Its status quo with my 2023 Tax Loss Selling Recovery Portfolio, which is flat since debuting in three tranches beginning in late November. While the portfolio is underperforming the S&P 500, it is doing better than the Russell 2000. As I've learned over the several years that I've been running this portfolio experiment, things can change quickly, and there's still a lot of room left in 2023.
The idea behind this annual pursuit is to identify potentially cheap stocks that were down sharply the prior year and might be pushed even lower at year-end as market participants book losses for tax purposes, but could recover in the New Year if selling pressure subsides. The objective is to outperform the S&P 500 and Russell 2000 indexes, and I've taken positions in all the names. Here are the criteria for inclusion:
- Down at least 30% year to date
- Forward price-to-earnings (P/E) ratios below 15 in the next two fiscal years
- Minimum market cap of $100 million
Tranche 1, released last Nov. 28, is up 23%, which is ahead of the S&P 500 (up 3% over the same period) and Russell 2000 (down 3%). Meta Platforms (META) (up 96%) remains the best overall performer and picked up another 18% since my March 8 update. eBay (EBAY) (down 1%) is treading water, but recently raised its quarterly dividend 14% to 25 cents, putting the yield at 2.3%. EBAY currently trades at just under 11x and 10x 2023 and 2024 consensus earnings estimates, respectively. Qualcomm (QCOM) (down 2%) and Ford Motor (F) (down 3%) have moved little in the past month.
Tranche 2, released on Nov. 30, is down 12%, underperforming both the S&P 500 (up 3% over the same period) and Russell 2000 (down 3%). Kohl's (KSS) (down 24%) gave back another 15% since the last update and is yet another reminder of why I should refrain from including retailers in this portfolio. Kohl's now trades at about 10x and 8x 2024 and 2025 consensus earnings estimates, respectively, and yields 8.6%. At that level, the markets may be presuming that the dividend is not sustainable. Hanesbrands (HBI) (down 26%) continues to suck wind, trades at 6x and 4x 2024 and 2025 consensus earnings estimates, respectively, and has a short interest ratio of 16%. Paramount Global (PARA) (up 11%) is the only positive performer so far in this tranche. MarineMax (HZO) (down 10%) fell into negative territory over the past month on no news and currently trades at 7x and 6x 2023 and 2024 consensus estimates, respectively.
Tranche 3, released Dec. 2, is down 10%, worse than the S&P 500 (up 2% over the same period) and Russell 2000 (down 4%). Wolverine Worldwide (WWW) (up 51%) is the runaway winner in this tranche and is the second-best overall portfolio performer. At the other end of the spectrum, Vintage Wine Estates (VWE) (down 62%) seems to have stabilized but has been a huge disappointment. Newell Brands (NWL) (flat), which yields 7.4%, saw its credit rating cut from BBB- to BB+ by S&P Global Ratings last month, a few days after it was reported that Carl Icahn cut his stake in the company from about 8% to 7.38%. Elanco Animal Health (ELAN) (down 29%) had another bad month, dropping 12% on no news. ELAN now trades at 12x and 10x 2023 and 2024 earnings estimates, respectively.
So far its META and WWW that are keeping this portfolio's head ever so slightly above water. Other names are going to need to step up in order to meet the objectives of outperforming the S&P 500 and Russell 2000.