On the first trading day of the New Year the U.S. stock market
exploded higher in the wake of a last-minute Congressional deal to
avert the fiscal cliff. Investor exuberance sent the Dow Jones
Industrial Average rocketing more than 300 points higher to over
The Nasdaq did even better, starting 2013 with a tidy three
percent gain. In terms of stock market history, Wednesday's trading
session was nearly unprecedented for the opening day of a New
Investor enthusiasm is riding high and market participants are
hoping that the huge rally is a sign of things to come in 2013.
Historically, when the stock market moves higher over the course of
the first five trading days of January, there is an 86 percent
chance that stocks will close the year with a gain.
This phenomenon is referred to as the
and the market rises nearly 14 percent on average when it is
triggered. With the uptrend that began in March 2009 still firmly
intact it may be time for individual investors to put more capital
to work. Below, Benzinga offers readers three actionable ideas that
could bring near-term profits this month.
) - In recent weeks, multilevel marketing company Herbalife has
been one of the most volatile and talked about stocks on the New
York Stock Exchange. The company sells nutritional and
weight-management products through third-party distributors who are
compensated on both sales and recruiting of other distributors.
Over the last month, the stock has fallen around 30 percent on
massive volume after billionaire hedge fund manager Bill Ackman
revealed that his firm is short more than $1 billion of the stock.
The Pershing Square Capital Management founder disclosed his
massive bearish bet against the company on December 20th at the Ira
Sohn investment conference during a three hour presentation which
342 PowerPoint slides
Ackman's essential thesis for the trade is that Herbalife,
despite consistent and prolific sales and profit growth, is a
pyramid scheme which will eventually come under intense regulatory
scrutiny or collapse. The hedge fund manager said that Herbalife is
his highest conviction short ever and that his price target for the
stock is $0.
While Ackman has clearly done his homework on the trade, not
everyone is convinced. A number of Wall Street analysts immediately
came to the defense of the company and were critical of the hedge
fund manager's research and conclusions. In fact, D.A. Davidson
analyst Timothy Ramey said that the stock was a "Best Idea" for
2013 on Wednesday. He has a "Buy" rating on the shares and a $72
Herbalife CEO Michael Johnson also provided an aggressive
response to the accusations leveled against his company and said
that Ackman was engaged in "blatant market manipulation." He said
that "This appears to be another attempt to illegally manipulate
the market by a group of short sellers." The company also released
a statement calling the presentation "a malicious attack on
Herbalife's business model based largely on outdated, distorted and
In recent days, the stock has bounced back strongly from its
worst levels. Shares bottomed out on December 24 at around $25 and
have subsequently jumped almost 29 percent from that level to
$32.20. Looking ahead, there is a very specific catalyst that could
provide more near-term upside in the name.
Herbalife has scheduled an analyst and investor meeting for
January 10, 2013 in New York. At this meeting, Herbalife will
provide comprehensive responses to questions about its business
model and address Ackman's accusations in detail. It will also
update investors on its business and growth prospects. In addition,
Herbalife has retained Moelis & Company as a strategic advisor
to defend itself against the attacks against the company.
Although this is a risky situation, being long HLF into this
analyst meeting could pay off handsomely in a short period of time.
Along with this catalyst, Herbalife also has $950 million remaining
on its existing $1 billion share repurchase authorization and there
is a good chance that it will deploy this money in an effort to
fight back against Bill Ackman and other short-sellers. At current
levels, Herbalife has a market cap of just under $3.5 billion so
the company could buy back a huge chunk of stock in light of the
) - Don't look now, but Facebook has convincingly broken its
lengthy downtrend and is now moving aggressively higher. The stock
opened the New Year with a better than 5 percent gain and is now
trading at $28. Although shares are still down around 26 percent
from their $38 initial public offering price, the stock has surged
roughly the same amount over the last three months and is sitting
at its best levels since late July.
There are a number of near-term catalysts that could continue to
propel Facebook in the month of January. The most important of
these catalysts is the end of the lock-up periods in the stock. The
final large lock-up expired on December 14 when 156 million
Facebook shares began freely trading.
