By J. Royden Ward, Cabot Benjamin Graham Value Letter

Benjamin Graham has been recognized for decades as the father of value investing. Warren Buffett was a student of Graham at Columbia University and later worked for him for several years.

Here, I combined the criteria of both men for choosing stocks. Over the past seven years, my Graham-Buffett picks have risen 55.7% versus 10.3% for the S&P500. I believe these high-quality stocks sell at sensible prices, offer reasonable appreciation potential and provide solid dividends. I am confident they will fare very well during the next six months.

I looked for stocks with these eight characteristics:

•  Free cash flow of more than $20 million
•  Net profit margin of more than 15%
•  Return on equity of more than 15%
•  Discounted cash flow value higher than current price
•  Market capitalization of more than $1 billion
•  Standard & Poor's rating of B+ or better
•  Positive earnings growth during the past five years with no deficits
•  Dividends currently paid

Established in 1850, American Express (AXP) is a leading global payments and travel services company. Beginning in 1994, the company divested its ancillary businesses (including Lehman Brothers) to focus on credit cards and travel services.

International revenues make up a large part of AmEx's business. Increasing card member spending and higher travel commissions spurred rapid growth during the past two years. Sales and earnings declined in 2008 and 2009, but rebounded to record levels in 2011.

The company's strong balance sheet and low customer defaults helped the company weather the recent recession. I forecast sales and earnings growth of 8% in 2012, although a stronger than expected global economy could push results higher.

AXP shares are undervalued at 12.7 times current earnings per share (EPS) and offer a dividend yield of 1.4%. I advise buying AXP at or below my maximum buy price of $51.05. Buffett's Berkshire Hathaway (BRK.A) owns 13% of AXP. The shares are low risk.

Deere & Co. (DE) is the world's largest maker of farm tractors and combines and a leading producer of construction and forestry equipment.

Sales increased 21% and EPS jumped 35% during the last 12 months, boosted by an increased need for food in third-world countries.

In addition, profits from high crop prices enabled farmers to replace old equipment with new Deere equipment. Finally, sales of highly profitable used equipment remained robust in 2011.

Continuing higher requirements for food, especially in faster growing, undeveloped countries, will drive sales of farm equipment higher in 2012 and 2013.

At 11.8 times current EPS and with a dividend yield of 2.2%, DE shares are undervalued. Buy at or below $81.87. DE is low risk.

Schlumberger Ltd. (SLB) is the world's leading supplier of technology, integrated project management and information solutions to the oil and gas industry around the globe.

Advanced technology has become increasingly important, as existing oilfields mature and new oilfields are developed in harsh environments and challenging geological conditions.

Sales and earnings rebounded sharply in 2011 with sales surging 44% and EPS up 30%. I expect the growth to continue in 2012 with sales expected to rise 18% and EPS up 34%.

A 10% increase in the number of drilling rigs in 2012 spurred by high oil demand will require many of Schlumberger's products and services.

SLB shares are selling at a deep discount to our maximum buy price of $81.28. SLB sells at 21 times current EPS with a dividend yield of 1.5%.

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