Tax loss selling creates opportunities every year. The key is to use the phenomenon to achieve good entry into stocks you are looking to buy anyway, and importantly, don’t just buy the stocks that had an awful year, as most of them are best left alone! Today we have delved a little deeper into potential stocks that are down for the year as we search for potential candidates to buy if seasonal selling weakness unfolds. We have identified 3 stocks that are down for the year, which we may consider buying for very different reasons. If they sell-off over the next 1-2 weeks, they may reach our optimum entry levels. Let’s lay some traps, and fingers crossed ... at least one of the stocks falls in.
1) Orocobre (ORE) $3.82
ORE is a mineral exploration company with the prime objective to develop lithium-potassium brine projects with its flagship project in Argentina. ORE has fallen over 20% this calendar year, taking the company’s market cap. back towards $800m. This not the usual style of company that MM invests in, but the current risk / reward is looking very good if we see a pullback towards $3.30, over 10% lower. We will consider buying ORE under $3.40 if the stock falls over the next 1-2 weeks.
2) Bapcor (BAP) $5.13.
BAP is a Victorian based company which retails automotive parts, it has a market cap. of 1,429m. The stock is down under 5% for the year but being involved in retail may lead to it being a candidate for tax loss selling.
We will consider buying BAP under $4.50 in the next 1-2 weeks, over 12% lower.
3) Myer Holdings (MYR) 85c.
Myer is potentially the “basket case” stock of the 3, but it’s certainly in the headlines on a regular basis. The stock is down, close to 25% for the financial year and today is challenging its 82c all-time low, you only have to walk through one of its store to realise this is a company in trouble, it’s almost spot the customer! However, there is potential sugar coating with MYR in the form a takeover, potential from Premier Investments (Solomon Lew).
Back in March, Premier invested $101m into the structurally challenged department store, sending the stock up a few % over $1.20, here we are a few months later, a painful 29% lower. We believe there is a strong possibility of a takeover offer in 2017.
We will consider buying MYR under 80c in the next 1-2 weeks – this is a particularly aggressive play.
Three candidates we found for tax loss selling and hence potential value buying in the next 1-2 weeks are:
1. Orocobre (ORE) under $3.40.
2. Bapcor (BAP) under $4.50.
3. Myer (MYR) under 80c.
James is a Portfolio Manager within Shaw and Partners heading up a team that manages direct equity and option portfolios. He is also the Primary Contributor to Market Matters, a daily investment report that offers real market insight.