John Heinzl, columnist for Canada’s Globe & Mail, highlights Validea Canada’s Magic Formula strategy based on bestselling author and hedge fund manager, Joel Greenblatt.

The Magic Formula looks at two important variables — return on capital and earnings yield. The model ranks all of the stocks in the market by these two criteria and then averages the scores to select those that have the best combined score.

In Greenblatt’s book, The Little Book That Beats the Market, the “Magic Formula” produced back-tested returns of 30.8 percent per year from 1988 through 2004, more than doubling the S&P 500’s 12.4 percent return during that time. The back test was run on the US stock market.

Below are the top rated Canadian stocks according to Validea Canada’s Magic Formula model.