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Magic Formula Stocks - Joel Greenblatt -- GuruFocus.com

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What is Joel Greenblatt Magic Formula?


Joel Greenblatt is Background A widely respected hedge-fund manager. Joel Greenblatt, started as a value purist but was influenced by Warren Buffett's view about growth being part of the value equation. He founded Gotham Capital, a fund which apparently returned over 40% annualized from 1985 to 2005. By 1995, it had returned all money to its outside investors. He has authored two books, "You Can Be a Stock Market Genius" and New York Times bestsellier, "The Little Book That Beats the Market," and is also adjunct professor at Columbia University Business School. Greenblatt espouses MFI as a do-it-yourself version of the approach he has used while amassing his investment track record. With the "Little Book," Greenblatt wanted to write a book his children could read and learn from. The main point Greenblatt makes is that investors should buy good companies at bargain prices.

Magic Formula Investing uses return on capital and earnings yield as its inputs. Return on capital is seen as the best determinant of whether a business is a good one or not. Companies that can earn a high ROC over time generally have a special advantage that keeps competition from destroying it (e.g., name recognition, a new product that is hard to duplicate or a unique business model).

Earnings yield is the metric that shows whether a company is cheap or not. Greenblatt says that stock prices of a firm can experience "wild" swings even as the value of the company stays relatively constant giving investors opportunities to buy low and sell high.

Calculation/Definition of the Magic Formula:

1. Define minimum Market Capitalization that meets your liquidity needs. Greenblatt used a market capitalization floor of $50 million, but advised that you can set the minimum as high as $5 billion.
2. Sector Filter: Due to their unique financial structures, all stocks in the financial and utility sectors are excluded. Calculate Earnings Yield = EBIT / enterprise value.
3. Calculate Return on Capital = EBIT / (Net fixed assets + working capital)
4. EY Rank: Rank the stocks in descending order based on Earnings Yield and assign a rank number to each.
5. ROC Rank: Rank the same stocks in descending order based on Return on Capital and assign a rank number to each.
6. Add the rankings and select stocks that have the lowest combined ranking score. So a company that is ranked 358nd best in terms of ROC and 122rd highest in EY would gets a better combined ranking (i.e., 470) than a company that is ranked 1st in ROIC but only 950th best in EY (i.e., 951).

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Regions

Current Selected: USA
SymbolCompanyPredictability Market Cap ($mil)Earnings Yield (%)Return on Capital (%)10-Y EBITDA Growth Rate (%) 5-Y EBITDA Growth Rate (%)P/EYield (%)Rank
Premium Member OnlyPremium Member Only 5.00620.0011.100 05.400.001
Premium Member OnlyPremium Member Only 0.3684.702.800 00.600.002
Premium Member OnlyPremium Member Only 0.742166.7023.900 01.200.003
Premium Member OnlyPremium Member Only 1.5102.2021.700 00.000.004
Premium Member OnlyPremium Member Only 1.8163000.0031.300 00.100.005
Premium Member OnlyPremium Member Only 8.9327.8078.300 015.500.006
Premium Member OnlyPremium Member Only
  • Currently 1/5
Business Predictability Rank: 1-Star (On Watch)
Back Testing Results:
Average gain of all 1-Star stocks: 1.1% per year.
% of Stocks that are in still loss if held for 10yrs: 45%.
Read more:
What is Predictability Rank?
Performances of real portfolio
Top Ranked Predictable Companies
0.78013.908.200 -3.71.500.007
Premium Member OnlyPremium Member Only 3.98382.1041.300 00.800.008
Premium Member OnlyPremium Member Only 2.1374583.3020.500 00.100.009
Premium Member OnlyPremium Member Only 1.52069.00130.700 00.000.0010
Premium Member OnlyPremium Member Only 1.1481.702.400 00.000.0011
Premium Member OnlyPremium Member Only
  • Currently 1/5
Business Predictability Rank: 1-Star
Back Testing Results:
Average gain of all 1-Star stocks: 1.1% per year.
% of Stocks that are in still loss if held for 10yrs: 45%.
