The Magic Formula, outlined in “The Little Book That Beats the Market,” distills complex stock selection into a straightforward two-factor approach. This method examines Return on Capital—measuring how efficiently a company converts assets into profits—and Earnings Yield, which evaluates whether a stock is attractively priced relative to its earnings power.
What makes this strategy particularly effective is its ranking mechanism that systematically identifies businesses demonstrating both exceptional operational performance and reasonable valuation. By focusing on these complementary criteria, investors can discover high-quality companies at compelling prices. Impressively, Greenblatt’s methodology transforms what traditionally required advanced financial expertise into a clear, repeatable process that everyday investors can implement with confidence.
In today’s investment landscape saturated with endless data and market commentary, the Magic Formula delivers exceptional value through its structured framework grounded in fundamental business principles rather than emotional market reactions. This disciplined approach helps investors sidestep common psychological pitfalls that frequently result in suboptimal decisions during market turbulence, potentially safeguarding long-term returns by eliminating impulsive behaviors and short-term thinking.
Get the highest scoring stocks from the Magic Formula every day and see how your favorite stocks rate according to its criteria. Visit Validea.com to follow this and 21 other strategies from great investors. Take a Free Trial Today!
Here are the top 10 stocks using Validea’s strategy based on Joel Greenblatt’s Magic Formula for May 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 |
|---|---|---|---|---|---|---|---|---|---|---|---|
| QSG | QUANTASING GROUP LTD- ADR | 100 | $6.81 | $348 | 6.5 | 0.7 | 95 | 3.8 | 67.1% | 36.9% | |
| PTCT | PTC THERAPEUTICS, INC. | 100 | $42.51 | $3,369 | 6.5 | 1.9 | 84 | 5.4 | 47.0% | 23.3% | |
| PLTK | PLAYTIKA HOLDING CORP | 100 | $5.02 | $1,885 | 11.5 | 0.7 | 32 | 5.8 | 59.9% | 13.5% | |
| RIGL | RIGEL PHARMACEUTICALS INC | 100 | $18.90 | $338 | 9.1 | 1.7 | 93 | 18.2 | 8.5 | 53.0% | 13.7% |
| CROX | CROCS INC | 100 | $110.65 | $6,203 | 6.8 | 1.5 | 44 | 3.2 | 6.0 | 54.3% | 13.5% |
| GTX | GARRETT MOTION INC | 100 | $11.36 | $2,302 | 8.8 | 0.7 | 77 | 6.3 | 58.2% | 12.9% | |
| IPG | INTERPUBLIC GROUP OF COMPANIES INC | 100 | $25.24 | $9,332 | 19.3 | 0.9 | 43 | 2.6 | 12.1 | 49.1% | 13.5% |
| MRK | MERCK & CO INC | 100 | $77.65 | $194,982 | 11.3 | 3.1 | 30 | 4.0 | 8.8 | 52.1% | 11.9% |
| BLBD | BLUE BIRD CORP | 100 | $37.22 | $1,175 | 11.5 | 0.9 | 56 | 6.7 | 10.5 | 52.7% | 11.9% |
| WDC | WESTERN DIGITAL CORP | 100 | $44.30 | $15,455 | 8.6 | 1.1 | 43 | 3.0 | 6.5 | 40.1% | 14.1% |
Further Research
