September 24, 2010

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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 KB Homes (KBH). KB reported
earnings this week and their numbers were added to a pot of data that shows a
continuing mixed bag for the housing market. Data has improved in some respects,
but the builders themselves keep lowering expectations. In KB's case, the company
posted a narrower loss for the quarter--$0.02/share vs $0.87/share for q3 last
year. However, they also warned of continued difficulties for the housing market.
KB Home is a builder of single-family homes with domestic operations in several
western states, and international operations in France. Domestically, the company
builds homes which cater primarily to first time homebuyers, generally in medium-
sized developments close to major metropolitan areas. Internationally, the company
also builds commercial projects and high density residential properties such as
condominium complexes.
ValuEngine has issued a STRONG BUY recommendation for KB HOME. Based on
the information we have gathered and our resulting research, we feel that KB HOME
has the probability to OUTPERFORM average market performance for the next year.
The company exhibits ATTRACTIVE market valuation, expected EPS growth and price/
sales ratio. KB displays some very high forecast figures that improve over time and is
calculated to be very undervalued.
Weekly Subscribers can download a FREE Detailed Valuation Report on KBH HERE.
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Valuation Report, you can subscribe to our Free Weekly Newsletter HERE.

MARKET OVERVIEW
Index started week Thursday Close 4 day change 4 day change % ytd
DJIA 10608.08 10662.42 54.34 0.51% 2.22%
NASDAQ 2322.8 2327.08 4.28 0.18% 1.42%
RUSSELL 2000 652.86 648.84 -4.02 -0.62% 3.30%
S&P 500 1126.57 1124.83 -1.74 -0.15% 0.74%

Summary of VE Stock Universe

Stocks Undervalued 68.32%
Stocks Overvalued 31.68%
Stocks Undervalued by 20% 35.53%
Stocks Overvalued by 20% 10.89%

SECTOR OVERVIEW
Sector Change MTD YTD Valuation Last 12- P/E Ratio
MReturn
Basic Industries -1.24% 3.20% 16.83% 0.03% overvalued 30.41% 23.38
Capital Goods -1.23% 2.77% 11.01% 9.86% undervalued 7.15% 20.32
Consumer Durables -1.09% 3.58% 7.91% 13.45% undervalued 17.74% 17.32
Consumer Non-Durables -0.79% 2.89% 3.88% 8.25% undervalued 16.25% 16.69
Consumer Services -0.69% 4.71% 6.41% 9.19% undervalued 9.49% 20.65
Energy -0.38% 5.23% -0.42% 0.21% undervalued 21.64% 24.73
Finance -0.76% 2.45% 7.72% 7.96% undervalued 0.26% 17.9
Health Care -0.91% 4.68% 16.63% 14.12% undervalued -1.51% 21.37
Public Utilities -0.74% 0.90% -3.49% 2.97% undervalued 10.35% 18.81
Technology -0.50% 6.30% 10.94% 12.20% undervalued 16.65% 23.97
Transportation -1.58% 3.32% 6.99% 3.23% undervalued 11.21% 18.76
Industry Talk—Home Builders
As we note in almost every mention of housing--and as Chief Market Strategist
Richard Suttmeier explains in his more in-depth analysis, it is difficult to predict an end
to the housing woes as long as there is a huge amount of excess inventory,
foreclosures continue unfold, and the national employment picture remains grim.
Some analysts see an extra 30% of bubble still waiting to deflate, and whether than
happens short or longer term is still unknown. However, the Forecast Model is
predicting good things for several of the Home Builders and now rates half of the
Industry a buy or strong buy.
Below, we present various top-five lists for the Home Building Industry from our
Institutional software package (VEI).

Top-Five Home Builder Stocks--Short-Term Forecast Returns

Last 12-M
Ticker Name Mkt Price Valuation(%)
Retn(%)
BZH BEAZER HOMES 3.98 -74.76 -33.89
MDC MDC HLDGS 28.24 -27 -20.29
SPF STANDARD PAC 3.81 -63.18 -6.62
LEN LENNAR CORP -A 14.69 -48.26 -4.3
KBH KB HOME 11.71 -58.66 -36.74

