How to Score

By Dan Kadlec

If you buy Weight Watchers stock in December and sell it in March, more often than not you will profit, as investors anticipate the usual swarms of holiday revelers trying to get into shape by swimsuit season. Of course, now that the word is out, traders will try to anticipate the New Year's popand screw up the pattern. So it ever goes on Wall Street, where seasonal stock moves that make sense ultimately disintegrate amid competition to wring the most out of them. Buying retail stocks ahead of Christmas hardly ever works. The "January effect," in which stocks that were sold off for tax reasons at year's end rebound to start the year, now arrives in December. Skepticism is useful anytime a new event-driven strategy surfaces.

Yet three Zurich-based analysts at UBS Wealth Management Research believe they have hit on a pattern that will help you handily beat the market between now and the title match of the World Cup soccer tournament on July 9. "It began as a fun exercise," says Tim Gorle, who co-wrote a report on the pattern with colleagues Oscar Andreu and Hans Sanders. "But we got some very positive data, or we wouldn't have gone ahead."

They studied the three-month period leading up to either a World Cup or a European championship title match, dating back to 1992. Their portfolio of 11 stocks beat the market six out of seven times--by as many as 19 percentage points and as few as 7 percentage points. Only once did the portfolio produce a loss, falling 1.8% while the benchmark Morgan Stanley Capital International (MSCI) world index eked out a 1% gain. On average, the UBS portfolio rose 9% in the three-month periods while the MSCI index fell 1%. That's a whupping.

Who are the players on this stocker-team juggernaut? Nintendo, whose soccer games sell well as "youngsters get excited" by the Cup; Holcim, a Swiss building-materials company, because the Cup "always involves major infrastructure" additions; Heineken, the Dutch brewer, and Scottish & New Castle, a British pub operator (try to guess why); Canon, the Japanese imaging company, because "worldwide media attention" means fans will want to record the event; Fuji Photo, a Japanese film company (see Canon); Coca-Cola, one of the main sponsors; Tesco, a British takeaway-food retailer; InterContinental Hotels; Puma, the German sports-shoe company, because of "higher-than-average brand awareness" as all sports equipment gets a lift; and Beiersdorf, a German personal-products manufacturer. It seems clear that you could substitute, say, Anheuser-Busch for Heineken or Kodak for Fuji or McDonald's for Tesco. Those bench players may be based in the U.S., but they have global franchises. Gorle acknowledges the general nature of the Cup connection to each stock that UBS chose. And, hmm, except for InterContinental Hotels, UBS has a business relationship with all of them.

Still, there is no denying the results, which were largely untainted by any non-soccer factors. The stocks weren't big gainers before or after. They showed unusual strength only in the three-month periods. The idea, then, was to let the market identify stocks that benefited from Europe's soccer mania--without requiring an abundance of fundamental logic. "We recommend investing in these stocks immediately and closing the investment on the final day of the World Cup," the UBS guys write. And how. Certainly, Coke and Fuji have been dogs for years even if others, like Heineken, have been steady winners. If you're going to play this game, you might as well follow the rules. They will help you score as they have with other pattern trades over the years--until they don't.