Punished for their sins, real or imagined, a few hundred stocks are down this year despite a rising market.
Investors now are busily selling these unfortunate stocks, establishing tax losses that can offset their gains elsewhere. In effect, the losers get kicked while they are down. Some have fallen to what I think are bargain levels, and might be good buys in December.
Most years, some of the previous year’s laggards experience a January bounce. Here are five stocks that I think will be good for a bounce, and probably decent gains for the full year 2022.
Investors seem to think that Quidel Corp. (QDEL, Financial), a provider of medical tests, is a flash in the pan. They see that the San Diego-based company’s earnings jumped in 2020 because of the Covid-19 pandemic, and they expect that tailwind to fade.
But there’s no sign of a fade yet. And even when – let’s all devoutly hope – the pandemic becomes just an unpleasant memory, I believe we will live in a world where more people get more medical tests than they did in the years before 2020.
Selling for about seven times earnings, I think Quidel stock has already built in the prospect of some diminution in future revenue. The stock price has been cut in half from the mid-2020 peak.
Down 20% this year is Terminix Global Holdings Inc. (TMX, Financial), a company that protects people’s houses against termites and mice. The stock rests at about $41, down from a peak of $58 in the summer of 2019.
Two insiders, including CEO Ponton Brett, bought the stock in September at price near the current price. According to GuruFocus.com, well-known investors who have bought Terminex shares this year include Renaissance Capital ( Jim Simons (Trades, Portfolio)), Lee Ainslie (Trades, Portfolio) and Paul Tudor Jones (Trades, Portfolio).
This is a mature company, but it provides an essential service.
A mini-conglomerate controlled by William Foley, Cannae Holdings Inc. (CNNE, Financial) is down almost 25% this year. Investors appear to distrust Foley, because buys and sells companies frequent and has been active in running a SPAC (special purpose acquisition company, sometimes called a blank-check company).
Cannae invested about $500 million in a Foley-run SPAC, and ended up owning Paysafe Ltd. (PSFE, Financial), a payment platform. Cannae also owns about 18% of Dun & Bradstreet Holdings Inc. (DNB, Financial) and about 9.5% of Ceridian (CDAY, Financial), which provides human resources software.
I’ve invested in Cannae in the past, and stubbed my toe. But it looks very cheap to me now, at five times earnings and 0.8 times book value (corporate net worth).
Based in Los Angeles, the company publishes newspapers and websites covering California and Arizona news. It has been profitable in 12 of the past 15 years. The stock price has averaged an 18% yearly gain over the past decade.
Down slightly this year, the stock sells for less than four times earnings. I think that’s partly because people theorize that Munger, now 97, can’t live forever. Probably true -- but I still think the company is worth more than the present stock price (about $355 a share).
A Swiss company that makes computer peripherals, Logitech International SA (LOGI, Financial) is down 15% this year. It now sells for 15 times earnings, whereas its normal multiple in the past decade has been 23.
Did it have a bad year? Heck, no. Revenue in the past year was up 51% and earnings were up more than 32%. Yet the stock peaked in June at about $138 and has fallen to about $81. Part of the problem is that the company has spent heavily – critics say excessively – on marketing. Profit margins have shrunk.
Based on Logitech’s long-term record, I feel pretty confident that management will right the ship.
This is the 19th column I’ve written about January Bounce candidates. The average 12-month return for the first 18 columns has been 14.3%, which compares to 10.5% for the Standard & Poor’s 500 Index over the same periods.
Thirteen of the 18 sets of recommendations have been profitable, and 10 have beaten the index.
Bear in mind that my column results 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, I didn’t beat the index, as my choices returned 24.9% while the S&P made 31.0%. A 4% loss in World Fuel Services Corp. (INT, Financial) and a miniscule gain in Kimball International Inc. (KBAL, Financial) pulled down my results.
John Dorfman is chairman of Dorfman Value Investments in Boston. His firm of clients may own or trade securities discussed in this column. He can be reached at [email protected].
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