If we piqued your interest in Shorting Zombie Stocks last week, we follow with a screen that seeks stocks that may do well if a recession occurs and a zombie apocalypse weighs on markets.
Last week’s scan focused on stocks with meager interest coverage ratios and flat to negative earnings and sales growth. The result was stocks that may find it challenging to roll over maturing debt if bank lending standards tighten, as we suspect they will.
This week’s report seeks zombie slayers. These are stocks that can weather a recession and tighter lending conditions well. In this scan, we use similar criteria but seek stocks at the opposite end of the spectrum regarding said criteria. For example, we searched for relatively high-interest coverage ratios, solid and consistent sales and earnings growth, and plenty of free cash flow.
The idea for the scan came from the Piper Sandler graphic below.
Screening Criteria
We considered the following factors when screening:
- Excluded Financial, REIT, and MLP Stocks
- 5-year Sales and Earnings Growth > 5%
- Consistency of Earnings and Sales – R-squared of Sales and Earnings Growth >.75
- Price to Free Cash Flow <10
- Interest Coverage >3
- Market Cap >$10bn
- U.S. Domiciled Corporation
Company Summaries
CVS Health Corporation (CVS)
Globe Life Inc. (GL)
Builders FirstSource, Inc. (BLDR)
Eversource Energy (ES)
Expeditors International of Washington, Inc. (EXPD)
Five for Friday
Five for Friday uses stock screens to produce five stocks that we expect will outperform if a particular investment theme plays out in the future. Investment themes may be relevant to the current or expected market, industry and/or economic trends. Investment themes may not always represent our current forecast.
Disclosure
This report is not a recommendation to buy or sell the named securities. We intend to elicit ideas about stocks meeting specific criteria and investment themes. Please read our disclosures carefully and do your own research before investing.
Michael Lebowitz, CFA is an Investment Analyst and Portfolio Manager for RIA Advisors. specializing in macroeconomic research, valuations, asset allocation, and risk management. RIA Contributing Editor and Research Director. CFA is an Investment Analyst and Portfolio Manager; Co-founder of 720 Global Research.
Follow Michael on Twitter or go to 720global.com for more research and analysis.
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