Magic Formula Investing

Joel Greenblatt Puts His Money Where His Mouth Is

AlexG — Sat, 15 Nov 2008 00:50:48 +0000

According to gurufocus.com Joel Greenblatt has bought 150 stocks for about 65 million. The majority (if not all) of the stocks are in the magic formula. My guess is he is betting on the system and not on individual stocks as he normally has a concentrated portfolio.

Here is the list of stocks he bought and the amount. ( click here)

Magic Formula Purchases for Nov. 2008

AlexG — Wed, 12 Nov 2008 19:29:47 +0000

Markets are in bear market mode and things aren’t looking as if they are going to turn around quickly. The magic formula portfolio is ahead by 4% . This is quite good considering there are some major downers like Idearc (IAR) which is down over 90%. Word in cyberspace is many magic formula investors are feeling the same pain. I have wrote in several online communities that it might be one of those years that value simply does not work. Below are two new purchases to the outperforming portfolio.

SIERRA WIRELESS INC (SWIR), provides wireless wide area modem solutions for the mobile computing, rugged mobile, and machine-to-machine (M2M) markets.The company currently sports a P/E of 6 and has a ROIC greater than 100%. According to Yahoo Finance, it has an Enterprise Value/EBITDA of .888 or a yield of 122% (the magic formula site has pretax earnings yield of 88%)

TERRA INDUSTRIES (TRA), together with its subsidiaries, engages in the production and marketing of nitrogen and methanol products for agricultural and industrial markets worldwide.The company currently sports a P/E of 3 and has a ROIC greater than 100%. According to Yahoo Finance, it has an Enterprise Value/EBITDA of 1.872 or a yield of 53%

Magic Formula Purchases for Oct. 2008

AlexG — Tue, 14 Oct 2008 12:22:31 +0000

Considering my personal magic formula portfolio went down the drain, I was interested on how an all random magic formula portfolio would hold up; not good. Very few investors can survive this kind of storm and they are usually hedging or shorting at the right time. Nevertheless, my simulated magic formula portfolio is still beating the market by a cool 5.89% providing an annualized return of 7.12%. In this market, I will take it!!

I inserted 3 picks for this month. I thought the market was oversold and an extra pick will not hurt. I am approaching the one year mark so it will be time to do some selling as well.

TheStreet.com, (TSCM)., together with its wholly owned subsidiaries, operates as a financial media company. The company currently sports a P/E of 5 and has a ROIC greater than 100%. According to Yahoo Finance, it has an Enterprise Value/EBITDA of 2.834 or a yield of 35.29%

VAALCO Energy, (EGY), an independent energy company, engages in the acquisition, exploration, development, and production of crude oil and natural gas.The company currently sports a P/E of 11 and has a ROIC of greater than 100%. EGY has a pretax earnings yield of 63%

ValueClick, (VCLK). provides online advertising campaigns and programs for advertisers and advertising agency customers in the United States and internationally.T he company currently sports a P/E of 11 and has a ROIC of greater than 100%. VCLK has a pretax earnings yield of 23%

Magic Formula Purchases for Sept. 2008

AlexG — Sat, 13 Sep 2008 14:09:21 +0000

Time for another round of purchases. The magic formula continues to perform great as we head into the final stretch of the year. The magic formula is beating the S&P by a cool 8% and is up 5% the past 3 months. The magic formula is also eeking the S&P by .07% over the past 6 months. I will take a small lead over a big loss any day. Now, here comes the fun part. Selling the stocks after 1 year (in January) . I have about 20% in cash and 4 months (5 stocks to buy) left before the fund sees some selling. I decided to buy 2 stocks this month, and 1 stock each month for the rest of the year. In the end, I will be in the 20-30 stock range Joel Greenblatt reccommends for a diversified magic formula portfolio.

