Tax-loss selling season is upon us once again. The past couple of years I've identified some names that were hammered during the year, and might recover in the New Year. Beaten-up stocks often face greater pressure heading into year-end as investors and institutions sell off some of their losers in order to offset gains. This year is more interesting as the broad markets are currently in negative territory year to date.
The screening criteria are very simple:
- Down at least 30% year to date,
- Forward price earnings ratios below 15 in the next two fiscal years
- Minimum market cap $100 million
Last year there were 80 or so candidates, double what we saw in 2016. This year there are more than 200! This year I plan on naming 12 that are most interesting (to me, anyway) and will roll them out four at a time. While I tend to prefer smaller, more off the radar names, I will keep it balanced, between large and small caps, and of course perhaps a microcap or two.
Food giant Kraft Heinz (KHC) , a virtual who's-who of well-known brands, is down about 35% this year. Currently trading at 13X and 12.5X the next two year's consensus earnings estimates, the stock currently yields 5.1%. Higher costs have hurt this year, earnings results have been mixed, and the stock is trading near a 52-week low. Incidentally, KHC is the second biggest name on the list candidates, after General Electric (GE) .
General Mills (GIS) , perhaps best known for its cereal line, is down 32% year-to-date, and trading near a seven year low. Currently trading at less than 12X the next two year's consensus estimates, GIS currently yields 5.1%.
On the smaller and more speculative side, Winnebago Industries (WGO) is down more than 50% year-to-date, and is trading at a two-year low. The RV sector as a whole has had a rough ride this year (pun intended). For its part, WGO has beaten earnings estimates or been in-line all year, but sector woes have exacted a heavy price, and 2019 may be another rough year. However, the punishment to WGO may not meet the crime. The stock currently trades at about 5X the next two year's consensus estimates, a level that is so low, that the market appears to be expecting reduced estimates.
Last, not least, but very speculative is United Natural Foods (UNFI) , down nearly 70% this year, including Friday's 25% hit after a fourth quarter earnings miss (76 cents/share versus 85 cent consensus). The primary weight on the stock has been disdain for the SUPERVALU acquisition. Interestingly, SUPERVALU was one of last year's tax-loss selling candidates, and rose sharply in 2018, due to the acquisition by UNFI. The problem is that UNFI may have overpaid in the deal, took on substantial debt, and the market has been worse than skeptical ever since. UNFI currently trades at less than 5X next year's consensus estimates, and 3.5X 2020 estimates.
Four more to come on Wednesday and I'll attempt to stay away from any additional food related stocks.