Picking bottoms (or a top) in a stock is one of the most difficult jobs on Wall Street and it is something which I rarely attempt to do. There is, however, one time of year that I have had success in finding deeply oversold stocks which have produced incredible short term percentage moves over the course of 2-3 weeks. Now is that time of year!
The best description of the “January Effect” comes from Wikipedia “The January effect (sometimes called “year-end effect”) is a calendar effect wherein stocks, especially small-cap stocks, have historically tended to rise markedly in price during the period starting on the last day of December and ending on the fifth trading day of January. This effect is owed to year-end selling to create tax losses, recognize capital gains, effect portfolio window dressing, or raise holiday cash. Because such selling depresses the stocks but has nothing to do with their fundamental worth, bargain hunters quickly buy in, causing the January rally.”
I do not think it is as precise as the last day of the year and then selling on the fifth trading day of January, but the reason in this description is valid (except raising holiday cash, do you sell your stocks so you can buy a nice present for your wife?).
Keep in mind that the stocks on this list are not in good technical condition, the charts all look terrible! Also, the fundamentals for these companies are probably lousy. These stocks should be looked at as HIGH RISK and you should consider buying a basket of them across different industries to spread the risk. I would suggest that you commit no more than 20% of your risk capital to the entire strategy, spread evenly amongst the stocks you choose to purchase.
Stocks reviewed in the video include; CSK Auto Corporation (Public, NYSE:CAO), Citadel Broadcasting Corporation (Public, NYSE:CDL), Directed Electronics, Inc. (Public, NASDAQ:DEIX), Enterra Energy Trust(Public, NYSE:ENT), The Finish Line, Inc.(Public, NASDAQ:FINL), Fremont General Corporation (Public, NYSE:FMT), Quebecor World Inc.(Public, NYSE:IQW), Krispy Kreme Doughnuts (Public, NYSE:KKD), Merge Technologies Incorporated (Public, NASDAQ:MRGE), Stein Mart, Inc. (Public, NASDAQ:SMRT), Standard Pacific Corp.(Public, NYSE:SPF) and a few other stocks with terrible charts and questionable fundamentals. The stocks are risky and should only be looked as potential trades.
I definitely do not believe the book value is as high as what is says for all these companies. The information was taken from Yahoo Finance, how often they uptade book value is anyones guess. Short information is as of November 30.