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MagicDiligence researches and recommends the most attractive value stock investing opportunities from Joel Greenblatt's Magic Formula Investing and similar screens. We use fundamental (and some technical) analysis to find equities of great companies with growth potential, outstanding management,... More
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  • Magic Formula Investing Weekly Roundup 1/6/2013

    Magic Formula Investing (NASDAQ:MFI), as described by hedge fund manager Joel Greenblatt inThe Little Book that Beats the Market, consists of ranking stocks by earnings yield (cheap) and return on capital (quality), adding the rankings together, and buying from the resulting lists. Below are stocks that have moved into, and dropped out of, 3 of the MFI screens used by MagicDiligence:

    Entering the 50 over 50 million screen:

    Pitney Bowes Inc. (NYSE:PBI)

    Dropping out of the 50 over 50 million screen:

    Digimarc Corp (NASDAQ:DMRC)

    Entering the 50 over 1 billion screen:

    Abbott Laboratories (NYSE:ABT)
    Hewlett-Packard Co (NYSE:HPQ)
    Myriad Genetics Inc (NASDAQ:MYGN)
    Valassis Communications Inc. (NYSE:VCI)

    Dropping out of the 50 over 1 billion screen:

    CVR Energy Inc (NYSE:CVI)
    Lockheed Martin Corp (NYSE:LMT)
    Tempur-Pedic International Inc. (NYSE:TPX)
    Ubiquiti Networks Inc (NASDAQ:UBNT)

    Entering the 30 over 3 billion screen:

    Abbott Laboratories (ABT)
    Hewlett-Packard Co (HPQ)
    Warner Chilcott Plc (NASDAQ:WCRX)

    Dropping out of the 30 over 3 billion screen:

    Fluor Corp. (NYSE:FLR)
    Gannett Co Inc. (NYSE:GCI)
    McKesson Corp (NYSE:MCK)

    Jan 06 9:42 AM | Link | Comment!
  • The 5 Worst Magic Formula Stocks Of 2012

    As promised in the 2012 review article, we'll recap the 5 individual best and worst performing stocks of Magic Formula® Investing (NASDAQ:MFI) in 2012, along with some comments on each. The idea here is to try and identify any trends or lessons we can take from these individual stocks and apply to picking stocks from the screen going forward.

    We already covered the 5 best performers. In this article, we'll cover the 5 worst performing stocks of MFI in 2012. With no further ado...

    5) Career Education (NASDAQ:CECO) - 71% loss from week 8

    For-profit education stocks were pummeled in 2012, as new Department of Educationregulations, a tidal wave of bad press, and persistant unemployment drove down new enrollments by over 20% at many operators. Career Education has been hit harder than most, with most recent quarter new student starts down by 23%.

    4) Amtech Systems (NASDAQ:ASYS) - 72% loss from week 6

    Amtech manufactures capital equipment for the production of solar wafers. We've discussedthe factors behind the solar industry's apocalypse in 2012, and Amtech suffered accordingly, with revenues cut in 1/3rd from 2011 levels. Amtech still carries a debt-free balance sheet, and solar still has good growth potential over the long term. It might make an interesting (but risky) bounce-back play in 2013.

    3) FriendFinder Networks (FFN) - down 74% from week 8

    When FriendFinder showed up in MFI back in February, MagicDiligence warned members to avoid it. That turned out to be a fruitful opinion - the stock lost 74% of its value since then! An awful balance sheet combined with a highly scrutinized business and questionable motives for taking the firm public made this one of the worst MFI stocks I've ever seen.

    2) ITT Education (NYSE:ESI) - down 77% from week 7

    Despite a nearly 80% decline on the year, ITT continues to be in the MFI screens, as its financials have not deteriorated as rapidly as the stock price. We discussed for-profit education a few paragraphs up - for ITT's most recent quarter, new student starts were down 16%. With a stratospheric 73% earnings yield and a manageable balance sheet, this looks like another potential bounce-back candidate going forward.

