It’s not only the moon that makes people do strange things. It’s taxes.
Every year around this time, investors unload their losing stocks. By doing so they get a tax deduction.
Sometimes the mass tax-motivated selling pushes stocks below their intrinsic value. That’s why frequently we see a “January bounce” in depressed stocks.
It’s not a sure thing. Sometimes the January bounce doesn’t come at all. Sometimes it starts in December. Nonetheless, I believe that this time of year is a good time to look for bargains among depressed stocks.
Here are five that I think fit the bill.
Deckers
Badly smashed, Deckers Outdoor Corp. (DECK) is down 58% year to date through November 21. This casual footwear company has two major brands: Ugg (about 51% of sales) and Hoka (about 45%). Many of its shoes are made in Vietnam.
Under President Trump, the U.S. hit Vietnam with a 46% tariff in April. That was reduced to 20% in July – less onerous but still painful.
One of the best features of capitalism is that companies adapt to changing situations, and I think Deckers can adapt. The stock currently trades at 13 times earnings, in contrast to its ten-year average of 23 times earnings.
Pinterest Inc. (PINS) runs a social-media website with an emphasis on recipes, home décor, fashion, hobbies and do-it-yourself projects. About 70% of users are women.
The stock hit a high of more than $89 during the pandemic, but has subsided to about $25 after an 18% loss year-to-date. Yet earnings are doing fine, with $1.50 per share in profit over the past four quarters, the company’s best yet.
A flock of Wall Street analysts follows the stock. Thirty-two analysts call it a “buy,” while nine say merely “hold.” With the stock selling at nine times earnings, I think it’s a good candidate for a bounce.
Fluor
Down about 19% this year is Fluor Corp. (FLR), an engineering and construction firm. It does large and diverse construction projects, from oil refineries and pipelines to casinos and nuclear power plants.
Fluor’s earnings vary a lot from year to year, and even from quarter to quarter. Its revenue is running about $16 billion a year, but the stock’s market value is only $6.4 billion.
Only about nine analysts follow it, and they are evenly split on its prospects. Their average 12-month price target is $50. Since the stock is around $40, that would work out to a 25% gain.
Daily Journal
Daily Journal Corp. (DJCO) publishes legal and business newspapers, notably the Los Angeles Daily Journal and the San Francisco Daily Journal.
The late Charlie Munger, longtime sidekick of famed investor Warren Buffett, was its chairman for 45 years. The company holds a large securities portfolio. It’s a meaningful asset, but investors were more excited when Munger was alive to guide the investments.
So far this year, the shares are down 25% as the company works on a laborious transition to selling more software. The shares go for about six times earnings. Over the past ten years, the typical multiple has been about 19.
Viper Energy
Oil commanded a price of more than $100 a barrel in early 2008. It fell to near $20 during the pandemic, then shot back to over $100 in 2022. Today it’s at about $58.
Moral: One shouldn’t extrapolate future oil prices based on recent prices. For patient investors, I like several oil-and-gas stocks. One is Viper Energy Inc. (VNOM), down about 28% this year.
It’s a majority-owned subsidiary of Diamondback Energy Inc. (FANG). While Diamondback drills wells, Viper owns land and collect royalties from drilling operations by others. Since it doesn’t pay drilling costs, it’s capital-light, and probably more stable than typical drillers.
Performance
Beginning in 2000, I’ve written 22 columns before now on January bounce candidates. The average 12-month return on my recommendations in this series has been 11.9%. For comparison, the above the average return on the Standard & Poor’s 500 Total Return Index has been 10.8%.
Bear in mind that my column results are hypothetical and shouldn’t be confused with results I obtain for clients. Also, past performance doesn’t predict the future.
My picks from a year ago did badly, falling 11.2%. The worst disaster was a 34% loss in Atkore Inc. For the same period, the S&P 500 returned 11.7%.
Relative to the index, it was the third-worst showing I’ve had. Let’s hope for a return to form in the coming 12 months.
Disclosure: I own Diamondback Energy for most of my clients. A hedge fund I manage owns call options on Fluor.