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MagicDiligence (< 20)

Top 10 Dividend Yields, Lowest 10 P/B and P/S Stocks in Magic Formula

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January 05, 2012 – Comments (0) | RELATED TICKERS: GME , ICON , HRB

Every so often, MagicDiligence compiles a list of Magic Formula® Investing (MFI) stocks sorted by their dividend yield, price-to-sales ratio, and price-to-book ratio for investors that like to use those metrics. The result produces a list of attractive value stocks for additional research. Here are the top 10 in each of the three metrics listed above:

Dividend Yield

Dividend yield is a favorite metric for income investors, providing both steady, predictable returns and downside protection. With MFI, you are also buying dividend stocks that are both cheap against earnings and represent a company that efficiently invests capital. The top 10 highest dividend yield stocks (forward yield) right now are:

1) 21.1% - Great Northern Iron Ore Properties (GNI)
2) 9.7% - Protein Design Labs Inc (PDLI)
3) 7.1% - USA Mobility Inc (USMO)
4) 6.6% - Cherokee, Inc. (CHKE)
5) 4.9% - Block (H&R) Inc. (HRB)
6) 4.8% - PetMed Express Inc (PETS)
7) 4.5% - Lorillard Inc (LO)
8) 4.3% - Deluxe Corp (DLX)
9) 4.2% - Strayer Education Inc (STRA)
10) 3.5% - Raytheon Co. (RTN)

I would caution investors to do their due diligence on both GNI and PDLI (the top 2). They do not pay regular quarterly dividends, but a portion of their earnings, making their yield irregular. In addition, both companies are in "run-off" mode, with terminal events within the next 5 years.

Price-to-Sales Ratio

Using the price-to-sales ratio was a tactic shown to be highly successful by such guru investors as Ken Fisher in Super Stocks and by James O'Shaughnessy in What Works on Wall Street. The Top 10 stocks with lowest price-to-sales ratios are:

1) 0.11 - Gentiva Health Services Inc (GTIV)
2) 0.21 - Amedisys Inc (AMED)
3) 0.22 - Unisys Corp (UIS)
4) 0.25 - Multiband Corp (MBND)
5) 0.26 - TRW Automotive Holdings Corp (TRW)
6) 0.28 - Oshkosh Corp (OSK)
7) 0.29 - Career Education Corp (CECO)
8) 0.30 - Lear Corp (LEA)
9) 0.30 - Exelis Inc (XLS)
10) 0.32 - EMCOR Group Inc. (EME)

Two home healthcare stocks in this list (GTIV and AMED), a sector I expect to rebound strongly in 2012. Also two auto parts suppliers in TRW and LEA. This is another industry in what looks like a short-term cyclical trough. TRW, in fact, is a current MagicDiligence Top Buy pick.

Price-to-Book Ratio

Finally, the price-to-book ratio is often considered the "classic" test of value investing: are you buying a company at or less than the net value of its assets? Price-to-book ratio was a favorite of the "father" of value investing, Ben Graham. The top 10 stocks with lowest price-to-book ratio are:

1) 0.62 - Amedisys Inc (AMED)
2) 0.63 - Career Education Corp (CECO)
3) 0.73 - Amtech Systems Inc (ASYS)
4) 0.77 - Almost Family Inc (AFAM)
5) 0.77 - Motorcar Parts of America Inc (MPAA)
6) 0.80 - SuperGen Inc (ASTX)
7) 0.89 - Exelis Inc (XLS)
8) 1.04 - Iconix Brand Group Inc (ICON)
9) 1.07 - Gentiva Health Services Inc (GTIV)
10) 1.13 - GameStop Corp. (GME)

Several similar names to the price/sales list show up here. Another home health stock (AFAM) as well. Price-to-book can be a bit misleading with MFI stocks, as many of them have significantintangible assets. For example, Iconix (ICON) has over 85% of their asset base in goodwill and intangibles!


Disclosure: Steve owns AFAM, TRW

 

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