TOP RANKED MAGIC FORMULA STOCKS IN MOTLEY FOOL CAPS

Aug 24, 2009

Many MagicDiligence readers are probably familiar with The Motley Fool's CAPS service, and for those of you who are not, I highly recommend checking it out. In essence, CAPS is the world's largest free stock picking game. Every player can rate any stock to outperform or underperform the market, for a variety of time periods from "a few months" to "5 years or more". The rating is then assigned a beginning stock price, and the percentage change in the stock price is tracked vs. the change in S&P 500 (including dividends). Picks outperforming the S&P 500 get a positive score, and underperformers get a negative score. Then all players are assigned a rating based on a number of factors, including total overall score, pick accuracy, and so forth. Like high school, the player score is between 0-100, and the higher the better.

For those interested, you can check out MagicDiligence's CAPS page, where I usually post ratings and reviews on the publicly available stocks here at the site.

CAPS is not just a game, though, but also a pretty useful source of information. Every stock has at least a few "pitches", usually just short explanations of why a player chose to give the stock a thumbs up or thumbs down. These are often useful for finding tidbits of information from people inside the industry, and occasionally you can even find full blown company analysis in there. Players are also able to maintain CAPS blogs where they can opine or post information, another useful resource. CAPS does a good job of pushing the cream to the top, too. Players with high scores and lots of pitch and blog activity are regularly highlighted, and easier to find for information on particular stocks.

As for the individual stocks, they are given a score between 1 star (mostly underperform picks) and 5 stars (picks highly weighted toward outperform). It takes a threshold of picks to reach 5 stars, too - CAPS doesn't assign a 5 star rating to a stock with just a single outperform pick, for example! CAPS has done a few annual reviews which have shown that stocks rated 5 stars outperformed 4 stars (and the market), 4 stars outperform 3 stars, and so on. With this in mind, MagicDiligence thought it would be interesting to see what current Magic Formula stocks have earned the highest 5-star rating in CAPS. Here are the results:

Magic Formula Stocks with 5-star CAPS Ratings

Ticker	Company
BR	Broadridge Financial Solutions Inc
CBI	Chicago Bridge & Iron Co. NV
CEU	China Education Alliance Inc
DRC	Dresser-Rand Group Inc
EME	EMCOR Group Inc.
ENDP	Endo Pharmaceuticals Holdings Inc
FLR	Fluor Corp.
FRX	Forest Laboratories Inc.
FWLT	Foster Wheeler Ltd
GHM	Graham Corp
GIB	CGI Group Inc.
GIGM	GigaMedia Ltd
IDC	Interactive Data Corp
JOYG	Joy Global Inc
KHD	KHD Humboldt Wedag International Ltd
MTXX	Matrixx Initiatives Inc
NOV	National Oilwell Varco Inc
PRIM	Primoris Services Corp
PTIE	Pain Therapeutics Inc
TRA	Terra Industries Inc.
VIA-B	Viacom Inc

It is also interesting to see which MFI stocks have the dreaded 1-star rating. It was interesting, indeed... of the roughly 100 MFI stocks screened, none had a 1-star rating! This isn't really so surprising in hindsight. The MFI screen is designed to pull up only very good companies trading at very cheap prices, and even though some of them are not the most attractive investments, valuation alone usually prevents them from being blatantly terrible choices. There are a number of 2-star MFI stocks, for example.

There are some nice choices in the above list, and I highly recommend any MFI investors have a look at the CAPS page of any stock that interests them. MagicDiligence does when looking for Top Buy picks.

Disclosure: Steve owns IDC

A MagicDiligence Membership gives you full access to the best stocks that Magic Formula Investing has to offer. Professional quality research, formal stock recommendations, timely updates, and exclusive investing tools are all at your fingertips, at one of the lowest prices in the entire investment world. Click here to learn more!

Joel Greenblatt and MagicFormulaInvesting.com are not associated in any way with this website. Neither Mr. Greenblatt or MagicFormulaInvesting.com endorse this website's investment advice, strategy, or products. Investment 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. The information on this website is for informational purposes only. No warranty is provided or implied as to the accuracy, completeness, or timeliness of this information. This information may not be construed as investment advice of any kind. The proprietor of this website is not responsible in any way for losses or damages resulting from the use of this information. Alexander Online Properties is not a registered investment advisor.

Comments

Posted by perfecttommy on 2009-08-24 09:24:54

Or you could restrict your universe of stocks to MF CAPS five-/four-star performers and then apply the magic formula criteria to only those stocks. I've been doing this for a while and it has given some interesting results.

The really interesting thing about CAPS is given in the presentation here:

http://assets.en.oreilly.com/1/event/5/Motley%20Fool%20CAPS_%20Investors%20Helping%20Investors%20Beat%20the%20Market%20Presentation.ppt

Looking at slides 18-20. Five-star recommendations do better than four-star, do better than three-star, etc. The presentation is stale since it was given _before_ 2007 (I think). I would love to see more up-to-date information.

Thanks for the great web site.

Login to Post A New Comment:

Username:
Password: