Despite the market rebound, many stocks are still beaten down. Some that have seen heavy “tax-loss selling” are enticing buys now.
Evercore did a screen and picked many companies, including
Pfizer,
Hasbro,
and Newmont, that are worth considering at current prices.
Tax-loss selling occurs when fund managers sell fallen assets to reduce their portfolio’s total tax bill. Tax losses can be used to offset capital gains, so selling an asset at a loss reduces the overall realized gain in the portfolio.
Tax loss-selling typically happens in the fourth quarter as portfolio managers prepare their books for the close of the year. Fund managers often dispose of companies with anemic stock values and solid business fundamentals, making their shares even more appealing for bargain-hunters.
The catch is that not all fallen stocks are bargains. Some have declining values because they have been performing poorly, and aren’t done declining. Buying them carries heightened risk.
Evercore strategists screened for stocks that have fallen victim to tax-loss selling but still look attractive, judging by a few metrics. Stocks on the screen must be down at least 20% for the year or down 40% from Jan. 1, 2022, days before the S&P 500 hit a record high and then experienced a bear market. Stocks that made the list must have not made a new low since Oct. 27 this year, which marked the start of a recent bounce in the market.
The stocks also must trade at a forward price/earnings multiple that’s below their five-year averages and have analysts’ expected 2024 earnings per share growth in the top half of the Russell 3000. That index, in aggregate, is expected to see 11% EPS growth next year. Lowered price/earnings multiples with strong profit growth ahead makes these stocks look appealing, so they could have some runway for gains. The names must have market capitalizations of $3 billion or greater.
Other names on the screen are
Lazard,
Block,
Aptiv
and
Bill Holdings.
Then there is Hasbro, which is down 27% this year, and now trades at just under 12 times expected EPS for the coming 12 months. That’s below its five-year average of almost 18 times. Analysts expect 40% EPS growth in 2024 to $3.97, as the company tries to reclaim its pandemic-era profit levels of well over $4 a share.
Sales are expected to resume growing, with analysts forecasting 2% growth to $5.18 billion in 2024. Profit margins should increase, as product costs settle down and the increase in employee pay moderates. The kicker for Hasbro is that, after higher interest expense on borrowings and a jump in its tax rate back to normal levels this year, those expenses should remain fairly constant next year, helping to send the bottom line surging. Beyond 2024, Hasbro will have to keep creating desirable products to maintain enough pricing power.
Match Group
is down 23% for the year and now trades at 14.7 times expected earnings per share for the coming 12 months. Analysts expect 12% EPS growth in calendar year 2024.
Sales are expected to grow about 8% to $3.63 billion, as the company signs up users around the globe for newer dating apps such as Hinge. Match is also increasingly monetizing apps old and new, something it has had trouble doing specifically for the legacy Tinder platform, as more modern apps such as Bumble steal its thunder. But the company believes it can find ways to enhance the experience of Tinder, monetizing it and its other offerings. The bottom line may not grow much faster than the top line because of expected increases in marketing and salary expenses for these efforts. But the company is generating more than enough cash flow to buy back hundreds of millions of dollars of stock each year, supporting the EPS growth estimates.
Give these names a look.
Write to Jacob Sonenshine at [email protected]
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