Today, I want to pit two Magic Formula Investing gun stocks against one another: Smith & Wesson (SWHC) and Sturm Ruger (RGR). What is behind the gun stocks' appearance in MFI? Do they look like attractive investments at current prices? Which of the two is better? Let's put them under the scope.

Boom, Boom, Boom

Like it or not, firearms are woven tightly into American history and culture. The founding fathers found gun ownership so important that they protected it in the second amendment to the U.S. constitution. Some of the world's most famous guns and gunmakers, from the Colt Single Action to the Remington 870 to the M16, have come from America. At about 40% personal ownership and over 300 million guns, the U.S. easily has the most armed citizenship in the world.

Recently, the gun industry has enjoyed record demand, with

Obesity is an epidemic in the United States and the trend has only been getting worse, more than doubling since the 1970's. In 2012, about two-thirds of Americans were considered overweight. This is not limited to the United States, either. In the past two decades, obesity rates across the world have skyrocketed by 82%. Overweight adults and children are at higher risk of developing diabetes, suffering a stroke, or getting heart disease.

Given the staggering growth in the overweight population, along with the associated health risks, the obesity epidemic is now considered a bigger global health crisis than hunger.

Such is the backdrop behind today's Top Buy pick, Weight Watchers (WTW). Weight Watchers is one of the most known and respected brands in the sometimes shady business of weight-loss solutions. Founded in 1963 by homemaker Jean Nidetch, the company has expanded into almost 30 countries and

Revlon (REV) is a familiar name in women's beauty products. The company has an extensive product line of cosmetics, hair color products, beauty tools, deodorants, fragrances, and skincare. Products are sold mainly through the big retailers [Wal-Mart (WMT) contributes 22% of sales], drug and grocery stores. Revlon's well-known brands include the eponymous cosmetics and hair color lines, other cosmetics lines including Almay and Pure Ice, Charlie and Jean Nate fragrances, Mitchum deodorants, and Ultima II and Gatineau skin care products. Revlon is an international company, with 44% of sales originating outside of the United States.

We like consumer products businesses like this. Revlon's products are consumable, reasonably non-discretionary, and purchased over and over again. The company has strong brands, with leading market share in mass retail cosmetics and hair color, which provides a sustainable competitive advantage. Measured international expansion (particularly in South America), new products (such as the recent

Broadridge Financial Solutions (BR) is a provider of services to the financial industry, particularly broker-dealers, mutual fund management firms and publicly reporting companies. The firm has two business units. The first is Investor Communication Services (ICS), by far the larger at 71% of revenues and 73% of earnings. ICS deals largely with the processing and distribution of proxy materials, from paper or electronic delivery to tabulating votes on shareholder actions. This is not the only service though, with other offerings including distributing regulatory reports, corporate event notices, marketing communications, fund prospectuses, account statements, trade confirmations, and so forth.

The second unit is Securities Processing Solutions, or SPS, which was 29% of sales and 27% of earnings in fiscal 2012. SPS consists of an outsourced set of services for trade order execution, confirmation and accounting, as well as tools for aggregating and reporting portfolio data and performance. Using Broadridge allows brokers

Ebix (EBIX) is a recent addition to the Magic Formula® screens. The company sells software and e-commerce systems to the insurance industry. There are 4 product/service groups.

The Exchanges unit contributed 80% of 2012 revenue, up 22% from 2011. Ebix operates insurance exchanges in the life insurance, annuity, health benefits, workers compensation, and property/casualty (P&C) areas. An exchange is basically a marketplace where clients can compare plans and apply for coverage. Ebix earns revenue from insurance providers that pay monthly subscription fees to list their products, and transaction fees for each transaction processed on their exchanges. Additionally, providers may contract Ebix to build custom interfaces from their systems to the exchanges.

