NEW YORK (TheStreet) -- The end of the year is often a good time to pick up bargains on stocks being sold off for tax loss purposes. These troubled stocks get beaten down even more by investors selling to generate losses to offset gains.
Typically, investors shop for these kinds of stocks among thinly traded small-caps, since they get hit the hardest. But Connor Browne, a portfolio manager at Thornburg Value Fund, has another idea: Consider buying Netflix (NFLX) -- hardly a microcap name -- on tax-loss selling weakness.
At around $342 a share, down 7% for the year to date, Netflix certainly qualifies because many people who bought it this year are under water.
Besides the current tax-loss selling, Netflix shares are in the doghouse after a big gap down in October caused by a slowdown in third quarter subscriber growth. Management cited price increases and the lack of new content to offset those hikes. The second season of the wildly popular Orange is the New Black helped offset the negative of higher prices in the second quarter.
More original content is on the way, and that should help combat the negative of the price increases over time. "I tend to think it was only one quarter," says Browne, whose fund owns the stock. "As their content improves, I think there will be a continuing appetite from new users."
Of course, moving into original content is risky. It's tough to constantly keep producing more hits. But there's also a lot of potential upside here.
For one thing, there's a virtuous cycle inherent in the model. "The more subscribers they have, the more money they have to spend on content, and the more subscribers they can get," says Browne.
Next, while cable companies have to pay more for content when they have more subscribers, Netflix pays once, and it can show that content to as many subscribers as it wants, with no additional content costs, points out Browne. This explains why third-quarter revenue from the U.S. streaming business was up 25% to $877.1 million, but profits from this division grew more than 50% to $250.8 million. Cable companies don't have this kind of operating leverage.