May 2022 Perfect Stocks

May 2022 Perfect Stocks

The Federal Reserve has spoken. And in a surprise, the central bank won’t begin its Quantitative Tightening program until June 1. In addition, it won’t start its program by selling $95 billion in assets per month. 

Instead, the Fed will sell $47.5 billion per month and ramp up to $95 billion in September. Fed Chair Jerome Powell also said that any rate hikes over 50 basis points were off the table. In a period of “peak fear,” the shorts covered and the markets ripped higher. 

Now, we’re off to the races for a little while, it seems. But if you’re still uncertain, I’d continue to focus on safe stocks. I’m talking about companies with strong balance sheets, little debt, and good valuations. I’m talking about “Perfect Stocks.” Let’s dig in.

The Perfect Plays

The S&P 500 momentum is positive, but we still haven’t swayed speculative capital off the sideline yet. Momentum is yellow. We’re looking for a positive swing as soon as tomorrow. 

Instead of following the crowd, I’m looking to trade stocks that have strong readings on the following:

  • 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. 

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 2022, let alone 2023. I want to ensure that I’m protected if a major credit event transpires.

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?

May 2022 Perfect Stocks

Here we go…

StockF-ScoreZ-ScoreWall Street Target Upside 
Bath and Body Works (BBWI)94.0146.5%
Penske Automotive (PAG)93.401.51%
Matson (MATX)93.7818.6%
Academy Sports and Outdoors (ASO)93.3050.7%
Sturm Ruger (RGR)914.5815.6%
PAM Transportation (PTSI)93.8414.5%
Covenant Logistics (CVLG)93.304.9%
Mannatech (MTEX)95.4311.4%

This is another great list for the month, especially coming off a bullish post-Fed move. The list tells me what is working in the U.S. economy right now, what stocks are cheap, and what stocks have terrific balance sheets. 

We’ve got some cheap retailers that might become attractive takeover targets. We have logistics companies capitalizing on supply chain woes. Gun companies? Well, they’re cheap and their demand isn’t going away. And the automotive stocks are now starting to get cheap and impossible to ignore. 

I like to sell puts on these May 2022 perfect stocks and look for other ways to trade them. Let’s talk more about risk and the Fed on Thursday.

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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