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 has been hammered by the weakened consumer and stalled out economy. Despite that, the company is generating great cash flows and returns on capital better than 60% of the S&P 500. It's got a distribution network that's almost impossible for newcomers to replicate, and they're buying back shares and pay a nice dividend. The company is still run by its founders, who have a proven history of growing shareholder value, and insiders own almost 41%.
So what are you paying for a company with all of these great treats? Not much. They trade for under 4.5x EV / EBITDA, about half the multiple most competitors trade at. We think shares are worth at least 50% more than their current price, and that target will prove much too conservative if their new product proves as successful as management thinks it can be.
Download August 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 August. Buffett-Munger Best Bargains Newsletter: the 12-Page Report, or Download the latest August issue of Ben Graham Net-Current Asset Bargains newsletter.
Premium Membership is required to access these letters. If you are not a Premium Member, take a 7-day Free trial.
Also check out:
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 has been hammered by the weakened consumer and stalled out economy. Despite that, the company is generating great cash flows and returns on capital better than 60% of the S&P 500. It's got a distribution network that's almost impossible for newcomers to replicate, and they're buying back shares and pay a nice dividend. The company is still run by its founders, who have a proven history of growing shareholder value, and insiders own almost 41%.
So what are you paying for a company with all of these great treats? Not much. They trade for under 4.5x EV / EBITDA, about half the multiple most competitors trade at. We think shares are worth at least 50% more than their current price, and that target will prove much too conservative if their new product proves as successful as management thinks it can be.
Download August 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 August. Buffett-Munger Best Bargains Newsletter: the 12-Page Report, or Download the latest August issue of Ben Graham Net-Current Asset Bargains newsletter.
Premium Membership is required to access these letters. If you are not a Premium Member, take a 7-day Free trial.
Also check out:
