Yesterday, I wrote about the outperformance of stocks in December that had an “A” rating in November.  Our analysis shows that positions that experience dramatic ratings changes from A to F and F to A tend to outperform the markets.

Here are the 5 positions for January that moved from “F” to “A” in December, meaning good investors are buying:

Rating From F to A
Symbol    Name    Industry    December Return
CBI    Chicago Bridge and Iron    Construction    23.57%
DUG    ProShares UltraShort Oil & Gas     Energy    -30.81%
IJH    iShares S&P MidCap 400 Index    Index    16.56%
MWTRX    Metropolitan West Total Return Bond M    Bond    -24.35%
SWINX    Schwab International Index    Foreign Large Blend    48.60%

Total December Return        6.72%

And here are the 22 positions that went from A to F rating:

Symbol    Company    Industry    December Return
ARAY    Accuray Incorporated    Medical    27.09%
BRK.B    Berkshire Hathaway    Conglomorate    -2.01%
DD    DuPont    Conglomorate    13.86%
DNR    Denbury Resources Inc.    Energy    25.66%
DWSN    Dawson Geophysical Company    Energy    -6.41%
EFV    iShares MSCI EAFE Value Index    Foreign ETF    18.26%
ERTS    Electronic Arts    Entertainment    -9.74%
FXY    CurrencyShares Japanese Yen Trust    Currency    2.92%
GD    General Dynamics Corp.    Industrial    18.64%
GHM    Graham Corp    Industrial    30.36%
GRMN    Garmin Ltd.    Technology    23.44%
IAU    ISHARES COMEX GOLD    Commodities    14.34%
MKL    Markel Corp.     Insurance    21.92%
MS    Morgan Stanley    Financials    41.32%
O    Realty Income Corp.    Real Estate    43.81%
ODP    Office Depot, Inc    Services    63.74%
PGF    PowerShares Financial Preferred    Financials    16.10%
RSX    Market Vectors Russia ETF    Foreign ETF    7.08%
SSO    Ultra S&P500 ProShares    Index    19.41%
STO    StatoilHydro ASA    Energy    11.89%
TSL    Trina Solar Ltd    Energy    9.29%
VTV    Vanguard Value ETF    Index    12.41%

Total December Return        18.34%

The key takeaway is that good investors seem to be taking the money off the table once these positions had a nice run in December.  Notice that foreign, energy and financials, sectors that were overly impacted by the market turmoil saw a nice bounce.

We’ll check back with these next month.  Good luck.

Happy New Year to all the fans of the Slice.  I hope you all had a great holidays and are beginning down the path of forgetting all about 2008.   Did you know we were in a recession for the entire year last year?  If you follow the Slice you sure did, based on what individual investors were doing throughout the past 12 months.

Each month, I highlight stocks/mutual funds/ETF’s that experience the biggest swings in their grades- what we call the Cake Take.  The Take is automatically calculated based on whether good investors are buying, selling or holding.  Last month, I discussed 16 holdingsthat went from an “F” to an “A” rating, which our internal analysis have shown to consistently outpace the markets.  For the month of December, this remained the case as they returned just over 6% as compared to Dow    -0.60%, NASDAQ    2.70%, and S&P 500    0.78%.

Here are the details:

Symbol    Change
AIB    -31.13%
AMZN    20.09%
EBAY    6.32%
GD    11.46%
JRCC    34.95%
LCC    29.70%
LM    23.22%
MKL    -2.92%
ORCL    10.19%
SKF    -23.72%
URE    -0.78%
VDSI    -1.05%
VNQ    13.62%
VTV    0.41%
VWO    2.34%

Total Return    6.18%
Dow    -0.60%
NASDAQ    2.70%
S&P 500    0.78%

I also posted about the positions identified on Cake as going from an “A” to an “F“- and that perhaps the run was over.  Well, it looks like I spoke too soon as these 13 positions continued to see outperformance in December.  Collectively this basket returned nearly 13%, handily beating the markets.  You can see for yourself here:

Symbol    Change
AFAM    2.32%
BX    4.31%
CVI    14.29%
IBN    35.18%
SSRI    55.51%
SWHC    10.19%
TRN    5.99%
UUP    -7.01%
UWM    2.73%
VEU    5.76%

Total Return    12.93%
Dow    -0.60%
NASDAQ    2.70%
S&P 500    0.78%

The takeaway seems to be that “A” rated Cake holdings exhibit a strong alpha signal- at least in the short term.

Check back tomorrow when I will reveal the January stocks to watch.