Tax loss selling hit list
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- Indepth analysis of ASX listed shares
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Value investing is a quest for inefficiencies. They can come in many forms, and among the most predictable and reliable is the annual culling of poor-performing stocks to generate tax losses to offset gains elsewhere in a portfolio. Stocks that have fallen during the year can come come under brief, and sometimes intense, selling pressure.
To take advantage of it, you’ll need to watch for price falls and act swiftly when you find them. To that end, we’ve compiled a watch list of stocks that may come under tax loss selling pressure.
Table 1 shows the current price in relation to the 52-week highs and lows for our entire Buy list. To take advantage of irrational selling, it's best to focus your efforts on stocks that have fallen and may be sold.
Key Points
- Tax loss selling could create bargains
- Smaller stocks more likely to be targeted
- Keep an eye on these stocks
In a yield hungry market, cheapness is more likely to be found in stocks that offer no yield, carry some debt or harbour some risk. Our Buy list is heavily populated with such ideas right now. We haven’t intentionally sought out low dividend payers, smaller stocks or those with debt. That’s simply where there's value at the moment.
Small examples
Fleetwood and Trade Me are within 5% of their 52-week lows, meaning some investors would be sitting on losses they may be tempted to crystalise. These could be prime selling candidates.
| Company | Price today | 52-week low | % above low | 52-week high | % below high |
|---|---|---|---|---|---|
| Acrux | 1.09 | 0.75 | 46% | 3.78 | 71% |
| Ausdrill | 0.80 | 0.76 | 5% | 1.92 | 59% |
| Silver Lake Resources | 0.47 | 0.32 | 44% | 1.05 | 56% |
| Fleetwood Corporation | 2.20 | 2.10 | 5% | 4.82 | 54% |
| Bradken | 3.59 | 3.28 | 9% | 6.83 | 47% |
| NRW Holdings | 0.92 | 0.85 | 8% | 1.62 | 44% |
| Emeco Holdings | 0.23 | 0.17 | 36% | 0.37 | 39% |
| MacMahon Holdings | 0.11 | 0.09 | 18% | 0.18 | 38% |
| SMS Management & Technology | 3.32 | 3.12 | 6% | 5.33 | 38% |
| Beadell Resources | 0.64 | 0.49 | 32% | 1.02 | 37% |
| DWS | 1.16 | 1.03 | 13% | 1.64 | 29% |
| Vision Eye Institute | 0.73 | 0.56 | 30% | 0.99 | 26% |
| Tap Oil | 0.46 | 0.34 | 37% | 0.62 | 26% |
| Trade ME Group | 3.25 | 3.10 | 5% | 4.36 | 25% |
| M2 Group | 6.00 | 5.20 | 15% | 7.27 | 17% |
| Nanosonics | 0.81 | 0.57 | 42% | 0.96 | 16% |
| Antares Energy | 0.51 | 0.27 | 87% | 0.58 | 13% |
| Brickworks | 13.60 | 11.85 | 15% | 15.50 | 12% |
| Perpetual | 46.97 | 34.36 | 37% | 53.16 | 12% |
| Santos | 14.15 | 12.02 | 18% | 15.80 | 10% |
| News Corporation | 18.20 | 15.63 | 16% | 20.29 | 10% |
| Kingsrose Mining | 0.50 | 0.28 | 82% | 0.55 | 9% |
| Woolworths | 35.40 | 31.70 | 12% | 38.92 | 9% |
| Washington H. Soul Pattinson | 14.66 | 12.94 | 13% | 15.97 | 8% |
| ASX | 35.40 | 32.06 | 10% | 37.96 | 7% |
| ResMed | 5.62 | 4.68 | 20% | 5.94 | 5% |
| Northern Star Resources | 1.29 | 0.53 | 143% | 1.35 | 4% |
| Hotel Property Investments | 2.10 | 1.90 | 11% | 2.17 | 3% |
Fleetwood is suffering as the end of the mining boom coincides with cyclical weakness is its caravan business; Trade Me faces a spirited resistance from agents as it tries to pry more profit from its real estate business. Both businesses are priced for a worse outcome that we anticipate and could yet get cheaper.
They aren’t alone. Many stocks on our buy list are well off their 52-week highs. At the top of this list are gold miners and mining services stocks. Both sectors have been extremely volatile: Silver Lake Resources, for example, has traded in an extraordinarily wide range during the year, between 32 cents and $1.04. In AU, check out this gold portfolio we argued for a portfolio approach to the gold sector and, with the exception of Northern Star Resources, other picks are well off 52-week highs.
Recent recommendations in the mining services sector (see Is it time to buy mining services stocks part 3) may also come under selling pressure. Our five favoured picks in the sector, Ausdrill, Bradken, Emeco, NRW and MacMahon, are between 60% and 40% from their yearly highs. We don’t anticipate conditions in the sector improving, but the dire outcomes implied by today’s valuations may not happen either. With mining services facing an industry wide rout, the last few days of the month could lead to further weakness.
Smaller stocks are particularly vulnerable at this time of year as they are more likely to have retail shareholders hungry to realise losses. Acrux and Vision Eye Institute, for example, have fallen 70% and 20% respectively from their highs. We outlined the buy case for each and, although prices have risen in recent weeks, we might yet get another chance.
The B list
For those that wish to examine opportunities outside of our buy list, we’ve assembled a separate list. The embedded spreadsheet below lists stocks in the ASX 200 that are within 5% of their 52-week lows. If you’re fishing for inefficiency, these are prospective waters.
There are no guarantees tax loss selling bargains will emerge but the spoils will certainly go to those who are prepared.
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