    1) Sino Clean Energy (OTC:SCEI) - down 95% from week 10

    Most Chinese reverse take-over frauds were uncovered and removed from MFI in late 2011, but Sino slipped through the cracks. This whole situation was a huge black eye not just on MFI, but on the ability of the SEC to protect U.S. investors from massive, fraudulent operations overseas.

    Lessons Learned

    By the start of 2012, we had pretty good evidence that Chinese RTO stocks were to be avoided like the plague, so SCEI never entered MagicDiligence's radar. And even the greenest stock analyst would have found FriendFinder to be an awful pick.

    That leaves us with the 2 for-profit education stocks and Amtech. These guys have one thing in common: government intervention. This has been a recurring theme. In 2011, home healthcare stocks suffered the same fate. I've been giving extra scrutiny to the possibility of government intervention in the businesses of potential picks as a result. The real ones to watch are companies that rely on government entitlements or grants to thrive - I'm less worried about firms that supply core government operational support like defense or civil services.

    Jan 04 9:47 AM | Link | Comment!
  • The 5 Best Performing Magic Formula Stocks Of 2012

    As promised in the 2012 review article, we'll recap the 5 individual best and worst performing stocks of Magic Formula® Investing (NASDAQ:MFI) in 2012, along with some comments on each. The idea here is to try and identify any trends or lessons we can take from these individual stocks and apply to picking stocks from the screen going forward.

    In this article, we'll cover the 5 best performing stocks of MFI in 2012. With no further ado...

    5) LML Payment Systems (NYSEARCA:LMLP) - 98% gain from week 24

    In our review, we pegged LML worth about $3 a share, about where it was trading at the time. Subsequently, the stock fell to under $2 before receiving a buyout bid from Digital River (NASDAQ:DRIV) for $3.45/share, leading to this big gain. Buyout deals are a tremendous catalyst for big MFI gains, particularly for small cap stocks. The lesson here? Always carry some small caps in your MFI portfolio!

    4) Expedia (NASDAQ:EXPE) - 108% gain from week 2

    Expedia delivered over 100% gains in 2012, as travel volume boomed and Expedia continued to take share in the online travel market, delivering outstanding results for each quarter of the year. The company has always been one of the top dogs (along with Priceline (NASDAQ:PCLN)) in online travel, a secularly growing industry. The lesson? You can usually do well by picking the lead players in growing markets from MFI, especially where there are significant barriers to entry (in this case, a network effect).

    3) Osiris Therapeutics (NASDAQ:OSIR) - 110% gain from week 16

    Trading in the mid-$4 range for much of the first half of the year, Osiris took off on several news items in the May-July period where it won reimbursement for its stem cell based wound care matrix Grafix, along with initial approvals for Prochymal. It is not unusual to have small, early stage pharmaceutical companies from MFI do both very well and very poorly every year. The lesson? Don't be afraid to pick a few of these from the screens, but don't expect to be able to predict how they will do, either!

    2) Cray (NASDAQ:CRAY) - 151% gain from week 2

    Cray had an unbelievable year. The company sold its interconnect business to Intel (NASDAQ:INTC), netting $140 million in cash (over half the firm's market cap at the time!) and a closer relationship with a key partner. Then a steady stream of deals culminated in the acquisition of Appro, a key competitor, in November. The lesson? Cray has always been a leader in a very niche market where competition is limited and barriers to entry are significant. This is a nice profile to look for in MFI stocks.

    1) Acadia Pharmaceuticals (NASDAQ:ACAD) - 317% gain from week 1

    Trading in the high $1 range for most of the year, Acadia's rise is due to a single event:successful Phase III results from their lead Parkinson's drug, Pimavanserin, which more than doubled the stock price on November 27. This was a rather unexpected development (see our write-up through the above link), but the lesson here is similar to Osiris - don't be afraid to carry a few dev-stage pharmaceuticals, but if you are going to pick them, pick several and keep individual positions fairly small.

    Disclosure: Steve owns no stocks referenced here.

    Jan 02 10:22 AM | Link | Comment!
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