Woodshed Stocks Face Another Valuation Warning

NEW YORK (TheStreet) -- Despite the continued stock market rally, eight more companies were sent to the woodshed for a share price shaving. Meanwhile, two companies I featured as woodshed stocks have come out with a new clean cut look to the upside.

Tuesday's market strength and rise in the U.S. Treasury 30-year bond yield to 3.23% pushed 65.8% of all stocks into overvalued territory. Because of this fundamental condition, ValuEngine issued another valuation warning this morning. This is the fundamental reason why investors should continue the strategy to raise cash by reducing stock holdings by at least 50% on strength to risky levels.

At www.ValuEngine.com we show 15 of 16 sectors overvalued with 11 overvalued by double-digit percentages.

The technicals for the major equity averages are even more overbought. My technical measure for momentum is the 12x3x3 weekly slow stochastic. All major averages have readings above 80.00 on a scale of zero to 100.00.

The major averages have entered my zone of major longer term risky levels. Dow transports are above my annual and semiannual pivots at 5925 and 5955 setting yet another new all-time closing high at 6020.67 on Tuesday. The other major averages are below longer term risky levels at; 14,132 and 14,323 Dow industrials, 1542.9 and 1566.9 S&P 500, 3250 Nasdaq and 965.51 Russell 2000.

Reading the Table

OV/UN Valued: Stocks with a red number are undervalued by this percentage. Those with a black number are overvalued by that percentage according to ValuEngine.

VE Rating: A "1-engine" rating is a strong sell, a "2-engine" rating is a sell, a "3-engine" rating is a hold, a "4-engine" rating is a buy and a "5-engine" rating is a strong buy.

Last 12-Month Return (%): Stocks with a red number declined by that percentage over the last 12 months. Stocks with a black number increased by that percentage.

Forecast 1-Year Return: Stocks with a red number are projected to decline by that percentage over the next 12 months. Stocks with a black number in the table are projected to move higher by that percentage over the next 12 months.

Value Level: Price at which to enter a GTC limit order to buy on weakness. The letters mean; W-weekly, M-monthly, Q-quarterly, S-semiannual and A-annual.

Pivot: A level between a value level and risky level that should be a magnet during the time frame noted.

Risky Level: Price at which to enter a GTC limit order to sell on strength.

Buy-and-Trade Strategies for Today's Woodshed Stocks:

Cliffs Natural Resources ( CLF) ($28.84) declined from $36.61 on Feb. 12 to $28.62 on Feb. 19 after missing EPS estimates by 16 cents earning 41 cents per share. The stock is rated a hold with a negative weekly chart profile with its five-week modified moving average at $33.55. My monthly value level is $28.53 with a weekly risky level at $34.40.

Coinstar ( CSTR) ($54.55) was taken to the woodshed to a low of $47.25 on Feb. 8 despite an earnings beat of $0.20 reported on Feb. 7. The stock rebounded as investors realized the over-reaction to the downside to a high of $56.28 on Feb. 14. The stock is rated a hold with a positive weekly chart profile and the five-week MMA at $51.17. My weekly value level is $49.24 with an annual pivot at $50.73 and a semiannual risky level at $54.90. The power of the pivots supported this stock.

Humana ( HUM) ($73.01) declined from $77.99 on Feb. 15 to $69.78 on Feb. 19 after indicating that U.S. government Medicare Advantage payment rates were less than the company expected. The stock has a buy rating and a neutral weekly chart profile and the five-week MMA at $73.93. My monthly value level is $65.01 with a semiannual pivot at $77.58 and weekly risky level at $79.07.

NetGear ( NTGR) ($34.13) reported an earnings miss of 4 cents a share on Feb. 12 and took another trip behind the wood shed with a low of $32.10 on Feb. 13. The stock is rated a hold with a negative weekly chart profile and the five-week MMA at $36.69 and the 200-week simple moving average (SMA) at $29.70. My weekly pivot is $35.75 with a quarterly risky level at $38.62.

Bankrate ( RATE) ($10.48) missed EPS estimates by 6 cents a share and the stock plunged from $12.38 on Feb. 12 to $9.90 on Feb. 13. The stock has a hold rating with a negative weekly chart profile and the five-week MMA at $11.78. My weekly value level is $7.77.

Rackspace Hosting ( RAX) ($57.74) missed EPS estimates by $0.01 on Feb. 12 and the stock crashed from $74.98 to a low of $56.81 on Feb. 19. The stock is rated a hold with a negative weekly chart profile and the five-week MMA at $68.53. My weekly risky level is $71.87.

Constellation Brands ( STZ) ($43.28) declined to as low as $28.37 on Jan. 31 on the possibility that the Department of Justice would block the merger that combined a Bud with a Corona. Then on Feb. 14 the DOJ favored a new agreement that would not spoil this blend. The stock surged from behind the woodshed to $44.20 on Feb. 15. With a strong buy rating, the strategy was to buy weakness to a value level and my annual and semiannual value levels are $30.65 and $29.94. Today my weekly value levels is $34.83 with my monthly risky level at $45.57.

Constellation Brands was profiled as a woodshed stock on Feb. 7 in, Nine Stocks Take Trip to the Woodshed as these value levels were being tested.

Ultra Salon Cosmetics ( ULTA) ($85.68) declined from $99.49 on Feb. 14 to $83.45 on Feb. 19 on the resignation of the company's CEO. The stock has a buy rating and a negative weekly chart profile and the five-week MMA at $93.38. My semiannual value level is $81.28 with a weekly risky level at $92.83.

Whole Foods Market ( WFM) ($87.36) beat EPS by a penny on Feb. 13 but shares slumped on a weak sales outlook from $96.90 on Feb. 13 to $86.93 on Feb. 19. The stock has a buy rating and a negative weekly chart profile and the five-week MMA at $91.16. My weekly pivot is $91.56 with a monthly risky level at $100.96.

Weight Watchers ( WTW) ($45.33) beat EPS estimates by cents a share on Feb. 13 but the stock plunged on downbeat guidance. The stock fell from $54.11 on Feb. 13 to $43.60 on Feb. 14, has a hold rating and a negative weekly chart profile with the five-week MMA at $51.47 and the 200-week SMA at $46.92. Annual pivots are $48.47 and $48.66.

At the time of publication the author held no positions in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Richard Suttmeier has an engineering degree from Georgia Tech and a master of science from Brooklyn Poly. He began his career in the financial services industry in 1972 trading U.S. Treasury securities in the primary dealer community. In 1981 he formed the Government Bond Department at LF Rothschild and helped establish that firm as a primary dealer in 1986. Richard began writing market research in 1984 and held positions as market strategist at firms such as Smith Barney, William R Hough, Joseph Stevens, and Rightside Advisors. He joined www.ValuEngine.com in 2008 producing newsletters covering the U.S. capital markets, and a universe of more than 7,000 stocks. Richard employs a "buy and trade" investment strategy and can be reached at RSuttmeier@Gmail.com.

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