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Cheap or Distressed? How the Undervalued Screens Work — and Why We Added a Solvency Check

A note on authorship: The research, analysis, and opinions in this article are the author's own. Claude (Anthropic's AI) assisted with drafting and editing the prose.

The Most Undervalued screens rank nearly 1,900 stocks across six markets by how far a conservative valuation model says they should be trading above their current price. But "cheap" and "safe" are not the same claim. A stock can trade well below its estimated fair value for two very different reasons: the market has genuinely mispriced it, or the market has correctly priced in a real risk of financial distress that a pure valuation model never looks for. On 17 September 2026 we shipped a change built to tell those two apart — the screens' margin-of-safety cap moved from 80% to 100%, and a new Solvency Floor now excludes any stock with a confirmed Altman Z-Score in the bankruptcy-risk Distress Zone. This is what changed, why, and — in full — how the screen decides what makes the list.

The short version:

  • A stock now has to clear six rules, not four — the same base-case valuation engine as before, plus a new Solvency Floor.
  • The margin-of-safety cap rose from 80% to 100% — a wider band of genuinely undervalued stocks now qualifies.
  • The new Solvency Floor excludes any stock with a confirmed Altman Z-Score in the Distress Zone (below 1.81) — a bankruptcy-risk check, not a valuation.
  • Banks, insurers, asset managers, and REITs are exempted from the Solvency Floor — the Altman Z-Score's ratios don't fit their balance sheets.
  • It runs roughly weekly, across all six screens: ASX 300, S&P 500, NIFTY 500, KOSPI 200, Nikkei 225, and Europe.
  • It remains a purely quantitative screen, not advice — a starting point for research.

The same engine, run across an entire market

There's no separate model behind the screen. Each company is run through the same base-case calculation as the public DCF Valuation tool: a five-year cash-flow projection, a terminal growth assumption, and a discount rate built from live market data. Banks and insurers, where discounted cash flow breaks down, are valued with a Dividend Discount Model instead — or, for lenders that retain most of their earnings rather than paying them out, an Excess Return Model. Because it's the same code path as the tool, the screen can never quietly disagree with what you'd see typing the ticker in yourself. (If you're new to the method itself, the companion guide — How to Value a Stock: DCF and the Dividend Discount Model — covers the discount rate and assumptions in more depth than this piece does.)

The six rules a stock must clear

To appear on any of the six lists, a company has to pass every one of these, in order. Most of a given market fails at the very first rule.

Why the cap moved from 80% to 100%

An 80% ceiling sounds like a reasonable line against cyclically-inflated valuations, but in practice it was also cutting off real, non-inflated bargains that simply landed on the wrong side of an arbitrary number. This week's live ASX 300 list makes the case concretely: its two most undervalued names are New Hope Corporation (NHC.AX) at an 86.0% margin of safety and Deterra Royalties (DRR.AX) at 84.9% — both of which the old 80% cap would have excluded outright. Neither appears here because the rule got looser for its own sake; they're here because the rule now more accurately separates "very undervalued" from "implausibly undervalued." The same story shows up in Korea: this week's top-ranked KOSPI stock, F&F Co. (383220.KS), sits at a 98.5% margin — a month ago it wouldn't have appeared on the list at all.

Raising the cap doesn't mean "anything goes." 100% is still a real ceiling, and it still does real work: this week alone, 15 ASX 300 stocks and 22 KOSPI 200 stocks were excluded for exceeding even the wider cap — margins so large they almost certainly reflect distorted, not discounted, cash flow.

The Solvency Floor: why cheap isn't always safe

The backstory: an internal audit of the screens found that 20 to 30% of top-ranked stocks across the S&P 500 and ASX lists were scoring in the Altman Z-Score's Distress Zone — a real bankruptcy-risk signal — despite being flagged as undervalued. That finding exposed a gap in what the screen had only ever really asked. "Is this stock cheap relative to its own projected cash flows?" and "Is this company financially sound?" are genuinely separate questions, and a five-year DCF projection has no mechanism for catching the second one — it happily extrapolates a distressed company's most recent cash flows forward as if the balance sheet underneath them weren't deteriorating.

The Altman Z-Score closes that gap. Developed by NYU professor Edward Altman in 1968, it combines five ratios — covering liquidity, profitability, leverage, solvency, and asset efficiency — into one weighted number, then bands the result: below 1.81 is the Distress Zone, 1.81 to 2.99 is a Grey Zone, above 2.99 is Safe. The new Solvency Floor rule is narrow and deliberate: it excludes a stock only when its Z-Score is a confirmed Distress Zone reading. A missing score — which is the case for banks, insurers, asset managers, and REITs, whose balance sheets the underlying ratios simply don't fit, or for any company without enough fiscal-year history to compute one — is treated as "not applicable," never as a fail. The floor is meant to catch a specific, measurable risk, not to penalise companies the formula was never built to score.

Each screen's table also shows a second, independent number: the Piotroski F-Score, a 9-point checklist of whether a company's profitability, leverage, and efficiency improved year over year. It's genuinely useful context sitting right next to the Z-Score column — but it is display-only. It doesn't gate the list. Stacking a second, overlapping quality filter directly on top of a valuation ranking risked making the screen harder to reason about for a marginal gain in strictness, so for now only the Altman Z-Score actually removes a stock.

What changed in this week's real numbers

Both changes shipped 17 September 2026 and were live for the first time on the following weekly refresh. Three markets' numbers, as published:

In all three markets, roughly one in five of the names that would otherwise have ranked among the most undervalued this week were carrying a confirmed distress signal. That's the floor doing real, measurable work — not a symbolic rule that rarely fires.

What this isn't

A Z-Score above 1.81 is not a guarantee. It's a snapshot of financial soundness across five ratios at a single point in time, built from historical financial data that may be delayed or incomplete — not a forecast, and not a claim that a company can't run into trouble tomorrow. The screens remain purely quantitative in every other respect too: they don't read news, assess management quality, weigh competitive position, or account for litigation or regulatory risk. A stock can clear all six rules, Solvency Floor included, and still be sitting on a problem the numbers simply haven't caught up to yet — which is exactly why this is a starting point for research, not a verdict.

The same six rules now run on all six Most Undervalued screens — the ASX 300, the S&P 500, the NIFTY 500, the KOSPI 200, the Nikkei 225, and the Europe screen — so you can see exactly how each week's list was built, whichever market you follow.

Updated weekly · free See this week's list → Most Undervalued S&P 500 Free glossary guide The full Altman Z-Score formula, zones, and a worked example →
This article is general information only and does not constitute financial advice. The Most Undervalued screens and the Solvency Check are automated, assumption-driven outputs produced from historical financial data that may be delayed or incomplete. They are not a recommendation to buy, sell, or hold any security, and both valuation models and the Altman Z-Score are highly sensitive to their inputs and can be wrong. Individual investment decisions depend on your financial situation, risk tolerance, timeline, and objectives. We recommend consulting a licensed financial adviser before making investment decisions.