While there are many that believe today’s stock market is “frothy,” Warren Buffett argues, “measured against interest rates, stocks actually are on the cheap side compared to historic values.” This according to a Nasdaq article by Validea CEO John Reese.

Reese weaves this argument into a discussion about the investment strategy he created based on the philosophy of Joel Greenblatt–author of The Little Book that Beats the Market (2005) –that focuses on earnings yield and return-on-capital as the “magic formula” for picking stocks. He identifies four names that earn high marks based on these two metrics (along with their ranking among all stocks in the Validea database using both criteria combined):

• American Outdoor Brands (AOBC), formerly Smith & Wesson Holding Corporation, is a manufacturer of firearms that ranks second among the stocks in our database.
• Gilead Sciences (GILD), a research-based pharmaceutical company, ranks 19^th.
• Michael Kors (KORS), a designer, marketer, distributor and retailer of branded women’s and men’s apparel, places 7^th.
• United Therapeutics Corporation (UTHR), a biotech company, ranks 9^th in our database.