December 19, 2014

Valuation Watch: Overvalued stocks now make up 53.95% of our stocks assigned a valuation and 18.42% of those equities are calculated to be overvalued by 20% or more.  Eleven sectors are calculated to be overvalued--with one sector at double digits.

Editor's Note: Next week will commence with a holiday schedule. Expect minimal postings until the New Year, 2015.

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Best Buy (BBY) operates in a single business segment, selling personal computers and other home office products, consumer electronics, entertainment software, major appliances and related accessories principally through its retail stores. They operate retail stores and commercial Websites under the brand names Best Buy, Media Play, On Cue, Sam Goody, Suncoast, Magnolia Hi-Fi and Future Shop. They also operate in three segments: Best Buy, Musicland and International.

ValuEngine continues its SELL recommendation on BEST BUY for 2014-12-18. Based on the information we have gathered and our resulting research, we feel that BEST BUY has the probability to UNDERPERFORM average market performance for the next year. The company exhibits UNATTRACTIVE Earnings Growth Rate and Book Market Ratio. .

Below is today's data on Best Buy:

ValuEngine Forecast
	Target Price*	Expected Return
1-Month	38.26	-0.57%
3-Month	38.03	-1.18%
6-Month	36.91	-4.07%
1-Year	35.83	-6.88%
2-Year	37.70	-2.02%
3-Year	37.52	-2.51%

Valuation & Rankings
Valuation	36.12% overvalued	Valuation Rank(?)	8
1-M Forecast Return	-0.57%	1-M Forecast Return Rank	15
12-M Return	-8.29%	Momentum Rank(?)	39
Sharpe Ratio	-0.04	Sharpe Ratio Rank(?)	43
5-Y Avg Annual Return	-1.66%	5-Y Avg Annual Rtn Rank	42
Volatility	46.42%	Volatility Rank(?)	42
Expected EPS Growth	8.91%	EPS Growth Rank(?)	35
Market Cap (billions)	13.45	Size Rank	92
Trailing P/E Ratio	16.33	Trailing P/E Rank(?)	71
Forward P/E Ratio	14.99	Forward P/E Ratio Rank	56
PEG Ratio	1.83	PEG Ratio Rank	24
Price/Sales	0.32	Price/Sales Rank(?)	89
Market/Book	3.32	Market/Book Rank(?)	36
Beta	1.89	Beta Rank	15
Alpha	-0.28	Alpha Rank	29

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Read our Complete Detailed Valuation Report on Best Buy HERE.

Sector Talk--Consumer Staples

  Below, we present the latest data on Consumer Staples stocks from our Institutional software package (VEI).    Top five lists are provided for each category.  We applied some basic liquidity criteria--share price greater than $3 and average daily volume in excess of 100k shares. 

Please Click Here to Download a FREE Demo of ValuEngine's Professional VEI Software Package.

Top-Five Consumer Staples Stocks--Short-Term Forecast Returns

Top-Five Consumer Staples Stocks--Long-Term Forecast Returns

Top-Five Consumer Staples Stocks--Composite Score

Top-Five Consumer Staples Stocks--Most Overvalued

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What's Hot--

With Latest Market Unrest, Valuations in "Normal" Range Again

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 2900 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 53.95% of stocks are overvalued and 18.42% of those stocks are overvalued by 20% or more. We saw overvaluation figures as low as 45% earlier this week. These sorts of figures are down significantly from where they were for much of 2014.

With these sorts of numbers, we now operate well within "normal" range for valuation. We saw a brief dip into the 40s during October during the pre-election ISIS/Ebola scare, but other than that, the last time overvaluation hit levels in the 40s on a sustained basis was December 2012-- when the S&P 500 was in the 1400s.

The crash in oil prices has unsettled the markets, and volatility has returned at a time when money managers should be padding their results for the year with a traditional holiday uptick. We keep getting good economic news in the US, and are especially optimistic due to the--finally--improving labor picture. But the ruble crisis and the energy chaos has hurt equities, and the US may be effected by this contagion. For this reason, we cannot use the valuation figures to make a buy call just yet despite the vastly improved valuation picture.

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   The chart below tracks the valuation metrics from January 2014. 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.

In addition to the overall valuation metrics, we see that on a sector basis overvaluation has greatly declined. Only eleven sectors are overvalued according to our Valuation Model, and only one of them is overvalued by double digits. Oils/Energy is now calculated to be undervalued by almost 25%.

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