CVS Caremark Corporation (CVS), Expedia Inc (EXPE): The Best “Magic Formula” Stocks Today

Page 1 of 2

Investors like a good deal. The problem is, most of us wouldn’t know a bargain if it hit us in the face.

At least that’s what hedge fund manager and value investing icon Joel Greenblatt says. In a series of books and lectures Greenblatt has touted his “magic formula” for stock picking. Greenblatt argues that by following the simple formula we can take the guess work out of picking bargain stocks.

CVS Caremark Corporation (NYSE:CVS)

So what is the magic formula?

I’m glad you asked. Simply put it’s the best ranked stocks with a low earnings yield and a high return on capital. By using these two rankings, the formula seeks to find cheap stocks with underlying businesses that are performing well. And while that sounds overly simple, following this simple formula would’ve helped you trounce the market over many years.

I’ve looked through the best ranked stocks according to Greenblatt’s formula, and these four stocks are amongst the most compelling today.

Drug Store dollars

There was a time when CVS Caremark Corporation (NYSE:CVS) was just a “drug store.” But since the 2007 purchase of CVS Caremark Corporation (NYSE:CVS), and introduction of the new CVS Caremark Corporation (NYSE:CVS), this has been a different company. The combination of these two successful businesses has brought out the best in both of them.

With the addition of Caremark, CVS Caremark Corporation (NYSE:CVS) added a dominant market leader in the pharmacy benefit management and mail order game. This has saved the company money on inventory as pharmacy services and suppliers have been streamlined. In addition, CVS Caremark Corporation (NYSE:CVS) has been spared from the “retailer-PBM” vendor drama and costly negotiations that have hurt Walgreen Company (NYSE:WAG)’s earnings in recent years, due to their relationship with Medco.

All this synergy has lead to some strong magic formula numbers; CVS Caremark Corporation (NYSE:CVS) has an earnings yield of 5.56% and ROC of 7.54%. The companies earnings increased 10%, and the dividend has increased a whopping 23% since the merger.

Who says acquisitions are bad for shareholders?

A dogs life

When it comes to retail stocks, companies that create a unique buyer experience win. PetSmart, Inc. (NASDAQ:PETM), has successfully branded itself as a unique place to purchase pet products and care for pets. The company ranks amongst the 50 best magic formula stocks, regardless of size, with an earnings yield of 5.45% and ROC of 29.74%.

In addition to creating a great experience, PetSmart, Inc. (NASDAQ:PETM) is in a very high growth industry. The pet product industry has nearly doubled since 2001, which makes the business of caring for our furry friends a $55 billion behemoth. The growth has been largely because PetSmart, Inc. (NASDAQ:PETM) has expanded beyond selling pet food and toys, to offering veterinary services, training courses, and more. The growth is just getting started on this one, EPS is expected to increase by nearly $2 per share by 2015.

Page 1 of 2
Comments
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

Reign of Terror: The 10 Most Ruthless Politicians in History

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

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!