Read more:
What is Predictability Rank?
Performances of real portfolio
Top Ranked Predictable Companies
5.99312.10147.000 05.800.0012
Premium Member OnlyPremium Member Only
  • Currently 1/5
Business Predictability Rank: 1-Star
Back Testing Results:
Average gain of all 1-Star stocks: 1.1% per year.
% of Stocks that are in still loss if held for 10yrs: 45%.
Read more:
What is Predictability Rank?
Performances of real portfolio
Top Ranked Predictable Companies
1.52119.0047.700 00.000.0013
Premium Member OnlyPremium Member Only 2.2763.401.600 00.000.0014
Premium Member OnlyPremium Member Only 2.88114.0050.800 016.100.0015
Premium Member OnlyPremium Member Only 1.7747.1012.900 05.900.0016
Premium Member OnlyPremium Member Only
  • Currently 1/5
Business Predictability Rank: 1-Star
Back Testing Results:
Average gain of all 1-Star stocks: 1.1% per year.
% of Stocks that are in still loss if held for 10yrs: 45%.
Read more:
What is Predictability Rank?
Performances of real portfolio
Top Ranked Predictable Companies
0.13042.00160.000 00.000.0017
Premium Member OnlyPremium Member Only
  • Currently 1/5
Business Predictability Rank: 1-Star
Back Testing Results:
Average gain of all 1-Star stocks: 1.1% per year.
% of Stocks that are in still loss if held for 10yrs: 45%.
Read more:
What is Predictability Rank?
Performances of real portfolio
Top Ranked Predictable Companies
17.30042.0089.200 05.600.0018
Premium Member OnlyPremium Member Only 3.30428.2034.400 06.100.0019
Premium Member OnlyPremium Member Only 28.55928.3024.000 -6.80.700.0020
Premium Member OnlyPremium Member Only
  • Currently 1/5
Business Predictability Rank: 1-Star
Back Testing Results:
Average gain of all 1-Star stocks: 1.1% per year.
% of Stocks that are in still loss if held for 10yrs: 45%.
Read more:
What is Predictability Rank?
Performances of real portfolio
Top Ranked Predictable Companies
3.27519.8013.900 02.800.0021
Premium Member OnlyPremium Member Only 2.6586.5015.100 00.000.0022
Premium Member OnlyPremium Member Only
  • Currently 1/5
Business Predictability Rank: 1-Star
Back Testing Results:
Average gain of all 1-Star stocks: 1.1% per year.
% of Stocks that are in still loss if held for 10yrs: 45%.
Read more:
What is Predictability Rank?
Performances of real portfolio
Top Ranked Predictable Companies
0.02535.5061.100 00.100.0023
Premium Member OnlyPremium Member Only 2.7017.30102.100 013.300.0024
Premium Member OnlyPremium Member Only 14.1164.10323.100 0100.000.0025
Premium Member OnlyPremium Member Only 37.3647.307.900 -42.90.000.0026
Premium Member OnlyPremium Member Only
  • Currently 1/5
Business Predictability Rank: 1-Star (On Watch)
Back Testing Results:
Average gain of all 1-Star stocks: 1.1% per year.
% of Stocks that are in still loss if held for 10yrs: 45%.
Read more:
What is Predictability Rank?
Performances of real portfolio
Top Ranked Predictable Companies
2.51917.6022.303.9 -32.48.900.0027
Premium Member OnlyPremium Member Only 4.8262.3028.100 00.000.0028
Premium Member OnlyPremium Member Only 3.37510.7022.400 06.000.0029
Premium Member OnlyPremium Member Only 0.6648.9010.400 00.000.0030
Premium Member OnlyPremium Member Only
  • Currently 1/5
Business Predictability Rank: 1-Star
Back Testing Results:
Average gain of all 1-Star stocks: 1.1% per year.
% of Stocks that are in still loss if held for 10yrs: 45%.
Read more:
What is Predictability Rank?
