Investors spend most of their time chasing what’s popular: mega-cap tech stocks, momentum trades, or whatever happens to be trending on CNBC. But the biggest opportunities often lie where few are looking. That’s where the combination of Joel Greenblatt’s Magic Formula and Joseph Piotroski’s F-Score shines brightest: in uncovering cheap, profitable, strengthening companies that the market hasn’t yet noticed, especially abroad.
Greenblatt’s Magic Formula is elegantly simple. It ranks companies based on 2 powerful criteria: high return on capital and low earnings yield (the inverse of the P/E ratio). The formula consistently identifies companies that generate strong profits but trade at depressed valuations. In other words, it finds good businesses at bargain prices.
