Wednesday, January 7, 2009

Graham + Greenblatt = The GG Formula

Here are a few stocks that meet some of the characteristics that Ben Graham and Joel Greenblatt might consider, I call it the GG Formula. What is the GG Formula, simply put it is taking both stock picking methods and merging the two. While Graham used book value in his equation the GG Formula does not. I took a different approach by emphasizing Greenblatts Return On Capital(ROC) or Return On Assets(ROA). This may seem odd but I wanted to see how this experiment turned out. I think whether one is using Grahams method or Greenblatts you can still pick winners. One thing that they both emphasize is to buy a basket or handful of stocks, which I think is extremely important for the passive investor. Listed below are a few stocks from different industries that made the GG cut.


mkt/cap p/e roa roe debt earn.yeild

Airvana (AIRV) $390m 4.2 38% 69% 0% 23%

Dawson (DWSN) $156m 4.6 16% 21% 0% 23%
Geophysical

Garmin (GRMN) $4.5b 5.5 28% 38% 0% 18.5%

Nutrisystem $477m 8.4 33% 47% 0% 12%
(NTRI)

Forest Labs $7.9b 8 21% 26% 0% 12%
(FRX)


*What is also interesting is that many of these scanning techniques will sometime overlap
*Author is currently long $NTRI.

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