Performances of real portfolio
Top Ranked Predictable Companies
16.54396.2053.700 00.700.0031
Premium Member OnlyPremium Member Only 14.7250.805.900 0138.900.0032
Premium Member OnlyPremium Member Only 1.8539.101.300 07.900.0033
Premium Member OnlyPremium Member Only 0.1336.306.500 015.900.0034
Premium Member OnlyPremium Member Only
  • Currently 1/5
Business Predictability Rank: 1-Star
Back Testing Results:
Average gain of all 1-Star stocks: 1.1% per year.
% of Stocks that are in still loss if held for 10yrs: 45%.
Read more:
What is Predictability Rank?
Performances of real portfolio
Top Ranked Predictable Companies
15.6990.6032.700 0188.700.0035
Premium Member OnlyPremium Member Only
  • Currently 1/5
Business Predictability Rank: 1-Star
Back Testing Results:
Average gain of all 1-Star stocks: 1.1% per year.
% of Stocks that are in still loss if held for 10yrs: 45%.
Read more:
What is Predictability Rank?
Performances of real portfolio
Top Ranked Predictable Companies
3.2937.008.700 019.800.0036
Premium Member OnlyPremium Member Only 0.0006.009.200 00.000.0037
Premium Member OnlyPremium Member Only 5.72136.9063.300 9.80.000.0038
Premium Member OnlyPremium Member Only 8693.540357.109084.300 013.802.7039
Premium Member OnlyPremium Member Only 13814.963243.9019976.400 2668.102.5040
Premium Member OnlyPremium Member Only
  • Currently 1/5
Business Predictability Rank: 1-Star (On Watch)
Back Testing Results:
Average gain of all 1-Star stocks: 1.1% per year.
% of Stocks that are in still loss if held for 10yrs: 45%.
Read more:
What is Predictability Rank?
Performances of real portfolio
Top Ranked Predictable Companies
219.679993.70956.40-28.2 31.415.404.4041
Premium Member OnlyPremium Member Only
  • Currently 1/5
Business Predictability Rank: 1-Star
Back Testing Results:
Average gain of all 1-Star stocks: 1.1% per year.
% of Stocks that are in still loss if held for 10yrs: 45%.
Read more:
What is Predictability Rank?
Performances of real portfolio
Top Ranked Predictable Companies
77.848118.201594.900 104.52.900.0042
Premium Member OnlyPremium Member Only 82.75769.101164.800 -43109.903.7043
Premium Member OnlyPremium Member Only 154.706135.10269.600 13.92.500.0044
Premium Member OnlyPremium Member Only
  • Currently 1/5
Business Predictability Rank: 1-Star (On Watch)
Back Testing Results:
Average gain of all 1-Star stocks: 1.1% per year.
% of Stocks that are in still loss if held for 10yrs: 45%.
Read more:
What is Predictability Rank?
Performances of real portfolio
Top Ranked Predictable Companies
924.63233.309975.002.9 -7.311.300.0045
Premium Member OnlyPremium Member Only 202.749110.80214.000 -14.215.700.0046
Premium Member OnlyPremium Member Only 7.60075.20241.000 01.200.0047
Premium Member OnlyPremium Member Only 16545.85254.50284.600 55.47.300.0048
Premium Member OnlyPremium Member Only 2839.37049.70274.000 03.100.0049
Premium Member OnlyPremium Member Only
  • Currently 1/5
Business Predictability Rank: 1-Star (On Watch)
Back Testing Results:
Average gain of all 1-Star stocks: 1.1% per year.
% of Stocks that are in still loss if held for 10yrs: 45%.
Read more:
What is Predictability Rank?
Performances of real portfolio
Top Ranked Predictable Companies
10.95390.10169.600 00.600.0050
Premium Member OnlyPremium Member Only
  • Currently 4.5/5
Business Predictability Rank: 4.5-Star (On Watch)
Back Testing Results:
Average gain of all 4.5-Star stocks: 10.6% per year.
% of Stocks that are in still loss if held for 10yrs: 10%.
Read more:
What is Predictability Rank?
