In this article, we will take a look at the 15 Best Magic Formula Stocks to Invest In.
Joel Greenblatt’s legacy as an investor is based on his ability to spot opportunities where most others can’t. According to the founder of Gotham Asset Management, “You Can Be a Stock Market Genius” was more than just a catchy title; it was a collection of “war stories” from a decade of finding underappreciated value in unique circumstances. Throughout his Wall Street career, Greenblatt has consistently generated double-digit percentage returns, cementing his place as one of the few fund managers to do so.
From 1985 to 1994, Gotham Capital, his previous business, had an incredible run, with the fund achieving a 34% net return over this time. That said, even he was aware that this approach appeared too good to be true.
In his book ‘The Little Book that Beats the Market’, Greenblatt describes the Magic Formula as a market technique that involves assessing companies using two metrics: return on capital and earnings yield (EBIT/enterprise value). The investor often emphasizes that the Magic Formula discourages investing in businesses with average or poor returns on capital since it establishes a rating system to discover top companies with the best return on capital and earnings yield.
Naturally, this does not imply that the Magic Formula is an infallible approach to success. In fact, it seems that Joel Greenblatt’s investment technique has led his fund to underperform the overall market. The Gotham Large Value Fund (GVALX) returned only 13.62% compared to the S&P 500’s 16.64% over the past five years, as of the end of June 2025.
Joel Greenblatt of Gotham Asset Management
Our Methodology
To make our list of the best Magic Formula stocks, we ranked the stocks in Gotham Asset Management’s Q1 2025 SEC filings by their stake value and picked out the most valuable holdings.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
15. Skyworks Solutions, Inc. (NASDAQ:SWKS)
Gotham Asset Management’s Q1 2025 Stake: $29.5 million
Number of Hedge Fund Holders: 31
Skyworks Solutions, Inc. (NASDAQ:SWKS) ranks among the best magic formula stocks to invest in. On June 25, Skyworks Solutions, Inc. (NASDAQ:SWKS) declared the launch of new timing devices intended for use in data centers and high-speed networking.
These include the SKY62101 ultra-low jitter clock generator, which can generate both Ethernet and PCI Express spread spectrum clocks with 18fs RMS phase jitter performance, and the SKY63104/5/6 family of jitter suppressing clocks. The devices seek to simplify complex clock tree designs by integrating general-purpose clock production, Ethernet, and PCIe into a single component.
According to James Wilson, vice president and general manager of Skyworks’ Mixed Signal Solutions division, the company’s MultiSynth and DSPLL technologies “set a new benchmark for performance and integration.”
Skyworks Solutions, Inc. (NASDAQ:SWKS) creates and produces semiconductor components for use in consumer electronics, telecommunications, automotive, and aerospace.
14. Expedia Group Inc. (NASDAQ:EXPE)
Gotham Asset Management’s Q1 2025 Stake: $30.5 million
Number of Hedge Fund Holders: 54
Expedia Group Inc. (NASDAQ:EXPE) ranks among the best magic formula stocks to invest in. On July 11, Bank of America analyst Justin Post maintained his Buy rating on Expedia Group Inc. (NASDAQ:EXPE), citing a $211 price target. Given its substantial exposure to US points of sale, the analyst believes Expedia Group Inc. (NASDAQ:EXPE) is well-positioned to profit from any revival in this industry, though the second quarter for US travel was challenging.
In order to sustain its EBITDA margins, which are expected to rise year-over-year, the company has taken steps to reduce expenses. Additionally, given its discounted multiples concerning its projected earnings and cash flows, Expedia’s valuation seems appealing.
The arrival of new airline partners such as Ryanair and Southwest are also expected to support gains in market share. Furthermore, EPS growth may be fueled by significant free cash flow and possible share buybacks.
Expedia Group Inc. (NASDAQ:EXPE) is a US and international online travel company. The company is divided into B2C, B2B, and Trivago sectors.
