A story of cell phones and seasonal investing
Should investors be avoiding the market for the summer, asks this Canadian advisory? In the case of at least one stock, the answer is no.
Does seasonal investing still mean anything in this twisted market? Does anything mean anything in this market?
Well, let’s not get too fatalistic.
Even though May through October is frequently broadcast as a time when investors should steer clear of the market, it would be useful to back this up with a few real figures.
(And of course individual investors needn’t be married to the market indexes — there are many ways to succeed no matter what the markets are doing.)
We will look at the whole question of seasonal markets through the eyes of the independent research team that publishes KeyStone’s Small-Cap Stock Report.
But we’ll begin with their examination of a stock that’s doing fine, thank you, irrespective of the time of year or the direction of the markets.
Network control
This is a high-tech stock. Just what you want in a schizophrenic market like this!
In fact, this stock has been doing very well of late, and this advisory expects it to do even better. It is called Bridgewater Systems Corporation (TSX-BWC) and, in the jargon of the trade, it is “an independent vendor of network access control and policy management software to wireless networks.”
To put it another way, it is “subscriber-centric.” That is, when you’re logging on to a cell or smart phone, Bridgewater’s software controls the information that lets you on the network.
It has more than 120 clients, including the likes of Verizon, Spring Nextel, Bell Mobility and SmarTone-Vodafone, so it is not exactly knocking on doors looking for business.
Actually good
This advisory first recommended the stock in June 2008, when it traded at $3.08. It hung around at that level until the stock market went into a dive in October and the shares slid down to around $1.75.
Now it’s back. Its first-quarter results (quarter ended March 31) were better than expected. And unlike many other stocks these days, that didn’t mean “not as bad as we thought,” but actually good.
Revenue jumped 64 per cent from the year before, while earnings climbed from a net loss of $0.03 per share to a net gain of $0.12 a share. More importantly, says the advisory, the company tightened its guidance, projecting annual growth of 22 to 30 per cent.
While this advisory was updating its report on the stock, the shares were shooting back up past the $3.00 level to $4.26. By the time they went to press it had hit $5.25. It closed Friday at $5.00.
Those who own the stock should hold it, says the advisory, and even consider taking short-term profits if it approaches its “fair value” in the $5.50 to $6.00 range. But it also likes company in the long term and sees it as a takeover target. If you’re in for 1-5 years, hang on to this stock.
How about the rest of the stock market?
Circumstantial evidence
As a rule, investing styles should not depend on the calendar, says this advisory. But it’s not sold on the market’s recent rallies, either.
Most corporate earnings are down, job losses continue (despite the one optimistic Canadian report of a few weeks ago) and, most critical of all, debt levels still need to be brought down.
So there’s circumstantial evidence that you may want to sell in May and go away, as the saying poetically goes. And the statistics would seem to bear this out.
A study of the MSCI World Index (a benchmark for global equity markets) since 1969 shows November-April returns at 6.5 per cent per annum, while May-October results were actually -0.5 per cent.
On the American market we can go even further back. A survey by Plexus Asset Management of the S&P 500 Index from January 1950 to 2009 showed that the November-April returns were 7.9 per cent per annum and the May-October returns 2.5 per cent.
Entirely foolish
More recent numbers could be used to support the argument as well, especially the ghastly figures for May 2008 to October 2008. That added up — or subtracted down — to a grim loss of 30 per cent on the S&P 500.
But that doesn’t mean quit, says this advisory, it means be cautious.
“In fact, we would be quick to point out that the ‘go away’ part of the adage is entirely foolish, as some of the best bargains, particularly in the under-followed small cap/mid cap area, tend to appear when volumes are thin — summer.”
So, the advisory’s revised version of the seasonal selling proposition goes like this: “Lighten up your equity positions this May, be vigilant and comb the markets for summer values … do not go away.”
And it has at least one stock it thinks is worth hanging around for.
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