Greetings from the non-humid Southwest Florida coast. This is — without a doubt — perfect weather. It’s 79 degrees. There’s a light breeze. The sun is hidden behind a few clouds but the rest of the sky is blue. And I get to sit on the porch with the dogs and just listen to silence.
It’s perfect.
Which is an important theme as an investor and for our readers here at The Trading Pub. If you’re looking for stocks to trade this month, always return to our list of Perfect Stocks.
Our Perfect Stocks for December 2023
Perfect you ask?
Yes. They’re the Leeloo Dallas — of “Fifth Element” fame — of the financial markets… Perfect.
We do this each month. And we start with these three rules:
- The Piotroski F-Score.
- The Altman Z-Score.
- A valuation rank.
What are they?
We start each screen by focusing on improving financial growth and low debt exposure — and the F-Score tells both.
This score was created by former Stanford/Chicago Professor Joseph Piotroski.
The F-Score (or Piotroski Score) is a NINE-POINT system that rewards each company for meeting a certain criterion on its balance sheet.
If the company meets all nine criteria, it has an F-score of 9. On its own, just this number is incredibly powerful, as a strong score is a sign of outstanding financial discipline at the company.
Then, there’s the Altman Z-Score.
It’s a weighted average of five metrics to determine whether a company might go out of business.
So, if a company falls below 2.6, it has a risky balance sheet. Why is it risky?
There are large debt loads or weak cash flow. Simple as that.
As always, I want to find stocks with a Z-Score of 3 or higher.
I don’t know what’s coming in what’s left of 2023, let alone 2024. So I want to ensure that I’m protected if a major credit event transpires.
We have a lot of questions about liquidity in the future, and these names are built to ride out a potential storm.
They tell us RIGHT NOW what is working in the U.S. economy.
Finally, I add on a quick valuation score. We want stocks trading at cheap buyout multiples… It’s as simple as that.
We have good management, little debt and attractive valuations.
Tack on more liquid options chains, and you can find great trades. So, we’ll add volume to the screen so we know what can be used for options.
So, let’s get to the list. What do you say?
The Stocks
Here we go…
The list of stocks is pretty contrarian for this environment. Most people anticipate a recession — and we have construction, housing and energy names lined up here. These are companies that are still performing well across the board despite the circumstances. You can’t fake this performance, as it’s all linked explicitly to the balance sheet.
International Seaways Inc. (NYSE: INSW) and Wabash National Corp. (NYSE: WNC) interest me from a long-term perspective. Both have low Graham figures, and both are set to benefit from challenges of their competitors. For example, Wabash looks like it will be able to pick up some of the slack from the collapse of Yellow. Add on their last-mile focus, and you have an interesting, contrarian play.
Meanwhile, I love Toll Brothers Inc. (NYSE: TOL), and I’m always interested in Halliburton when it pulls back. It’s a premium stock that does VERY well when energy sector momentum improves. Finally, Cisco Systems Inc. (Nasdaq: CSCO) appears to be a name no one wants to touch… but the ROIC sits at 17% and the numbers look better and better.
We’ll talk about the best way to trade these names on Monday.
Chat soon,
Garrett Baldwin
*This is for informational and educational purposes only. There is an inherent risk in trading, so trade at your own risk.
P.S. Check Out This ‘Perfect TSLA Trade’
In the last 20 days, Tesla’s rallied about 20%…
I don’t think most people expected that!
Especially considering the company bombed on earnings in late October…
That said, on Nov. 1, Lance Ippolito’s indicator turned bullish for Tesla.
You can see how it flipped from red to green right here.
That told him the momentum in Tesla had turned bullish. And for his traders, it opened up brand-new opportunities…
If you want to see how this indicator works and how his guys and girls have been using it to trade in and out of Tesla over the last few weeks… \
