BABAF - 8 Tax-Loss Sell Alerts For December

2023-12-12 11:07:43 ET

Summary

• Investors should consider tax-loss selling before December ends to offset capital gains.
• Two characteristics to consider for selling stocks are stocks bought at a higher price and broken companies with weak long-term prospects.
• Stock grades, sentiment, and fundamentals assessed.

With the chance to take tax-loss selling before December ends, investors might consider compiling a list of companies to sell. This is an opportunity to offset capital gains. To build the list, investors have two characteristics to consider for selling stocks. First, stocks bought at a higher price no longer make sense to sell. In the last month, sentiment grew increasingly bullish. Markets are increasingly hopeful that the Fed will not only keep rates unchanged but might cut them by mid-2024.

Broken companies are the second characteristic. Firms with weak long-term term prospects are increasingly likely to keep falling. Small-cap firms that have high short interest, growing operating losses, and sensitivity to tight credit conditions are typical but not exclusive characteristics. Farfetch Limited ( FTCH ), an online luxury retailer, is an example of a stock to have sold immediately after it delayed its financial update . FTCH stock lost an astounding 40.6% on Dec. 11.

In the electric vehicle ("EV") sector, I picked Lucid Motors ( LCID ) as a stock with high risks of trading to zero . Yet Nikola ( NKLA ) is more likely to get there first. Seeking Alpha Premium issued a warning on NKLA stock in August:

Performance Updates on Stocks Rated Sell

Since I picked it as tax-loss selling candidates on Nov. 22, 2023 , Alibaba ( BABA ) has fallen to a 52-week low. Investors who bought the Chinese e-commerce giant for its cloud computing spinoff took the loss. On Dec. 7, a report that PDD Holdings ( PDD ) is aggressively taking on U.S. discount retailers scared investors.

Data from Stock Rover Portfolio .

A reconstitution of the Nasdaq 100 Index on Friday after the market close saw JD.com ( JD ) removed. This is a negative catalyst that sent BABA stock even lower on Dec. 11.

In the table above, the price-weighted return is 1.0%. This includes the bullish rating on KeyCorp ( KEY ) and the more recent bearish rating on VinFast Auto ( VFS ).

The tax-loss selling alerts candidates for December will consider the company’s fundamental prospects along with the one-month and YTD return. They are:

Companies with low stock grades and low short float are less likely to move meaningfully after selling them.

Data from Stock Rover .

I added bold font on the stock grades with weak grades.

Since markets already beat up the share price this year, a strong value score is not necessarily a reason to keep the stock. The average value grade for the companies above is 74/100.

1/ Hold Charles Schwab

Let us first apply a process of elimination to remove companies that investors should not sell. Charles Schwab, which lost 21% YTD, filed a mixed shelf on Dec. 1 , which a company uses when registering for the sale of two or more different types of securities. This did not trigger any panic selling. Schwab is experiencing better customer asset retention. CFO Peter Crawford said on Oct. 16 that outflows started to ease. This would spur sweep cash growth, providing investors with more clarity on its core earnings power.

2/ Hold Albemarle

In the lithium mining sector, Albemarle is down 41.3% YTD. The Quant system warned of poor performance on Nov. 9 .

The stock reacted to Chinese prices for lithium carbonate dropping on Nov. 27 . Still, investors cannot count on a Benchmark Mineral Intelligence consultancy forecasting a lithium market deficit absent until 2028. Weak firms in the EV will consolidate or file for bankruptcy. Strong firms will renegotiate their supply deal and increase orders.

ALB stock is not a tax-loss candidate.

3/ Hold PayPal

In fintech, PayPal is a pioneer. Stock Rover assigned a 92, 84, and 91 quality, value, and growth score. Unfortunately, Amazon ( AMZN ) will stop accepting Venmo as a payment option starting Jan. 10, 2024 . This will hurt PayPal’s addressable market size and transaction volumes. It also signals a strategic shift. The new CEO plans to lead the company toward higher longer-term profit, sustainable growth, and healthier profit margins.

