I have been looking over the market most of the week for stocks to avoid no matter what your market bias. I have also been kicking over corners of the market looking for stocks you might want to own in the current difficult environment.
I mentioned that one development making me nervous was the lack of true bargain stocks. This has sparked the question of what is still on the list and fits the description of cheap, and what might be worth owning right now.
I sat down this morning and ran one of the most basic value screens based on the theories of Piotroski and his F-scores. I looked for domestic stocks that traded below 90% of book value and had the type of improvement and strength in their financial statements that gives them a high F-score. I am a huge fan of the F-score system and have used it to uncover some terrific bargains and avoid more than few value traps over the past several years. The stocks that make the grade are of some interest and might be worth holding and adding to if the market should decline.
It is important to point out that only 20 stocks make the grade and are over $75 million in market cap. If I drop the market cap restraint to more than $25 million, I still only have 61 stocks that pass this relatively simple screen.
If I restrict the F-score to only those that get a 7 or better on the 9 point scale, the list falls back to just 24 stocks. This is the smallest return I have seen since I started using F-scores as a regular tool back in 2007. Cheap stocks are in short supply right now.
Several of them are issues that I own and have written about in the past. Gencor (GENC) has been a favorite holding for some time. The company has a few warts and management has cut off few corners here and there over the year, but the stock has traded below net current asset value and has been a strong holding. The stock has moved up in the last couple of months and now trades at a slight premium to net current asset value, but is still at 80% of book with an F-score of eight.
Trans World Entertainment (TWMC) is on the list. The stock trades at 80% of tangible book value and a slight discount to net current asset value. They continue to try to expand from the beleaguered video and music stores by offering more of what they call "trend items." They are surviving better than most in this difficult industry. The stock is cheap and has an F-score of 7, so they would appear to be making progress.
I haven't added shares of Seneca Foods (SENEA) yet but if it drops from the current level of 86% of book value to under 80% I will be there waiting with buy orders in hand. The company makes canned fruits and vegetables under private labels brands as well as nationally known brands such as Libby's. They also pack vegetables under the Green Giant and Le Sueur Lapels for General Mills (GIS). This is not the most exciting company but they have been around since 1949 and the business must be okay as they get an F-score of 6.
One stock on the list that I haven't noticed before is Asta Funding (ASFI). This one has some moving part to it. It appears to be not only cheap, but there could be hidden value on the books as well. The company buys consumer debt portfolios at pennies on the dollar and then attempts to collect the unpaid debts. They have some loan portfolios that are marked down below where some observers think they are worth. The stock is trading at 70% of book value and has an F-score of 6. This is a new name for me, so I need to do homework. It may be too cheap, however, not to own at these levels.
The pool of cheap stocks is small as I have indicated several times recently. Given that I have no clue when we will get an inventory creation event, I will keep kicking rocks in the corners of the markets to find those stocks that still make the grade.