The March Mayhem Effect

You've probably heard of the "January Effect." Investors sell stocks in December for tax reasons, only to buy them back in January, causing their price to jump.

All year long, we've been looking at stocks that also do better in other months. Retailers, for example, have some seasons that perform better than others, simply because of the nature of the business. And some stocks actually do best in March. Whatever the reason, investing based solely on the calendar is certainly not a Foolish strategy.

Still, wouldn't it be great to know ahead of time which stocks performed best at what times?

On Motley Fool CAPS, more than 130,000 members have weighed in on some 5,300 stocks, awarding five-star ratings to the companies that best 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 March:

Sources: America Online, Motley Fool CAPS.

What's made teen clothier Urban Outfitters bundle up in March while the rest of the year goes naked? The knowledge that fellow clothing retailer American Eagle Outfitters (NYSE:AEO) does better in February underscores why we don't recommend simply using this as a list of stocks to buy or sell. Instead, consider it a simple platform for further research. We may need to look closer for a reason, but Urban Outfitter's two-star CAPS ratings suggests investors think the future might be a little threadbare for the retailer. Yet if these companies really go nuts in March, let's take a look at some of those above that might live up to that promise.

Absorbing like a sponge
Sears Holdings remains the poster child for how difficult it is to be a retailer these days. Ever since it merged with Kmart, I've berated the stock as overvalued. Even to this day, it hasn't reported a single instance of increasing comparable sales; management has foolishly foregone making investments in its stores in favor of relying upon investing sleight of hand to boost results; it burned through its vaunted cash horde buying back overpriced shares; and the value of its ploy to be seen as a real estate play has come to naught.

While it's true that at some point, a stock just becomes too cheap to ignore any further, I still don't think Sears has reached such an inflection point. To me, its prospects remain scary. It might not be the worst stock in the world, but if you read Chairman Eddie Lampert's letter to shareholders, you'll see him defending his refusal to spend any money on revamping his stores while chiding those, perhaps including Home Depot (NYSE:HD) or Target (NYSE:TGT), who previously invested in their business but now are cutting back: "Perhaps they too are recognizing that unbridled expansion and investment rarely yield the types of returns forecasted by analysts and industry experts."

He further notes that Sears reduced its significant debt burden by $2 billion since the merger. While he the company has $1.3 billion in cash, he neglects to mention that at one time it was north of $4 billion when you included Sears Canada in the equation.

With that said, Sears does have some things going for it, so you might not want to irretrievably throw it away just yet. It has a host of well-regarded brand names, from Land's End to Whirlpool to Craftsman. It successfully relaunched its layaway program, which, if customers ever desire to shop at Sears or Kmart again, will be an attractive selling point. And surprisingly enough, even in these dire times, the retailer is cash flow positive though there's only so long that can continue without increasing sales before it collapses. There's also its real estate which at some point in the future may be worth what everyone hopes it will be.

In the end, I have to agree with CAPS All-Star member jstegma that the iconic retailer is no longer relevant in today's economy.

This store just doesn't seem relevant any more. I grew up reading the wish book and I like Craftsman tools, but it's probably been 2-3 years since I've spent any money at Sears. The wishbook and catalogue is long gone and if I am looking for tools and such I go to Lowe's. I think they'll suffer from a decrease in mall traffic as well.

A calming effect
It pays to start your own research on these stocks on Motley Fool CAPS. Read a company's financial reports, scrutinize key data and charts, and examine the comments your fellow investors have made all from a stock's CAPS page. 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?