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However, the screen has one blind spot — stocks with a market cap under $50 million.
This month's magic formula newsletter pick is trading below book value despite ROIC that's consistently above 20%. The company looks cheap on an earnings basis, and it looks even cheaper when you consider that one of their divisions is currently generating losses, depressing the earnings of the whole company. And this loss generating division is traditionally the company's largest! Once it turns around, the company's true earnings power will likely be revealed at almost twice today's levels.
And management is taking advantage of the depressed stock price. They bought back 25% of their shares over the past two years, and they've already announced a buyback that will soak up another 16% of their shares over the next three months!!!
We think fair value is at least 90% above today's prices, and when we start thinking about what the whole company will look like and earn after the share buybacks and when the economy stabilizes further, that share price will likely prove conservative.
We'll look to buy shares on Monday. Be sure to check out the article and consider doing the same.
Download February 2012 Issue of Micro-Cap Magic Formula Newsletter.
GuruFocus publishes three monthly newsletters. These are the links of the other two newsletters:
Download February issue of Ben Graham Net-Current Asset Bargains newsletter.
Jan. 2012 Issue of Buffett-Munger Bargains Newsletter Is Ready Issue released on Jan. 19, 2012
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