How Much Fun Is It to Own Stocks Floundering in This Market?

 | Dec 13, 2017 | 11:04 AM EST
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It's not fun owning stocks that cratered in what has overall been a solid environment.

However, pursuant to Monday's column, some of these might have the ability to bounce in the New Year, once tax-loss selling is done.

To be very candid, stocks that have fallen 30% or more in a year when the S&P 500 is up 20%-plus likely means that these companies have issues, perhaps a few fleas, or are in an industry or sector that has seen better days. They may never be the same and are likely not of "widows and orphans" quality. There could be a lot of "falling knives" and value traps among them, and there are no guarantees that they'll indeed bounce back in 2018.

By way of a reminder, the basic screen I've used in order to identify candidates includes this criteria:

  • 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

Here are a few more stocks that bear mentioning.

Dairy name Dean Foods Co (DF) , which has a 92 year history, has seen its shares fall more than 40% year-to-date, and that's after a 29% recovery since shares hit $9 on November 7. It has missed earnings estimates the past four quarters. The company's second quarter 10 cent earnings miss in August sent shares down 21% in a single day. A couple of weeks later the CFO left. This is not a popular name. Still, DF trades for 14 and 13 times 2018 and 2019 consensus estimates, not as cheap as it was, but not expensive, and yields 3.1%. We'll see in the coming weeks whether investors will press shares back down in order to offset gains as the year comes to a close.

Retailers dominate the ranks of companies down 30% or more this year, and it's likely that we will see some bankruptcies next year. While pressure on the sector is real, and buying habits of consumers have changed ( (AMZN) ) there will be brick and mortar names that can still generate a bottom line. While I gravitate toward the smaller, lesser known special situations, for the purposes of this column I'm going bigger. Dick's Sporting Goods (DKS) has seen its shares fall 45% year-to-date. While same-store sales have been negative, they haven't been in the headline grabbing high single digit area that some of the smaller specialty retailers have experienced. DKS currently trades at about 12 and 11.5 times fiscal 2019 and 2020 consensus estimates. The balance sheet is fairly solid, the company has just $521 million in debt, and management has been putting its money where its mouth is by reducing the share count via buybacks. DKS yields 2.2%.

The performance of Wesco Aircraft Holdings (WAIR) has been ugly, down 55% year to date, and trading at an all-time low. A leading provider of supply chain management to the aerospace industry, it has missed earnings estimates badly the past few quarters, and investors have all but abandoned the name. While guidance for 2018 has been lowered, shares trade at 10 and 8 times 2018 and 2019 consensus estimates. There are signs that business will improve over the second half of the current fiscal year but so far the markets are not buying it and the company has much to prove. This one makes even me, a sometimes bottom fishing dumpster-diving value investor, cringe.

Yes, these companies have issues. We'll be watching to see if they have a bounce in them.

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