Using the GuruFocus All-In-One Screener, I searched for large cap stocks with the highest Piotroski F-Score of 9. The Piotroski F-Score is a system based on the fundamentals of a company. It was developed by Joseph Piotroski who earned his Ph.D. in accounting from the University of Michigan and is now an associate professor of accounting at the Stanford University Graduate School of Business.
The F-Scores are in a range of 0-9 based on nine different criteria. If the company has positive characteristics for a certain criteria it receives 1 point and all of the points are added up. Piotroski back-tested his idea and found that buying only the companies that scored the highest (8 or 9) over the twenty year period from 1976 to 1996 led to an average out-performance over the market of 13.4 percent. The resulting stocks have met all of the following criteria, and therefore, have the highest score of 9.
- Return on Assets – Net income before extraordinary items for the year divided by total assets at the beginning of the year. Score 1 if positive.
- Cash Flow Return on Assets – Net cash flow from operating activities (operating cash flow) divided by total assets at the beginning of the year. Score 1 if positive.
- Change in Return on Assets – Compare this year’s return on assets to last year’s return on assets. Score 1 if it is higher.
- Quality of Earnings (Accrual) – Compare cash flow return on assets (2) to return on assets (1). Score 1 if cash flow return on assets is greater than return on assets.
- Change in Leverage – Compare this year’s leverage (long-term debt divided by total assets) to last year’s leverage. Score 1 if leverage is lower.
- Change in Working Capital (Liquidity) – Compare this year’s current ratio (current assets divided by current liabilities) to last year’s current ratio. Score 1 if this year’s current ratio is higher.
- Change in Shares in Outstanding – Compare the number of shares outstanding this year to the number outstanding last year. Score 1 if there are fewer shares outstanding this year.
- Change in Gross Margin – Compare this year’s gross margin (gross profit divided by sales) to last year’s gross margin. Score 1 is this year’s gross margin is higher.
- Change in Asset Turnover – Compare this year’s asset turnover ratio (total sales divided by total assets) to last year’s asset turnover ratio. Score 1 if this year’s asset turnover ratio is greater.
Here are the large cap stocks that have met all of the criteria and had perfect scores:
BlackRock Inc (BLK)
Market Cap: 51.13 billion, P/E: 17.10, Dividend Yield: 2.40%
Business Predictability: 3.5/5, Financial Strength: 5/10, Profitability & Growth: 10/10
BlackRock is the world’s largest publicly traded investment management firm with employees in more than 30 countries who serve clients in over 100 countries across the globe. It provides a broad range of investment and risk management services and had $4.324 trillion of assets under management as of December 31, 2013.
Cannon Inc (CAJ)
Market Cap: 37.35 billion, P/E: 16.30, Dividend Yield: 3.49%
Business Predictability: 1/5, Financial Strength: 8/10, Profitability & Growth: 8/10
Cannon is headquartered in Japan and one of the world’s leading manufacturers of office multifunction devices, plain paper copy machines, laser printers, cameras, and lithography equipment.
Delphi Automotive Plc (DLPH)
Market Cap: 20.53 billion, P/E: 16.80, Dividend Yield: 1.20%
Business Predictability: Not Rated, Financial Strength: 6/10, Profitability & Growth: 7/10
Delphi is a leading global vehicle components manufacturer and provides electrical, powertrain, active safety, and thermal technology solutions to the global automotive and commercial vehicle markets. It is one of the largest vehicle component manufactures, and its customers include all 25 of the largest automotive original equipment manufacturers in the world.
HCA Holdings Inc (HCA)
Market Cap: 24.86 billion, P/E: 16.30, Dividend Yield: N/A
Business Predictability: 2.5/5, Financial Strength: 5/10, Profitability & Growth: 8/10
HCA is one of the leading health care services companies in the United States. As of December 31, 2013, it operated 165 hospitals and 115 freestanding surgery centers located in 20 states and England.
Hewlett-Packard Co (HPQ)
Market Cap: 65.31 billion, P/E: 12.30, Dividend Yield: 1.71%
Business Predictability: 1/5, Financial Strength: 6/10, Profitability & Growth: 8/10
HP is a leading global provider of products, technologies, software, solutions, and services to individual consumers, small and medium-sized businesses, and large enterprises, including customer in the government, health, and education sectors.
International Paper Co (IP)
Market Cap: 21.09 billion, P/E: 22.20, Dividend Yield: 2.80%
Business Predictability: 1/5, Financial Strength: 6/10, Profitability & Growth: 8/10
International Paper is the world’s largest maker of cardboard shipping containers. Earlier this year it agreed to merge its xpedx distribution system with Unisource Worldwide and spin off the new company. The new company will be called Veritiv and is expected to be spun off on July 1.
Occidental Petroleum Corp (OXY)
Market Cap: 80.49 billion, P/E: 13.80, Dividend Yield: 2.70%
Business Predictability: 2.5/5, Financial Strength: 4/10, Profitability & Growth: 9/10
Occidental is engaged in the acquisition, exploration, and development of oil and gas properties in the United States and internationally. It operates in three segments: Oil and Gas; Chemical; and Midstream, Marketing and Other. The company will soon spin off its California assets. The new California company will be the state’s largest natural gas producer and the largest oil and gas producer.
TE Connectivity Ltd (TEL)
Market Cap: 25.32 billion, P/E: 18.10, Dividend Yield: 1.69%
Business Predictability: 1/5, Financial Strength: 8/10, Profitability & Growth: 9/10
TE Connectivity designs and manufactures products to connect power, data, and signal in a broad array of industries including automotive, energy, industrial, broadband communications, consumer devices, healthcare, and aerospace and defense. It helps customers solve their needs for more efficient energy, always-on communications, and ever-increasing productivity. It was a spin off from Tyco in 2007.
Tyco International (TYC)
Market Cap: 21.2 billion, P/E: 28.10, Dividend Yield: 1.45%
Business Predictability: 1/5, Financial Strength: 8/10, Profitability & Growth: 6/10
Tyco is a leading global provider of security products and services, fire detection and suppression products and services and life safety products. In recent years Tyco has been spinning off its non-core businesses. It spun off Covidien and TE Connectivity in 2007 and ADT and Pentair in 2012.
VF Corp (VFC)
Market Cap: 26.68 billion, P/E: 22.40, Dividend Yield: 1.63%
Business Predictability: 3.5/5, Financial Strength: 8/10, Profitability & Growth: 9/10
VF Corp is a worldwide leader in the manufacturing and distribution of branded lifestyle apparel, footwear and related products. Some of their well-known brands include The North Face, Vans, Timberland, Nautica, and 7 For All Mankind.
