I use computerized strategies based on the writings of Wall Street's best-known gurus to choose stocks, and 2012 produced several strategies that performed particularly well. The strategies of Benjamin Graham, Warren Buffet and Kenneth Fisher posted returns of 33.8%, 15.1% and 15.1%, respectively, in 2012. By comparison, the S&P 500 returned 13.4% for the year. Of course, there's no guarantee that these strategies will be big winners in 2013, but they are certainly worth paying attention to.
My Graham-based strategy highlights Dolby Laboratories (DLB), which creates audio, image and voice technologies for the entertainment industry. The strategy focuses on Coach's more than $900 million in annual sales, current ratio of 6.19, zero debt and modest price-to-earnings ratio of 12.2. The company's management is financially conservative, which the Graham strategy also favors.
The strategy based on Warren Buffett's approach to investing points to Coach (COH), best known for its leather goods, including handbags and belts. It has more than 800 stores in the U.S., Canada and Asia, as well as boutiques in department stores and specialty retailers. The Buffett strategy focuses on Coach's strong brand name, which gives it a competitive advantage, earnings per share that have increased in nine of the past 10 years, lack of debt and a projected average rate of return to investors of 20.7% over the next 10 years. Coach is a strong performer with a solid market niche.
The Ken Fisher strategy pulled up Ascena Retail Group (ASNA), parent of Lane Bryant, Justice and other retailers that cater to women and tweens. The strategy considers Ascena a "super stock" because its price-to-sales ratio is a very attractive 0.70 and its debt is modest. In addition, the company's inflation-adjusted EPS growth rate exceeds 15%, while its three-year average net profit margin is greater than 5%. These factors are strong reasons to like this stock.
All three strategies were strong performers last year, and have been for many years. So when they recommend a stock, pay attention.