Magic Formula Stocks - Joel Greenblatt

Free 7-day Trial

The information is for Premium Members Only.

If you are a Premium Member, please Log In. If you are not a Premium Member, we invite you for a

7-day Free Trial

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).

If you are not a Premium Member, we invite you for a

7-day Free Trial
Regions

Current Selected: USA
Show All Countries ▾
Symbol Company Predictability Market Cap ($mil) Earnings Yield (%) Return on Capital (%) 10-Y EBITDA Growth Rate (%) 5-Y EBITDA Growth Rate (%) P/E Yield (%) Rank
Premium Member OnlyPremium Member Only 967.58818.30765.020.00 0.009.002.4591
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
31.30745.70146.840.00 0.0011.300.0092
Premium Member OnlyPremium Member Only 2231.76116.705475.000.00 16.808.403.3493
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
32.65518.301044.030.00 46.1018.300.0094
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
209.69026.80232.214.30 5.8011.903.7495
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
10652.24249.90123.390.00 0.000.000.0096
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
11362.39147.90123.390.00 0.000.000.0097
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
93.08345.80122.72-0.40 6.7011.003.7098
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
6559.00417.50785.7411.40 5.0018.504.3999
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
6477.69417.50785.7411.40 5.0018.504.72100
Premium Member OnlyPremium Member Only 76.41619.00940.120.00 4.1018.605.71101
Premium Member OnlyPremium Member Only 66.00420.10407.230.00 19.3011.400.56102
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
30.18321.10352.580.00 0.004.300.91103
Premium Member OnlyPremium Member Only 14872.20018.30637.200.00 12.9010.303.70104
Premium Member OnlyPremium Member Only 14940.81818.30637.200.00 12.9010.304.85105
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
141.25616.502003.31-20.50 33.6015.202.31106
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
202.61378.70100.560.00 -19.202.303.40107
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
1058.21519.90347.920.00 0.008.503.88108
Premium Member OnlyPremium Member Only 961.69530.30164.380.00 10.809.505.03109
Premium Member OnlyPremium Member Only 15.41450.00112.330.00 0.001.900.00110
Premium Member OnlyPremium Member Only 726.74714.406345.470.00 0.0010.900.00111
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
436.05924.20209.5420.10 5.807.607.84112
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
72.264291.5080.30-1.30 25.1012.500.00113
Premium Member OnlyPremium Member Only 6048.05315.2021720.950.00 218.1012.0036.84114
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
182.04018.00624.930.00 0.0016.600.00115
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
114.63621.10281.7714.00 -6.300.000.00116
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
309.89220.40321.640.00 0.005.600.00117
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
53.40521.70288.000.00 0.006.202.08118
Premium Member OnlyPremium Member Only 19.891676.6073.750.00 -7.102.500.00119
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
4684.59477.9089.920.00 0.001.500.00120

Add Notes, Comments or Ask Questions

User Comments

Ashimkar
ReplyAshimkar - 1 month ago
Magic Formula stocks , when I read Greenblatt, never included financial , commodities and foreign stocks.

I see Royal Bank listed in Guru Focus' version of Magic Formula stocks. This is a Canadian bank. Can somebody explain how the financial stocks, that too foreign, ended up in this list?

I am more than happy to buy these outstanding Canadian banks but are they really Magic Formula stocks?
Marco42
ReplyMarco42 - 6 months ago
Steveoliveira@yahoo,
Marco42
ReplyMarco42 - 6 months ago
Good point Steveoliveira@yahoo. And why charge for something which is openly free by the person who developed the model, and who provides the results for free?
Steveoliveira@yahoo
ReplySteveoliveira@yahoo - 7 months ago
Why these stocks on the magic screener doesn't match with the ones that are shown in the magicformulainvesting site?



Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)
Free 7-day Trial
FEEDBACK
Email Hide