Insights and Thoughts from Dorfman Value Investments
John Dorfman writes a syndicated column that appears weekly in Forbes.com, GuruFocus.com, Ohio.com, the Omaha World Herald, the Pittsburgh Tribune Review and the Virginian Pilot. In it, he tries to provide original, profitable stock ideas for readers. In contrast to almost all other investment columnists, he systematically reports on past results, both good and bad.
Recent columns are archived here.
These Stocks Could Bounce High in January and Beyond
Posted: November 19, 2019
Energy stocks, and to a lesser extent bank stocks, have been the market’s whipping boys in 2019. Now they are being punished anew, as investors sell shares to establish tax losses.
In the fall frenzy of tax-loss selling, certain stocks are often pushed below their intrinsic value, and that is happening now, I believe.
Come the new year, I expect stocks such as Concho Resources, Green Dot and Cooper-Standard Holdings to benefit from the “January bounce” that often buoys up the previous year’s losers.
Timing is tricky. Sometimes the January bounce starts in December. Some years it doesn’t come at all.
My guess is that there will be a January bounce this year. And I don’t think it will start early, with issues concerning impeachment and the U.S.-China trade war unresolved.
Here are some stocks I might look to buy during the final week of December, aiming to hold them for a year or more.
Concho Resources (CXO), based in Midland, Texas, explores for and produces oil and gas, mainly in Texas and New Mexico. It is down 28% this year through November 15, and sells for 12 times earnings.
Among the many energy stocks that have been battered this year, I highlight Concho because its balance sheet remains in good shape: Debt is only 24% of stockholders’ equity.
A bevy of famous money managers have bought Concho shares recently, including T. Boone Pickins (known for his oilfield expertise), Jeremy Grantham, George Soros and Steven Cohen.
From Pasadena, California, comes Green Dot (GDOT), which offers pre-paid credit cards. The negative here is that growth has decidedly slowed. The positive is that the company has retired its debt, bringing long-term debt down from $122 million in 2014 to zero now.
Analysts expect earnings to fall in 2020. The stock sells for 12 times recent earnings and 16 times the projected earnings for next year.
Green Dot is down 68% this year, as growth investors abandon the ship. But I think it’s an overreaction.
Down 41% this year is Vanda Pharmaceuticals (VNDA), a small biotechnology company (market value $824 million) based in Washington D.C.
Its main drugs already on the market are tasimelteon for the treatment of certain sleep disorders and iloperidone for treatment of schizophrenia. It has a variety of drugs in clinical trials.
Six analysts cover Vanda; five rate it a “buy.” That guarantees nothing, but suggests there’s reason for hope.
Another small-cap stock I like is Cooper-Standard Holdings (CPS) of Novi, Michigan. It makes auto parts such as seals, brake lines and fuel lines.
The U.S. auto industry isn’t in wonderful shape. Sales of cars and trucks peaked at well above 17 million in 2015-2016. This year they will probably fall below the 17-million mark. Dealer inventories are growing, and price-cutting is beginning.
But in my judgment, stocks like Cooper-Standard have been punished too harshly for the slowdown. After dropping 49% this year, Cooper-Standard shares go for only five times trailing earnings.
Perhaps my riskiest recommendation is CNX Resources (CNX), formerly known as Consol Energy. It started as a coal company but has gradually transitioned to be mostly a natural gas producer. Both industries are deeply out of favor.
CNX stock has slid 27% this year, leaving it trading at six times earnings and 0.36 times book value (corporate net worth per share).
A cold winter would do wonders for natural-gas stocks. As for coal, I think it has at least a decade left as a viable industry.
Starting in 2000, I’ve written 17 columns on January bounce candidates, including this one. The average 12-month gain on my recommendations from the previous 16 columns has been 13.1%, which compares well with 8.9% for the Standard & Poor’s 500 Index over the same periods. Eleven of the 16 sets of recommendations were profitable, and nine beat the S&P 500.
Bear in mind that my column recommendations are theoretical and don’t reflect actual trades, trading costs or taxes. Their results shouldn’t be confused with the performance of portfolios I manage for clients. And past performance doesn’t predict future results.
Last year’s crop showed only a meager profit of 1.6%, as big gains in Applied Materials (AMAT) and Lennar (LEN) were cancelled out by large losses in Beasley Broadcast Group (BBGI) and Jupai Holdings Ltd. (JP). The index advanced 16.0% including dividends.
Disclosure: A private partnership I manage owns calls options on Applied Materials.
John Dorfman is chairman of Dorfman Value Investments LLC. His firm or clients may own or trade securities discussed in this column. He can be reached at firstname.lastname@example.org