Guru Strategy Shows Confidence in Three Firms

 | Jul 19, 2013 | 10:00 AM EDT  | Comments
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Among today's fund managers, David Herro, manager of Oakmark International I (OAKIX), is among the most respected. There is  good reason for that respect -- his fund's performance speaks for itself.

Morningstar gives the fund its highest five-star rating. It also places the fund in the foreign large blend category, where it is impressive performer. Year-to-date, the category is up 7.27% vs. Oakmark's 16.48%. In the past year, the category gained 22.59%, while Oakmark rocketed up by 46.62%. During the past five years, the category eked out a 0.74% annual gain, while Oakmark enjoyed an 11.56% gain.

You get the idea.  Herro is a savvy, effective manager. I recently watched an interview with him on Bloomberg, and was impressed with his take regarding emerging markets. He believes many companies from emerging markets are not great bargains today, but he likes companies based in advanced economies that do a lot of business in the emerging-market world. Where a company is headquartered is not as important as where it does business, its growth and its free cash flow, he notes.

I looked at the Oakmark International 1's holdings, and found three companies that earn approvals from my guru strategies. These are computerized strategies I created based on the writings of some of Wall Street's best thinkers.

One of these thinkers is James P. O'Shaughnessy. His strategy is to first run a stock through four tests. These include market cap, which must be in excess of $1 billion; cash flow per share, which has to be greater than the mean of the market's cash flow per share (which, currently, is $1.40); more shares outstanding than the market average (which is 616 million) and trailing 12-month sales that are at least 1.5 times greater than the market's mean (which is $20.7 billion). If a stock gets over all of these hurdles, it is put to the last test, which is being in the top 50 stocks based on having the highest dividend yield.

Canon (CAJ), the Japanese camera, copier and printer company, earns a perfect score from the O'Shaughnessy strategy, with a dividend yield of 4.4%. German automaker Daimler (DDAIF) is another O'Shaughnessy strategy favorite, with a 4.28% yield. Both of these companies are performing well and provide good yields.

Thomson Reuters (TRI), a leading information provider, whose services are widely used by investors, traders, attorneys, the media and others, earns the respect of my Peter Lynch-based strategy. This strategy focuses on the price-to-earnings relative to growth ratio -- that is a measure of how much the investor is paying for growth. A P/E/G of up to 1.0 is acceptable. Thomson Reuters's yield-adjusted P/E/G is an acceptable 0.85, based on the average of its three, four and five year historical earnings per share growth rates. A reasonable amount of debt is also in its favor.

Herro has his money in these three companies. That is a strong recommendation. Add to this the support of my guru strategies, and you have three investment opportunities that earn a strong vote of confidence.

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