In up years like 2013, there is an interesting phenomenon which we like to take advantage of: buying shares of quality stocks that have taken the biggest hits during the year and are ripe for tax-loss selling to offset gains in other holdings. To see how this works, look at the Dow's worst performer in 2012, Hewlett Packard (HPQ).
From its November low to the end of January 2013, just two months, it rose 47%.
As long as we stick with quality firms, this has been a particularly successful year-end/new year strategy for us for many years. Here are my top 5 picks for tax season bounce-back this year. All have fine balance sheets and profitability and growth profiles:
Titan International (TWI) is down nearly 40% in 2013. The manufacturer of tires, wheels and brake assemblies for the agricultural, earthmoving, construction, military and timber industries continues to suffer from a build-up in tire inventory in the farm and construction industry. When agriculture and mining were doing well, tire sales were too. But excess inventory that has been dropped into the aftermarket from the farm, construction and mining industries has impacted pricing. We are near the point in agriculture where vehicles will need to be replaced; this bodes well for TWI, a solid company with a solid future and rebound potential.
Teradata (TDC) is down over 40% and has likely the most fickle holders of all in tech investors. When this giant cloud storage and Big Data analytics firm had a downturn in their international operations, tech buyers deserted them in throngs. Will they return the second TDC shows an uptick in revenue or earnings? Probably. What they provide to other companies is too important to pass by. As advertisers look to target their work more closely, rather than dispersing their efforts across scores of demographics that will never buy from them, they will need what TDC provides. The cloud storage capability is icing on the cake.
Liquidity Services (LQDT) may be the most rebound-likely pick of all. Down more than 50%, this quality company offers an online auction marketplace for surplus and salvage assets, providing corporate and manufacturing professionals access to a global, organized supply of surplus and salvage assets presented with digital images and other relevant product information. They create a more liquid marketplace by so doing. The company's product offerings are organized into categories across major industries like consumer electronics, apparel, scientific equipment, aerospace parts, technology hardware, energy equipment, fleet and transportation equipment and more. If you run a company on the prowl for product, this is your Amazon and E-Bay rolled into one.
American Eagle Outfitters (AEO) serves the fickle 15-25 year old clothing buyer. Not exactly the most stable demographic and AEO will one day likely die by that sword; I just don't think the demise is imminent. Down 36% and selling at 16 times trailing earnings, my guess is there are still a few last hurrahs before teenagers move on to another new fad or the current customers grow up and are served by an AEO that changes its fashion line along with them.
And for the big spenders, Intuitive Surgical (ISRG) which sells da Vinci robotic surgical systems, is down 34% as hospital admissions have been weak and negative publicity affected the amount of procedures performed. Then there's Obamacare the czars and serfs of which may capriciously decide what techniques and procedures are allowed. Along with the rest of the health care business, I think the stock is oversold and due for a bounce.
If history is any guide, oversold companies like these are beaten down with tax-selling, but often rise from the ashes in the first months of the next year. I believe these are 5 of the most likely to do so.
Disclaimer: As Registered Investment Advisors, we see it as our responsibility to advise the following: we do not know your personal financial situation, so the information contained in this communiqué represents the opinions of the staff of Stanford Wealth Management, and should not be construed as personalized investment advice.
Past performance is no guarantee of future results, rather an obvious statement but clearly too often unheeded judging by the number of investors who buy the current #1 mutual fund only to watch it plummet next month.
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