End-of-Quarter Opportunities Abound

Just before 4:00 p.m. ET on the last trading day of every quarter, price action in many stocks gets driven by 'window dressing' forces. What does that mean? Portfolio managers must report end of period holdings to the world after each quarter ends. They love to show holdings of that three-months' big gainers while they hate fessing up to owning the dodgiest performing names. That incentivizes them to dump stocks that have underperformed by the end of those days, even if they still like the stocks' future prospects. It makes many of those money managers add to their positive positions just ahead of the quarter's end, even if they feel those shares may be overpriced, or no longer buy candidates. Buying more of these winners at the close not only makes them look smarter, it revalues their entire positions higher. That's accretive to their end-of-period results. In many cases, the stocks sold will be almost immediately repurchased the following trading day. Bulked-up winners may get pared back or eliminated. Knowing this phenomenon occurs regularly, and is not indicative of any fundamental change in share values, can be used to advantage by individual investors. They are not worried about how others will view their end-of-quarter results. Traders get the chance to sell artificially high or buy abnormally low with pretty good certainly that the excesses will be quickly reversed. Here are a few of my favorite end-of-last-week buys based on this theory. Tech Data fell to a new two-year low last Friday (Sept. 28, 2018). Shares that fetched more than $111 last year, closed at $71.57 on window dressing sales. Yet 2018 and 2019 EPS estimates are still expected to come in at all-time record levels. A simple reversion-to-the-mean valuation of this year's, already downwardly revised estimate, leaves room for a better than 50% rebound, to $108 per share. TECD has not been available this cheaply, on a P/E basis, since the dark days of 2009. Thor Industries presented a similar opportunity. Thor, after closing on a recently announced purchase of a German RV company, will become the world's largest producer of recreational vehicles. Like TECD, Thor's 2018 and 2019 EPS estimates have been lowered slightly in recent months. Similarly, both numbers, if achieved, would still represent all-time best figures. Should stocks with all-time record results be bargain-priced? Not unless you feel a cyclical top is in place. Analyst estimates for next year do not jive with that belief. THO touched more than $161 late in 2017. It was available at the end of September 30, 2018, for just $83.70. Thor now trades for a well-below-normal P/E, along with a better-than-historically average yield of 1.77%. A rebound to just a more-normalized valuation could send THO back to near $155 by the end of 2019. That would generate total return of around 85% from last week's close, plus dividends, over the coming 15 months or so. I also added to my Francesca's Holdings and General Mills positions last week on the same reasoning. I expect large rebounds in all four of these stocks. The bounce backs could come quite quickly. Barron's Market Week section put forth a positive view on GIS this week, with a $50 target versus the stock's Sept. 28, 2018 close of $42.99. Include General Mills' generous 4.55% yield, and 12-month total return could easily be north of 20% on this blue-chip, low-risk holding. Window dressing makes sense for portfolio managers. It can make dollars for you if you harness the short-term disruptions to your advantage.

End-of-Quarter Opportunities Abound

A rebound to a more-normalized valuation could send these stocks sky high.

Columnist Conversation

Here Is Your Pullback in ORCL

Rolled Up Google, Morgan Stanley

Webinar Time After the Close -- Don't Miss This

COLUMNIST TWEETS

Please Join or Log In to manage and receive alerts.