Greetings from Aegeri, Switzerland. I am sitting in a cafe at a public pool writing from my phone. The kids are eating ice cream (including the big kid, my friend Neal).
I’m watching this market whipsaw as usual from far away. But I’m happy that the month is coming to a close. Why?
Because it’s time to discuss…
Our Perfect Stocks for June 2023.
Perfect you ask?
Yes. They’re the Leeloo Dallas of the financial markets… Perfect.
The Perfect Plays
The S&P 500 momentum is negative.
Broad momentum is negative.
Just five stocks are holding up the Nasdaq and the S&P 500. The divide between the Nasdaq and Dow Jones, year-to-date, is the largest since 1971.
Thanks a lot, AI.
So, we don’t actively make trades during this period.
But we want to have a list to trade when the time comes… 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 is a score 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 2023, let alone 2024. 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 the ones built to ride out a 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.
So, let’s get to the list. What do you say?
Perfect Stocks for June 2023
Here we go…
Remember, all these names have F scores of 9. Below find the names… tickets… and Z scores…
CF Industries (CF): 4.0
Compx International (CIX): 12.0
NexTier Oilfield (NXT): 3.7
Exxon (XOM): 5.2
Chevron (CVX): 4.5
Valero (VLO): 5.8
TriPointe Homes (TPH): 4.3
These companies are exercising incredible shareholder support and financial discipline in this difficult environment.
They’re buying back stock, increasing their return on assets, reducing debt, and doing everything necessary to maximize shareholder value.
Elsewhere, we’re seeing housing and fertilizer companies exercising the same restraints in challenging economic circumstances. These are the types of names poised for massive recoveries in the future.
When momentum turns positive (and we see a solid rebound in the equity markets), these will be among the names that experience a sharp uptick of institutional flow.
We’ll discuss how to trade these names tomorrow – especially in a negative momentum environment.
Tomorrow’s Agenda
Tomorrow, we will continue our conversation about technical indicators… specifically the Money Flow Index.
I will continue that discussion on Friday with the MACD.
To your wealth,
Garrett Baldwin
*This is for informational and educational purposes only. There is an inherent risk in trading, so trade at your own risk.
Market Momentum is Red
Momentum turned negative after choppy, positive conditions yesterday. As I’ve said, there is no trend to this market. The underbelly of the S&P 500 – the bottom 497 companies are down on the year… But AI keeps pressing it higher. History suggests that the AI trend is unsustainable, but we’ve seen these types of rallies last much longer than short funds can remain solvent.
