digest. Here's an example:
Valuation & Rankings AAPL
Valuation 20.41% undervalued Valuation Rank 70

1-M Forecast Return -1.14% 1-M Forecast Return Rank 44

12-M Return 104.88% Momentum Rank 81

Sharpe Ratio 0.84 Sharpe Ratio Rank 100

5-Y Avg Annual Return 35.91% 5-Y Avg Annual Rtn Rank 99

Volatility 42.75% Volatility Rank 66

Expected EPS Growth 23.63% EPS Growth Rank 48

Market Cap (billions) 176.96 Size Rank 100

Trailing P/E Ratio 30.44 Trailing P/E Rank 50

Forward P/E Ratio 24.62 Forward P/E Ratio Rank 20

PEG Ratio 1.29 PEG Ratio Rank 36

Price/Sales 4.84 Price/Sales Rank 20

Market/Book 6.36 Market/Book Rank 7

Beta 1.34 Beta Rank 35

Alpha 0.69 Alpha Rank 81

In brief, here is a description of each model and its outputs:

The Valuation Model

This model calculates what a stock should trade at based on its fundamental economic data
if the market were completely rational and efficient. Of course--despite the claims of
many--the market is not rational nor is it necessarily efficient. If it were, there would never be
a bubble or a panic-driven crash.
The Stock Valuation Model considers many time-sensitive variables--such as a stock’s EPS
growth, analyst estimates and consensus, and the interest rate environment. If any of the
variables change, the model price changes immediately and the fair value is re-calculated. By
operating in this manner, the model calculates fair value in near real time.
Our Stock Valuation Model considers the variables below:
 Long-run EPS growth rate
 Duration of Business-growth-cycle
 Volatility of EPS growth rate
 Systematic or beta risk of the firm
 Correlation between the firm's EPS and the interest rate environment
 EPS growth volatility
 Dividend payout ratio
 Buffer earnings
 Interest rate (30 year yield) long-run level
 Duration of interest rate cycle
 Interest rate volatility
The model calculates a fair valuation for the stock and its current measure of mispricing in
percentage terms. This is displayed on the stock valuation page as well as our individual
stock reports under the valuation summary snapshot and the assessment section. For this
particular ticker (AAPL), the calculated fair value is $246.86 but the stock is trading at
$196.48. Thus, the stock is considered to be undervalued because the market is not pricing
this company at a level which its underlying fundamentals would support--if the market was
totally rational and efficient.
NOTE: In some cases, you will also hear under or overvaluation referred to as "mispricing."
The Forecast Model
The ValuEngine Forecast model analyzes stock prices from a different perspective. Unlike
the Stock Valuation model--which merely states what a stock’s price should be assuming a
totally efficient market, the Stock Forecast Model predicts what a stock’s price will be at a
specified future time period given current market conditions. The Forecast Model builds upon
the output of the Stock Valuation Model by combining it with econometric and simulation
techniques to output target prices for one, three, and six-month and one, two, and three-year
time horizons, as well as a percentage probability for gains and losses.
 The Stock Forecast Model uses a distinct forecasting model for the six forecast time
horizons for every industry. It considers--among other things, short-term price reversals,
intermediate-term momentum continuation, and long-term price reversals. As with our Stock
Valuation Model, parameters are updated in real time. While the dynamic environment of the
financial markets precludes forecasting with absolute certainty, our Forecast Model’s inclusion
of micro/macro, short term/long term parameters and the use of probability statistics, results
in forecasts that are robust and actionable. Remember that while it is impossible for anyone
to predict the markets with absolute certainty, the forecast figures are especially useful for
comparing tickers to each other in order to determine the best investment targets for a given
timeframe.
Our Forecast Model outputs are found in the forecast section of the reports and the web
valuation page. The one year forecast figure--also referred to as the "1-Yr Target Price," can
be found in the Valuation snapshot section as well. In the case of Apple, the 1-Yr Target Price
is $183.64. So, the model "thinks" that the stock will undergo a decrease of @6.54% in value
over the course of a year-- despite the fact that it is calculated to be undervalued by the
Valuation Model. In the short-term, the stock is predicted to also decline in value by @1, 2.5,
and 4% respectively for the 1, 3, and 6 month time horizons.
We are seeing this situation with many of our buy-rated/outperform stocks right now due to
the recent recovery of the markets. Given the gyrations of the market since 2007, in many
cases the forecast model is working with companies that saw steep declines in share value as
well as earnings only to see steep increases in the same as the markets have recovered.

The Ratings Model

ValuEngine's Ratings Model rates stocks on a 1-5 "engine" scale. The Engine Rating is an
overall assessment of a stock's attractiveness. It combines the following five factors:
• Valuation
• P/E Ratio
• Momentum
• Market Capitalization
• Forecasted Future Returns
The model evaluates each of the above criteria for each ticker in our 400 stock universe
every single day and then assigns it an overall composite score. In this manner, it takes
outputs from both the Forecast and Valuation Models to derive a rating. Then, the ratings are
assigned as follows:
• Top Two Percent--"5-Engine" or "Strong Buy"
• Next Fifteen Percent--"4-Engine" or "Buy"
• Middle Sixty Percent--"3-Engine" or "Hold"
• Next Fifteen Percent-- "2-Engine" or "Sell"
• Bottom Eight Percent-- "1-Engine" or "Strong Sell"
 Over time, these ratings have been extensively back tested and tracked going forward both
internally here at ValuEngine and by outside auditors. The results have indicated that the
ratings system is both symmetric and predictive. This means that the "5-Engine" stocks taken
as a group provide higher returns than the 4s, 3s, 2s, and 1s. Portfolios that are constructed
with just the "5-Engine" stocks and then rebalanced once a month since 2000 have returned
an average of 28% on an annual basis!
The rating for AAPL is "4-Engine" and thus the stock is considered to be a "Buy."
You might also consider the semantics here. If you replace "strong buy" with "outperform,"
"hold" with "match," and "sell" with "underperform" the ratings will be less confusing when
considered along with data points that seem contradictory. Always remember that the ratings
are relative to all of the other stocks in the universe. Consider the "buy"-rating also a
prediction that the stock will "outperform" the rest of the market. Thus, even though Apple
may have a negative forecast, this may be due to the recent market gyrations and it is still
ranked better than most of the tickers under coverage.

