I confess that I have spent a lot of time thinking about where investors should not be with their cash of late. Although I will always reiterate that I am the worst market timer on the planet. If given a choice between a session in the rack and taking one of my market calls, one should always take the rack.
This market makes me nervous. A lot of very smart people think the market is too high, given the market fundamentals and economic conditions at the moment. This is coupled with the fact that I just cannot find a lot of stocks to buy right now, and I am even more skittish than usual when it comes to market levels.
I have no clue if or when the market may pull back, or even collapse, as some like Jeremy Grantham and Carl Icahn have indicated may happen. We could just ride infinite QE to continual new heights like we took new paradigm to crazy levels in 1999 and free money for all to highs back in 2007.
Rather than focus much effort on developing a market forecast that will almost certainly be wrong, I am better off focusing on individual stocks. There are still a few worth buying and a long list worth adding to your wish list. I am also focusing on stocks that should just be avoided no matter what you think the stock market may do in the near future.
I have been using Piotroki F-scores to search through the markets for stocks that are not particularly cheap and that have low scores indicating their fundamental are deteriorating. These companies aren't going broke but conditions are not moving in the right direction. That should keep the stock from rallying or it could even lead to a decline in the value of the equity. These stocks should be avoided and owners should consider selling even if they think we are about to see a moonshot stock market.
There are some interesting names on the avoid list. Intel (INTC) is pretty widely held and is always in the discussion when we talk about tech stocks. Business isn't horrible at Intel it just isn't very good and judging by the F-score of 3 it isn't going to get much better anytime soon either. The economy is still uneven and PC sales continue to decline. Intel only has about a 1% share in the smart phone and tablet chip market so they have an uphill road ahead of them, I have no doubt they will increase their share as they are still the 800 pound gorilla of the chip market but for now there is simply no compelling reason to own the stock.
Workday (WDAY) is in the very popular cloud computing business but digging below the headline earning numbers reveal an F-score of just 3. The sector may be hot but the fundamentals underling this business are not really that great right now. At 36x sales and 20x book value, it is hard to make a case for an unprofitable company. I see no reason to own the stock. If I was a short seller I might be inclined to take a hard look at this stock.
Two utilities make the poor fundamentals list as well. This doesn't surprise me as utilities traditionally need a decent economy to produce solid revenue and earnings growth. Although the economy may be slowly getting better, I would not use words like decent or robust to describe the current situation. Duke Energy (DUK) has an F-score of 3 and MDU Resources (MDU) earns a score of just 2. Both of these stocks should be avoided for now. They are not particularly cheap and the fundamentals are not getting better anytime soon.
Some market favorites show up on my list of stocks to avoid, based on their fundamental score as well. Pandora Media (P), Netgear (NTGR), Zillow (Z), Boston Properties (BXP) and CarMax (KMX) all have F-scores in the bottom third of listed U.S. companies. As long as the financials at these companies are not improving they are nowhere near cheap enough to consider owing and should probably be pushed out of most portfolios right now.
I am nowhere near smart enough to tell you what the stock market will do over the next quarter or year. My prediction of the Boston Red Sox to finish in the AL East this year is in line with my market predictions over the years. I am smart enough to know that using F0 scores to separate potential winners from losers in the market works very well, and it is critical to avoid companies with high valuations and low scores.