The Magic Formula, presented in “The Little Book That Beats the Market,” simplifies stock selection through a two-factor analysis. This method evaluates Return on Capital—measuring a company’s efficiency in generating profits from its assets—and Earnings Yield, which assesses whether a stock is reasonably priced relative to its earnings potential.
What distinguishes this strategy is its ranking system that automatically identifies companies demonstrating both superior business performance and reasonable valuation. By prioritizing these dual criteria, investors can discover quality businesses at attractive prices. Remarkably, Greenblatt’s approach transforms what once required sophisticated financial knowledge into an accessible, repeatable process that retail investors can confidently apply.
In today’s investment environment filled with constant information and noise, the Magic Formula provides particular value through its systematic framework based on fundamental business principles rather than market emotions. This disciplined methodology helps investors avoid common psychological traps that often lead to poor decision-making during market volatility, potentially preserving long-term returns by eliminating reactionary behaviors and short-term thinking.
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Here are the top 10 stocks using Validea’s strategy based on Joel Greenblatt’s Magic Formula for March of 2025.
| Ticker | Company Name | Earnings Yield Investor | Price | Market Cap ($mil) | PE Ratio | Price/ Sales | Relative Strength | Price/ Book | Price/ Cash Flow | Return on Capital | Earnings Yield |
|---|---|---|---|---|---|---|---|---|---|---|---|
| BMBL | BUMBLE INC | 100 | $4.53 | $478 | 62.1 | 0.5 | 20 | 0.6 | 24.5 | 89.4% | 25.2% |
| TMHC | TAYLOR MORRISON HOME CORP | 100 | $59.49 | $6,052 | 7.2 | 0.7 | 56 | 1.0 | 6.5 | 87.7% | 15.6% |
| CROX | CROCS INC | 100 | $104.59 | $5,863 | 6.5 | 1.4 | 37 | 3.2 | 5.8 | 66.1% | 14.9% |
| PLTK | PLAYTIKA HOLDING CORP | 100 | $4.01 | $1,505 | 9.2 | 0.6 | 27 | 11.8 | 4.6 | 60.9% | 15.1% |
| GTX | GARRETT MOTION INC | 100 | $8.94 | $1,833 | 7.1 | 0.5 | 49 | 0.5 | 4.9 | 58.9% | 14.5% |
| STNE | STONECO LTD | 100 | $11.10 | $3,400 | 10.5 | 1.5 | 33 | 1.5 | 8.1 | 40.1% | 35.0% |
| BLBD | BLUE BIRD CORP | 100 | $33.55 | $1,077 | 10.4 | 0.8 | 51 | 6.0 | 9.7 | 55.1% | 13.0% |
| LAUR | LAUREATE EDUCATION INC | 100 | $19.31 | $2,912 | 10.0 | 1.9 | 85 | 3.0 | 8.0 | 47.8% | 12.8% |
| KAR | OPENLANE INC | 100 | $20.59 | $2,201 | 34.4 | 1.2 | 78 | 1.6 | 13.7 | 51.3% | 12.5% |
| IPG | INTERPUBLIC GROUP OF COMPANIES INC | 100 | $26.51 | $9,879 | 14.5 | 0.9 | 42 | 2.6 | 10.1 | 44.4% | 13.4% |
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