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Updated daily. All values annualized from Jan. 2008.

Every year, Forbes creates a list of the top 200 best small companies in America. To be eligible for the list, a company must have annual revenue between $5 and $750 million, be publicly traded for at least a year, and have a stock price of at least $5. The rankings are done based on earnings growth, sales growth, and return on equity. Forbes has found that this group of stocks has outperformed the benchmark Russell 2000 of small stocks by about 10% annually.

This list is especially interesting for Magic Formula investors, as a staple of MFI is purchasing small-cap stocks, which are often under-followed and thus inefficiently priced in the market. Taking the Forbes list and pulling out the current Magic Formula stocks could find us some attractive investment ideas from the number of declining businesses or cyclical entities on the screen. Here is a table of current MFI stocks that appear in the top 200 list:

Company	Ticker	Forbes Rank	Description
Deckers Outdoor	DECK	30	Consumer products, maker of UGG boots and Teva sports sandals.
InterDigital	IDCC	19	Cellular and wireless technologies for mobile devices.
j2 Global Communications	JCOM	63	Messaging and communications services to businesses.
Pre-Paid Legal	PPD	66	Sells "legal insurance" to individuals and families.
Tekelec	TKLC	162	Cellular services, including number portability and mobile messaging.

In addition to these current opportunities, the Magic Formula screen has presented investors with an opportunity to purchase many of the top 200 at attractive valuations at some point in 2009. This further illustrates the value of the technique - finding great stocks at cheap prices, no matter how big or small the company. Below are stocks in the top 200 list that appeared in the MFI screens at some point in 2009 (taking out the current ones above). Also included is an estimate of the current Magic Formula statistics for each. Some of these are still quite cheap - anything with an earnings yield over 11-12% and a return on capital number over 100% is an attractive investment candidate.

Company	Ticker	Forbes Rank	EY	ROIC	Description
Almost Family	AFAM	25	15.9%	172.1%	Home health and nursing services.
American Reprographics	ARP	152	10.8%	32.9%	Document management for construction industry.
Bolt Technologies	BOLT	62	23.6%	61.0%	Marine seismic data for oil and gas industry.
Computer Task Group	CTGX	131	10.3%	31.1%	IT outsourcing provider.
Darling International	DAR	154	8.3%	30.0%	Rendering food waste into usable products.
Dolby Labs	DLB	11	8.5%	104.0%	Audio technology licensing.
Forrester Research	FORR	160	10.8%	130.1%	Technology industry research.
K-Tron	KTII	75	12.7%	60.1%	Industrial components and parts.
LHC Group	LHCG	4	14.6%	124.0%	Home-based healthcare and nursing services.
Liquidity Services	LQDT	88	21.3%	382.7%	Online auction marketplace for unwanted items.
Middleby	MIDD	22	9.5%	115.8%	Restaurant equipment such as fryers and ice boxes.
Nathan's Famous	NATH	119	10.4%	64.2%	Fast food restaurants.
NutriSystem	NTRI	45	8.2%	166.2%	Weight loss products.
Obagi Medical	OMPI	106	6.4%	48.2%	Prescription skin-care products.
Perficient	PRFT	114	1.9%	13.4%	IT consulting.
PetMed Express	PETS	15	11.8%	122.7%	Online pet medical supplies.
PROS Holdings	PRO	42	5.7%	183.0%	Pricing strategy software.
QLogic	QLGC	187	5.7%	59.0%	Computer data storage network components.
Volcom	VLCM	121	10.5%	29.2%	Alternative sports apparel retail.

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

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Comments

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Posted by perfecttommy on 2009-11-19 19:50:51

Thanks again for your great site.

You may be interested that the Value Investing Congress has posted a lecture by Joel Greenblatt. It's here...

http://www.valueinvestingcongress.com/downloads/p10/greenblatt/formula_investing_video.php

His slides are included as a PDF so you can follow along with the presentation. You will be interested to know that he was specifically asked about improving the screen by adding things like accounting for the cyclical nature of some stocks. His answer was that, if he knew, he might not say. Which is honest and interesting.

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