As the year winds down, I am in the cusp of identifying tax loss selling candidates for 2019. These are companies that faltered during the year, may face additional selling pressure as we head into year-end and investors seek to offset gains, but could rebound in 2019 (note the emphasis on the word "could"). It is also time to close the books on last year's candidates.
Just as in late 2016, last year I screened for potential candidates using 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 $100 million
While more than 80 stocks made the cut, I honed the list down to six, and revealed these names on December 11thand December 13th . That group is up an average of 22% since those columns ran, outpacing the S&P 500 (+1%), Russell 2000 (+1%) and Russell Microcap Indexes (-2%). Results, while positive overall, have some big winners and big losers.
Dine Brands Global (DIN) (+82%), parent of IHOP and Applebee's, is the top performer. The stock stumbled badly in 2017, but has enjoyed solid performance in 2018 despite a dividend cut. The company received some solid press when it announced that it was changing the name of IHOP to IHOB (International House of Burgers), a publicity stunt that paid dividends. Despite the run-up, DIN still trades at less than 13X next year's consensus estimates.
Supervalu (+66%) received a huge boost when it was acquired by United Natural Foods (UNFI) in July. Interestingly, UNFI, which has been hammered this year partially due to skepticism over the Supervalu deal, may be a candidate for this year's list
Wesco Aircraft Holdings (WAIR) (+34%), while still enjoying a nice recovery, has actually pulled back about 35% since August when it traded near $14.
Dick's Sporting Goods (DKS) (+24%) has enjoyed a decent year, but still has not recovered from 2017's "retail Armageddon". This was a $60 stock in late 2016 that is currently in the $36 range. DKS trades for about 11X next year's consensus earnings estimates.
Newell Brands (NWL) (-23%) has had a wild year - selling off businesses and still being shunned by many investors. It fell below $16 in August, but has since rebounded more than 50% since then. NWL currently trades for about 10X next year's consensus estimates and yields 3.9%. For a while it appeared as though it might be a repeat tax-loss selling qualifier.
Dean Foods (DF) (-53%) is the worst performer in the group, an utter train wreck, which has put up disappointing result after disappointing result, and currently trades near an all-time low. The company recently cut its quarterly dividend from 9 cents to 3 cents.
Given the variety of results, this strategy is only for those with strong stomachs, willing to take on a good deal of risk. Diversifying among candidates is also important; a single security focus is akin to gambling.
I'll be rolling out next year's candidates in early December.
