Versar's Early 'January Effect'

What could be the strongest “January effect” in years started early for a few microcaps. Some stocks begin to show the seasonal strength in December, usually because sellers are fully exhausted or the company issues positive news. Both of these factors appear to be in play for Versar Inc. (Amex: VSR), a stock I bought last week.

On December 22, 2008, Versar announced that it had been awarded a $9.44 million contract to build a facility for the U.S. Army. Versar posted over $111 million in revenue over the trailing twelve months (per Yahoo! Finance), so the contract wasn’t huge but it certainly is an incremental positive. More importantly, the defense contractor is profitable, has a record backlog, and has over $1/share in cash on its balance sheet.

Click to enlarge

Curiously, the stock did nothing that day or the next few. But on the Friday after Christmas, usually a light session, Versar began to spike on huge volume. The move continued Monday and Tuesday, chalking up a quick 30% rally.

It would not surprise me if Versar retraced back to the breakout point (the blue line in the chart above). However, I still like the stock and think the move has another few dollars to go.

DISCLOSURE: Long VSR.

Comments

[john s. gordon:]

VSR is an environmental firm (remediation etc.)
> jack

Jan 01 08:18 AM

[BrucePile:]

This stock is cheap enough at a price/sales of 0.3 and a price/cash flow of 5.4, and it broke out of a nice, long base in mid 2007, ran to 10, then got crushed by the small cap break-down and then the overall fiasco. So now it acts like it wants to complete what got interrupted at 10. Since then, Obama has made the government supported infrastructure that Versar does one of the better areas. I've been watching this stock off and on for years because it has a good base. Now may be the time to buy it, but I'm afraid we have more big market sell-offs ahead and it hasn't shown much immunity to them.

Jan 01 08:48 PM