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Our “Free Lunch” (page 112 of Stock Trader’s Almanac 2015) strategy is a short-term trade that takes advantage of several yearend and New Year phenomena. Research has shown that NYSE stocks making new 52-week week lows in mid-December, primarily due to yearend tax-loss selling, tend to outperform the NYSE through mid-February. These stocks are selected ahead of the Santa Claus Rally (page 114 STA15) and approximately near the start of the January Effect (page 110 STA15).

Many of the stocks selected for the “Free Lunch” trade are down for good reason. Declining revenue and shrinking profits are most common amongst these names while others may have run into legal or accounting trouble. Once a name pops, profits should be taken and conversely if a name continues lower it should be cut loose quickly. This year’s basket was no exception. BIND Therapeutics (BIND) was one of the first stocks to pop when it traded over $10 per share on January 8. It currently trades around $6.65 while Whiting USA Trust I (WHX) did the exact opposite on January 21 when it plunged 71.2%.

Overall, this year’s basket did come up short when compared to the longer-term history of the strategy, but it still outperformed the broader NYSE index over the same period of time. Plus, even including Stratasys’ (SSYS) decline today, the NASDAQ portion of the basket did well, averaging nearly a 14% gain.

From their respective closing prices on December 19, our 2014 FREE Lunch Menu of Bargain Stocks, have posted an average gain of 4.2% compared to a 3% NYSE decline through today’s close. Tecumseh Products (TECU), the top performer of the basket, was the only stock that failed to trade below its buy limit. Removing TECU from the average and accounting for buy limits, the basket is down and average 1.8% with NYSE selections responsible for the bulk of the losses. This is still a better performance than the NYSE, AMEX or NASDAQ indices over the same time period.

This strategy is designed to take advantage of the “January Effect” (defined as the propensity for small-cap stocks to outperform from mid-December through mid-February) and it usually receives a healthy boost from the Santa Claus Rally (SCR). But, there was no SCR this year and January has gotten off to a rather volatile start keeping the basket’s performance in check, thus far.

Some rather tasty morsels were served up in the list of stocks hitting new 52-week lows last Friday. From the initial batch of about 78 stocks on the NYSE, AMEX and NASDAQ that made a new 52-week low we boiled it down to 17 choice selections for our 2014 FREE Lunch Menu of Bargain Stocks. After we eliminated preferred stocks, funds, splits, special high dividends and new issues we cut stocks trading below $1.00. The remaining stocks had to average at least 25,000 shares per day over the last three months and have a market cap of at least $20 million. Finally, any stock that was not down 30% or more from its 52-week high to the 52-week low reached on Friday were also eliminated. Unlike previous years, we suggested specific buy limits and stop losses for each stock included and the trades will be tracked in the Almanac Investor Stock Portfolios. It turned out to be a surprisingly diversified group of companies and several receive high marks from rating agencies. The market’s rally off last Tuesday’s low and the rebound in the energy stocks reduced the number of oil-related shares making new lows on Friday. Though there are two Oil & Gas Royalty Trusts on the list. The biggest group representing is three from the big winner of the year yet recently beleaguered biotech sector. The remaining dozen: International Restaurants, Israeli Cellphone Services, Apparel Manufacturing, Metallurgical Coal Miner, Specialty Steel Manufacturing, Online Dating, Chinese Internet, Travel, Solar, 3D printer, HVAC & Compressor Manufacturing and Medical Products. We were able to get a position at our suggested buy limits or better in all but three stocks so far. Hanwha SolarOne (HSOL), Spark Networks (LOV) and Tecumseh Products (TECU) all ran up and never traded at or below our buy limits. Amazingly, TECU was up 87% at one point today – 130% more than Friday’s close. But you can’t get them all.