Profits Rain Down in April

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. Some stocks even do better in February.

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 94,000 investors have weighed in 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. The following five companies seem to do best in April:

Stock

Market Cap

Avg. % Return-April

Avg. % Return-Rest of Year

CAPS Rating

YTD Return

Bank of America (NYSE:BAC)

$171.2 billion

4.34%

(0.04%)

***

(21.53%)

L-1 Identity Solutions (NYSE:ID)

$981.9 million

16.41%

(3.24%)

****

(15.81%)

PDL BioPharma (NASDAQ:PDLI)

$1.3 billion

10.47%

1.32%

****

(51.20%)

CIT Group (NYSE:CIT)

$2.2 billion

6.16%

0.39%

**

(76.94%)

Countrywide Financial (NYSE:CFC)

$3.2 billion

8.75%

(1.37%)

*

(82.95%)

Sources: America Online, Motley Fool CAPS.

What's driven the stellar April performance of mortgage producer Countrywide Financial, even as much of the rest of its year tends to be lackluster? Perhaps more people buy homes in the spring or, most likely, it's an anomaly; Countrywide savior Bank of America also finds that April showers profits on portfolios. 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, Countrywide's one-star rating suggests that CAPS investors think its future performance is still in default, even with a buyout looming.

Except for a few days here and there, thanks to the Fed, the year has been off to an ugly start for many stocks. If April really is their month to shine, let's see which of the companies above might live up to that promise.

Plowing ahead
After a truly ugly March, PDL BioPharma's April could only be half as bad, and still look good by comparison. The developer of monoclonal antibodies had been trying to shop itself to the highest bidder, but it couldn't find any takers. Its sharesplummeted when management announced it was taking itself off the block and would instead launch another round of restructuring.

Investors on CAPS understand that the biotech has its work cut out for it. At the time, CAPS player zzlangerhans wrote that the stock can recover in price, as long as the restructuring doesn't do too much damage to its quarterly results:

The drop today is probably a combination of disappointment over the cancelled plans for a sale and concern over decreased antibody royalty revenue, which is the only revenue stream the company has left. I'm going to bet the royalty drop is an aberration as the company claims, as this has been previously solid. I think if royalties are up next quarter, cash from the recent divestments is booked, and losses from operations are down because of restructuring then the stock will experience a significant bounce.

That might be an option. After finishing the sale of its antibody manufacturing facility two weeks ago, PDL plans to layoff several hundred employees, sell its top drugs, and get rid of its royalty stream. An investor might reasonably wonder what exactly it has left to offer buyers or investors.

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? 


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