Deluxe Corporation (DLX), together with its subsidiaries, provides various personalized printed products, promotional products, and merchandising materials to small businesses, financial institutions, and consumers in the United States and Canada The company currently sports a P/E of 6.25 and has a ROIC ofgreater than 100%. According to Yahoo Finance, it has an Enterprise Value/EBITDA of 5.162 or a yield of 19.37%

KHD Humboldt Wedag International, Ltd. (KHD) operates as an industrial plant engineering and equipment supply company,the company was founded in 1951. It was formerly known as MFC Bancorp, Ltd. and changed its name to KHD Humboldt Wedag International, Ltd. in 2005. The company is based in Central, Hong Kong.The company currently sports a P/E of 13 and has a ROIC of 28%. According to Yahoo Finance, it has an Enterprise Value/EBITDA of 3.495 or a yield of 28%

Magic Formula Purchases for August 2008

AlexG — Tue, 12 Aug 2008 14:29:31 +0000

Another round of purchases for the magic formula. The portfolio continues to perform as well as my real life portfolio which consists of larger companies with more stable earnings. IAR continues to be the biggest dog as its down 70%. The company is horrible in terms of balance sheet and earnings. I have no idea how it is even alive considering the amount of debt it carries. I was a bit surprised to see NVDA to fall into the top 25 for companies with a market cap of 50 or more. Usually when a well know falls in this screen it means it is ranking high among the magic formula stocks. So I purchased it for this round of purchases. Below are the 3 stocks purchased with performance and turnover.

NVIDIA CORP (NVDA) provides visual computing technologies designed to generate interactive graphics on consumer and professional computing devices in the United States and internationally. NVIDIA was founded in 1993 and is headquartered in Santa Clara, California. The company currently sports a P/E of 8 and has a ROIC of 33%. According to Yahoo Finance, it has an Enterprise Value/EBITDA of 4.425 or a yield of 22.59%

Biovail (BVF) , a pharmaceutical company, engages in the formulation, clinical testing, registration, manufacture, and commercialization of pharmaceutical products utilizing various drug-delivery technologies in the United States and Canada. The company currently sports a P/E of 10 and has a ROIC of 12%. According to Yahoo Finance, it has an Enterprise Value/EBITDA of 3.064 or a yield of 32.64%

Qiao Xing Mobile Communication Co., Ltd. (QXM), together with its subsidiaries, engages in the development, production, marketing, and sale of mobile phones and accessories based primarily on global system for mobile cellular technologies in the People’s Republic of China. The company currently sports a P/E of 3 and has a ROIC of 32%. According to Yahoo Finance, it has an Enterprise Value/EBITDA of 0.403 or a yield of 248% (<—–Suspectful)

Magic Formula Purchases for July 2008

AlexG — Sun, 13 Jul 2008 16:03:45 +0000

Below are the purchases for the month. The Garcia Magic Fund has held up pretty well in this choppy market. Pictures speak louder than words so I attached a couple of images that show how it has been faring well.

The two stock picks for the month are as follows

Ambassadors Group Inc (EPAX,14) , an educational travel company, organizes and promotes international and domestic educational travel and sports programs for youth, athletes, and professionals. The company currently sports a P/E of 9 and has a ROIC of 57%. According to Yahoo Finance, it has an Enterprise Value/EBITDA of 3.571 or a yield of 28%

Perini Corp, (PCR, 24) together with its subsidiaries, offers general contracting, construction management, and design-build services to private clients and public agencies worldwide.The company currently sports a P/E of 6 and has a ROIC of 25%. According to Yahoo Finance, it has an Enterprise Value/EBITDA of 1.457 or a yield of 68%. I actually own PCR in my real life portfolio. The company has a 7 bilion plus backlog and is trying to expand internationally in places like Dubai. PCR is also expected to be a front runner in some Las Vegas mega projects.

June purchases for Magic Formula Portfolio

AlexG — Mon, 16 Jun 2008 17:06:16 +0000

I usually put in the purchases on the 12th to stay consistant but school kept me busy this month. No biggie. I took a look at how the Garcia Magic Fund is doing and the magic formula continues to outperform the S&P 500. Although the results are great, the portfolio has not been around to really feel about how it performs. One stock that has been tearing up the charts is Pacer International (PACR), which is up 63% since purchased at the beginning of the year. On the other hand, SOAP which was purchased in February has been the biggest loser. Anyway below are the purchases for June 2008.

Footstar (FTAR.OB), Footstar, Inc., through its subsidiaries, operates as a retailer of family footwear through licensed footwear departments and wholesale arrangements in the United States. It currently trades with a pre-tax earnings yield of 143% (according to magicformulainvesting.com) and pre tax return on capital greater than 100%, but the MSN screener has it as 60%.

