Decisions, Decisions

This week's trading action has unsettled markets and investors, but it may have led to at least one positive outcome for stocks. At a briefing today for regional economic conditions, New York Fed Bank Chair--and FOMC member-- William Dudley told reporters that "at this moment, the decision to begin the normalization process at the September [FOMC] meeting seems less compelling to me than it did several weeks ago. But normalization could become more compelling by the time of the meeting as we get additional information.”

That statement is definitely of the "tea-leaves needing to be read" variety, but it indicates that US markets should continue to trade under the benefit of the Fed's zero-interest rate policy (ZIRP) for a while longer. US short-term rates have hovered near 0% for most of the past seven years now. This policy provided the only real boost for the US economy as the fiscal options, controlled by politicians in Washington DC, were focused on austerity in lieu of a robust stimulus program.

It would seem quite premature to raise rates under the present circumstances, and with the Fed still responsible for a dual mandate--low inflation AND full employment--it appears cooler heads will prevail thanks to the "reality" provided by China and the global market pull back.

Dudley referenced this in his remarks by noting that “incoming data suggest the economy continues to grow at a moderate pace sufficient to cause a gradual tightening of the U.S. labor market” but “international developments have increased the downside risk to U.S. economic growth.”

Again, as we have been noting for a while now, the US economy is recovering, and we see some pressures within the labor market--as evidenced by changes in employment practices on the part of Wal-Mart (WMT), McDonald's (MCD) et al. We also see a low level of inflation--bolstered by the cratering of oil and other commodities pricing.

Stocks, despite their recent gyrations, remain the only game in town where yields are concerned. We recommend investors with the means to weather this storm stay the course. We do not foresee a long-term issue for the US economy here, and we note that selling at the bottom of a down turn is often the worst move one can make. On the other hand, this is a time to tighten up those stop-losses and to stay attentive.

We now calculate that 32.07% of stocks are overvalued and 9.61% of those stocks are overvalued by 20% or more. This is a huge reversal of where we have been for much of the year. In fact, to find stocks calculated to be this "cheap," you would have to go all the way back to November, 2012.

For today's bulletin we searched for top-rated stocks in the S&P 500. These stocks are shown below, ranked according to their short-term forecast figures. They are all considered to be "5-Engine" STRONG BUY selections.

Below is today's data on TSO:

Tesoro Corporation (TSO) was founded in 1968 as a company primarily engaged in petroleum exploration and production. In 1969, Tesoro began operating Alaska's first refinery near Kenai. Today, Tesoro is a Fortune 500 company and one of the largest independent petroleum refiners and marketers in the Western United States.

Recommendation: ValuEngine continues its strong buy recommendation on Tesoro Corporation for 2015-08-25. Based on the information we have gathered and our resulting research, we feel that Tesoro Corporation has the probability to outperform average market performance for the next year. The company exhibits attractive Sharpe Ratio and P/E Ratio.

Valuation & Rankings
Valuation	8.28% undervalued	Valuation Rank	49
1-M Forecast Return	1.54%	1-M Forecast Return Rank	100
12-M Return	36.62%	Momentum Rank	93
Sharpe Ratio	1.01	Sharpe Ratio Rank	94
5-Y Avg Annual Return	40.40%	5-Y Avg Annual Rtn Rank	98
Volatility	40.01%	Volatility Rank	44
Expected EPS Growth	-10.96%	EPS Growth Rank	17
Market Cap (billions)	11.20	Size Rank	92
Trailing P/E Ratio	8.43	Trailing P/E Rank	93
Forward P/E Ratio	9.47	Forward P/E Ratio Rank	83
PEG Ratio	n/a	PEG Ratio Rank	n/a
Price/Sales	0.33	Price/Sales Rank	88
Market/Book	1.81	Market/Book Rank	52
Beta	2.08	Beta Rank	11
Alpha	0.28	Alpha Rank	91

Valuation Watch: Overvalued stocks now make up 32.07% of our stocks assigned a valuation and 9.61% of those equities are calculated to be overvalued by 20% or more. Two sectors are calculated to be overvalued.