It’s that time of the year again -– bargain hunting season — with unusual short-term opportunities at year-end created by artificial selling pressure as investors toss their losers, explains George Putnam, editor of The Turnaround Letter.
Professional investors, often holders of large stakes in public companies, don’t want to spend January explaining why they owned some big losers.
It’s much easier to do some “portfolio window dressing” – removing them from their published annual reports by selling them prior to year-end.
Once the calendar turns to January, these artificial pressures end. Many of the prior year’s worst performers bounce upward, sometimes sharply, early in the new year.
Equity Residential (EQR) is a real estate investment trust that holds 315 high-quality apartment properties in top coastal cities like Boston, New York, Seattle and San Francisco.
The company is well managed and has a strong balance sheet and solid fundamentals. Despite these traits, many investors now worry that increasing apartment supply will crimp the previously rosy outlook.
Rising interest rates have also dampened demand for REITs from yield-driven investors.
EQR remains an impressive company that sells at a discount and looks like an attractive bounce candidate. Of note, savvy turnaround investor Sam Zell is chairman and a substantial shareholder.
Pitney Bowes (PBI), a $3.6 billion producer of mail, shipping and related equipment and services, has undergone an impressive transformation.
Since the arrival of its new CEO in December 2012, Pitney Bowes has refocused on faster-growth digital services while aggressively cutting costs.
The company faces a steady secular headwind from declining physical mail volumes and other older processes – and a disappointing 3Q16 earnings report fanned these concerns.
However, cash flow remains strong, and management is well aware of their challenges and is aggressively addressing them. While temporarily down, the company’s strong franchise and 7.4x P/E offer an interesting rebound potential.
TripAdvisor (TRIP), the world’s largest travel-related website with over 390 million monthly unique visitors, is facing pressure from a shift in user preferences away from its desktop-based web products towards mobile-based apps.
This requires TripAdvisor to invest more in its technology while also weakening its ability to monetize visitor traffic. The 2014 acquisition of Instant Booking is showing promise, but its profit impact remains unclear.
With a subdued earnings outlook for 2017, TripAdvisor investors have thrown in the towel in 2016.
Still, the company remains highly competitive and innovative with impressive longer-term prospects that should provide an early lift to the shares once year-end selling subsides.
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By George Putnam, Editor of The Turnaround Letter
