Vertex Pharmaceuticals stock has taken a beating.
Scott Eisen/BloombergThe season for tax-loss selling is here. Investors with patience may find that the most vulnerable stocks become promising buys.
October often brings the heaviest tax-loss selling, when fund managers unload money-losing stocks to offset gains from other ones. The gain on a stock sold for a profit is taxed, but the loss from one that is sold in the red offsets that. Taking losses is how a manager lowers the overall amount of gains—and shrinks a portfolio’s tax bill.
Bank of America data show that since 2008, on average, the firm’s institutional clients have made their biggest moves out of stocks during October—the start of the fourth quarter and the final three months of the tax year.
That provides an opportunity—it has often proven fruitful—for investors to buy stocks that are trading cheaply. Since 1986, stocks that have fallen 10% for the year through October have risen 5.6% on average for the following three months, according to Bank of America. They outperform the S&P 500 ‘s average gain of 3.9% in those periods.
Bank of America ran a screen for stocks in the S&P 500 that had fallen 10% or more from the start of the year through Friday and that are rated at Buy by the bank’s analysts. The five worst-performing stocks in the screen—candidates for particularly heavy tax-loss selling—are as follows.
Stock in Global Payments (ticker: GPN), a payments-technology and software provider with a market capitalization of $46.3 billion, is down by 26.7%. Viatris (VTRS), a $16.7 billion specialty pharmaceuticals company, declined by 25.6%. Lamb Weston Holdings (LW), a frozen food company with a market capitalization of $8.5 billion, has fallen by 25%. And shares of Incyte (INCY), a $14.7 billion biopharmaceutical firm, are down by 24.4%, while Vertex Pharmaceuticals (VRTX), a $48 billion drugmaker, is off by 22.3%.
If the pattern cited by the bank plays out, the five could be in for a nice rebound.
Write to Jacob Sonenshine at jacob.sonenshine@barrons.com
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October 27, 2021 at 07:24PM
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These 5 Stocks Are in Line for Tax-Loss Selling. That's an Opportunity. - Barron's
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