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  1. Home
  2. / Investing

Here's My 2018 Tax Loss Selling Recovery Portfolio Update

Overall performance is still better than both the S&P 500 and Russell 2000, but the gaps have narrowed considerably.
By JONATHAN HELLER
May 31, 2019 | 11:00 AM EDT
Stocks quotes in this article: KHC, WGO, UNFI, GIS, BBBY, KRO, GRPN, SKX, BCC, MEI, PETS

What a difference a month has made for my 2018 tax loss selling rebound tracking portfolio, as markets hit some turbulence. With both the S&P 500 (-5.1%) and Russell 2000 (-5.6%) down since my April update, this tracking portfolio of companies that suffered big losses in 2018, yet appeared to be somewhat attractively priced for potential rebound, gave back a lot of previous gains, and was down about 11%.

By way of reminder, qualifying companies had to meet 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

The resulting list was then whittled down from 200 to 12, and released in 3 tranches of 4 names each in mid-December. To date, 8 of the 12 names remain in positive territory, and are up an average of about 6%. Overall performance is still better than both the S&P 500 and Russell 2000, but the gaps have narrowed considerably.

Tranche 1, released on 12/10 remains in positive territory (+2%), still better than the Russell 2000 (+1.3%) but now lags the S&P 500 (+5.6%). Kraft Heinz (KHC) , down about 40%, remains the worst performer of the entire group, and investors continue to shun the name. Yesterday, Credit Suisse dropped its price target on KHC, which trades at less than 9.5 X next year's consensus estimates, and yields 5.8%, to $26. Winnebago (WGO) (+47%) remained the best performer of the entire portfolio, despite falling about 7% over the past month. United Natural Foods (UNFI) (-27%) is still not showing any signs of life. In fact, investors are so sour on the name that it trades at about 5.5 X next year's consensus estimates. General Mills (GIS) (+30%) is the second best overall performer.

Tranche 2, released on 12/12 is up 10% on average, better than the S&P 500 (+5.5%) and Russell 2000 (+3.7%). Bed Bath & Beyond (BBBY) (+5%) had an awful month falling 24%, and giving back most of its gains, as retailers struggled overall and it struggled with some internal issues. Kronos Worldwide (KRO) (+13%) fell about 9% over the month, and now trades at 8.5 X next year's consensus estimates. Groupon (GRPN) (+14%) fell slightly for the month, but has very quietly outperformed.

Tranche 3, released on 12/14 is up an average of 5.9%, just ahead the S&P 500 (5%) and Russell 2000 (+2.8%). Skechers (SKX) (+19%) fell 10% for the month as tariff worries weighed on the apparel sector. Boise Cascade (BCC) (-3%) fell 17% giving back all of its gains and more as the company missed first quarter earnings estimates. Methode Electronics (MEI) (+14%) fell 10% over the month on no news. PetMed Express (PETS) (-19%) fell about 20%, primarily due to a fourth quarter earnings miss. PETS trades at 10 X next year's consensus earnings estimates, and yields 6%. I think of this company from time to time while giving our beloved dog twice/day insulin shots, something I could not imagine ever doing.

As I mentioned earlier this week, lower quality and more distressed names are getting beat up pretty badly these days; they are typically the first to be sold when markets become rocky. Overall, that explains the rather rough month for this tracking portfolio.

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At the time of publication, Jonathan Heller had no position in the securities mentioned.

TAGS: Investing | Markets | Stocks | Trading

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