By Michael Brush
Every year around this time, two powerful forces conspire to artificially suppress stock prices — and create bargains: Lust and vanity.
You can take advantage of this situation.
As for the first force — the lust for profits — this is when individual investors dump losers to create tax losses to offset gains. With the S&P 500 Index /zigman2/quotes/210599714/realtime SPX +1.70% up 23% this year, a lot of investors have plenty of gains to offset.
The second force — vanity — has fund managers putting “window dressing” on their portfolios to get out of losers so they don’t have to show them in annual reports, points out Bruce Kaser, editor of the Cabot Turnaround Letter.
To find the bargains created by this selling pressure, I looked at S&P 500, Nasdaq /zigman2/quotes/210598365/realtime COMP +2.39% and Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +1.08% stocks down more than 20% this year or from their highs. Then I favored names with the insider buying patterns I look for to identify potential winners for my stock letter Brush Up on Stocks (the link is in the bio below this column).
Here are five that fit the bill.
With one exception, I favored smaller names where the insider signal has more meaning, and where lower liquidity might contribute to bigger year-end selling pressure.
Sector : Golf equipment and apparel
Market cap : $5 billion
The damage : Up 8% year to date (YTD) but down 31% from 2021 high (as of Dec. 20)
Tiger Woods’ rebound against all odds will inspire many mere humans to rekindle their interest in golf. That will boost demand for Callaway’s /zigman2/quotes/204245174/composite ELY +2.72% equipment and apparel sold under the Callaway, Odyssey, Jack Wolfskin and TravisMathew brands. Callaway also owns Topgolf, which runs popular golf courses that also offer high tech practice bays, bars and restaurants.
Callaway posted 80% sales growth in early November. Most of that came from the purchase of Topgolf last March. But the company did raise guidance slightly for the year, which was bullish. Then came Omicron. That’s hurt the stock, because a lot of the recent revenue strength comes from Topgolf. Covid fears will hurt Topgolf’s bar, restaurant and corporate event business.
CEO Chip Brewer is bullish about the long term. “I hope the number one takeaway from today’s call is the upside we are seeing on the long run earnings potential of this business,” he said in the November earnings call.
I normally discount bullish management commentary like this. I’ve never met a management team that wasn’t optimistic. It’s part of the job. But CEO bullishness is actually believable when it’s backed up with real money, and that’s what we have here. Brewer and CFO Brian Lynch bought $489,000 worth of stock at just under $26 a few weeks ago. Nice signal.
Sector : Retail
Market cap : $3.3 billion
The damage : Down 35% YTD and 56% from 2021 high
Nordstrom /zigman2/quotes/203902116/composite JWN +6.51% posted impressive 18% sales growth for the third quarter on Nov. 23, but earnings missed by 31%, coming in at 39 cents a share. The stock gapped down sharply, and then continued lower in December as Omicron heightened worries about retailers.