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? For example, retailers perform better in some seasons than others; it's the nature of the business. And 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 on 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 rated stocks perform best in each month. The following five companies seem to do best in February:

Sources: America Online, Motley Fool CAPS.

What drove the generally stellar February performance of chip maker National Semiconductor? It's most likely an anomaly, much like January's status as the worst month to own the stock; National Semi typically falls more than 3% during that month. Although competitor Analog Devices also performs well in February, Texas Instruments (NYSE: TXN) does best in August. 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, National Semiconductor's two-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 February really is their month to shine, let's see which of the companies above might live up to that promise.

Coal miner's daughter
The metallurgical coal market is expected to remain tight throughout 2008, and a number of players in the coal mining business are considering the costs of consolidation. Fording Canadian Coal Trust announced the option last year and is still undergoing a review of its options, with Teck Cominco (NYSE: TCK) being an obvious choice. Others, like Western Canadian Coal, are also deciding whether to sell or dispose of assets.

Fording recently reported lower fourth-quarter earnings as it continues to be bedeviled by a strong Canadian dollar and the unavailability of rail shipments. With coal prices expected to remain high this year, Fording may end up losing out on production and sales volumes, hurting its value.

CAPS investor tarig sees a play to be made as the price of oil and other forms of energy continues to exceed that of coal. There's also the potential currency imbalance.

The disparity between what it costs to produce energy based on coal vs other fuels, particularly oil, has grown to the point where it will make a lot of economic sense to use coal more and more, plus I like the currency play of the Canadian dollar vs. the US dollar.

Currency issues attract other CAPS players like gea1968, as shown by this pitch from late December.

Low P/E. Large PEG. Large dividend yield. Momentum. Hmmm ... What else should we love about FDG? How about the fact that the dollar is falling, so that foreign stocks (like [Fording]) and commodity stocks (like [Fording]) will be worth more and more of those green pieces of paper called dollars in the future?

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, whatever month the calendar may display. Because it's free to sign up and express your investing opinions, why not use this opportunity to take your star turn?