loader image

I Promise Not to Mention Russia, Biden, Taylor Swift or Oil Prices

by | Dec 5, 2022 | Market Outlook

I promise not to mention those things in the subject line. Given the headlines… that must be a relief.

I traveled only once to Rus-…

No, I won’t do it. I won’t mention anything on the cover of The Wall Street Journal.

There are far more important things than Ticketmaster and Tay-…


With markets pulling back Monday, we may soon see a switch in momentum — once again pulling the rug on the entire Federal Reserve pivot narrative. But there’s something else we want to discuss as it emerges in the weeks ahead…


Finding Value in a World of Speculators

When it comes to value — real value — we need to turn to the balance sheets.

For example: There are dozens of banks currently trading for less than the sum of their parts.

I’ve talked before about buying stocks that trade under a price-to-tangible book value of 1.

This came from conversations with the father-in-law, who is one of the top community banking analysts in the world. He prefers banks that are trading under their liquidation value.

Basically, the bank trades at 0.9 times a tangible book value of one.

That means buying something for $0.90 on the dollar. His strategy is to hold these stocks and wait for consolidation in the space. Given that consolidation in community banking has run about a rate of 3% to 5% over the past 30 years, it’s a good trend.

I can also look at the energy, mining and utility spaces and find companies trading under a book value of 1, and trading under low buyout multiples — EV/EBITDA, EV/Free Cash Flow.

A stock trading with a strong balance sheet — think F&Z scores — and an EV/EBIT under 8 can be an absolute steal in this environment. I want real cash flows, real businesses, and I don’t care where we sit in the business cycle.

Now, I must stress that I focus on stocks that carry these low metrics, trade on U.S. exchanges and are ripe for consolidation. If these stocks have wide bid-ask spreads, then I want to use limit orders, not market orders, to purchase them. I don’t pay any more than I need to in this market. I just set a limit order, wait, and if it fills, I don’t look at it for a few months.

So I’m going to look for a cheap stock that I could pick up today…

How About the Housing Sector?

I’m looking at a cheap stock trading at an outrageously inexpensive price. Best of all, it benefits from a severe shortage in supply around the nation. Now… gear up… because I’m talking about housing.

Skyline Champion Corp. (NYSE: SKY) is a Warren Buffett-owned stock that trades at an incredibly low EV-EBIT of 4.31 on top of a rock-solid balance sheet. The current downturn in the housing market — and rising interest rates — has forced these housing companies to go lean. Which is why SKY has built its balance sheet to “go long” beyond the coming recession. The stock carries a Piotroski F score of 7 on top of a very strong Z score of 8.42.

Now, why do I like this company? Because of the housing supply shortage. Skyline operates in the affordable housing market. The company makes manufactured homes, which have the same outward appeal of most brick-and-stick homes. At the moment, Fannie Mae and Freddie Mac are pushing for zoning laws across the nation to shift to allow more single-family homes that fit into the manufactured variety.

On a day that momentum just turned negative, should I buy the stock? Not yet. But I could sell a put or a put spread at a much lower level that allows me to purchase the stock at the level of my choice should it fall to that level. I would use what is known as a Cash Secured Put.

I’ll talk about that trade and what it means on Tuesday.

Enjoy your day,


WRITTEN BY<br>Garrett Baldwin

Garrett Baldwin

What to read next

99 Problems and a “Pivot” is One

99 Problems and a “Pivot” is One

A friend of mine sent me this chart about three months ago. I should probably print it and keep it in my wallet next to a photo of my daughter. Given the sheer number of questions I’ve fielded lately, I’ll probably end up showing this chart more than her picture.

read more
Everything Everywhere, Going Down, All At Once

Everything Everywhere, Going Down, All At Once

When our momentum reading went negative last week, I didn’t know that we’d have the second largest bank failure in U.S. history three days later. All I knew was that it went negative… and that we got out of the way.

read more
Trust But Verify…

Trust But Verify…

I want to talk about our version of “Trust but Verify” in the markets. Qualification is the most important part of the investing process. And this F score value strategy looks to be crushing the current market.

read more

Have any questions? Contact Our Customer Service Team