Top-Five Home Builder Stocks--Long-Term Forecast Returns

Last 12-M
Ticker Name Mkt Price Valuation(%)
Retn(%)
BZH BEAZER HOMES 3.98 -74.76 -33.89
MDC MDC HLDGS 28.24 -27 -20.29
SPF STANDARD PAC 3.81 -63.18 -6.62
KBH KB HOME 11.71 -58.66 -36.74
LEN LENNAR CORP -A 14.69 -48.26 -4.3

Top-Five Home Builder Stocks--Composite Score

Last 12-M
Ticker Name Mkt Price Valuation(%)
Retn(%)
LEN LENNAR CORP -A 14.69 -48.26 -4.3
MTH MERITAGE HOMES 18.86 -34.29 -6.4
SPF STANDARD PAC 3.81 -63.18 -6.62
DHI D R HORTON INC 10.62 -42.13 -13.59
MDC MDC HLDGS 28.24 -27 -20.29
Top-Five Home Builder Stocks--Most Undervalued

Last 12-M
Ticker Name Mkt Price Valuation(%)
Retn(%)
KBH KB HOME 11.71 -58.66 -36.74
MHO M/I HOMES INC 10.15 -59.32 -36.2
PHM PULTE GROUP ONC 8.18 -60.68 -31.2
SPF STANDARD PAC 3.81 -63.18 -6.62
BZH BEAZER HOMES 3.98 -74.76 -33.89

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Suttmeier Says
--Commentary and Analysis from Chief Market
Strategist Richard Suttmeier
If you have any comments or questions, send them to [email protected]

Treasury Yields

10-Year-- (2.562) Annual and annual value levels are 2.813 and
2.999 with monthly and daily pivots at 2.562 and 2.563, and
quarterly, weekly and semiannual risky levels at 2.495, 2.487 and
2.249. The 10-Year US Treasury yield tested my quarterly and
weekly risky levels at 2.495 and 2.487 on Thursday.

Commodities and Forex

Comex Gold--($1293.2) Monthly, semiannual, quarterly and annual value levels are
$1263.8, 1260.8, $1218.7, $1140.9 and $1115.2 with a weekly pivot at $1283.5 and daily
risky level at $1318.4. Gold traded above $1300.0 the Troy ounce this morning with
today’s risky level at $1318.4.

Nymex Crude--($74.89) Daily, weekly and quarterly value levels are $72.74, $72.72 and
$56.63 with a monthly pivot at $74.45, my annual pivot at $77.05, and semiannual risky
level at $83.94. Crude oil traded around my monthly pivot at $74.45 on Thursday. The
euro remains above its 200-day simple moving average at 1.3202 as key support with
today’s risky level at 1.3450.

The Euro--(1.3317) My weekly value level is 1.2902 with a daily risky level at 1.3450.
Quarterly and monthly value levels are 1.2167, 1.1721 and 1.1424 with semiannual risky
level at 1.4733. The euro remains above its 200-day simple moving average at 1.3202
as key support with today’s risky level at 1.3450.

Major Indices

The Dow--(10,662) Weekly, annual, monthly and quarterly value levels are 10,445,
10,379, 10,164 and 7,812 with my semiannual pivot at 10,558, and daily and annual
risky levels at 10,763 and 11,235. My annual risky level at 11,235 was tested at the April
26th high of 11,258.01. The Dow remains extremely overbought, but with a negative
divergence. I predict a test of my annual pivot at 11,235 by Election Day.
Housing

Sales of existing homes may have rose 7.6% in August, but the month was still
the second-worst month for sales in more than a decade, and were 19% lower year
over year. July 2010 was the worst month for sales in fifteen years.

Low mortgage rates have not helped the housing market because they are no
low enough relative to the 10-Year US Treasury yield. When the Federal Reserve
stopped buying Fannie Mae and Freddie Mac mortgage securities and debt at the
end of March the 30-Year fixed rate mortgage was just 115 basis points above the 10-
Year yield. Today, the mortgage rate is 4.37 and with the 10-Year yield at 2.52, the
spread has widened 70 basis points to 185. A 3.67 mortgage rate would open the
floodgates for refinancing activity for qualified homeowners.

About 2.5 million homes have been lost to foreclosure since “The Great Credit
Crunch” began in March 2007, and another 3.3 million homes could be lost to
foreclosure or distressed sale before “The Great Credit Crunch” comes to an end.

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Richard Suttmeier is ValuEngine's Chief Market Strategist. A financial analyst for

media such as Fox News, CNBC, Yahoo Finance, 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.