Election Implications for Stock Investing

                  Election Implications for Stock Investing

PR Newswire

CHICAGO, Nov. 9, 2012

CHICAGO, Nov. 9, 2012 /PRNewswire/ --Zacks Investment Research presents their
newest list of stocks featured in their weekly Research Wizard article, which
describes how to profit from stock market opportunities. The ideas in this
article focus on key Small Cap stocks to own. Stocks include: Sun Healthcare
Group, Inc. (SUNH), Homeowners Choice, Inc. (HCI), CalAmp Corp. (CAMP), Landec
Corp. (LNDC) and Big 5 Sporting Goods Corp. (BGFV).

(Logo: http://photos.prnewswire.com/prnh/20101027/ZIRLOGO)

Learn more about Research Wizard at this site: Research Wizard

Here are highlights from our most recent Research Wizard feature:

The presidential election just ended and, regardless of how your choice fared,
it's now time to comprehend what an Obama second term indicates for the stock
market. It's always extremely difficult to get a bearing on the market's
future and that is never truer today given the amount of uncertainty in the
global economy. But, we can look to the past for clues on how certain types
of stocks preformed after an election.

The analysis of Election Cycle investing has a long history dating at least to
Herbst's and Slinkman's 1984 paper. They discovered that markets and
political cycles do dance to a similar tune which crescendos in November of
the presidential election year. An often quoted study by Haung shows results
are generally higher in the last two years of a presidential term when
compared to the first two years.

The Handbook of Equity Market Anomalies summarizes most of the important
studies regarding Election Cycle investing. The book also goes into much more
detail than I have room for here, so I recommend that you read that section of
the book. But the major point that Hensel and Ziemba (2000) discovered is
that Small Cap stocks perform better than Large Cap stocks during Democratic
administrations. The outperformance of Small Caps averages over 18% a year
from 1929-1997. That's extremely dramatic and, as they prove, statistically

Their research was updated through 2010 to include the majority of Clinton's
second term, both of George W. Bush's terms and the first two years of Obama's
first term. The 1998-2010 period also shows Small Caps outperform Large Caps
during Democratic presidencies. But one thing that struck me the most was
that most of the outperformance was captured within thirteen months after the
election. So if history is going to repeat itself, it looks like Small Caps
are going to have a pretty good year in 2013.

The Diamonds in the Rough

There are about 2200 Small Cap companies out there, so you're going to need to
figure out the best way to capture the Small Cap Effect. You could always
simply buy a Small Cap ETF, but what fun is that? Wouldn't you like to be
able to find a way to select the best Small Caps yourself instead of simply
buying the shrink-wrapped version in an ETF?

Well there is a tool that enables you to whittle those thousands of companies
down to a manageable number. With the Zacks Research Wizard you can start
with nearly 7600 companies at your disposal. You can then add filters to
select stocks based on market value, numerous valuation and growth measures,
price changes, the Zacks Rank and many, many more. But the best part about it
all is that once you create a screen, you can then backtest it to see how it
would have performed in the past. You'll be able to remove all the guess work
and know what works in picking stocks and what doesn't.

A Small Cap Example

There's a Small Cap screen in the Anomalies folder in the Research Wizard,
but, as a refresher, I'll share it below:

  oFirst, limit the stocks to only Small Caps by requiring a Market Value of
    at least $100 million, but less than $1 billion.
  oNext, create a liquid, investible set of the stocks with average daily
    trading volume greater than or equal to 100,000 shares and trading above
    $5/share (if there's not enough liquidity, it'll be hard for you to
  oAdd another filter by selecting only those stocks with Zacks Rank less
    than or equal to 2. (Any Zacks Rank 3 or greater is either at or under
    market performance.)

Here are five of the stocks that passed the screen this week (11/09/12).

SUNH – Sun Healthcare Group, Inc.

Sun Healthcare, through its subsidiaries, operates nursing centers providing
nursing, rehabilitative and related specialty healthcare services principally
to the senior population in the United States. This stock has a market value
of $216 MM and is currently a Zacks Rank Buy. This company has had positive
earnings surprises in six out of the last eight quarters. Sun Healthcare has
been a hot stock this year, but its Price/Book, Price/Sales, and Price/Cash
flows are all below market and industry averages.

HCI – Homeowners Choice, Inc.

Homeowners Choice, an insurance holding company, provides property and
casualty insurance in Florida. The company provides property and casualty
homeowners' insurance, condominium owners' insurance, and tenants' insurance
to individuals owning property. This firm has beat earnings estimates in each
of the last five quarters. The consistent positive earnings surprises have
prompted analysts to increase future earnings projections. The combination of
strong positive surprises and increasing estimates is the reason why this
stock is a Zacks Rank #1.

CAMP – CalAmp Corp.

CalAmp is a leading provider of wireless communications products that enable
anytime/anywhere access to critical information, data and entertainment
content. This firm is the leading supplier of Direct Broadcast equipment to
the U.S. satellite television market. This company has experienced positive
surprises in the last six subsequent quarters. The stock price is up about
97% YTD which has put a damper on its valuation, but profitability is high and
debt is low at this $250 MM company.

LNDC – Landec Corp.

Landec designs, develops, manufactures and sells temperature-activated and
other specialty polymer products for a variety of food products, specialty
industrial and medical applications. This $269 MM company also has a strong
history of exceeding earnings expectations. This Zacks Rank Buy is also rated
as a Strong Buy by all four analysts that cover Landec. The stock price has
been on a tear this year, but has seen a recent pull back which often
indicates a good buying opportunity.

BGFV – Big 5 Sporting Goods Corp.

Big 5 Sporting Goods operates as a sporting goods retailer in the western
United States. The company offers athletic shoes, apparel, and accessories,
as well as a selection of outdoor and athletic equipment for team sports,
fitness, camping, hunting, fishing, tennis, gold, snowboarding, and roller
sports. As we all know, a stock's price tracks corporate earnings and Big 5
is a perfect illustration of this concept. The stock of this company rose
when the company beat estimates in six out of the past seven quarters. And
now, analysts have been raising earnings expectations for the remainder of
this year and next year as well.

A Promising Situation for Small Caps

Because research has shown that Small Cap stocks perform well, on average,
during Democratic presidencies, 2013 bodes well for those interested in a
Small Cap investing style. In addition to the Small Cap strategy I outlined
above, the Zacks Research Wizard also has a number of other pre-built Small
Cap strategies already in the program.

Even though a number of outperforming strategies are ready to provide stock
picks, you also have the ability to create your own ideas, Small Cap or not.
With the Research Wizard, you're really only limited by your imagination.

Starting today, you are invited to do this free of charge. You'll have 14
days to create, tweak, and backtest your strategies. At the same time, you can
see the latest picks from pre-loaded winning strategies that average gains of
up to 67.4% per year.

Learn more about your Research Wizard free trial >>

Let's make some money!

Disclosure: Officers, directors and/or employees of Zacks Investment Research
may own or have sold short securities and/or hold long and/or short positions
in options that are mentioned in this material. An affiliated investment
advisory firm may own or have sold short securities and/or hold long and/or
short positions in options that are mentioned in this material.

Disclosure: Performance information for Zacks' portfolios and strategies are
available at: http://www.zacks.com/performance.

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