In January, stocks that got murdered the previous year usually rise.
In this column last November, I recommended 10 stocks that I thought would benefit from this "January bounce."
They were Guess? Inc, Asyst Technologies Inc, Midwest Express Holdings Inc, Fossil Inc, Adaptec Inc, Mueller Industries Inc, US Freightways Corp, Elcor Corp, Benjamin Moore & Co, and Tommy Hilfiger Corp.
The 10 were up an average of 24.5 percent in January, compared to a 3.6 percent gain for the Standard & Poor's 500 Index. From Nov. 2, 2000 (when the column ran) through Nov. 7, 2001, my January-bounce brigade was up about 10 percent while the S&P was down about 21 percent.
This year I'm going to try to play the January bounce again, both in this column and for clients. It makes me nervous, however.
The January bounce is never a sure thing. This year, the anthrax problem or other terrorist activity could ruin it. Last year, an uncertain US presidential election could have ruined it, had not Al Gore cleared the air by conceding to George Bush.
Still, the bounce occurs most years. The reason is simple. In October through December, investors dump many of their losing stocks to take a tax write-off. That further depresses stocks that were already down, in many cases pushing them below their fair value. Come January, these depressed stocks tend to rebound.
In recent years at least a part of the January bounce has often occurred in December, as investors try to jump the gun. So I generally try to do my buying around Thanksgiving.
My January-bounce recommendations for 2002 are NL Industries Inc, LandAmerica Financial Group Inc, Skechers USA Inc, SPS Technologies Inc, National Service Industries Inc., Southern Peru Copper Corp, Crane Co., Robert Mondavi Corp, Reebok International Ltd and Bandag Inc.
Each of them is down 25 percent or more this year through Nov. 7, has a decent debt-equity ratio, and sells for relatively cheap multiples of earnings, book value and dividends.
NL Industries Inc, the old National Lead, makes pigments used in paint, plastics, paper, fibers and ceramics. The Houston based company's stock is down 46 percent this year as earnings have declined, but it looks very cheap at seven times earnings and 0.8 times revenue.
LandAmerica Financial Group, out of Richmond, Virginia, is a holding company for several title insurance companies. It is a holding at Dreman Value Management, where I am a managing director. At 7 times earnings, 0.25 times revenue and 0.7 times book value (corporate net worth per share), it continues to look attractive to me.
Skechers, based in Manhattan Beach, California, makes boots, sneakers and sandals. The stock is down 31 percent this year, mostly from a plunge that followed a weak third-quarter earnings report. (Skechers earned US$0.30 a share, down from US$0.40 a share in last year's third quarter.)
At seven times earnings and 0.4 times revenue, I think it has nice rebound potential.
SPS Technologies, out of Jenkintown, Pennsylvania, makes specialty metals and parts for airplanes and cars. Its stock has fallen 49 percent this year as earnings growth slowed, then reversed in the third quarter. Despite bad news including some layoffs, I think this stock is attractive at 8 times earnings, 1.0 times book value and 0.4 times revenue.
National Service Industries, based in Atlanta, rents linen supplies and makes lighting equipment, chemicals, textiles and envelopes. The stock has tumbled 33 percent this year and earnings have been down in six of the past eight quarters. A slower economy hurts it, but I believe this company is basically sound. The stock sells for nine times earnings and offers a 3.7 percent dividend yield.
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