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November 11, 2015


VALUATION WATCH: Overvalued stocks now make up 50% of our stocks assigned a valuation and 19% of those equities are calculated to be overvalued by 20% or more. Nine sectors are calculated to be overvalued--with one in the double digits.

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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 be sure, 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 50% of the stocks we can assign a valuation are overvalued and 19.19% 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.

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.

 

 

ValuEngine Market Overview

Summary of VE Stock Universe
Stocks Undervalued
49.79%
Stocks Overvalued
50.21%
Stocks Undervalued by 20%
22.66%
Stocks Overvalued by 20%
19.19%

ValuEngine Sector Overview

Sector
Change
MTD
YTD
Valuation
Last 12-MReturn
P/E Ratio
-0.87%
0.15%
0.03%
13.57% overvalued
-8.34%
19.37
-0.47%
-1.34%
6.50%
6.20% overvalued
0.86%
24.84
0.02%
3.07%
5.48%
5.46% overvalued
4.52%
29.24
-0.05%
0.61%
1.83%
4.79% overvalued
-2.38%
16.96
-1.09%
1.18%
0.93%
4.23% overvalued
-0.55%
28.27
-0.14%
-0.75%
0.41%
4.13% overvalued
-1.90%
23.75
-0.34%
-1.03%
1.32%
2.60% overvalued
-1.78%
25.32
0.24%
0.36%
-7.90%
1.92% overvalued
-8.22%
17.93
-0.07%
-2.21%
-5.63%
1.63% overvalued
-7.57%
21.19
-1.26%
-0.07%
-7.04%
0.45% undervalued
-11.83%
19.81
0.85%
1.00%
3.77%
2.29% undervalued
-2.53%
20.45
0.05%
0.60%
-6.17%
3.11% undervalued
-2.09%
21.97
-1.30%
-0.69%
-20.55%
3.64% undervalued
-41.83%
26.11
0.47%
1.20%
-3.16%
6.03% undervalued
-6.67%
13.80
-0.60%
-0.70%
-11.67%
10.31% undervalued
-15.43%
14.67
-1.02%
-1.78%
-16.33%
11.56% undervalued
-20.65%
22.52

 

ValuEngine.com is an independent research provider, producing buy/hold/sell recommendations, target price, and valuations on over 7,000 US and Canadian equities every trading day. 
Visit www.ValuEngine.com for more information

 

 
 
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