With the year almost half over, I was curious about getting an early read on candidates for next year's Tax Loss Selling Recovery Portfolio. This is my annual stab at identifying stocks with market caps above $100 million that have had a rough year (down at least 30%) and that are expected to be profitable the next two years, with forward price-to-earnings (P/E) ratios below 15 for the next two years.
I take the list of all candidates and whittle it down to the 12 I find most interesting. The theory is that names meeting the criteria may face pressure at the end of the year as investors sell of losers to offset gains, putting further pressure on their prices, but that they could rebound in the New Year as selling pressure eases and investors re-engage.
So far, it has been a fairly successful strategy. Last year's portfolio of 12, which I closed down in early November, was up just over 35%, beating the S&P 500 (up 15%) and Russell 2000 (up 10%) over that same period. This year's crop is up about 60% so far and is again outperforming the S&P 500 and Russell 2000.
Of course, in order to build such a portfolio, you need candidates. Last year there were 120 or so; the prior year, there were 70. However, at this writing, pickings are very slim. Indeed, I count just 11.
That matters little at this point; in practice, I will start the process in November and release the portfolio in three tranches of four names each in early December. However, it is an indicator of market performance year to date and how the rising tide has lifted most, if not all, boats.
Names currently meeting the criteria include Atea Pharmaceuticals (AVIR) , loanDepot (LDI) , Quidel Corp. (QDEL) and Lumber Liquidators (LL) . Interestingly, the best overall performer from the 2019 Portfolio, Tupperware Brands (TUP) . which was up 241%, would make the cut again. TUP, down 31% year to date, currently trades at about 6x 2022 and 2023 consensus estimates.
I expect there will be a greater population of candidates when it is time to unveil next year's Tax Loss Selling Recovery Portfolio, but who knows?