13. Elevance Health, Inc. (NYSE:ELV)
Gotham Asset Management’s Q1 2025 Stake: $30.7 million
Number of Hedge Fund Holders: 75
Elevance Health, Inc. (NYSE:ELV) ranks among the best magic formula stocks to invest in. Wells Fargo kept its Overweight rating on Elevance Health, Inc. (NYSE:ELV) on July 15, but lowered its price target on the health insurer from $478 to $400. Wells Fargo applied a lower multiple of 10.5x to its 2026 earnings per share projection of $38.05, which is less than the previous multiple of 11.5x.
Wells Fargo stated that the primary driver of the reduced value multiple was uncertainty regarding margins in the Medicaid, Medicare Advantage (MA), and Health Insurance Exchange (HIX) segments for 2025.
The firm also pointed out that there was “relatively low visibility to improvement in 2026,” especially in the Medicaid and Health Insurance Exchange segments. However, it insisted that Elevance’s valuation “remains compelling once dust settles on estimates.”
Elevance Health, Inc. (NYSE:ELV), previously Anthem, Inc., is a leading health-benefits provider in the United States. The company offers medical, pharmaceutical, dental, long-term care, disability, and behavioral health insurance under numerous brands, including Anthem Blue Cross, Blue Shield, Wellpoint, and Carelon.
12. Tapestry, Inc. (NYSE:TPR)
Gotham Asset Management’s Q1 2025 Stake: $31 million
Number of Hedge Fund Holders: 73
Tapestry, Inc. (NYSE:TPR) ranks among the best magic formula stocks to invest in. As part of a $15 million funding round, Tapestry, Inc. (NYSE:TPR) stated on July 15 that it will raise its stake of eco-leather manufacturer Gen Phoenix to 9.9% to aid the company in making more sustainably produced leather goods.
With this investment, Tapestry, Inc. (NYSE:TPR) nearly quadruples its ownership stake in the manufacturer. The company claimed that the partnership would assist it in reaching younger Gen Z consumers who are interested in sustainable leather products.
Back in 2022, Tapestry, Inc. (NYSE:TPR) and Gen Phoenix partnered to produce Coach’s Gen-Z-focused Coachtopia brand, which manufactures products using at least 50% recycled leather fibers from waste that is provided by Gen Phoenix.
Tapestry, Inc. (NYSE:TPR) is an American multinational fashion holding company that owns a number of leading fashion brands, particularly Coach, Kate Spade New York, and Stuart Weitzman. With its headquarters in New York, the company offers its products both directly and indirectly through licensing and wholesale companies.
11. Newmont Corporation (NYSE:NEM)
Gotham Asset Management’s Q1 2025 Stake: $31.3 million
Number of Hedge Fund Holders: 65
Newmont Corporation (NYSE:NEM) ranks among the best magic formula stocks to invest in. Citing its status as the largest gold producer in the world, Stifel began coverage of Newmont Corporation (NYSE:NEM) on July 8 with a Buy rating and a $73 price target.
In light of the successful Newcrest purchase and its divestiture program, the firm emphasizes Newmont’s operational stabilization and notes that it is in a strong position to reach its 2025 targets.
Aside from the commissioning of the Ahafo North shaft in 2027 and the expansion of Panel Caves 2 and 3 at Cadia in 2026 and 2027, Stifel also identified medium-term catalysts for Newmont Corporation (NYSE:NEM), such as anticipated enhancements in 2026 and 2027 as operations at Boddington, Lihir, Peñasquito, and Cerro Negro stabilize.
Newmont Corporation (NYSE:NEM), headquartered in Denver, Colorado, is a key player in gold mining. The company’s broad portfolio comprises world-class gold and copper assets in North and South America, Australia, and Africa.
10. Cadence Design Systems, Inc. (NASDAQ:CDNS)
Gotham Asset Management’s Q1 2025 Stake: $32.54 million
Number of Hedge Fund Holders: 59
Cadence Design Systems, Inc. (NASDAQ:CDNS) ranks among the best magic formula stocks to invest in. On July 14, Loop Capital maintained its Buy rating on Cadence Design Systems, Inc. (NASDAQ:CDNS) and raised its price target from $340 to $370. The firm stated that Cadence’s second-quarter 2025 results and third-quarter outlook will probably be distorted by the month-long US export prohibition for electronic design automation (EDA) headed for China.
