This Quicken article provides excellent insight on stock selection and valuation from one of the world's great investors, Warren Buffett.

There is a quick test that can be used to judge not only the economic attractiveness of a business but how well management has accomplished its goal of creating shareholder value. If a company has been able to achieve above average returns on retained earnings, that success will be reflected in an increased stock price. In Buffett's quick test, the increase should, at the very least, match the amount of retained earnings, dollar for dollar.