Joel Greenblatt's magic formula has proven to be one of most popular and successful quantitative screens. By finding stocks with better than average return characteristics selling for below average prices, the screen has proven its ability to outperform the market.
However, the screen has one blind spot — stocks with a market cap under $50 million.
The magic formula newsletter aims to take advantage of this blind spot and find small companies with great business models trading for outstanding prices.
This month's pick enjoys returns on tangible capital better than all but a handful of companies in the United States. Their returns aren't inflated by one great year or a strong cycle; rather, the company has consistently earned out of this world returns on capital every year for the past ten years. This is a recession resistant (almost recession proof!) business that is growing with secular tail winds. Management and insiders own over 50% of the company, and that ratio is growing because the company buys back so many shares.As a matter of fact, it's not a stretch to imagine them buying back all of their publicly traded float within the next 4-5 years. All this in a company that trades for just 7-8x free cash flow makes this stock an excellent addition to our micro-cap magic formula portfolio.
Download the October 2011 Issue of Micro-Cap Magic Formula Newsletter.
We will buy this stock on Monday.
GuruFocus publishes three monthly newsletters. These are the links of the other two newsletters:
Download the latest October issue of Ben Graham Net-Current Asset Bargains newsletter.
Download the latest October issue of Buffett-Munger Best Bargains newsletter.
Premium Membership is required to access these letters. If you are not a Premium Member, take a 7-Day Free trial.
However, the screen has one blind spot — stocks with a market cap under $50 million.
The magic formula newsletter aims to take advantage of this blind spot and find small companies with great business models trading for outstanding prices.
This month's pick enjoys returns on tangible capital better than all but a handful of companies in the United States. Their returns aren't inflated by one great year or a strong cycle; rather, the company has consistently earned out of this world returns on capital every year for the past ten years. This is a recession resistant (almost recession proof!) business that is growing with secular tail winds. Management and insiders own over 50% of the company, and that ratio is growing because the company buys back so many shares.As a matter of fact, it's not a stretch to imagine them buying back all of their publicly traded float within the next 4-5 years. All this in a company that trades for just 7-8x free cash flow makes this stock an excellent addition to our micro-cap magic formula portfolio.
Download the October 2011 Issue of Micro-Cap Magic Formula Newsletter.
We will buy this stock on Monday.
GuruFocus publishes three monthly newsletters. These are the links of the other two newsletters:
Download the latest October issue of Ben Graham Net-Current Asset Bargains newsletter.
Download the latest October issue of Buffett-Munger Best Bargains newsletter.
Premium Membership is required to access these letters. If you are not a Premium Member, take a 7-Day Free trial.
