It's difficult owning the stocks that were decimated in what has been a positive year, but pursuant to yesterday's column, those are some of the same stocks that will be jettisoned at year end as investors engage in tax planning by harvesting losses in order to offset realized gains. That resulting selling pressure can make a bad year even worse, but may provide opportunity to buy on the cheap as the slate is wiped clean in the New Year.
By way of reminder, the basic screen I've used in order to identify candidates includes the following 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
Supplement retailer GNC Holdings (GNC) has had a dreadful year; it is down 56% year to date and trading very close to an all-time low. Last month, the company reported terrible third-quarter results, missing consensus earnings estimates of 71 cents by an unhealthy 12 cents. Same-store sales were down more than 8% for both company-owned stores and franchises. There's not much good news to report, and that includes the hefty 5.75% dividend yield; you've got to assume there's a possibility of a cut, especially if operations don't improve.
With all the bad news, however, the question is whether the market has overly punished GNC, as it tends to do. If there's any potentially bright news, it's that the stock trades at about 6x 2017 and 2018 consensus earnings estimates and less than 6x trailing enterprise value/EBITDA. I'm typically skeptical of down-and-out retailers, and this one has considerable debt at $1.5 billion, but the punishment GNC has endured may not fit the crime.
Other beaten-down names include Waddell & Reed Financial (WDR) , which has made appearances on one of the other deep-value-related screens I like. Down 30% year to date, WDR boasts an 8.5% dividend yield and trades at about 12x and 12.5x 2017 and 2018 consensus earnings estimates, respectively.
Even Fitbit (FIT) makes the cut. Shares are down nearly 74% year to date for the company behind a fad that some may say has run its course. Yet consensus earnings estimates for 2017 and 2018 imply forward price/earnings ratios of 12x and 11x, respectively. Fitbit also has $3 per share in cash and short-term investments and no debt, and trades at 1.58x tangible book value per share. Indeed, FIT is a down day away from double-net territory (companies trading at between 1x and 2x net current asset value), currently trading at 2.01x net current asset value.
Never thought I'd have the least bit of interest in the name, but when everyone else is selling, there's ample liquidity and no debt, you've got to at least consider the possibility that there's some upside.