In early December, I again laid out 12 potential tax-loss selling candidates that might rebound in the New Year in three separate columns (referred to as tranches). It was pared down from a list of 70, and has been an "experiment" that I've conducted over the past few years, with some fairly compelling results.
The idea is to identify potentially "cheap" names with the following attributes:
- 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 "theory" is that given their performance during the year, these names may have been pushed even lower than is deserved by year-end as investors offset gains with losses, and 2019 was a huge year for gains. If that is indeed true, and investors reengage with these names in 2020, this could be an interesting set-up for market outperformance. While it may seem early to report any results, consider that the dial for these companies, all big losers in 2019, was reset once 2020 trading started.
Tranche 1, released on 12/4 is up about 4.5%, just under the S&P 500 (+5%) and better than the Russell 2000 (+3.9%). Spirit Airlines SAVE (+6.9%) is the early leader, followed by B&G Foods (BGS) (+5.3%), GameStop (GME) (+3.1%)and Tupperware (TUP) (+2.8%).
Tranche 2, released on 12/6 is up 10.8%, better than the S&P 500 (+4.3%) and Russell 2000 (+3.5%). Fluor (FLR) (+17.6%) is the winner so far, but Mosaic (MOS) (+15.5%) is not far behind. The Gap (GPS) (+6%) and TripAdvisor (TRIP) (+4.2%) round out this tranche.
Tranche 3, released on 12/9 is up an average of 4.6%, slightly better than the S&P 500 (3.4%) and Russell 2000 (+3.4%). Chemours (CC) (+8.6%) is leading the way so far, followed by Tenneco (TEN) (+3.9%), Turtle Beach (HEAR) (+3.6%), and AMC Networks (AMCX) (+2.4%)
All 12 names are in positive territory so far, up an average of 6.7%, however, it is way too early to draw any conclusions. The general direction of the markets has been up since these names were selected, and it will be interesting to see how they behave when markets slide.
