I realize it seems way too early for a preview of my 2023 Tax Loss Selling Recovery Portfolio, with last year's version just seven months old. However, just for the heck of it, I ran the screen anyway and the results at this point are astonishing. Perhaps they shouldn't be, with the S&P 500 down 20%, and Russell 2000 down about 22% year to date, but it's a reminder of how deep the carnage has been so far in 2022.
Here are the criteria for inclusion:
- Down at least 30% year to date (last year I used 20%, but will be reverting back to the original criteria used the first several years)
- Forward price-to-earnings (P/E) ratios below 15 in the next two fiscal years
- Minimum market cap of $100 million
More than 300 stocks currently make the cut, and it's a veritable who's who of household names. If I had to whittle this list down to a dozen or so, I'd have a difficult time.
The first ten in order of market cap include Meta Platforms (META) , Cisco Systems (CSCO) , Qualcomm (QCOM) , Lowe's (LOW) , Applied Materials (AMAT) , General Electric (GE) , Target (TGT) , Micron Technology (MU) , Lam Research (LRCX) and HCA Healthcare (HCA) .
Perhaps surprisingly, there are just four airlines, including Sun Country (SNCY) , SkyWest (SKYW) , JetBlue (JBLU) and Allegiant (ALGT) . Retailers dominate the list with 37, ranging from Target and Lowe's to Lands' End (LE) , Urban Outfitters (URBN) , Foot Locker (FL) , Big Lots (LOTS) and Kohl's (KSS) , to name a handful. There are just four restaurants (far fewer than I would have imagined, including Brinker International (EAT) , Cracker Barrel (CBRL) , Jack in the Box (JACK) and Noodles & Co. (NDLS) .
Now, for some specific examples, and this is just the tip of the iceberg:
- eBay (EBAY) : down 34% year to date and trading at 10x and 9x 2023 and 2024 earnings estimates, respectively, while yielding 2%
- Kontoor Brands (KTB) : down 35% and trading at less than 7x the next two years earnings estimates while yielding 5.49%
- Traeger Inc. (COOK) : down 61% and trading at 12x and 7x 2023 and 2024 earnings estimates, respectively
- Tupperware Brands (TUP) : down 51% and a member of the 2022 vintage of this portfolio while trading at 3.5x and 2.4x 2023 and 2024 earnings estimates, respectively.
- General Motors (GM) : down 47% and just under 5x 2023 and 2024 estimates
- Hanesbrands Inc. (HBI) : down 38%and trading at 6x and 5x 2023 and 2024 estimates, respectively, while yielding 5.75%
- Sonos Inc. (SONO) : down 38% and trading at 13x and 10x 2023 and 2024 earnings estimates, respectively
For this screen to be effective, you need to rely on the forward earnings estimates. With the economy already in recession (in my humble view) and interest rates likely to rise significantly from here, I am not sure you can put your faith in the estimates. In addition, you can expect stocks to trade at lower multiples in this environment, so there are many grains of salt to take with this stock screen at this point.
A fairly well-known value manager told me sometime in 2009 that the bargains that existed at that troubled time were an unprecedented opportunity, a once-in-a-generation chance to take advantage of the fact that the markets overreacted to the downside. I believe there are too many risks and uncertainties at this point to make a similar claim about the current period, plus I'm not sure we've yet hit bottom. However, his words are always in the back of my mind.