Our Ranking
Financial Strength Ranked Companies
In the first two entries in this series, we looked at Quality Ranked companies and Earnings Growth Ranked companies. Today, we are going to look at another of our concept-based ranks: Financial Strength.
Our Financial Strength Rank combines our Quality Rank with several Value related ratios that help rank the company based upon earnings valuation (e.g., Price/Earnings), sales valuation (e.g., Price/Sales), free cash flow (e.g., FCF/Enterprise Value), and asset valuation (e.g., Price/Book), among others.
Based upon this, below are a selection of companies from our database that are ranked Financially Strong with a rank above 90 and a history of strong bear market performance plus those ranked Financially Weak with a rank below 60 and a history of weak bear market performance.
| Financials | Company Name | Financial Strength Rating | 3-yr Avg Return |
|---|---|---|---|
|
Strong Financials |
Dollar General Corp |
90.4 |
32% |
|
Strong Financials |
Barrick Gold Corp |
98.5 |
24% |
|
Strong Financials |
Intel Corp |
91.5 |
2% |
|
Strong Financials |
Kirkland Lake Gold Ltd |
97.6 |
33% |
|
Strong Financials |
Mercury General Corp |
98.1 |
14% |
|
Strong Financials |
Newmont Corp |
98.2 |
26% |
|
Strong Financials |
Progressive Corp |
95.9 |
20% |
|
Strong Financials |
Southern Copper Corp |
95.6 |
16% |
|
Strong Financials |
UnitedHealth Group Inc |
93.5 |
20% |
|
Weak Financials |
Alaska Air Group Inc |
48.2 |
6% |
|
Weak Financials |
Bank of America Corp |
42.3 |
15% |
|
Weak Financials |
Chevron Corp |
40.8 |
-1% |
|
Weak Financials |
General Electric Co |
41.3 |
1% |
|
Weak Financials |
Intuitive Surgical Inc |
54.8 |
20% |
|
Weak Financials |
Palo Alto Networks Inc |
35.2 |
20% |
|
Weak Financials |
Phillips 66 |
58.2 |
-6% |
|
Weak Financials |
Raytheon Technologies Corp |
56.3 |
2% |
|
Weak Financials |
Splunk Inc |
30.7 |
2% |
|
Weak Financials |
Truist Financial Corp |
58.4 |
8% |
|
Weak Financials |
Wells Fargo & Co |
58.2 |
-2% |
|
Weak Financials |
Exxon Mobil Corp |
58.3 |
-5% |
A review of the chart above will indicate that the companies ranked as having Strong Financials performed better on average over the past three years than those ranked as having Weak Financials. So, lets look at the scatter graph for a visual analysis:
Looking at the graph, it is easy to conclude that the companies ranked with Strong Financials have out-performed those with Weak Financials on average over the past three years.
Why Is This Important Now?
In the first entry in this series, I mentioned that the Federal Reserve had begun to discuss tightening monetary policy, an event that has in the past led to stock market corrections and sometimes full bear markets. Given their recent statements, it is prudent to know how companies will perform when there is not a significant stimulus pushing their stock prices higher.
Investment Strategy
In the normal course of portfolio management during this period in time where we have been warned that monetary tightening is in the plans, we want to book the gains on the companies that show the least ability to withstand a bear market and focus on the companies that have the best ability to withstand a bear market. We do not want to see the gains we have made be lost by not monetizing them when the market tells us it is time.
What’s Next?
In Part Four of this series, we will look at our Fundamental Rank to see what it tells us that will be useful in managing portfolios to prepare for a correction or bear market at some point in the future.
-Mark
