Focus on the Cold, Hard Facts & Fundamentals

While the importance of numbers in finance may seem painfully obvious, it’s not unusual to hear people discuss markets and investments in terms of opinion and hearsay. In a recent article for TheStreet, Validea CEO John Reese warns that buying stocks on a “hunch” amounts to guessing. Instead, he advocates evaluating buying opportunities based on underlying business fundamentals, the focus of his guru-inspired investment strategies.

Among the data points central to these strategies are: debt, price-to-book ratio, return-on-equity and relative strength. Reese offers five stock picks that score well based on these metrics:

  • Polaris Industries (PII) manufactures off-road vehicles and gets high marks under the Warren Buffett-inspired model based on consistently strong return-on-equity (10-year average of 44.1%) and return-on-total capital (which includes debt) of 33.0%.
  • LG Display (LPL), a manufacturer of thin-film transistor liquid crystal display, scores well under the James O’Shaughnessy-based model due to its price-sales ratio of 0.39 (well under the max of 1.5).
  • Helmerich & Payne (HP) in engaged in contract drilling of oil and gas wells and gets a thumb’s up from the Benjamin Graham-based strategy based on fairness of price (determined by multiplying the price-book ratio and the price-earnings ratio).
  • Syntel (SYNT), a global provider of information technology, scores well under the Buffett-based screen due in part to the company’s solid return-on-total capital (23.4%) which is well above the model minimum of 12%.
  • Natural Health Trends (NHTC) is a direct-selling and e-commerce company offering personal care, wellness and quality-of-life products. The O’Shaughnessy investment model likes the company’s price-sales ratio of 1.20 (based on trailing 12-month sales) and the stock’s relative strength of 73.


Buffets Quality - Abstract 728x90