Another year-end, another round of tax-loss selling is upon us. Last year at this time, I took a stab at identifying some names that had suffered during the year that might get a boost in the New Year, once investors were done harvesting tax losses. Given that it's been an even bigger year for markets in 2017 -- the S&P 500 is up nearly 21% year to date, after last year's +12% performance -- this endeavor could prove even more interesting this time around.
Last year, I screened for candidates using the following very simple criteria:
- down at least 30% year to date,
- forward price earnings ratios below 15 in the next two fiscal years
- minimum market cap $100 million
While 42 stocks made the cut, I honed it down to six, and the results, which were positively skewed by the lights out performance of one name, Weight Watchers (WTW) , were nonetheless compelling enough to repeat this little experiment this year.
Somewhat surprisingly, despite a great overall year for markets, more than twice as many names made the cut this year. Not surprisingly, nearly 20% of the companies are specialty retail, grocery, or retail apparel. Oil and gas operations and oil well services and equipment also have heavy representation, with 15 names. In this, and upcoming columns, I will reveal what I believe to be some of the more interesting situations, but remember these are from the twisted mind of a value investor.
While just one restaurant, DineEquity (DIN) made the list, I have my eye on this one. It has not been a great year for restaurant stocks, but DineEquity is among the cheapest on a forward earnings basis, and also has a compelling dividend yield. DineEquity, parent of Applebees and IHOP, down more than 40% (including the dividend), is trading for 12 and 11 times 2018 and 2019 consensus estimates, respectively.
In addition, DIN currently yields 7.7%. However, it does have more debt -- about $1.4 billion -- than I'd like to see.
The grocers have been hammered primarily due to the perceived threat of Amazon (AMZN) , in the wake of its purchase of Whole Foods. Names such as Supervalu (SVU) , down 41% year to date, have suffered mightily. SVU has recovered about 30% from its $15 low hit in October, but still trades at about 8.5 and 7.5 times it's next two year's consensus estimates, respectively.
If you are looking for larger names, Newell Brands (NWL) , which owns a wide variety of brands as diverse as Bicycle playing cards, Rubbermaid products, and Shakespeare fishing rods, is down about 30% year to date. All of the damage has occurred since July; until then shares had been in positive territory, but have since fallen about 40%. Newell's third-quarter earnings were disappointing, and forward guidance was trimmed, which resulted in a 27% single day haircut on Nov. 2.
Newell's debt is a concern; the company ended its latest quarter with nearly $11.5 billion worth, $10.2 billion of which is long-term. Still, NWL currently trades at about 10.5 and 9.5 times already reduced 2018 and 2019 consensus estimates, respectively. The shares currently yield about 3%. Some fleas for sure, but a great portfolio of brands.
More ideas will follow in future columns.
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