Which Model and Datapoints Should Be Used?

We recommend that all users consider all three model outputs when making investment
decisions. You must realize that just because a particular stock may be undervalued does not
necessarily mean that it is a good buy. A stock can remain undervalued for days or months--
or even years! Some stocks may likewise remain in an overvalued condition long after you
have gone broke waiting for your short bet to pay off. On the other hand, an undervalued
stock with relatively strong forecast numbers when compared to other tickers is typically a
better choice. An undervalued stock with good forecast figures and a 4 or 5-Engine rating
would tend to be the best pick of all.
Keep in mind how the models make their calculations and always keep in mind the recent
market swings. If 90% of the market is calculated to be undervalued--as we saw as the
bottom was laid in back in March, then valuation starts to mean little. If stocks made huge
declines and some stocks are predicted to decline less, that is considered a positive by the
ratings system--because it is relative to all of the companies in our database.
Remember too that there is a built in bias towards some factors--such as size/market cap--
because our research indicates that you can greatly reduce volatility by running portfolios
consisting of stocks in the upper 55% of our universe in terms of market cap.
Always remember as well that despite the proven robustness and performance of our
models, there is no foolproof manner of predicting market performance. ValuEngine provides
an avenue to better than average returns because it applies cutting-edge financial theory to a
very large universe of stocks in a manner that human beings simply cannot replicate.
 Our systems evaluate fundamental data 24 hours a day, 7 days a week. However, they do
have limitations. Our systems cannot quantify an unannounced M&A deal, an SEC action, a
crooked CFO, an Enron, an accident, storm, or any other act of god. They certainly cannot
factor the fanaticism that so many users have vis-a-vis their Macs or their iPods. They are
also dependent on the quality of the financial data on which they rely--"garbage in, garbage
out!"
The best bet is to take our data and combine with your own analysis and read of market
conditions. Our systems are not meant to be utilized as a "black box," they demand human
oversight and decision making. Always take model recommendations into account, but make
sure you consider the sorts of qualitative data that they cannot quantify.
You need to apply these model outputs with your own read of market conditions and
technicals. If the market is crashing, we will still assign ratings according to the
abovementioned bell curve rating system. In almost all past market ups and downs, the
system held up in terms of predictability--the 5s beat the 4s, which beat the 3s, etc.

Suttmeier Says
--Commentary and Analysis from Chief Market Strategist Richard Suttmeier

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

Commodities
The Weekly Chart for Nymex Crude Oil is the real economic tell as we
have seen lower weekly highs for the past seven weeks with the 200-
week simple moving average as support at $75.64. A close today below
$75.64 is the biggest indicator that the economy remains in Recession.

Major Indices
The Dow remains positive but overbought on its weekly chart with resistance at 10,581,
which is on the down trend that goes back to the October 2007 high. This week the Dow
reached a new high for the move at 10,513.52 and last week’s low is 10,231.25.
Today’s the day when the Dow needs to breakout above 10,600 to signal an end to the
multi-year bear market. If that does not occur and the close is below 10,231.25 we have a
weekly key reversal. A top would be confirmed by two consecutive lower weekly closes. This
would also keep the multi-year bear market in place going into 2010.
The S&P 500 had a daily key reversal on Thursday. Following a new high for the move at
1117.28, the close was below Wednesday’s low at 1105.29. Supports are the 21-day and 50-
day simple moving averages at 1094.81 and 1076.88. A close above 1111 or Snake Eyes is
the breakout for the S&P 500.
Labor

The Unemployment Rate should stay at 10% or higher. Unemployment was at 8.2% at the
end of August 2009, when many forecasters declared the Recession over. GDP ended the
second quarter at $14.15 trillion and bumped up to $14.27 trillion in the preliminary reading for
the third quarter. How can you declare the Recession over with the unemployment rate up
another 2% to 10.2% in just two additional months?

Housing

Homebuyers face tighter mortgage standards thanks to the FHA. The FHA, along with
Fannie Mae and Freddie Mac, accounted for more than 90% of all U.S. home loans in the first
half of 2009. All three are in difficult financial straights and will tighten lending standards,
which could put the brakes on the anemically improving housing market.
We have stimulus dollars, housing bailout money and cheap funds from the Federal
Reserve, but all it has done is weaken the dollar and create the paying field for commodity
and equity speculation.
Money is not flowing into community and regional banks and as a result credit conditions for
consumers and small businesses have tightened as bad loans rise.

Policy

Do we need tougher financial regulations? What we need are a Treasury Secretary, Fed
Chairman and FDIC Chief who follow their own regulatory guidelines instead of ignoring
them! Poor policy decisions and lack of regulation resulted in bubbles in housing,
commodities and equity prices. These intertwined bubbles caused “The Great Credit Crunch”
which continues today.

Now, these same regulators are promulgating misguided policies in an attempt to re-inflate
the housing bubble which are leading to renewed commodity and equity bubbles. Community
banks are falling like dominos and small businesses cannot secure credit while Wall Street
reaps speculative trading gains. Despite program after program to help homeowners,
defaults and foreclosures continue to accelerate. We don’t need new regulations. We need
new leadership at the regulatory bodies!
--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