Nearly four months ago, I put forth yet another stock screening idea; that's what value investors do, incessantly, especially in a market environment where value is so difficult to identify. This particular screen combined the idea of seemingly cheap stocks that have taken a beating, with year-end tax loss selling. The presumption was that investors would sell out of these names because of the horrendous years the stocks had, harvesting the tax losses. Given compelling valuations, investors might re-engage in the New Year. At least, that was the theory
The criteria were extremely simple:
- Stock down at least 30% year to date
- Forward price/earnings ratios below 15 in the next two fiscal years
- Minimum market cap of $100 million
While 42 names qualified, I selected three that appeared particularly interesting. Up an average of 21% since the column ran, results are mildly encouraging. During that same period, the Russell 2000 and Russell Microcap Indices are down 1.2% and 2.4%, respectively.
The biggest winner of the bunch is Weight Watchers (WTW) , up 50%, fueled by some decent earnings, and a whole lot of publicity surrounding Oprah Winfrey's ownership stake, board seat, personal weight loss and commercials in which she has appeared. Winfrey owns nearly 15% of the shares outstanding, and the company adeptly has been playing up her association with Weight Watchers, most recently regarding her attendance at board meetings. WTW currently trades at 11.5x next year's consensus earnings estimates.
Crude oil transporter Gener8 Maritime (GNRT) is up 34%. Gener8 Maritime reported a solid fourth quarter, beating the 17-cent consensus earnings estimate by seven cents. The company does have significant debt, which stood at $1.58 billion at year end, but given its operating fleet of 40 tanker vessels, that comes with the territory. The stock currently trades at about 7.5x 2018 consensus estimates, 7.7x trailing EBITDA, and just 0.32x tangible book value per share.
The loser of the bunch is newspaper giant Gannett (GCI) , which is down 20%. This is an out-of-favor business, with "cash cow"-like properties. It is not the same Gannett of a few years ago, having spun off the potentially more valuable media broadcast business in the form of Tegna (TGNA) in 2015. Still, Gannett is making money, and currently paying a relatively large 16-cent quarterly dividend, which equates to an 8% yield. At that level, and given the stock price, the market is questioning whether there is a dividend cut coming. That may be a bit premature. However, it should be in the back of investors' minds. Gannett currently trades at 8x next year's consensus earnings estimates of 94 cents. That's more than enough to cover the dividend, if the company can deliver.
The results are not sufficient enough to draw any conclusions about the efficacy of this search. Of course, I am now wondering how the 39 other companies that met the search criteria have fared. Hopefully, I saved the data.