Yearend Rebound Candidates

12/22/2014 8:00 am EST


George Putnam

Editor, The Turnaround Letter

At this time of the year, we often see artificial selling pressures that may present buying opportunities almost regardless of stock fundamentals; these selling pressures come from tax loss selling and portfolio window dressing, explains George Putnam, editor of The Turnaround Letter.

When the new trading year begins in January, this artificial selling pressure disappears, causing many of these losing stocks to become winners, at least temporarily. 

Sometimes this yearend bounce will get a stock back into the limelight and it will continue to go up for a prolonged period.

This strategy doesn’t always work, but we think it is worth mining for yearend bounce candidates. 

The bounce candidates below are among the worst performers in the S&P 500 during calendar 2014. (Note, we have not included any energy names as they tend to be driven by factors that can overwhelm the calendar effect.)

Avon Products (AVP) has been in a steady decline following weakness in North America, a bribery scandal in China and missteps in Latin America. 

The new CEO, who came onboard in 2012, is taking steps to get the company back on track, but the turnaround is taking longer than expected. 

Fortunately, strong cash flow and modest debt obligations over the next three years give management time.  We still like the stock’s long-term potential.

Coach (COH) is in the midst of a turnaround necessitated by its handbags and accessories falling somewhat out of fashion.  Management responded by expanding the product line to include shoes and clothing. 

The operational rebound may still be several quarters away, but the brand is strong and the stock looks like a good candidate for a yearend bounce.

General Motors (GM) is still struggling to get back in investors’ good graces.

GM has certainly made progress since its post-bankruptcy IPO in 2011, but lackluster European results and the overhang of lawsuits and recalls have kept investors on edge. In light of the stock’s decline in 2014, it is trading below its IPO price.

Jacobs Engineering (JEC) is a worldwide provider of engineering, construction, and maintenance services to a wide range of private companies as well as governmental agencies. 

The stock has been hurt by concerns about the company’s energy and mining activities.  But oil and mining account for only 8% and 6% of revenues, respectively. 

Jacobs is known for maintaining a conservative balance sheet that includes substantial cash and minimal debt.

Mattel (MAT), a well-known maker of toys, is facing the changing tastes of a generation brought up on electronic entertainment. 

While challenged, operations remain profitable and continue to throw off solid cash flow, and the brand still carries clout.  The attractive dividend appears sustainable.

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