Magic Formula Investing Weekly Roundup 9/10/2011
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:
Entering the 50 over 50 million screen:
NeuStar Inc (NSR)
Dropping out of the 50 over 50 million screen:Korn/Ferry International (KFY)
Entering the 50 over 1 billion screen:Gannett Co Inc. (GCI)
Gap Inc. (The) (GPS)
Progress Software Corp (PRGS)
Dropping out of the 50 over 1 billion screen:
Linear Technology Corp (LLTC)Lorillard Inc (LO)QLogic Corp (QLGC)
Entering the 30 over 3 billion screen:
Altera Corp (ALTR)
Freeport-McMoran Copper & Gold Inc. (FCX)
TRW Automotive Holdings Corp (TRW)
Dropping out of the 30 over 3 billion screen:
Activision Blizzard Inc (ATVI)Cephalon Inc (CEPH)Eli Lilly and Co (LLY)
News and Links
Windows 8 Gets Ready for its Big Debut
Microsoft Lines Up Its Big Swing in Tablets
Windows 8 is a potential turning point for Microsoft (MSFT). The demos look great, but can they really pull off a "no compromise" PC and tablet OS? If they can, it can be a big catalyst for a moribund stock.
Gartner Chops 2011 PC Unit Growth View to 3.8% From 9.3%
While this is a concern across big tech, the profit margins on consumer PCs are so poor that the net effect on profits will be negligible. Perhaps the most affected is MSFT, as they don't have much share in the alternatives - yet.
Dell and Baidu Team Up for Mobiles, Tablets
Dell (DELL) seems to be concentrating outside the US in its mobile efforts. Baidu (BIDU) is as good a partner as any for China.
SanDisk and MIPS Turn to Progressive Revenue Drivers
Two Magic Formula tech stocks with supposedly stressed business models. Why do analysts keep pointing to iCloud and other cloud services as a bad thing for flash? iCloud is a syncing system - you still need local storage.
4 Tech CEOs Teetering After Bartz
I agree with the other 3, but Cisco (CSCO) getting rid of Chambers would be a horrible mistake.
Par Pharmaceutical Engaged In Illegal Drug Switching Scheme, U.S. Says
There is a lot of smoke on this issue for Par (PRX). Generics are a tough, competitive business. MagicDiligence does not want to invest in a company whose management is willing to cut corners.
5 Profitable and Undervalued Targets for Takeover or Buyout
3 of the 5 (MHP, GPS, GCI) are or have been recent Magic Formula stocks.
Why I Never Talk to Management
I get the same question. Management in general is unwilling to give any additional color to individual investors than they provide in filings and conference calls. Usually it's a waste of time. Charlie Munger always said the same thing.