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) -- Joel Greenblatt's
Magic Formula Investing (MFI) strategy is unequivocally a value strategy, ranking the entire universe of equities by earnings yield (a proxy for price-to-earnings multiple) and return on tangible invested capital. The stocks that rank at the top are, by design, cheaply priced against their past earnings, and have earned very high returns on retained capital. The key question, though, is can those high returns be re-invested at similar returns to generate an increasing revenue base? Without growth, there is a limited amount of stock appreciation potential.In light of this, I went looking for current MFI stocks that have delivered significant, trailing twelve month revenue increases against the prior year's period. This gives us a list of value priced stocks that have delivered good recent growth -- often a sign that they will be able to continue growing in the near future. Instead of doing a straight statistical list of the fastest growers in MFI, I've filtered them down to five stocks where the revenue increases are likely to be indicative of a growing underlying market, instead of a one-time aberration. For example, the fastest growing stock in MFI is Acadia Pharmaceuticals ( ACAD), a development stage biopharmaceutical firm, with an over 300% revenue increase. However, this is entirely due to a one-time $35 million dollar milestone payment in December of last year - not really a sustainable driver of revenue growth. Within that framework, here are five interesting, value-priced growth stocks:
Motorcar Parts takes old alternators and starters and remanufactures them for the "do-it-yourself" auto repair market. The key underlying driver of revenue growth is an aging auto fleet, as new car sales have trailed the scappage rate for several years now. Tack-on acquisitions have served the firm well, and MPAA has also improved their cost structure by moving operations to Mexico and Malaysia. One of the best operated small auto parts businesses you will find.