How Peter Lynch picks stocks
Growth + yield vs P/E
Who he is
Peter Lynch ran Fidelity’s Magellan fund from 1977 to 1990, one of the best long records of any fund manager, and wrote “One Up on Wall Street”. He made a simple idea famous: compare how fast a company grows with how much you pay for its profits.
The idea in plain words
Add the growth rate to the dividend yield and divide by the P/E. Lynch’s rule of thumb: under 1 is poor, about 1.5 is fine, 2 or more is what you look for. Our screen asks for at least 1.5, and for growth that is real: revenue and profit both rising for five years.
This week’s example · first week of November 2026
ITUB4Itaú Unibanco
BankPeter Lynch asked for a score of 1.5. Itaú, Brazil's largest private bank, scores 2.9: profit up 18.9% a year for five years, a 7.5% yield and a P/E of 9.1.
Lynch ratio2.9(Growth + yield) ÷ P/E. 1.5 passes; 2 or more is what Lynch looked for
Profit growth, 5-yr CAGR18.9%Profit grew about 18.9% a year over 5 years
Dividend yield, last 12 months7.5%Cash paid in the last 12 months, as a share of the price
P/E9.1The price equals about 9.1 years of current profit
Our formula, step by step
- Revenue and profit both growing at least 10% a year over five years; profit growth above 40% a year is treated as a one-off jump and left out.
- Profitable every year, ROE of at least 12%, net debt no more than 0.8× equity (non-financial companies).
- Growth is counted up to 25%.
- (Growth + dividend yield) ÷ P/E of at least 1.5.
- The pick is the highest ratio.
Rules for all four legends
- One company per legend per week, in the order Barsi → Bazin → Buffett → Lynch.
- A company picked in the last 4 weeks is skipped.
- Stocks with a P/E under 3 are excluded.
- Dividends are the dividends and JCP the company actually paid each year (CVM filings), before tax, per share at today's share count.