The “January Bounce” is a well-established phenomenon among investors on Wall Street. Typically, stocks that have experienced a downturn during the first ten months of the year often see an additional decline in November and December. This pattern is primarily driven by tax-motivated selling, where investors look to realize losses for tax purposes before the year’s end. However, once January arrives and this selling pressure abates, there is a tendency for these underperforming stocks to rebound. Many investors anticipate this bounce, searching for candidates that not only could benefit from this trend but also have the potential for sustained gains throughout the rest of the year.
In the year 2024, five particular stocks are highlighted as potential candidates for a bounce back, with Pfizer Inc. (PFE) being a leading choice. Pfizer, a global leader in pharmaceuticals, has underperformed, declining over 13% year-to-date, contrasting sharply with the Standard & Poor’s 500 Total Return index, which has risen by 33%. This decline is notable as Pfizer’s stock trades at a level lower than it was a decade ago, despite the company’s pivotal role in combating the Covid-19 pandemic through its vaccine efforts. With its stock price sitting at just nine times estimated earnings for the year and offering a generous dividend yield of 6.5%, many investors view Pfizer as a compelling bargain, even as it navigates challenges related to patent expirations for key drugs and reduced demand for Covid-19 treatments.
Another intriguing candidate for the January bounce is Schlumberger Ltd. (SLB), a significant player within the oil service sector. Like Pfizer, Schlumberger has seen a decline of approximately 13% in stock price this year. Historically, the company enjoyed high returns on equity, exceeding 20% during its peak years from 2004 to 2008, and it has recently returned to these impressive numbers. Some market sentiment is currently negative towards oil and gas, perceived as less favorable compared to renewable energy sectors like solar and wind. However, the expectation remains that oil and gas will continue to play a central role in the U.S. energy landscape for at least another decade, especially with a potentially supportive political environment for the sector under an incoming Trump administration.
Visteon Corp. (VC), which specializes in automotive parts, is another recommended stock following a significant decline of 26% in 2023. Despite concerns regarding the impact of the electric vehicle (EV) transition, which tends to use fewer parts, Visteon’s current valuation at only five times earnings suggests that the stock has likely absorbed much of the negative sentiment. The recommendation here leans toward a shorter investment horizon, advising potential investors to hold for one to two years rather than seeking a long-term hold strategy. The market dynamics shifting toward EVs are indeed a threat, but the stock price indicates substantial pessimism which could create opportunities for recovery.
The fourth option, Atkore Inc. (ATKR), is noted for its impressive ten-year performance with a 460% return; however, it has faced a steep decline of about 45% this year. The company produces electrical products, but it has encountered a profit decline of about 17% linked to a marginal fall in revenue. While this decline raises concern, the drastic drop in the stock appears overly punitive when considering its valuation at six times earnings, suggesting potential for recovery as the market stabilizes.
Lastly, Photronics Inc. (PLAB) represents a smaller candidate in the recommended group, with a market cap of approximately $1.5 billion. Photronics specializes in the production of photomasks utilized in semiconductor manufacturing. After a period of rapid growth, the company has recently faced a slight decline in revenue and slowed earnings growth, which has led to a lack of attention from analysts, as evidenced by only one covering the stock. Nevertheless, the firm’s nearly debt-free status, with minimal debt relative to equity, and its existing market position make it an attractive option for recovery in 2024.
The past performance of the recommended candidates serves as a context for current predictions. Historically, the columnist notes that his suggestions for January bounce stocks have averaged a 12-month return of 13.05%, outperforming the average return of the S&P 500 index. However, not all recommendations have succeeded, with 15 out of 21 sets of candidates yielding profit at varying rates. This year, the selected candidates scored a 26.4% return, which though positive, was surpassed by the S&P 500’s 33.0% return. The best-performing stock from the recommendation, Hanmi Financial Corp., yielded over a 73% return, while the less fortunate pick, Albemarle Corp., declined by 9%. It is also disclosed that the columnist personally owns shares in Pfizer and Photronics, highlighting a commitment to these recommendations worthy of further consideration.