Even in a tough market there are always ways to profit. The strategy of buying beaten-down stocks just a few weeks before the end of the year often results in solid gains because stocks that many investors have losses on, are often sold down even more for tax loss purposes. Sometimes after holding a stock that has dropped in value, investors want to sell even if it's not a great time to do so. This occurs out of pure frustration, a desire to cut losses, and a desire to harvest tax losses in order to offset gains on other stocks. The tax loss selling can exacerbate the declines in an already oversold, undervalued stock at this time of year and that can be an opportunity. I have researched a number of companies that fit the profile for a strong stock surge in January. In addition, these stocks are all trading below $10 per share and could see very large percentage gains due to the low price per share. Here are a few stocks that have had a tough year, but should rebound into 2012:
SIGA Technologies, Inc. (SIGA) is trading around $2.02. SIGA is developing products to defend against biological warfare and is based in New York. These shares have traded in a range between $1.78 to $15.66 in the last 52 weeks. The 50-day moving average is $2.68 and the 200-day moving average is $7.92. SIGA is estimated to earn 62 cents per share this year and lose about 20 cents next year. After a big drop in the share price over contract concerns and legal issues, a few insiders have been buying stock. This stock is heavily shorted and could surge in January when tax loss selling ends.
MGM Resorts (MGM) shares are now trading at $9.02. MGM is a leading casino and resort company, based in Las Vegas. The 50-day moving average is $10.20 and the 200-day moving average is $12.12. Earnings estimates for MGM are for a loss of about 53 cents per share in 2011 and a loss of about 40 cents for 2012. MGM shares have a 52-week range between $7.40 and $16.94. A positive development for MGM is that gas prices have dropped sharply in the past couple of weeks thanks to a correction in oil. This means consumers will have more money for vacations and shopping, which could help boost results at MGM.
Dendreon Corporation (DNDN) is trading around $7.29. Dendreon is a biotechnology company, based in Washington. These shares have traded in a range between $6.46 to $43.96 in the last 52 weeks. The 50-day moving average is $8.58 and the 200-day moving average is $24.68. This stock dropped off a cliff earlier this year when Dendreon announced slower-than-expected sales for Provenge. While revenue is not as high as expected, it is still early and the company has begun to reduce expenses. This stock is probably seeing more than its fair share of tax loss selling and it could be a good candidate for a short-term rebound trade.
Exco Resources, Inc. (XCO) is trading around $9.48. Exco is an onshore North American oil and natural gas properties, and is based in New York. These shares have traded in a range between $9.33 to $21.04 in the last 52 weeks. The 50-day moving average is $11.48 and the 200-day moving average is $15.66. XCO is estimated to earn about 69 cents per share in 2011, and 88 cents in 2012. XCO pays a dividend of 16 cents per share, which is equivalent to a 1.6% yield. The book value is stated at $8.07. Billionaire Wilbur Ross has been recently buying shares of this company and now owns nearly 10% of the company. With Exco shares trading near the 52-week low, it could be poised for a rally based on short covering and the end of tax loss selling.
Golden Star Resources (GSS) shares are trading at $1.54. Golden Star is a gold mining and exploration company based in Colorado. These shares have traded in a range between $1.54 to $4.86 in the last 52 weeks. The 50-day moving average is about $2.02 and the 200-day moving average is $2.54. Earnings estimates for GSS are for a loss of 5 cents per share in 2011 and profit of 34 cents for 2012. This stock is trading way below fair value and even below book value, which is $1.67 per share. GSS shares are poised for sharp gains in January when tax loss selling is over.
KB Home (KBH) shares are trading at $7.03. KB Home is a leading home builder. The 50-day moving average is $7.20 and the 200-day moving average is $8.94. Book value is $5.60 per share. Earnings estimates indicate a loss of nearly $2.50 for 2011, and a small loss of about 20 cents for 2012. KBH pays a dividend of 25 cents per share, which is equivalent to a 3.5% yield. KB Home has been losing money recently and continued weakness in the economy will further delay a recovery in profits for this company. This stock appears to have bottomed out already and could see more gains as shorts cover into 2012.
Brown Shoe Co., (BWS) shares are trading around $8.50. Brown Shoe is a leading wholesaler and retailer of shoes, and is based in Missouri. These shares have traded in a range between $5.85 to $15.77 in the last 52 weeks. The 50-day moving average is $8.47 and the 200-day moving average is $9.53. Brown Shoe is estimated to earn about 78 cents per share in 2011, and $1.09 for 2012. These shares appear to be a bargain for only seven times 2012 earnings. Another plus is that BWS pays a 28 cent per year dividend, which is equivalent to a 3.1% yield. With this stock trading at close to half the 52-week high, it's probably seeing a fair amount of tax loss selling now. That sets this stock up for a January rebound.
Data sourced from Yahoo Finance and stockcharts.com. The information and data is believed to be accurate, but no guarantees or representations are made.
Disclosure: I am long GSS.
Disclaimer: Rougemont is not a registered investment advisor and does not provide specific investment advice. The information contained herein is for informational purposes only.