Markets have been a bit rocky over the past several days as tariff worries heat up while earnings season is in full swing. That more than wiped away small gains for the S&P 500 and Russell 2000 in July. The "damage" is clear in my 2018 Tax Loss Selling Recovery Portfolio, which gave back about 3.5% since the last update. Since inception, this tracking portfolio of names that were hurt in 2018 is up about 9%.
Tranche 1, released on 12/10 is up about 9%, versus 10.2 % for the S&P 500, and 4.8% for the Russell 2000. Winnebago (WGO) (+70%) remains the big winner of this tranche and the entire group, and was up just slightly for the month. Kraft Heinz (KHC) (-32%) actually rose slightly over the past month, but remains in the doldrums overall. The stock now yields 5%, and trades at 11x next year's consensus estimates. United Natural Foods (UNFI) (-43%), remains the worst performer. In fact, the stock was trounced last Friday, falling 10% after BMO Capital lowered its price target to $5, and rating to "underperform". Shares were down as much as 19% before gaining back some ground later in the day. UNFI currently trades for just under 5x next year's consensus estimates. General Mills (GIS) (+43%) was little changed for the month.
Tranche 2, released on 12/12 is up 2% on average, much worse than the S&P 500 (+10%) and Russell 2000 (+7%), after having a terrible month. Kronos (KRO) (+10.5%) fell 20% during the month, on no company specific news, and now yields 5.9%. The company is expected to report second quarter earnings this week, with the "consensus" (just three analysts) looking for earnings per share of 30 cents on revenue of $466.8 million. Bed Bath & Beyond (BBBY) (-21%) put up better than expected first quarter earnings in early July, but has been plagued by the general malaise that many retailers are experiencing, especially those considered to be more "challenged", and lower in quality. It now trades at just 4.5x next year's consensus estimates, and yields 7.4%. Groupon (+2%), fell about 13% over the month, with much of the damage occurring after last week's earnings miss. Hain Celestial (HAIN) (+18%) ended the month up modestly, after dipping to the $20 level in late July, then adding 10% over the past week+.
Tranche 3, released on 12/14 is up an average of 15.8%, better than the S&P 500 (+9.5%) and Russell 2000 (+6.4%). Skechers (SKX) (+49%) had another good month, rising 7%, and jumping into second place in terms of overall performance. SKX reported better than expected second quarter earnings on July 18, issued positive guidance for the third quarter, and rose 12%; all of which has since been given back. Boise Cascade (BCC) (+15.8%) was down slightly for the month, while Methode Electronics (MEI) (+22%) was flat. PetMed Express (PETS) (-24%) was surprisingly up about 5% despite a bad first quarter earnings miss (26 cent earnings vs. 46 cent consensus). PETS trades for about 13x next year's consensus earnings estimates and yields 6.6%.
By way of reminder, qualifying companies had to meet the following criteria:
- Down at least 30% year to date,
- Forward price earnings 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 3 tranches of 4 names each in mid-December.
