Triple-Crown Investment Winners

 | Aug 24, 2012 | 7:00 AM EDT  | Comments
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seb

When one's the charm, three can be glorious. This applies to my guru strategies. I developed these for my website Validea.com several years ago and they are the basis for how I choose stocks to recommend.

Rather than reinvent the wheel by trying to create a great investment strategy, I automated a series of strategies, each based on how well known Wall Street gurus invest. My pantheon of gurus includes Warren Buffett, Peter Lynch, Benjamin Graham and David Dreman.

When one strategy gives a stock a high mark, it is worth writing about, which I do here every week. But this week I will tell you about two stocks that each earn high grades from three strategies.

TJX (TJX) operates more than 2,900 off-price stores under the names of T.J. Maxx, Marshall's, Winners and HomeGoods, among others. My Peter Lynch-based strategy likes TJX's P/E/G ratio, which is price-to-earnings relative to growth. Its P/E/G is 0.95, just below the 1.0 maximum allowed.

My Warren Buffett-modeled strategy likes the company's modest amount of debt, predictable EPS that has increased in each of the past 10 years and a return on equity that averaged 37.7% during the past decade. In addition, this strategy predicts that the investor can expect to earn a solid annual rate of return of 17.1%.

Also impressed by TJX's performance and prospects is my strategy that mirrors James P. O'Shaughnessy's investment approach. It likes the company's large market cap, consistent increase in EPS, solid price-to-sales ratio and excellent relative strength (which is a measure of how well a stock has performed in the past year relative to the overall market). When you take all the variables together from these three strategies, TJX clearly comes across as a strong investment opportunity.

Another winner is Seaboard (SEB), which is involved primarily in the agribusiness sector. It owns or has interests in Butterball turkeys, a commodity trading business, a biodiesel facility, a flourmill in Colombia and a bacon processor among other operations. It also has a containerized shipping service that operates between the U.S. and Central and South America, as well as owning a power generating company in the Dominican Republic.

My Lynch strategy is likes the company's very strong P/E/G of 0.55, while my Benjamin Graham strategy likes its impressive current ratio of 3.17:1 (a measure of liquidity), strong long-term growth history and modest P/E of 11.3. The strategy I base on Kenneth Fisher's writings recommends Seaboard because of its notable price-to-sales ratio of 0.46 (0.75 is the maximum allowed) and long-term EPS growth rate of 17.34%. Like TJX, Seaboard scores well by a variety of variables. TJX and Seaboard are not just winners, they are triple-crown winners.

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