Value-Investing

Greenblatt magic formula investing Stock Screener

Use this stock screener to select MF stocks, based on our interpretation of Joel Greenblatt's "The little book that beats the market" in Europe, Switzerland, Scandinavia, the UK, the US, Canada, Japan and Australia.

Return generated by following the MF Investing Screener since 1999 until now and investing in all top 30 stocks every year on 15th of June, holding for 1 year only. The intial investment is 100.000€ and every year the proceeds from the sales are invested equally in the top 30 stocks at that time. The red line shows the return of a 100.000€ investment in a Stoxx 600 tracker in June 99.

Magic Formula investing is looking for good businesses selling at bargain prices. For this it uses 2 KPIs:

Return on Invested Capital (ROIC)	EBIT / (Net Working Capital + Net Fixed Assets)	How efficiently have the assets been used to generate income?
Earning Yield	EBIT / Entreprise Value	How cheap is the company?

Another more popular measure to check the cheapness of a stock is the P/E ratio. Greenblatt however likes to use a more stringent measure and uses entreprise value as this includes not only market capitalization but also other factors such as debt. Instead of earnings he likes to use the operational profit or EBIT.

The components of the Greenblatt Magic Formula are calculated as follows:

EBIT	The trailing twelve months operating profit if available (if not then EBIT equals last year operating income).
Net Working Capital	Total Current Assets - Excess Cash - Total Current Liabilities if Total Current Assets exceeds Total Current Liabilities, otherwise it is zero
Excess Cash	If Total Current Assets are greater than 2 * Total Current Liabilities, then Excess Cash is determined to be the lesser of Cash And Short Term Investments or Total Current Assets - 2 * Total Current Liabilities, otherwise it is zero.
Net Fixed Assets	Total Assets - Total Current Assets - Total Intangible assets
Entreprise Value	Market Cap + Long-Term Debt + Minority Interest + Preferred Stock - Excess Cash

Remarks:

The screener doesn't work for banks and insurance companies so these are excluded.
For some companies we don't get all the data to complete the calculation. These get ranked at the bottom.

We strongly recommend reading Greenblatt's other bestsellers as well:

Disclaimer :
We are in no way associated to Mr. Greenblatt or magicformulainvesting.com. We include this model inspired on his book purely for completeness but we do not recommend this strategy to anyone.