ZIM - 3 Tax-Loss Sell Alerts: These Stocks Likely To Fall By Even More
2023-11-22 15:13:48 ET
Summary
- Investors should consider selling stocks with negative catalysts and at risk of further decline.
- Taxable account holders may realize losses to offset this year's capital gains.
- Avoid Companies with high debt, falling demand, or higher operating losses ahead.
Investors who are understandably unwilling to book big realized losses should reconsider that strategy. Unless the broken company has positive catalysts that would lead to recovery around the corner, investors should cut their losses and run. Stocks that risk falling more are even better candidates for investors to consider selling.
For holdings in taxable accounts, readers may realize losses to taxes from capital gains, if any.
Amid tight credit conditions from high interest rates, look out for companies that have high debt, falling demand, or higher losses ahead. Investors should avoid those general traits. Among my candidates for tax-loss selling, in no particular order, they are:
Alibaba
China's 3-year Covid lockdown forced Western firms to re-evaluate the risks in their supply chain. When the country abruptly reopened last year, the government thought wrongly that business would bounce back and Western corporations would resume their manufacturing activity.
Unfortunately, those firms diversified into India ( INDA ) and Vietnam ( VNM ). Worsening matters is the double-digit percentage drop in Chinese real estate prices. The Chinese people store most of their net worth in those assets. As home prices fall, savings rise. This macroeconomic headwind contradicts Alibaba's seemingly good Q2 results. It reported EPADS of $2.14 as revenue grew by 9.0% Y/Y to $30.81 billion .
Alibaba grew its free cash flow by 27% Y/Y to $6.198 billion. For the first time, it initiated a $1.00/ADS annual dividend, which yielded 1.15% on Nov. 16, 2023 . Still, BABA stock lost nearly $10 a share after the report. Investors who ignored the U.S. export ban did not anticipate Alibaba would cancel its Cloud spinoff.
Alibaba’s Cloud Intelligence unit grew its revenue by only 2% Y/Y to RMB27,3035 billion (USD 3.789 billion). The strong adjusted EBITA growth suggests that markets may have paid a premium had Alibaba spun off the business.
Alibaba Presentation
The e-commerce giant’s strongest growth areas are relatively small contributors to revenue, as highlighted below.
Alibaba ER
The single-digit percentage growth in commerce retail is an accomplishment. China’s economy slowing down. It will only get worse until the central government cuts interest rates more and increases financial support for local banks, local government, and real estate firms.
Seeking Alpha’s quant system rates Alibaba shares a buy, even though the stock fell steadily from above $100, or a loss of 20%.
12 analysts rate BABA stock as a strong buy. Readers lost 40% or more in the two years as a result of this bullish call.
stockrover
The fair value is $115.00 .
On the conference call, CEO Daniel Zhang said that Alibaba’s “cloud computing business achieved another milestone in the quarter, becoming the first cloud service provider in Asia Pacific to surpass $10 billion in annualized revenue run rate.” CFO Maggie Wu added that the firm’s cloud computing revenue benefited primarily from its customers in the Internet, finance, and retail industries.
The other shoe keeps dropping for Alibaba. Be wary of more unexpectedly negative developments preventing the company from breaking its stock downtrend.
ZIM Shipping
Investors who bid ZIM Shipping stock to over $90 expected high shipping rates would continue indefinitely. ZIM paid a generous dividend of as high as $17.00 on March 22, 2022 .
Short-sellers lurked behind the stock’s rise. In Q3, the cargo shipping firm posted a net loss of $2.3 billion . It took a non-cash impairment charge of $2.06 billion.
With the short interest still elevated at 20.29%, I think ZIM stock has a substantial downside risk in 2024. Bears will likely profit if world trade does not recover. High interest rates are hurting global economic activity and shipping volumes.
On the conference call, ZIM said that “other cash flow items for the nine months included dividend payment of $769 million and $1.5 billion of debt service, mostly related to our lease liability repayments.” The dividend suspension will help its liquidity. However, in this cyclical business, the company needs shipping rates to increase. Otherwise, costs from its new build commitments will lead to higher quarterly losses.
Walgreens
Walgreens pays a 9.13% dividend yield which is too good to be true. Shareholders are hoping that the drug store’s new Chief Executive Officer, Tim Wentworth, will turn the business around.
In Q4/2023, Walgreens posted a $450 million GAAP loss . It has a debt of $9.06 billion. The total of debt and lease obligations reaches $30.46 billion.
Seeking Alpha
The company plans to deleverage by improving its utilization. For example, it will convert more of the fee-for-service lives to full risk lives . It will deleverage by improving cash management. In addition, it will review its investment portfolio. By simplifying and optimizing, Walgreens may cut its debt faster than markets expect.
Your Takeaway
2023’s index rally is not as good as it seems. Without the seven mega-cap firms, the S&P 500 ( SPY ) is up in the single-digit percentage only.
By that extension, the index is hiding the return on stocks that are tax-loss selling candidates. Small-cap firms ( IWM ) are another investment class that is struggling to rebound from 2022’s losses. Firms of that size will generally struggle to raise liquidity when they need it.
Readers have many more stocks to consider. Other companies to look at include Sea Ltd. (SE), Medical Properties (MPW), Bristol-Myers Squibb ( BMY ), and Sibayne Stillwater ( SBSW ). I view Sibayne as an especially good case for a stock to consider selling. It fell by up to 23% after planning to sell $500 million worth of convertible bonds .
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3 Tax-Loss Sell Alerts: These Stocks Likely To Fall By Even More