If you could earn an obscene 50% annual return on your money, you could turn $10,000 into $1 million in just over 11 years. Poppycock? Well, Warren Buffett once famously boasted he could do it -- provided he had less money.
That’s because his $35 billion cash hoard limits his options to a few large companies, like multinational banker Wells Fargo
But since we don’t share Buffett’s restriction, I used our new CAPS screening tool to apply Buffett’s investing strategy to small- and mid-cap stocks. We're looking for companies whose strong profitability and growth indicate the presence of a big economic moat. Below are five companies with returns on equity above 15%.
They also have:
- Market caps between $600 million and $5 billion.
- Trailing-three-year EPS growth rate above 10%.
- Price-to-earnings multiple below 20.
- Five-star ratings, the highest possible, from our CAPS community.
Since we began tracking the collective intelligence of our CAPS investment community in November 2006, five-star companies have outperformed, with an average annualized gain of more than 12%.
|
Company |
Sector |
Price-to-Earnings |
3-Year EPS Growth |
Return on Equity |
|---|---|---|---|---|
|
Atwood Oceanics |
Basic Materials |
15.4 |
82% |
24% |
|
Tata Motors |
Consumer Goods |
9.1 |
23% |
20% |
|
Terex |
Industrial Goods |
7.3 |
37% |
27% |
|
Titanium Metals |
Basic Materials |
10.1 |
18% |
17% |
|
Unit |
Basic Materials |
9.3 |
20% |
20% |
Data from Motley Fool CAPS as of Aug. 17, 2008.
Of course, finding great stocks doesn’t end with running a screen. A little due diligence will go a long way in your quest to be better than Buffett.
So come and join us on Motley Fool CAPS to let the collective wisdom of our 115,000-strong (and growing!) CAPS community help you make your investment decisions.
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