Tags: Reese | Lynch | Buffett | Middleby

Forbes' Reese: Peter Lynch Would Like Foot Locker, Buffett Would Like Middleby

By    |   Tuesday, 26 May 2015 09:00 AM

Individual investors could do worse than to follow the investment strategies of Peter Lynch and Warren Buffett, two of the most successful investors in history.

Forbes contributor John Reese offers stocks that conform to each man's investing style.

He chooses Foot Locker as a Lynch-style stock, largely because its annual earnings-per-share growth rate for the past three-, four- and five-year periods averages 41 percent.

"My Lynch-based model loves that high growth rate and likes Foot Locker's 17.8 price-earnings ratio," Reese writes. "Lynch famously created the P/E-to-Growth (PEG) ratio to identify attractively valued growth stocks, and we get a stellar 0.43 PEG ratio" for Foot Locker.

For Buffett-based investing, Reese selects Middleby, a commercial cooking equipment manufacturer. The company's growth soared from 1998 to 2002, and its stock was one of the top performers of the 2000s.

"Growth has slowed, of course, but it's still strong, 26 percent [annually when averaging over three-, four- and five-year periods], and my Buffett-based model is high on the mid-cap," Rees writes. During the last 10 years, earnings-per-share has slipped just once, with a 23 percent return on equity.

As for stocks in general, while the six-year bull market rolls on, with major indexes hitting record highs this week, many experts see trouble brewing.

"We have been expecting the market break out to new highs, but the rally has been a lot less exciting than we hoped for," Andrew Adams, chief market technician at Raymond James, told MarketWatch.

"What this tells us is that it's a traders' market — people are making very short-term bets and are staying away from big long positions, because valuations are high."

The S&P 500 carried a price-earnings ratio of 21.47 as of May 15, up from 18.04 a year earlier, according to Birinyi Associates.

The breadth of the market's recent rise has been unimpressive, Adams notes. For example, only about 50 percent of NYSE stocks hit new peaks Monday. And trading volume is thin, slumping to its second lowest reading of the year that day.

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Individual investors could do worse than to follow the investment strategies of Peter Lynch and Warren Buffett, two of the most successful investors in history.
Reese, Lynch, Buffett, Middleby
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2015-00-26
Tuesday, 26 May 2015 09:00 AM
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