In early December I laid out 12 potential tax-loss selling candidates that might rebound in 2019 - in three separate columns (will refer to them from now on as tranches). It was pared down from a list of 200, and an "experiment" that I've conducted the past few years, with some fairly compelling results.
The idea is to identify potentially "cheap" names with the following attributes:
- 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 "theory"- if you can call it that - is that given their performance during the year, these names might be pushed even lower than is deserved by year-end as investors look for ways to offset gains. Now, that may seem out of place for 2018, a year that markets were in negative territory, and where there may have been few winners. But don't tell that to investors who own some of the actively managed mutual funds who may have been shocked to see relatively huge capital gains distributions from those funds. If they are not already aware of this, they may be in for a surprise at tax time.
While it's early in the year, and too soon to draw any conclusions from these 12 names, the fact that we are in 2019 means that the dial has been reset, and here's the early read.
Tranche 1, released on 12/10 has mixed performance so far. Down an average of about .7% since then, that's still better than the S&P 500 (-2.3%) and Russell 2000 (-3.25%). Winnebago (WGO) (+17%) is the winner, while United Natural Foods (UNFI) (-19.8%) is sucking wind. Rounding out this tranche is General Mills (GIS) (+6.8%), and Kraft Heinz (KHC) (-6.9%).
Tranche 2, released on 12/12 is up 3.7% on average, again, better than the S&P 500 (-2.4%) and Russell 2000 (-1%). Groupon (GRPN) is the winner so far (+15.4%); Kronos (KRO) is also doing well so far (+10.4%). Hain Celestial (HAIN) (-6.6%) is bringing up the rear, while Bed Bath & Beyond (BBBY) (-4.4%) is also sucking wind a bit.
Tranche 3, released on 12/14 is up an average of 5.72%, much better than the S&P 500 (-3%) and Russell 2000 (-1.8%). All four names Boise Cascade (BCC) (+7%), Methode Electronics (MEI) (+5.1%) Skechers (SKX) (+5%) and PetMed Express (PETS) (+5.8%) are in positive territory.
With eight of the 12 names in positive territory so far, up an average of 3.2%, they are off to a decent start. We'll see if this can carry through for the rest of the year. In the end, I'd expect a couple of big winners and big losers and several in the middle, but am not smart enough to know which will be which. The trick is whether the performance of the winners will be enough to offset the losers, which has been par for the course in the past.
