8 money-losing stocks that might make you a lot of money in January
Stock markets will be disrupted by tax-loss selling between now and the end of the year, and savvy purchasers can profit from the commotion.
Year-end tax-loss selling is the source of this turbulence. When an investor sells a stock at a loss to balance capital gains achieved earlier in the year on which capital gains tax would otherwise be required, this is known as a capital loss. To avoid paying higher taxes in 2021, such sales must be done by December 31.
Consider the performance of a hypothetical portfolio including the 10% of U.S. equities with the lowest trailing-12-month returns, rebalanced monthly, to get a sense of how important tax-loss selling is as the new year approaches. This portfolio’s equities should be the most vulnerable to tax-loss selling.
According to Dartmouth professor, Ken French’s research, this “losers” portfolio has become worse as the end of the year approaches since 1927, as shown in the figure below.
This pattern’s investment implications are determined on your time horizon. If you’re not a short-term trader, the conclusion is that market volatility will be higher during the next two months. Avoid the temptation to sell a company due to speculative selling pressure that has nothing to do with its fundamentals.
Profiting from others’ tax-loss selling has a different investing significance for traders and short-term investors. As the chart indicates, the equities that have been hit the most by the selling tend to rebound quickly in January. That makes sense since tax-loss selling stops on December 31; in January, a significant burden is taken off these already-stricken stocks, and many of them perform well.
With that in mind, I compiled a list of companies that have appealing longer-term potential but are also losers for the year as of Oct. 22. Tax-loss selling is likely to decrease their returns dramatically between now and the end of the year, allowing traders to buy up a handful at bargain prices.
You can explore setting purchase limits substantially below the current market on a few of them in the hopes of filling a few of them. If history is any indication, these equities will likely rise considerably in January.
To make the table below, I started with a list of losers in the S& P 1500 index through the end of trade on Oct. 22. I further whittled down the list to only those that are now suggested by two or more of my auditing firm’s top-performing investing newsletters.
|Stock||YTD %||# Newsletters recommending|
|Bristol-Myers Squibb Company BMY, +0.36%||-5.0%||2|
|Cardinal Health, Inc. CAH, -1.69%||-5.0%||4|
|Walt Disney Company DIS, +1.53%||-6.5%||3|
|Amgen Inc. AMGN, -0.77%||-7.0%||2|
|FedEx Corporation FDX, +1.04%||-9.6%||4|
|PetMed Express, Inc. PETS, +3.44%||-13.2%||2|
|Activision Blizzard, Inc. ATVI, +2.42%||-14.2%||2|
|Viatris, Inc. VTRS, -1.00%||-24.5%||2|