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Holly LaFon
Holly LaFon
Articles (6034) 

'Magic Formula' Inventor Joel Greenblatt New Buys Rundown

May 24, 2013 | About:
Joel Greenblatt believes that anybody can invest like a pro and invented a famous “magic formula” to ensure – or at least enhance the probability of – success for non-professionals. The basics of his formula investing technique involve purchasing 30 companies with high earnings yield and high return on capital, and selling after a year.

Greenblatt’s portfolio at his hedge fund, Gotham Capital, had high turnover of 29% in the first quarter. His $1.97 billion portfolio contains 822 stocks total, of which 187 are new picks last quarter. The five largest of these are as follows.

1. Warner Chilcott PLC (NASDAQ:WCRX)

Greenblatt bought 1,366,561 shares of Warner Chilcott at $14 per share on average, equivalent to 0.94% of his portfolio. His largest purchase, the shares have advanced 45% from his average price to $19.83 on Friday.

Warner Chilcott create pharmaceuticals targeting gastroenterology, women’s health, dermatology and urology in U.S. and Western European markets.

Earnings yield: 76%

Return on capital: 440%

10-Year Revenue and Earnings History

1369422692303.png

Valuation:

P/E – 12.4

P/S – 2.07 (close to two-year high)

2. Seagate Technology PLC (NASDAQ:STX)

Greenblatt bought 440,879 shares of Seagate Technology at $34 on average, equivalent to a 0.82% weighting in his portfolio. Shares have gained 26% from his price to $42.99 per share Friday.

Seagate is a hard disk drive and storage company founded in 1979.

Earnings yield: 16.9

Return on capital: 101%

10-Year Revenue and Earnings History

1369423223812.png

Valuation:

P/E – 6.9

P/B – 4.4

P/S – 1.09 (close to five-year high)

3. Marvell Technology Group Ltd. (NASDAQ:MRVL)

Greenblatt bought 892,334 shares at $10 on average, for a 0.48% portfolio weighting. He has an 18% gain on the shares as of Friday, with the stock at $11.28 per share.

Marvell Technology Group is a fables semiconductor company founded in 1995.

Earnings yield: 7.6%

Return on capital: 66.1%

10-Year Revenue and Earnings History

1369424116643.png

Valuation:

P/E – 21

P/B – 1.2

P/S – 2.01

4. Axiall Corp. (NYSE:AXLL)

Greenblatt bought 117,110 shares at $55 on average, a 0.37% portfolio weighting. He has a 15% loss from his average purchase price as of Friday, with the price at $46.67.

Axiall harnesses applied chemistry to solve everyday problems in plastics, pharmaceuticals, paints, and many other products.

Earnings yield: 4.9%

Return on capital: 25.7%

10-Year Revenue and Earnings Growth History

1369424581061.png

Valuation

P/E – 19.9

P/B – 5.5

P/S – 0.6

5. Jabil Circuit Inc. (NYSE:JBL)

Greenblatt bought 362,946 shares at $19 on average, a 0.34% portfolio holding. Shares are essentially flat from that price on Friday.

Jabil is a manufacturing solutions partner, helping companies move their products to market and optimize supply chains.

Earnings yield: 13.4

Return on capital: 26.40%

10-Year Revenue and Earnings History

1369425064274.png

Valuation:

P/E – 10.4

P/B – 1.9

P/S – 0.2

See Joel Greenblatt’s portfolio here. Also check out the Undervalued Stocks, Top Growth Companies and High Yield stocks of Joel Greenblatt.

Don’t forget to become a Premium Member of GuruFocus here.


Rating: 2.5/5 (2 votes)

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