Q3 2009 Earnings Call

November 03, 2009; 10:00 am ET

Bullish Calls:

Bank of America (BAC): "Bank of America's come down way too much."

Though we have seen the markets rise over the last few months, and many investors/traders calling for a market correction somewhere near here, these four companies have been passing on profits through dividends to shareholders while growing their businesses.

These stocks still look cheap by their EV/EBITDA ratio of under 6 and low P/E multiples under 10.

When you see cash flow, you've got to buy it.

I read that statement in an interview with a money manager in Barron's last week and it stuck with me. So this sentiment provides the theme behind this week's stock screen, which emphasizes free cash flow (FCF). Here were the specific criteria I used for the screen on the Morningstar site:

Every so often, MagicDiligence compiles a list of Magic Formula stocks sorted by their dividend yield, price-to-sales ratio, and price-to-book ratio for investors that like to use those metrics. The result is a list of attractive value stocks for additional research. Here are the top 10 in each of the three metrics listed above:

Dividend Yield

At the end of each trading week, our market direction radar scans the Hillbent 3000 universe (minimun average daily volume of 100k and largest 3000 market capitalization stocks) for the top 3 and bottom 3 sectors based upon aggregate performance and analyzes their winners and losers.

Using this weekly sector report on a regular basis allows Hillbent.com’s readers to efficiently monitor sector rotations and investor sentiment biases.

From Lehman Brother's collapse on September 15th, 2008, until March 9th of this year, the S&P 500 and stocks in general were in a massive free fall seldom witnessed in the market's history. The SPY S&P 500 ETF (SPY) closed at 68.11 on that day, its lowest point since September of 1996! Since then, the market has rebounded strongly, and SPY is up an impressive 46%, closing last Friday at 95.08. Consumer confidence has improved, housing is showing signs of stabilization, banks are again reporting profits, and overall the worst appears to be behind us.

Nearly all investors have performed well, but Magic Formula investors in particular have really benefited, especially those that focus on small cap picks. This makes sense, of course. Small cap, value based stocks are the best performing class of stocks over the history of the market. The inherent volatility in small cap stocks provides investors ample opportunity to buy them at a discount, and in market downturns these stocks get significantly cheaper than the perceived "safer" large-cap companies. Of course, a low stock price more than mitigates these "risks", in many cases.

Regular readers of my blog know I place a premium on cash yields on my portfolio. But this emphasis on dividends has gotten me into trouble in the past. Yes, I'll say it: "My name is Davy Bui and I am a recovering yield pig."

My past experiences with stocks like American Capital (ACAS) and Penn West Energy Trust (PWE) have led me to focus more keenly on the sustainability of a dividend and not let the high yield blind me to problem areas. Also, following up on my last post on the market's prospects going forward, prudent, long-term investors may want to consider building a portfolio of reliable dividend plays to generate return if we suffer through a prolonged down or sideways market. As such, my latest screen honed on these stocks using the following criteria:

2008 was an absolutely horrid year for stock investing. The S&P 500 was down nearly 40%. Even value stock strategies were pummeled, including the Magic Formula strategy. So it is intriguing that the American Association of Individual Investors found only one stock strategy that actually showed positive returns for 2008 - the Piotroski method.

Joseph Piotroski is an former accounting professor at the University of Chicago, and an active value-based investor. He noticed when reviewing stocks with very low price-to-book value that many of them were in poor financial shape, unlikely to survive and deserving of their low valuation. Piotroski set out to devise a system to take these low price-to-book stock lists and mechanically filter out the ones that were unlikely to survive and prosper, leaving a number of potentially attractive investment opportunities.

