Four Magic Formula Picks for a Stretched Market

While there are many that believe today’s stock market is “frothy,” Warren Buffett argues, “measured against interest rates, stocks actually are on the cheap side compared to historic values.” This according to a Nasdaq article by Validea CEO John Reese. Reese weaves this argument into a discussion about the investment strategy he created based on the philosophy of Joel Greenblatt–author of The Little Book that Beats the Market (2005) –that focuses on earnings yield and return-on-capital as the “magic formula” for picking stocks. He identifies four names that earn high marks based on these two metrics (along with their ranking […]

Buffett and 3G Capital Might Like These Picks

 While the private-equity firm 3G Capital and Buffett’s Berkshire Hathaway have teamed up on a few headline deals (such as the acquisition of H.J. Heinz and the subsequent merger of Heinz and Kraft), their investment portfolios look a little different, writes Validea CEO John Reese in a recent article for The Globe and Mail. The Berkshire portfolio is weighted heavily in stocks of consumer goods and companies (including a big bet on Apple), while 3G’s holdings include a substantial portion of energy, basic materials and telecommunication stocks. There are some overlaps, however. By looking at both portfolios, Reese identified some […]

Buffett Says Stocks are Relatively Cheap

Notwithstanding all of the buzz surrounding the “pricey” stock market, legendary investment guru Warren Buffett thinks it’s a still the best place to plant your money. This according to a recent Forbes article by Validea CEO John Reese. According to the article, Buffett believes “we’re not in a bubble territory or anything of the sort,” but Reese presents some opposing views including those of Nobel Laureate Robert Shiller. Describing Joel Greenblatt’s use of earnings yield and return-on-capital as evaluative tools, Reese identifies the following five stock picks that score highly based on his guru criteria: CVS Health (CVS) is an […]

The Trump Victory and the Small-Cap Reversal

While over the past ten years large-cap stocks have outperformed small-caps, the recent election upset caused a rally in the latter and added complexity to the relationship between the two. In a recent Forbes article, Validea CEO John Reese addresses implications related to this shift and offers the following small-cap picks: Sanderson Farms (SAFM) is a producer, processor, marketer and distributor of fresh and frozen chicken (market cap $1.94 billion) that earns high marks for its debt-free balance sheet, growth in earnings-per-share and liquidity. Smith & Wesson Holding (SWHC) manufactures firearms and accessories for the outdoor enthusiast (market cap $1.32 […]

Peter Lynch’s Strategy and PEG Ratio Picks

The legendary manager of Fidelity’s Magellan fund (1977 to 1990) and author of One Up on Wall Street subscribed to the investment philosophy of buying into companies you could understand and then analyzing their fundamentals. One of Lynch’s go-to metrics was the PEG ratio (an indicator of value), which measured the relationship between a stock’s price-earnings ratio and its earnings-per-share growth. In a recent article for TheStreet, Validea CEO John Reese explained his Lynch-based stock screening model and identified some picks that make the grade: Waddell & Reed Financial (WDR) is a mutual fund and asset-management company that earns high […]