Much like Drugstore.com (DSCM:NASDAQ) is a thematic trade on the “use it or lose it” provisions of flexible spending accounts, diet companies are thematic trades on New Year’s resolutions.

It’s just one of many tools Small Cap Trading Pit uses to uncover overlooked, beaten, and forgotten small-cap stocks. We’re also watching themes on China growth, water scarcity and solutions, housing, emerging markets, commodities, high volatility and Fed cut/hike themes.

But since we’re heading into the final days of 2007, let’s take a look at who benefits from those New Year’s resolutions, namely the diet companies.

New Year’s Resolution Profits Example: eDiets.com

It’s a seasonal phenomenon that many of us are all too familiar with. And this year is likely to be no different for millions as they head into the season between the Thanksgiving “stuffing,” December holidays, and office parties. This is about the time when we feel “fat” and start worrying over added “baggage,” and promise ourselves that next year will be different.

But how do you profit from the seasonality? You find the stocks, namely ones like eDiets.com (DIET), that have historically risen at the tail end of the year on New Year’s resolutions. The trick to playing this stock is to buy at the beginning of December.

This is when people start worrying about their extra weight. The stock should then rise as people begin promising themselves that next year will be the big year for losing weight, and sign up for diet and exercise programs.

We haven’t noticed the same run in stocks like Weight Watchers or NutriSystem like we have with eDiets.com (DIET).

• As you’ll see in this chart, from about mid December 2003 to the start of 2004, DIET ran from about $3.50 to about $6.50.

• As you’ll see in this chart, DIET ran from $3.25 to $5.35 between mid December 2004 to the start of 2005.

• And, as you’ll see in this chart, it ran from $4.50 to about $8 between mid December 2005 and January 2006.

• From mid December 2006 to the start of 2007, DIET sold off after an early November 2006 run.

Aside from that one, most of the other runs, we speculate, came from the New Year’s resolutions. The runs didn’t last beyond those time frames . . . quite possibly because the resolution was pushed back a year.

For more information on similar trades, and to take advantage of a “gap down” steal, visit http://www.sctradingpit.com.

Ian L. Cooper
http://www.wealthdaily.com