Clean Up When Funds Clear Out

Money managers clean up portfolio holdings before the end of their tax year. Over 48% of US mutual funds close their books between late October and December. Managers sell stocks with large losses to avoid reporting them on their year-end report to shareholders. This causes downward pressure on stocks trading within their portfolio(s) that are at or near 52-week lows. Once the selling subsides, these stocks have historically experienced a price reversal. That said, investors should exercise due diligence before buying any of the companies listed below by analyzing any potential shift in a company’s fundamentals and other factors such as sector weight and risk tolerance.

Here are the screen parameters used to select the following “sells” from funds:

Large-cap and mid-cap stocks trading at or below 30% of their 52-week high and have not bounced above 15% from their 52-week low,and have above-average valuation on both an absolute and relative basis.

Small-cap stocks trading at or below 40% of their 52-week high and have not bounced above 10% from their 52-week low, and have above-average valuation on both an absolute and relative basis.

Here are the stocks as of November 4th that met the screen:

Large-Cap Reversal Candidates:

(ABC) AmerisourceBergen
(AET) Aetna
(AIZ) Assurant
(CAH) Cardinal Health
(CTL) Century Telephone
(EQ) Enbarq
(EXPE) Expedia
(GE) General Electric
(GLW) Corning
(IFF) International Flavors and Fragrances
(IP) International Paper
(JAVA) Sun Microsystems
(JDSU) JDS Uniphase
(LXK) Lexmark
(MCK) McKesson
(MOLX) Molex
(S) Sprint Nextel
(SEE) Sealed Air
(STZ) Constellation Brands
(SVU) SUPERVALU
(SWY) Safeway
(SYMC) Symantec
(TAP) Molson
(TE) Teco Energy
(WFMI) Whole Foods
(WYE) Wyeth

Mid-Cap Reversal Candidates:

(ACXM) Acxiom
(AFFX) Affymetrix
(ANN) AnnTaylor
(BLC) Belo
(CAKE) Cheesecake Factory
(CHRS) Charming Shoppes
(CTV) CommScope
(IMN) Imation
(LEA) Lear
(MDU) MSU Resources
(PKG) Packaging Company of North America
(PL) Protective Life
(RGS) Regis
(RPM) RPM International
(SPW) SPX Corpp.
(TECD) Tech Data
(TRN) Trinity Industries
(UVV) Universal
(WSM) Williams-Sonoma

Small-Cap Reversal Candidates:

(AIN) Albany International
(BMR) BioMed Realty Trust
(COO) Cooper Cos.
(CV) Central Vermont Public Service
(ETH) Ethan Allen
(GFG) Guarantee Financial Group
(IFC) Irwin Financial
(ITG) Investment Technology
(JBT) John Bean Technologies
(NPO) EnPro Industries
(RTEC) Rudolph Technologies
(SSP) E.W. Scripps
(TTWO) Take-Two Interactive

The excellent research department of Credit Suisse First Boston has produced excellent institutional investor work on this theme for several years.

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