This year's version of my annual Tax-Loss-Selling Recovery Portfolio, released last December in three tranches, is struggling, to put it mildly, nearly five months since inception. Last year's results were compelling; it has worked well overall in the several years I've run this experiment, but this year's group of selected companies are not faring well in an economy that has been all but shut down.
The idea is to identify potentially cheap names with the following attributes:
- 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 given their poor performance during the year, these names may have been pushed even lower than deserved by year-end as investors offset gains with losses, and 2019 was a huge year for gains. If that is indeed true, and investors re-engage with these names in 2020, this could be an interesting setup for market outperformance in the year ahead. That's the theory, anyway.
Tranche 1, released last Dec. 4, is down about 27%, far worse than the S&P 500 (down 5.8%) and Russell 2000 (down 18%) but closer to the Russell 2000 Value Index (down 24.6%). Spirit Airlines (SAVE) and Tupperware Brands (TUP) , both down about 61%, are the worst overall performers. B&G Foods (BGS) (up 22%) is the best overall performer. GameStop Corp. (GME) (down 7%) has held up surprisingly well. Shares fell below $3 early last month but have more than doubled since. Last week an activist, Hestia Capital Partners, which holds 7.2% of GME, entered the fray.
Tranche 2, released last Dec. 6, is down 36%, well below the S&P 500 (down 6.6%) and Russell 2000 (down 18.3%) and even the Russell 2000 Value (down 24.6%). All four names are in negative territory. Fluor Corp. (FLR) (down 28%) is the best of the bunch. Mosaic Co. (MOS) (down 38%), and TripAdvisor Inc. (TRIP) (down 32%) are not faring well in this environment, but the biggest loser here so far is The Gap GPS (down 47%).
Tranche 3, released last Dec. 9, is down an average of 29%, trailing the S&P 500 (down 7.4%), Russell 2000 (down 18.3%) and Russell 2000 Value (down 24.8%). Gaming headset name Turtle Beach Corp. (HEAR) has been a bright spot -- the only one at that -- as it is up 11%. Its shares actually dipped to about $4 in March but have been on a good run since, closing Thursday at $9.83. Tenneco Inc. (TEN) is the worst of this bunch, down 60%, but things were even worse in early April when shares dipped into the low $2 range. Since then, Tenneco has more than doubled, aided by a stake disclosed by Carl Icahn. In mid-April, the company adopted a poison pill, which kicks in when anyone owns 4.9% or more of the stock and may not help matters. Chemours Co. (CC) (down 28%) and AMC Networks (AMCX) (down 38%) round out this tranche.
Overall, the portfolio is down about 31% since inception; the performance is disappointing so far, but there's plenty of time left.