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MagicDiligence (< 20)

The Forbes Top 150 Ranked in Magic Formula Fashion

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May 19, 2010 – Comments (0) | RELATED TICKERS: PM , AZN , IBM

Magic Formula Investing (MFI) is probably most popular for digging up attractively priced and quality small-cap stocks that have been overlooked or misunderstood by the market. Small-caps are usually not covered by a lot of analysts and not talked about on CNBC, yet small-cap value has been the best performing equity group historically. The book behind MFI, Joel Greenblatt's The Little Book that Beats the Market, confirms that this group also performs better using the strategy's principles. While the book's analysis showed the top MFI stocks of any size outperforming the S&P 500 by 18.5% annually, limiting to just the largest 1,000 stocks reduced outperformance to 11.2% annually.

While that is a significant drop, it is still an outstanding performance. There are clearly reasons why some investors prefer to stick to large-cap companies in their equity portfolios. For one, these stocks are more familiar to investors, making them easier to understand. Large companies also (usually) have much wider product lines, better economies of scale, long operating histories, diverse customer bases, and easy access to the credit markets, all of which most small-caps cannot boast. Additionally, large-caps usually have less volatile up-and-down price swings, which can be un-nerving to inexperienced investors. Many people feel more comfortable investing in large companies because of these advantages.

Recently, Forbes published its annual Leading Companies list, which ranks the top 150 worldwide companies by a composite of sales, profits, assets, and market value. MagicDiligence thought it would be interesting to take this list and rank the stocks by the Magic Formula statistics of earnings yield and adjusted return on capital, to show which of these large companies were above average in efficiency and below average in price.

A few caveats first. As you will see, we came up well shy of 150 companies. In fact, only 58 of them were able to be ranked in MFI fashion. There are several reasons for this. First, any banks, insurance companies, investment firms, and utilities had to be removed, as Magic Formula Investing specifically throws them out by design. This alone eliminated a third of the list. Next, I only included stocks which can be bought on a major U.S. exchange, eliminating several unlisted foreign firms. Finally, some stocks had incomplete data, causing an inability to calculate the necessary stats. By the way, all statistics were calculated with MagicDiligence's free MFI Statistics Calculator.

The table below shows the list, ordered from most attractive by MFI stats to least attractive. The companies with an asterisk (*) currently appear on one or more screens from the official MFI site.

Rank, Company, Ticker, EY, EY Rank, ROIC, ROIC Rank, Composite Rank

1, Philip Morris Int'l, PM, 19.2%, 4, 176.3%, 1, 5

2, AstraZeneca, AZN, 19.3%, 3, 100.2%, 4, 7

3, IBM, IBM, 15.6%, 8, 72.0%, 6, 14

4, Unilever, UN, 11.2%, 13, 65.8%, 8, 21

5, Statoil, STO, 26.1%, 2, 33.0%, 22, 24

6, Microsoft , MSFT, 9.4%, 21, 115.7%, 3, 24

7, GlaxoSmithKline, GSK, 11.8%, 12, 52.1%, 12, 24

8, Telefonica, TEF, 16.9%, 6, 35.7%, 19, 25

9, Johnson & Johnson, JNJ, 9.8%, 18, 57.5%, 9, 27

10, Eni SpA, E, 30.7%, 1, 28.1%, 27, 28

11, ABB , ABB, 11.0%, 15, 48.4%, 13, 28

12, United Parcel Service, UPS, 11.2%, 13, 38.8%, 18, 31

13, Lockheed Martin, LMT, 12.2%, 10, 33.6%, 21, 31

14, CVS Caremark, CVS, 10.7%, 16, 42.8%, 15, 31

15, Time Warner, TWX, 10.5%, 17, 39.3%, 17, 34

16, Hewlett-Packard, HPQ, 9.4%, 21, 46.7%, 14, 35

17, Google, GOOG, 7.8%, 33, 140.7%, 2, 35

18, Telecom Italia, TI , 18.7%, 5, 18.5%, 37, 42

19, Oracle, ORCL, 7.2%, 38, 99.0%, 5, 43

20, Total S.A., TOT, 16.2%, 7, 18.0%, 38, 45

21, Pfizer, PFE, 9.3%, 23, 29.6%, 25, 48

22, Proctor & Gamble, PG, 7.2%, 38, 54.0%, 10, 48

23, Wal-Mart Stores, WMT, 9.7%, 19, 22.2%, 31, 50

24, Cisco, CSCO, 6.5%, 44, 66.6%, 7, 51

25, BP, BP, 15.2%, 9, 16.4%, 42, 51

26, Abbott Labs, ABT, 7.5%, 36, 39.8%, 16, 52

27, Novartis, NVS, 9.3%, 23, 23.1%, 30, 53

28, Chevron, CVX, 11.9%, 11, 14.7%, 44, 55

29, Apple, AAPL, 5.9%, 47, 52.6%, 11, 58

30, ExxonMobil, XOM, 9.5%, 20, 16.6%, 40, 60

31, Comcast, CMCSA, 8.7%, 28, 22.0%, 32, 60

32, Coca-Cola, KO, 6.8%, 42, 35.7%, 19, 61

33, Siemens, SI, 9.0%, 27, 20.6%, 35, 62

34, Intel, INTC, 7.6%, 35, 27.2%, 28, 63

35, AT&T, T , 9.1%, 26, 17.8%, 39, 65

36, Kraft, KFT, 6.9%, 41, 31.3%, 24, 65

37, Nokia, NOK, 6.6%, 43, 31.6%, 23, 66

38, Disney, DIS, 7.9%, 32, 20.6%, 36, 68

39, Verizon, VZ, 9.2%, 25, 12.3%, 47, 72

40, PepsiCo, PEP, 5.8%, 48, 28.7%, 26, 74

41, Target, TGT, 8.4%, 31, 14.3%, 45, 76

42, Deutsch Telekom, DT, 8.5%, 30, 11.8%, 48, 78

43, Home Depot, HD, 7.1%, 40, 16.6%, 40, 80

44, British American , BTI, 4.3%, 52, 24.3%, 29, 81

45, Posco, PKX, 8.6%, 29, 9.6%, 52, 81

46, Ford Motor, F, 7.4%, 37, 12.9%, 46, 83

47, Schlumberger, SLB, 4.5%, 51, 20.9%, 34, 85

48, ConocoPhillips, COP, 7.8%, 33, 7.0%, 55, 88

49, News Corp, NWS, 6.1%, 46, 16.2%, 43, 89

50, Rio Tinto, RTP, 0.2%, 58, 21.0%, 33, 91

51, Canon, CAJ, 5.1%, 49, 9.9%, 49, 98

52, PetroChina, PTR, 6.3%, 45, 8.4%, 53, 98

53, Vale, VALE, 4.9%, 50, 9.8%, 50, 100

54, Boeing, BA, 3.3%, 55, 9.7%, 51, 106

55, Honda Motor, HMC, 4.3%, 52, 4.1%, 57, 109

56, China Mobile, CHL, 2.7%, 56, 8.2%, 54, 110

57, Tesco, TESO, 3.7%, 54, 5.2%, 56, 110

58, China Unicom, CHU, 1.4%, 57, 1.4%, 58, 115

 

 

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