Stock purchase activity

I had the day off work and spent some time working on my investments. I'd been doing a lot of work on a new investment method advocated by Joel Greenblatt called Magic Formula Investing. Greenblatt is the author of "The Little Book that Beats the Market" where he describes his quantitative value investing approach - an approach that suits me well since I like stock screens (from AAII Stock Investor software) and working with and modeling data in Excel.

Today I opened positions in quite a few companies that seem to score highly using a modified version of the Greenblatt methodology. I'm still not completely comfortable with what's going on, but there's nothing like having real money on the line to make me pay attention better and learn from the trades I do using this method. Greenblatt's methodology directs us toward some underperformers and many of these companies have well-known issues, but that's the kind of company that often scores well using Greenblatt's approach: it's often "hold your nose and buy" because he's found that stocks with issues are often undervalued (when they meet certain criteria).

Purchases today
INTC Intel - semiconductors
NE Noble Corp - oil drilling
GILD Gilead Sciences - Drugs
AZN Astrazeneca - Drugs
TXN Texas Instruments - semiconductors
ROST Ross Stores - retail apparel
GES Guess Inc - branded apparel
TEO Telecom Argentina - telecom

The most troublesome stocks to me are the drug companies because I don't understand the industry, patents and pipelines, so I'm just going with the approach on these so far. I also had a buy order in for MRK Merck today that didn't fill. I may end up getting MRK at a future date. There are tons of drug companies showing up on the screen right now, and I'm also currently in JNJ Johnson and Johnson. I'll watch and learn how to deal with Health Care stocks as things progress. The drug companies pay big dividends so I like that cushion with these stocks.

Normally I should exclude ADR's from the screens, but I often don't do that just to see where they fall in the rankings. That left foreign stock AZN in the mix for me, and also left TEO Telecom Argentina in there. I liked the return on capital they're getting, the growth rate, and the 7% dividend (albeit likely not sustainable) given the 100+% payout ratio. We'll see how this goes. (edit: I see the dividend yield was mis-stated. It's an irregular dividend - likely not more than 4% in practice, maybe less depending on if it's paid every year)

I've got my eye on several other retailers, but I started today with ROST Ross Stores and GES Guess. TJX TJ Max is one I'm looking at, as well as companies like COH Coach, BKE Buckle, ARO Aeropostale BIG Big Lots, PETS Petsmart, BBY Best Buy... and several others. My wife likes TJ Max so that may be the next one I go with.

In the Tech side of things I added INTC Intel and TXN Texas Instruments. I already had a pretty big position in MSFT Microsoft from a month or two back, and also have my eye on WDC Western Digital which I likely would've bought today if it hadn't have jumped abut 9% last Friday. WDC ranks well here too.

The last one to talk about here NE Noble Corp. They're a deep sea driller that's been hurt by the spill disaster in the Gulf. The other options I was looking at included DO Diamond Offshore and CEO CNOOC. The purchase in the energy segment was really done more in the spirit of diversification than anything else. I'm uncomfortable with capital intensive companies whose business can dry up /boom with uncontrollable moves in the price of oil.

In the end I'll plan to follow a rotation with these companies and keep updating the Greenblatt approach and changing stocks as appropriate. Most of these are in retirement accounts so I don't have capital gains to worry about.