“Magic Formula” Creator Joel Greenblatt’s Latest Stock Picks

GOTHAM ASSET MANAGEMENTJoel Greenblatt isn’t a household name like Warren Buffett, but he’s well known in the value investing community. He has written several books on investing, including You Can Be A Stock Market Genius, and has been developing a “Magic Formula” quantitative strategy. Some of his investing activity is reported to the SEC (and then released to the general public) in 13F filings about seven weeks after the end of every quarter (see what stocks Greenblatt was long during the third quarter). Here are our views on the five largest positions disclosed on the 13F for the end of September:

Greenblatt cut his stake in United Therapeutics Corporation (NASDAQ:UTHR) but the stock was still his largest position by market value at about 280,000 shares. United Therapeutics is a $2.6 billion market cap drug manufacturer whose products are generally aimed at treating hyptertension. Its earnings were down somewhat last quarter compared to the third quarter of 2011, but the valuation multiples look quite good with trailing and forward P/E multiples of 10 and 9, respectively. It looks like an interesting value opportunity and we’d be interested in trying to learn more about the company.

GameStop Corp. (NYSE:GME) was another of Greenblatt’s top picks with his Gotham Asset Management reporting a position of about 730,000 shares. PC and video game sales have been down, and digital distribution has been gaining market share, with the result being a slump in sales at GameStop compared to a year ago. The most recent data shows that half of the shares outstanding are held short. At a market cap of $3.2 billion, the stock trades at only 8 times forward earnings estimates but we don’t like the industry dynamics and think that we’d avoid this pick.

Greenblatt’s stake in Cisco Systems, Inc. (NASDAQ:CSCO) increased by 12% to a total of about 800,000 shares. Cisco looks remarkably cheap at only 12 times trailing earnings, with considerable revenue and earnings growth over the last year and Wall Street analysts expecting further earnings growth in 2013 (the forward P/E is only 9). Billionaire Ken Fisher’s Fisher Asset Management also increased its holdings of Cisco during the third quarter and closed September with 38 million shares in its portfolio (find more stock picks from Fisher Asset Management). We think that it’s a good stock to buy as it appears fairly valued for a no-growth case, and even modest growth would make Cisco undervalued.

Gotham also added shares in Dolby Laboratories, Inc. (NYSE:DLB). Dolby is another troubled company: in its most recent quarter, net income was down 35% from the same period in the previous year. Even the sell-side is pessimistic on the company, with forward earnings estimates being below what Dolby has done on a trailing basis. The forward P/E multiple is 15, which doesn’t look too attractive for a shrinking company, and there’s considerable short interest here with 16% of the outstanding shares held short. Given this, it doesn’t look like Dolby is a good buy.

Greenblatt kept his position in Raytheon Company (NYSE:RTN) about constant at close to 250,000 shares. Raytheon’s business was about flat in the third quarter versus a year earlier, but the market is worried that cuts in U.S. military spending will hammer the defense contractor. As a result it carries a trailing P/E of only 10 and pays a dividend yield of 3.7%. It also looks reasonably priced on an enterprise value basis, with an EV/EBITDA multiple of 5.5x. AQR Capital Management, which is managed by Cliff Asness, initiated a position in the company during the third quarter (see more new stock picks from Cliff Asness) and we’d suggest comparing Raytheon to its peers as it looks like the entire aerospace and defense industry may be facing low expectations due to plans to cut spending.

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

On the Move: The 10 Fastest Growing Businesses in 2015

Fast Money: The 10 Highest Paying Fast Food Restaurants

Mixing It Up: The 14 Best Music Mashups of 2014

Rito Pls Buff: The 10 Least Played Champions in LoL Season 4

10 Covers of Popular Songs that are Better than the Originals

Must See TV: The 9 Most Anticipated Shows of 2015

The 15 Biggest Box Office Bombs of All Time

10 Things The World Can’t Stand About Americans

Picture Perfect: The 6 Smartphones with the Best Cameras

The 10 Best Countries To Work In the World

A Profitable Day At The Track: 5 Tips For Betting On Horses

Tearing You Apart: 6 Bad Habits That Ruin Relationships

Learning on the Job: The 6 Biggest Mistakes Parents Make

Shopaholics Rejoice: The 12 Biggest Malls in the World

Fright Night: 10 Horror Movies Based on True Stories

Mach Mania: The 10 Fastest Jets in the World

Military Heavyweights: The 10 Countries with the Most Tanks

All In: The 7 Richest Poker Players in the World

Abracadabra: The 10 Best Magicians in the World

The 10 Richest Asian Countries in the World in 2014

Eyes in the Sky: 10 Things You Need to Know About Drones

Rising Stars: The 6 Best Silicon Valley Startups

Military Muscle: The 5 Most Advanced Armies in South America

All that Glitters: The 7 Most Luxurious Jewelry Brands in the World

5 Things You Didn’t Know About ISIS but Should

Empowering Your Money: The 5 Best Energy Stocks to Invest In

The 11 Best Android Apps You Can’t Get on iOS

The 10 Most Important International Conflicts in 2014

Mood Enhancers: The 20 Most Uplifting Songs of all Time

Lover Beware: The 8 Countries that Cheat the Most

Breath of Fresh Air: The 25 Countries with the Best Air Quality on the Planet

Singles Beware: The 8 Worst Mistakes Made on First Dates

Healthy and Happy: The 10 Countries with Lowest Healthcare Costs

The 6 Best Company Team Building Activities to Build Workplace Camaraderie

Ships Ahoy: The 10 Busiest Shipping Ports in the World

10 Productivity Tips to Save You Time and Help You Do More With Less

Grab a Bite: The Most Popular Fast Food Restaurants in America

Friday Night Thirst: The 10 Most Popular Cocktails in the World

The 6 Greatest Unsolved Mysteries We May Never Figure Out

7 Useless Products You Never Should’ve Bought

The 5 Reasons Why You’re Single and Miserable

The 7 Most Addictive Foods in the World We Can’t Stop Eating (Even Though We Should)

5 Amazing Places You Can Swim with Dolphins

The Top 7 Most Livable Countries In The World

The 10 Most Expensive Baseball Cards Ever Pulled From A Pack

The 5 Easiest Second Languages to Learn for English Speakers

Silver Spoon: The 6 Richest Families in the World

The 20 Countries with the Largest Prison Populations in the World

The Top 10 Richest Actors in the World

The 10 Best Airline Stocks to Invest In Before They Fly Too High

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!