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May Magic Formula Newsletter: This Magic Formula Stock Has a Dividend Yield Over 6.5%

May 11, 2013
GuruFocus

GuruFocus

353 followers
This month's magic formula pick returns to an industry we've dipped our toe into twice before. Both of the previous picks have been home runs with one up over 30% in under six months and the other up almost 200% in less than a year.

This month's pick would be attractive as a stand-alone investment. Its dividend yield is 6.5%, it's trading for a fair valuation, and the company seems poised to grow rapidly as they complete a corporate transition almost a decade in the making.

However, what really makes the stock attractive is the presence of an activist shareholder. This shareholder has been involved in only two stocks previously. Both were in the same industry as this month's pick, and both stocks rewarded shareholders with "multi-baggers" inside of one year. And it's not hard to see what the activist sees here: if he can simply get the management team to renew their focus on growth, the company could be earning three times its current earnings base within the next two years.

To sum it up, this month's pick trades for a reasonable valuation with a strong dividend yield, an activist investor, and huge upside potential. We'll buy the shares on Monday.

Download this month’s Microcap Magic Formula Newsletter.

GuruFocus publishes three monthly newsletters. These newsletters are the included features for Premium Members.

1. Ben Graham: Net-Net Newsletter focuses on net-net stocks that Ben Graham would buy. It is released on the first Friday of each month.

2. Micro-Cap Magic Formula Newsletter picks companies that have high return on capital and high earnings yield. It is released on the second Friday of each month.

3. Buffett-Munger Best Bargains Newsletter recommends companies that have high business quality, but traded at undervalued prices. A younger Buffett would buy this kind of companies. It is published on the third Friday of each month.

Also don’t miss:

May Ben Graham Net-Net Newsletter

May's picks are two companies in the aviation industry. One sold a division for more then their market cap while retaining two profitable divisions. The second owns 30% of the first and has earnings obscured by a one-time charge.

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