"As a professional trader, there's nothing I like more than going with the odds," says Keith Fitz-Gerald, who also says that the odds are calling for as much as a 50% gain in the next 12 months. The reasoning behind this bullish forecast is one of the market's most consistent seasonal patterns, the Presidential Effect.
He explains, "Since 1933, no single third year 12-month period in a presidential term beginning in October has registered a loss, the average total return has been 28%, and the worst positive return has been 6.6%."
To clarify, the one-year period that runs from the current month through the end of next October represents the third year of the Presidential Cycle. The following 12-month period ending at the 2008 elections will be year four. "I'm licking my chops in anticipation of the Presidential Effect."
For his stock selections, Fitz-Gerald uses a system that he pioneered known as non-linear analysis, which applies pattern recognition to historical and current market data. And while his trading and hedging services are limited to institutions and high net worth clients, his stock advice is easily accessible through The Skeptical Investor newsletter.
And while his system will frequently uncover small, lesser known stocks, today it's pointing to some of the biggest players around – Microsoft Corporation (NASDAQ: MSFT) and General Electric Company (NYSE: GE), a pair "beaten down true blues that I think are poised for serious gains in the months ahead -- perhaps as much as 20%–50%."
As for Microsoft, he sees the stock undergoing a transition from a growth company to a value company. He admits, "I know that amounts to heresy in some circles, but MSFT is nearly 40 years old and has already conquered almost everything there is to conquer."
He speculates that Microsoft CEO Steve Ballmer is thinking about how to declare another dividend that "acts as a honey pot for new money to come flooding in."
Meanwhile, he considers GE a value stock that should be regarded as a "growth machine that's trading at bargain prices." He is particularly impressed with the firm's growing role in both solar energy and opportunities in China.
Says Keith, "I like everything I see at GE, and I've been waiting a long time to finally put this household name back in my portfolio."
For those comfortable with using options to hedge, he offers a strategy for both stocks designed not for speculative leverage these positions, but add safety to the equation. He suggests buying both stocks, along with January 2008 put options that are "two strikes below your purchase."
For example, if you buy MSFT at $26.50, he'd then also buy the $22.50 puts. He explains, "Buying this put limits your downside to a measly four points between now and January 2008. It also means that you still have all the upside intact to enjoy any special dividends that come our way or the Presidential Effect or both." He calls this approach a "win-win opportunity."
For GE, he notes, "If you pay $34 for GE, then also buy the January 2008 $32.50 put. This lets you relax no matter how GE moves between now and January 2008, sets you up for its market-beating dividends and gives you the potential profit in the event of a rapid decline."
Steven Halpern is the editor of TheStockAdvisors.com, which provides a daily overview of the latest stock ideas from the financial newsletter community.
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