It’s that time of the year again, when the fiscal year is nearing a close and money managers are on the hunt for ways to reduce the tax bill their investors will owe Uncle Sam.
Tax-loss harvesting, or the selling of poor-performing assets to create a taxable event that can offset other income and lessen one’s tax burden, can create downward pressure for the stock market in general and for already battered stocks in particular, Mike Wilson, chief equity strategist at Morgan Stanely wrote in a Monday note to clients.
“As we head into the fourth quarter, tax-loss selling becomes a possible source of technical pressure on some stocks,” Wilson wrote. “We screen the S&P 1500 for tax-loss selling candidates, looking for stocks that may have been well-liked to start the year and have seen substantial price declines.”
The logic is that these names are widely held, as they were widely endorsed by top analysts, but have since had a string of bad luck.
“Our screening methodology has produced a 2.2% average and 1.6% median relative returns in the fourth quarter over the last 17 years,” he wrote. “This year the screen produces a list of 99 stocks.”
To determine which stocks made the cut, Wilson looked at sell-side consensus ratings on stocks at the beginning of the year, selecting the top 25% with the highest consensus sell-side analyst ratings and then screened that group for the stocks which saw a more than 10% decline through the first three quarters of the year.
Of the most-loved stocks at the beginning of January, the biggest losers year-to-date are Rayonier Advanced Materials Inc., Stamps.com Inc., Abiomed Inc., Usana Health Sciences Inc., and Renewable Energy Group Inc.