Today’s smash-ups are tomorrow’s comeback candidates.
In November and December, investors often sell their losers to reduce their capital-gains taxes. In this late-year selloff, some stocks get pushed below their fair values, which creates a buying opportunity.
Here are a few stocks that have been pummeled in 2023 and that I think have a good chance to bounce back in January 2024 and beyond.
Foot Locker
FL
FL
A leading seller of athletic clothing, Foot Locker Inc. is down 37% this year through November 24. I consider it a pretty high-quality name. The company has grown its revenue 8% a year for the past decade, and earnings at a 6% clip.
Wall Street analysts are scornful of Foot Locker. Of 21 analysts who cover it, only seven rate it a buy. The company’s same-store sales declined more than 9% from the prior year, forcing the board to suspend the dividend. Inventory levels have risen about 20%, leading to the need for clearance sales.
Why, then, do I like the stock? It’s selling for well under book value (corporate net worth, or assets minus liabilities per share). In the past decade, it has usually sold for about two times book value. Foot Locker has earned a profit in each of the past 15 years, and I think they will right the ship.
Albemarle
Albemarle Corp. (ALBE) is the largest U.S. producer of lithium, a vital ingredient in batteries for electric cars. The stock is down 42% this year, partly because demand for electric cars is slowing, as consumers aren’t satisfied with their driving range between charges.
I expect that the transition from gasoline-fueled cars to electric ones will continue. One risk for Albemarle is that another battery technology will supplant lithium batteries.
Although it’s a risk, I don’t expect that to happen. I think Albemarle is a bargain at less than five times recent earnings, and less than nine times the earnings that analysts project for 2024.
Hanmi Financial
A bank that specializes in serving the Korean community is Hanmi financial Corp. (HAFC), based in Los Angeles. It serves nine states that have substantial Korean or multi-ethnic populations, including New York, Illinois and Georgia.
Hanmi has a 12-year profit streak going, with this year virtually certain to be the 13th. In the past four quarters it has posted an 18% return on stockholder’s equity. I consider anything above 15% good, and 20% excellent.
I’ve been leery of bank stocks as the Fed steadily hiked interest rates in the past 20 months. That raises banks’ cost of funds on deposits, while their income (much of it usually from mortgages) remains about the same. Now that I think the Fed is probably done, I’m becoming more constructive on the banks.
Marine Products
Down 15% year to date, Marine Products Corp. (MPX) stands out to me because it is debt free. Based in Atlanta, the company makes fiberglass powerboats under the brands Chaparral and Robalo.
At seven times earnings, the stock seems very cheap to me, especially considering that revenue has grown nearly 10% a year over the past decade, and earnings faster. Last year, both grew more than 20%.
Buckle
Buckle Inc. (BKE), which has its headquarters in Kearney, Nebraska, makes casual clothes, shoes and accessories. It has posted a high return on equity (over 20%) in each of the past 15 years.
What it hasn’t done is grow much. Earnings have grown at a 2% annual clip over the past decade, and sales haven’t grown at all. After declining 16% this year, the stock sells for only eight times recent earnings. I think it’s good for at least a bounce.
The Record
I’ve written 20 previous columns recommending January bounce candidates. The average 12-month gain on them has been 12.4%, which compares favorably to 9.6% for the Standard & Poor’s 500 Total Return Index over the same periods.
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.
Fourteen of the past sets of recommendations have been profitable, but only ten have beaten the index.
The five stocks I recommended a year ago returned 15.8%, which was a whisker lower than the S&P at 16.2%. Intel
INTC
AMAT
MRNA
Disclosure: I own call options on Albemarle and Intel in a hedge fund I run. Some of my clients own Applied Materials common stock.
Read the full article here