10 Magic Formula Canadian Stocks

04-Mar-2011

I like this.

Be Sociable, Share!
-->

By

CPA/entrepreneur







10 Magic Formula Canadian Stocks

Mar. 4 2011 – 1:47 pm | 674 views | 0 recommendations | 0 comments

Posted by John Reese

Cover of "The Little Book That Beats the ...

John Heinzl, columnist for Canada’s Globe & Mail, highlights Validea Canada’s Magic Formula strategy based on bestselling author and hedge fund manager, Joel Greenblatt.

The Magic Formula looks at two important variables—return on capital and earnings yield. The higher the return on capital—which he defines as pretax operating profit divided by the sum of net working capital and net fixed assets—the more effectively a company is using its capital to generate profit.

The higher the earnings yield—defined as pretax operating profit divided by enterprise value, or the sum of stock and debt—the more attractive the stock is from a valuation standpoint.

The model ranks all of the stocks in the market by these two criteria and then averages the scores to select those that have the best combined score.

In Greenblatt’s book, The Little Book That Beats the Market, the “Magic Formula” produced back-tested returns of 30.8 percent per year from 1988 through 2004, more than doubling the S&P 500′s 12.4 percent return during that time. The back test was run on the U.S. stock market.

Below are the top rated Canadian stocks according to Validea Canada’s Magic Formula model.

Be Sociable, Share!
Tags: , , ,

Post a Comment

Your email is never published nor shared. Required fields are marked *

*
*

Subscribe without commenting









Loading...
Join Oxstones Investment Club's Daily Newsletter