It's time to put my 2022 Tax Loss Selling Recovery Portfolio out of its misery.
The portfolio finished down 44% since its December inception, which was extremely disappointing considering last year's 55% gain.
This annual portfolio experiment starts by identifying potentially cheap names that have fallen sharply during the year and might be pushed even lower at the end of the year as investors harvest losses. As in recent years, I took a position in each. By way of reminder, screening criteria include the following:
- Down at least 20% year to date (a change from 30% used in prior years)
- Forward price-to-earnings (P/E) ratios below 15 in the next two fiscal years
- Minimum market cap of $100 million
The theory is that these stocks may rebound in the New Year when the selling pressure is off, but that was not the case in 2022. Overall, the choices were not as compelling as they have been in prior years, and there were not as many candidates. That's what led to reducing the loss (year-to-date) threshold from 30% to 20%, and reducing the names in the portfolio from three tranches of four stocks down to two tranches of four.
Tranche 1, released last Dec. 6, was down 31.4% versus a 12.6% decline for the S&P 500 and 15.1% drop for the Russell 2000 Index. Activision Blizzard (ATVI) (up 27%) was the top overall performer and the only stock in positive territory in the entire portfolio. Restaurant stock Brinker International (EAT) (down 5%) has staged a nice run since July as restaurants picked up steam. Diebold Nixdorf (DBD) (down 74%) turned into a disaster with some bad quarterly results, a declining cash position and growing debt concerns. Altice USA (ATUS) (down 75%) hit a record low this month after suffering back-to-back earnings misses in the second and third quarters.
Tranche 2, released last Dec. 8, was down 56.7% versus a 15.4% decline for the S&P 500 and a 15% decline for the Russell 2000. Viatris (VTRS) (down 8%) was the best performer in this tranche and second best overall. After falling off a cliff in late February due lower-than-expected guidance, the drugmaker staged a decent recovery, aided by its 4.27% dividend yield. (It's the only name in the portfolio that I am keeping). Groupon (GRPN) (down 57%) was unable to hold on to earlier gains that came as a result of reports that company assets were undervalued. Tupperware Brands (TUP) (down 70%) was crushed in early May, falling 32% alone on May 3 after an earnings miss and withdrawn guidance; an August recovery stalled. The worst of the bunch was SelectQuote (SLQT) (down 92%), which had four consecutive quarterly losses and now trades below $1.
It could not have been much worse, yet I still believe there is validity in repeating this experiment, and so I will reveal the 2023 Tax Loss Selling Recovery Portfolio in the coming weeks. I believe there will be better candidates this time around and I plan to re-establish the 30% year-to-date loss threshold as well as the 12-stock portfolio size.