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January Effect Stock Picks Here Are 7 Possible Winners For 2013

Kapitall

12/28/12 - 03:20 PM EST

Last year I presented a basket of stocks we believed were trading below value as a result of the January Effect. As Motley Fool pointed out, “if you’d bought a share in each company she suggested at the first ring of the opening bell this January, you’d be sitting on 27% gains for the year.” With this in mind, we present another list constructed with the same screening process.

Background: What is the January Effect

As discussed last year: The January effect is a phenomenon that makes prices of certain stocks rise more in January than the market averages. Two events theoretically cause the January effect: Firstly, at year’s end, investors sell losing stocks to better their tax returns. (Related: Should Facebook Be a Tax-Loss Sale?)  The mass sell-off lowers prices of these loser stocks.

Secondly, come January, Wall Street professionals can expect to receive their long awaited bonuses. Bonus season puts a significant amount of money in the hands of individuals likely to invest in the market, and bargain hunters seek out depressed names, such as those sold off in December. The renewed demand theoretically brings the prices back up.

The casual investor can usually capitalize on this January effect by searching for and buying up depressed stocks in December and then selling, with proper timing, in January.

Investing Ideas for 2013

By using the same criteria for the 2012 list, we recreated a 2013 list of stocks that may rebound in the New Year.

We started with a universe of 185 stocks that have seen significant losses over the last year (at least -10%), in addition to accelerating losses over the last month (at least -5%).

In other words, price action suggests that many of these stocks are being sold to harvest tax losses.

To refine the list, we collected data on insider buying, and identified a list of names that have seen significant buying from insider executives over the last year.

Theoretically, insiders know more about their businesses than anyone else, so if they’re using their own money to buy the shares of their employers, you better pay close attention.

Recent price action suggests these names are being sold to harvest tax losses, and insiders seem to think these stocks are ready to benefit from the January effect — do you agree? List sorted by annual performance.  List Average 1-Year Return: -32%.

 

1. Uranium Resources, Inc. ( URRE): Engages in the acquisition, exploration, development, and mining of uranium properties, using the in situ recovery or solution mining process. Market cap at $53.14M.

Annual performance: -54.67%.Monthly performance: -5.56%. Over the last six months, insiders were net buyers of 34,330,500 shares, which represents about 29.94% of the company’s 114.65M share float.

Bonus, hedge funds are also optimistic: Net institutional purchases in the current quarter at 34.0M shares, which represents about 29.66% of the company’s float of 114.65M shares.

 

2. Horizon Pharma, Inc. ( HZNP): Develops and commercializes medicines for the treatment of arthritis, pain, and inflammatory diseases. Market cap at $147.79M.

Annual performance: -48.44%. Monthly performance: -12.12%. Over the last six months, insiders were net buyers of 575,356 shares, which represents about 1.38% of the company’s 41.76M share float.

Bonus, hedge funds are also optimistic: Net institutional purchases in the current quarter at 22.6M shares, which represents about 54.12% of the company’s float of 41.76M shares.

 

3. Saratoga Resources Inc. ( SARA): Engages in the acquisition, exploitation, development, and production of crude oil and natural gas properties in the United States. Market cap at $112.2M.

Annual performance: -47.01%. Monthly performance: -8.97%. Over the last six months, insiders were net buyers of 790,000 shares, which represents about 4.7% of the company’s 16.82M share float.

 

4. EXCO Resources Inc. ( XCO): Engages in the exploration, exploitation, development, and production of onshore North American oil and natural gas properties with a focus on shale resource plays. Market cap at $1.65B.

Annual performance: -26.47%. Monthly performance: -7.39%. Over the last six months, insiders were net buyers of 2,000,000 shares, which represents about 1.51% of the company’s 132.86M share float.

 

5. Amicus Therapeutics, Inc. ( FOLD): Focuses on the discovery, development, and commercialization of orally-administered, small molecule drugs for the treatment of various human genetic diseases. Market cap at $150.98M.

Annual performance: -24.02%. Monthly performance: -48.47%. Over the last six months, insiders were net buyers of 2,949,580 shares, which represents about 11.93% of the company’s 24.73M share float.

 

6. Nature’s Sunshine Products Inc. ( NATR): Engages in the manufacture and marketing of nutritional and personal care products worldwide. Market cap at $238.13M.

Annual performance: -15.07%. Monthly performance: -16.38%. Over the last six months, insiders were net buyers of 323,116 shares, which represents about 3.46% of the company’s 9.35M share float.

 

7. Pacific Sunwear of California Inc. ( PSUN): Operates as a retailer rooted in the action sports, fashion, and music influences of the California lifestyle. Market cap at $106.03M.

Annual performance: -10.84%. Monthly performance: -9.76%. Over the last six months, insiders were net buyers of 357,401 shares, which represents about 1.11% of the company’s 32.29M share float.

 

Written by Rebecca Lipman. Insider data sourced from Yahoo! Finance

 


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