The Magic Formula, introduced in “The Little Book That Beats the Market,” simplifies the complexity of stock selection into a straightforward two-part analysis. At its core, the method examines Return on Capital, which measures how well a company converts its resources into profits, and Earnings Yield, which indicates whether a stock’s price is low compared to its earnings potential.
This approach stands out by combining these metrics into a ranking system that automatically identifies two desirable characteristics: exceptional business performance and attractive pricing. By focusing on both factors simultaneously, investors can discover high-quality companies trading at reasonable valuations.
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Perhaps most importantly, Greenblatt’s formula takes what traditionally required extensive financial knowledge and transforms it into a clear, repeatable strategy that everyday investors can confidently use in their own portfolio decisions.
Here are the top 10 stocks using Validea’s strategy based on Joel Greenblatt’s Magic Formula for January of 2025.
| Ticker | Company Name | Price | Market Cap ($mil) | P/E Ratio | Price/Sales | Relative Strength | Price/Book | Price/Cash Flow | Dividend Yield | Return on Capital | Earnings Yield |
|---|---|---|---|---|---|---|---|---|---|---|---|
| BMBL | Bumble Inc. | $7.70 | $833 | 9.5 | 0.8 | 24 | 1.0 | 16.2 | — | 85.6% | 18.9% |
| SIGA | SIGA Technologies Inc. | $6.22 | $444 | 5.3 | 2.6 | 75 | 2.6 | 5.2 | — | 60.2% | 30.3% |
| CROX | Crocs Inc. | $99.97 | $5,826 | 7.3 | 1.4 | 49 | 3.4 | 6.5 | — | 71.3% | 15.1% |
| TMHC | Taylor Morrison Home Corp. | $65.67 | $6,795 | 8.7 | 0.9 | 72 | 1.2 | 7.9 | — | 83.1% | 13.4% |
| JILL | J.Jill Inc. | $27.29 | $419 | 9.7 | 0.7 | 65 | 4.1 | 6.5 | — | 51.8% | 18.1% |
| GTX | Garrett Motion Inc. | $9.39 | $2,005 | 9.3 | 0.6 | 59 | 0.1 | 6.2 | — | 63.9% | 14.1% |
| HLF | Herbalife Ltd. | $6.57 | $662 | 7.7 | 0.1 | 23 | 0.4 | 3.2 | — | 48.9% | 18.3% |
| STNE | StoneCo Ltd. | $8.56 | $2,622 | 7.8 | 1.2 | 21 | 1.0 | 5.3 | — | 42.0% | 44.8% |
| CAAP | Corporacion America Airports SA | $18.33 | $2,992 | 8.8 | 2.0 | 64 | 2.2 | 8.6 | — | 98.9% | 11.4% |
| JBI | Janus International Group Inc. | $10.44 | $1,402 | 12.6 | 1.5 | 61 | 2.0 | 8.3 | — | 52.6% | 16.2% |
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