01/20/2015 7:00 am EST


John Reese

Founder and CEO, And Validea Capital Management

In his Validea newsletter, financial expert John Reese analyzes the investment strategies of the stock market's most legendary investors. His top conservative pick for the coming year scores highly on his Warren Buffett-based screen.

Kellogg (K) is a Michigan-based food giant which counts among its well-known brands and products the likes of Rice Krispies, Cheez-It, Keebler, Eggo, and Pringles.

Those brands give the company the sort of durable competitive advantage—evidenced by its exceptional 43.2% return on equity over the past decade—that my Warren Buffett-inspired model loves to see.

The strategy also likes that Kellogg has upped earnings per share in all but one year of the past decade and has a reasonable level of debt—$6 billion versus $1.7 billion in annual earnings.

My Joel Greenblatt-based model also likes Kellogg. Greenblatt's remarkably simple approach looks at just two variables: earnings yield (EBIT/enterprise value) and return on capital (EBIT/tangible capital employed).

In addition, Kellogg has a stellar 75% return on capital and a very reasonable 9% earnings yield.

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