John Reese selects stocks based on the strategies of some of the stock market's most legendary long-term investors. Monster Beverage (MNST) is a buy in the model portfolio of his Validea newsletter based on the contrarian investing strategy of the legendary investor David Dreman.

Monster develops, markets, sells and distributes energy drink beverages, sodas and/or concentrates for energy drink beverages.

Under the Dreman strategy, a company should show a rising trend in the reported earnings for the most recent quarters. The firm's earnings per share (EPS) for the past 2 quarters, (from earliest to most recent quarter) 0.43, 0.48 have been increasing, and therefore the company passes this test.

Only medium to large-sized companies (the largest 1500 companies) should be chosen, because they are more in the public eye. Further, the investor is exposed to less risk of "accounting gimmickry", and companies of this size have more staying power. MNST passes the test.

This methodology likes to see companies with an EPS growth rate higher than the S&P in the immediate past and a likelihood that this trend will continue in the near future.

Monster passes this test as its EPS growth rate over the past 6 months (0.00%) has beaten that of the S&P (-8.20%). Its estimated EPS growth for the current year is (18.18%), which indicates the company is expected to experience positive earnings growth.

This methodology also looks for pre-tax profit margins of at least 8%, and considers anything over 22% to be phenomenal. Monster's pre-tax profit margin is 33.97%, thus passing this criterion.

The company must have a low debt/equity ratio, which indicates a strong balance sheet. Monster Beverage's total debt/equity of 0.02% is considered acceptable.

The company should have a high ROE, as this helps to ensure that there are no structural flaws in the company. This methodology feels that the ROE should be greater than the top one-third of ROE from among the top 1500 large cap stocks, which is 17.57%. The strategy would consider anything over 27% to be staggering. The ROE for the company of 27.47% is high enough to pass this criterion.

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