Despite the recent market rebound, there are still many stocks that have been significantly affected. These stocks, which have been subject to heavy “tax-loss selling,” present lucrative options for investors.

Tax-loss selling refers to the practice of fund managers selling underperforming assets to reduce their overall tax liabilities. By selling these assets at a loss, fund managers can offset capital gains and lower their tax bills.

Typically occurring in the fourth quarter, tax-loss selling is a strategy employed by portfolio managers as they prepare their year-end financial statements. During this period, managers often dispose of companies with weak stock performance but strong business fundamentals. This makes their shares particularly appealing to bargain-hunters.

However, not all fallen stocks are worthy of investment. Some stocks have declined due to poor performance and may continue to decline further, carrying increased risk for investors.

To identify attractive stocks that have been impacted by tax-loss selling, Evercore strategists conducted a screening process based on several key metrics. Stocks included in the screening had to be down at least 20% for the year or down 40% from January 1, 2022—a period when the S&P 500 hit a record high and subsequently experienced a bear market. Additionally, the selected stocks should not have reached a new low since October 27 of this year, which marked the beginning of a recent market bounce.

Furthermore, these stocks must trade at a forward price/earnings multiple lower than their five-year averages. Additionally, their analysts’ expected earnings per share (EPS) growth for 2024 must be in the top half of the Russell 3000 index. The Russell 3000 index, as a whole, is projected to experience an 11% EPS growth next year. Stocks meeting these criteria—lower price/earnings multiples along with strong expected profit growth—present an appealing opportunity and may offer potential gains. Lastly, the selected stocks must have a market capitalization of $3 billion or greater.

Among the companies that made it onto Evercore’s screening list are Pfizer, Hasbro, Newmont, Lazard, Block, Aptiv, and Bill Holdings. These stocks exhibit the potential for recovery and may offer profitable investment opportunities.

Hasbro: Making a Comeback

Hasbro, a well-known toy and entertainment company, has faced a challenging year with its stock price plummeting by 27%. Currently, it trades at a valuation of just under 12 times the expected earnings-per-share (EPS) for the next year—a significant decline compared to its five-year average of nearly 18 times.

However, analysts remain optimistic about Hasbro’s future, projecting a promising 40% EPS growth in 2024, reaching $3.97 per share. This surge in profits aims to restore the company’s pre-pandemic levels where it surpassed $4 per share.

To complement this anticipated increase in earnings, analysts also predict a 2% growth in sales for 2024, reaching $5.18 billion. As product costs stabilize and employee pay rises at a moderate pace, Hasbro is poised to witness improved profit margins. Moreover, the company’s expenses, including interest payments on borrowings and tax rates, are expected to remain relatively stable, further bolstering the bottom line.

Looking beyond 2024, Hasbro must continue to innovate and offer desirable products to maintain its pricing power in the market.

Match Group: Exploring New Horizons

Match Group, an online dating conglomerate, has also experienced a decline in its stock price—dropping by 23% this year. Currently, it trades at a valuation of 14.7 times the expected earnings per share for the upcoming year.

In calendar year 2024, analysts anticipate a 12% EPS growth for Match Group. This projection aligns with the company’s efforts to expand its user base globally through newer dating apps like Hinge. Additionally, Match Group aims to monetize both its existing and newly developed apps. Although it faced challenges in monetizing the legacy Tinder platform, competition from modern apps like Bumble has motivated the company to enhance the Tinder experience and generate revenue from it.

While marketing and salary expenses are expected to rise, potentially limiting bottom-line growth in comparison to the top line, Match Group generates substantial cash flow. This financial strength enables them to repurchase hundreds of millions of dollars worth of stock every year, thereby supporting the projected EPS growth.

In conclusion, both Hasbro and Match Group present intriguing investment opportunities to consider.

Written by Jacob Sonenshine

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