Today I roll out the first tranche of my 2021 Tax Loss Selling Recovery Portfolio. As a recap, the idea is to identify potentially cheap names that were down sharply in 2020 and might be pushed even lower at year-end as investors harvest tax losses but could recover in 2021 when selling pressure subsides. Of course, these companies need to deliver results, too. Just like last year, I've taken small positions in each name.
Here are the first four:
Walgreens Boots Alliance (WBA) , down 35% year to date, has had a rough year to say the least. Recent pressure has included Amazon.com's (AMZN) launch of a pharmacy business. AMZN entering any business is scary for the competition. But there's still plenty of business out there for WBA, and I'm not sure its 2020 punishment fits the crime. Shares currently trade at about 7.5x next year's consensus earnings estimates and 7x the following year's estimates. WBA currently yields 4.9%.
Xerox Holdings (XRX) shares fell off of a cliff in February/March when the pandemic began taking hold, and while they have recovered a bit the shares are still down 40% year to date. Office closures and the move to working at home have affected the maker of digital printing technology, but XRX has managed to stay profitable. Xerox currently trades at 10x next year's consensus earnings estimates and 9x 2022 estimates and yields 4.5%. Xerox has been buying back a significant amount of stock and has reduced shares outstanding by 31% over the past seven years.
Pilgrim's Pride (PPC) , the No. 2 chicken producer in the U.S., has fallen 41% year to date. Its activity in 2020 has included paying $110 million to settle a price fixing case brought by the Department of Justice. That case, brought in June, has been a weight on Pilgrim's Pride shares and has impacted other companies in the chicken industry, too. PPC currently trades at 10x next year's consensus earnings estimates and 9x 2022 estimates.
Last but not least for Tranche 1 is Designer Brands (DBI) , a shoe retailer, perhaps best known for its DSW stores. Shares have fallen 49% year to date and the company will lose money this year. Revenue has fallen off a cliff due to the pandemic; third-quarter revenue was off 43% year over year. Designer Brands in March slashed its quarterly dividend in from 25 cents to 10 cents, then suspended the dividend in May due to an amendment to its credit line. Not a pretty situation if sales don't revive. However, consensus estimates are forecasting a return to profitability next year, with a forward price-to-earnings (P/E) ratio of 12. The following year, Designer Brands is expected to earn $1.07 a share, implying a 2022 forward P/E of 7.5.
I will roll out Tranche 2 on Friday.