The February Forecast

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 83,000 investors have weighed in more than 5,300 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 February:

What drove the generally stellar February performance of online discount retailer (and all-around Sith Lord foe) Overstock.com? The surge is most likely an anomaly, much like July's status as the worst month to own the stock; Overstock typically falls more than 6% during that month. It just so happens that rival Amazon.com (Nasdaq: AMZN), for example, performs worst in February. 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, Overstock's one-star rating suggests that the CAPS community doesn't believe it will outperform the market anytime soon.

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

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Industrial and construction equipment manufacturer Terex has been enjoying the boom in growing world economies. That growth fuels demand for new infrastructure, which requires cranes, road-building equipment, mining and quarrying excavators, and more. Terex and competitor Manitowec (NYSE: MTW) track pretty closely, but the former has fallen further in recent months, because of fears related to the U.S. economy and weak construction spending.

At just eight times 2008's projected earnings of $6.74 per share, Terex trades at a discount to its industry. For example, international equipment maker Joy Global trades at twice Terex's multiple.

CAPS player pc123567 thinks Terex's international reach provides a bottom for the company at these levels:

Being global in scope should provide some resistance to a U.S. slowdown. Infrastructure development still seems like a good long term play. Stock has recently been hurt due to manufacturing constraints in the crane segment. It seems like it would be a good thing if you are having trouble keeping up with demand!

That's also pretty much the opinion of CAPS All-star saunafool, with a 99.64 player rating: "I don't think global growth is going to grind to a halt. Terex is cheap, maybe not at the bottom, but I'll take it during the plunge."

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But 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 share your investing opinions, why not use this opportunity to take your star turn?