It has been a challenging year for most investors. Outside of the NASDAQ which is market cap weighted, the major indices are largely flat for the year. The energy and commodities sectors have been absolute disasters over the past year and a half. Most investors I talk to are down for the year unless they had decent positions in titans like Amazon (NASDAQ: AMZN), Netflix (NASDAQ: NFLX), Facebook (NASDAQ: FB) and Alphabet (NASDAQ: GOOGL); most of which have very stretched traditionally based valuation metrics.
A lot of funds’ fiscal years end in October and there were plenty of sectors and stocks to do some “tax loss” selling on this year. Now that the first big wave of that selling has passed it is time to look at some beaten down names in the market that have had pretty dismal years in 2015 but very well could be big outperformers in 2016. Here are a couple of stocks I believe have bottomed recently and can look forward to better days in the year ahead.
Let’s start with luxury retailer
Michael Kors (NYSE:KORS) which hit a major hiccup in its growth trajectory this year for the first time as a public company. The stock started this year over $70.00 a share, cratered to just over $35.00 a share in summer and has just started to rally again after being in a bottoming process for a couple of months.
The trigger for its recent rally was an earnings report that easily stepped over very pessimistic expectations. The company posted earnings of $1.01 a share, 12 cents a share above the consensus. Revenues were up nearly seven percent to $1.13 billion, some $50 million above consensus. This is impressive given results were impacted by a strong dollar, on a constant currency basis revenues would have been up some 12% year-over-year. Dollar strength has started to moderate recently after big gains over the past year, any slowdown in its appreciation should help Michael Kors in the quarters ahead.
The stock should face easier going in 2016 as it should be able to step over this year’s tepid results. More importantly, the stock has become very cheap. The equity started the year going for more than 20 times earnings, it now goes for ten times profits even after its recent rally. The consensus has revenues increasing in the mid-single digit range in 2016. However, if the retailer does a better job judging consumer trends, wage growth accelerates and/or the dollar quits increasing against major currencies to the same extent it has in 2015; those estimates could be conservative. The company’s great balance sheet and double-digit free cash flow yield are hard to ignore.