LVMHF - 5 Stocks To Sell Before Tax-Loss Season Begins

2023-10-25 10:59:09 ET

Summary

• Tax-loss selling may occur earlier this year, instead of the during usual time of selling pressure in late December.
• DataTrek suggests a list of stocks that may bounce back in November that we discuss.
• FMC Corporation, SolarEdge Technologies, Moderna, KeyCorp, and The Estee Lauder Companies are stocks to avoid due to weak performance and market conditions.

The selloff driven by tax-loss selling typically occurs in the last few days at the end of December. This time, the reoccurring seasonality may happen earlier. Seeking Alpha reported from DataTrek’s Morning Briefing that the worst performers on the S&P 500 (SP500) are potential tax loss candidates .

Seeking Alpha Premium subscriber SummitWaldo56 said that news alert gives readers a heads-up now. The reader played the December through January bounce for 20 years. Back in the old days, the selling pressure would finish before Christmas. Sold-off stocks used to bounce back in the final week.

Reader sts66 said that mutual funds end their fiscal year on Oct. 31, 2023, so tax loss selling already started this month.

How might investors take advantage of mutual funds and retailers dumping losing positions?

To start, readers should assess DataTrek’s pick of stocks that might bounce back starting in November.

Data from Stockrover .

Readers may copy and paste this list into a Seeking Alpha Portfolio: SEDG, ENPH, MRNA, FMC, DG, AES, PODD, ETSY, EL, KEY.

According to Stockrover, both FMC Corporation ( FMC ) and Enphase Energy ( ENPH ) trade with a compelling margin of safety. And while Wall Street rates the latter stock, a solar energy utility, a strong buy, it has a quant sell rating .

Similarly, the quant system flags FMC as having a high risk of performing badly. It also has a weak quant score of 1.55/5.00 (sell).

FMC cut its outlook for the third quarter. On Oct. 23, 2023, the supplier of chemicals, such as insecticides, fungicides, and herbicides , said that customers in Brazil are destocking . The drought in Argentina will also contribute to the lower sales volume.

SA analysts have written strong buy articles on Enphase . This stock could potentially rebound next month. Conversely, FMC’s weak outlook suggests the stock will continue its downtrend. It will likely not join the November bounce.

FMC is the first [1] stock to sell.

Despite a weak quant grade, SolarEdge Technologies, Inc. ( SEDG ) could build momentum in the coming weeks. Shorts have a 12.18% short interest against the stock. Buyers speculating that the ~40% drop in the last month is overdone might pressure bears to cover their bet.

In the drug sector, Moderna, Inc. ( MRNA ) is a candidate for bouncing back. It has strong historical growth and is a quality stock. Yet just as markets shun Covid vaccine stocks like Pfizer Inc. ( PFE ), it will avoid MRNA stock. On Oct. 16, 2023, Moderna reaffirmed its forecast of selling between $6 billion to $8 billion of Covid vaccines . This contradicts Pfizer’s expectations of lower expected Covid product sales . Pfizer blamed a supply deal amendment with the U.S. government for the lowered outlook.

Moderna has strong long-term prospects with its mRNA platform. Its portfolio of virus and cancer vaccines will fuel its growth in the coming years. Still, markets will not pay a premium for MRNA stock when vaccine demand likely wanes during this flu season.

Moderna is the second [2] stock investors should not buy today.

Regional Banks Slip

KeyCorp ( KEY ) fell from around $11.00 to $9.81 a week after posting Q3 results . Revenue fell by 16.9% to $1.57 billion, while its provision for credit losses improved to $81 million. This is down from $109 million last year.

KEY stock is among the regional banks selling off recently. The SPDR® S&P Regional Banking ETF ( KRE ) is lower on worries that commercial real estate loan maturities will strain bank balance sheets. Macro headwinds are severe. Firms like The PNC Financial Services Group, Inc. ( PNC ), with strong grades, slipped when it reported that NII slid . Truist Financial ( TFC ), whose stock yields a 7.7% dividend, posted NII declining by 1.6% Q/Q. Revenue also fell. Neither the strong stock grade nor the high yield prevented those stocks from falling.

KeyCorp’s Chairman and CEO, Chris Gorman, said on the conference call that the bank reduced $9 billion in risk-weighted asset mitigation. It is well on its target to reach $10 billion. Looking ahead, other RWA reductions will have a marginal impact on net interest income. From there, it will have a positive impact on the bank’s returns and margins.

Consider selling the KRE ETF [3] but buying KeyCorp stock. KEY stock is a good candidate for a stock that rebounds by the end of the year.

In the household and personal products sector, The Estée Lauder Companies Inc. ( EL ) is a stock investors should avoid. The stock has weak scores on all metrics.

It also has a quant rating of 1.94/5.00 (sell).

The supplier of beauty products depends on customers with freely available disposable income. However, its Chinese customers are facing a severe decline in real estate prices. The Chinese feel poorer. They elected to cut spending on Estee Lauder products.

Below: Luxury goods are increasingly unaffordable, so as prospects weaken, LVMH Moët Hennessy ( LVMHF ) stock is lower.

EL stock is the fourth [4] stock candidate to consider for tax-loss selling.

My Sell List

Investors need to have a criterion of headwinds that suggest more downside ahead for a company.

After the market closed on Oct. 24, 2023, Teladoc Health ( TDOC ) fell by 6.7%. It posted revenue climbing by 8% Y/Y to $660.24 million yet it still lost 35 cents a share . Investors faced quarters of goodwill write-offs related to its expensive Livongo in Oct. 2020 for $18.5 billion. The firm finally announced it would undertake an operational review .

Teladoc is among the many post-Covid stocks whose online offerings face weak demand. The lockdown and work-at-home phase is long over. The hybrid work environment will limit the demand for telehealth.

Electric vehicle ("EV") stocks have fallen under a similar theme of a fad that faded. Tesla, Inc. ( TSLA ) is slashing prices steadily. It is willing to operate at lower margins . Expect this EV leader to grow market share while competitors struggle to compete.

Polestar Automotive Holding UK PLC ( PSNY ) gets a sell warning based on the quant rating system. It is the fifth [5] stock to consider selling.

Markets did not react to Polestar’s report of a 50% delivery growth for the third quarter . Expect high-flying VinFast Auto ( VFS ), whose founder owns ~99% of the stock, to underperform, too. It proposed selling 100.8 million shares . The epic rise from a high of $93 just two months ago to sub $5 will further sour the EV sector.

Your Takeaway

The act of selling losing positions is a difficult one. It forces investors to admit they were wrong. Investors who have capital gains this year should not hesitate in booking losses now. Those who have minimal gains this year will need to consider the weak quant grades presented. They suggest more downside ahead for the aforementioned companies. Losses from holding those stocks may get bigger.

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