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Three Stocks to Buy Now for January Effect Gains and More
By Michael Brush
Exclusively for InvestorIdeas.com
December 21, 2007
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It’s that time of year again when holiday joy spreads through your circle of family and friends, we all reflect on a year gone by while making plans for a better one ahead – and doggie stocks get unceremoniously dumped from portfolios around the nation.
Investors turn ruthless on their worst performers – selling at any cost – this time of year for two reasons.
- They need the tax losses to offset gains.
- Professional money managers want to move their worst mistakes off the books so they don’t have to report them in year-end summaries to clients.
These phenomena can create a great opportunity to pick up decent stocks on the cheap for a bounce next month – the so-called January effect. I don’t advocate trading since more often than not it’s a loser’s game. So I’m suggesting seven names that should not only benefit from the January effect (if you are a trader), but also go on to see greater gains as turnarounds play out and business improves.
To find these stocks I fell back on an old trick that has served well: Look for beaten up stocks that insiders are buying and which are also favored by value managers with proven, solid records. Not all of these will work out. But check back in a year or two, and I’ll bet well more than half of them have, offsetting losses in the others, assuming you follow our rule of selling stocks when they have declined by 25%.
On Assignment (ASGN)
Shares of the staffing company On Assignment got hit hard in early November after it reported profits declined compared to the year before, and the company guided down estimates. The stock has recovered since then, but it’s still a safe bet that many people are sitting on losses in this name, making it a tax selling candidate. “The recent slide is setting up a decent rebound opportunity,” believes George Putnam of The Turnaround Letter, one of the top-ranked investment newsletters for 15-year returns, according to Hulbert Financial Digest. Insiders agree. They purchased about $290,000 worth of stock in December for prices ranging from around $6.60 to $7.40.
Wet Seal (WTSLA)
Shares of the teen and women’s clothing retailer Wet Seal have been pummeled this year, falling to $2.25 from $7, as sales growth got derailed and problems with inventory management hurt profits.
The company now has a new chief, Ed Thomas, who believes Wet Seal has a “huge opportunity for growth.” Thomas believes he can get operating profit margins back up to historic levels by improving the merchandise mix and inventory controls. The juicy rewards in his compensation package kick in when the stock trades above $5, so he has an incentive to make changes that would produce a double or more for anyone who buys now. Recent insider buyers included director Michael Zimmerman whose investment shop picked up $2 million worth this week at around $2.30 a share. That’s what I call a vote of confidence.
Visteon (VC)
Shares of the auto parts maker Visteon did exceptionally well shortly after insiders purchased significant amounts back in 2006. The stock more than doubled within months, trading through $10 from around $4. Since then, it has headed straight back down to $4, and insiders are at it again. This week they picked up around $600,000 worth of stock for a little more than $4 a share, according to InsiderScore.com.
Visteon is a favorite pick of Putnam, who thinks that moving more manufacturing to lower labor cost areas of the world will help the auto parts maker. He also believes now that auto makers like Ford (F) have signed favorable labor contracts with employees, they can be more forgiving in negotiating deals with Visteon, which will help the auto parts supplier.
Disclaimer
At the time of publication, Michael Brush did not own or control shares in any of the companies listed in this column. Mr. Brush is an independent columnist for this web site.
For more on Insiders Corner disclosure, see the disclosure section in About Insiders Corner: http://www.investorideas.com/insiderscorner/. InvestorIdeas.com Disclaimer: www.InvestorIdeas.com/About/Disclaimer.asp. InvestorIdeas is not affiliated or compensated by the companies mentioned in this article.
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