On Monday, I rolled out the first four tax-loss selling rebound candidates for 2019, today I will unveil four more. There is one thing to keep in mind here; not all of these names, and perhaps none of them will be fruitful. In past years, there was a name or two that soared, some that were flat, and others that did not recover, or worse. The hope is that the big winners far outstrip the losers, which has been my experience so far.
All of these companies have been hammered to a varying degree during the year but trade at reasonable forward valuations. The theory (if you can call it that) is that these companies may face additional pressure as we approach year-end, and investors large and small engage in tax loss harvesting before each name gets a potentially fresh start in 2019.
As a reminder, 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
Chemical name Kronos Worldwide (KRO) is down more than 50% year-to-date as titanium dioxide manufacturers have been hammered. KRO currently trades at about 9X the next two year's "consensus" estimates, although there are just 3 analysts covering the name. KRO currently yields nearly 6%. The company ended its latest quarter with $432 million or about $3.73 per share in cash, and $465 million in debt, most of which matures in 2025. This one will be interesting to watch, as titanium dioxide goes, so goes KRO. (I have indirect exposure through well under water positions in NL Industries (NL) which owns 40% of KRO, and Valhi (VHI) , which owns 83% of NL).
Hain Celestial (HAIN) , down 51% year-to-date, has under delivered on revenue, earnings, or both in each of the past five quarters. Gross margins fell sharply last quarter, and on Tuesday the company settled SEC charges regarding internal control, weaknesses. The same day, the company issued an 8-K announcing that it has formed a "Strategy Committee" in order to evaluate "strategic alternatives", which pushed shares up 6% in after-hours trading. HAIN trades at about 14X next year's consensus estimates, and 12X the following year's estimate. This is a fairly solid brand name that might make an interesting play for a bigger fish seeking to expand its brand portfolio.
The list would not be complete without at least one retailer (and there are about 18 contenders), and one that I am going with, against conventional wisdom, is down and out Bed Bath & Beyond (BBBY) , which is down about 40% year-to date. In fact, it was also in negative territory for each of the previous four years as well, trades below 2008-2009 levels, and is also near a 20-year low. The markets have all but given up on BBBY. Currently trading at about 7.5X the next two year's consensus estimates, it yields 5.2%. The company ended its latest quarter with more than $1 billion or nearly $8 per share in cash and short-term investments, and just under $1.5 billion in debt. It has reduced shares outstanding by more than 43% the past seven years, an example of where buybacks have not worked well, given the prices paid for shares.
Last but not least, is Groupon (GRPN) , down 49% year-to date. Speculative for sure, but let's face it, this entire endeavor is speculative. GRPN trades at 13X next year's consensus estimates, and 11X the following year's consensus. It ended last quarter with $572 million in cash, and an additional $109 million in long-term investments, for a total of about $1.20 per share. The company has just $232 million in debt. With a current enterprise value of just $1.4 billion, this one also might make an interesting acquisition.