When fund manager Joel Greenblatt published his investing tome, The Little Book That Beats the Market, in 2005, it marked a unique point for investors. They now had in their hands insights into investing strategies that a value investing master himself used and are also easily replicated. As proof, Greenblatt has achieved phenomenal results over the past two decades, besting even the performance of Warren Buffett.

The strategy is deceptively simple: Buy undervalued, high-performing companies and hold for a year. Wash, rinse, and repeat. But what if we can augment Greenblatt's methodology? Below we've used a "magic formula"-like screen that approximates the pre-tax earnings and return on capital criteria he specifies, but adds to it the ratings from our Motley Fool CAPS investor intelligence database. Combining those rankings with the criteria that Greenblatt suggests should give us winning investments that may just produce some outsized returns.

Here are a few companies that showed up when I ran this screen recently.

Stock

Pre-Tax Earnings
Yield %

Pre-Tax Return
on Capital %

Recent Stock Price

CAPS Rating (out of 5)

Alkermes (NASDAQ:ALKS)

31%

>100%

$7.73

****

Barrett Business Services (NASDAQ:BBSI)

24%

>100%

$10.33

*****

Dominion Resources Black Warrior Trust (NYSE:DOM)

21%

>100%

$15.33

*****

Questcor Pharmaceuticals (NASDAQ:QCOR)

24%

>100%

$4.59

****

TICC Capital (NASDAQ:TICC)

31%

>100%

$3.80

*****

Source: Capital IQ, a division of Standard & Poor's; Motley Fool CAPS. Pre-tax earnings yield is inverse of EV/EBIT. Pre-tax ROC is EBIT divided by tangible capital employed.

Although Greenblatt's strategy is a mechanical one, we don't think you should just rely upon this as simply a list of companies to buy. Due diligence on this narrowly focused list of companies is always a smart requirement. So, let's see what CAPS members have to say about a couple of these.

A little bit of pixie dust
Is Questcor Pharmaceuticals on a quest to surprise the market today when it reports it earnings after the market closes? The stock has languished over the past few months, despite the potential for expanded use of Acthar. In February the biotech had reported that getting permission from the FDA was taking longer than anticipated because the agency wanted the application submitted in a different form. A jittery market doesn't like any speed bumps in the FDA approval process and quickly shed 20% of the stock's value.

Investors in Dendreon (NASDAQ:DNDN) are all too familiar with the vagaries of the FDA permitting process and were only recently vindicated for their long-held -- and long-suffering -- belief that its cancer treatment Provenge would eventually win approval. Elan (NYSE:ELN) is another that has ridden the ups and downs of FDA fickleness with its off again, on again rulings on Tysabri.

Acthar is primarily used to treat exacerbations associated with multiple sclerosis, and though it's not approved for treatment of infantile spasms -- a rare form of childhood epilepsy -- doctors often prescribe Acthar for it. Questcor is seeking permission to market it for that purpose but the FDA wants the company to reformat its filing. Approval could be lucrative. The new indication would have "orphan drug" status, meaning Questcor would have a seven-year window of exclusivity in selling the drug without fear of competition.

Profits were hurt in the fourth quarter of 2008 because the biotech lost a large tax benefit that had bolstered results the year before. Investors will need to keep in mind that it enjoyed a similar tax benefit in the first quarter last year as well, but that it has been realizing growth in the approved MS applications of Acthar as well as its insomnia treatment Doral. As a result, they've been expanding the sales force, a point CAPS member acrites takes as a very positive sign.

They've just expanded their sales force while others are cutting back. They should get their pick of the litter and come out smelling like a rose.

Beat the street
While he's provided an interesting magic formula, you'll need to read more than a few pages of Greenblatt's book to make your buy or sell decisions. So, start your own research on these stocks on Motley Fool CAPS where your opinion can still save the day. While there, you can read a company's financial reports, scrutinize key data and charts, and examine the comments your fellow investors have made -- all from a stock's CAPS page.

Elan is a Motley Fool Rule Breakers selection. Try any of our Foolish newsletters today, free for 30 days.

Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.