My 2021 Tax Loss Selling Recovery Portfolio is entering the home stretch, up nearly 55% since inception. It has been a very good run so far, certainly better than I expected. However, a lot could happen between now and November when I wind this version down and start to work on the new one. Over the past month, the portfolio gave back about 2%, which was about in line in line with the S&P 500 and Russell 2000 indices.
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. 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, and so far, that has been the case in 2021.
Tranche 1, released on Dec. 1, rose about 3% during the past month and is now up 41% since inception. It continues to outperform both the S&P 500 (up 22%) and Russell 2000 (up 23%). Pilgrim's Pride (PPC) (up 41%) had a great month, rising 25%. Last Friday, the stock got a 21% boost after Brazil's JBS SA offered to purchase the 20% of Pilgrim's Pride it does not already own for $26.50 a share. Designer Brands (DBI) (up 81% since inception) fell 9% for the month on no news. Walgreen Boots Alliance (WBA) (up 28%) picked up a few percentage points for the month, while Xerox (XRX) (up 10%) was about flat.
Tranche 2, released on Dec. 4, is up 88% since inception but fell about 3.5% over the last month, though it remains the best-performing tranche. It continues to outperform the S&P 500 (up 22%) and Russell 2000 (up 22%). Wells Fargo (WFC) (up 74% since inception) was the best performer for the month, rising 15%. On July 27 Wells Fargo doubled its quarterly dividend to 20 cents a share. Last August, WFC cut the dividend from 51 cents to 10 cents. Falcon Minerals (FLMN) (up 110% since inception) fell 12% but remains the portfolio's best overall performer. Its second-quarter results, released Aug. 4, were in line in terms of earnings per share but the company missed on revenue ($16.2 million actual vs. $19 million estimate). Falcon Minerals also announced a 50% increase in its dividend, to 15 cents a share. Both Townsquare Media (TSQ) (up 81%) and Genesco (GCO) (up 91%) fell about 6% since the July update.
Tranche 3, released on Dec. 7, is up 35% since inception and is beating the S&P 500 (up 21%) and Russell 2000 (up 18%), though it fell about 4% since the last update. AerCap Holdings (AER) (up 28% since inception) was the only name in this tranche with a positive month (up 7%) on better-than-expected second-quarter earnings. Sally Beauty Holdings (SBH) (up 53%) fell 10% despite reporting better-than- expected third-quarter results. Phillips 66 Partners (PSXP) (up 38%) and GIII Apparel (GIII) (up 22%) each gave back about 7% for the month.