Fundamental-Based Investing and Five Stock Picks

In a recent Forbes article, Validea CEO John Reese outlined the investments commandments of sixteenth-century billionaire Jakob Fugger and drew similarities with the present-day tenets of Warren Buffett:

  • Invest when others fear: Similar to Buffett’s penchant for buying when there is “blood on the street and value in the market,” writes Reese.
  • Be indispensable: Reese compares this to Buffett and Berkshire Hathaway’s position as a lender of last resort for many companies over the years.
  • Know the facts and numbers: Buffett is a voracious reader who keeps up to date on industry and sector trends as well as the details of company financials.
  • Keep cool: Harkens to Buffett’s stance against emotional investing.

Reese identifies five stocks that earn high marks from screening models he created based on some of modern history’s most successful investors:

  • Masimo (MASI) is a medical technology company that develops non-invasive patient monitoring technologies. The company is favored for its earnings predictability and average return-on-equity as well as free cash flow-per-share.
  • Sherwin-Williams (SHW) develops, manufactures, distributes and sells paint, coatings and related products, and earns high marks for it stable and expanding earnings-per-share as well as its ability to pay off debt with earnings within two years.
  • NetEase (NTES) operates an interactive online community in China and scores well based on ten-year average earnings-per-share growth and management’s use of retained earnings.
  • Gilead Sciences (GILD) is a research-based biopharmaceutical company that discovers, develops and commercializes medicines in areas of unmet medical need. The company has initiated share buybacks over the past five years, evidence that management has been using excess capital to increase shareholder value.
  • National Beverage (FIZZ) develops, produces, markets and sells a diverse portfolio of flavored beverage products. The company is favored for its stock’s price performance as well as free cash flow-per-share and management’s use of retained earnings.