Cookin' With Miles Davis

If you were to ask me: "what one thing surprises you most about magic formula investing"? I would have to say, "I did not expect it would be so streaky" Just two months ago, most of my monthly tracking portfolios were losing to the broader indexes. On "average" MFI was ahead, but we were not getting the 7/12 "wins" that JG found in his backtesting.

Well, a bunch of the open portfolios have turned "green" again as Value stocks appear to be in vogue again. Of the 12 open portfolios, the promised seven are "ahead". And even better, the hypothetical $100,000 spread over the first 12 portfolios would have you at $112,170. That is right, 12% up! In the green! Moolah, moolah, moolah! Of course taking almost five years to be up 12% ain't exactly knocking the cover off the ball. But it is beating the broader index which is now at about $103,000.

My own portfolio has even a wider spread as we're up 11.2%, while the benchmark is down 5.9%. Recall I invested pretty equally over 2006 AND 2007 thus the reduced return for the benchmark as half the money missed a relatively good 2006.

Nice (Very) to be Mostly Insightful

Recall that last week I added NVMI to my portfolio as I suggested that post their earnings they would be MFI worthy. I was right (so far) as they had a blowout quarter (Nova Announces Record Quarterly Financial Results for the Third Quarter Of 2010). The big key was that their operating earnings for the quarter were $7.1m up from $1.5m in 3q 2009. My calculation is that will place them in the top 50 screen easily when they get their updated financials on Compustat. In their write up, they stated the 4th quarter will be as good or better and that they have a bunch of new stuff that is hitting in 2011.

• Total revenues for the third quarter of 2010 were $24.2 million, an increase of 112% relative to the third quarter of 2009, and an increase of 25% relative to the second quarter of 2010.
• Gross margin for the third quarter of 2010 was 56%, compared with 48% in the third quarter of 2009, and 54% in the second quarter of 2010.
• The company reported net income of $7.3 million, or $0.27 per diluted share, in the third quarter of 2010. This compares to a net income of $1.7 million, or $0.08 per share, in the third quarter of 2009, and a net income of $4.7 million, or $0.18 per diluted share, in the second quarter of 2010.

• "Q3 was another excellent quarter, with record performance achieved in all aspects of our business", said Gabi Seligsohn, President and CEO of Nova. "During the quarter we also continued to execute on our strategy of expanding our customer base with the stand alone metrology product line, adding two new foundry customers and one new memory customer. We expect to recognize most of the related revenues at the beginning of 2011."

• For the fourth quarter of 2010, management expects revenues of $24.5-$26 million, with net profitability of 26%-29%.

Stock is up 6% since I bought them on Friday. They are up 36% since I identified them back in early September, but was slow to pull the trigger. They have $54m in cash vs their $156m market cap.

People Who Know, Know BDO

I am sure many of my readers have seen the BDO commercials where they suggest if you have a serious accounting problem, to call BDO. Not one of the "big 4", firms like BDO and Grant Thorton are carving out a much needed second tier of global accounting firms.

It worked well for CMFO today. They spiked 12% when they announced they have engaged BDO to be their auditors (China Marine Engages BDO China Li Xin Da Hua as Independent Registered Accountants). I would respectfully suggest that the other Chinese firms that are constantly under attack from shorts (CSKI, UTA, LIWA etc) would be well-served to do the same. Note, I removed some of my shares from my MFI portfolio when they hit one year on Friday. But I did not actually sell the shares.