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James Li
James Li
Articles (540)  | Author's Website |

3 Greenblatt Magic Formula Stocks Bought by Gurus in 1st Quarter

Companies include Buffett’s Apple and Ackman’s United Technologies

On Tuesday, Joel Greenblatt (Trades, Portfolio)’s Magic Formula Screen listed Apple Inc. (NASDAQ:AAPL), Comcast Corp. (NASDAQ:CMCSA) and United Technologies Corp. (NYSE:UTX) in the top 30 among U.S. mega caps, companies with market caps of at least $100 million. Several gurus invested in these companies in the first quarter.

Brief summary of Greenblatt’s Magic Formula

According to Investopedia, Greenblatt ranks companies based on their earnings yield and return on capital. While both ratios include the company’s earnings before interest and taxes in the numerator, the former divides the earnings by enterprise value while the latter divides the earnings by the average of net fixed assets plus net working capital.

GuruFocus’ Magic Formula Screen is based on Greenblatt’s book, “The Little Book that Still Beats the Market.” The highest-ranked companies are those with high earnings yield and return on capital.

Apple

The Magic Formula Screen ranks Apple fourth among U.S. mega caps. The Cupertino, California-based company has a profitability rank of 8 due to several factors, including consistent revenue growth and a strong Piotroski F-score of 7. Apple’s Greenblatt return on capital of 223.97% outperforms 99% of global competitors even though it is near a 10-year low of 218.49%. The company’s highest return on capital over the past 10 years was 545.32%.

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Berkshire Hathaway Inc. (NYSE:BRK.A)(NYSE:BRK.B) CEO Warren Buffett (Trades, Portfolio) has increased his holding in Apple to nearly 240 million shares over the past several years. Several other gurus, including Markel Corp. (MRKL) co-CEO Tom Gayner (Trades, Portfolio) and Ray Dalio (Trades, Portfolio)’s Bridgewater Associates, also broadened their stakes in Apple during the quarter.

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Comcast

Comcast, the holding company of NBCUniversal, provides cable services to over 22 million TV and 25 million broadband customers. Greenblatt’s magic formula screen lists the Philadelphia-based company ninth among U.S. mega caps.

GuruFocus lists six positive investing signs for Comcast, including expanding operating margins, consistent revenue growth and a dividend yield near a 10-year high. Additionally, Comcast’s business predictability ranks a solid 3.5 stars out of five.

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Comcast’s profitability ranks 8 out of 10 primarily due to the high profit margins and a Greenblatt return on capital that outperforms 82% of global competitors. Mason Hawkins (Trades, Portfolio)’ Southeastern Asset Management invested in 7,352,976 shares during the quarter as the company offers good growth potential.

United Technologies

Connecticut-based United Technologies provides a wide variety of high technology products and services through its business, including Otis, UTC Aerospace Systems and Pratt & Whitney. On Greenblatt’s magic formula screen, the company ranks 10th among U.S. mega caps.

Despite the high Greenblatt rank, GuruFocus ranks the industrial conglomerate’s profitability a satisfactory 7 out of 10. Although the company has high Greenblatt return on capital and business predictability rank of 4, United Technologies' three-year revenue growth rate of 5.60% outperforms just 59% of global competitors.

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Bill Ackman (Trades, Portfolio) and Daniel Loeb (Trades, Portfolio) made activist investments in the stock during the quarter: according to a previous article, Loeb suggested that the conglomerate should be split into three separate businesses.

See also

GuruFocus provides a wide variety of value screens, ranging from Ben Graham’s net-net screen to the Buffett-Munger Screener. Premium members have access to all of our screeners, including the All-in-one Screener that includes over 200 filters.

Disclosure: I do not have positions in the stocks mentioned.

About the author:

James Li
I am an editorial assistant and researcher at GuruFocus. I have a Master's in Finance from SMU, and I enjoy writing reports on financial trends and investor portfolios. Follow me on Twitter at @JamesLiGuru!

Visit James Li's Website


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