"What a difference a month makes" was the sentiment baked into the performance for my 2023 Tax Loss Selling Recovery Portfolio during its first two months of existence. That is true once again three months since inception, but in the opposite direction this time.
The portfolio, which jumped 21% between the Jan. 6 and Feb, 4 updates, since has given back 13%. Since inception it is up about 1.6% as markets have hit a rocky patch. While the portfolio is ahead of both the S&P 500 and Russell 2000 indexes, I'll echo the fact that it's early.
The idea behind this annual pursuit is to identify potentially cheap stocks that were down sharply in in the prior year and might have been pushed even lower at year-end as market participants booked losses for tax purposes, but could recover in the New Year if selling pressure subsides. The objective is to outperform the S&P 500 and Russell 2000 indexes, and I've taken positions in all 12 stocks that make up the portfolio.
Here are the criteria for inclusion:
- 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
Tranche 1, released last Nov. 28, is up 15%, which is ahead of the S&P 500 (down 1%) and Russell 2000 (up 1.25%) over the same period. Meta Platforms (META) (up 66%) remains the best overall performer but gave back little over the past month. eBay (EBAY) (down 2%) had a rough month and gave back 15% in the wake of fourth-quarter earnings. The report itself was not bad, but some concerns were raised about the road ahead. Qualcomm (QCOM) (down 1%) and Ford Motor (F) (down 2%) flipped into negative territory.
Tranche 2, released on Nov. 30, is down 4%, now behind both the S&P 500 (up 0.5%) and Russell 2000 (up 1%) over the same period. Kohl's (KSS) (down 14%) dropped 20% since the last update and badly missed fourth-quarter earnings estimates. Hanesbrands (HBI) (down 16%), which recently but not surprisingly discontinued its dividend, continued to slide in the wake of weak guidance. While Paramount Global (PARA) (up 11%) remains the best performer in this tranche, it fell 15% over the past month after reporting worse-than-expected fourth-quarter earnings (eight cents a share vs. the 23-cent consensus). MarineMax (HZO) (up 3%) treaded water yet again over the past month.
Tranche 3, released Dec. 2, is down 6%, worse than the S&P 500 (down 2.2%) and Russell 2000 (down 0.1%) over the same period. Vintage Wine Estates (VWE) (down 59%) is a disaster, and saw its wheels fall off after withdrawing earnings guidance. Using a Jim Cramer term (used years ago to describe Cabela's), Vintage Wine has become a "walking heart attack." Wolverine Worldwide (WWW) (up 47%) was fairly steady and is the second-best overall portfolio performer. Newell Brands (NWL) (up 6%) reported better-than-expected fourth-quarter earnings (16 cents a share vs. the 11-cent consensus) but dropped 17% since the last update, including a 7% hit on Monday. Elanco Animal Health (ELAN) (down 19%) fell 27% over the month on macroeconomic headwinds despite posting better-than-expected fourth-quarter earnings (19 cents a share vs. a 13-cent consensus).
The road has gotten a bit rocky, in part due to the worst kept secret of 2023 -- inflation is not abating, and the Fed will likely raise rates more than expected.