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MagicDiligence (< 20)

June 2009

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Magic Formula Weekly Roundup 6/27

June 27, 2009 – Comments (0) | RELATED TICKERS: PFE , LMT , KBR

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

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Magic Formula Stock Review: Garmin (GRMN)

June 26, 2009 – Comments (0) | RELATED TICKERS: GRMN , AAPL , BBRY

It wasn't very long ago that Garmin was a popular stock with the growth investing set. Today, with an 21% earnings yield and a place in the Magic Formula Investing screen, the company is firmly in value stock territory. What happened to bring this rocket stock back to earth, and have investors overreacted?

For those unfamiliar, Garmin is one of the leading manufacturers of global positioning system (GPS) devices worldwide. The company sells products in 4 segments. Automotive, which consists of in-dash or mounted units in vehicles, accounts for 59% of revenues, although only 8% of operating profits. The Outdoor/Fitness segment, consisting mainly of Garmin's handheld personal navigation devices (PNDs), contributes 18% of revenue and 49% of profits. The Aviation unit, which builds devices for use in aircraft cockpits, delivers 14% of sales and 25% of income. Lastly, the Marine unit, which produces positioning systems for water bound vessels, contributed 9% of sales and 18% of profits.  [more]

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Is Bridgepoint Education (BPI) a Legitimate Magic Formula Stock?

June 22, 2009 – Comments (0) | RELATED TICKERS: BPI

A few readers alerted me on one of the newest Magic Formula stocks, Bridgepoint Education (BPI), as to a possible problem with the official screen listing this as an MFI stock. On that screen, BPI is listed as having an enterprise value of about $69 million, but most of the large financial sites such as Yahoo!, Google, and Morningstar have the market capitalization at a much higher $860 million, with enterprise value only slightly lower at $811 million. That's a pretty large difference, so MagicDiligence wanted to sort out what was going on here.

As it turns out, something that seemed trivial turned out to be more complex than expected! The root of the problem is easy enough to understand. The main financial sites were using an outstanding share count of about 55 million, while the MFI screen was using the value given by the company in their last 10-Q of 8.1 million shares. What is confusing, though, is that Bridgepoint's 10-Q lists $3.3 million of net income, but only 0.03 of per-share earnings. Clearly, something does not compute, as $3.3 million divided by 8.1 million shares should come out as about 0.41 of per share earnings. Time to dig into the notes.  [more]

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Magic Formula Weekly Roundup 6/20

June 20, 2009 – Comments (0) | RELATED TICKERS: PFE , GME

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

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MFI Rebounding Better than Dwight Howard

June 16, 2009 – Comments (0) | RELATED TICKERS: CTCM , BARE.DL , DLX

From Lehman Brother's collapse on September 15th, 2008, until March 9th of this year, the S&P 500 and stocks in general were in a massive free fall seldom witnessed in the market's history. The SPY S&P 500 ETF closed at 68.11 on that day, its lowest point since September of 1996! Since then, the market has rebounded strongly, and SPY is up an impressive 46%, closing last Friday at 95.08. Consumer confidence has improved, housing is showing signs of stabilization, banks are again reporting profits, and overall the worst appears to be behind us.

Nearly all investors have performed well, but Magic Formula investors in particular have really benefited, especially those that focus on small cap picks. This makes sense, of course. Small cap, value based stocks are the best performing class of stocks over the history of the market. The inherent volatility in small cap stocks provides investors ample opportunity to buy them at a discount, and in market downturns these stocks get significantly cheaper than the perceived "safer" large-cap companies. Of course, a low stock price more than mitigates these "risks", in many cases.  [more]

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Magic Formula Weekly Roundup 6/13

June 13, 2009 – Comments (0) | RELATED TICKERS: NOV , JHTXQ.DL

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

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Magic Formula Stock Review: GT Solar (SOLR)

June 10, 2009 – Comments (0) | RELATED TICKERS: GTAT , LDKSY

Solar is a solar equipment manufacturer and service provider. The company has two main products, and a business unit built around each of them. The Photovoltaic business (76% of fiscal 2009 revenues) makes and sells direct solidification systems, or DSS units. A DSS unit is a furnace specifically designed to melt silicon to produce the ingots used to produce wafers on which solar cells can be constructed. The sale of these units alone accounted for 2/3rds of revenue over the past 12 months. The Polysilicon business (24%) makes and cells chemical vapor deposition, or CVD, reactors. CVD reactors are used to manufacture polysilicon, the raw material needed for solar panel and semiconductor construction. GT Solar collects the vast majority of sales (91%) from customers in Asia, including China. The company was IPO'd last July at a price of $16.50... way above its current stock price of about $6 a share.

Most everyone realizes the growth potential in solar. 2008's soaring gas and energy prices ignited yet another push for renewable and sustainable energy sources, and new President Obama has made renewable energy credits a prime feature of his stimulus and budget plans. The overall solar market had been growing at a 35% annual pace before last fall's market meltdown, and an even faster 60% pace in the United States (although from a small base). GT Solar has fully benefited from this, growing revenues 122% last year and 306% in 2007! Although revenues are forecast to be slightly down for 2010 due to economic weakness and difficult credit, an improvement in economic conditions could lead to resumed growth in this exciting market.  [more]

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Magic Formula Weekly Roundup 6/7

June 07, 2009 – Comments (2) | RELATED TICKERS: LMT , NOV , GIGM

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

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Can the Piotroski Method improve Magic Formula results?

June 04, 2009 – Comments (3) | RELATED TICKERS: DISH , MSFT , JEC

2008 was an absolutely horrid year for stock investing. The S&P 500 was down nearly 40%. Even value stock strategies were pummeled, including the Magic Formula strategy. So it is intriguing that the American Association of Individual Investors found only one stock strategy that actually showed positive returns for 2008 - the Piotroski method.

Joseph Piotroski is an former accounting professor at the University of Chicago, and an active value-based investor. He noticed when reviewing stocks with very low price-to-book value that many of them were in poor financial shape, unlikely to survive and deserving of their low valuation. Piotroski set out to devise a system to take these low price-to-book stock lists and mechanically filter out the ones that were unlikely to survive and prosper, leaving a number of potentially attractive investment opportunities.  [more]

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