The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.
NEW YORK ( MagicDiligence.com) -- The Magic Formula Investing (MFI) strategy is simply a ranking system.
You can apply the strategy to rank any "basket" of stocks, ranging from entire exchange listings (or groups of exchange listings), to a prescreened list of stocks, and so forth. The possibilities are limitless.The official MFI site allows users to rank all U.S.-listed stocks, separated only by minimum market cap. So, for example, choosing the top 50 stocks with a minimum of $100 million market cap will produce a much different list than choosing the top 50 with a minimum $1 billion market cap. This is useful, as many investors are uncomfortable buying issues of thinly traded, micro-cap stocks that they may not familiar with (even though small-caps drastically improve performance). MagicDiligence uses three screens in particular to search for stocks to recommend: the top 50 stocks with more than $50 million in market cap (the "small-cap" screen), the top 50 with more than $1 billion ("mid-cap") and the top 30 with more than $3 billion ("large-cap"). By combining the three, we get a good mix of cheap, quality stocks ranging from tiny unknown firms to ultra-large-caps. However, sticking to these three screens means that a few stocks will slip through the cracks. The market-capitalization range that falls through the cracks most frequently is stocks in the $250 million to $750 million range, a range that many investors find intriguing for investment potential. Using the official site and running several screens between these ranges, I found four interesting MFI stocks that were not screened by my usual methods. Small-cap investors may want to take a closer look at them: Kulicke & Soffa Industries (KLIC)
- Market Cap: $630 million
- Adjusted Earnings Yield: 28.7%
- Adjusted Return on Capital: 72.3%
- Cash / Debt / Current Ratio: $203.6m / $100.1m / 5.31
- 5-year Expected Growth Rate: 13.5%
- Dividend Yield: N/A
- Piotroski Score: 8.5
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