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MagicDiligence (< 20)

September 2010

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China Jo-Jo Drugstores (CJJD) Has Huge Growth Potential, Risks

September 28, 2010 – Comments (0) | RELATED TICKERS: WAG , NPD , CJJD

China Jo-Jo Drugstores (CJJD) operates 45 retail pharmacy locations in the Chinese city of Hangzhou. All locations have on-site, licensed doctors specializing in both western and traditional Chinese medicine, or TCM. A few locations even have urgent care clinics adjacent. The average store size is about 2,800 square feet (roughly a standard mall location), and carries between 2,500 and 7,500 products. Pharmaceuticals account for about 38.5% of sales, over-the-counter (OTC) 34.5%, TCM 11.5%, and nutritional supplements 9.3%.

China Jo-Jo is yet another "reverse merger" Chinese small-cap. It utilizes a defunct, re-named U.S. corporation, in this case Kerrisdale Mining, to access foreign capital via a web of holding and management entities. This is done because Chinese regulations disallow foreign ownership exceeding 49% of any pharmacy chain operating over 30 stores. The actual operating subsidiaries in China are the "HJ Group" companies, primarily Hangzhou Jiuzhou Grand Pharmacy. The HJ Group companies are not owned by China Jo-Jo, but maintain contractual agreements that in effect control them. Three founders - Lei Liu, Li Qi, and Chong'an Jin - own 47% of China Jo-Jo, and essentially 100% of the operating subsidiaries, so this setup seems feasible in order to finance through U.S. investors. The stock started trading on the NASDAQ in April of this year at $5 a share.  [more]

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Magic Formula Investing Weekly Roundup 09/26/2010

September 26, 2010 – Comments (0) | RELATED TICKERS: ACN , CA , CRI

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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Cheap Stocks that Return Capital to Shareholders

September 22, 2010 – Comments (0) | RELATED TICKERS: APOL , HRB , LO

Providing returns to shareholders can be accomplished in many ways. The best way is through re-investing cash flows to grow the revenues and profits of the business, increasing the intrinsic value of the firm's common stock. However, many companies operate in limited markets or are mature businesses with limited opportunities to re-invest cash at attractive rates to generate growth. In these situations, there are two additional options. One is to simply pay out excess cash flow to shareholders in the form of a dividend. The second option is to buy back shares of common stock and retire them, providing current shareholders a larger slice of the profit pie.

A dividend in most cases is the more attractive option. Dividends provide a tangible return on investment, often at higher yields than can be attained through "safer" investments like bonds or treasuries. Also, dividend payments can be raised, and it is usually a priority of company boards to avoid cutting or eliminating a dividend.  [more]

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Magic Formula Investing Weekly Roundup 9/19/2010

September 19, 2010 – Comments (0) | RELATED TICKERS: JCOM , WTW , LPS

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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Carter's (CRI) - Tiny Clothes, Big Returns?

September 14, 2010 – Comments (0) | RELATED TICKERS: CRI , GYMB.DL , PLCE

Carter's (CRI) is a retailer of children's apparel, the largest in the industry with a 12% overall market share, and a 140-year history. The company has two primary channels of distribution that contribute roughly equally to total sales. Carter's apparel is sold wholesale to over 4,000 department and chain stores, such as Macy's (M) or Kohl's (KSS). Special brand lines were developed for Walmart (WMT - the "Child of Mine" brand) and Target (TGT - "Just One You"), representing about 20% of sales. Additionally, Carter's operates 289 self-branded locations and an additional 175 OshKosh stores. OshKosh (acquired in 2005) is the firm's older age brand, while Carter's focuses more on newborn and infant clothing.

While several retailers occupy the Magic Formula screens at present, Carter's has some interesting characteristics that may make it a more attractive play than others. For one, children's clothing is a less volatile business than standard apparel. While adults will bargain shop in a recession, and teens are constantly changing fashion allegiances, parents and grandparents usually do not put as strict a lid on spending for the little ones, and fashion is a lesser concern. This helped the children's apparel market to a less severe decline in spending during the 2008-09 recession - a 3.5% decline vs. 5.1% in general apparel, according to NPD.  [more]

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Magic Formula Investing Weekly Roundup 9/12/2010

September 12, 2010 – Comments (0) | RELATED TICKERS: GPS , HRB , FSYS

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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Medical Diagnostic Laboratories - Which is the Best Investment?

September 09, 2010 – Comments (0) | RELATED TICKERS: DGX , LH , GXDX.DL

The Magic Formula (MFI) screens can often be used to find entire industries that are out-of-favor with investors, but have attractive business models from a return on capital standpoint. In many cases, several of the top players (and often smaller players) within the industry will all show up at once, presenting investors with a choice as to which horse to ride if he/she wants exposure. This is where a little due diligence can assist in making the decision, as buying more than one similar firm creates certain "macro-economic" risks in your portfolio, where events effecting all participants effects your portfolio disproportionately.

One such industry right now are the medical diagnostic laboratories. There are many recent MFI stocks that are in this industry, from tiny small-cap upstarts like Genoptix (GXDX) to mid-cap specialized testing firms like Myriad Genetics (MYGN) all the way to the "big 2". For the purposes of this article, it is the latter we are interested in. Both Quest Diagnostics (DGX) and LabCorp (LH) are Magic Formula stocks in the large cap screens, and they are the two we want to look at here.  [more]

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Magic Formula Investing Weekly Roundup 9/6/2010

September 06, 2010 – Comments (0) | RELATED TICKERS: ENDP , VPHM , 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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