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Updated daily. All values annualized from Jan. 2008.

Joel Greenblatt's Magic Formula Investing (MFI) strategy, detailed in his book The Little Book That Beats the Market, has a solid and proven track record. The book itself reports a 30.8% annual average return from 1988 to 2004, against the S&P 500's 12.4% annual return. More recently, Greenblatt's MFI mutual fund service, Formula Investing, has updated performance results that shows the strategy outperforming the S&P 500 by over 200% during the 10 year period ranging from the end of June 1999 to the end of June 2009 - a much more difficult period for the market than the original study.

The MFI strategy continues to deliver winners in more recent time periods as well. Consider the period from one year ago to today, a typical holding period in MFI. These are the returns you could have had from buying into a Magic Formula position and holding for the recommended one year period (these results compiled with the MFI Historical Performance Tool using 2 screens, the top 100 over 50 million and top 50 over 2 billion):

Best 10 Magic Formula Performers from 1 Year Ago

Ticker	Company	1yr Ago	Current	Change
ZINC	Horsehead Holding	4.52	11.38	151.77%
PCU	Southern Copper	12.7	31.85	150.79%
DEPO	DepoMed	2.61	5.79	121.84%
LCAV	LCA Vision	2.77	6.14	121.66%
MLNX	Mellanox Technologies	8.05	17.6	118.63%
WDC	Western Digital	16.82	36.22	115.34%
SPSS	SPSS	25.68	49.99	94.67%
NVDA	Nvidia	7.24	13.9	91.99%
TRA	Terra Industries	18.75	34.44	83.68%
AHCI	Allied Healthcare	1.65	3.02	83.03%

Considering the S&P 500 is only up about 7% from a year ago, there are some impressive returns on there. Of course, no strategy is without its laggards, and MFI has these as well:

Worst 10 Magic Formula Performers from 1 Year Ago

Ticker	Company	1yr Ago	Current	Change
IAR	Idearc	0.74	0.02	-97.30%
PACR	Pacer International	12.63	3.66	-71.02%
KYCN	Keystone Consolidated Industries	8.75	4.2	-52.00%
CHCG	China 3C Group	1.1	0.57	-48.18%
KHD	KHD Humboldt Wedag	17.51	10.23	-41.58%
TSCM	TheStreet.com	4.56	2.95	-35.31%
ABC	AmerisourceBergen	33.44	22.41	-32.98%
HURC	Hurco Companies	21.73	16.48	-24.16%
CITP	COMSYS IT Partners	8.05	6.18	-23.23%
WFR	MEMC Electronic Materials	20.69	15.96	-22.86%

But all in all, MFI has done very well over the past year. If you would have chosen from the Top 100 over 50 million screen early last October, on average your MFI picks would have appreciated 25% a pop, outperforming the S&P by 19%, with a 67% chance of each pick earning positive returns. If you played it more conservative and stuck to the large cap, Top 50 over 2 billion screen, you would have done even better, with an average position gain of 30% (24% better than the market), and a staggering 84% chance of earning positive returns. Clearly, MFI has been a great strategy over the past year, and historical back-testing shows it to be a winner long-term, as well.

So which are the most attractive MFI stocks for this upcoming year? Well, there are many ways to try and filter them down farther. One is to do some old-fashioned fundamental and empirical research on them. Additionally, we could add some additional mechanical metrics that have been shown to find outperforming stocks in the past. A great source for this is the "Bible of Back-testing", James O'Shaughnessy's What Works on Wall Street (book review here). One conclusion from his studies was that adding 12-month relative strength to value based screens like MFI greatly improved results one year later. He defined relative strength simply as the trailing 12-month return for that stock, indicating strong price momentum. The Wall Street axiom "winners keep winning" seems to have validity, according to O'Shaughnessy.

Using that knowledge, let's have a look at the top 10 current Magic Formula stocks with the best trailing 12-month performance (the three screens used are the top 50 over 50 million, top 50 over 1 billion, and top 30 over 3 billion).

Current MFI Stocks with Strongest Trailing 12-month Performance

Ticker	Company	1yr Ago	Current	Change
ONTY	Oncothyreon Inc	0.87	4.88	460.92%
VM	Virgin Mobile USA Inc	1.29	4.84	275.19%
INT	World Fuel Services Corp	19.18	49.3	157.04%
MYL	Mylan Inc	8.52	16.69	95.89%
NAVR	Navarre Corp	1.14	2.15	88.60%
TRA	Terra Industries Inc.	18.75	34.44	83.68%
SHAW	Shaw Group Inc. (The)	18.02	31.05	72.31%
GNI	Great Northern Iron Ore Properties	55	91.62	66.58%
BR	Broadridge Financial Solutions Inc	12.7	20.28	59.69%
SEPR	Sepracor Inc.	14.57	22.94	57.45%

These could make interesting choices considering the historical record. However, it reasons to stand that stocks that have not done well over the past year may be oversold. The following lists the current MFI stocks with the worst trailing 12-month results. Are they oversold? Or is there justifiable reasons for their price decline? Doing your MagicDiligence could help answer those questions!

Current MFI Stocks with Weakest Trailing 12-month Performance

Ticker	Company	1yr Ago	Current	Change
MTXX	Matrixx Initiatives Inc	16.47	5.61	-65.94%
JTX	Jackson Hewitt Tax Service Inc	13.9	4.82	-65.32%
KHD	KHD Humboldt Wedag International Ltd	17.51	10.23	-41.58%
PTIE	Pain Therapeutics Inc	8.79	5.38	-38.79%
ABC	AmerisourceBergen Corp	33.44	22.41	-32.98%
GIGM	GigaMedia Ltd	6.48	4.79	-26.08%
LMT	Lockheed Martin Corp	99	74.03	-25.22%
QCOR	Questcor Pharmaceuticals Inc.	6.92	5.52	-20.23%
WTW	Weight Watchers International Inc.	31.57	26.45	-16.22%
GME	GameStop Corp.	30.75	26.24	-14.67%

Disclosure: Steve owns WDC, BR, GME

Calculate Magic Formula statistics for any stock with the MFI Stats Calculator tool.

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