Today I roll out the first tranche of my 2022 Tax Loss Selling Recovery Portfolio. 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 that could recover in 2022 if selling pressure subsides. Of course, these companies need to deliver results, too.
Here are the criteria for inclusion:
- Down at least 20% year to date
- Forward price-to-earnings (P/E) ratios below 15 in the next two fiscal years
- Minimum market cap of $100 million
Just like last year, I've taken small positions in each of these names.
Here are the first four:
Restaurant name Brinker International (EAT) has had a rough 2021 and shares are down nearly 38% year to date. While I am cautious on restaurants overall due to rising costs, Brinker may have been overly punished over the last year and is among the sector's worst performers. Yet its shares trade at 7.5x next year's consensus estimates (June year-end) and 6.3x 2023 estimates, so there may be some meat on the bone in 2022. Best known for its Chili's brand, the company also operates Maggiano's Little Italy.
Groupon Inc. (GRPN) is down 49% so far in 2021. Perhaps surprisingly, this household name has a relatively tiny market cap of just $572 million, putting it in microcap land. While revenue has fallen sharply over the years, Groupon is profitable on a trailing 12-month basis and is trading at 10x and 6.6x consensus earnings estimates for 2022 and 2023, respectively. In addition, Groupon ended its latest quarter with $477 million, or $16.13 per share, in cash and $323 million in debt. That puts net cash at $5.20 a share.
SelectQuote Inc. (SLQT) , which operates a direct-to-consumer insurance platform, has had an awful 2021, with its shares are down 57.5% year to date. SelectQuote went public in May 2020 at $20 a share, up from the initial target range of $17 to $19. Its shares rose to the $33 level this past April but have suffered ever since, closing last Friday at $8.82. SelectQuote currently trades at less than 7x and less than 5x consensus earnings estimates for fiscal 2023 and 2024 (June year-end). SLQT ended its latest quarter with $184 million in cash and $462 million in debt.
Last but not least for Tranche 1 is Tupperware Brands (TUP) , a repeat offender that was the best performer of the 2020 Portfolio when it rose more than 240%. Tupperware shares have since fallen back to earth and are down 53% year to date. The market once again has all but given up on Tupperware, given that it trades for less than 5x the next two years' consensus earnings estimates. The company ended its latest quarter with $124 million in cash and $668 million in debt. While its debt is down from $889 million at year-end 2018 it is still an issue, and likely one of the weights on the name. Last month, TUP did get in place a new $880 million credit facility that includes a five-year, $480 million revolver and five-year, $400 million term loan.
As usual, these are some fairly ugly stories. As in past years, it is likely that some will suffer further damage while others may recover. The hope is that a couple names will carry the portfolio to above benchmark returns over the next year.
I plan to release Tranche 2 this Wednesday.