The April Showers Effect

You've heard of the "January Effect"? It's the phenomenon that seems to cause 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.

And the other months? Retailers, for example, perform better in particular months because what they sell is seasonal. Some stocks even do better in February.

Whatever the reason, investing based solely on the calendar is certainly not a Foolish strategy. Back-testing 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 92,000 investors have assessed more than 5,500 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.

These companies do their best in April:

Stock

Market Cap

Avg. % Return: April

Avg. % Return: Rest of Year

CAPS Rating

YTD Return

Eli Lilly (NYSE: LLY  )

$57.0 billion

8.00%

(0.76%)

***

(5.29%)

Deutsche Bank (NYSE: DB  )

$54.5 billion

7.33%

1.43%

**

(11.73%)

Wyeth (NYSE: WYE  )

$56.4 billion

6.85%

(0.02%)

****

(3.96%)

ABB (NYSE: ABB  )

$57.2 billion

10.73%

4.03%

****

(13.51%)

Schering-Plough (NYSE: SGP  )

$32.5 billion

9.15%

(0.15%)

****

(24.48%)

Sources: America Online, Yahoo! Finance, Motley Fool CAPS.

What drove the stellar April performance of ABB, an industrial gear supplier to the power industry? The surge is most likely an anomaly, much like December's status as the worst month to own the stock; ABB typically falls by an average of more than 1% during that month -- so get ready to sell. Not!

It just so happens that December is the best performing month for rival Siemens (NYSE: SI  ) ; it returns about 7% 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, ABB's five-star rating suggests that CAPS investors think its future performance is ready to power up.

Except for the past few days, thanks to the Fed, the year has been off to an ugly start for many stocks, but if April really is their month to shine, lets see which of the companies above might live up to that promise.

Plowing ahead
The company with the worst performance so far this year also has a history of having one of the best performances in April. Pharmaceutical giant Schering-Plough saw its stock turn sickly when a study of its drug Vytorin -- co-marketed with Merck (NYSE: MRK  ) -- was found to be not as effective as previously thought.

Yet Schering surprised analysts the following month with an earnings report that beat expectations. While the market was having a heart attack over Vytorin, the pharma was still producing sales with its pipeline.

Investors on CAPS understand that Vytorin is only one part of Schering's business plan. Safety wasn't the issue here; rather it was that Vytorin was no more effective than one of its components taken alone. That raises the issue of whether it should continue to be prescribed as much because it is more expensive, but Schering ought to still realize revenue from it.

Moreover, acquisitions that the pharma has made have CAPS players like addaam78 seeing other opportunities last month.

Great, innovative company, high growth potential. Attractive valuation at F P/E of 14. It acquired Organon not too long ago. Recently it has been beaten down nearly 35% because of a study regarding a cholesterol drug.

Similarly, CAPS investor mikalee sees Organon as making a bullish case for Schering.

Unfairly beaten up. With the purchase of Organo Biosciences, has much potential for growth with the new medications.

A calming effect
But, reader, we haven't heard from you yet. 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, use this opportunity to take your star turn.


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