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Best Magic Formula investing stock ideas for 2020

In spite of the Magic Formula investment strategy struggling the past few years it is still a great investment strategy that you shouldn’t underestimate.

As you know all great investment strategies underperform the market some of the time. 

This article gives you the best Magic Formula investing stock ideas for 2020:

  • Worldwide 
  • in North America 
  • in Europe and 
  • in Asia

 

First a bit of background information. 

 

Where does Magic Formula investing come from?

The Magic Formula investment strategy was developed by Joel Greenblatt and described in his excellent book called The Little Book that Still Beats the Market.

It is also the book that got me started with quantitative investing.

 

It finds quality undervalued companies

The Magic Formula helps you find quality companies that are trading at an attractive price.

It does this by looking for companies with a:

  • high earnings yield – EBIT to Enterprise Value (companies that are undervalued) and 
  • high return on invested capital - Trailing 12 month EBIT / ((Current assets – Current liabilities) + Net Fixed Assets) (ROIC) (quality companies)

 

It then ranks the companies on ROIC (where 1 is the company with the highest ROIC), and by earnings yield (where 1 is the company with the highest earnings yield).

To get the Magic Formula rank the ROIC rank and earnings yield rankings are added together to give you a single ranking.

The best ranked Magic formula company is the one with the lowest Magic Formula rank (the lower the better ranked the company is).

 

But the Magic Formula can be improved - a LOT

But you can improve the returns of the Magic Formula a lot, up to 600.5% in the back tests we have done in Europe over the 12 year period from June 1999 to June 2011.

Here are the Magic Formula only returns:

MF_single_factor

Magic Formula returns in Europe from June 1999 to June 2011 by company size.
Source:
Quantitative Value Investing in Europe: What works for achieving alpha

 

We tested the Magic Formula with 13 other ratios

We then tested the Magic Formula with 13 other ratios and as you can see in the table below the returns of the strategy improved substantially.

 

MF_multi_factor

Click image to enlarge
Magic Formula returns when combined with a third ratio in Europe from June 1999 to June 2011.
Source:
Quantitative Value Investing in Europe: What works for achieving alpha

 

Look at column Q1

Look at the returns in column Q1, it shows the returns generated by first selecting the 20% best Magic Formula companies combined with the ratios in the column called Factor 2.

 

Best combination +783% was Momentum (600.5% improvement)

This means you could have earned the highest return of 783.3% over the 12 year period if you invested in the best ranked Magic Formula companies that also had the highest 6 month price index (share price momentum).

This is a 600.5% improvement over the best return of 182.8% you could have earned if you used only the Magic Formula to get investment ideas.

Now on to the investment ideas. 

 

How to find your own Magic Formula investing ideas

To find out how you can find your own Magic Formula investing ideas look here: How to implement the Magic Formula investment strategy

 

Here are the Magic Formula investment ideas

In the following back tests you can see investment ideas generated using only the Magic Formula (Standalone Magic Formula investment ideas) as well as ideas generated using the Magic Formula combined with Price Index 6 months (6 months momentum)

 

Magic Formula investing ideas world-wide

Standalone Magic Formula investment ideas

This is what the screen looked like:

  • All countries world-wide included
  • Top 20% Magic Formula companies
  • Minimum daily trading volume of $100,000
  • Minimum company market value of $100 million
  • Financial statements updated in the last 6 months
  • Results sorted by Magic Formula from best to worse

Magic Formula investment ideas world-wide

 

Magic Formula combined with Price Index 6 month

This is what the screen looked like:

  • All countries world-wide included
  • Top 10% Magic Formula companies
  • Minimum daily trading volume of $100,000
  • Minimum company market value of $100 million
  • Financial statements updated in the last 6 months
  • Results sorted by Price Index 6 months (Momentum) from best to worse

Magic Formula momentum investment ideas world-wide

 

Magic Formula investment ideas in North America

Standalone Magic Formula investment ideas

This is what the screen looked like:

  • USA and Canada selected
  • Top 20% Magic Formula companies
  • Minimum daily trading volume of $100,000
  • Minimum company market value of $100 million
  • Financial statements updated in the last 6 months
  • Results sorted by Magic Formula from best to worse

Magic Formula investment ideas in the USA and Canada 

 

Magic Formula combined with Price Index 6 month

This is what the screen looked like:

  • USA and Canada selected
  • Top 10% Magic Formula companies
  • Minimum daily trading volume of $100,000
  • Minimum company market value of $100 million
  • Financial statements updated in the last 6 months
  • Results sorted by Price Index 6 months (Momentum) from best to worse

Magic Formula momentum investment ideas in North America

 

Magic Formula investment ideas in Europe

Standalone Magic Formula investment ideas

This is what the screen looked like:

  • EU countries, Scandinavia and the UK selected
  • Top 20% Magic Formula companies
  • Minimum daily trading volume of $100,000
  • Minimum company market value of $100 million
  • Financial statements updated in the last 6 months
  • Results sorted by Magic Formula from best to worse

Magic Formula investment ideas in Europe

 

Magic Formula combined with Price Index 6 month

This is what the screen looked like:

  • EU countries, Scandinavia and the UK selected
  • Top 10% Magic Formula companies
  • Minimum daily trading volume of $100,000
  • Minimum company market value of $100 million
  • Financial statements updated in the last 6 months
  • Results sorted by Price Index 6 months (Momentum) from best to worse

Magic Formula momentum investment ideas in Europe

 

Magic Formula investment ideas in Asia

Standalone Magic Formula investment ideas

This is what the screen looked like:

  • Australia, Hong Kong, Japan, South Korea, New Zealand and Singapore selected
  • Top 20% Magic Formula companies
  • Minimum daily trading volume of $100,000
  • Minimum company market value of $100 million
  • Financial statements updated in the last 6 months
  • Results sorted by Magic Formula from best to worse

Magic Formula investment ideas in Asia

 

Magic Formula combined with Price Index 6 month

This is what the screen looked like:

  • Australia, Hong Kong, Japan, South Korea, New Zealand and Singapore selected
  • Top 10% Magic Formula companies
  • Minimum daily trading volume of $100,000
  • Minimum company market value of $100 million
  • Financial statements updated in the last 6 months
  • Results sorted by Price Index 6 months (Momentum) from best to worse

Magic Formula momentum investment ideas in Asia

 

PS To find the best Magic Formula investment ideas in the countries where you invest (for less than an inexpensive lunch for two) click here: Join today

PPS: It is so easy to put things off. Why not sign up right now, while this is fresh in your mind?

 

 

Please note:  This website is not associated with Joel Greenblatt and MagicFormulaInvesting.com in any way. Neither Mr Greenblatt nor MagicFormulaInvesting.com has endorsed this website's investment advice, strategy, or products. Investments recommendations on this website are not chosen by Mr. Greenblatt, nor are they based on Mr Greenblatt's proprietary investment model, and are not chosen by MagicFormulaInvesting.com. Magic Formula® is a registered trademark of MagicFormulaInvesting.com, which has no connection to this website.