Performances of real portfolio
Top Ranked Predictable Companies
610.21932.701079.5025.8 7.95.500.0051
Premium Member OnlyPremium Member Only
  • Currently 3.5/5
Business Predictability Rank: 3.5-Star
Back Testing Results:
Average gain of all 3.5-Star stocks: 9.3% per year.
% of Stocks that are in still loss if held for 10yrs: 9%.
Read more:
What is Predictability Rank?
Performances of real portfolio
Top Ranked Predictable Companies
984.62244.10280.1020.1 41.86.701.1052
Premium Member OnlyPremium Member Only 96.96861.30201.700 00.0061.4053
Premium Member OnlyPremium Member Only
  • Currently 1/5
Business Predictability Rank: 1-Star
Back Testing Results:
Average gain of all 1-Star stocks: 1.1% per year.
% of Stocks that are in still loss if held for 10yrs: 45%.
Read more:
What is Predictability Rank?
Performances of real portfolio
Top Ranked Predictable Companies
1083.57129.601461.600 10.65.207.6054
Premium Member OnlyPremium Member Only 13.02244.80250.400 04.500.0055
Premium Member OnlyPremium Member Only
  • Currently 1/5
Business Predictability Rank: 1-Star (On Watch)
Back Testing Results:
Average gain of all 1-Star stocks: 1.1% per year.
% of Stocks that are in still loss if held for 10yrs: 45%.
Read more:
What is Predictability Rank?
Performances of real portfolio
Top Ranked Predictable Companies
62.284357.10105.400 06.600.0056
Premium Member OnlyPremium Member Only 1008.36025.40697006.700 15.22.502.6057
Premium Member OnlyPremium Member Only
  • Currently 4.5/5
Business Predictability Rank: 4.5-Star (On Watch)
Back Testing Results:
Average gain of all 4.5-Star stocks: 10.6% per year.
% of Stocks that are in still loss if held for 10yrs: 10%.
Read more:
What is Predictability Rank?
Performances of real portfolio
Top Ranked Predictable Companies
2350.12934.80312.0014.7 87.200.0058
Premium Member OnlyPremium Member Only 628.865100.50118.800 05.403.2059
Premium Member OnlyPremium Member Only 7.3661263.8090.500 29.81.600.0060
Premium Member OnlyPremium Member Only 1665.04326.40711.600 31.25.800.0061
Premium Member OnlyPremium Member Only 92.25927.00175.600 010.100.0062
Premium Member OnlyPremium Member Only
  • Currently 4/5
Business Predictability Rank: 4-Star
Back Testing Results:
Average gain of all 4-Star stocks: 9.8% per year.
% of Stocks that are in still loss if held for 10yrs: 8%.
Read more:
What is Predictability Rank?
Performances of real portfolio
Top Ranked Predictable Companies
1896.23625.50582.2047 50.17.900.9063
Premium Member OnlyPremium Member Only 47683.36325.20938.200 -16.438.004.3064
Premium Member OnlyPremium Member Only 40.36822.602555.600 03.200.0065
Premium Member OnlyPremium Member Only
  • Currently 3/5
Business Predictability Rank: 3-Star
Back Testing Results:
Average gain of all 3-Star stocks: 8.2% per year.
% of Stocks that are in still loss if held for 10yrs: 11%.
Read more:
What is Predictability Rank?
Performances of real portfolio
Top Ranked Predictable Companies
15.51523.70759.6015.7 148.700.0066
Premium Member OnlyPremium Member Only
  • Currently 1/5
Business Predictability Rank: 1-Star (On Watch)
Back Testing Results:
Average gain of all 1-Star stocks: 1.1% per year.
% of Stocks that are in still loss if held for 10yrs: 45%.
Read more:
What is Predictability Rank?
Performances of real portfolio
Top Ranked Predictable Companies
82.53524.20478.900 04.800.0067
Premium Member OnlyPremium Member Only 850.03622.60548.500 010.800.0068
Premium Member OnlyPremium Member Only 10.717169.2080.900 00.600.0069
Premium Member OnlyPremium Member Only 1179.46928.70222.400 58.504.8070
Premium Member OnlyPremium Member Only 4.00644.10168.600 01.800.0071
Premium Member OnlyPremium Member Only
  • Currently 2.5/5
Business Predictability Rank: 2.5-Star (On Watch)
Back Testing Results:
Average gain of all 2.5-Star stocks: 7.3% per year.
