Brought to You… By the Letter “F”

Piotroski F score

Next week, I’ll be handing you the stocks with the strongest balance sheets heading into August. But I wanted to take a moment to tell you about why you need to be actively trading one of my all-time favorite plays right now. It’s called Quest Diagnostics (NYSE:DQX). As you know, I’m boring when it comes to fundamentals. But, I like using the Piotroski F score to find companies that dramatically improve their balance sheets.

So, this nine-point model helps me find the best fortress balance sheets in the market right now. Listen, if you can find a stock with a perfect Piotroski F score, you know that this company isn’t faking its results. You also understand that whatever business they operate in these days is succeeding in this economy. 

Quest Diagnostics operates in blood testing, COVID-testing, and all things clinical lab results. The company recently reached an agreement with a partner to provide COVID testing for K-12 students. Remember, we’re just a month away from schools opening again. 

So, I’m expecting big things from this company. Now, I’ve named my top three COVID surge stocks for my Surge Point Trader subscribers this week. But DGX is my gift to you.

Not only is this stock trading at a rock-solid valuation, but it is also rocking an Altman Z Score of more than 4. This metric – the Z score – is a probability measure of a company going bankrupt. 

Anything under 2.5 is dangerous. On the other hand, I like anything over three because it offers a buffer. 

DGX fits the bill. 

Why F & Z Score Stocks

As I noted, companies with high F scores and Z scores have solid balance sheets. So, I’m very content to trade these stocks actively. When there is a dip, I like to buy a few shares. If I own at least 100 shares, I like to sell covered calls to create income and give myself a little downside protection. But when a company joins the list, I like to do cash-secured puts.

This means that I’ll sell a put at a lower strike price to the underlying, current price. This put would give the buyer the right, but not the obligation, to sell me 100 shares for each put should make the share fall to or below the strike price by the expiration date. 

It’s a way for me to generate some income. Cash secured puts are also a way for me to pick my entry price should it hit that level while putting some cash (the premium) in my pocket.

The worst-case scenario is that I’m going to get to buy the stock I want to buy at the price I want to purchase it at in the future. The best case is that the stock rises, and I’m able to buy back that contract on the cheap and pocket the difference.

Either way, this is a winning, conservative strategy.

Garrett Baldwin
Garrett Baldwin
Garrett Baldwin joined Godesburg Financial Publishing as Chief U.S. Markets Analyst in early 2021. A Johns Hopkins-trained Economist, he’s worked with hedge funds, venture capital firms, angel investors, and economic advisors to the U.S. government. Baldwin specializes in market anomalies and alternative investments. He’s written extensively on momentum, value, insider buying, and other unique strategies that provide investors that elusive edge.
Garrett Baldwin
Garrett Baldwin
Garrett Baldwin joined Godesburg Financial Publishing as Chief U.S. Markets Analyst in early 2021. A Johns Hopkins-trained Economist, he’s worked with hedge funds, venture capital firms, angel investors, and economic advisors to the U.S. government. Baldwin specializes in market anomalies and alternative investments. He’s written extensively on momentum, value, insider buying, and other unique strategies that provide investors that elusive edge.

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