Tis the Season for Tax-Loss Harvesting. Short These Stocks. 

The selling is evident through the worsening performance of the losers at the end of the year. Historically, the worst performing stocks year to date see more underperformance from around mid-November to the end of the year, according to Wolfe Research. 

“Tax-loss selling typically occurs in November as the worst performing stocks underperformed roughly 220 basis points [2.2 percentage points] through mid December,” wrote Chris Senyek, chief investment strategist at Wolfe Research. 

That is why the firm screened for stocks that are vulnerable to tax-loss selling and investors may want to short, or bet against. Stocks on the screen had to be down 25% for the year. The
S&P 500,
by comparison, is up double digits, while the
S&P 600,
an index of small market capitalization names, is down in the mid-single digits.

To make the list, companies also needed the volume of shares that changed hands in the past year to exceed the number of shares outstanding. That indicates a stock is heavily traded and a short seller can transact without much problem.

Some names on the screen include
Dish Network
(ticker: DISH), down 76% for the year,
Macy’s
(M), down 47%,
Paramount Global
(PARA), down 30% and
Walgreens Boots Alliance
(WBA), down 45%. 

Others are
Etsy
(ETSY), down 45%,
Campbell Soup
(CPB), down 28%,
Burlington Stores
(BURL), down 38%, and
Harley-Davidson
(HOG), down 35%. 

The common theme among these losers is that many are small-caps. Six of the eight companies above are worth less than $10 billion, while many garden-variety large-caps on the S&P 500 that aren’t even megacaps are worth tens of billions. 

Small-caps have struggled this year as higher interest rates eat into economic demand, sales, and profits—and smaller firms have a more difficult time cutting costs when they need to. 

Maybe long-term value investors will consider some of these names, but buying them right this moment isn’t a great idea.  

Write to Jacob Sonenshine at [email protected]