4 stocks positioned for bounce
A year ago, I recommended four stocks that I thought were ripe for a January bounce.
Those recommendations were a big success – and a colossal failure.
Let me explain. The four stocks I picked – Hospira Inc., First Solar Inc., Iridium Communications Inc. and Dreamworks Animation SKG Inc. — did indeed rebound in January. In fact, they shot up 12.3 percent, almost triple the 4.5 percent rise in the Standard & Poor's 500 Index.
That was the good news. The bad news was, they were only good for January. For the 12 months after publication of my column, they fell 17.5 percent, while the S&P advanced 10.4 percent.
Now, I never said the stocks would be good for a 12-month run, but the truth is, that was my intention. When I recommend candidates for a year-end bounce, I try to find stocks that will be good both for the short term and for the coming year.
It's unwise to focus myopically on the traditional “January rebound” in depressed stocks. Sometimes the rebound doesn't show up at all. And sometimes it shows up, but it happens in December instead of January.
The turn-of-the-year bounce in laggard stocks is a tax-driven phenomenon. Investors often sell their poor performers in the fourth quarter to record tax losses. Mutual funds typically complete their tax selling by the end of October, when their fiscal years typically end.
This tax-motivated selling drives some stocks below their intrinsic value, creating opportunities for alert investors.
Over the years, I have written nine columns recommending stocks that I thought were victims of tax selling (2000-2006, 2009 and 2011). Five of the nine lists have beaten the S&P 500 during a 12-month span, and five of the nine have been profitable.
The average 12-month gain on my bounce candidates has been 4.3 percent, compared with 4.6 percent for the S&P.
That record is not nearly as good as that of my quarterly Casualty List, which recommends fallen stocks. But I'm undaunted and ready to try again.
Here are four stocks that have been battered by tax selling this year, and that I believe have good potential for a comeback in the coming 12 months.
• Occidental Petroleum Corp. (OXY), based in Los Angeles, is the fourth largest U.S. oil company by market value. Its stock has fallen 21 percent this year through Nov. 16. Part of the stock's weakness comes from the rebellion in Libya, where Occidental had a cozy relationship with ousted dictator Moammar Gadhafi.
As war raged, U.S. companies such as Occidental withdrew their workers from Libya, and oil production plunged. But investors may be overlooking the fact that less than 2 percent of Occidental's revenue comes from Libya.
• GT Advanced Technologies Inc. (GTAT) of Nashua, N.H., makes furnaces that purify silicon so enable the manufacture of computer chips and solar panels, and furnaces that are used to make artificial sapphires used in light emitting diodes (LEDs).
GT shares have been hurled out the window this year – down 57 percent. Chinese competition is the problem. But now that the stock sells for less than three times earnings, I think it has been punished too severely.
• Guess? Inc. (GES), based in Los Angeles, makes blue jeans and other clothing. From under $2 in 2002, the stock climbed to about $47 at its peak in 2010. The brand was trendy, and consumer liked its hot, sexy advertising.
But Guess has cooled off. As of Nov. 16, the shares fetched about $23, down 23 percent this year after a 35 percent drop last year. Sales and earnings in the current fiscal year are expected to decline.
But I like it that Guess is debt free, and I like the stock's valuation at nine times earnings. The dividend yield is good, at 3.5 percent.
Smacked down 61 percent this year, Key Energy Services Inc. (KEG) is a jack of all trades in oil field services. The Houston company provides well completion, well maintenance, overhaul, trucking and other services to drillers.
This is probably the most speculative pick in the lot. The stock is long past its glory days. It sold for more than $32 in 1997, but lately trades at about $6. Earnings are erratic, but the company has been profitable eight of the past nine years.
After this year's pummeling, the stock looks very cheap. It sells for seven times earnings, 0.73 times book value (or corporate net worth per share), and 0.5 times sales.
John Dorfman is chairman of Thunderstorm Capital in Boston and a syndicated columnist. He can be reached at email@example.com.
Show commenting policy
TribLive commenting policy
You are solely responsible for your comments and by using TribLive.com you agree to our Terms of Service.
We moderate comments. Our goal is to provide substantive commentary for a general readership. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information.
While most comments will be posted if they are on-topic and not abusive, moderating decisions are subjective. We will make them as carefully and consistently as we can. Because of the volume of reader comments, we cannot review individual moderation decisions with readers.
We value thoughtful comments representing a range of views that make their point quickly and politely. We make an effort to protect discussions from repeated comments either by the same reader or different readers.
We follow the same standards for taste as the daily newspaper. A few things we won't tolerate: personal attacks, obscenity, vulgarity, profanity (including expletives and letters followed by dashes), commercial promotion, impersonations, incoherence, proselytizing and SHOUTING. Don't include URLs to Web sites.
We do not edit comments. They are either approved or deleted. We reserve the right to edit a comment that is quoted or excerpted in an article. In this case, we may fix spelling and punctuation.
We welcome strong opinions and criticism of our work, but we don't want comments to become bogged down with discussions of our policies and we will moderate accordingly.
We appreciate it when readers and people quoted in articles or blog posts point out errors of fact or emphasis and will investigate all assertions. But these suggestions should be sent via e-mail. To avoid distracting other readers, we won't publish comments that suggest a correction. Instead, corrections will be made in a blog post or in an article.
- Dem Wolf eyes shale’s ‘golden egg’ to boost school funding
- Pirates top Cardinals, 5-2, on Davis’ homer; Alvarez, McCutchen hurt
- Mentor role suits Penn State lineman Mangiro
- For Steelers outside linebacker Jones, size is not an obstacle
- North Huntingdon Food lover’s writing project becomes ‘Seriously Delish’ guide
- Steelers cornerbacks Allen, Gay, Taylor have something to prove
- Pittsburgh paramedics treat 38 people at Stage AE concert
- Indiana County township ‘afraid for the water’ fights waste well
- Montgomery County man jumps into race for Pennsylvania governor
- Elizabeth Forward School District fosters high-tech culture
- Steelers notebook: Team cuts 15 players, including LB So’oto, RB Hall