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MagicDiligence (< 20)

July 2010

Recs

2

Magic Formula Investing Weekly Roundup 7/31/2010

July 31, 2010 – Comments (0) | RELATED TICKERS: MHFI , KBR , GRMN

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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2

Magic Formula Stocks Near 52 Week Lows, Far From 52 Week Highs

July 29, 2010 – Comments (0) | RELATED TICKERS: WDC , UTRA.DL , AMED

With Magic Formula Investing (MFI), the point is very simple: find good companies (identified by high returns on capital), trading at low prices (high earnings yield). That is really all there is to it. The system's inventor, Joel Greenblatt, had to fill most of the strategy's guidebook, The Little Book that Beats the Market, with basic examples and funny anecdotes just to fill out 200 pages!

What the strategy does not identify is this: is it a good time to buy the stock now? This is always a good question, and one that can possibly be answered with a little of the black art known as technical analysis.  [more]

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Eastman Kodak (EK) - Developing New Exposures

July 27, 2010 – Comments (0) | RELATED TICKERS: KODK , CAJ , HPQ

Eastman Kodak (EK) is one of the great American brand names of the past century. Founded in 1892 by George Eastman, Kodak was responsible for creating and bringing to market the technology necessary for mass-produced photography and motion pictures. Eastman patented the first film in roll form, the first film usable for motion pictures, and the first cameras suitable for use by the mass consumer. For nearly 100 years, the company was synonymous with and dominated the film photography industry, even facing anti-trust lawsuits in the 1970's.

Certainly, times have changed today. The invention and rapid roll-out of digital cameras and, more recently, camcorders has decimated Kodak's legacy cash cow. The film business is still an important part of the company. For fiscal 2009, it generated around 27% of revenues and propped up the company's other segments, which were collectively unprofitable.  [more]

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4

Using Magic Formula Investing to Find Good Investment Sectors

July 22, 2010 – Comments (0) | RELATED TICKERS: APOL , WDC , BBRY

As a value investing screen, Magic Formula Investing (MFI) can also be useful in highlighting what sectors of the market are out-of-favor right now. In several years of intensely following the MFI screens, one constant theme is that stocks in the same or closely related industries tend to enter and exit the screen together. This makes sense, as current and expected future macro-economic conditions around an industry are a major factor in the valuations of their components.

Often you see many of the major players within a sector show up at once. For example, all three major pharmaceutical distributors: McKesson (MCK), AmerisourceBergen (ABC), and Cardinal Health (CAH) all appeared in MFI together. More recently, most of the major for-profit education stocks are either currently in or have recently appeared in the MFI screens, including Apollo Group (APOL), Corinthian Colleges (COCO), ITT (ESI), and Career Education (CECO). For these stocks, bad press, government rumblings, and famous hedge fund managers have all hurt their valuations.  [more]

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8

Seagate (STX) - The Hard Drive Industry Looks Attractive

July 20, 2010 – Comments (8) | RELATED TICKERS: STX , WDC , INTC

Think back a decade ago to mid-2000. The average person probably owned a single desktop computer and accessed the Internet through AOL (AOL) dial-up. Few people bought products on-line. Nearly everyone still purchased CDs to own music and VHS tapes to own movies (DVD did not outsell VHS until 2001). Film cameras were found in 90% of homes while digital cameras had only penetrated 10%. Digital cameras still took relatively small, low-quality photos - 3 megapixels was state-of-the-art at the time. Digital video was barely even being used in Hollywood, let alone in the hands of consumers.

Most computer files were small, text-based word processing or spreadsheet documents that could easily be backed up onto floppy drives, Zip drives, or CD-ROM disks. Back in 2000, the largest hard drives you could find were about 80 gigabytes (GB) in size, and most computers had disk drives in the 20-40 GB range.  [more]

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4

Top 10 Fastest Growing Companies in Magic Formula Investing

July 15, 2010 – Comments (1) | RELATED TICKERS: DRWI , AMED , PRSC

No metric is more loved on Wall Street than revenue growth rates. The pace of revenue growth is usually a major factor in the valuation assigned to a given company. Analysts routinely "pooh-pooh" quarterly earnings per share beats that are accomplished through cost cutting or share buybacks rather than top-line (sales) growth.

To a large extent, this is understandable. The life blood of any company is sales. There is a limited amount of growth that can be extracted through cost controls, reflected by the old business wisdom that "you can't cost cut your way to prosperity!". The very best stock opportunities are those with significant revenue growth potential that can achieve that growth with relatively little capital investment, and where the stock can be bought at a reasonable price.  [more]

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4

Research In Motion Limited (RIMM) - Can BlackBerry Keep Up?