% of Stocks that are in still loss if held for 10yrs: 18%.
Read more:
What is Predictability Rank?
Performances of real portfolio
Top Ranked Predictable Companies
1.35723.90416.8024.9 13.60.000.0072
Premium Member OnlyPremium Member Only 516.90137.30120.200 145.84.409.7073
Premium Member OnlyPremium Member Only 160.7345192.1067.200 02.700.0074
Premium Member OnlyPremium Member Only
  • Currently 1/5
Business Predictability Rank: 1-Star
Back Testing Results:
Average gain of all 1-Star stocks: 1.1% per year.
% of Stocks that are in still loss if held for 10yrs: 45%.
Read more:
What is Predictability Rank?
Performances of real portfolio
Top Ranked Predictable Companies
854.48242.10100.600 06.000.0075
Premium Member OnlyPremium Member Only
  • Currently 1/5
Business Predictability Rank: 1-Star
Back Testing Results:
Average gain of all 1-Star stocks: 1.1% per year.
% of Stocks that are in still loss if held for 10yrs: 45%.
Read more:
What is Predictability Rank?
Performances of real portfolio
Top Ranked Predictable Companies
139.95070.9094.100 06.600.0076
Premium Member OnlyPremium Member Only 2347.60128.00158.500 011.7015.4077
Premium Member OnlyPremium Member Only 143.56247.1083.500 02.500.0078
Premium Member OnlyPremium Member Only
  • Currently 2/5
Business Predictability Rank: 2-Star (On Watch)
Back Testing Results:
Average gain of all 2-Star stocks: 6% per year.
% of Stocks that are in still loss if held for 10yrs: 16%.
Read more:
What is Predictability Rank?
Performances of real portfolio
Top Ranked Predictable Companies
343.98430.40108.4015.4 7.8624.000.0079
Premium Member OnlyPremium Member Only
  • Currently 1/5
Business Predictability Rank: 1-Star (On Watch)
Back Testing Results:
Average gain of all 1-Star stocks: 1.1% per year.
% of Stocks that are in still loss if held for 10yrs: 45%.
Read more:
What is Predictability Rank?
Performances of real portfolio
Top Ranked Predictable Companies
14.82518.201674.300 07.800.0080
Premium Member OnlyPremium Member Only 293.848140.8028.300 00.000.0081
Premium Member OnlyPremium Member Only 92.96634.0094.500 3.915.800.0082
Premium Member OnlyPremium Member Only 794.79019.00885.400 186.008.1083
Premium Member OnlyPremium Member Only
  • Currently 1/5
Business Predictability Rank: 1-Star
Back Testing Results:
Average gain of all 1-Star stocks: 1.1% per year.
% of Stocks that are in still loss if held for 10yrs: 45%.
Read more:
What is Predictability Rank?
Performances of real portfolio
Top Ranked Predictable Companies
11.32626.10215.800 05.700.0084
Premium Member OnlyPremium Member Only
  • Currently 1/5
Business Predictability Rank: 1-Star
Back Testing Results:
Average gain of all 1-Star stocks: 1.1% per year.
% of Stocks that are in still loss if held for 10yrs: 45%.
Read more:
What is Predictability Rank?
Performances of real portfolio
Top Ranked Predictable Companies
50.29319.50648.000 014.100.0085
Premium Member OnlyPremium Member Only 18.780129.9060.700 00.500.0086
Premium Member OnlyPremium Member Only
  • Currently 3/5
Business Predictability Rank: 3-Star
Back Testing Results:
Average gain of all 3-Star stocks: 8.2% per year.
% of Stocks that are in still loss if held for 10yrs: 11%.
Read more:
What is Predictability Rank?
