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  • Trading The January Effect: 10 Stocks To Make A Bet On For Re-Bound

    Well, it's that time of year, Christmas Trees, the Menorah, and tax loss selling. And what I am interested in is tax loss selling creating the opportunity called the "January Effect". The January Effect is a seasonal anomaly driven by tax loss selling or selling stocks significantly down for year to date. Investors tend to manage their tax exposure by selling their losing investments and keeping their winners for the new fiscal year, therefore pushing the tax bill out 12 months. However, in doing so, they have often drive down and further depress their losing investments such that when January rolls in these losing stocks enjoy a big rebound. Alternatively, high priced winners (i.e. stocks selling at high valuations) often significantly under perform in January as investors often take profits in the new fiscal or tax year.

    Supporting Evidence of the Jan-Effect

    Haug and Hirschey in their paper entitled The January Effect published in 2005 from the University of Kansas offer quite convincing evidence of the phenomena. They write, "From 1904-74, the average stock market return during the month of January was 3.48 percent, compared with a monthly return of 0.42 percent during the remaining 11 months of the year. Thus, January returns appeared to be more than eight times higher than returns during a typical month." They go on to site Reinganum (1983) and Roll (1983), among others, confirm the January effect is a small cap phenomenon. They offer an alternative explanation for the effect other than tax selling that is the window dressing effect. "According to the window dressing hypothesis, institutional investors are evaluated both upon their investment results and the consistency of their investment philosophy. At the end of the calendar year or any important reporting period, such investors may be prone to sell losers and buy winners to improve perceived performance." However, whatever explanation one relies on the effect appears quite real.

    Things to know about the January Effect

    There are several characteristics that a potential trader might want to know. The effect is that it is stronger in some years and weaker in others. It tends to be more pronounced among small company stocks rather than large capitalization companies. So, a potential trader should probably focus on stocks less than $1 billion in market capitalization. It also tends to be stronger among stocks that would qualify as value stocks so fundamental characteristics should also be considered such as price to book value and price to earnings. Finally, the companies that show up in these screens usually have problems, and that is why they are depressed. We think it makes sense to focus on companies where we can get comfortable with the balance sheet.

    Our List of Candidates

     

     

    Symbol

    Name

    Industry

    Last Sale

    YTD Performance

    Price to Book Value

    Forward PE

    ACTG

    Acacia

    Services

    12.73

    (45.36%)

    1.06

    9.3

    CALL

    Vocal Tech

    Technology

    12.29

    (25.06%)

    N/A

    5.00

    EZPW

    Ezcorp

    Retail

    10.31

    (46.44%)

    0.60

    5.38

    WLT

    Walter Energy

    Material

    14.41

    (59.61%)

    1.10

    NA

    CRUS

    Crus Logic

    Technology

    19.59

    (28.22%)

    2.05

    10.88

    NTGR

    Netgear

    Technology

    30.78

    (17.35%)

    1.45

    12.67

    XXIA

    Ixia

    Technology

    12.38

    (18.55%)

    1.92

    13.60

    FIO

    Fusion Io

    Technology

    8.40

    (64.30%)

    1.89

    NA

    UTEK

    Ultratech

    Technology

    26.85

    (21.83%)

    1.86

    15.98

    INFI

    Infinity Pharmaceuticals

    Healthcare

    12.96

    (56.80%)

    2.77

    NA

    JAKK

    Jakks Pacific

    Retail

    6.21

    (50.68%)

    0.81

    62.10

    OFIX

    Orthofix Int

    Healthcare

    20.46

    (44.70%)

    0.99

    9.6

    GORO

    Gold Resources

    Materials/Gold

    4.85

    (68.65%)

    3.12

    19.25

    Disclosure: I am long EZPW. 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.

    Tags: long-ideas
    Dec 19 2:26 PM | Link | Comment!
  • Helix Energy Solutions: Poised to benfit from higher oil prices
    One of the methodologies that I use to find investment ideas is to identify macro economic themes and or trends, which I think an industry and your sector would benefit from long term. The long term trend in energy prices is one such trend. A second step in the process is to find specific companies, which are attractively priced within the industry or sector that can potentially grow, and in this case Helix Energy Solutions. 
     
    While oil prices have fallen considerably, I believe that as the global economies recover that demand for oil will return as well and will push prices back up and possibly higher. The recovery will likely be slow in the United States, but the return to faster growth in Asia is likely to happen much sooner, if not now. Oil is a commodity which emerging economies need to grow and build their infrastructure and meet emerging consumers. So, I believe oil prices will trend higher over the long term. 
     
    One industry and company that is well positioned to benefit from higher oil prices is oil services and Helix Energy Solutions (symbol: HLX). Helix is an offshore drilling, exploration and drilling company. Located in Houston Texas, the company does business around that world. 
     
    Helix currently sells at $10.50, which gives it approximately $1.03 billion market capitalization considerably smaller than Schlumberger (Symbol: SLB) and Transocean (Symbol: RIG). For more than a decade, Helix posted very strong growth; however in 2006 it started to stumble.   The company missed production targets. New equipment was delayed. The company took on significant debt with a goal of benefiting from the rising oil prices, and then oil prices tumbled. 
     
    It looked like Helix might go bankrupt if conditions got any worse.  Investors panicked.  The stock price fell to less than $3 share per share.  However, Owen Kratz, the CEO, has sold some assets, implemented cost cutting programs and appears to have stabilized the balance sheet. It is still a very challenging business climate for offshore drilling, but higher oil prices will help spur demand for Helix’s services. 
     
    What makes Helix possibly more attractive than its larger competitors like Schlumberger and Transocean is its current valuation. Helix sells at less than book value at 0.77. Its price to sales ratio is also low at 0.45 and its forward price earnings ratio is 8.36. Of course, the valuation is low because it reflects the problems the company has had and the difficult operating environment. Yet, all this can turn around quickly with a jump in oil prices, which I think will eventually come. 
     
    More recently, Helix missed earnings estimates and revenue estimates. Second quarter earnings came in at $0.22 cents per share $0.04 cents less than what analysts had forecasted. Revenues came in at $494 million versus expectations of $519 million, which represented a year over decline of 6.7%... not exactly stellar results.
     
    However, what gives me confidence that the long term outlook remains attractive is the company’s share buyback and insider purchases. In June the company announced a buyback and CEO bought 101,250 shares at $9.62-9.98 This was the CEO’s second purchase because in March he purchased CEO bought 144K shares at $3.58-3.63.
     
    With a continued rise in the price of oil, I think the stock can easily trade above book value which means approximately 30% upside from current trading levels. I currently have a position in stock and will likely trade around my position. 
     
    If you would like more information on Helix or would like to receive periodic updates, then please email henryclarklee@gmail.com
    Jul 31 3:04 PM | Link | Comment!
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