July 13, 2010 – Comments (1) | RELATED TICKERS: BBRY , AAPL , GOOGL

Research In Motion (RIMM) is one of those Magic Formula stocks that almost everyone will instantly recognize and probably raise an eyebrow over. The company is famous, of course, for its BlackBerry line of smartphone devices. BlackBerry got its start in the North American enterprise space, where the company provided a full IT solution including enterprise server (BES) software that allowed departments to provide desirable features such as push e-mail, automatically updated contact information, and remote administration, including wiping phones that had been lost or stolen. IT departments love BlackBerries for these features, and the users loved them for their excellent communications features, such as full keyboards (a rarity once upon a time) and integrated messaging. They became known as "CrackBerries" for the amount of attention they drew from their users.

RIM successfully extended this brand cache into growth markets, such as overseas (150 countries, over 500 carriers, 30% of subscribers), and more recently, into the consumer market with the Pearl, Curve, Bold, and Storm branded phones. Consumer devices now account for over 50% of RIM's 46 million subscribers. The company's prestigious BlackBerry brand and enterprise penetration gave it a leg up on the emerging smartphone market, and RIM currently holds a 38% market share in smartphones worldwide, second only to Nokia (NOK). In the U.S. market, RIM is #1 with a 42% share (according to comScore).  [more]

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2

Magic Formula Weekly Roundup 7/10/2010

July 10, 2010 – Comments (2) | RELATED TICKERS: LPS , TJX , JCG.DL

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]

Recs

15

A Lack of Logic Around China Sky One Medical (CSKI)

July 07, 2010 – Comments (2) | RELATED TICKERS: CSKI , SNY , NPD

Imagine this scenario. A firm that has grown revenues at a 50% CAGR for the past 4 years, operating profits at 39%, and is projected to continue growth at levels above 20%. This firm has no debt and holds over $65 million in cash on the balance sheet. Operating margins have routinely come in above 35%. The company competes in the historically lucrative OTC and personal care product market, which is largely isolated from recessions and feature consumer branding and repeat purchases - a favorite industry of none other than Warren Buffett.  [more]

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4

Kirkland's (KIRK) Turnaround Looks Set to Continue

July 06, 2010 – Comments (0) | RELATED TICKERS: KIRK , HD

Kirkland's (KIRK) is a home decor, seasonal item, and gift retailer in the United States. The company operates 281 stores across 28 states as of the last quarter (May 1), a net 2 store increase over last year.

Anyone who has ever stepped foot in a Kirkland's knows what an eclectic place it is. The items are usually things you can't find at many competitors and span a wide variety of categories from framed art, candles, lamps, rugs, unique furniture items, unusual mirrors, garden decorations, and so forth. Kirkland stores also sell specialty gift and decorative items for pretty much any holiday you can imagine. Selection is huge, with 3,500 to 4,000 items in the average store. Most current stores are located in mall-based settings, although this is changing.  [more]

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Magic Formula Weekly Roundup 7/3/2010

July 03, 2010 – Comments (0) | RELATED TICKERS: BBRY , SNDK , GD

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]

Recs

13

Why the Dollar Price of a Stock Doesn't Matter

July 01, 2010 – Comments (2) | RELATED TICKERS: YHOO , GOOGL

When first starting to invest in stocks, it is a common occurrence to see novice investors shy away from issues with high dollar prices. The primary reason for this is simple psychology. If that investor is starting out with, say, $5,000 to invest, he or she will only be able to buy 10 shares of a stock like Google (GOOG), but could buy nearly 5,000 shares of competitor Yahoo! (YHOO). Furthermore, the psychology is such that this investor realizes that small monetary gains in each share benefit him more with the lower-priced stock. A $1 move in YHOO (currently at $14 and change) would have to be matched by a nearly $32 move in GOOG to have the same net effect. And it seems much easier to get that $1 appreciation than $32.

The most important psychological factor for a novice stock investor, though, is the lack of understanding of how valuable a single share of stock is. If he or she sees a share of GOOG stock vs. a share of YHOO stock as equivalent, the nearly 32x cost of that share of GOOG seems very expensive to pay. While this same investor may have a background in technology, and understand that Google is a better-performing company than Yahoo!, the magnitude of difference in their stock prices may not be immediately understood.  [more]

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