UA...January Effect:
Many investors engage in "Tax Loss Selling" toward year-end in order to generate capital losses and lower taxable income. With the 2007 fiscal year ending, this process is brought forward - resulting in, we believe, a "January Effect"
Under Armour, a Potential Outperformer:
This sell-off of depressed stocks creates an opportunity for equity investors, in our opinion. We have screened for companies based on their drop from 52-week highs as well as fundamental factors. We think Under Armour is one such attractive candidate to be a potential "January Effect" outperformer.
The January Effect
With 2007 winding down we believe that it is time for investors to step back and reflect on the year-to-date performance of the U.S. equity market. Many investors have been, and are continuing to take the opportunity to sell off the weaker names prior to the end of the year in order to realize the losses on their 2007 tax returns. In the year-end rush to sell off depressed stocks, there is often the risk of throwing out the baby with the bath water. This tax-loss selling has the effect of heaping further losses on the backs of already weak stocks.
Many fundamentally sound companies with excellent prospects for future performance come under pressure in this wave of tax selling, simply as a result of their prior performance. Once the year-end selling ends, many stocks which have been unfairly driven down to excessively low prices get snapped up by sharp-eyed investors looking for a bargain. The increased demand for these stocks has historically been observed to lead to a subsequent pop, which has been dubbed the January Effect. Each year, we attempt to identify a group of stocks which may have the potential to participate in this bounce. As always, we have designed our screen to look for those stocks in the Citi Investment Research coverage universe that are down significantly, but otherwise appear to be sound.
We believe that the positive sentiment of Under Armor is evidenced by rising consensus 2008 EPS estimates in the face of continued economic uncertainty could benefit its performance.
Sector
Consumer Discretionary
UA Under Armour Inc.
Rating: Buy
Market Cap: 1,553.6
Price as of 12/20/2007: 43.95
52 week high: 73.40
P/08 E: 33.37
PEG: 1.27
ROE: 20.8%
