Thom Calandra's StockWatch: People's choice for January stock winners (External)

Part II: People's choice for January effect Microvision, Alliance, ForSoft chosen

By Thom Calandra, CBS MarketWatch

SAN FRANCISCO (CBS.MW) -- It's people's choice time for January effect candidates.

Every year, investors in tiny stocks look for the January effect. Some say it's a mythical notion -- the idea that small companies' shares will rise each and every January. I asked CBS MarketWatch viewers for their top choices: small companies that are growing rapidly but whose shares are in the dumps. (See Part I: Tegal Semiconductor and MTR Gaming.)

Marc Robins, an independent small-stock analyst at www.redchip.com, tells me the so-called January effect "has not been as pronounced in the last two years. The summer rally in 1998 flopped, giving rise to a fall frenzy, which moderated the January rally."

Nasdaq 100 vs. S&P Small Cap

This year, tax-loss selling "crept into November, resulting in a December buying eruption," says Robins. "That doesn't mean the bounce won't come, it just won't be as springy."

Others on Wall Street say U.S. markets are in for a smashing January. The reasoning there: the 1999 stock rally drove many stock indexes to record highs. But small-cap stocks, as measured by the Russell 2000 index ($RUT: news, msgs) and the Standard & Poor's 600 Index ($SML:news, msgs), trailed the pack. (See stock chart above.) Just maybe, it's time for the so-called value stocks, the ones without a dot.com at the ends of their names, to have their day in the January sun.

What's more, a relative handful of stocks, the large, technology-driven ones, drove the huge gains of the high-profile Nasdaq Composite ($COMPQ: news, msgs) and Nasdaq 100 ($NDX: news, msgs) indexes. Some two-thirds of all U.S. stocks, many of them in manufacturing, tobacco, railroads, trucking, real estate and gold, went nowhere in 1999.

It was a narrow rally, in other words. Adding insult to injury: small stocks suffered end-of-the-year tax selling. Investors, marking their losses for tax reasons before Jan. 1, 2000, further depressed the small shares.

At 33-year-old "Stock Trader's Almanac," publisher Yale Hirsch in New Jersey calls this year a "stealth bear market . . . the not-so-nifty 9,000." The almanac pioneered the strategy of picking underperforming stocks on Dec. 15 and holding them until Feb. 15. See related story for more.

Robins at Red Chip still sees a January bounce. His candidates include Nobel Learning Communities Inc. (NLCI: news, msgs). "Its price has suffered because of tax loss selling," Robins says. "It doubled from $4.50 to $9 until November, when it plunged to $5. Education is shaping up as a big issue in the presidential election campaign, and NLCI is likely to benefit in particular from the growth of private preschool programs." (Shares of the Pennsylvania company sell for about 6 on Nasdaq; market capitalization is a scant $26 million.)

Microvision's Terminator technology

Another from Robins: Measurement Specialties (MSS: news, msgs), which trades on the American Stock Exchange, runs a consumer sensor business that  is expanding into the industrial arena, Robins says. "Profits are up 100 percent this year." (Market cap is $71 million for the New Jersey company, which recently said it would sell a German brand of fiber-optic traffic sensors in Latin America and Asia.)

And our viewers, most of whom own stakes in the companies they're proposing as January high-fliers?

CBS MarketWatch.com viewer Larry Segal writes: "Microvision Inc.(MVIS: news, msgs) is developing a heavily patented technology called Virtual Retinal Display. Simply, a beam of light is scanned directly on the retina allowing the viewer to view objects and data without the need for a flat panel display. Microvision has established partnerships with leading players, and as Bluetooth (in Europe) and other wireless application protocols rapidly evolve, Microvision may play a lead role in offering alternative and superior displays." The company's Web sites are www.mvispages.com and www.mvis.com. Several viewers called or wrote in to suggest Microvision is developing a wireless cell phone that can project the equivalent of a 15-inch personal computer monitor onto a human eye, without adding weight to the phone. (The Washington state company's shares sell for about 23 on Nasdaq; market cap is $225 million.)

Mike Schaefer wonders about MathSoft Inc. (MATH: news, msgs), a Massachusetts software developer that serves students who study math and science. Since we last wrote about MathSoft, almost a year ago, the Nasdaq-traded shares have gone, well, nowhere. Schaefer calls Mathsoft   a "small but growing company with a web site about to open up that may generate some interest. The site is going to be called www.freescholarships.com." MathSoft says the new Web site will "assist students and their families in meeting the rising costs of a quality education." Sales in the most recent quarter grew 12 percent from a year ago to $7 million. (MathSoft shares sell for about 3 9/16; market cap is $35 million.)

Alan Tobey says he sees an opportunity in Regis Corp. (RGIS: news, msgs). "How far from the mainstream frenzy can a stock get?" says Tobey from California. Regis is the largest owner/franchiser of hair salons. "Stuck at $20 (a share on Nasdaq) after a decline from $30 despite consistent growing revenues, profits and same-store sales, this leader in its industry still has only a 3 percent market share and immense growth potential," Tobey says about the Minneapolis company, which earlier this month bought 112 salons. Tobey says Regis is a "buy-what-you-know" stock that belongs in the buy-and-forget category for the long term." (Market cap: $780 million.)

Alliance has ties to Taiwan

Jim Varney says Alliance Semiconductor (ALSC: news, msgs) owns about $1 billion worth of pre-tax shares of several related companies, including United Microelectronics Corporation, a Taiwan computer chip maker. "UMC is one of the top producers of chips in Taiwan," says Varney, who expects UMC's Taiwan-traded shares to be listed as American Depositary Receipts in the U.S. market. Alliance, at 15 a share on Nasdaq, has a market cap of $635 million. The shares, though, haven't exactly languished this year; in the past six months they have about doubled in value. (See chart.) The company is based in Silicon Valley, Calif.

Alliance Semiconductor

Julio Ocasio, another CBS MarketWatch reader, writes: "Trans World Music Corp (TWMC: news, msgs) is one of the largest brick-and-mortar music retailers. It's suffering from the perception that the Internet is going to be the death of (such) retailers. Great balance sheet, no debt, $200 million in cash. Their music site is www.twec.com and is competitive with any other music site." The Albany, N.Y., company recently said that consumers can return merchandise purchased at the Web site to any of the company's 985 U.S. stores. (At 10 on Nasdaq, the shares give Trans World a market cap of $534 million.)

Finally, several viewers, along with Salomon Smith Barney analyst Victor Halpert, pointed to Israeli software services company ForSoft Ltd. (FORS: news, msgs). "The company is undertaking big projects around the world, and has a backlog of projects," says Halpert, who sees the software consultant earning 90 cents a share next year. The shares sell for about 11 1/2 on Nasdaq. About $3 of that is cash and cash equivalents. Projecting a revenue growth rate of 40 percent in the year 2000, Halpert says ForSoft shares could reach 20. ForSoft (market cap: $150 million) logged nine-month sales of $45 million, a gain of 28 percent from the year-earlier period. ForSoft is one of several companies controlled by another Israeli company, publicly traded Formula Systems (FORTY: news, msgs).   The shares trade on Nasdaq.

Folks, if some of the above candidates don't fit neatly into the profile of a January-effect candidate -- especially the part about shares battered by year-end tax selling -- well, blame the red-hot U.S. stock market.

Happy New Year: I'll be back in this space with a fresh StockWatch on Jan. 3. Keep an eye out for our "CBS MarketWatch Weekend" TV show. This coming weekend, the first of the new year, I'll be doing the look-ahead thing with CBS MarketWatch correspondent Betsy Karetnick. The program airs on many CBS stations across the United States.