Results from my 2018 tax-loss-selling rebound tracking portfolio improved slightly over the last month, although its advantage over my selected benchmarks -- the S&P 500 and Russell 2000 -- has narrowed as the two indices had a solid month. Although this may suggest there is an optimal short-term holding period for tax-loss-selling rebound candidates, I'm not sure I buy into that notion yet.
The objective for this exercise, as in previous 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 other gains, potentially setting them up for rebounds in the New Year.
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 then was whittled down from 200 to 12 and released in three tranches of four names each in mid-December. Nine of the 12 names are in positive territory (the decliners are Kraft Heinz Co. (KHC) , PetMed Express Inc. (PETS) and United Natural Foods Inc. (UNFI) ), with the entire group up an average of 21.1%, which is up 0.4 percentage point since the last update.
Tranche 1, released on Dec. 10, remains in positive territory (up 11.7%), which is still better than the S&P 500 (up 10.4%) although the gap has narrowed, and ahead of the Russell 2000 (up 8.4%), which had a solid month. Kraft Heinz, down about 31%, remains the biggest laggard. KHC trades at about 11x next year's consensus estimates, and reportedly Warren Buffet, whose Berkshire Hathaway Inc. (BRK.B) owns nearly 27%, may be planning some changes to the board of directors. Winnebago Industries Inc. (WGO) (up 59%) is the best performer, yet still trades at just 9x next year's consensus estimates. United Natural Foods (down 17%) has slipped further into negative territory and was the worst performer once again for the month (down 8%); I've been looking for signs of life here, but have not seen any yet. General Mills Inc. (GIS) (up 35% ) is holding its own.
Tranche 2, released on Dec. 12 is up 24% on average -- again, better than the S&P 500 (up 10.3%) and Russell 2000 (up 10.9%). Bed Bath & Beyond Inc. (BBBY) has flattened (up 37%) but remains the second-best performer of the 12. Kronos Worldwide Inc. (KRO) (up 24%), which was flat for the month, trades at about 10x next year's consensus estimates and yields 5.1%. Groupon Inc. (GRPN) (up 18%) was up slightly for the month.
Tranche 3, released on May 14, is up an average of 18.5%, which also is well ahead of the S&P 500 (up 9.8%) and Russell 2000 (up 10%). Skechers U.S.A. Inc. (SKX) (up 32%) gave back about 7%, with all of the damage occurring on April 18 after the company reported a first-quarter revenue shortfall. Boise Cascade (BCC) (up 17%) and Methode Electronics Inc. (MEI) (up 26%) continued to hold their own. PetMed Express (down 1%) slipped back into negative territory; the company has traded sideways since a late January earnings miss and we should get a progress report in early May when the company reports fourth-quarter earnings. The consensus is calling for earnings of 46 cents per share and the company is trading at 11x next year's consensus estimates; it yields 4.9%.
One interesting exercise might be to see how all the qualifying names -- there were about 200 in December -- and not just my hand-selected tracking portfolio would have performed. Perhaps I'll undertake that not-so-small endeavor with this year's crop.