Broker Systems was 9% of revenue, up 3%. This business consists of developing and deploying "back-end" systems for P&C brokers in the U.S., Australia, and elsewhere. Business Process Outsourcing (8%, +8%) creates and tracks certificates of insurance

NVIDIA (NVDA) is a designer and seller of graphics chips and mobile processors that power PCs, gaming consoles, smart-phones, tablets, and other electronics devices dependent on running highly detailed, fast graphical applications.

The firm can be broken down into 3 segments. The first is the Graphics Processing Unit, or GPU, business. This includes NVIDIA's GeForce graphics chips and cards for PCs, Tesla graphics for super-computing applications, Quadro for workstations (such as computer-aided design or medical imaging), and the GRID cloud gaming platform. GPUs are NVIDIA's legacy and still the firm's bread-and-butter, accounting for 76% of 2012 sales.

The second is the Tegra line of mobile system-on-a-chip (SoC) processors. Tegra integrates a CPU, GPU, and memory controller onto a single chip. It is used in many mobile devices, including smartphones (like the HTC One X), tablets (Microsoft's Surface RT, Google's Nexus 7,

Wayside Technology Group (WSTG) is a software and hardware reseller. The company operates in two segments. Lifeboat Distribution acts as a distributor, selling technical software to corporate and value-added resellers, systems integrators, and so forth. TechXtend itself is one of those value-added resellers, selling software and hardware directly to corporations, government, and academic institutions. Lifeboat's focus is helping the software vendor build distribution channels, and TechXtend's focus is helping end customers get the software they need for their IT systems.

In the end, Wayside is basically both a warehouser and retailer for business software. The company distributes technical and IT software, not entertainment or productivity. Some examples of its products are for virtualization (like VMware), networking (think Acronis), and database (Microsoft or Oracle), among others. There is a bit of concentration in the end customer base, with Software House, CDW, and Insight all accounting for over 10%

Belo Corp. (BLC) is one of the largest publicly traded, broadcast television operators in the country. The firm owns 20 television stations, and has at least one affiliate for all of the major networks (ABC - 4 affiliates, CBS - 5, NBC - 4, and FOX - 1), as well as 2 CW and MyNetwork TV affiliates. 9 of their stations operate in the top 25 U.S. markets, and in total Belo's stations reach about 14% of households in the U.S. The firm also owns four independent local/regional cable news channels and ownership interest in a fifth. Most stations are concentrated in Texas, Arizona, and the Pacific Northwest.

The broadcast television station business is fairly simple to understand. Local stations secure a channel of bandwidth from the FCC and affiliate with a national network, giving them the ability to broadcast television shows, national news programs, and sporting events from that

Quest Diagnostics (DGX) is the largest independent clinical testing laboratory firm in the U.S., operating 2,000 service locations nationwide. About 65% of sales are generated through routine testing such as blood cholesterol or disease markers. 25% of sales come from esoteric testing, very complex tests involving gene-based or molecular analysis. About 3% of sales comes from performing illegal drug testing for employers, and the remainder comes from the firm's healthcare IT division.

As a prospective investment, Quest has a few really good traits. First of all, this is a stable, relatively predictable business. Unlike putting off that new car purchase or cutting back on eating out, people don't frequently put off necessary medical testing during a recession. Also, Quest operates a duopoly with LabCorp (LH) in the independent lab market, giving it significant doctor recognition and pricing advantages over would-be smaller competitors. Quest's stability is demonstrated through its financials. Revenues

Argan (AGX) is a small holding company with two consolidated subsidiaries. By far the largest is Gemma Power Systems (GPS), which accounted for close to 95% of sales and gross profits for the first 9 months of this fiscal year ending in January. Gemma is involved in the planning, construction, renovation, and maintenance of power production facilities. The smaller subsidiary is Southern Maryland Cable (SMC), at less than 5% of sales and profits. SMC contracts jobs for telecommunications installations, including indoor wiring and equipment installation and outdoor jobs requiring buried cable.

