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MagicDiligence (< 20)

April 2011

Recs

3

Does Strayer University Make the Grade?

April 29, 2011 – Comments (0) | RELATED TICKERS: STRA , APOL , DV

Magic Formula Investing (MFI) looks for stocks with low valuations (measured by high earnings yield) of excellent companies (measured by high returns on tangible capital). So it is no surprise that the formula is in love with the for-profit education sector. These historically high margin, high growth businesses have come under mortar fire from Congress and the Department of Education (DoE) over the past year over low student loan repayment and high dropout rates, with several potentially game changing regulatory proposals looming over them. In these conditions, stock valuations have plummeted and practically the entire sector has shown up in MFI at some time or another. Currently, the screens select a total of 6 for-profits: Apollo Group (APOL), Capella (CPLA), ITT (ESI), Career Education (CECO), DeVry (DV), and the one I want to look at today, Strayer Education (STRA).

Strayer is one of the smaller players in this business, with just 89 campuses in 21 states and D.C., and roughly 56,000 students. Compare that to Apollo Group (University of Phoenix) with about 405,000 students! The company's primary geography is in the mid-Atlantic states and the south. Strayer focuses on working adults looking to build on their prior education by offering most classes in the evenings or weekends, and online.  [more]

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4

Using Magic Formula Investing to Rank Any List of Stocks

April 26, 2011 – Comments (0) | RELATED TICKERS: DPS , KSS , MSFT

Magic Formula Investing, or MFI, is based on a process, not on hard limits. The process is simply applied on a "basket" of stocks, producing a relative ranking for each stock in that basket based on a composite of earnings yield and adjusted return on capital. The result you get is your basket ranked from 1-N, with lower rankings indicating good companies selling at cheap prices.

The strategy on a whole is usually applied to all U.S.-listed stocks over $50 million market cap, to find the market's most attractive "quality-at-value" opportunities. However, it doesn't have to be used in this manner. It is perfectly viable to apply MFI's tenets to smaller baskets of stocks to compare investment opportunities.  [more]

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6

Revew of Joel Greenblatt's "The Big Secret for the Small Investor"

April 20, 2011 – Comments (0)

MagicDiligence put out a post last week examining some of Magic Formula Investing inventor Joel Greenblatt's interviews leading up to the release of his newest book, The Big Secret for the Small Investor. I was able to read the book over the weekend and wanted to post some of my thoughts concerning it.

First of all, like The Little Book that Beats the Market, this is a short, easy read that can easily be completed in a single sitting. The target audience is the individual investor, although I believe it is helpful to have a little knowledge of business accounting before reading this one. While The Little Book can be easily digested and understood by even the most novice investor, Big Secret assumes also that the reader has at least a basic understanding of valuation and return on capital principles.  [more]

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Magic Formula Investing Weekly Roundup 4/17/2011

April 17, 2011 – Comments (0) | RELATED TICKERS: DLB , HRS , MKSI

Magic Formula Investing (MFI), as described by hedge fund manager Joel Greenblatt in The Little Book that Beats the Market, consists of ranking stocks by earnings yield (cheap) and return on capital (quality), adding the rankings together, and buying from the resulting lists. Below are stocks that have moved into, and dropped out of, 3 of the MFI screens used by MagicDiligence:  [more]

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11

Joel Greenblatt Has A Big Secret For You...

April 13, 2011 – Comments (1) | RELATED TICKERS: XOM , AAPL

The past few weeks have seen Joel Greenblatt, the father of Magic Formula Investing (MFI), out promoting his new book released Tuesday, titled The Big Secret for the Small Investor. MagicDiligence is in the process of reading the book, and a full review should be up as early as next week.

From Greenblatt's interview with Morningstar, we already have a pretty good idea of what the book is about and the motivation behind it. The "big secret" is value weighted indexing. Most indexes, like the S&P 500 or Russell 3000, are weighted by market cap. That means that for every dollar you invest in them, the largest cap stocks get more pennies then the smaller cap stocks. For example, if you invest $100 in a S&P 500 index fund (SPY is a popular one), about $3.48 is invested in ExxonMobil (XOM), the largest-cap stock in the index, while about $2.52 is invested in Apple (AAPL), the second largest, and so on.  [more]

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Magic Formula Investing Weekly Roundup 4/20/2011

April 10, 2011 – Comments (0) | RELATED TICKERS: ADI , ARIA , FLL

Magic Formula Investing (MFI), as described by hedge fund manager Joel Greenblatt in The Little Book that Beats the Market, consists of ranking stocks by earnings yield (cheap) and return on capital (quality), adding the rankings together, and buying from the resulting lists. Below are stocks that have moved into, and dropped out of, 3 of the MFI screens used by MagicDiligence:  [more]

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3

The Returns Have Already Been Filed on H&R Block

April 08, 2011 – Comments (0) | RELATED TICKERS: HRB , INTU

H&R Block (HRB) is by far the largest provider of tax preparation and other financial and business services in the United States. The company's biggest and oldest business is Tax Services, which generates 77% of revenues and over 90% of operating profits. Block has 12,000 offices across the country, of which about 1/3rd are run by franchisees. These offices processed over 23 million tax returns in 2010, 15.5% of all returns filed. To put Block's dominance in perspective, second place Jackson-Hewitt (JTX) processed about 2.5 million - about 1/10th of HRB.

Although Block's bread-and-butter is office prepared returns, the company has aggressively moved into the "do-it-yourself" (DIY) software-based return preparation market in the past year. While H&R produces its own software product, it made a big move last October with its purchase of TaxACT, which doubled DIY sales. This now puts Block solidly at #2 in tax software, but still only at about half the market share of Intuit's (INTU) TurboTax products  [more]

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Magic Formula Investing Weekly Roundup 4/3/2011

April 03, 2011 – Comments (0) | RELATED TICKERS: HPQ , GPS , SAI

Magic Formula Investing (MFI), as described by hedge fund manager Joel Greenblatt in The Little Book that Beats the Market, consists of ranking stocks by earnings yield (cheap) and return on capital (quality), adding the rankings together, and buying from the resulting lists. Below are stocks that have moved into, and dropped out of, 3 of the MFI screens used by MagicDiligence:  [more]

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