Monday’s Small and Midcap Outperformers Could Indicate 2013’s Rally Stocks

Brian is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Earlier on Tuesday I published an article that looked at several large cap stocks that could rally into 2013 as a result of fund rebalancing and strong buying pressure during the final day of 2012. This would be consistent with past trends, as investors look to buy hot stocks that finish a year strong, and then ride those same stocks into a new year. Therefore, in this article, I am looking at five more stocks, small and midcaps that might experience a similar fate.

In my last article, I used Bank of America when talking about large cap stocks that saw a complete change in direction year-to-year. Bank of America began 2012 strong, rallying from $5.50 to $7.40 in the first month. There was nothing fundamental that changed, rather a change in perception as the stock was obviously undervalued.

A large cap stock can rally into a new year without significant fundamental performance, it just needs to be undervalued and considerably cheap, like Bank of America. However, a small or midcap stock needs fundamental improvements, which can be seen with 3D Systems in 2012. The stock underperformed throughout 2011 then in 2012 it was magically one of the best performing stocks in the market, including a rise from $14.40 to $21.00 in January. With that being said, let’s take a look at a few stocks that could follow the trend; stocks that ended the year with a bang.

<table> <tbody> <tr> <td> <p>Company</p> </td> <td> <p>Ticker</p> </td> <td> <p>2012 Performance</p> </td> <td> <p>12/31/2012 Performance</p> </td> </tr> <tr> <td> <p><strong>AK Steel</strong></p> </td> <td> <p><strong><span class="ticker" data-id="202773">(NYSE: <a href="">AKS</a>)</span></strong></p> </td> <td> <p>(44.31%)</p> </td> <td> <p>6.98%</p> </td> </tr> <tr> <td> <p><strong>Amarin Corporation</strong></p> </td> <td> <p><strong><span class="ticker" data-id="215038">(NASDAQ: <a href="">AMRN</a>)</span></strong></p> </td> <td> <p>8.01%</p> </td> <td> <p>5.06%</p> </td> </tr> <tr> <td> <p><strong>Best Buy</strong></p> </td> <td> <p><strong><span class="ticker" data-id="202921">(NYSE: <a href="">BBY</a>)</span></strong></p> </td> <td> <p>(49.26%)</p> </td> <td> <p>4.96%</p> </td> </tr> <tr> <td> <p><strong>Abercrombie & Fitch</strong></p> </td> <td> <p><strong><span class="ticker" data-id="202820">(NYSE: <a href="">ANF</a>)</span></strong></p> </td> <td> <p>(1.78%)</p> </td> <td> <p>4.83%</p> </td> </tr> </tbody> </table>


  • AK Steel is a company whose performance might be dictated by the strength of its industry. However, Goldman Sachs recently upgraded the stock saying its balance sheet concerns have diminished with its capital raise, and it sees no further negative catalysts on the horizon. Furthermore, Credit Suisse believes that the steel sector has already priced in a worst case scenario from the “fiscal cliff,” which is probably why the stock responded so well on Monday. Therefore, with its recent gains and presumed strength in the space, AK Steel is definitely a stock to watch.
  • Amarin fell recently after speculation of a takeover was removed when the company hired a sales team. However, with its $1.2 billion market cap the company is trading at just 3x its first year’s sales. Now, with an approved product and a company trading at less than 1x peak sales potential, it’s a stock to watch. Judging by its 5.06% gain on Monday, investors might be expecting a good year in 2013.
  • Best Buy will be at the epicenter of acquisition rumors throughout the first quarter of 2013, which could take its stock higher. With a $4 billion market cap, Best Buy is a midcap stock, but it is a massive company with over $50 billion in sales. Judging by its performance on Monday investors might be expecting the stock to find some common ground between its market cap and sales.
  • It has been an up-and-down year for Abercrombie & Fitch after several changes in sales trends. The company had a good showing on Black Friday and appears to be seeing stronger margins. The stock has also seen a number of recent upgrades from analysts who believe the company’s sales are back on track. Therefore, with sales and analysts reflecting well on the company, large institutions and retail investors won’t be far behind, and look to be getting a head start on Monday.

Seeing as how the market follows trends and is always attempting to follow the patterns of the past, I do think there is some merit to the idea that Monday’s strong performers could rally in the new year. I do not know if these stocks can maintain gains throughout the year, but it is very likely that we see continued gains throughout the first month, or two, of 2013.  

BrianNichols is long AMRN. The Motley Fool owns shares of 3D Systems and has the following options: short JAN 2014 $55.00 calls on 3D Systems and short JAN 2014 $30.00 puts on 3D Systems. Motley Fool newsletter services recommend 3D Systems. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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