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James Li
James Li
Articles (1282)  | Author's Website |

5 Undervalued Companies With High Piotroski F-Scores

Stocks with strong business operations and are trading below intrinsic value

As investors continue grappling with rising coronavirus fears, five stocks that have a high Piotroski F-Score and are trading below intrinsic value based on tangible book, Graham number and median price-sales value are Danaos Corp. (NYSE:DAC), Empresa Distribuidora y Comercializadora Norte SA (NYSE:EDN), StealthGas Inc. (NASDAQ:GASS), Sigmatron International Inc. (NASDAQ:SGMA) and TAT Technologies Ltd. (NASDAQ:TATT).

Dow slides as global coronavirus cases top 12 million

On Thursday, the Dow Jones Industrial Average closed at 25,706.57, down 360.71 points from Wednesday’s close of 26,067.28 and 121.88 points from last Thursday’s close 25,828.45. The 30-stock index tumbled as much as 500 points on the heels of coronavirus cases topping 12 million around the globe, including 3 million cases in the U.S., according to Johns Hopkins University statistics.

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According to CNBC, AssetMark Chief Economist Jason Thomas warned that it is clearly becoming difficult to reopen the economy “without causing a renewed surge” in coronavirus cases. Twelve states in the U.S. hit a record seven-day average for daily new Covid-19 cases on Wednesday according to a CNBC analysis of Johns Hopkins data.

Piotroski F-Score measures the strength of business operations

Accounting professor Joseph Piotroski developed in 2000 a nine-point scoring system that gauges the strength of a company’s business operations using data from a company’s income statement and balance sheet. The Piotroski F-Score considers ratios like return on assets, debt-to-asset ratio, current ratio, net issuance of stock, gross margin and asset turnover.

Piotroski observed that a model portfolio consisting of stocks with low price-book ratios and an F-Score of at least 8 or 9 outperformed the Standard & Poor’s 500 index benchmark by approximately 13.4% during the 20-year period from 1976 to 1996. GuruFocus defines a high Piotroski F-Score as a score of at least 7.

The accounting professor also observed that shorting stocks with F-Scores below 1, in addition to buying stocks with F-Scores above 8, yielded an average annual return of 23% during the backtest period. GuruFocus issues a warning sign if a company has a Piotroski F-Score of 3 or less.

Brief discussion of a few GuruFocus valuation methods and Piotroski F-Score Screener

GuruFocus computes several valuation metrics, ranging from traditional metrics like discounted free cash flow to other metrics like tangible book, Graham number and median price-sales value.

Tangible book value strips away intangible assets from total stockholder’s equity. GuruFocus computes the Graham number as the square root of 22.5 times the product of a company’s tangible book value per share and earnings per share. The Graham number represents the highest price a defensive investor should pay for a stock: According to Benjamin Graham’s theory, the current price should not exceed 15 times earnings and 1.5 times book.

Finally, the median price-sales value represents the stock’s fair value assuming that the valuation reverses to the 10-year median price-sales ratio.

The Piotroski F-Score Screener lists the stocks with an F-Score of at least 7 and a price-book ratio that outperforms at least 80% of industry competitors around the globe. The Screener found five companies that are trading below 80% of intrinsic value based on tangible book, Graham number and median price-sales value.

Danaos

Danaos provides seaborne transportation services through its network of containerships. GuruFocus ranks the Greek shipping company’s valuation 10 out of 10 on the back of price valuations being near 10-year lows and are outperforming over 98% of global competitors. Other positive investing signs include profit margins outperforming over 94% of global transportation companies.

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Empresa Distribuidora y Comercializadora Norte

Empresa Distribuidora y Comercializadora Norte distributes electricity primarily to the northern portion of Buenos Aires, Argentina. GuruFocus ranks the company’s valuation 10 out of 10 on the back of price valuations being near 10-year lows and outperforming over 99% of global competitors.

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The company’s profitability ranks 5 out of 10: Operating margins are underperforming 60% of global competitors despite returns and three-year revenue growth rates outperforming over 88% of global competitors.

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StealthGas

StealthGas owns liquefied petroleum gas-pressurized carriers and provides international seaborne transportation services worldwide. GuruFocus ranks the Greek shipping company’s profitability 6 out of 10: Although the operating margin outperforms 78.65% of global competitors, returns are underperforming over three-quarters of global transportation companies.

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StealthGas’ valuation ranks 6 out of 10: Although the company’s price-book ratio outperforms over 96% of global competitors, its price-earnings ratio underperforms 92% of global peers.

Sigmatron

Sigmatron provides printed circuit board assemblies and electronic products. GuruFocus ranks the Grove Village, Illinois-based company’s valuation 10 out of 10 on the back of price valuations being near 10-year lows and outperforming over 89% of global competitors.

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TAT Technologies

TAT Technologies provides solutions and services to the aerospace and defense industries. GuruFocus ranks the Israeli-based industrial company’s financial strength 7 out of 10: Debt ratios are outperforming over 71% of global competitors despite a low interest coverage ratio of 2.22.

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Disclosure: No positions.

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About the author:

James Li
I am an editorial researcher at GuruFocus. I have a Master's in Finance from SMU, and I enjoy writing reports on financial trends and investor portfolios. Follow me on Twitter at @JamesLiGuru!

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