Momentum remains red in this market. Hedge funds are using any short-term pop to dump stocks and lower exposure to equities.
Capital is flowing into the money markets, and U.S. consumers are pouring money into one-year bonds offering a 5% return with no risk.
Eventually, I expect the “Buy the Dip” algorithms and statistical arbitrage crowd will tire out. The market is clearly in a downtrend dating back to the February 2 top.
After our signal went negative last Tuesday, I’ve remained net-short in this market.
That said, it’s important to have a list of stocks to buy when the market does find a bottom.
As we kick off March, now is a good time to eye this critical watch list of stocks with strong F & Z scores.
Why The F Score Scores Big
Each month, I look at three different metrics to help build a list of low-risk, high-upside stocks given their rock-solid balance sheets.
- The Piotroski F-score
- The Altman Z-score
- A valuation rank
Let’s start by finding positive financial growth and low debt exposure.
That’s where the Piotroski F-Score succeeds.
The F-score is a NINE-POINT system that rewards each company for meeting a certain criterion on its balance sheet.
The F score is a critical measurement of management’s performance.
How are companies improving their balance sheets year over year?
And how are shareholders enhancing shareholder value?
If the company meets all nine criteria, it has an F-score of 9.
That means it’s perfect.
The Altman Z-score is a weighted average of five metrics to determine whether a company might go out of business.
If a company falls below 2.6, it has a risky balance sheet.
That risk is tied to a balance sheet that likely has lots of debt or weak cash flow.
We are looking for stocks with a Z-score of 3 or higher.
This is pure forensic analysis.
But let’s add one last element to this. We want our stocks to have attractive valuations. We don’t want to trade at 15 times sales. We don’t want to have a negative book value or negative EBIT.
So, we aim for stocks with attractive buyout values.
And using EV/EBIT, we come up with this list.
These Stocks Look Perfect
This month’s list is a little troubling to be honest.
There’s a lot of focus on energy producers, refineries, agricultural commodity manufacturers, and affordable housing.
These are the things that are “working” in our economy. It’s a list of the bare essentials – potential evidence that consumer spending is stressed.
These stocks aren’t just centered around what’s working in the economy.
A large stake of them have significant geopolitical upside should we witness an escalation in the Ukraine war. The downside here on energy and agricultural commodities is very low.
Here are your top F and Z score stocks for March:
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Market Momentum is Red
The markets continue to bleed off in a trend of lower highs and lower lows. It feels like we’re building up for a very ugly selloff as the February jobs report approaches. But we’re making money elsewhere with our long-term value and income portfolios. Join me right here at a special discount price.