Check out the last paragraph:
Heard on the Street
With Each Passing Year,
January Bounce Narrows
By SUSAN PULLIAM
Staff Reporter of THE WALL STREET JOURNAL
Remember the good old days, when January brought snow and a bounce in
small stocks?
The memory has grown more faint each year, what with global warming and
tax-loss selling by mutual funds pushing the so-called January effect
into the fall, when many mutual funds end their tax-reporting year and
toss out losers in their portfolios to offset gains to cut their taxes.
But, despite all the talk about the decline of the January effect, lots
of good portfolio managers continue to try to pick candidates for a
bounce in January, when tax-loss selling by individuals eases and money
flows back into the small-stock market. Traditionally small stocks have
been the best place to look for the January effect since they get hit
harder than big stocks by tax-loss selling, making their bounce more
significant.
Sure, the best candidates for a bounce don't end in a ".com." But that
doesn't mean they aren't worth considering, some analysts and investment
pros say. After all, this is the fifth year small stocks have
underperformed the Standard & Poor's 500-stock index. The Russell 2000
is down 7% for the year. Surely there ought to be some bargains out
there.
"I think there will be a January bounce," says James Engle, chief
investment officer of money manager Wood Struthers & Winthrop, a unit of
Donaldson, Lufkin & Jenrette. "A lot of these stocks look extremely
cheap relative to the market. I think at the beginning of the year,
you'll see a return to some of these out-of-favor stocks."
Mr. Engle says his picks include M.A. Hanna, a plastic compounder and
distributor, which is down from its 52-week high of $25.875 to a close
of $10.8125, up 12.5 cents. "The stock has a yield of 4.4% and the
company has seen a return of the old chief executive who had done a good
job with it. I believe he has a mandate to fix it or sell it," Mr. Engle
says.
He also likes Arrow Electronics, an electronic-parts distributor. "If
the technology rebound is real, their earnings should be increasingly
strong," he says.
The question among investors is whether the bounce in small stocks has
already come and gone. Indeed, small stocks bottomed along with the rest
of the market on Oct. 8. Since then the Nasdaq is up 60%, while the
Russell 2000 is up 32%. How much of that downturn and subsequent run-up
was related to year-end selling is a puzzle.
Dan Coker, a small-stock strategist for Schroder & Co., says he believes
the Janaury effect is yet to come, even if it doesn't match the average
8% January run-up in small stocks that was common several years ago.
"A lot of people still have cash to put to work. Last year, when there
wasn't much of a bounce, there was more uncertainty. Now, investors are
more optimistic," he says. He is looking for a 4% to 5% bounce in small
stocks in January.
His top picks include C&D Technologies, which has dropped from a year
high of $32.25 to a close of $24.4375 after the industrial-battery maker
preannounced weak sales for its fourth quarter.
"It's not as bad as what's built into the stock price," he says.
Small-bank stocks may be well poised for a bounce, says Miles Seifert of New York money manager Seifert & Gray.
"In the third quarter, financials were off 35% to 40% across the board.
When the [Federal Reserve] finally cut rates, the others popped back,
but the small regionals didn't. There's a huge disparity here, and these
aren't doggy companies," Mr. Seifert says. He names a couple Oregon
banks, including Cascade Bancorp, which is down to 17 from its year high
of $22.9375 and FirstBank Corp.
"These are little guys operating in areas with above-average growth.
Their multiples are between 10 and 11 times and they should be closer to
15 to 16 based on their earnings growth," he says.
Not everyone is gearing up for a big January event, to be sure.
"Usually these are down because they are losers," says Scott Black of
Delphi Management. Why, he asks, would you want to buy a stock for a $1 or $2 pop in January if you don't want to own it for the long run?
Indeed, the January effect can be very temporary. Each year, broker
Monness, Crespi, Hardt & Co. awards a trophy to the institutional client with the best January-bounce candidate. Last year, a hedge fund won with its pick, Ionica, a provider of fixed-telephone services. Now, the stock is being delisted by Nasdaq. This year, the same client is picking Ampex Corp. |
