The year is quickly coming to an end for my 2018 Tax Loss Selling Recovery Portfolio; I'll be unveiling this year's version in coming columns. Overall, it was a decent experiment in tracking how down-and-out names that may suffer from year-end selling pressure but are expected to be profitable in the next year stand up versus the market.
The average name was up just over 30%, with nine of the 12 selected stocks in positive territory, so overall it worked well. However, I do believe last December's market swoon was helpful; it may have put additional, perhaps undeserved pressure on some names that reversed when markets recovered. In other words, the opening prices were bigger bargains than they perhaps should have been.
Tranche 1, released last Dec. 10, is up about 19.9% versus 16.2% for the S&P 500 and 11.6% for the Russell 2000. Winnebago Industries Inc. (WGO) (up 109%) is the clear winner not only of this tranche but also of all three tranches. Winnebago peaked in late October and has given back a few points since then, but it really has had a great run. At the other end of the spectrum is United Natural Foods Inc. (UNFI) (down 39%), which just can't seem to attract investors who remain skeptical about the company's expensive 2018 acquisition of Supervalu, which left UNFI with a lot of debt. Kraft Heinz (KHC) (down 34%) has been a huge disappointment and markets are pricing it accordingly, at less than 12x next year's consensus estimates, but with a 5.25% yield. General Mills Inc. (GIS) (up 44%) has very quietly put together a solid year, trades at about 15.5x next year's consensus estimates and yields a solid 3.7%.
Tranche 2, released last Dec. 12, is up 19.2% on average, which is better than the S&P 500 (up 16.1%) and Russell 2000 (up 14.2%). Hain Celestial Group Inc. (HAIN) (up 31%) was the best of the bunch here. Kronos Worldwide Inc. (KRO) (up 27%) ended up performing well and has recovered nicely since an August swoon sent shares below $10; they are up more than 40% since. Bed Bath & Beyond Inc. (BBBY) (up 24%) also had a decent year after swooning in August; shares have doubled since then. Groupon Inc. (GRPN) (down 5%) ends the year pretty close to where it started.
Tranche 3, released last Dec. 14, was the shining star, with names up an average of 51%, far better than the S&P 500 (up 15.6%) and Russell 2000 (up 13.2%). Skechers U.S.A. Inc. (SKX) (up 71%) was the top performer and is trading near a 52-week high. Skechers is yet another name that fell sharply in mid-August but has risen about 40% since. Boise Cascade (BCC) (up 66%) put up a very solid showing and benefitted from a steady rise throughout the year. Last week, the company rewarded shareholders with a $1.00 special dividend in addition to its regular 10-cent quarterly payout. Methode Electronics Inc. (MEI) (up 61%) also quietly put up a nice run for the year, yet still trades at just 10x next year's consensus estimates. PetMed Express Inc. (PETS) (up 6%) was in negative territory for much of the year but at least ended it in positive territory.
All in all, this was not a bad showing, and perhaps further evidence that this methodology may have legs.
By way of reminder, qualifying companies had to meet the following criteria:
- Down at least 30% year to date,
- Forward price-earnings (P/E) ratios below 15 in the next two fiscal years
- Minimum market cap $100 million
The resulting list was then whittled down from 200 to 12 and released in three tranches of four names each in mid-December.
Now the heavy lifting continues for this year's tax-loss selling portfolio; I hope to roll it out over the next couple weeks.