Just over one month since inception, my 2023 Tax Loss Selling Recovery Portfolio is somewhat quietly getting the job done, doing a bit better than the markets as a whole, although that's not saying much.
The idea behind this annual pursuit is to identify potentially cheap names that were down sharply in in the prior year and might be pushed even lower at year-end as market participants book 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 of the names.
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
So far, the portfolio is down about 2.8%.
Tranche 1, released on 11/28, is down 2.8%, ahead of the S&P 500 (down 5.4%) and Russell 2000 (down 5.7%). This is the tranche with the largest, most well-known names. Meta (META) (up 14%) is the best performer, and surprising early winner in the portfolio. It did not take much as the shares had been absolutely hammered in 2022. eBay (EBAY) (down 4%) is holding its own, while Qualcomm (QCOM) (down 10%) and Ford (F) (down 12%) are sucking wind so far.
Tranche 2, released on 11/30, is down 1.9%, beating both the S&P 500 (down 3.9%) and Russell 2000 (down 6%). Hanesbrands (HBI) (up 10%) is the best performer, but that's still a small uptick for a company which fell 58% in 2022. The shares yield 8.3%, and one of the questions investors have here is whether that dividend can be maintained, especially given the company's debt load. Kohl's (KSS) (down 18%) continues to struggle, while MarineMax (HZO) (up 2%) and Paramount Global (PARA) (down 3%) are holding their own.
Tranche 3, released 12/2 is down 3.6%, better than the S&P 500 (down 6.6%) and Russell 2000 (down 6.9%). Newell Brands (NWL) (up 10%) is leading the way so far; another name with a high dividend yield (6.5%). Vintage Wine Estates (VWE) (down 16%), continues its losing ways from 2022 when shares fell 72%. VWE, the second worst overall performer in the portfolio, currently trades at 8x 2024 consensus earnings estimates. Elanco Animal Health (ELAN) (down 5%) and Wolverine World Wide (WWW) (down 3%) round out this tranche.
I can't say that I am pleased with performance so far, but am looking forward to the effect earnings season will have on this portfolio. It is going to be a wild ride.
(Please note that due to factors including low market capitalization and/or insufficient public float, we consider some stocks mentioned in this story to be small-cap stocks. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.)