Q1 2009 Earnings Call

May 5, 2009 10:00 am ET

Every so often, MagicDiligence compiles a list of Magic Formula stocks sorted by their dividend yield, price-to-sales ratio, and price-to-book ratio for investors that like to use those metrics. The result is a list of attractive value stocks for additional research. Here are the top 10 in each of the three metrics listed above:

Dividend Yield

Every so often, MagicDiligence compiles a list of Magic Formula stocks sorted by their dividend yield, price-to-sales ratio, and price-to-book ratio for investors that like to use those metrics. The result is a list of attractive value stocks for additional research. Here are the top 10 in each of the three metrics listed above:

Dividend Yield

Q4 2008 Earnings Call

February 10, 2009 10:00 AM ET

Market timing gets little respect

The Income Bargains Screen

At the end of each week, our market direction radar scans the Hillbent 3000 universe (minimum average daily volume of 100k and largest 3000 market capitalization stocks) for the top 3 and bottom 3 sectors based upon aggregate performance and analyzes their winners and losers.

Using this weekly sector report on a regular basis allows Hillbent.com’s readers to efficiently monitor sector rotations and investor sentiment biases.

Over the past several weeks, MagicDiligence has been ranking stocks on two of the Magic Formula Investing screens by several well known value and momentum statistics that have been shown to outperform the market in James O'Shaughnessy's book What Works on Wall Street. For those that missed them:

• Highest Dividend Yield
• Best 1-year Relative Strength
• Lowest Price-to-Sales Ratio
• Lowest Price-to-Book Ratio

For the final article in this vein, we're going to combine all of the rankings into a cumulative chart, a quantitative measure of the most undervalued stocks on the MFI screen. The methodology here is simple. All of the stocks in the two MagicDiligence MFI screens, the top 100 over 50 million and the top 50 over 2 billion, were first ranked 1-130 (there were 20 stocks on both screens) in each category. For example, the stock with the lowest price-to-sales ratio gets 1 point, while the highest price-to-sales ratio received 130 points. Then this procedure was duplicated for dividend yield, relative strength (1-year performance), and price-to-book ratio. When a number of stocks held the same value, the ranking assigned was the same number to all matching stocks (for example, all non-dividend paying stocks earned a rank of 55). A cumulative score was achieved by adding the 4 rankings together. The goal is to find the stocks that ranked the highest on average across all statistics.

This is the Third Quarter 2008 edition of our ongoing hedge fund tracking series. Before reading this update, make sure you check out the preface to the series we're doing on Hedge Fund 13F's here. We've already covered:

• Timothy Barakett's Atticus Capital
• Whitney Tilson's T2 Partners
• Peter Thiel's Clarium Capital
• Bill Ackman's Pershing Square
• Bret Barakett's Tremblant Capital
• John Paulson's Paulson & Co
• David Einhorn's Greenlight Capital
• Dan Loeb's Third Point
• Paul Tudor Jones' Tudor Investment Corp.
• Louis Bacon's Moore Capital Management

Next up is Bruce Kovner's Caxton Associates. The $10 billion firm is one of many global macro oriented funds which we cover. This is a switch from some of the more value oriented funds we've been covering, like the 'Tiger Cub' funds including Stephen Mandel's Lone Pine Capital, Lee Ainslie's Maverick Capital, John Griffin's Blue Ridge Capital, and Andreas Halvorsen's Viking Global.

Q3 2008 Earnings Call Transcript

November 4, 2008 10:00 am ET

Wall Street has its share of axioms. Two fairly well known ones are "the trend is your friend", and "winners keep winning". Both of these are applicable to momentum based investing, a field of technical analysis. However, the Magic Formula Investing screen is strictly a quality at low prices strategy, a decidedly value based approach.

However, we've applied alternate statistics to the MagicDiligence universe of stocks before. For the record, that's two Magic Formula Investing screens: the top 100 stocks over 50 million market cap, and the top 50 over 2 billion market cap. But we want to make sure that these alternate statistics have been proven to add value in choosing stocks. After all, there is little reason to list all Magic Formula stocks with a 4-letter ticker if that filter has not been shown to add value in the form of better returns!