What names are being turned up by Greenblatt's Magic Formula?


Joel Greenblatt's screen looks to find stocks with high "earnings yield" - a high ratio of profits to enterprise value. Companies are further screened for a strong return on capital. When a stock scores well with both criteria, it's usually a good company being undervalued by investors.

For picking individual stocks, there are probably better methods, but as a group, Magic Formula names have vastly outperformed the broad market.

Although defense names have done well over the past couple of years, the Magic Formula continues to identify Northrop Grumman (NOC +0.2%), General Dynamics (GD +1.4%), and Raytheon (RTN +0.6%) as attractive. Firearm names Smith & Wesson (SWHC +0.8%) and Sturm Ruger (RGR +0.3%) also make the cut.

A number of videogame makers show up as well: Take-Two (TTWO +0.3%), Activision Blizzard (ATVI +0.2%), GameStop (GME +2.8%), and the struggling recent IPO King Digital (KING -0.3%).

Not too surprisingly, the Magic Formula also continues to like plenty of big-cap tech names: Cisco (CSCO -0.2%), CA, Inc. (CA -0.5%), Microsoft (MSFT -0.5%), Hewlett-Packard (HPQ -0.5%), and Apple (AAPL +0.1%).

Hardly market laggards, media names like Time Warner (TWX -0.8%), Viacom (VIA +1.4%), Omnicom Group (OMC), and Starz (STRZA +2.3%) also show up on the list, as do struggling multi-level marketers and for-profit education stocks: HLF, NUS, APOL, ESI, CPLA.

Punished by investors for not being as hot as they once were, Coach (COH +0.2%), Francesca' Holdings (FRAN +0.1%), and Gap (GPS -1.3%) are Magic Formula picks today.

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Comments (8)
  • Contrarian Research
    , contributor
    Comments (178) | Send Message
     
    I regularly visit magicformulainvesting and think the best idea in that entire list not mentioned here is a company called Ebix (EBIX). It has a wide moat and is still substantially undervalued.
    2 May 2014, 02:20 PM Reply Like
  • newnnly
    , contributor
    Comments (388) | Send Message
     
    Yes (EBIX) is a great company and after we get news clearing the accounting business this stock is going to pop.
    2 May 2014, 06:54 PM Reply Like
  • bryan.g.forsyth
    , contributor
    Comments (797) | Send Message
     
    bought at 17.50 a month or so ago and will just hold til the end of days. only a very small portion of my portfolio, so im willing to just sit and see what happens.
    12 May 2014, 09:53 AM Reply Like
  • Dmaddron
    , contributor
    Comments (18) | Send Message
     
    ROIC should be a residual not the first metric to screen upon. First find strong durable business models with sustainable top line revenue growth.
    2 May 2014, 04:48 PM Reply Like
  • ultraz2
    , contributor
    Comments (1066) | Send Message
     
    Apple's magic formula early June 2014 $777 $111 post split. Congratulations are in order for Brian White.
    2 May 2014, 06:29 PM Reply Like
  • Babcockk11
    , contributor
    Comments (14) | Send Message
     
    AAPL has been my choice for the best possible chance for an early retirement for me. I've read all the articles, but have experienced the growth the last 3 years. Bought below 300-1000 shares, sold several times to recoup profits. Who says Bonds need to be part of your portfolio. Oh yes, the experts who sell Annunities. Give me a break.
    3 May 2014, 11:08 AM Reply Like
  • Carefullnvestor
    , contributor
    Comments (15) | Send Message
     
    After RFMD run up from $5 to $8.65; now on May 2, 2014 Ford Equity Research upgraded RF MICRO DEVICES INC (RFMD) from SELL to BUY. What a joke.
    4 May 2014, 05:25 PM Reply Like
  • HumbleViking
    , contributor
    Comments (10) | Send Message
     
    Ford ratings done by software, no wetware involved. Ignore them.
    16 Jun 2014, 08:43 AM Reply Like
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