March Madness

You've probably heard of the "January Effect," the phenomenon that seemingly causes stocks, particularly small caps, to surge in the first month of the year. In theory, investors and institutions sell securities in December for tax-harvesting reasons, then buy them back the following month, causing them to jump in price.

Yet what about other months? Retailers, for example, have some seasons that perform better than others, simply because of the nature of the business.

Whatever the reason, investing based solely on the calendar is certainly not a Foolish strategy. Backtesting and data-mining can turn up nearly any causal relationship we want, if we search hard enough. Still, wouldn't it be great to know ahead of time which stocks performed best at what times?

On Motley Fool CAPS, more than 84,000 investors have weighed in on 5,400 stocks, awarding five-star ratings to the companies that most command their confidence. We've paired their opinions with data going as far back as five years to see which stocks perform best in each month. The following five companies seem to do best in March:

What drives the stellar March performance of mobile communication device maker Palm? The surge is most likely an anomaly, much like April's status as the worst month to own the stock -- the company typically falls more than 10% during that month -- so get ready to sell. Not! It just so happens that March is one of the lower-performing months for rival Research In Motion (Nasdaq: RIMM), which returns only about 4% in the month. That's why we don't recommend using this as a list of stocks to buy or sell -- just a platform for further research. Whatever the reason, Palm's one-star rating suggests that CAPS investors don't believe it will outperform the market anytime soon.

The year's off to an ugly start for many stocks, but if March really is their month to shine, let's see which of the companies above might live up to that promise.

Biotech blues
The big winner so far this year has been biotech Celgene, which got dissected last December after its cancer treatment Revlimid didn't perform as well as rival Millenium Pharmaceuticals' (Nasdaq: MLNM) Velcade. Yet Celgene subsequently surprised everyone with a fourth-quarter earnings report showing a 51% increase in sales, with Revlimid revenues doubling. Moreover, the company forecast that 2008 would see a 45% increase in earnings per share.

CAPS All-Star investor ypcheng, with a 99.13 player rating, sees Celgene continuing to advance because of its rich pipeline, while player MarvyMarge is impressed by its list of products already on the market.

Although I can't vouch for the science in his post, CAPS player irishmanbob points out that the contest between Velcade and Revlimid isn't over yet. Since he's a betting man, irishmanbob comes down in favor of the latter:

I thought Celgene was a buy at $57 before ASH-2007. Now, after (the American Society of Hematology meeting), I'm sure it's a buy at $50! Yes, MLNM's Velcade looked stronger than expected, but I'm not convinced yet that all the comparable data has been laid out side-by-side. [Velcade's] CR looks good, but I can't find long-term survivability data. Velcade requires injection-which isn't all that easy to get many places in the world outside the USA. It also has a peripheral neuropathy problem, which, I can tell you from experience, is a crummy disease to have. If I needed the treatment, and had an alternate to Velcade, which I have in Revlimid, I'd go for Revlimid.

A calming effect
We haven't yet heard from you, and at Motley Fool CAPS, every investor's opinion counts. Your voice affects these stocks, whatever month the calendar may display. Since it's free to sign up and express your investing opinions, why not use this opportunity to take your star turn?