As we approach the end of the third quarter, I decided to do a preview of the current candidates for my 2022 Tax-Loss Selling Recovery Portfolio. This annual portfolio experiment starts by identifying potentially cheap names that have fallen sharply during the year and might be pushed even lower at the end of this year as investors harvest losses in order to offset gains. By way of reminder, screening criteria include the following:
- 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 of $100 million
The theory is that these names may rebound in the New Year when the selling pressure is off. The 2021 version has had an interesting year so far (I'll do an update later this week), but I am already thinking about the new vintage.
Unfortunately (or fortunately, depending on your perspective), the list of potential candidates is a bit thin as we head into the home stretch. It has been a good year for the markets so far and I currently count less than two dozen stocks from which to pick. By late November of last year as I prepared to roll out the 2021 version there were around 120 qualifiers.
There are a handful of familiar names at this point. Tupperware Brands (TUP) (down 33% year to date) was actually a member of the 2020 portfolio and was the top performer that year. TUP currently trades at about 6x next year's consensus estimates. Groupon Inc. (GRPN) (down 44% YTD) is another repeat offender from a prior vintage and currently trades at about 10x next year's consensus estimates.
Other current qualifiers include American Woodmark (AMWD) (down 31% YTD), Renewable Energy Group (REGI) (down 32%), Pactiv Evergreen (PTVE) (down 38%), GoHealth Inc. (GOCO) (down 59%), HighPeak Energy (HPK) (down 42%), and Emergent BioSolutions (EBS) (down 36%). There are not a great deal of household names at this point, and that's putting it mildly.
This is the thinnest list I've seen yet in the years I've been running this annual experiment, and there are no current qualifiers with market caps above $3 billion. Indeed, the average market cap is just $1 billion. Now, I'd expect that there will be some additional candidates as the year progresses, but it just goes to show you the type of year markets have had. The rising tide has lifted most boats, and most valuations.