On Wednesday, I unveiled the first four names (Tranche 1) in my 2021 Tax Loss Selling Recovery Portfolio, and today I'll reveal the second group of four (Tranche 2). Suffice it to say that not all of these will work out, perhaps none of them will. But the hope is that there are a couple of big winners that will more than offset the losers and those that trade flat, in order to outperform the market. This is a shotgun approach, for sure.
The biggest and most mainstream name likely to grace this year's group is Wells Fargo (WFC) . It's also a departure for me, because I've probably owned just a couple of banks over the years. Down 46% year-to-date, the situation has not been helped by Berkshire Hathaway (BRK.A) (BRK.B) cutting its stake in WFC from about an 8% position at year-end 2019 down to 3% in August. WFC trades at 14x next year's consensus estimates, but just 9x the 2022 consensus. The company slashed the quarterly dividend 80% in July, from 51 cents to 10 cents, which equates to a 1.4% yield. Interest rates can't stay low forever, and I think we'll get a whiff of what's to come on that front in 2021, which should help banks.
Retailer Genesco (GCO) , down 36% year-to-date, will lose money in fiscal 2021 (ending in January), no surprise there. But the balance sheet is in decent shape and the future looks a bit brighter. The company ended its latest quarter with $299 million or $21 per share in cash. There is $211 million in debt, so net of debt cash is still $6 per share in cash. Consensus earnings estimates for the next two years of $3.57 and $4.13, put the one and two year forward price earnings ratio at about 8.5 and 7.5, respectively. Third quarter earnings were just released (as I am writing this). Revenue of $479 million came in $22 million higher than consensus estimates, while earnings per share of 85 cents demolished the 14-cent loss consensus.
Townsquare Media (TSQ) , down 30% year-to-date, will likely be one of the smallest names in this year's portfolio, with a market cap of $133 million. The media, entertainment and digital marketing solutions company owns and operates more than 300 radio stations in the U.S. After three consecutive quarters in the red, TSQ swung to a small profit last quarter, earning 12 cents/share, well ahead of the 8-cent loss "consensus" (just two analysts cover the name). TSQ is expected to earn 53 cents next year, and $1.27 in 2022, putting the one and two forward price earnings ratios at 13 and 5.5. The company does have considerable debt at $543 million, and ended its latest quarter with $79 million in cash.
Falcon Minerals (FLMN) owns oil and natural gas interests in Texas (256,000 gross unit acres) and the Marcellus Shale region (75,000 gross unit acres). Shares are down 68% year-to-date as low energy prices in the pandemic have not been kind. The company was able to generate a small profit last quarter after posting three consecutive losing quarters. FLMN is trading at 11x and 8x the next two year's consensus estimates. While the company does pay a dividend (26 cents over the past four quarters, 6.5 cents last quarter) it is classified as a "non-dividend distribution" which represents a reduction in cost basis, and not ordinary income. FLMN has a rather low debt load at $39 million, and currently has no capex requirements.
Stay tuned for the "final four" on Monday.
