Traders often speak of the “January Effect” in the markets to describe a phenomenon that typically spurs a seasonal rally in certain types of shares. Investment banker Sidney Watchel first noticed this effect in 1942 but the phenomenon seems to be less pronounced as time goes by since markets are already primed for it.
As for factors that trigger this so-called January Effect, some say that it’s due to funds and traders reestablishing the positions that they’ve closed at the end of the previous year to crunch profits or for tax purposes. Others think that it’s due to the general sentiment that it’s best to start investing at the beginning of the year. Regardless these are the stocks that did well in January:
Approximate Shares Performance: 30% Up
Alcoa shares were up more than 30% for the month, building up from the company’s momentum since October last year when it spun off its value-added business Arconic. The company’s latest earnings report indicated that demand for aluminum continues to grow and that the price of the metal has seen an upside, possibly sustaining this for the rest of the year.
However, adjusted fourth-quarter profits, missed analysts’ estimates by a wide margin. Even so, revenue outpaced estimates at $2.38 billion and came in at $2.54 billion. The company was also able to offer full-year guidance of adjusted EBITDA (Earnings Before Interest Taxes) of as much as $2.3 billion, higher than analysts’ projections and twice as much as it made last year.
Approximate Shares Performance: 32% Up
CSX corp shares are up approximately 32% for the month of January, thanks to a strong boost after the resignation of Canadian Pacific Railway CEO (Chief Executive Officer) Hunter Harrison and his decision to team up with former Pershing Square Capital Partner Paul Hilal to run CSX. The company’s shares surged 23% on this news. Harrison had acquired a reputation for turning around the fortunes of railroad companies, as he had done for Canadian Pacific Railway.
Keep in mind that the standing of CSX is not as bad as the pre-Harrison days of Canadian Pacific Railway. Analysts are hopeful that it’s already poised for strong growth. Higher volumes in railroads are expected for the year for markets like agriculture, fertilizers, automotive, and minerals.
Approximate Shares Movement: 33% Up
NRG Energy shares are up nearly 33% in January as activist investors Elliott Management and Bluescape Energy Partners combined forces to buy a 9.4% stake in the company. These firms aim to “coordinate and cooperate” to help the utility company increase shareholder value.
According to the SEC (Securities and Exchange) filing, these investors believe that the company’s stock is deeply undervalued and that there are numerous opportunities to increase shareholder value through operational and financial improvements, as well as strategic initiatives. Analysts speculated that these initiatives may involve streamlining operations by selling some assets.
Biotech stocks have been all the rage these days thanks to the JPMorgan Healthcare Conference held on the 9th of January. In nine out of the last 10 years, the biotech sector has outperformed SP500 by 5% for the month of January. A number of biotech companies are small cap firms and they tend to generally benefit from the January effect.
Among the biotech companies that saw strong gains for January are Easton Pharmaceuticals after its decision to acquire iBliss, Gevo Inc after its EPA (Environmental Protection Agency) approval for Isobutanol, Viaderma Inc, Oncomed Pharmaceuticals, and Vanda Pharmaceuticals. The Trump administration’s efforts to bring drug manufacturing back to the homeland and to reduce foreign price controls has also played a part in boosting such companies. Executive orders and specific action that could allow these plans to materialize would bring a tremendous boost to biotech shares, particularly those with lower capitalizations that tend to enjoy stronger volatility.
Another interesting sector for the month is healthcare which has gained traction ever since US President Trump started talking about repealing Obamacare. This would level the playing field for medical insurance and healthcare companies, allowing the sector to advance on increased competition. So far, there haven’t been much details on Trump’s actions for healthcare but analysts are hopeful that he would follow through on his word, especially since he has already gotten busy with his “America First” plans. Trump has promised faster FDA approvals, regulation cuts, and ending freeloading on foreign price controls.
Just recently, Trump has also met with CEOs of pharmaceutical companies to discuss pricing but it appears his remarks have veered off towards calling out China and Japan for currency manipulation. In any case, removing the Affordable Healthcare Act could mean a boost for Celgene which has been raking in revenues from drugs like Revlimid, Gilead Sciences Inc with new drugs in its pipeline, UnitedHealth Group which has pulled out of state insurance marketplaces, healthcare real estate investment company Ventas Inc, device maker Stryker Corporation, and maker of radiotherapy devices for cancer patients Varian Medical Systems.
Last but certainly not least is the cannabis sector which is projected to see the strongest growth for the year, following the November 8 vote to legalize the use of medical or recreational marijuana in several US states. Not only has this led to a big boost in investor interest for companies that grow cannabis, sell edibles, or offer growing services and technologies, but it has also led several firms to delve into the industry by diversifying their operations.
Among these companies are Endexx Corporation which jumpstarted their CBD-infused beverages delivery, NewGen Concepts Inc whose subsidiary is enjoying a strong influx of orders for Easy Grinder, Wrapmail Inc which acquired 100% of HealthMax Group to establish its stake in the marijuana market, North American Cannabis Holdings, and Puration.