Gemma's specialty is in the engineering and construction (E&C) of natural gas and wind power plants. I believe this is a good place to be going forward. We are in the early innings of a long-term migration to cleaner and safer sources of energy. Natural gas is a cleaner alternative to coal and is in huge abundance in

A lot has been said and written about Apple's (AAPL) Q1 report. My goal is to approach earnings reports and price targets from an objective, fundamental, value perspective, instead of from the emotional and breathless direction so many investors and stock market writers use.

So, first, Q1 was hardly a "bad" quarter. Revenue rose 18% as reported, and when adjusted for weeks (last year had an extra week), revenue was up 27%, about in line with the last few quarters. Gross margins dipped to 38.6%, well below Apple's 40%+ numbers for the past 3 years. This should be little surprise - Apple's markets have grown quite crowded, with many competing devices being sold at cost. So maintaining a decent normalized growth in profits isn't too bad. And let's not forget Apple's absurd $137 billion in cash and debt-free balance sheet, because a lot of "investors" ignore it.

All that

KLA-Tencor (KLAC) is one of the world's biggest semiconductor equipment firms. The company specializes in the process, diagnostic, and control (PDC) segment of the market. In a nutshell, PDC tools are used to find and correct defects in the manufacturing lines of semiconductor factories ("fabs"). Getting a high number of working chips per silicon wafer (yield) is one of the biggest keys to good profitability for semiconductor firms, making KLA's tools extremely important to its customers. The company sells to three primary customer categories: foundries (contract manufacturers like Taiwan Semiconductor (TSM)), logic (integrated chip makers like Intel (INTC)), and memory (commodity memory firms like Micron (MU)).

We like KLA-Tencor's business and positioning very much. PDC is an attractive growth market. In the big picture, the semi market in general continues to enjoy robust growth. Driven by intense demand for electronics everywhere from cars to

The two major hard disk drive (HDD) makers, Seagate (STX) and Western Digital (WDC), have been perennial Magic Formula® Investing (MFI) stocks for years. Good ones, too. Both are up over 55% over the past 5 years, handily outperforming the S&P 500. The past 12 months have been particularly fruitful, with Seagate more than doubling and Western up 40%, easily exceeding the market's 11% return.

Yet, by most valuation metrics, both stocks continue to look very cheap. At $44, Western Digital's P/E ratio is just 5.8, price to free cash flow is 4 times, price to sales is 0.8, and the MFI earnings yield is a very high 25%. The numbers are similar for Seagate at 4.4, 3.9, 0.86, and 24.7%, respectively. Both companies now pay dividends -- Seagate paying a 4.5% yield at 12% of free cash flow, and Western a 2.3% yield at about

Yes, folks, I have read through the entire 350+ plus slide presentation given on Herbalife (HLF) by Bill Ackman at a special Ira Sohn conference yesterday that has caused a 20%+ drop in the stock over the last 2 days. Let me provide some (much briefer) thoughts.

First, Bill Ackman is a hedge fund manager, the founder of Pershing Square Capital. He has disclosed that he holds a short position in Herbalife of over 20 million shares (18% of the float), according to him over $1 billion in value. So this is a BIG bet.

There are a few themes in the presentation. The first and most important is that Ackman believes Herbalife is a "pyramid scheme". The primary argument is that Herbalife distributors make substantially more compensation from recruiting than on retail margin, contrary to the company's claims and running it afoul of the FTC's definition of a

Best Buy (BBY) is the largest U.S. retailer of consumer electronics, with roughly 19% of the domestic and 5% of the global market. In addition to over 1,000 "big box" Best Buy locations in the U.S., the company also has over 400 smaller Best Buy Mobile locations that sell cell phones and other mobile devices. Internationally, Best Buy has about 2,400 smaller locations in Europe, 300 locations in Canada (including the Future Shop brand), and 200 stores in China (mainly the Five Star brand). Best Buy's product categories are: consumer electronics (TVs, digital cameras, etc. - about 31% of sales), computing and mobile phones (laptops, desktops, smartphones, tablets, etc. - 46%), entertainment (gaming consoles, video games, movies and music - 8%), appliances (about 8%), and services (7%).

