Introduction
Magic Formula Stocks have a track-record of beating the market over time. When Greenblatt wrote about the magic formula investing process, he recommended going for stocks above $50 million in market capitalization. At VSG we run our screens with the minimum market cap at $30 million. Other than this, this screen exactly follows Greenblatt's magic formula.
Screen Details
This screen looks for large cap stocks over $5 billion in market capitalization with highest earnings yield and return on capital, as modified by Joel Greenblatt:
- Avoid Financials and Utilities
- Avoid ADRs
- Greenblatt Earnings Yield, pick from the highest
- Greenblatt ROC, pick from the highest
We have limited the results to the top 10 stocks. The stocks are ranked with 50% weight to Greenblatt Earnings Yield and 50% weight to Greenblatt ROC.
The Screen Results
Stock | Company | Sector | Greenblatt Earnings Yield | Greenblatt ROC |
|---|---|---|---|---|
BIO | Bio-Rad Laboratories | Healthcare | 28.5% | 174.0% |
CI | Cigna | Healthcare | 11.4% | 292.7% |
QDEL | Quidel | Healthcare | 21.0% | 77.6% |
HUM | Humana | Healthcare | 8.8% | 206.0% |
TRGP | Targa Resources | Energy | 24.5% | 26.4% |
BIIB | Biogen | Healthcare | 11.7% | 49.1% |
ANTM | Anthem | Healthcare | 6.9% | 201.6% |
NXST | Nexstar Media Group | Communication Services | 10.2% | 51.2% |
KIM | Kimco Realty | Real Estate | 8.7% | 84.3% |
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Notes and Observations
The Magic Formula Screener is non-discretion based. This means you just pick the top stocks and buy them mechanically. If this is what you want to do, just use the stocks listed above. If you wish to add a little bit more discretion, you can run these stocks through an additional filter.
Ending Note
I have added all 9 stocks for further review. It is interesting to see this list dominated by healthcare companies given the current situation. It is also interesting to see the insurance companies sporting very high Greenblatt ROC.