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Warren Buffett, chairman of Berkshire Hathaway Inc. (© Kim Kyung Hoon / Reuters/REUTERS)
Warren Buffett, chairman of Berkshire Hathaway Inc. (© Kim Kyung Hoon / Reuters/REUTERS)

Number Cruncher

Nine-stock portfolio inspired by Buffett, Lynch: Still crushing the market Add to ...

What are we looking for?

In January, 2012, we ran a screen that combined the stock-picking strategies of investing legends Peter Lynch and Warren Buffett. The portfolio we created went on to crush the market, prompting several readers to ask us to run the screen again.

The good news is that we did that. The bad news is that it returned just three results, which we’ll share in a moment.

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Before we do that, though, let’s recap the methodology and get an update on how the original nine-stock portfolio is faring.

The screen

We used the “guru stock screener” from Validea Canada. (Globe Investor has a joint venture with Validea.ca, a premium Canadian stock screen service.) Specifically, we searched for Canadian stocks that met the criteria of both the “P/E Growth Investor” screen, which is based on Mr. Lynch’s strategy, and the “Patient Investor” screen, which emulates the stock-picking methods of Mr. Buffett.

The methodology

The P/E Growth Investor screen looks for stocks with a low PEG ratio, among other criteria. The PEG, which Mr. Lynch used when he was managing the highly successful Fidelity Magellan Fund until his retirement in 1990, takes the P/E ratio and divides it by the earnings growth rate. Generally, the lower the PEG, the more attractive a stock is from a valuation standpoint.

The Patient Investor screen chooses stocks with solid earnings growth and low price-to-earnings ratios, among other factors.

In our original portfolio, nine Canadian stocks met both sets of criteria. We set up a hypothetical $90,000 portfolio with equal $10,000 investments in each of those nine stocks.

The results

From the portfolio’s inception date on Jan. 18, 2012, through March 20, 2013, eight of the nine stocks rose, with several producing substantial double-digit gains. As was the case in our last update in January, convenience store operator Alimentation Couche-Tard led the pack, up 75.8 per cent, followed by quick-service restaurant franchisor MTY Food Group, ahead by 65.5 per cent.

Over all, the portfolio posted an advance of 23.6 per cent, excluding dividends. That trounced the S&P/TSX composite index, which rose 4 per cent over the same period, also excluding dividends.

 

The latest screen

We ran the screen again on March 20. The fact that we got just three results suggests that the market may be getting a bit expensive. Interestingly, all three stocks that made the cut this time around were also on the original list. They are: National Bank of Canada, Home Capital Group and Computer Modelling Group.

Remember that a stock screen is just a first step in the investing process. Be sure to research individual companies thoroughly before you invest.

Follow on Twitter: @johnheinzl

 

Validea Canada Guru Stock Screen: Jan. 18, 2012 to March 20, 2013

Company Ticker # Units/
Shares
Price $
Alimentation Couche-Tard ATD.B-T 327.33 53.71
BMTC Group GBT.A-T 554.02 13.95
Bank of Nova Scotia BNS-T 190.26 59.54
Bird Construction Inc. BDT-T 769.23 13.60
Computer Modelling Group CMG-T 630.92 20.88
Home Capital Group HCG-T 195.73 57.22
MTY Food Group MTY-T 657.9 25.16
National Bank of Canada NA-T 135.23 76.28
Saputo Inc. SAP-T 252.14 50.99
Total

Prices as of March 20. Percentage changes from Jan. 18, 2012. Source: Globeinvestor.com, Validea.ca

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  • ATD.B-T
  • GBT.A-T
  • BNS-T
  • BDT-T
  • CMG-T
  • HCG-T
  • MTY-T
  • NA-T
  • SAP-T
Live Discussion of ATD.B on StockTwits
More Discussion on ATD.B-T
Live Discussion of GBT.A on StockTwits
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Live Discussion of BNS on StockTwits
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Live Discussion of BDT on StockTwits
More Discussion on BDT-T
Live Discussion of CMG on StockTwits
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Live Discussion of HCG on StockTwits
More Discussion on HCG-T
Live Discussion of MTY on StockTwits
More Discussion on MTY-T
Live Discussion of NA on StockTwits
More Discussion on NA-T
Live Discussion of SAP on StockTwits
More Discussion on SAP-T

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