Although the company’s overall FY25 revenue projection is expected to remain unchanged, Loop Capital estimates that roughly 4-5% of Cadence’s second-quarter total revenue will move out of the quarter and be redirected into the second half of fiscal year 2025.
In contrast to management’s early May messaging, Loop Capital believes Cadence’s licensing activity and business pipeline are still robust despite the export control issues, with the generally improved chip cycle further boosting licensing activity.
Cadence Design Systems, Inc. (NASDAQ:CDNS) is a leading player in electronic systems design. Utilizing its Intelligent System Design approach, the company provides a full range of hardware, IP, and computational software solutions.
9. Merck & Co., Inc. (NYSE:MRK)
Gotham Asset Management’s Q1 2025 Stake: $35.4 million
Number of Hedge Fund Holders: 93
Merck & Co., Inc. (NYSE:MRK) ranks among the best magic formula stocks to invest in. On July 10, UBS reiterated its Buy rating and $105 price target for Merck & Co., Inc. (NYSE:MRK). Analyst Trung Huynh remained optimistic about the pharmaceutical giant after Merck confirmed that it would acquire London-based Verona Pharma for $10 billion.
According to consensus estimates of $3.7 billion, the acquisition represents about 2.7 times peak sales, which is consistent with industry norms, according to UBS. The firm believes that Ohtuvayre’s launch should benefit from Merck’s size and business acumen, much like recent deals like Acceleron.
In a call, Merck & Co., Inc. (NYSE:MRK) stated it remains open to $1 billion to $15 billion in additional acquisitions, which UBS believes will be needed to counteract the 2028 Keytruda patent cliff.
Merck & Co., Inc. (NYSE:MRK) is a well-known American multinational pharmaceutical firm. Internationally recognized as Merck Sharp & Dohme (MSD), the company is a global provider of prescription medications, vaccines, biologic therapies, and animal health products.
8. Broadcom Inc. (NASDAQ:AVGO)
Gotham Asset Management’s Q1 2025 Stake: $45.2 million
Number of Hedge Fund Holders: 158
Broadcom Inc. (NASDAQ:AVGO) ranks among the best magic formula stocks to invest in. On July 15, Broadcom Inc. (NASDAQ:AVGO) announced that it had begun distributing its new Tomahawk Ultra Ethernet switch, intended for use in artificial intelligence and high-performance computing applications.
Compared to conventional Ethernet switch latency durations, the 51.2 Tbps switch offers a 250-nanosecond latency while retaining full throughput capacity. Additionally, the switch uses Credit-Based Flow Control and Link Layer Retry to build what Broadcom refers to as a “lossless fabric” that does away with packet loss.
The switch’s ability to lower Ethernet header overhead from 46 bytes to as little as 10 bytes while still retaining full Ethernet compliance is a major advancement that could increase network efficiency for data-intensive applications.
Broadcom Inc. (NASDAQ:AVGO) is a multinational semiconductor company specializing in the design, development, and distribution of a wide range of products.
7. Meta Platforms Inc. (NASDAQ:META)
Gotham Asset Management’s Q1 2025 Stake: $57.3 million
Number of Hedge Fund Holders: 273
Meta Platforms, Inc. (NASDAQ:META) ranks among the best magic formula stocks to invest in. Citi analyst Ronald Josey reiterated Meta Platforms, Inc. (NASDAQ:META)’s “Top-Pick” status ahead of the company’s second-quarter earnings on July 15, maintaining the Buy rating and $803 price target.
Although it is still up 340 basis points year-over-year, Citi’s tracking data indicates that Instagram Sponsored Reels ad load decreased 100 basis points from quarter-to-quarter to 24.9% in Q2 2025. This was the first quarterly dip since the firm began tracking this metric in June 2022.
According to Citi, the reason for this quarterly drop in ad load is due to Meta’s more recent AI advertising capabilities producing more relevant, customized ads with higher conversion rates.
