Kicking someone while they’re down is unsportsmanlike. But it happens every year in the stock market.
In November and December, investors often pummel the stocks that have declined in the first 10 months of the year. Why? For tax reasons. Investors sell their losers to establish tax losses, which are useful in offsetting capital gains and hence lowering the tax burden.
This effect, called tax loss selling, will happen even though tax rates may change under President-elect Joe Biden. The taxes you pay in April 2021 for tax year 2020 are already set in stone, and if you can lower them, you probably will.
For investors, this time of year often brings opportunities, because tax loss selling may pound some stocks down below their true value. Here are five stocks that I believe are timely to buy in the next month or so, with prospects for a bounce in January 2021 and beyond.
Down 22% this year is Intel Corp., the largest U.S. semiconductor manufacturer. I regard it as a good medium-risk pick, particularly suited for dividend-conscious investors. Intel has increased its dividend in 14 of the past 15 years, and the stock currently yields 2.9% in dividends.
No fewer than 41 Wall Street analysts follow Intel. Twenty of them recommend it, and 21 of them don’t. That’s not a bad thing, in my view. It leaves room for “upgrades,” which may boost the stock. Over the past 10 years, Intel has increased its revenue at an 8% annual clip, and earnings at an 11% pace.
Farmers & Merchants
If you don’t mind paying $6,500 per share for a stock, I see merit in Farmers & Merchants Bank of Long Beach (FMBL). This banking company has no debt and has posted a profit in 16 straight years. A return on assets of 1% or better is considered good for a bank; Farmers beats that regularly.
No Wall Street analysts cover it, but that’s OK: Analytical neglect is a positive factor, some academic studies show.
World Fuel Services Corp. (INT), based in Miami, provides jet fuel and gasoline to aviation companies, gas stations, seaports and wind turbine operators. It has been profitable in 14 of the past 15 years, but it seems mature. The revenue growth rate for the past five years is about 2%.
With the pandemic crippling travel, the stock has been slaughtered this year, down 37%. Given the prospect of a vaccine being widely available sometime in 2021, I think it has comeback potential.
Risky but interesting is G-III Apparel Group Ltd. (GIII), a clothing manufacturer that I wrote about last week (in my column about stocks selling below their book value, or net worth per share). As I said last week, G-III’s biggest problem is reliance on department stores as a sales channel.
The COVID-19 pandemic has been murder on department stores. But G-III has strong brands, including the Donna Karan and DKNY brands that it owns, and Calvin Klein, Tommy Hilfiger and Karl Lagerfeld brands, which it licenses. G-III shares are down 51% this year.
With more people working from home, who needs office furniture? That’s why Kimball International Inc. (KBAL) is down about $45 this year.
I don’t know how long the headwinds will blow in Kimball’s face, but the company has an enviable long-term record, and the stock will probably recover before the company does (the market being an anticipatory mechanism).
This is the 18th time I’ve written about January bounce candidates. The average 12-month return on the previous 17 columns has been 13.7%, which beats the 9.3% average for the Standard & Poor’s 500 Index.
Recommendations from 12 of the 17 columns have been profitable, and I’ve beaten the index 10 times.
Bear in mind that my column recommendations are hypothetical: They don’t reflect actual trades, trading costs or taxes. These results shouldn’t be confused with the performance of portfolios I manage for clients. Also, past performance doesn’t predict future results.
Last year’s picks averaged 22.5%, thanks mostly to a gain of 120% in Green Dot Corp., a money-transfer service. CNX Resources Corp. (CNX) and Cooper-Standard Holdings (CPS) also rose, while Concho Resources Inc. (CXO) and Vanda Pharmaceuticals (VNDA) fell.
Disclosure: I own Intel for some of my clients. I don’t personally own any of the stocks mentioned in today’s column.
John Dorfman is chairman of Dorfman Value Investments in Boston. He can be reached at email@example.com.
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