Screening For Black Friday Bargains In The Stock Market

Screening For Bargains On Black Friday

Since American retailers traditionally offer deals on the day after Thanksgiving (“Black Friday”), it seemed fitting to see if the stock market was offering any too. The main metric I used to screen for deals was Chartmill’s overall valuation rating. I used that, because it incorporates several measures of valuation, including Price/Earnings (P/E), Forward P/E, Price/Book, and PEG (P/E divided growth rate). 

Setting Up The Screen 

To make sure I wasn’t picking up a bunch of “cheap for a reason” stocks, I added a few other technical and fundamental metrics to the screen:

• Trades in U.S.
• Has options. 
• Valuation rating >=7. 
• Technical rating >=6
• Set-up rating >=6
• Growth rating >=6
• Profitability rating >=6
• Piotroski F-Score >=8

The technical and valuation ratings are self-explanatory; the set-up rating measures the short-term consolidation of share prices. Each of those ratings is on a scale of 0 to 10, with 10 being best; the Piotroski F-Score is on a scale from 0 to 9, with 9 being best. 

The Results 

That screen yielded these four names: 

• Neurocrine Biosciences, Inc. NBIX
• United Therapeutics Corp. UNH
• Supernous Pharmaceuticals, Inc. SUPN
• Expedia Group, Inc. EXPE

Are These Stocks Worth Buying Now? 

Maybe, but they’re probably not the best stocks to buy now. The best stocks typically aren’t cheap. In a recent post (“The Post That Just Saved Us Money On Nvidia”), I mentioned that I’d consider placing a bullish options trade on Nvidia Corporation NVDA again when it had a valuation rating of 6. I didn’t say a valuation rating of 7, because as long as the AI story continues, I don’t expect Nvidia to trade that cheaply. It may not even trade at a valuation rating of 6 in the near future, outside of a major market correction. Maybe it’s not worth waiting for one. 

The Valuation Ratings Of Portfolio Armor’s Top Ten Names

On Wednesday, I posted Portfolio Armor’s top ten names. Those are the ones are system estimates will have the highest returns over the next six months, net of hedging costs.

Occasionally, we see some inexpensive stocks on that list (valuation ratings of 7 or so), but this week. The average valuation rating of the stocks in Wednesday’s top ten was 2.7. The overall top name, Tesla, Inc. TSLA, had a valuation rating of 4. 

The Limits Of Valuation

If you think about Tesla’s Optimus robots, you get a sense of the limitations of valuation in selecting stocks.

The robots aren’t for sale to the general public yet, so they don’t appear in any of the metrics that comprise Tesla’s valuation rating. But Tesla CEO Elon Musk says they’ll be the most popular product in the world. If he’s right, Tesla shares will be worth a lot more in the future. 

Deciding whether Elon is likely to be right about those robots may turn out to be a more profitable exercise for investors than crunching valuation numbers. Our system defers to the wisdom of crowds on that–the crowd of stock investors, and the crowd of options traders. Its gauges of share price movement and options sentiment suggest it makes sense to bet on Tesla now. 

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