Joseph Piotroski, a Stanford accounting professor, developed a set of rules to find companies with strong Liquid Balance Sheets, Profitability, and Operating Efficiency. Professor Piotroski proposed screening for stocks based on a checklist that awards one point for each matched criterion. To learn more about the criteria, view Stock Screen: Piotroski F-Score.

In his famous paper, Professor Piotroski explained that an "investment strategy that buys expected winners and shorts expected losers generates a 23% annual return between 1976 and 1996." I used the finbox.io stock screener to find stocks included in the Russell 1000 index that scored perfectly on Piotroski’s test. There were only 10 companies (or 1%) that passed all nine checks.

10 Stocks that Aced Piotroski’s Test

<img src='http://res.cloudinary.com/finbox/image/upload/v1470065516/Piotroski_Passed_List_pjfbl0.jpg' alt= ‘Perfect Piotroski Score Screen Results’>

View the latest screen results here.

Summary stats of the screen results.

<img src='http://res.cloudinary.com/finbox/image/upload/v1470067412/Winners_Summary_Stats_iczrtu.jpg' alt= ‘Perfect Piotroski Score Screen Summary Results’>

Note that the one-year return for this ten company index (7.3%) slightly beat the S&P 500 over the same period.

6 Stocks that Failed Piotroski’s Test

Using the same screen mentioned above, there were 6 companies that passed fewer than 2 checks.

<img src='http://res.cloudinary.com/finbox/image/upload/v1470065516/Piotroski_Failed_Listed_dnastk.jpg' alt= ‘Failed Piotroski Test Screen Results’>

View the latest screen results here.

Summary stats of the screen results.

<img src='http://res.cloudinary.com/finbox/image/upload/v1470067414/Losers_Summary_Stats_n2e8ce.jpg' alt= ‘Perfect Piotroski Score Screen Summary Results’>

Note that the one-year return for this six company index (-27.7%) is significantly below that of the S&P 500 over the same period.

Piotroski's investment strategy would argue to buy:

And short:

The one-year returns of the stocks above appear to support Piotroski's research. The F-Score is a strategy many investors should consider taking a closer look at.

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This article was written by Matt Hogan.