I pay attention to people who perform well over the long term. Flash-in-the-pan types, whether athletes, actors, politicians or investment strategists, hold little interest because of their unreliability.
By automating the strategies of some of Wall Street's greatest investors, I have been able to follow what had worked best over the long term, and one of the proven winning strategies is based on the work of Joel Greenblatt. Since I had begun following this strategy in 2005, my portfolio is up 119.1%, more than double the S&P 500's 52.4% gain during the same period. That's a great track record over a long time period.
The Greenblatt strategy analyzes stocks using only two variables: earnings yield and return on total tangible capital. Earnings yield measures the percentage return, or yield, you could expect if you had bought the entire company, including debt. The strategy ranks each company's earnings yield from among thousands of companies in our database.
Return-on-total-tangible capital considers how well a firm uses the capital employed, comparing the earnings before interest and taxes to its tangible capital employed, which is equal to net working capital plus net fixed assets. This method ranks a company by its return on total capital against all the stocks in our database.
The rankings of these two variables are combined to produce a final ranking.
An example is software and services company, CA Technologies (CA), whose primary market is large corporations. CA's earnings yield is 11.38%, which gives it a ranking of 158. The second variable, return on total capital, is 97.84%, which earns a ranking of 36. When combining these two variables, CA gets a very strong final ranking of 13.
C.R. Bard (BCR) is also a Greenblatt strategy favorite. This company manufactures, distributes and sells medical, surgical and diagnostic devices to healthcare professionals, hospitals and others. The company focuses on the vascular, urology, oncology and surgical specialty markets. Earnings yield for Bard is 12.91%, giving it an 83 ranking. Return on total capital gets a 74 ranking based on its 70.73% return. Taken together, the company really shines with a 9 overall ranking.
For personalized printed items such as bank checks, in addition to newsletters and promotional products, companies and individuals often turn to Deluxe (DLX). The company also offers such services as web hosting, email marketing and customer loyalty programs. Deluxe's earnings yield is 10.75%, which is ranked 189, while its return on total capital is 197.87%, earning a 7 ranking. Overall, Deluxe gets a desirable 15 ranking
These are well-performing companies that earn the respect of a well-performing strategy. Check them out. They are all worth your consideration.
