I'm always on the hunt for bargains.
That's why sell-offs are like holidays for me.
For a lot of people, that's not what they're looking for - or what they want. Watching the stocks in your portfolio sink lower and lower creates unease.
But, significant pullbacks in the markets present a great opportunity to buy shares cheap.
And it's a great opportunity to buy shares of small-cap companies we know have a history of moving higher as the fourth quarter closes out.
Discounted Investment Deals
ValueClick (Nasdaq: VCLK) is one of these.
It's an integrated online marketing company that competes with Google (Nasdaq: GOOG), Yahoo! (Nasdaq: YHOO) and other online advertisers. And despite all the negativity flowing around the U.S. economy, the United States is the engine behind ValueClick's growth over the last several years.
More people are on the internet. More consumers are using mobile devices. More digital content and advertising are being created. And that plays right into the company's wheelhouse.
And while the unemployment situation in the United States makes headlines, ValueClick has increased its staff by 10% this year.
Since 2010, the company's annual revenue has increased more than 56%. And its gross profit increased 35% from 2009 to 2011.
At the start of November, ValueClick released third quarter earnings... And they were good - up 26% from the third quarter of 2011.
So, all of these make it appear like a shoe-in investment, right?
Well, let's hold the reins there a sec... Year-to-date, shares of ValueClick are up about 6%. Over the last year, they're up a little more than double that, about 13%. And over the last two years, shares are up a hair less than 19%. If you push that timeline out further, to five years, shares of ValueClick are in the red.
Where Black Friday is Second Best
All in all, it's been a difficult play on ValueClick if you wanted to earn any significant return.
But here's the catch though... We're heading into what is seasonally ValueClick's best time of the year - the fourth quarter.
For the most part, a small-cap stock like ValueClick - which doesn't offer a dividend - doesn't have a lot of positives for keeping it super long term. And that's fine. So, if we shorten our timeline - about six months to a year - and just target its most profitable times, we can give ourselves a little holiday cheer.
ValueClick is a third-party internet advertising company. Because of this, the thinking is to lump it in with other tech stocks. But in reality, because all of its products are designed to attract consumers to other businesses' sites, it's more of a consumer cyclical.
Now, the third quarter is generally the second-best quarter for ValueClick, with the fourth quarter being the best. And the first quarter its worst.
So if we target shares of ValueClick following its third quarter release - either in late October or early November - but let the shares trail down a bit, and then exit right before its first quarter report, we improve our chances of a gain.
To make this even more specific, let's narrow it down to online retailers' major holiday - Cyber Monday (which is just around the corner). Cyber Monday is the online shopping day that follows Black Friday. And it's become one of the largest shopping days for virtual stores, with sales in 2011 topping $1.25 billion.
That was a 22% increase over 2010 Cyber Monday sales and more than double the sales of 2006.
Trading ValueClick the week before Cyber Monday - on or around November 21 - and then selling on the day the company reports first quarter earnings - about the end of April/beginning of May - we fare well.
| Entry Date | Exit Date | Return |
| Nov. 21, 2006 | May 1, 2007 | 34.71% |
| Nov. 21, 2007 | May 1, 2008 | -1.93% |
| Nov. 21, 2008 | May 5, 2009 | 126.80% |
| Nov. 20, 2009 | April 29, 2010 | -0.31% |
| Nov. 22, 2010 | May 4, 2011 | 22.38% |
| Nov. 21, 2011 | May 5, 2012 | 35.03% |
By doing this trade, since 2006, the average gain has been 36%. That tops the average return of holding shares for a full year from November 21 to November 21 (14.6%) or holding them from January to the end of December (10.1%).
During that stretch, ValueClick shares ended in the red twice… But not by a significant amount.
Trading shares from May to November on ValueClick is what you want to avoid. The average return has been -15.86%... And you lost money every single year except one.
If we keep our wits about us – if we stay calm when everyone else believes the world is going to end – the advantage is ours. And we're able to profit on companies that haven't offered the greatest return for long-term investors.
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