In Part 1 we explained that it is tax-loss selling season. Every year around this time investors are afforded the opportunity to sell their losing positions thereby "harvesting" their tax losses to offset and/or eliminate the capital gains that they may have realized on their other positions. Tax-loss selling is often concentrated in those stocks that have suffered the greatest declines during the year. We therefore like to review the list of stocks with the greatest year-to-date declines and attempt to identify from that list a few names that look "oversold," have decent fundamentals and which might be subject to a technical bounce as tax-loss selling dries up as the end of the year approaches and disappears entirely with the advent of the new year. To that end we have identified 15 stocks that have suffered year-to-date declines of at least 40%, have a small enough market cap that the tax-loss selling could have artificially depressed share prices and are predicted to have earnings per share and/or revenue increases in the next fiscal year compared with the current year. Here are the next five companies on our list:
Key Energy Services, Inc. (KEG)
Key Energy is an onshore rig based well servicing contractor both in the United States and internationally. The company has a $1 billion market cap and trades an average of 3.4 million shares per day. Although earnings are estimated to decline to $0.52 per share next fiscal year from an estimate of $0.67 this year, Key's revenue should increase to $2.0 billion from $1.96 billion this year. Book value is $8.19 per share. Per Barchart.com the 50-day moving average is $6.57. As of November 30, Nasdaq has the short interest listed at 2.72 days to cover.
LogMein, Inc. (LOGM)
LogMein develops and markets a suite of remote support and collaboration solutions on a worldwide basis. The company has a market cap of $510 million and trades an average of 258,000 shares per day. Earnings are slated to increase from $0.67 this year to $0.81 next fiscal year. Likewise, revenue should increase from $138 million this year to $164 million in the next fiscal year. The company carries no debt. Barchart.com lists the 50-day moving average at $21.49. The stock has a high short interest ratio of 26.98 days to cover according to Nasdaq, which could give the shares a boost once tax selling abates.
MAKO Surgical Corp. (MAKO)
MAKO is a medical device company that markets an advanced robotic arm solution as well as orthopedic implants. The company has a market cap of $530 million and trades an average of 1 million shares per day. MAKO's loss per share is estimated to be cut in half next fiscal year and revenue should increase from $106 million to $138 million. The company is debt free. Per Barchart.com the 50-day moving average is $14.32. As of November 30, Nasdaq has the short interest ratio listed at a high 15.85 days to cover.
Molycorp, Inc. (MCP)
Molycorp is a rare earth element company that is bringing the Mountain Pass mine in California back into production. They are attempting to vertically integrate the REE space. The company has a market cap of $1.39 billion and trades 7.49 million shares per day. Molycorp is slated to increase earnings from an estimated $0.02 this year to $0.19 next fiscal year. Top line growth should be from $611 million this year to $791 million next fiscal year. Book value is $11.61. Barchart.com lists the 50-day moving average at $9.45. Nasdaq has the short interest at 4.29 days to cover.
Maxwell Technologies, Inc. (MXWL)
Maxwell is a developer and manufacturer of energy storage and power delivery solutions. The company has a market cap of $206 million and trades an average of 238,000 shares per day. While earnings are estimated to be flat next year at $0.33 per share, revenue is estimated to increase to $174 million next fiscal year from $163 million this year. Per Nasdaq the company has a high short interest ratio of 15.09 days to cover to lever any upturn in the stock price. The 50-day moving average sits at $7.09 according to Barchart.com.
In conclusion, all of the companies featured above have had a horrendous year in the stock market with each down in excess of 40% year to date. Each company is a prime candidate for tax-loss selling and since all of the companies have a relatively small market capitalization we feel that their stock prices likely have been artificially depressed by shareholders selling for tax reasons. Surprisingly, each of our featured companies have good fundamental outlooks with all projected to have top line growth in the next fiscal year. Additionally, technicals are starting to turn favorable as each of the companies has either broken through its 50-day moving average or is on the verge of doing so. We feel all of this sets the stage for a potentially rewarding 30-45 day trade in each of these companies.