Just as Block ( SQ ) snapped back in only a month to gain 6.06% YTD, PayPal could rebound just as fast next year.

4/ Hold Viatris

Healthcare firm Viatris is the “black sheep” business spun off from Pfizer and Mylan. Investor interest increased after the generic drug giant posted decent fiscal year 2023 guidance . Its total revenue expectation of $15.4 billion to $15.6 billion is within the $15.64 billion consensus estimate. Free cash flow of $2.3 billion to $2.7 billion is healthy.

The company has a promising pipeline between 2024-2027, per slide 13 on the Q3 earnings presentation .

Given its chances of posting better results next year, Viatris is not a tax-loss-selling candidate.

The 8 firms to consider selling are:

1/ Organon

Women’s healthcare firm Organon discussed its three-year progress in realigning its cost structure. On the conference call , the company said that it plans to continue de-leveraging. The operating expenditure levels are unknown and the assets it chooses to sell are uncertain. Investors cannot forecast Organon’s free cash flow generation in the year ahead.

To achieve a 4 times net debt to EBITDA by 2024 appears highly ambitious. Investors are unwilling to hold indebted companies when interest rates remain high.

2/ Bristol-Myers Squibb

Bristol-Myers Squibb lost almost one-third of its value. Investors impatiently sold this value drug stock in favor of obesity stocks like Novo Nordisk ( NVO ) and Elly Lilly ( LLY ).

BMY stock is on the borderline of a tax-loss sale. Shares appear to find support at $50 - $51. Additionally, the company increased its dividends by 5.3% and authorized the buyback of another $3 billion of common stock . The total buyback authorization is nearly $5 billion. When management commits to increasing shareholder capital returns and enhancing value, it is worth holding.

Instead of selling BMY shares for a loss, consider selling puts or covered calls. Should shares not move past $51, the average price paid will fall.

3/ Pfizer

Like Bristol-Myers Squibb, Pfizer has weak growth grades. Its only consistency in 2023 is falling nearly every trading session. The stock is close to a 52-week low as the firm works hard to close its acquisition of Seagen ( SGEN ). It is paying $229 in cash or $43 billion for the firm. Unfortunately, Pfizer disappointed investors after disclosing safety concerns for its obesity drug. Danuglipron will not reach late-stage development .

Pfizer is a tax-loss candidate for readers who think the stock will continue to slip below $28.00.

Other Tax-Loss Candidates

Gold miner [4] Sibanye Stillwater cut 575 workers on Dec. 1 and 300 jobs in its U.S. platinum operations restructuring. The stock traded in a range since the announcement. The firm needs platinum metal prices rebounding before SBSW stock recovers.

[5] ModivCare posted a net loss of $4.3 million . Q3 EBITDA of $18 million, or 9.8% of its revenue is at the lower end of its 10% to 12% target. The firm needs to secure contract wins amid a long sales cycle. This is a stock for the patient investor.

After posting weak revenue and a 51-cent share loss, [6] Tandem Diabetes stock fell by 20% . It has since rebounded, potentially a result of short-sellers covering their position. The firm has headwinds as it competes with Medtronic ( MDT ) and Omnipod, designed by Insulet ( PODD ). TNDM stock is a good tax-loss candidate.

Among the Chinese firms, [7] Bilibili is struggling in the mobile gaming market . The stock has a “Sell” quant rating. Investors should hold Tencent ( TCEHY ) or NetEase ( NTES ) instead. Yum China warned of soft demand and wage inflation in the Q3 report . The $1 billion stock buyback failed to stop the sell-off. That is a red flag.

Lastly, [8] JD, an e-commerce firm in China, looked like a stock with deep value. Its removal from the index is a confidence blow. It will trigger selling pressure as mutual funds and ETFs mimic the sale.

JD stock could stabilize when China’s deflationary cycle ends . That would signal consumers are more willing to spend more than to save.

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