3 Great Traits, 1 Monster Stock

Of all the great performances during the recent NCAA basketball tournament, it's hard to believe that only seven players in history have scored a triple-double in tourney action. The super seven are: David Cain, Gary Grant, Magic Johnson, Andre Miller, Shaquille O'Neal, Oscar Robertson, and Dwyane Wade.

Maybe I shouldn't be surprised. A single player contributing 10 or more anything -- let alone three anythings -- in one game (40 minutes!) is a great accomplishment.

Triple-double stocks
Value investor extraordinaire Warren Buffett recommends buying great businesses at good prices to generate great returns. So when picking stocks, there are three players that I like to see hit double-digits:

1. Sales growth
2. Returns on invested capital (ROIC)
3. Price declines from 52-week highs

Like the elusive triple-double in basketball, coordinating these three can be difficult. But as I'm about to demonstrate, it can be oh-so rewarding.

Here are some triple-doubles from 2002.

Double-digit growth
For a business to approach the triple-double range, it all starts with sales growth greater than 10% per year.

All of the companies listed in the table above averaged more than 10% sales growth per year in 2002. Apollo Group (the for-profit higher education provider), Teva (the generic pharmaceutical company), St. Jude (the cardiovascular medical device maker) led the way with average growth greater than 20%.

But value investors want more than just strong sales growth. We demand that growing companies actually create value along the way. That's why we want to make sure their returns are greater than their cost of capital.

Double-digit returns
As I said before, we want a company's sales to add value. And all of the companies listed above generated double-digit returns. That means they invested their shareholders' capital wisely. Whether that capital went to opening new campuses, building new plants, developing new products, or opening new stores, it created value -- plain and simple.

Along the way to creating value, managers improved operations as gross margins and operating margins increased. As a result, ROIC got an extra boost from those operating improvements. And to me, ROIC is a key measure. Over the long run, the market is a voting machine that rewards the companies that generate the highest returns.

Double-digit price declines
Unfortunately, the stock market likes companies that generate high returns, which usually means that great companies are rarely on sale. We need to be able to grab the rebounds of the stock market's misses.

Paying high prices for companies is usually not the best way to generate great returns. That's why we want to look for stocks that are at least 10% off their 52-week highs. Looking back at the chart, retailers Lowe's and Staples saw the biggest drops to their 2002 lows. And despite having the lowest growth rate, Staples was the best performing stock in the group over that time period.

As Warren Buffett loves to say, "Price is what you pay. Value is what you get." In other words, the bigger the bargain, the better the returns.

The Foolish bottom line
The market rewarded our triple-double examples handsomely during the past three years as returns averaged more than 20% annually. That's why Inside Value lead analyst Philip Durell is always on the prowl.

In fact, Philip recommended home-improvement retailer Home Depot (NYSE:HD) after the market soured on it last year and despite the company's continued attempts to grow while improving operations.

To see his other triple-double candidates, Philip invites you to be his guest at the Inside Value service free for 30-days. Once there, you'll have complete access to all of Philip's recommendations and the IV online community. Now that's a great value!

Fool David Meier does not own shares in any of the companies mentioned. The Motley Fool has a disclosure policy.