China 3C Group (CHCG), is engaged in the business of the sale and distribution of mobile phones, facsimile machines, digital versatile disc (DVD) players, stereos, speakers, Moving Picture Experts Group layer-three audio (MP3) and Moving Picture Experts Group layer-four audio (MP4) players, iPods, electronic dictionaries, compact disc (CD) players, radio Walkmans and audio systems. According to magicformulainvesting.com, the stock currently trades with a 63% pre tax earnings yield and pre tax returns on capital greater than 100%.

May Purchases for the Magic Formula Portfolio

AlexG — Sat, 10 May 2008 15:11:14 +0000

Decided to place the orders for Monday. As of today (5-10-08) 3 stocks in the portfolio have increased over 20%. PACR leading the way with a 40% return since inception. CITP was up over 50% on better than expect earnings but investors took profits. CITP has appreciated a respectable 35% since inception. Next,RAIL ended this week on a high note (up 9% on friday) after an analyst from Jefferies upgraded the stock. RAIL’s earnings weren’t the best due to the economy but that information had been priced in.

The Garcia Magic Fund continues to outperform the S&P 500. As of today, it is outperforming by about 4% providing a 13% annualized return. More importantly, as I am adding cash to work, the fund is increasing in volatility as opposed to the beginning of the portfolio where the small positions (in relation to cash) rarely moved the needle.

Finally, this months’ purchases were a bit different. To stay consistent with the system, I still used the magic formula screen found on the main site. Next, I found a magic formula screen which would allow me to rank the stocks as opposed to randomly choosing stocks. The original screen I was using to rank stocks is awesome but comes with its flaws. First, the lowest screen is for companies with a market cap greater than 100 million, I am basing my portfolio on companies with a market cap greater than 50 million. Secondly, from what I have see the screen is updated about 2 times a month. When I come and update the blog, the screen results are a bit dated and I want to use the more recent information.

Finally, this month I decided go with 4 purchases. Why? I am in a good mood

Here are the 4 purchases with their Yahoo Finance profile.

HOC- Holly Corporation and its subsidiaries operate as a petroleum refiner in the United States. It involves in the purchase and refining of crude oil; and wholesale and marketing of refined products, such as gasoline, diesel fuel, and jet fuel in Texas, New Mexico, Arizona, Utah, Wyoming, Montana, Idaho, Washington, and northern Mexico.
PPD-Pre-Paid Legal Services, Inc., together with its subsidiaries, designs, underwrites, and markets legal expense plans in the United States and Canada.
IAR-Idearc, Inc., through its subsidiaries, provides yellow and white page directories and related advertising products in the United States and the District of Columbia. The company’s products primarily include print yellow and white pages directories; Superpages.com, Switchboard.com, and LocalSearch.com online local search products; and Superpages Mobile, an information directory for wireless subscribers
DEPO -Depomed, Inc., a specialty pharmaceutical company, develops and commercializes pharmaceutical products based on its proprietary oral drug delivery technologies in the United States.

4th Round of Purchases

AlexG — Sat, 12 Apr 2008 04:36:48 +0000

Market down over 2% for the week. This is good as I get a better price on the 4th round of purchases. I will be a bit busy for the weekend so I will put the orders today and will be filled Monday morning. As previously posted, the magic formula stocks have performed well in this choppy market.

This rounds purchases include ICF International (ICFI) and Comsys IT partners (CITP). These stocks have all the characteristics of magic formula stock:

Low P/E
High ROIC (duh)
High EBITDA
etc..

This time I did not go strictly with the highest pre tax earnings yield. I used the magic formula website screen (Top 25 stocks with at least a 50 million market cap) and checked a site that has magic formula rankings. The first 2 that appeared on the magic formula rankings were chosen, in this case ICFI and CITP.

Magic Formula Stocks Flying High

AlexG — Wed, 09 Apr 2008 01:46:25 +0000

It has been a while since I took a peak at the stocks in the magic formula portfolio. With another round of purchases coming in another day, I could not resist not looking at the portfolio, to my surprise the portfolio stock performance has been on a tear.

Below is a list of the performance for each individual stock. The results speak for themselves.

PACR +35.73%

AIRV +31.28%

RAIL +20.80%

ACN +14.88%

SOAP +5.05%

HLYS +2.53%

KG +.02%

Except for SOAP, HYLS, and KG the stocks are up 10%+. Considering the type of market we are in, the results are more than exceptional.