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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

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