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Stocks: Familiar Names On The Magic Formula Screen

I’m always a little skeptical of any stock market screen called a “magic formula,” but I do like to consult Joel Greenblatt’s screener by that name from time to time. 

Greenblatt, who made the screen famous in his book The Little Book that Beats the Market ranks stocks using two criteria:

1.    Valuation, as measured by the earnings yield (defined by Greenblatt as EBIT / Enterprise Value)
2.    Profitability, as measured by Greenblatt’s preferred metric, Return on Capital

There is really nothing “magical” about it.  It’s simply a screen that looks for highly-profitable companies trading at cheap prices.  Any good analyst can use the list as a starting point for further research.

With that said, I want to highlight a handful of well-known stocks that made the cut on the screen this week:


As you might expect from any list of stocks on a value screens, all of these companies have “issues.”  We all know that Apple’s growth is slowing and that its product lineup isn’t as innovative as it was under Steve Jobs.  Cisco and Microsoft have had a hard time adjusting to the mobile era.  Coach is struggling from weakness in its core market, “aspirational” middle-class American women.  And Smith & Wesson is facing slower sales in the years ahead, as a lot of would-be buying was forward by fears of new government gun control. 

Yet all of these companies are wildly profitably, all have very low debt and very little risk of financial distress, and all but Smith & Wesson pay a respectable and growing dividend. 

As you rebalance your portfolio in the final months of 2013, give the Magic Formula stocks a look.  Over any reasonable investment time horizon, “cheap and profitable” is a winning combination. 

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CharlesSizemore: RT @TraderPlanet: What's In Your Stock Portfolio Now? This Screener Might Have Some New Ideas For You http://t.co/XUnQcoKHGw via @CharlesSi
edjaworska1: Stocks: Familiar Names On The Magic Formula Screen http://t.co/5vXtR7kjoe via @TraderPlanet
CharlesSizemore: Guns, purses, and tech gadgets on the #MagicFormula Screen http://t.co/weLtbU9vJe $SWHC $AAPL $CSCO $COH $MSFT @TraderPlanet
CharlesSizemore: Stocks: Familiar Names On The Magic Formula Screen http://t.co/vcTWuQ1rca $AAPL $CSCO $COH $MSFT @TraderPlanet
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About the Author


Charles Lewis Sizemore, CFA, founder and editor of Macro Trend Investor (formerly The Sizemore Investment Letter), is dedicated to finding superior investments backed by powerful macro trends—before you hear about them on the nightly news or read about them in the newspaper or on the Internet. He has been a frequent guest on Bloomberg TV and Fox Business News, has been quoted in Barron’s Magazine, The Wall Street Journal,and The Washington Post and is a frequent contributor to Forbes Moneybuilder, GuruFocus, MarketWatch and InvestorPlace.com.

Charles is the co-author of Boom or Bust: Understanding and Profiting from a Changing Consumer Economy (iUniverse, 2008); and worked alongside best-selling financial author and economic strategist Harry S. Dent, Jr. in creating original research on the effects of changing global demographics on asset returns and economic growth. He also serves as the Chief Investment Officer of Sizemore Capital Management LLC,  a registered investment advisor.

His academic and real-life experience has given him a unique approach to investing: combining his insights into global macro trends with in-depth investor research. And he has developed a reputation for taking complex issues, recognizing long-term investment strategies, and then finding the hidden investing opportunities that he shares with investors.

Charles holds a master’s degree in Finance and Accounting from the London School of Economics in the United Kingdom and a Bachelor of Business Administration in Finance with an International Emphasis from Texas Christian University in Fort Worth, Texas, where he graduated Magna Cum Laude and as a Phi Beta Kappa scholar.

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