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Scouring for Q4 gems
The last quarter is usually strong for stocks. But where can you find cheap investing opportunities?
October 13, 2004: 2:23 PM EDT
By Eric Hellweg, CNN/Money contributing columnist

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BOSTON (CNN/Money) - This time of year, many companies are ramping up production, marketing, and other efforts to capitalize on the opportunities of the fourth quarter.

For the retail sector, of course, this quarter is often a make-or-break time, when many companies record the majority of their annual revenues. But other sectors are affected by seasonal swings as well.

Have fourth-quarter expectations already been baked into the stock prices of these end-of-year sensations, or do investing opportunities still exist?

The fourth quarter bonus

You might think, for instance, that eBay and Amazon, two of the most widely followed stocks, would already be priced to perfection. Yet investors who have bought shares in these two companies before the holiday season have done very well for themselves.

As a recent piece in TheStreet.com pointed out, Amazon's stock price has ended the fourth quarter 35 percent higher on average since 1997, and eBay has finished the quarter up an average of 78 percent since 1998.

Pretty astounding stuff. To find a few more examples like these, I surveyed a handful of analysts. Here's what I learned.

One strategy is to look for the less obvious aspects of hot products -- like their parts suppliers.

A company that fits this description -- and which I recently ravaged ahead of its third-quarter earnings announcement -- is PalmSource. After the software company's earnings call, its stock is down more than 20 percent.

While I retain my suspicions about its long-term prospects, short-term investors might want to scoop up some shares for a six-month spell or so.

"PalmSource is a steal right now," says Jamie Friedman, an analyst with Fulcrum Global Partners. Friedman, who doesn't own the stock or do banking with the company, says smartphones are poised to be one of the hot holiday items, and PalmSource makes the software that powers many of the devices.

"Last year was the first year these devices were available, and [manufacturers] sold out. This year they're ramping the inventories," he says. PalmSource will report its holiday sales numbers in March.

Look for trends

Another place to consider hunting for steals is in a sector not remotely tied to retail: corporate enterprise spending.

"On the enterprise side, there's a strong Q4 ahead for a number of companies," says Joe Maxa, an analyst with Dougherty & Co. This is because many companies with fiscal years that map to calendar years must spend the money allotted to various projects or risk not having that capital again.

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"It's the year-end budget flush," Maxa says. Areas that typically see heavy fourth-quarter spending include security, which would bode well for companies such as Secure Computing, Symantec, and Websense.

Think about what you'll do this October, November, and December. Then walk the dog backward until you find the least obvious company that will be strongly affected by your buying trends.

One final note: As my New York-based colleague Paul LaMonica mentioned yesterday, we've made a bet on the American League Championship Series between the Red Sox and the Yankees.

I'm writing this article hours before Game 1, but I'm predicting that the Sox will win in six games. I look forward to applying some nice chive spread to the New York bagels soon headed my way. Go, Sox!


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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.