Pfizer and Schlumberger are candidates for a January rebound

Stocks that struggle during the first ten months of the year often fall further in November and December as some investors sell to realize tax losses. Once tax-motivated selling subsides, such stocks often bounce back in January.

Each year, I offer several January rebound candidates – ones that I also think can sustain gains over the next year.

Here are five candidates to return in 2024.

Pfizer

Revenue of the world’s largest pharmaceutical company by 2023 Pfizer Inc. (PFE) is down more than 13% year to date, while the Standard & Poor’s 500 Total Return Index is up 33%.

Pfizer shares are now below where they were a decade ago. I find this ironic because, in my opinion, Pfizer and Moderna Inc. (MRNA) saved the country during the Covid-19 pandemic in 2020-2021.

Like most big pharmaceutical companies, Pfizer will have to contend with generic competitors once its drugs lose patent protection. Its third- and fourth-largest-selling drugs will lose protection in 2026 and 2027. And, of course, now that the pandemic has subsided, the need for Covid-19 drugs has decreased.

However, I think Pfizer stock is a bargain. It sells for just nine times this year’s estimated earnings and yields a 6.5% dividend.

Schlumberger

Schlumberger Ltd. shares have also fallen by about 13% this year. (SLB) of Houston, one of the largest oilfield services companies in the world.

During its heyday, from 2004 to 2008, Schlumberger earned between 20% and 40% returns on equity each year. I consider anything over 15% good and anything over 20% excellent. The company never broke the 20 percent barrier again until 2022, but this year will be the company’s third year in a row.

I believe the stock has been weak because investors believe oil and gas are old fashioned while solar and wind are modern. I expect oil and gas to be a huge part of the US energy mix for at least another decade. In addition, the new Trump administration is favorable to the oil and gas industry.

Visteon

Visteon Corp. shares (VC), a midsize auto parts maker that spun out of Ford Motor Co. in 2000, are down 26% this year. The stock is now trading at five times earnings, and I believe it has likely bottomed.

Detractors say the transition to electric vehicles will be terrible for Visteon. Electric cars use far fewer parts than gasoline cars and require less repair.

This is true, but I believe a P/E ratio of five adequately addresses this issue. I don’t think it’s a buy-and-hold stock, but I think it’s probably worth holding for a year or two.

Atcore

A mid-sized industrial company based in Harvey, Illinois, Atkore Inc. (ATKR) has posted returns of 460% over the past decade, but its returns are down about 45% this year. The company produces electrical products, including electrical wiring and tubes. It also performs slitting and shearing of steel sheets.

Why such a huge drop? Atkore’s earnings fell about 17% over the past four quarters on a 2.7% decline in revenue. Yes, it’s bad news, but I think the stock – now at six times earnings – has been overly punished for it.

phototronics

The smallest stock I’ll recommend today is Photronics Inc. (PLAB) with a market value of approximately $1.5 billion. The Brookfield, Conn.-based company makes photomasks, quartz wafers containing microscopic images of electronic circuits used in the production of semiconductor chips.

Photronics was growing at lightning speed until last year, when revenue fell 1.5% and profit growth slowed to 6.8%. Wall Street Ignores Stocks; only one analyst is covering it. I like this, one reason is that the company has virtually no debt (two cents of debt for every dollar of equity).

Record

I’ve written 21 columns about candidates for the January rebound. The average 12-month return for my recommendations was 13.05%, beating the average return of the Standard & Poor’s 500 Total Return Index over the same period of 10.7%.

Please keep in mind that my column results are hypothetical and should not be confused with the results I obtain for clients. Additionally, past performance does not predict the future.

Fifteen of the 21 sets of recommendations posted gains, but only 10 outperformed the index.

My January 2023 bounce candidates showed a 12-month return of 26.4%, but the S&P dividend index was up even more at 33.0%. My top pick a year ago was Hanmi Financial Corp. (HAFC), whose yield was more than 73%. The worst performer was Albemarle Corp. (ALB), down 9%.

Disclosure: I personally own shares of Pfizer and nearly all of my clients. I personally own Photronics and manage my own hedge fund.