In the first part of this article, we discussed 5 stocks that should be purchased for the "February effect." In part two, we are going to look at a few where it may be wise for investors to lock in some gains.
It is now official. With January now having come and gone should that signal the end of all optimism? In other words, does that mean its famed effect should now be over? On Tuesday, stocks finished a bit lower after having traded in what appeared as a narrow range for most of the day. Early on equities were boosted by more European progress as union leaders arrived at a new fiscal agreement. However, it seems the investors were hampered by the arrival of news relates to U.S. housing and manufacturing that arrived worse-than-expected. But it seems this is an every week occurrence, yet the indices kept rising the entire month.
The market still appears undecided about which news should matter the most - should it be foreign or domestic? It seems although the equity markets are doing well, this is in spite of a poor reading on U.S. consumer confidence for January where it fell to 61.4 in January and down from 64.8 in December - this is while most economists were expecting 68.0. This was the bad news. The good news is, despite this less than stellar end to the month, the indices saw their best January gains in over a decade.
For the month of January, the Dow rose 3.4 percent, while the S&P500 gained 4.4 percent. You would have to go back 15 years since both indices saw better performance to start a year. As for the Nasdaq, it rose 1.90 points to close at 2,813.84 - thus netting 8 percent for the month, its best January since 2001. Investors continue to be encouraged by what have been "modest" improvements in the economy, but it is clear that there are still some major concerns. The consumer confidence number of 61.1 is what really tells the story and I have to think that some of these major concerns continue to be rising gas prices and personal incomes.
With all of the major indices having shown strong evidence that the January effect was indeed real, let's take a look at some stocks that contributed to their gains and determine if they should continue to be held - why and why not.
Research In Motion (RIMM)
Profits should be taken in Research in Motion now. The stock is up 17 percent on the year and though the company has recently made a leadership change, there is evidence that maintaining the status quo will be its method of operation - a strategy that has yielded neither success nor cause for optimism. Instead, until the company can come to terms with the errors of its ways and forget about its past, the stock becomes highly speculative even though it's on 'decent' fundamental standing.
The company needs to take on a drastic shift from what it was previously and what it should become. For this reason, I have argued that it should consider an acquisition such as Sirius XM (SIRI) to help alter not only its stagnant landscape, but also present it another branch of revenue outside of the corporate enterprise. This would separate RIM from its dying enterprise footprint and further its own BBM Music Service strategy - one that now has a new $5 a month cloud-based offering. This service allows subscribers to share songs with fellow subscribers while also allowing users to select up to 50 songs per session, which means the more BBM friends a subscriber has, the more music selections that will be made available to the user via the cloud.
The idea is simple, seeing as the company is steadily losing share in the corporate market while Apple (AAPL) (a consumer market leader) is slowly encroaching in the enterprise, why should RIM not consider the inverse order? That is to say, slowly encroach on the so called niche market that has made Apple billions, and have it offset losses that are incurring on the corporate side. Until it realizes this, investors should secure the early gains that it has amassed in January as it is unlikely to last.
Troubled movie streaming giant Netflix started the year trading at $69. Today, as of Tuesday's close, the stock is at $120. This is a remarkable gain of 74 percent that anyone who thinks rationally should lock in immediately to give the stock a chance to breathe. Whenever discretionary spending becomes a concern, it has to affect companies such as Netflix. The streaming media giant certainly raised some eyebrows with its recent Q4 earnings report that arrived better than expected. For Netflix it was like night and day from one quarter to the next.
On Wednesday the company said that it has gained more than 600,000 subscribers in the fourth quarter. This compares to the 800,000 that churned out in the third quarter which resulted in the stock plummeting to its recent lows. Things are starting to look up for Netflix, but the question is, can this momentum continue in face of rising costs and pressure from the likes of Amazon's (AMZN) own Prime streaming service as well as Apple and what it expected to be iTV.
CA Technologies (CA)
Software giant CA Technologies has surged in January. The stock started the year at $20 and now sits just under $26 for a gain of almost 30 percent while making new 52 week highs during the past several sessions. The question is, what has been the catalyst and is it likely to continue? The company is one of the largest independent providers of IT management software. It competes with the likes of Oracle (ORCL) as well as IBM (IBM). Its shares started to climb when it reported third-quarter earnings that surged 32 percent while also announcing plans to raise its annual dividend to $1.
I can't help but realize that the surge is due to the euphoria over the dividend itself while there has been no underlying fundamental change in its operations to suggest that the gains are sustainable. That being said, I will concede that its earnings were indeed very impressive. The company's sales grew 10 percent to $1.2 billion - the second straight quarter of double-digit growth and now expects profit for fiscal year 2012, which ends in March, to grow 11 to 13 percent.