Time sure flies.
Nearly four months since inception, my 2018 tax-loss-selling rebound exercise continues to provide compelling results (so far, that is), although overall gains have flattened over the past month.
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 certainly 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 $100 million
The resulting list was then whittled down from 200 to 12 and released in three tranches of four names each in mid-December. So far, all but two of the 12 names is in positive territory, with Kraft Heinz Co. (KHC) as the big exception, and they are up an average of 20.7% since inception and up 1.2% since the last update.
Tranche 1, released on Dec. 10, remains in positive territory (up 7.7%), still better than the S&P 500 (up 7.1%) although the gap has narrowed, and ahead of the Russell 2000 (up 4.8%), which has had a difficult month. Kraft Heinz, down about 32%, is still the biggest loser, but has stabilized following some difficult fourth-quarter results and a dividend cut. Winnebago Industries Inc. (WGO) (up 36%) is the best of the group so far; the company reported better-than-expected second-quarter earnings last week, although it missed on revenue. United Natural Foods Inc. (UNFI) (down 9%) has slipped back into negative territory and was the worst performer for the month (down 11%); better-than-expected second-quarter results were unable to quell skepticism about Supervalu integration. General Mills Inc. (GIS) (up 35.8% overall) has had a good month (up 10%) on the back of better-than-expected third-quarter earnings
Tranche 2, released on Dec. 12, is up 25% on average, again, better than the S&P 500 (up 6.6%) and Russell 2000 (up 7.3%). Bed Bath & Beyond Inc. (BBBY) has continued to move higher (up 39%) and is the second-best performer of the 12. Kronos Worldwide Inc. (KRO) (up 24%) gave back about 7% over the month, with the damage occurring after a fourth-quarter earnings miss, while Hain Celestial (HAIN) put on a spurt as it rose more than 20% in a month and now is up 23% overall after it got an upgrade from J.P. Morgan. Groupon Inc. (GRPN) (up 16%) was up about 5% for the month.
Tranche 3, released on Dec. 14, is up an average of 20.5%, also well ahead the S&P 500 (up 6.5%) and Russell 2000 (up 6.3%). Skechers U.S.A. Inc. (SKX) (up 43%) has leveled out over the past month but remained the best performer of all three tranches so far. Boise Cascade (BCC) (up 13%) gave back about 4% over the past month; Methode Electronics Inc. (MEI) (up 24%) is up just slightly over the month. PetMed Express Inc. (PETS) (up 2%) remained in just modestly positive performance territory so far. PETS trades at 11.5x next year's consensus estimates and is expected to report fourth-quarter results on May 8.