Performances of real portfolio
Top Ranked Predictable Companies
9072.73538.1079.6028.3 71.95.102.1087
Premium Member OnlyPremium Member Only
  • Currently 1/5
Business Predictability Rank: 1-Star
Back Testing Results:
Average gain of all 1-Star stocks: 1.1% per year.
% of Stocks that are in still loss if held for 10yrs: 45%.
Read more:
What is Predictability Rank?
Performances of real portfolio
Top Ranked Predictable Companies
25.89081.3062.400 018.900.0088
Premium Member OnlyPremium Member Only 1618.81427.90100.500 039.228.0189
Premium Member OnlyPremium Member Only
  • Currently 1/5
Business Predictability Rank: 1-Star
Back Testing Results:
Average gain of all 1-Star stocks: 1.1% per year.
% of Stocks that are in still loss if held for 10yrs: 45%.
Read more:
What is Predictability Rank?
Performances of real portfolio
Top Ranked Predictable Companies
359.75919.70215.400 06.901.8090
Premium Member OnlyPremium Member Only
  • Currently 1/5
Business Predictability Rank: 1-Star
Back Testing Results:
Average gain of all 1-Star stocks: 1.1% per year.
% of Stocks that are in still loss if held for 10yrs: 45%.
Read more:
What is Predictability Rank?
Performances of real portfolio
Top Ranked Predictable Companies
284.19320.30215.400 05.403.1091
Premium Member OnlyPremium Member Only
  • Currently 1/5
Business Predictability Rank: 1-Star
Back Testing Results:
Average gain of all 1-Star stocks: 1.1% per year.
% of Stocks that are in still loss if held for 10yrs: 45%.
Read more:
What is Predictability Rank?
Performances of real portfolio
Top Ranked Predictable Companies
12.114252.0055.100 08.700.0092
Premium Member OnlyPremium Member Only 510.92517.90352.800 13.69.504.5093
Premium Member OnlyPremium Member Only
  • Currently 1/5
Business Predictability Rank: 1-Star (On Watch)
Back Testing Results:
Average gain of all 1-Star stocks: 1.1% per year.
% of Stocks that are in still loss if held for 10yrs: 45%.
Read more:
What is Predictability Rank?
Performances of real portfolio
Top Ranked Predictable Companies
46.93566.5060.000 04.500.0094
Premium Member OnlyPremium Member Only
  • Currently 1/5
Business Predictability Rank: 1-Star
Back Testing Results:
Average gain of all 1-Star stocks: 1.1% per year.
% of Stocks that are in still loss if held for 10yrs: 45%.
Read more:
What is Predictability Rank?
Performances of real portfolio
Top Ranked Predictable Companies
1289.52020.00190.500 24.15.802.4095
Premium Member OnlyPremium Member Only
  • Currently 1/5
Business Predictability Rank: 1-Star
Back Testing Results:
Average gain of all 1-Star stocks: 1.1% per year.
% of Stocks that are in still loss if held for 10yrs: 45%.
Read more:
What is Predictability Rank?
Performances of real portfolio
Top Ranked Predictable Companies
1295.81018.60190.500 24.16.802.0096
Premium Member OnlyPremium Member Only 13.86215.301947.600 03.200.0097
Premium Member OnlyPremium Member Only
  • Currently 1/5
Business Predictability Rank: 1-Star
Back Testing Results:
Average gain of all 1-Star stocks: 1.1% per year.
% of Stocks that are in still loss if held for 10yrs: 45%.
Read more:
What is Predictability Rank?
Performances of real portfolio
Top Ranked Predictable Companies
157.713166.0054.900 04.800.0098
Premium Member OnlyPremium Member Only 133.50118.10323.400 010.304.6099
Premium Member OnlyPremium Member Only
  • Currently 1/5
Business Predictability Rank: 1-Star (On Watch)
Back Testing Results:
Average gain of all 1-Star stocks: 1.1% per year.
% of Stocks that are in still loss if held for 10yrs: 45%.
Read more:
What is Predictability Rank?
Performances of real portfolio
Top Ranked Predictable Companies
25.75315.606745.906.1 21.69.101.80100

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