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MagicDiligence (< 20)

April 2009

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Top 10 Magic Formula Stocks by Dividend Yield, P/S Ratio, and P/B Ratio

April 28, 2009 – Comments (0) | RELATED TICKERS: DELL.DL , CEB , DIVX.DL

Magic Formula stocks sorted by highest dividend yield, lowest price-to-sales ratio, and lowest price-to-book ratio.

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(this article contains tables that do not format in CAPS)

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Magic Formula Weekly Roundup 4/25

April 25, 2009 – Comments (0) | RELATED TICKERS: ADSK , NOV , EXPE

Weekly roundup of stocks moving in and out of the Magic Formula Investing screen.

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(this article contains lists that do not format into CAPS)

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Magic Formula Stock Review: Qiao Xing Mobile (QXM)

April 24, 2009 – Comments (2) | RELATED TICKERS: QXMCF.DL , NOK , AAPL

Qiao Xing Mobile (QXM) is a holding company which conducts it's business through CEC Telecom, or CECT, an operating unit located inside the People's Republic of China (PRC). The company is one of the largest domestic makers of cell phones in China, where effectively all revenues originate from. The company sells under two brands: "CECT" is the legacy and low-end brand, while "VEVA" is a high end, smartphone-like brand launched last May. The majority of units are sourced through third party manufacturers, although a fair number (15% in 2007) were self-manufactured, and this figure should rise as QXM opened a new plant in January of last year. In all, Qiao Xing sold about 3.8 million handsets in 2007, the last full year of data.

Let's take a look at Qiao Xing using the 3 points of investment, and then detail some specific risks. First, the growth picture. I've given Qiao Xing a C+ for growth potential. The Chinese mobile phone market is one of the most attractive in the world for several reasons. First is a low penetration rate, which should rise given China's universal service mandates for telecom providers and the fact that those living in small cities and rural areas are benefiting from the country's emerging economy, giving them the chance to purchase items like cell phones for the first time. When you apply these factors over a population exceeding 1.3 billion people, it's clear that the mobile phone market there will grow at attractive rates for the foreseeable future. iSuppli estimates nearly 8% growth in 2009 to about 239 million units, a good growth rate with clear and substantially more growth possible (China Mobile (CHL) has over 600 million subscribers alone). This new adoption demand is also buttressed by replacement demand to higher end phones (as in most developed economies), taking advantage of emerging technologies like 3G data networks and touch screen phones. Qiao Xing's VEVA line is poised to benefit from this. Growth is tempered by competitive concerns, however, which will be detailed below.  [more]

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Magic Formula Weekly Roundup 4/18

April 18, 2009 – Comments (0) | RELATED TICKERS: XOM , MOS , RHI

Weekly roundup of stocks moving in and out of the Magic Formula Investing screen.

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Foreign "Magic Formula" Stock? Nokia (NOK)

April 16, 2009 – Comments (0) | RELATED TICKERS: NOK , MSI , AAPL

Nokia is not an "official" Magic Formula stock, but a foreign company with high earnings yield and return on capital as identified by the Magic Formula Investing Europe screen. A review is provided for those interested in applying the strategy's precepts to add international diversity to their portfolio.

Nokia is the biggest maker of mobile devices in the world, with nearly 40% global market share of the handset market, which dwarfs that of competitors Motorola (MOT), Samsung, and LG. The company is exceptionally strong internationally, with a #1 market share in nearly all markets it serves, and sells over 90% of units outside of the North American market. The Nokia Siemens Network Group contributes nearly 35% of revenues by supplying equipment and infrastructure to network providers to implement cellular standards such as GSM, and data standards such as EDGE and 3G protocols. The recent acquisition of GPS mapmaker NAVTEQ added about 2% of recent sales at operating margins exceeding 20%.  [more]

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The Importance of Return on Capital

April 14, 2009 – Comments (0) | RELATED TICKERS: INTC , DLX , PFE

As adherents to Joel Greenblatt's Magic Formula Investing strategy know, the formula boils investing down to two simple statistics: earnings yield and return on capital. Earnings yield is a measure of how cheap a company is against it's profits. Return on capital is a measure of how efficiently a company employs it's resources to generate those profits. When you put them together, they are the tangible statistics behind the simple strategy of buying good businesses (high return on capital) at low prices (high earnings yield).

In this article, we will dive more into the return on capital figure and examine it's importance and how it is calculated. So, what exactly does return on capital tell us? For most investors, an analogy may be the most apt way to grasp the meaning. Imagine you are an investor shopping for a mutual fund in which to park your money. Since you are investing for the long term, you leaf through prospectuses looking at the 10-year average return. Fund manager A has managed to deliver 15% annual gains to his investors, while fund manager B has delivered just 5%. Clearly, your money would have grown faster by being with fund manager A, as he would have better allocated your dollars to achieve wealth.  [more]

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Magic Formula Weekly Roundup 4/11

April 11, 2009 – Comments (0) | RELATED TICKERS: NUE , BIDZ.DL , CHKE

Weekly roundup of stocks moving in and out of the Magic Formula Investing screen.

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5 Points to Look For When Evaluating Management

April 06, 2009 – Comments (2) | RELATED TICKERS: KO , CSCO

Stock analysis involves a number of investigative points. Many are objective and tangible, such as determining if return on capital is and has been above average, and if the company has a reasonable debt load. Others are more subjective, such as determining what is a reasonable expectation for long term profit growth. Today's article falls more into the subjective category, but it is an important component of finding successful investments: finding great management teams.

It doesn't take much digging to see why management is so important. In fact, it's one of the major and primary factors super investor Warren Buffett looks for in prospective investments, either through the purchase of entire businesses or through stock buys on the open market (see the compilation of his annual notes to shareholders in The Essays of Warren Buffett: Lessons for Corporate America). Great leadership, like Roberto Goizueta at Coca-Cola (KO), or John Chambers at Cisco (CSCO), can produce great results year after year, creating wealth for their shareholders. On the other hand, dishonest and greedy management such as the crooks that ran Enron or Worldcom can destroy the fortunes of millions. Clearly, management must be a major consideration before taking an investment position in any company.  [more]

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Magic Formula Weekly Roundup 4/4

April 04, 2009 – Comments (0) | RELATED TICKERS: ACN , HAL , LMT

Weekly roundup of stocks moving in and out of the Magic Formula Investing screen.

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Magic Formula Stock Review: DISH Network (DISH)

April 02, 2009 – Comments (0) | RELATED TICKERS: DISH , DTV , SIRI

DISH Network (DISH) is the #2 household satellite television provider in the United States with nearly 14 million subscribers, trailing only DirecTV (DTV) who services over 17 million customers. Satellite television services are now virtually the only business that DISH engages in. The firm spun off it's set-top box business, as well as some satellite assets, into EchoStar (SATS) at the beginning of last year.

DISH Network's strategy is to be the low-cost leader in satellite television service. The company accomplishes this by focusing on costs and the identification and acquisition of subscribers who will both stick with the company's services and not utilize customer service assets at the drop of a hat. While this has caused DISH to lag behind DirecTV in subscriber growth, the firm has delivered solid returns on capital averaging 41% (on an Magic Formula, no intangible asset basis) and 18% (traditional ROIC) over the past 5 years. Management's focus on generating cash flow has also been successful, as DISH has run a solid 11.3% free cash flow margin since 2004, despite the very capital intensive nature of the business. Since the divestiture of EchoStar, return on capital has improved markedly.  [more]

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