From the Ground Up
Stocks to watch from our latest scan
Back in 2005, Joel Greenblatt introduced his ‘Magic Formula for Investing’ with The Little Book That Beats the Market. The book details a methodical approach that helps investors find some of the cheapest, most well-operated companies and buy them each month for a one-year holding period.
There is nothing “magical” about the formula (or our variations of it), and the use of the formula does not guarantee investment success. Obviously. But Greenblatt’s own results have shown the value of utilizing this simple approach.
We built our scan with the Magic Formula in mind, focusing first on the best companies in each sector (those that generate the highest returns) and then finding which stocks on that list are held least dear by investors.
Here’s a list of the top-ranked stocks in our universe:
Our goal here isn’t to buy the whole list.
Buying good companies at good prices is a fine place to start, but that alone isn’t enough. Often, there’s a reason that seemingly good companies are trading at rock-bottom prices, and buying them blindly can have us on the wrong side of prolonged downtrends.
The intrinsic value of a stock changes over time, so even cheap stocks that are bought below their current intrinsic value can lose over time. There’s no rule that says a stock price has to move towards its ‘true’ value - and it definitely doesn’t have to do it quickly.
That’s why we couple trend identification and relative strength with our value scans to find the best companies with the best setups. Merging fundamental and technical analysis increases our odds of finding big winners with sustainable trends.
Below, we highlight our favorite names.