Stocks that struggle during the first ten months of the year often fall further during November and December, as some investors sell to realize a tax loss. Once the tax-motivated selling subsides, such stocks frequently bounce back in January.
Each year, I offer a few January bounce candidates – ones that I also think may sustain gains during the coming year.
Here are five Comeback Candidates for 2024.
Pfizer
The world’s largest pharmaceutical company by 2023 revenue, Pfizer Inc. (PFE) is down more than 13% year-to-date, while the Standard & Poor’s 500 Total Return index is up 33%.
Pfizer stock is below where it was a decade ago. I find this ironic since in my view Pfizer and Moderna Inc. (MRNA) saved the country during the Covid-19 pandemic in 2020-2021.
Like most big drug companies, Pfizer must contend with generic-drug competitors once its drugs lose their patent protection. Its third and fourth-largest selling drugs will lose protection in 2026 and 2027. And of course, there’s less need for its Covid-19 drugs now that the pandemic has waned.
Nevertheless, I see Pfizer stock as an unabashed bargain. It sells for only nine times estimated earnings for this year, and it yields 6.5% in dividends.
Schlumberger
Also down about 13% this year is Schlumberger Ltd. (SLB) of Houston, one of the largest oil service companies in the world.
In its heyday, from 2004 through 2008, Schlumberger earned from 20% to 40% return on stockholders’ equity every year. I consider anything over 15% good, and over 20% excellent. It never surmounted the 20% barrier again until 2022, but this year will be the company’s third year in a row of doing so.
I believe the stock has been weak because investors believe that oil and gas are old fashioned, while solar and wind energy are modern. I expect oil and gas to be a huge part of the U.S. energy mix for at least another decade. Also, the incoming Trump administration is favorable to the oil and gas industry.
Visteon
A mid-sized auto parts maker spun out of Ford Motor Co in 2000, Visteon Corp. (VC) is down 26% this year. The stock now sells for only five times earnings, and I believe that it has probably hit bottom.
Detractors say that the transition to electric cars will be terrible for Visteon. Electric cars use far fewer parts than gasoline-powered ones, and need repairs less often.
True, but I believe that a price/earnings ratio of five adequately discounts this problem. I don’t think this is a “buy and hold” stock, but I think it’s probably a good holding for one or two years.
Atkore
A mid-sized industrial company based in Harvey, Illinois, Atkore Inc. (ATKR) has posted a 460% return over the past decade but is down about 45% this year. It makes electrical products, including electrical conduit and tubing. It also does some slitting and cutting of steel sheets.
Why the huge drop? Atkore’s profits have fallen about 17% in the past four quarters, on a 2.7% decline in revenue. That’s bad news, all right, but I think the stock – now at six times earnings — was excessively punished for it.
Photronics
The smallest stock I’ll recommend today is Photronics Inc. (PLAB) with a market value of about $1.5 billion. Based in Brookfield, Connecticut, the company makes photomasks — quartz plate containing microscopic images of electronic circuits, used in manufacturing semiconductor chips.
Photronics had been growing with lightning speed until the past year, when revenue declined 1.5% and earnings growth slowed to 6.8%. Wall Street ignores the stock; only one analyst covers it. I like it, one reason being that the company is nearly debt-free (two cents of debt for each dollar of equity).
The Record
I’ve written 21 columns about January Rebound candidates. The average 12-month return on my recommendations has been 13.05%, beating the 10.7% average return on the Standard & Poor’s 500 Total Return Index over the same periods.
Be aware that my column results are hypothetical and shouldn’t be confused with results I obtain for clients. Also, past performance doesn’t predict the future.
Fifteen of the 21 sets of recommendations have shown a profit, but only 10 have beaten the index.
My January Bounce candidates from November 2023 scored a 12-month return of 26.4%, but the S&P with dividends was up even more, 33.0%. My best pick from a year ago was Hanmi Financial Corp. (HAFC) which returned more than 73%. My worst was Albemarle Corp. (ALB), down 9%.
Disclosure: I own Pfizer shares personally and for almost all of my clients. I own Photronics personally and in a hedge fund I run.