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MagicDiligence (< 20)

November 2011

Recs

4

High Piotroski Scores in Magic Formula Investing

November 29, 2011 – Comments (3) | RELATED TICKERS: ATVI , DELL.DL , FCX

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.

Piotroski's method is very simple. A stock is scored by 9 different, and very simple, criteria that measure the company's performance between the past 2 years. The stock gets a '1' for each test it passes, and a '0' for each test it does not. If both years show identical values, a '0.5' can be awarded. At the end, all of the scores are added up to come up with the Piotroski score. In this scale, a '9' is a perfect score, passing all tests. '8' (and '8.5') are excellent scores worthy of consideration. Back-testing has found that choosing stocks with low valuations and Piotroski scores of 8 or 9 vastly outperforms the market.  [more]

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3

Magic Formula Investing Weekly Roundu 11/27/2011

November 27, 2011 – Comments (0) | RELATED TICKERS: CSCO , GD , MRX

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

7

Magic Formula Investing Weekly Roundup 11/20/11

November 20, 2011 – Comments (0) | RELATED TICKERS: ATVI , FRX , TRW

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

2

Lender Processing Services is a Good Long-Term Pick

November 18, 2011 – Comments (1) | RELATED TICKERS: FIS , LPS

Lender Processing Services (LPS) is the largest mortgage processing provider in the United States. The company offers services that cover the entire span of a mortgage loan, from origination through service of existing loans and even handling defaults. Examples of services provided include title search, closing, lien recording, appraisals, flood zone certification, foreclosure, property inspection, and so forth. LPS was spun off from Fidelity National Information Services (FIS) in 2008.

This company has an attractive business model. LPS is an outsourcing solution for lending institutions, primarily large banks. Revenue is dependent on the volume of mortgages coming through the pipeline. One nice thing about the business is how it is set up to thrive during boom or bust periods for real estate. When the housing market is strong, LPS earns increased business on its loan origination services. When it is extremely weak, mortgage default volumes skyrocket and LPS earns the dough providing foreclosure and other end-of-life functions. LPS also has an attractive Technology, Data, and Analytics (TD&A) segment, about 10% of the business, that provides software, data management, and analytical services to lenders.  [more]

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5

Review of "The Monopoly Method" by Greg McCall

November 16, 2011 – Comments (0)

In today's article, MagicDiligence will reviewThe Monopoly Method by Greg McCall. This book contains some investment processes and insights that can be useful to those interested in applying due diligence to stocks uncovered by Magic Formula Investing.

The purpose of the book is laying out a structured stock investing process known as the Monopoly Method. The main theme of this process is choosing companies that, through various methods, have obtained "unfair advantages" over current and prospective competitors that allow them to consistently earn high returns on capital and provide greater returns to shareholders.  [more]

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1

Magic Formula Investing Weekly Roundup 11/13/2011

November 13, 2011 – Comments (0) | RELATED TICKERS: CF , FCX , GILD

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

4

5 Growth Stocks With Value Stock Prices

November 10, 2011 – Comments (0) | RELATED TICKERS: KLAC , GTAT , TNAV

Joel Greenblatt's Magic Formula Investing(MFI) strategy is unequivocally a value strategy, ranking the entire universe of equities by earnings yield (a proxy for price-to-earnings multiple) and return on tangible invested capital. The stocks that rank at the top are, by design, cheaply priced against their past earnings, and have earned very high returns on retained capital.

The key question, though, is can those high returns be re-invested at similar returns to generate an increasing revenue base? Without growth, there is a limited amount of stock appreciation potential.  [more]

Recs

1

Magic Formula Investing Weekly Roundup 11/6/2011

November 06, 2011 – Comments (0) | RELATED TICKERS: GD , KLAC , LLY

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

3

When To Get Worried About A Company's Debt Burden

November 02, 2011 – Comments (0) | RELATED TICKERS: DISH , GTIV

Nothing can get a company in trouble faster than excessive debt. However, not all debt is bad. Properly utilized, debt can be an excellent way to utilize leverage to magnify the returns of investing retained capital (see this article for a less wonky explanation). But when is debt bad and when is it ok?

To start with, there is a very simple strategy: simply consider only stocks where the company carries no debt whatsoever, or has a miniscule percentage of debt to cash (less than 5%, for example). There are hundreds (perhaps thousands) of American companies that satisfy this requirement. In Magic Formula Investing (MFI) alone there are dozens, even large-caps like Dolby (DLB) and Marvell (MRVL).  [more]

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