Stock Picks for the January Effect

By on May 19, 2006

Originally published on:

December 29, 1996

The U. S. stock market took a bath on December 16th, the day before the Federal Reserve policy making meeting. The small dose of fear we got in the beginning of the month was the best thing that could happen. The reason being was that Greenspan was getting antsy about the stock market and might have raised interest rates to show who’s really in charge.

The reports out recently show the economy has not gained any significant strength, despite a sizable drop in long term rates. However, economic activity should pick up as the lower rates take their effect. This increase in economic strength will most likely fail to ignite an upward inflationary move. Bonds should show good strength in the coming year, as 1997 passes without any significant increase in the rate of inflation. In my opinion, equity markets around the world are on generally solid footing and will remain so.

Stock Picks for the “January Effect”

This is the time of the year for the “January Effect”; that tendency for small stocks to outperform other investments during the first month of the year. This is due to investors procrastinating and selling off their losing positions in December, thus enabling them to write the losses off of their income. This tends to depress the prices of these stocks, especially ones that have experienced serious price declines over the past year.

This seasonal anomaly is probably the most reliable one to play. I have a feeling that it could be especially good this time around because small stocks have seriously underperformed the larger cap stocks.

Below, I have compiled a list of 10 stocks I feel will perform well this coming month. Not all of them are small, or have experienced a serious price decline. I simply feel they could show good relative strength in the coming month. I will purchase several of them in an account separate from my accounts utilizing the Tactical Timing System. A portfolio of these stocks could gain 10% or more in January. The results of these picks will be published in the February 9, 1997 issue.

Principal Business
Boston Beer Co.
10 1/4
Craft Beers

Buffets Inc.
9 1/4

Carnival Corp.
31 3/4
Vacation Cruises

Clayton Homes Inc.
13 1/8
Manufactured Homes

Fleetwood Enterprises
27 3/4
Recreational Vehicles

Keane Inc.
30 3/4
Computer and Data Processing Services

Oakwood Homes Corp.
22 1/4
Manufactured Homes

Sunglass Hut
7 3/16
Sunglass Retailer

Superior Surgical Mfg.
13 1/4
Uniform Manufacturer

UST Inc.
Smokeless Tobacco Products

Portfolio Updates

Recently, the FDA granted Mylan Labs clearance to make and market the first generic version of Pharmacia & Upjohn Inc.’s Glynase tablets in 1.5- and 3.0-milligram strengths. The drug, with the generic name glyburide, is used as an adjunct to diet to lower the blood glucose in patients with non-insulin dependent diabetes mellitus, known as type II diabetes, whose hyperglycemia cannot be satisfactorily controlled by diet alone. I don’t know the potential market of this drug, but it’s nice to see Mylan get an approval and the stock has perked up a bit.

Recommended Allocations

The aggressive portfolio is invested in 90% equities, 10% cash. The conservative portfolio currently is 70% equities, 30% cash

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