New York, USA – The Magic Formula, a popular “self-indexing” strategy created by Joel Greenblatt, is gaining attention in May 2024 as investors seek out the cheapest stocks in the market scoring high on earnings yield and return on invested capital. This method identifies the top 30-50 affordable stocks, offering a simple yet effective approach to stock selection. The strategy emphasizes wide diversification while catering to individual stock-buying enthusiasts.

Investors are turning their focus to large market cap stocks, particularly those exceeding $18 billion in capitalization. These stocks are often preferred for their stability and long-term potential within the S&P 500. As market multiples continue to rise, diversification becomes crucial to mitigate risks associated with concentrated investments.

Utilizing data from FactSet and Seeking Alpha, investors are analyzing the top-ranking stocks based on high return on invested capital and earnings yield. These metrics provide valuable insights into the financial health and growth potential of each company, guiding investment decisions in a volatile market.

One of the standout stocks, Altria, despite operating in a challenging industry, boasts a high Magic Formula score and a positive trend in EPS growth. Similarly, companies like Cheniere Energy and Cisco Systems exhibit promising potential with strong scores and favorable earnings trends, positioning them as solid investment opportunities.

However, not all stocks fare equally well under the Magic Formula criteria. Companies like HP Inc. and Williams-Sonoma face challenges in translating high return on invested capital into sustained earnings growth, reflecting the nuances of financial engineering and market dynamics.

As investors weigh the risks and rewards of each stock, it becomes apparent that the Magic Formula offers a diversified and systematic approach to stock selection. By following Joel Greenblatt’s advice of buying the entire list and holding for the long term, investors can navigate market fluctuations while capitalizing on potential gains in their portfolio.

In conclusion, the Magic Formula remains a compelling strategy for investors seeking a balanced approach to stock selection. By combining fundamental analysis with quantitative metrics, investors can identify undervalued opportunities and build a resilient investment portfolio for the future.