Casualty List: 4 down stocks that should revive, thrive

GET ’em while they’re down. Buying stocks on bad news that is real but temporary is a time-honored technique, used in the past by investment masters such as Jonathan Neff and Sir John Templeton.

It’s the idea behind my quarterly Casualty List, containing stocks that have been knocked down in the latest quarter and that I think have potential to revive and thrive.

The S&P 500 was up more than 7 percent in the fourth quarter. To make the casualty list this time, a stock had to fall 5 percent or more in the quarter, trailing the index by at least a dozen percentage points.

Mosaic

Leading off my Casualty List is Mosaic Co. (MOS), one of the largest makers of fertilizer in the United States.

Mosaic, based in Miami, saw its stock fall almost 9 percent in the fourth quarter. Farmers purchased less fertilizer than they had the year before. Bad weather in 2021 had left them without a lot of cash to spend, and fertilizer prices were burdensomely high.

I like this stock now because it’s cheap, selling for less than five times the company’s recent earnings.

Resideo

Spun out of Honeywell International in 2018, Resideo Technologies Inc. (REZI) makes thermostats, security cameras and related home products. The stock fell nearly 14 percent in the fourth quarter as earnings came in lighter than analysts had predicted.

Including pro-forma figures from before the spinoff, Resideo has a seven-year financial history. It has shown a profit in six of those seven years.

Wall Street analysts are evenly split on the stock. Six analysts follow it. Three say “buy,” and three say “hold,” which is sometimes a euphemism for sell.

I do think a recession is likely this year, but I expect it to be shallow. I like Resideo at less than nine times earnings.

Fulgent Genetics

Down 22 percent in the fourth quarter was Fulgent Genetics Inc. (FLGT), a health care company with headquarters in Temple City, California. Fulgent does genetic testing, as you might guess from its name, and also COVID-19 testing.

I don’t think Fulgent will ever again see the explosive growth it experienced in the past five years (with revenue up an average of 102 percent per year). But I do believe that the genetic testing market will gradually grow. If Fulgent can grab a good share of that market, it will prosper.

Lending Club

As a speculation, I like Lendingclub Corp. (LC), which was down 20 percent in the latest quarter. It’s an online lender based in San Francisco. The company and the stock had been real dogs until recently.

Profits in the latest few quarters look healthy. And I believe Lendingclub did the right thing late last year when it started being tougher about whom it will lend to, particularly among potential clients with credit scores between 620 and 659.

While it operates in a risky sector, Lending Club has a pretty conservative balance sheet for a loan company, with debt only 18 percent of the company’s net worth.

Last year

My Casualty List picks from a year ago did badly. Four out of five declined, with the worst hit being a 58 percent loss in Overstock. com Inc. (OSTK). The only gainer was A-mark Precision Metals Inc. (AMRK), up 38 percent.

In aggregate, my picks from a year ago declined 16.5 percent, while the S&P 500 dropped 12.8 percent.