Nearly three months since inception, my 2018 tax-loss-selling rebound exercise continues to provide compelling results. The objective, as in past years, was to identify names that had been hammered during the year and might be further sold off late in the year in order to offset gains, potentially setting them up for a rebound in the New Year. Of course, it helps to be in a rising market environment.
Besides being punished, qualifiers also had to exhibit some level of cheapness and meet the following criteria:
- 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 resulting list was whittled down from 200 to 12 and released in three tranches of four names each in mid-December. Since my second update, results have improved, despite one major name, Kraft Heinz Co. (KHC) , that was obliterated after releasing fourth-quarter results. So far, all but one of the 12 is in positive territory and they are up an average of about 19.5%.
Tranche 1, released last Dec. 10, is somewhat surprisingly still in positive territory, up about 8.5%; that's better than the S&P 500 (up 6.1%) and just ahead of the Russell 2000 (up 8%). Kraft Heinz, now down about 33%, is weighing on performance, but has been supplanted by the uptick in Winnebago Industries Inc. (WGO) (up 43%). United Natural Foods Inc. (UNFI) is showing signs of life since the last update and has broken into positive return territory. General Mills Inc. (GIS) is also doing very well so far (up 23%).
Tranche 2, released last Dec. 12, is up 20% on average -- again better than the S&P 500 (up 6%) and Russell 2000 (up 10.5%). Bed Bath & Beyond Inc. (BBBY) has come alive (up 35%), as has Kronos Worldwide Inc. (KRO) (up 34%). The latter recently increased its quarterly dividend 6% to 18 cents a share and now yields 4.7%. Groupon Inc. (GRPN) has given some back since the last update but is still up about 10% since inception.
Tranche 3, released on Dec. 14, is up an average of 22%, also well ahead the S&P 500 (up 5.5%) and Russell 2000 (up 9.6%).The big winner so far is Skechers USA Inc. (SKX) (up 45%), the beneficiary of better-than-expected fourth-quarter results that gave shares a 15% boost the day after the announcement. Boise Cascade (BCC) is holding on to earlier gains (up 18%). Methode Electronics Inc. (MEI) (up 22%) has picked up the pace over the past month, while PetMed Express Inc. (PETS) (up 3.6%) remains just modestly positive so far.