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Watchlist Wednesday: Top 5 Magic Formula Stocks

- By Mitchell Mauer

In this edition of Watchlist Wednesday, these are the top five stocks qualifying for the Magic Formula stock screen.

This screen is influenced by the strategy discussed by Joel Greenblatt (Trades, Portfolio) in the book, "The Little Book That Still Beats the Market."


The Magic Formula

The Magic Formula is Joel Greenblatt (Trades, Portfolio)'s successful attempt to quantify Warren Buffett (Trades, Portfolio)'s principle of buying good companies at bargain prices.

This strategy equally ranks companies based on return on capital and earnings yield.

By combining the top ranked stocks based on both metrics, the screen finds stocks that are highly profitable yet trading at low prices.

Click here to learn more about the Magic Formula stock screen.

Top 5 Magic Formula stocks

Here is a breakdown of the current top five stocks on the Magic Formula stock screen.

Toro Co. (TTC) designs, manufactures and markets professional turf maintenance equipment and services.

  • Market Capitalization: $6.2 billion
  • Earnings Yield: 29.63%
  • Return on Capital: 344.74%
  • Current Price: $55.7 (intraday price on Dec. 14)



magicJack VocalTec Ltd. (CALL) operates as a cloud communications company in the United States.

  • Market Capitalization: $116 million
  • Earnings Yield: 32.98%
  • Return on Capital: 227.98%
  • Current Price: $7.15 (intraday price on Dec. 14)



Gilead Sciences Inc. (GILD) is a research-based biopharmaceutical company that discovers, develops and commercializes medicines in areas of unmet medical needs around the world.

  • Market Capitalization: $100.2 billion
  • Earnings Yield: 16.63%
  • Return on Capital: 147.02%
  • Current Price: $75.86 (intraday price on Dec. 14)



North European Oil Royalty Trust (NRT) is a grantor trust that holds overriding royalty rights covering gas and oil production in concessions or leases in Germany.

  • Market Capitalization: $59 million
  • Earnings Yield: 12.4%
  • Return on Capital: 8218.28%
  • Current Price: $6.29 (intraday price on Dec. 14)



HP Inc. (HPQ) provides products, technologies, software, solutions and services to individuals, businesses and other sectors worldwide.

  • Market Capitalization: $27.4 billion
  • Earnings Yield: 12.72%
  • Return on Capital: 254.23%
  • Current Price: $15.86 (intraday price on Dec. 14)



Implementation

Due to the nature of deep value strategies such as the Magic Formula, average investors will find numerous reasons not to buy the above stocks. Disciplined investors, on the other hand, will find success following such a simple investment strategy.

This article appeared first on The Stock Market Blueprint Blog.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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This article first appeared on GuruFocus.