Introduction
Welcome to the large cap Piotroski F-Score screen for November. Piotroski f-score looks for stocks of the companies with solid fundamentals that are improving. Joseph Piotroski, then of University of Chicago GSB, laid out these fundamental filters that in his research adds about 7.5% additional alpha to a standard P/B ratio screen. The Piotroski F-Score is a filter for the quality of the operations and its trajectory of improvement. It is not a statement on the valuation.
Screen Details
This screen looks for large cap stocks over $5 Billion in market capitalization with solid fundamentals that are getting better, as measured by Piotroski F-Score:
- Piotroski F-Score > 8
This filter does not screen for low price/book ratio or any other metric. The resulting list of stocks need to be evaluated for these additional value filters.
The Screen Results
Stock | Company | Piotroski F-Score | P/B Ratio | P/E Ratio |
|---|---|---|---|---|
ALLE | Allegion | 9 | 15.6 | 24.1 |
ALXN | Alexion Pharmaceuticals | 9 | 2.3 | 16.6 |
BDX | Becton | 9 | 3.1 | 62.9 |
DOX | Amdocs | 9 | 2.6 | 23.0 |
DVN | Devon Energy | 9 | 1.3 | 9.3 |
KEYS | Keysight Technologies | 9 | 6.6 | 63.5 |
KL | Kirkland Lake Gold | 9 | 6.6 | 26.0 |
LMT | Lockheed Martin | 9 | 27.5 | 18.0 |
NUE | Nucor | 9 | 1.6 | 9.5 |
PAYC | Paycom Software | 9 | 26.2 | 75.0 |
QCOM | Qualcomm | 9 | 20.0 | 31.5 |
V | Visa | 9 | 13.5 | 34.3 |
Notes and Observations
Since valuations are not part of the Piotroski F-Score evaluation, they need to be applied before we can make any judgement on these stocks. We are able to use all other valuation tools at our disposal. As can be seen from the list, most large cap stocks with solid 9 Piotroski F-Score sell at premium multiples.
That being said, I did a quick Price/Graham Number calculation on these stocks, and find the following:
- DVN: P/GN = 0.4. Declining sales growth amidst a soft oil and gas market shows up in the stock price of Devon Energy in the recent years. It appears to be a high quality company in a cyclical sector. Worth watching for the future.
- NUE: P/GN = 0.9. Another cyclical stock suffering through the slowdown in many large steel consuming economies, as well as the trade war with China. Some of the risk factors in the stock/industry may be temporary. Adding to the list for further review.
Other stocks have unreasonably high P/GN and were not further considered.
Ending Note
I like Piotroski f-score as an additional layer of quality on the value stocks that you are evaluating. The f-score by itself is not a complete screen. Other valuation filters need to be applied along side the Piotroski f-score filters. As you can see, not many stocks succeed on the F-score =9 check, but from those who do, much fewer stocks are actually good values.
