Newspaper article St Louis Post-Dispatch (MO)

It's Time for the Annual Small-Cap Surge

Newspaper article St Louis Post-Dispatch (MO)

It's Time for the Annual Small-Cap Surge

Article excerpt

The worm turns this time each year.

Well, most years, anyway. For the last 70 years, small-capitalization stocks have outperformed large-caps in January more than 80 percent of the time. Known as the January effect, this price bounce usually occurs in underperforming stocks sold for year-end tax losses and quickly snapped up as bargains.

The tendency is strongest after years in which small-caps haven't done all that well. Keeping this in mind, experts note that small-caps in 1996 have gained little more than half as much as their large-cap brethren and may be ripe for a revival. In recent years, the timing of the January effect has gradually been pushed a bit earlier as tax-law changes have encouraged many mutual funds to sell stocks earlier. Despite the undeniably volatile climate for Nasdaq issues these days, gains already have been posted in some beleaguered small-cap health-care and consumer staple stocks. One worrisome consideration: If small-caps do not outperform big-caps in a given January, they usually go on to underperform throughout the entire next year. "I think we're going to continue to see small-cap stocks do well in their seasonally strong period of late December and early January," predicted Claudia Mott, director of small-cap research for Prudential Securities. "Whether they continue to do well after that will hinge on whether their fourth-quarter earnings reported in mid-January look better than those of large-caps." Otherwise, a lot of investors playing the small-cap bounce right now may not be dedicated enough to stay in, Mott warned. Some stocks are likely candidates for the January effect because they're selling near 52-week lows, have underperformed the market and pay little or no dividends, according to Mott. Among these are American Buildings, Best Buy, Fieldcrest Cannon, Hechinger Co., Navistar International, Rollins Environmental Services, Ryan's Family Steak and Sunglass Hut International. Some other small-caps she likes are financial services firms Oppenheimer Capital LP and ACC Consumer Finance Corp.; energy companies Forcenergy Inc., Belden & Blake Corp. …

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