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Year-end selling has made these stocks screaming bargains

One investor’s tax-loss strategy is another’s potential capital gain

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By Michael Brush, MarketWatch

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Another classic department store retailer that looks buyable in the current weakness is Macy’s Inc. /zigman2/quotes/201854387/composite M +0.13% , according to George Putnam, a value investor who pens The Turnaround Letter.

Putnam is worth listening to because his stock letter performs extremely well. Since 2000, its picks are up 10.8% a year, compared to 4.5% for the Wilshire 5000 Total Market Index /zigman2/quotes/211296692/delayed XX:W5000 +0.81% , according to Hulbert Financial Digest. At about $35 a share, Macy’s is at levels not seen since 2012. But Putnam does not count it out. “They obviously have a great brand,” he says. “They are never going to be a dot-com darling, but they will get back into reasonably good favor.” The stock now offers a solid 3.9% yield.

To find promising tax-loss selling candidates, Buckingham ran a screen that searched for stocks trading well-below his target price, which suggests they are significantly undervalued, but also pay a robust dividend or have a big share buyback program in place, or both. A major retailer on his list: Wal-Mart Stores Inc. /zigman2/quotes/207374728/composite WMT +0.23% . Wal-Mart shares got hit hard in October when it guided down on profits, in part due to expenses related to a website revamp. Those investments should eventually pay off, rewarding anyone who buys the stock now.

Read: If you like Amazon, you’ll love Wal-Mart

3. A smattering of small-caps

Because they have less liquidity, small-cap stocks can get hit particularly hard by tax-loss selling, creating even bigger bargains. Small-caps can spring back much more than giant companies, as well. Just be cautious with them, because they are also riskier. That said, here are four promising small caps that look attractive:

NII Holdings Inc.  

This Brazilian cell phone service provider came out of bankruptcy last summer and shares started trading at around $16. It’s gone nowhere but down since then as worries about problems in Brazil set in, and bond investors who extricated the stock from bankruptcy bailed out. Then tax-loss selling set in.

NII Holdings now trades for around $5, which makes it a bargain, says Putnam of the Turnaround Letter.

Putnam reckons NII Holdings is worth three- to five times as much as it trades for today, based on the value of wireless spectrum the company holds in Brazil, and the selling price of similar businesses in Argentina and Mexico. “Just the spectrum itself is worth a lot more than where the stock is trading,” Putnam says. He expects shareholders will be rewarded in a buyout of the company by a larger Latin American mobile service provider.

Jernigan Capital Inc.

Shares of Jernigan Capital , a self-storage facility financing company, fell hard in early November when it reported big losses of 24 cents a share. Then the stock just kept tumbling. Now at $15 a share, this stock trades well below the $22 it went for shortly after it came public last spring. Virtually everyone who has purchased the stock has lost money. That makes it a prime tax-loss sale candidate.

The stock has caught the attention of value investors such as Adam Peck, who manages the Heartland Value Fund /zigman2/quotes/204254591/realtime HRTVX -0.33% . Shares of Jernigan Capital trade below its book value, at just 7.9 times next year’s expected earnings. And several factors will help Jernigan Capital: First, a shortage of self-storage capacity, so occupancies and rates are high. Second, this company is run by an industry veteran who knows the space, Dean Jernigan. By the end of last quarter, he had converted all the proceeds from the initial public offering, or $117 million, into loans to customers. “They are going to start put up numbers now that loans are dispersed,” Peck says. Meanwhile, shareholders get a 9%-plus dividend yield.

Tribune Publishing Co.

Tribune Publishing owns a collection of venerable print newspapers including the Chicago Tribune, the Los Angeles Times, and the Baltimore Sun. The company came out of bankruptcy in 2014, and the stock has mostly traded down ever since. Putnam, at the Turnaround Letter, likes the company because it looks cheap, is cutting costs, and is revamping its digital presence.

Read: You can make more money with ‘old-media’ stocks than with Apple

Navios Maritime Holdings Inc.  

Shares of this dry bulk shipper have been devastated, trading down to about $1.20 from $12 last year, mainly because of collapsing commodity prices. Navios Maritime /zigman2/quotes/207193818/composite NM +0.61% shares also got hit because the company swapped its dividend for a giant buyback plan. That makes sense, says Buckingham, because the stock price is so low. But investors hate it when companies cut dividends. Navios Maritime shares have been hit so hard, the company now trades below the value of its Latin America logistics business and its stakes in Navios Maritime Acquisition Corp.  and Navios Maritime Partners LP /zigman2/quotes/206362394/composite NMM +1.39% .

“It is down far more than we think it merits,” says Buckingham. This one’s risky. It has a huge amount of debt. But if it works out, it will be a big winner.

At the time of publication, Michael Brush had no positions in any stocks mentioned in this column. Brush has suggested OXY and NOV in his stock newsletter Brush Up on Stocks.

/zigman2/quotes/201854387/composite
US : U.S.: NYSE
$ 22.99
+0.03 +0.13%
Volume: 2.52M
Dec. 8, 2022 12:09p
P/E Ratio
4.81
Dividend Yield
2.73%
Market Cap
$6.22 billion
Rev. per Employee
$289,319
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/zigman2/quotes/211296692/delayed
XX : ICE Gib Ind
39,336.06
+315.39 +0.81%
Volume: 0.00
Dec. 8, 2022 11:54a
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/zigman2/quotes/207374728/composite
US : U.S.: NYSE
$ 148.89
+0.33 +0.23%
Volume: 1.82M
Dec. 8, 2022 12:09p
P/E Ratio
46.01
Dividend Yield
1.50%
Market Cap
$402.12 billion
Rev. per Employee
$260,918
loading...
/zigman2/quotes/204254591/realtime
US : U.S.: Nasdaq
$ 42.00
-0.14 -0.33%
Volume: 0.00
Dec. 7, 2022
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/zigman2/quotes/207193818/composite
US : U.S.: NYSE
$ 1.65
+0.01 +0.61%
Volume: 59,640
Dec. 8, 2022 12:06p
P/E Ratio
0.40
Dividend Yield
N/A
Market Cap
$37.43 million
Rev. per Employee
$1.27M
loading...
/zigman2/quotes/206362394/composite
US : U.S.: NYSE
$ 24.44
+0.33 +1.39%
Volume: 65,091
Dec. 8, 2022 12:09p
P/E Ratio
1.48
Dividend Yield
0.82%
Market Cap
$727.44 million
Rev. per Employee
N/A
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Michael Brush is a Manhattan-based financial writer who publishes the stock newsletter Brush Up on Stocks. Brush has covered business for the New York Times and The Economist group. He attended Columbia Business School in the Knight-Bagehot program.

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