Get your jam tomorrow and a licence to kill

December is currently the hottest month in the stock market year. UK share prices rose in December in 18 of the last 20 years.

Can this year follow suit? History suggests so. Both recent December declines came after shares fell in the previous 11 months. But all 15 January to November gains in the last two decades were followed by advances in December with an average gain of more than 3 per cent.

One note of caution, though: history teaches that every hot trend eventually runs out of steam, often with no obvious explanation. January provides a good example. It was a big profitmaker for several decades. Prices rose 18 times out of 21 occasions from 1979 to 1999, the best monthly record.

This period encompassed one of the greatest bull markets of all time. Prices rose for the full year in all but two of those years. The combination of January gains and full-year strength led some pundits to claim that “as January goes, so goes the year”.

Recent price action revealed weakness in both trends. Shares rose less than half of the time in January during the current decade. Also, January’s predictive power was disappointing, no matter if prices rose or fell. Hopefully, December will not follow this trend reversal.

Turning to my own trading, I continue to seek companies hidden below City radar screens that offer good prospects. One company that ticks both boxes is Bioquell (BQE), a small, publicity-shy provider of decontam-
ination products and services to hospitals, pharmaceutical production sites and the military. So it is potentially a way to profit from the growing hospital superbug problem.

In August, the company reported that first-half pre-tax profits were 18 per cent ahead of last year. It also expected growth to continue in the second half, helped by revenues from new contracts. But its shares failed to rise.

Bioquell has just released a new interim statement. It confirmed that revenues continue to run ahead of last year. Once again, the City gave the announcement scant attention. Its shares were unchanged. Institutions are focused on larger companies in the FTSE 350 and ignore tiddlers such as Bioquell.

The good news continues. Bioquell just announced it has signed an NHS agreement for decontam-
ination equipment and services. According to house broker Investec, Bioquell offers one of just two NHS-approved technologies. The company is now in line to capture a big share of an estimated £10-£20m annual NHS budget. Given that current revenues are just £34m, this contract has great potential for the company.

As regular readers know, I view regulatory statements issued by public companies as useful trading tools. But reading them is not always straightforward. Interpreting financial statements is as much about art as science. I often try to read between the lines as well as play a bit with the published figures.

A good example of my response to regulatory announcements was provided by Carclo (CAR) last week. The company is an old-time metal-basher that has reinvented itself in the last decade. It offers exciting growth potential in several areas, including the production of fine tolerance plastic components for customers in several industrial sectors.

One of the jewels in Carclo’s crown is its Conductive Inkjet Technology (CIT) division. The group has developed technology for spraying microscopic layers of metallised ink on plastic and other surfaces.

Observers gush about Carclo’s potential. Some claim CIT alone will eventually be more valuable than the rest of the company. On the other hand, critics view Carclo as a perennial “jam tomorrow” company.

The company reported first-half earnings last week. At first glance it was still jam tomorrow with pre-tax profits well below the previous year’s first half.

But a different story emerged beneath the top-line figure. One fact that popped out is the company’s belief that full-year profits will match last year’s, in spite of a weak first half. This means that second-half profits will be well ahead of last year’s.

Carclo also states that growth will continue into next year. This suggests there will be very rosy figures when 2010 first-half results are compared with the weak 2009 first half reported last week.

In other words, I anticipate two consecutive semi-annual reporting periods with results well ahead of the previous year.

A second important point buried in last week’s statement is the company’s decision to set up a “pilot” manufacturing line for one application within its CIT division. Small conservatively-run companies such as Carclo do not typically take £1m gambles. Reading between the lines, I expect news of significant contracts in the near future. Revenues from this division could boost next year’s figures further.

My bottom line is that prospects for Carclo in the near term now look quite promising. In situations such as this, “tree shakes” by marketmakers that are intended to jolt nervous investors into selling become buying opportunities for me.

Stock market historian David Schwartz is an active short-term trader writing about his own trades and strategies. Send any comments or suggestions to tradersdiary@ft.com