Tuesday 27 July 2010

Stock Picking Strategies of various Gurus

Stock Picking for Noobs

June 11, 2007 20076 12:06 pm | In Finanducation | Comments Off
Who best to learn but from the gurus themselves? Here's a brief list of gurus and their strategies:
1. Benjamin Graham – Value Investing Guru
Strategy: Buy shares at price well below company's intrinsic value!
Indicators:
  • P/E < 15 for average earnings over last 3 fiscal years (or current P/E whichever is higher)
  • No financial/technology stocks
  • Annual Revenue > $340 million
  • Liquidity: Current Assets/Current Liabilites > 2
  • Industrial companies: Long-term debt < Net current assets
  • EPS increases > 30% over 10-year period, must not be negative within last 5 years.
  • (Price-to-book ratio)*(P/E) < 22
Source: NASDAQKiplingerForbes
2. Peter Lynch – P/E Growth Guru
Strategy: Divide attractive stocks into different categories.
Indicators:
a. Fast Growers:
  • Little debt, Debt to Equity Ratio < =1
  • Annual EPS Growth Rate = 20 to 30
  • Current P/E < = 1.75*Annual EPS Growth
b. Slow Growers:
  • High dividend payouts
  • Sales > $1 billion
  • Low yield-adjusted PEG ratio
  • Reasonable debt-to-equity ratio
c. Stalwarts:
  • Moderate earnings growth
  • Potential for 30-50% stock price gains over 2 year period if bought at attractive prices
  • Positive earnings
  • Debt-to-Equity ratio < 0.33
  • Sales rates increasing inline with, or ahead of inventories
  • Low yield-adjusted PEG ratio
3. Martin Zweig – Conservative Growth Investor
Strategy: To be fully invested in the market when the indications are positive and to sell stocks when indications become negative.
Indicators:
  • Quarterly earnings positive and growing faster than:
  • –1 year ago
  • –last 3 quarters
  • –last 3 years
  • Sales growing as fast or faster than earnings
  • P/E > 5; BUT P/E < 3*Market P/E or 43, whichever is lower
  • No high level of debt, below-average for industry
4. Brothers David and Tom Gardner of Motley Fool – Small-Cap Growth Investor
Strategy: Search for stocks of small, fast-growing companies with solid fundamentals.
Indicators:
  • Health profit margins
  • Little debt
  • Ample cash flow
  • Respectable R&D budgets
  • Tight inventory congtrols
Source: NASDAQ
5. Kenneth Fisher – Price-to-Sales Investor
Strategy: The lower a company's stock price is relative to its sales, the more attractive its stock is.
Indicators:
  • Strong balance sheet with little debt
  • Low Price-to-sales ratios
Source: NASDAQ
6. David Dreman – Contrarian
Strategy: Search for deep-discount value stocks.
Indicators:
  • Good earnings growth
  • Low P/E
  • Low P/B Ratio
  • Low Price-to-Cashflow Ratio
Source: NASDAQInvestopedia
7. James P. O'Shaughnessy – Growth/Value Investor
Strategy: 2 investment strategies: "Cornerstone Growth" and "Cornerstone Value"
Indicators:
a. Cornerstone Growth
  • Market value > $150 million
  • Price-to-sales ratio < 1.5
  • Persistent earnings growth, among market's best performers over prior 12 months
b. Cornerstone Value
  • Market cap > $1 billion
  • Revenue > 50% greater than mean of market's 12 month sales
  • Cashflow per share > average publicly-traded company
  • Yield Factor: Company which has highest dividend yield from 50 shortlisted using above criteria.
Source: NASDAQForbes

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