Once a month, I talk about solid balance sheets. I talk about solid stock scores. I talk about the safest companies on valuation. You know I like using numbers to tell a story. So, don’t we take a look at the strong stocks right now and tell a story about what’s working well and what is not in the U.S. economy. As we head into the weekend, I have three metrics for you. The first two are the Piotroski F Score and the Altman Z Score. Then, I layer Perfect Score companies with a valuation rank to ensure optimal upside over the next 30 to 60 days.
Digging into the Numbers
Here’s what we’re looking at:
The F Score is a NINE-POINT system that rewards each company for meeting a specific criterion on its balance sheet. For example, if the company meets all nine criteria, it has an F score of 9.
The Z Score score is a tad more complex. This is a weighted average of five metrics to determine whether a company might go out of business. If a company falls below 2.5, it has a very risky balance sheet – typically due to large debt loads or weak cash flow.
I prefer to target companies with a Z score of 3 or higher. That figure allows me to be on the safe side and avoid any surprises. Why use these numbers? Because companies can’t fake them. They can’t like or manipulate their balance sheets. This is just good old-fashioned analysis. That seems to be lacking in these troubled times. And – if in a month either the F score falls to eight or lower, or the Z score drops under 3, I drop it off this list.
So, let’s take a look at the seven perfect companies this month.
Strong July Stock Picks
| Stock | F Score | Z Score | Valuation |
| AutoNation (NYSE:AN) | 9 | 4.23 | Fair |
| Semtech (NASDAQ:SMTC) | 9 | 9.08 | Fair |
| Quest Diagnostics (NYSE:DGX) | 9 | 3.81 | Fair |
| Rio Tinto PLC (NYSE:RIO) | 9 | 3.23 | Fair |
| Plexus Corp. (NASDAQ:PLXS) | 9 | 4.37 | Fair |
| Standard Motor Products (NYSE:SMP) | 9 | 4.04 | Fair |
| Weis Markets (NYSE:WMK) | 9 | 5.15 | Undervalued |
What can we take away from this list of strong stock picks?
We’re still watching a red-hot auto industry, and we have a solid semiconductor stock in the middle of a pandemic (might be become a takeover target?)… there’s an ongoing need for diagnostics as we face another possible wave of this pandemic. We see strong balance sheets with a supermarket and an engineering firm. These are all vital industries represented, even in the face of a potential turndown in the market.
