Given that Dell is currently in the midst of heated dispute over whether to take the company private, this is probably a company you should avoid. Second, some companies are not really investable at this point, or at least shouldn’t be. (Of course, both have also beaten the S&P by a healthy margin over the past five years, so duration of time on the list is not necessarily a bad thing.) Microsoft and Lorillard have both been regular fixtures on the Magic Formula screen for several years. First, cheap companies-even those with high returns on capital-can stay cheap for a long time. Health and nutritionals company Abbott Labs (ABT)-a Sizemore Capital holding-also made the cut, as did Big Tobacco firm Lorillard and defense giant Northrop Grumman. In addition to the three I already noted, video game maker Activision Blizzard, enterprise IT solutions companies CACI (CACI) and Unisys Corporation (UIS), semiconductor maker Cirrus Logic, computer manufacturer Dell, cyber security firm SAIC and hard drive manufacturer Seagate Technologies (STX) made the screen.
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Technology companies make up a full third of the screen.
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But it fits the Magic Formula criteria, and the price seems to have a fairly hard floor just below $400.Īpple’s old PC nemesis Microsoft also made the list, as did Cisco Systems -both of which I own in my dividend-focused portfolios. Could the stock have further to fall? Absolutely.
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But Apple is cheap enough-and profitable enough-to make the cut.Īfter spending most of the fourth quarter of last year in free fall, Apple has traded in a range of 400-450 for most of this year. It’s a strange world in which the second-largest company in the world by market cap appears in a value stock screen with a strong bias towards small caps. I ran a screen of for the top 30 Magic Formula stocks with market caps over $1 billion, and here are the results:Ī few names jump off the list, like former market darling Apple. So with all of this said, let’s take a peek at which stocks make the Magic Formula cut as of July. It’s usually a bad idea to try to catch the proverbial falling knife all else equal, I like to see a stock in the early stages of a new uptrend. And while I am not a big fan of technical analysis and charting, I do take a quick look at a chart to see what the stock price is doing. I like to see which sectors are overweighted on the screen.
But I prefer to use Greenblatt’s screener as a starting point for ideas. Independent back tests have generally come up with smaller returns, though the general consensus is that the Magic Formula does indeed beat the market, even after taxes and transactions costs are taken into effect.įor the casual investor, Greenblatt recommends buying a portfolio of 20-30 Magic Formula stocks, holding for one year, and then re-running the process annually. By Greenblatt’s analysis, the Magic Formula generates annual returns in excess of 30% per year.
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