The Magic Formula is a value investing system pioneered by hedge fund manager, Joel Greenblatt, which is designed to pick 'quality' stocks at 'cheap' prices. An overall ranking for each stock is created by combining the rank of a company's Return on Capital vs the UK market (its quality) with the rank of its Earnings Yield (its cheapness).
Greenblatt claims in The Little Book that Beats the Market that a portfolio of the top 30 Magic Formula stocks has averaged a 17-year annual return of 30.8% and beats the S & P 500 96% of the time. It should be noted that these returns are volatile and require a fully diversified portfolio.
For further information on how the Magic Formula is calculated click here.
To view the Top Magic Formula Stocks in the Market click here.