With a growing online advertising landscape as a contributing element, the firm believes Meta Platforms, Inc. (NASDAQ:META) is “well-positioned to deliver better than expected results” in its upcoming earnings release.
Meta Platforms, Inc. (NASDAQ:META) is a renowned technology company known primarily for its flagship platforms Facebook, Instagram, and WhatsApp, as well as its revolutionary advances in augmented reality (AR) and virtual reality (VR).
6. Alphabet Inc. (NASDAQ:GOOGL)
Gotham Asset Management’s Q1 2025 Stake: $65.7 million
Number of Hedge Fund Holders: 164
Alphabet Inc. (NASDAQ:GOOGL) ranks among the best magic formula stocks to invest in. Robby Stein, VP of Product at Google Search, announced that Alphabet Inc. (NASDAQ:GOOGL)’s Google will begin implementing new, complex AI features into its Search engine on July 16.
The update includes Deep Search for sophisticated thinking and research, as well as Gemini 2.5 Pro, Google’s most advanced model to date, in its AI Mode. AI Pro and AI Ultra subscribers are the first to have access to these features. In AI Mode, users can now select Gemini 2.5 Pro from a new dropdown menu to tackle challenging problems that require coding, mathematics, and other advanced subjects.
Another new feature enables Google Search to employ AI to make local business calls on consumers’ behalf to verify availability and prices. US-based subscribers to AI Pro and AI Ultra have more access to these agentic capabilities. According to Stein, routine procedures like verifying dry cleaning services can be rendered simpler by the new calling feature.
Alphabet Inc. (NASDAQ:GOOGL) is a leading tech giant with a diverse portfolio, offering products such as Google Ads, Google Chrome, Google Cloud, Search, and YouTube, holding a dominant position in each of these markets.
5. Snowflake Inc. (NYSE:SNOW)
Gotham Asset Management’s Q1 2025 Stake: $82.8 million
Number of Hedge Fund Holders: 94
Snowflake Inc. (NYSE:SNOW) ranks among the best magic formula stocks to invest in. Cantor Fitzgerald reaffirmed its Overweight rating and $242 price target for Snowflake Inc. (NYSE:SNOW) on June 9. Cantor’s Thomas Blakey emphasized the company’s solid positioning after the Snowflake Summit 2025 in San Francisco.
At the event, Snowflake Inc. (NYSE:SNOW) demonstrated its significance in enterprise data stacks. Although the effects of AI now appear to be minor, discussions have raised the possibility of short-term adjustments. One strategic step to expand Snowflake’s product line is the acquisition of Crunchy Data, a PostgreSQL-focused business.
Snowflake’s go-to-market approach, which now seems more targeted, also impressed analysts. The company’s shares seem to be valued at a premium due to its ongoing pace in growing its core cloud data warehouse and its potential in additional product areas, which are still in their infancy.
Snowflake Inc. (NYSE:SNOW) is an American cloud-based data storage company that operates a platform built on Amazon Web Services, Microsoft Azure, and Google Cloud. It also provides Snowflake Cortex with a set of AI capabilities that employ large language models to analyze unstructured data.
4. Microsoft Corporation (NASDAQ:MSFT)
Gotham Asset Management’s Q1 2025 Stake: $89.6 million
Number of Hedge Fund Holders: 284
Microsoft Corporation (NASDAQ:MSFT) ranks among the best magic formula stocks to invest in. BMO Capital kept its Outperform rating on Microsoft Corporation (NASDAQ:MSFT) and increased its price target from $485 to $550 on July 10. The adjustment came following BMO Capital’s consultations with cloud specialists who offered input on Microsoft’s Azure cloud platform. In contrast to the March quarter, the firm reported that Azure commentary was “incrementally positive” during the June quarter.
Despite an increase in production workloads, BMO Capital observed that Azure service usage stayed “largely stable” during this time. The firm also noted that “aggressive VMware pricing” has aided transitions to the cloud. BMO Capital is sticking to its Azure growth projections, which it claims align with consensus projections for Microsoft’s fourth quarter, despite the encouraging feedback.