Once a fast-growing and highly praised retailer, Best Buy has fallen on hard times. Consumer electronics has been one of the

Joel Greenblatt's Magic Formula® Investing (MFI) strategy is a value stock picking mechanism. It looks for stocks with the best combination of a high earnings yield and a high return on tangible capital, creating a simple algorithm to find "great companies at cheap prices".

What it does not consider is growth, a key ingredient to determining if a stock is truly "cheap", or justifiably carries a low multiple of earnings. Wouldn't it be nice to find great, growing companies at cheap prices? The combination of earnings and multiple growth is what can lead to huge stock price advances. One of the greatest but least talked about "super investors" was Shelby Davis, who generated 23% compound annual returns over a 47 year investing career (turning $50k into $900 million!). He looked for exactly the situation we are talking about here, dubbed the "Davis Double Play".

There are several

Today I want to take a short detour off of the usual mission of finding Magic Formula® Investing's best stocks. For some time now, we have offered our own set of similar screens. For the most part, our method has correlated well with the official list. But, due to many potential factors (calculation differences, categorization of certain financials, treatment of foreign stocks, etc.), the screens do bring up different stocks too.

One such stock looks particularly interesting and I wanted to bring it to MFI investors' attention in this article. The stock is Western Union (WU).

Western Union runs a very simple-to-understand business. The company provides money transfer services through a global network of about 510,000 agents in more than 200 countries and territories. The sender goes to a Western Union agent (be it a partner bank, 3rd party retail location like Wal-Mart, online, whatever) and chooses

Northern Tier Energy (NTI) is a smaller, regional integrated energy company located in the Minnesota area. The firm has 3 businesses which fit together nicely.

The largest business by far (over 90% of revenue) is refining. The company owns and operates the St. Paul Park Refinery in St. Paul, Minnesota. With a capacity of 74,000 bpd, it is considered a "mid-size" refinery.

The second business is equity ownership in two pipelines. NTI has a 17% interest in theMinnesota Pipeline, a 455,000 bpd system that transports crude from Western Canada and North Dakota to a hub in Clearbrook, Minnesota, and then to the St. Paul Park Refinery. Historically, a vast majority of Northern's crude has come via this pipeline. In June, NTI also announced that they had entered a second agreement to take an equity interest in the High Prarie Pipeline, a 150,000 bpd system to transport crude from McKenzie County,

Syntroleum (SYNM) is a fuel technology company. The company has developed 3 technologies:

Syntroleum®: The process of converting natural gas stock into Fischer-Tropsch (FT) wax. FT has a variety of industrial uses, including in the rubber, cosmetics, ink, and coatings industries. Additionally, FT wax is used as a feed product for...

Synfining®: The Synfining process is used to convert FT wax into synthetic diesel, naphtha, and liquefied petroleum gases (LPG - think propane or butane).

Bio-Synfining®: A process used to convert biomass such as recycled vegetable cooking oil (e.g., from restaurants), animal waste fats, soybean and algal oil, etc., to synthetic diesel, naphtha, and LPGs.

I believe the best way to think of Syntroleum is as an intellectual property (IP) development firm. The business model is to license the above technologies to partners that wish to construct plants to produce synthetic fuels, earning an

Collector's Universe (CLCT) provides authentication and grading services for rare and modern coins, trading cards, and autographed memorabilia. The company's experts examine and assign a grade to items ("PCGS" for coins, "PSA" for trading cards, and "PSA/DNA" for autographs). This grade allows the item to be sold or auctioned with its authenticity and quality assured by professional and respected experts - allowing even on-line, "site unseen" transactions to be executed with confidence. In return, Collector's Universe receives a fee for their services. In 2012, the average fee per item was $11.64, although fees can range from $5 to $600 depending on the type of item and the turnaround time required by the customer.

Last year, roughly 60% of CLCT's graded items were coins, 30% were trading cards (mostly baseball cards), and 10% were autographed memorabilia. Coins alone account for 66% of revenue.

The company has handled some pretty cool