The February Forecast

Undoubtedly you've heard of the "January Effect," the phenomenon that seemingly causes stocks, particularly small caps, to surge in the month of January. The theory is that investors and institutions sell stocks in December for tax harvesting reasons, and buy them back the following month, causing them to jump in price.

Yet what about other months? Retailers, for example, have seasons that are better performing than others, simply because of the nature of the business. Some stocks even do better in February.

Whatever the reason, it's certainly not a way Fools would advocate you invest. As Foolish colleague Selena Manjarian once noted, you could accurately predict how the market will react by following butter production in Bangladesh. Back-testing and data mining can allow us to find just about 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 when? Now you can!

On Motley Fool CAPS, more than 83,000 investors have sized up the potential of 5,400 stocks. Those they think have the best potential for beating the market are assigned five-star ratings. We'll then pair that with data going as far back as five years to check out which month gives us a stock's best performance. Below are five companies that do best in February.

Stock

Market Cap

Avg. % Return --February

Avg. % Return -- Rest of Year

CAPS Rating (5 max)

Return (YTD)

FormFactor (NASDAQ:FORM)

$1.2 billion

9.59%

0.93%

*****

(26.83%)

Medis Technologies (NASDAQ:MDTL)

$344 million

12.29%

2.61%

*

(33.57%)

Titanium Metals (NYSE:TIE)

$3.5 billion

25.12%

5.97%

*****

(18.07%)

Force Protection (NASDAQ:FRPT)

$279 million

174.14%

4.32%

***

(12.61%)

Eagle Test (NASDAQ:EGLT)

$273 million

22.25%

(2.50%)

****

(6.96%)

Sources: America Online, Motley Fool CAPS.

To what can we attribute the general stellar February performance of military contractor Force Protection? More than likely it's an anomaly, much as October happens to be the worst month to own the stock, as it typically has fallen almost 17% during that month. Competitor Ceradyne (Nasdaq: CRDN  ) , for example, does best in May. That's why we don't recommend using this as a list of stocks to buy or sell, but as a platform for further research. Whatever the reason, the CAPS community believes the potential is significant for it to continue outperforming the market.

This has been an ugly start to the year for many stocks, but with February being their month to shine, let's see which might live up to that promise.

CAPS special effects
While hardening armored vehicles and protecting U.S. troops has served Force Protection well, the shares of the military contractor blew up when the Defense Department decided to require competitive bidding and spread out vehicle production over a number of big-name contractors. Of the more than 3,000 so-called MRAP's the government wants built, Force Protection gets only a handful, and has to split the contract with partner General Dynamics (NYSE: GD  ) . That makes the prospect of weaker earnings results for this Motley Fool Rule Breakers recommendation more probable.

Despite the increased competition for the vehicles Force Protection helped popularize, the doom-and-gloom scenarios being painted are just too bleak for CAPS investors like NeroSagetrade, who sees the company (now trading at its book value) too tempting to pass up:

Although there is increased competition for MRAP vehicles and Force Protection only received 14% of the order size they were expecting, there are still plenty of other opportunities for this company to pick up business. They are trading at a mere 4 times earnings and are growing revenues at a phenomenal pace. How about 1 times book? There is plenty of value here with or without a huge government contract. These predictions by analysts out there are far too doom and gloom for my liking.

Others, like CAPS player WailerBoy, think the extreme sell-off in shares makes Force Protection a possible buyout candidate.

There are risks, to be sure, but [Force Protection] looks to be an extreme value right now. I don't see an armored vehicle maker going bankrupt during a time of war, especially a company with very low debt. [It] is a ready-made buyout candidate, mainly because nobody else produces as good (or as safe) of a product.

A calming effect
But we haven't yet heard from you, and at Motley Fool CAPS, every investor's opinion counts. Your voice affects these stocks, regardless of which month it is. Since it's free to sign up and post your thoughts, why not use this opportunity to take your star turn?


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