Getting Ahead Of The January Effect

Includes: COH, DECK, GLW, XRX
by: Bret Jensen

"You'll never find a rainbow if you're looking down." - Charles Chaplin

Now that Thanksgiving is over, it is time to start planning market strategies for 2013. One of my action items is to find stocks that have not performed well in 2012, but could pop in early 2013 as tax loss selling subsides and the new year begins. Commonly known as the "January Effect" it has had the tendency over the years to move up earlier in the calendar as investors have increasingly anticipated this effect's impact. Here are four cheap stocks that have significantly underperformed the market in 2012, but could have a much brighter 2013 for investors and that I own in my own portfolio. The first two have been recently covered well by other SA authors so I will just provide a quick value proposition synopsis along with a link to a previous article covering the stock in more detail. The last two selections I will provide more analysis.

Deckers Outdoor (NASDAQ:DECK) is down over 55% in 2012. However, this maker of the iconic Ugg boot has behaved much better in November. The company is working through its inventory issues and is too cheap at under 9 times forward earnings. For more analysis on DECK, click here.

Coach (NYSE:COH) is another retailer that has posted negative returns in 2012 but has shown some strength recently. Down some 5% for 2012 and below the overall market's performance by approximately 15% for the year, Coach should have a stronger 2013. Consensus earnings estimates for FY2013 have ticked up recently and analysts expect 10% revenue growth in 2013. The stock is cheap at just 13x forward earnings and yielding over 2%. For more analysis on COH, click here.

Xerox (NYSE:XRX) has lost more than 20% of its market valuation in 2012, but is making progress in its plan to transform to a services and software provider from a hardware maker (copiers, printers, etc…). It now gets over 50% of overall revenues from services.

4 additional reasons XRX is a value stock at just over $6 a share:

  1. Xerox is using its cash flow to reward shareholders. It just raised its dividend payouts (beginning with the April distribution) and will now yield 3.6%. It also added $1B to its stock buyback authorization.
  2. XRX sells for less than 6x forward earnings, more than 50% under its five year average (9.6).
  3. The stock is selling at the bottom of its five year valuation range based on P/E, P/B, P/CF and P/S.
  4. The company is selling at just 67% of book value. Other than some major banks, it is hard to find an S&P stock selling at these levels.

Corning (NYSE:GLW) is off almost 15% since the beginning of the year. It has a lot of same value characteristics as Xerox and also should be a winner in 2013.

4 additional reasons GLW is a significant bargain at just over $11 a share:

  1. GLW yields over 3% and has raised its dividend payouts at almost a 10% annual clip over the past five years.
  2. The company has almost $3B in net cash on its balance sheet (more than 15% of its current market capitalization).
  3. The stock is selling at the bottom of its five year valuation range based on P/E, P/B, P/CF and P/S.
  4. GLW is selling some 35% below its median price target of $15 a share held by the 22 analysts that cover the stock.

Disclosure: I am long COH, DECK, GLW, XRX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.