Picking stocks with help from the gurus

What are we looking for?

One of the problems with pursuing a specific investing strategy - even one supported by the proven successes of one of the most revered investing minds on the Street - is that it rarely works best in all circumstances.

Depending on the market conditions, it may be more profitable to be a growth investor, in others a value investor. In some cases, it might work to be a momentum investor, in others a contrarian investor. And stocks that fit well with one successful strategy might be a poor fit in another.

But what if you could hedge your strategy bets - play multiple strategies at once? That way, even if one approach to the market is stumbling, your portfolio might still have strength in an alternative approach.

The folks at Validea Canada have an online tool that aims to do just that.

Validea - guru-tested stocks

Validea, a U.S.-based stock research firm, has been running a by-subscription website for years offering a range of stock screens that emulate the investing strategies of some of the top Wall Street gurus of all time - including the likes of Benjamin Graham, Warren Buffett and Peter Lynch. (It tracks a dozen guru strategies altogether.) Last fall, in partnership with Globe Investor, Validea launched a Canadian service (validea.ca) that allows investors to apply these same guru screens to the Canadian stock market.

One of the tools on this site allows users to screen for stocks that meet the criteria of multiple guru strategies. In the screen we ran for today's column, we looked for stocks that were at least an 80-per-cent match of the criteria of at least four guru strategies tracked by Validea.

What did we find?

Ten TSX-listed stocks showed either "strong" (more than 90 per cent) or "some" (80 to 90 per cent) alignment with the strategies of four or more gurus. Topping the list is grocery and drugstore retailer Metro Inc.

Metro scored highest on the "growth/value" stock-picking criteria of James O'Shaughnessy, head of O'Shaughnessy Asset Management. His approach looks for companies with low price-to-sales ratios and a strong track record for earnings growth and share-price appreciation. It also scored highly on the strategies of Mr. Lynch (who focuses on the relationship between a stock's price-to-earnings ratio and its earnings growth, in other words the PEG ratio) and Joel Greenblatt (who focuses on earnings yield, a figure similar to price-to-earnings). Not far behind were its readings on Mr. Buffett's "patient investor" philosophy and John Neff's "low P/E" approach.

Note that there are certainly overlaps in these strategies; all are variations on a theme of a stock that is at a good price and has a track record for growth. But each of the screens approaches this a bit differently. This may not necessarily identify stocks that will hold up well across a range of market circumstances, but it does confirm stocks that hold up well across a broad range of time-tested measures.