This article shows you the best Magic Formula investment strategy stock ideas for 2022. It also shows you how to improve the strategy and exactly how to implement the Magic Formula in your portfolio.
The best Magic Formula investing stock ideas for 2022 are grouped as follows:
- Worldwide
- in North America
- in Europe and
- in Asia
Before we get to the ideas, first a bit of background information.
Where does Magic Formula investing come from?
As you may know the Magic Formula investment strategy was developed by Joel Greenblatt and described in his great book called The Little Book that Still Beats the Market.
It is also the book that got me started with quantitative investing in 2006.
It finds Quality Undervalued companies
The Magic Formula helps you find quality companies that are trading at a cheap 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 +600%
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:
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.
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 (a 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.
Click here to start finding your own Magic Formula ideas Now!
Here are the Magic Formula investment ideas for 2022
In the following stock screens 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)
Best Magic Formula investing ideas World-Wide for 2022
Magic Formula only 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
Click image to enlarge
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
Click image to enlarge
Click here to start finding your own Magic Formula ideas Now!
Best Magic Formula investment ideas in North America for 2022
Magic Formula only 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
Click image to enlarge
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
Click image to enlarge
Click here to start finding your own Magic Formula ideas Now!
Best Magic Formula investment ideas in Europe for 2022
Magic Formula only 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
Click image to enlarge
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
Click image to enlarge
Click here to start finding your own Magic Formula ideas Now!
Best Magic Formula investment ideas in Asia for 2022
Magic Formula only 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
Click image to enlarge
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
Click image to enlarge
How you implement the Magic Formula in your portfolio
Now for the interesting part where you can see how to get Magic Formula investment ideas for your portfolio.
We have set it up for you
We have already saved a Magic Formula screen for you so all you have to do is load it.
Here is how you do it:
After logging into the screener click the Screener icon then click the Load button as shown below:
Then click on the Predefined filters tab, scroll down, and click on the Magic Formula Screen. To load the screen click the Confirm button.
Select your countries, daily value and company size
All you then have to do is select:
- The Countries
- The minimum Daily trading volume and
- The minimum Market value
of the companies you want to screen for.
The following countries are included in the screener: Countries included in the screener
To choose your countries click the drop down list item below Countries and check all the countries you would like to select.
Next you have to enter the minimum daily trading volume and the minimum market value of the companies you want to screen for. Please note the numbers you enter are in thousands, this means if you enter $125 it is equal to $125,000.
How to combine the Magic Formula with other ratios
With the screener it is very easy to combine the Magic Formula with other ratios or indicators.
The following screen shots will show you exactly how.
To start load the Magic Formula saved screen, select the Countries, Daily Trading Volume and minimum Market Value as shown above.
How to add 6 month Price Index (momentum)
To add Price Index 6m (6 months momentum) to the screen click the drop down list below Secondary Factor and, under the heading Momentum click in the Price Index 6 m menu item.
Then move the slider below Price Index 6m so that you select the top 20% or 30% (set the slider to go from 0% to 20% or 30%) of companies with the best six month Price Index.
(In the screener Magic Formula Rank is called MF Rank)
To get a list of companies click the Apply button.
In the same way you can add:
- 12m Price index (momentum)
- Price to Book
- ERP5
- 5 year average Earnings Yield (EBIT/EV)
You can see all ratios and indicators you can combine with the Magic Formula here: Glossary.
You can save all your screens
Once you have changed the basic Magic Formula screen to fit your investment strategy you can save it so that you can call it up at any time with a few mouse clicks.
You can save as many screens as you like.
To save your screen click the Save As button.
In the pop-up box give your screen a name and a short description so you can remember what the screen does.
To save the screen click on the Confirm button.
That is all you have to do.
When you are done click the Apply button to get your Magic Formula investment ideas.
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?
Click here to start finding your own Magic Formula ideas Now!
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.
