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Finding companies that trade for less than their book value – the value of everything they own minus everything they owe – and have fantastic fundamentals is one way to uncover value stock with the potential for huge gains.
We can limit our search for just those stocks trading below book value that high Piotroski F-scores.
The higher the F-score, the more fundamentally sound the company is right now.
A score of 9 is perfect, and a score below 5 indicates deteriorating, potentially dangerous fundamental conditions in the financial statements.
So, the first thing we are going to do is only look at companies with an F-score of 7 or higher.
Then, we will take a look at stocks with large insider or institutional buying of the stock in recent months.
And last, we need to see that smart people who are either running the company or know it inside and out as large investors are buying more of the stock.