Are you hoping to pick stocks with the same success as Warren Buffett? Then it makes sense to use the same investment criteria he does when evaluating companies. Fortunately, there are decades of research analyzing Buffett’s patient, disciplined approach.
John Reese, CEO of Validea Capital Management, drew on all that research to build a computer stock screen that allows him to emulate Buffett’s investment style. Since its 2003 inception, Reese’s 10-stock Buffett portfolio has produced an annualized return of 7.9% versus 7.1% for the S&P 500 stock index. His Buffett screen has more than a dozen criteria, but here are the main ones…
Predictable growth and profitability. Buffett likes to see companies with business models that generate strong cash flow and with stable annual earnings over 10 years, although he allows for occasional minor dips.
Manageable debt. Companies that have the ability to pay back their debt with two years’ worth of annual earnings.
Long-term advantages over competitors such as patented technologies…a trusted brand name and/or the ability to be the lowest-cost provider in their industry. Buffett refers to these advantages as “moats” because they protect a company’s profits and market share.
Skilled management. Buffett likes CEOs who can produce a return on equity (ROE) greater than 15% annualized over 10 years. ROE captures how much profit companies can generate from the money invested by shareholders.
The 10 top stocks from Reese’s Buffett screen as of May 1, 2023…
Landstar System (LSTR). Logistics provider for domestic trucking transportation. Recent share price: $178.51.
LPL Financial Holdings (LPLA). Independent broker-dealer for more than 14,000 financial advisors. Recent share price: $211.43.
Lululemon Athletica (LULU). Yogawear retailer. Recent share price: $384.99.
Medifast (MED). Nutrition and weight-loss company. Recent share price: $90.57.
Robert Half International (RHI). Global staffing and business consulting firm. Recent share price: $73.16.
Taiwan Semiconductor Manufacturing Co. (TSM). World’s largest dedicated semiconductor chip foundry. Recent share price: $83.98.
Texas Instruments (TXN). Analog semiconductor chip manufacturer. Recent share price: $166.68.
Tractor Supply Co. (TSCO). Nationwide retail farm and ranch store operator. Recent share price: $238.95.
Williams-Sonoma (WSM). Retail company selling kitchenware and home furnishings. Recent share price: $118.56.
W.W. Grainger (GWW). Distributor of industrial and safety supplies. Recent share price: $695.96.