So Far My Tax-Loss Selling Recovery Strategy Is Paying Off Big-Time

Two months since inception, my “2023 Tax Loss Selling Recovery Portfolio,” benefitted from a solid January that took returns into positive territory. Down about 2.8% as of my Jan. 6 update, through Thursday, the portfolio was up 17.2%. The rising tide of the markets has certainly helped.

The idea behind this annual pursuit is to identify potentially cheap names that were down sharply in the prior year and might be pushed even lower at year-end, as investors book losses for tax purposes, but could recover in the New Year if selling pressure subsides. The objective is to outperform the S&P 500 and Russell 2000 indexes, and I’ve taken positions in all of the names.

Here are the criteria for including stocks:

• They must be down at least 30% year to date

• They must have a forward price-to-earnings (P/E) ratios below 15 in the next two fiscal years

• Their minimum market cap should be $100 million

Tranche 1, released on Nov. 28, is up 25%, ahead of the S&P 500 (which is up 3.7 %) and the Russell 2000 (up 7.7%). This is the tranche with the largest, most well-known names. Meta (META) (which is up 70%) is the best performer, and rose 23% on Thursday in the wake of its fourth-quarter earnings release, which revealed a $40 billion stock buyback program. The stock of eBay (EBAY)  is up 12%, Qualcomm (QCOM)  11%, and Ford (F)  3% — yes, all made their way into positive territory.

Tranche 2, released on Nov. 30, is up 9.2%, beating both the S&P 500 (up 5.4%) and Russell 2000 (up 7.4%). Hanesbrands (HBI) (down 4%) went from hero to goat (and not in the Tom Brady way), following Thursday’s 28% hit. The company missed earnings estimates by a penny, but downgraded first-quarter guidance and eliminated the dividend. Paramount Global (PARA) , however, is up 30% and Kohl’s (KSS)  is up 7%. Both had solid months, while MarineMax (HZO)  is up 3% and treaded water.

Tranche 3, released on Dec. 2, is up 17.4%, better than the S&P 500 (up 2.5%) and Russell 2000 (up 6.3%). Wolverine Worldwide (WWW)  is up 46% in its blistering month — it rose 50% since the last update on virtually no news. Newell Brands (NWL)  is up 29%. What a solid month! Vintage Wine Estates (VWE) , however, is down 16%, and continues to suck wind. VWE is currently the worst overall performer; it is expected to announce second-quarter earnings after the market close next Thursday; the consensus is calling for earnings per share of 11 cents. Elanco Animal Health (ELAN)  is up 11%.

What a difference a month makes, but it is still early.

(Ford is a holding in the Action Alerts PLUS member club. Want to be alerted before AAP buys or sells these and other shares? Learn more now.)