These $5 Stocks Could Make You Double-Digit Profits in the Next 2 Months

The January effect is well-known among traders and finance professors. Years ago, it was discovered that small-cap stocks tended to outperform in the month of January. Of course, it is possible to prove almost anything with data, so we should only trade based on ideas that are supported by logic, and there is a logical reason why we should see this pattern.


Experts believe that investors sell their losers before the end of the year and that creates bargains. Small-cap stocks are more volatile and would be expected to sell off more under the pressure of tax selling. Since the selling will probably push some of these stocks well below their fair value, a quick rebound after the end of the year is likely to occur.

Since the January effect was first noticed in the 1940s, it seems like it has been occurring earlier and earlier. In most years, small caps now outperform in December as well, and with the extraordinary focus on taxes this year related to news about the fiscal cliff, now seems like a good time to start hunting for bargains among small caps. To reduce risk, we want to find stocks that are beginning to recover after a sell off. We found two drug stocks that look like great trades.

Amicus Therapeutics (NASDAQ: FOLD) is a company with several drugs in various stages of the approval process. The company is already generating revenue and has a partnership with GlaxoSmithKline (NYSE: GSK) that is doing well in the $1 billion market for the treatment of Fabry disease (a rare disease that can lead to early death from heart or kidney failure). The company is losing money for now, but analysts have set a price target of $8.40 on FOLD, more than 45% higher than the recent price.

The chart supports the idea that gains are likely.

The price has bounced off support and the pattern shows a price target of $7.16, about 25% higher than the current level. The stochastics indicator at the bottom of the chart confirms the buy, and the Bollinger Bandwidth in the center of the chart shows that a large price move is likely to occur soon.
The Bollinger Bandwidth is near a six-month low and volatility often increases when this indicator declines. While the Bollinger Bandwidth does not forecast the direction of the price move, other indicators do point to potential gains in FOLD.

Recommended Trade Setup:
-- Buy FOLD at the market price
-- Set stop-loss at $5.30
-- Set initial price target at $7.16 for a potential 25% gain in two months

Raptor Pharmaceuticals (NASDAQ: RPTP) shows a similar chart. The pattern provides a price target of $6.61, which is about 27% above the current price level. Again we see a low Bandwidth, indicating that increased volatility is likely, and a stochastics buy signal.

Analysts that follow RPTP have set a price target of $9, a possible gain of more than 70% from where it's trading now. The company should make a big move before late January when the Food and Drug Administration (FDA) is expected to announce an approval decision for a drug RPTP is testing. This announcement could lead to a large gain if the news is favorable or a large decline if the drug is not approved or requires additional testing. The risk should be managed with a stop-loss at the 20-day moving average (MA), currently at $4.73 and moving higher along with the stock price. Raise the stop once a week if the MA continues to rise.

Recommended Trade Setup:
-- Buy RPTP at the market price
-- Set initial stop-loss at $4.73, and use the 20-day MA as a trailing stop if the price rises
-- Set initial price target at $6.61 for a potential 27% gain in two months
These two stocks could benefit from the January effect and they are each buys even without that seasonal tendency. RPTP has more risk than FOLD, but also offers much greater potential long-term gains if the company receives good news from the FDA. Because the risks in these stocks, and small caps in general, are so large, be sure to use stops when trading them.