Microsoft Corporation (NASDAQ:MSFT) is a leading technology company known for its core software products, which include the Windows OS, Microsoft 365 suite, and Edge browser. Its product portfolio includes corporate software, software development tools, video games, gaming gear, and cloud services.
3. Amazon.com Inc. (NASDAQ:AMZN)
Gotham Asset Management’s Q1 2025 Stake: $137.3 million
Number of Hedge Fund Holders: 328
Amazon.com, Inc. (NASDAQ:AMZN) ranks among the best magic formula stocks to invest in. According to a July 10 Financial Times report, Amazon.com, Inc. (NASDAQ:AMZN) is considering making another multibillion-dollar investment in the AI company Anthropic in order to deepen the partnership. The e-commerce behemoth has reportedly contemplated increasing its investment beyond the $8 billion it had previously pledged in November of last year.
Last November, in an attempt to take advantage of the generative artificial intelligence technology, Amazon.com, Inc. (NASDAQ:AMZN) reported investing $4 billion in the OpenAI rival. With the currently anticipated investment, Amazon would continue to be one of Anthropic’s largest shareholders, surpassing Google, which has already contributed more than $3 billion.
Amazon.com, Inc. (NASDAQ:AMZN), is an American multinational technology company that offers a wide range of commercial interests that include digital streaming, online advertising, e-commerce, cloud computing through Amazon Web Services (AWS), and artificial intelligence.
2. Apple Inc. (NASDAQ:AAPL)
Gotham Asset Management’s Q1 2025 Stake: $176.5 million
Number of Hedge Fund Holders: 159
Apple Inc. (NASDAQ:AAPL) ranks among the best magic formula stocks to invest in. Apple Inc. (NASDAQ:AAPL) and MP Materials have inked a $500 million agreement for rare earth magnets, reducing supply risks following China’s export restrictions this year. Announced on July 15, the agreement ensures Apple will have a consistent supply of rare earth magnets free from China.
The long-term risk that Apple Inc. (NASDAQ:AAPL) would lose access to the essential components entirely outweighs the expense of supporting US magnet manufacture, according to analysts. Under the deal, Apple will pay MP $200 million in advance for a supply of magnets that will start in 2027.
Notably, the deal calls for magnets to be made from recycled materials, which is consistent with Apple’s long-standing objective of reducing its dependency on the mining sector. They will be made in MP’s facility in Fort Worth, Texas, using magnets that were recycled from MP’s mining complex in Mountain Pass, California.
Apple Inc. (NASDAQ:AAPL) is a global tech company that is known for its core offerings, the iPhone, Mac, and Apple Watch, as well as its expansive service portfolio, which includes iCloud and Apple Music.
1. NVIDIA Corporation (NASDAQ:NVDA)
Gotham Asset Management’s Q1 2025 Stake: $230.9 million
Number of Hedge Fund Holders: 212
NVIDIA Corporation (NASDAQ:NVDA) ranks among the best magic formula stocks to invest in. BofA Securities kept its Buy rating on NVIDIA Corporation (NASDAQ:NVDA) while increasing its price target from $180 to $220. The adjustment reflects BofA’s scenario analysis of potential additional sales and earnings potential, namely concerning Nvidia’s shipments of H20 chips and Blackwell counterparts to China.
For the second half of 2025, BofA projects a quarterly China shipment run-rate of $4-6 billion, which it anticipates staying flat year over year in 2026 as a result of ongoing limitations on advanced products and heightened local competition.
In line with CEO Jensen Huang’s forecast of a $50 billion China total addressable market over the next two to three years, the analysis projects that China will hold 14% of the global AI accelerator market in 2025, drop to 12% by 2026, and then perhaps hold 5–10% over time.
NVIDIA Corporation (NASDAQ:NVDA), a world leader in networking and graphics processing, provides GPUs for the AI, gaming, HPC, and other industries. The company’s products span data centers, gaming, professional visualization, and the automotive markets.
While we acknowledge the potential of NVDA to grow, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and have limited downside risk. If you are looking for an AI stock that is more promising than NVDA and that has 100x upside potential, check out our report about this cheapest AI stock.
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