In early December I laid out in three separate columns (tranches) 12 potential tax-loss selling candidates that might rebound in the New Year. The list was pared down from 120 candidates and has been an experiment I've conducted the past few years, with some fairly compelling results -- so far, that is.
The idea is to identify potentially cheap names with the following attributes:
- 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 $100 million
The theory is that given their performance during the year, these names may have been pushed even lower than was deserved by year-end as investors offset gains with losses. If investors re-engage with these names in 2021 it could be an interesting setup for market outperformance. While it may seem early to report any results, consider that the dial for these companies, all big losers in 2020, was reset once trading started in 2021.
Tranche 1, released Dec. 1, is about flat (up 0.6%) and is underperforming both the S&P 500 (up 1.8%) and Russell 2000 (up 8.9%). Walgreens Boots Alliance (WBA) (up 7%) is the best performer here so far. Designer Brands (DBI) (down 6.7%) is the worst performer of all tranches. Xerox (XRX) (up 5%) and Pilgrim's Pride (PPC) (down 1%) round out this currently rather unexciting tranche.
Tranche 2, released Dec. 4, is up 11.5%, better than the S&P 500 (up 1.6%) and Russell 2000 (up 7.8%). Falcon Minerals (FLMN) (up 49%) is doing all of the heavy lifting and is the best overall performer in all tranches. FLMN was down 52% in 2020, so that recent uptick is barely noticeable on a price chart. Wells Fargo (WFC) (up 4.7%) is enjoying modest success so far. Townsquare Media (TSQ) (down 2.9%), was on the upswing in mid-December but pulled back in the days following a $550 million senior secured debt offering. Genesco (GCO) (down 4.9%) rounds out this tranche.
Tranche 3, released Dec. 7, is down slightly (-0.6%), trailing the S&P 500 (up 0.8%) and Russell 2000 (up 7.2). Sally Beauty Holdings (SBH) (up 3%) is the best performer here, followed by AerCap Holdings (AER) (up 2.7%). Phillips 66 Partners (PSXP) (down 6.1%) is the worst performer; it currently yields 13% and trades at 7x next year's consensus estimates. G-III Apparel (GIII) (down 2.2%) rounds out this group
Overall, the 12 names are up an average 3.9% so far -- nothing to write home about in the first inning. The next quarterly earnings release for the retailers (DBI, GCO, GIII and, to a lesser extent, WBA) will likely have a meaningful impact. SBH is first up, expected to report on Feb.5; the consensus is calling for earnings per share of 47 cents. SBH currently trades at just under 7x 2021 consensus estimates.