When the company went public in May, a massive number of shares
held by employees and early investors were prohibited from trading
for a period of time. This is commonplace in the IPO process, but
it seems to have been a particularly burdensome headwind for
Facebook's stock price. These lock-ups were staggered over time and
were a source of large-scale selling when they expired.
This dynamic seems to have been driven in part by momentum. In
the weeks and months after Facebook came public, the IPO tanked
badly. The reasons for this included a very rich initial valuation
combined with a large offering of shares, among other things. As
the stock plunged, concerned investors became much more apt to dump
large numbers of Facebook shares as they were subsequently
When PayPal co-founder and early Facebook investor Peter Thiel
sold a huge chunk of his stock in August the sell-off in the social
networking giant accelerated and prices hit new lows. The lock-up
headwind has now been removed from the stock and Facebook is
regaining its luster in time for the New Year.
Analysts are also turning decidedly bullish on the stock and
that could lead to more significant gains in January. On Wednesday,
analysts at JP Morgan (NYSE:
) reiterated their "overweight" rating on the shares and bumped
their price target by $6 to $35.
In a client note, JP Morgan analyst Doug Anmuth wrote, "We are
incrementally positive on Facebook shares into 2013 as we believe
it remains very early in the trajectory of Facebook's mobile
advertising, and recent marketer feedback on mobile and News Feed
ads has been positive."
The investment bank also raised its revenue estimates for the
company's Mobile News Feed to $2.37 billion in 2013 and $4.0
billion in 2014 versus its previous projections of $2.0 billion and
$3.3 billion, respectively.
Similar sentiments were reflected by Morgan Stanley (NYSE:
) analysts on Wednesday. They also lifted their earnings and
revenue estimates for the company and raised their price target on
the stock to $32 from $31. Morgan Stanley has an "overweight"
rating on the shares and is bullish on the company's mobile
In a client note, they wrote "Facebook is making strong progress
in mobile monetization, and has introduced new revenue-generating
products such as a real-time bidding exchange and gifts."
The firm lifted its long-term revenue and earnings estimates by
2%-4% and is modeling EPS of $0.52/$0.85/$1.15 for fiscal 2012
through fiscal 2014. In light of the multiple catalysts that have
converged around the New Year for Facebook shares, this could be a
name that investors can ride to profits during the first part of
) - On Wednesday, Abbott Labs (NYSE:
) completed a planned spinoff of its pharmaceutical division into a
separate publicly-traded company known as AbbVie (
). The stock climbed 2.8 percent on the day and closed at
The goal of the spinoff, which was announced in 2011, was to
unlock shareholder value for Abbott investors by creating two
independent companies with distinct business lines. Prior to the
completion of the deal, Abbott was one of the largest healthcare
companies in the world and the two companies will remain among the
most dominant in their respective sectors with market
capitalizations above $50 billion.
The spinoff entity, AbbvVie, includes in its portfolio the
anti-inflammation drug Humira, the painkiller Vicodin, and
cholesterol drug Niaspan. Abbott Labs' products include cardiac
stents, nutrition items and diagnostic tests along with well-known
brands such as Ensure and Pedialyte.
Abbott's chairman and CEO Miles White called the event "the most
transformative action" in the company's 125-history. AbbVie CEO
Richard Gonzalez said that with his company's existing assets and
focus on innovation "we intend to create significant value for our
Investors should keep an eye on both of these stocks as similar
transactions have resulted in big gains in recent years. Two of the
most prominent have been Expedia's (NASDAQ:
) spinoff of TripAdvisor (NASDAQ:
) and Conoco's (NYSE:
) spinoff of Phillips 66 (NYSE:
Since the two companies split in December 2011, Expedia shares
have soared more than 110 percent while TripAdvisor is up over 70
percent. Similarly, Phillips 66 is up almost 69 percent since being
spun-off by ConocoPhillips in May 2012. Conoco shares have gained
around 5 percent during the same time period.
Although these type of gains for Abbot Labs and AbbVie may not
be likely, in large part because of the sheer size of both
companies, both stocks could benefit significantly in the coming
(c) 2013 Benzinga.com. Benzinga does not provide investment advice.
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