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Magic Formula Screener
Joel Greenblatt's Magic Formula ranks stocks by earnings yield (EBIT/EV) and ROIC simultaneously — surfacing cheap, high-quality businesses. Filter by sector and market cap. Updated every 24 hours.
How Magic Formula Ranking Works
Greenblatt ranks stocks that are cheap (high earnings yield = EBIT/EV) AND high-quality (high ROIC). The Magic Formula finds both at once. Each stock is ranked 1–N on both metrics, then combined. Lower combined rank = better.
| Rank ↑ | Ticker ⇅ | Company ⇅ | Sector ⇅ | Market Cap | Earnings Yield ⇅ | ROIC ⇅ | Combined Rank ⇅ |
|---|---|---|---|---|---|---|---|
Understanding the Magic Formula
Why earnings yield, not P/E?
Greenblatt uses EBIT / Enterprise Value instead of earnings / market cap for two reasons. First, EBIT is pre-tax and pre-interest, making it comparable across companies with different capital structures and tax situations. Second, Enterprise Value (market cap + debt − cash) captures the all-in acquisition cost — a levered company's equity looks cheap on P/E but expensive on EV/EBIT.
Earnings yield is simply the inverse of EV/EBIT: higher is cheaper. Ranking stocks this way finds businesses where you're getting the most operating earnings per dollar of total enterprise cost.
What ROIC actually measures
ROIC = EBIT / Invested Capital. Invested capital is the net assets tied up in operations — roughly net working capital plus net fixed assets. High ROIC means the business generates outsized operating profit relative to the capital it requires to run.
This is the quality filter. A company earning 30% ROIC has something competitors want: pricing power, brand, switching costs, or scale advantages. Greenblatt pairs ROIC with earnings yield to avoid cheap-for-a-reason stocks where low prices reflect genuinely bad businesses.
How the combined rank works
Each stock is ranked 1-to-N on earnings yield (1 = highest yield = cheapest) and 1-to-N on ROIC (1 = highest ROIC = best business). The two ranks are added. The stock with the lowest combined rank is simultaneously cheapest AND highest quality — the best of both worlds.
This is subtle but important: a stock doesn't need to rank #1 on either metric individually. A company ranked #10 on earnings yield and #8 on ROIC (combined: 18) beats one ranked #1 on cheapness but #40 on quality (combined: 41).
How to use this screener
The table shows the top 30 results from a universe of large and mid-cap S&P 500 stocks. Use the sector filter to focus on industries you understand. Use the market cap filter to exclude mega-caps if you're looking for less-followed opportunities.
The Magic Formula is a starting point, not a buy list. For each top-ranked stock, ask: why is it cheap? Is the ROIC durable or cyclically elevated? Click the ticker to run a full Basis Report analysis before making any investment decision.
Frequently asked questions
What is the Greenblatt Magic Formula?
A quantitative stock screen that ranks companies simultaneously on earnings yield (cheap?) and ROIC (high quality?). Lower combined rank = better. Developed by Joel Greenblatt and described in 'The Little Book That Still Beats the Market.'
What is earnings yield in this context?
EBIT / Enterprise Value. Higher = cheaper. Greenblatt uses EBIT (not net income) because it's capital-structure neutral, and Enterprise Value (market cap + debt − cash) because it's the true acquisition cost.
How is ROIC calculated here?
EBIT / Invested Capital, where invested capital approximates net working capital plus net fixed assets. Higher ROIC indicates a business that generates more operating profit per dollar of capital deployed — a marker of competitive advantage.
How often does this screener update?
Results are cached for 24 hours using Next.js ISR. The universe covers approximately 150 large and mid-cap S&P 500 tickers. Financial companies (banks, insurers) are excluded by default because the ROIC formula is less meaningful for capital-structure-as-product businesses.
How many stocks should I buy?
Greenblatt recommends 20–30 positions, added gradually over 12 months (time diversification). Hold each for one year. The formula can underperform for extended stretches — systematic rebalancing prevents emotional selling at exactly the wrong time.
Does the Magic Formula still work?
The combined quality-plus-value approach has historically outperformed pure value screens. It tends to work best over 3–5 year horizons and in markets where value is out of favor. It remains a useful systematic starting point for finding cheap, high-quality businesses worth deeper research.