Stocks that are killed in a given year often come back to life the following year, especially in January.
This could mean resurrection, I believe, for such stocks as Moderna Inc. (MRNA, Financial), Applied Materials Inc. (AMAT, Financial) and Smith & Wesson Brands Inc. (SWBI, Financial).
In November and December, investors often sell their losing stocks to nail down losses, and reduce their income-tax bill.
Battered by tax-motivated selling, some of these stocks are pounded below their fair value. Come January, they are likely to rebound.
The best time to buy them? I’d say it’s between Thanksgiving and Christmas. Here are a few January rebound candidates that I think can do well in the coming year.
Moderna
Moderna (MRNA, Financial) vaulted to sudden prominence in 2021 when it marketed a successful Covid-19 vaccine. In the past four quarters, the company’s profits rose 69% and its sales rose 91%. Yet paradoxically, its stock has fallen 28% this year.
Investors, seeing that Moderna’s earnings have declined three quarter in a row, afford the stock a scornful valuation of just 7 times earnings. But the company’s profitability is still very high, with a net profit margin of 57% and a return on stockholders’ equity of 76%.
I think there’s a good chance that Moderna’s vaccine-development technique can be applied to additional diseases besides Covid-19. Accordingly, I think the stock is good for at least a January bounce and probably more.
Applied Materials
The entire technology sector has gone through an agonizing reappraisal this year. Applied Materials (AMAT, Financial) has been hit hard, falling from about $156 when the year began to about $110 now.
Let’s not forget, however, that this has been a standout stock for years. In the past decade it has advanced 903%. Based in Santa Clara, California, the company is the world’s largest maker of semiconductor manufacturing equipment. Its return on stockholders’ equity in the past year was a towering 55%.
I wouldn’t be surprised if the tech sector’s woes continue for a few more months. But I think that if you buy Applied Materials stock and hold it for five years, you will be very glad you did.
Intel
I have been beating the drum for Intel Corp. (INTC, Financial) – prematurely as it turns out – for several months. The company is the world’s biggest manufacturer of logic chips, also known as microprocessors. Hence, the slogan you may recall from ads: Intel Inside.
The stock began this year at about $50, and trades for about $29 now. I think that’s simply too cheap. It’s about 9 times earnings, near the bottom of its 10-year valuation range. The high valuation was 25 times earnings; the median was 13.
Also, I think that Intel’s U.S. manufacturing base is an advantage is the current geopolitical climate.
Robert Half International
Down 31% this year is Robert Half International Inc. (RHI, Financial), one of the largest U.S. job-placement agencies. Half has shown a profit in each of the past 15 years, and has surpassed a 15% return on equity in 13 of those years.
Employers complain a lot these days about how difficult it is to find qualified workers. So I figure this should be a good time for employment companies.
Smith & Wesson
Many people have moral objections to owning gun stocks, but from a financial perspective Smith & Wesson Brands (SWBI, Financial) looks good to me. The stock – down 36% this year - is selling for less than 5 times earnings, whereas its typical multiple is about 10.
Based in Springfield, Massachusetts, the company makes sporting rifles and handguns, including the Model 10 revolver used by military and police officers. It has shown a profit in 12 of the past 15 fiscal years, with handsome profits in 10 of those years.
Stricter gun control laws (which I personally favor) have become less likely now that Republicans have a majority in the U.S. House of Representatives.
The record
In 19 years, my January Rebound candidates have averaged a 12-month return of 12.2%. That’s three points better than the Standard & Poor’s 500 Total Return Index, which averaged 9.2% for the same periods.
Thirteen of my 19 lists have been profitable, and 10 have beaten the index.
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 a year ago did poorly. They were down 25.5%, while the S&P was down only 14%. My entire list fell on its face, with the worst loss being 39% in QuidelOrtho Corp. (QDEL, Financial).
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].
