By Michael Kaye, CFA The yearend's approach can bring with it a wave of tax-loss selling, as we discussed in an earlier column (see BW Online, 12/02/04, "Shopping for Gains in December"). That's where investors who are holding stocks that have posted losses for the year can sell them to realize tax benefits. The U.S. tax code allows capital losses realized on the sale of securities to be used to offset capital gains.
While our previous screen listed stocks that had posted solid gains in 2004 -- and were thus unlikely to be swept up in the tax-loss tornado -- this time around we've decided to offer some help to those investors who have decided to cut and run. And if you're going to sell a loser, it would be comforting to know that its prospects for a rebound were limited.
UNLUCKY FEW. With that in mind, we designed this week's screen. We sifted for those stocks that have declined more than 40% this year (through Dec. 20). Then to make sure that investors wouldn't likely regret selling them, we looked for those stocks ranked 1 STARS (strong sell) or 2 STARS (sell) by S&P equity analysts. Stocks with those designations are expected to underperform the overall market over the next 6 to 12 months.
Here's the unlucky few that our search uncovered:
Six ways to cut your losses
S&P STARS Rank
American Italian Pasta
Advanced Energy Industries
Kulicke & Soffa Industries
99 Cents Only Stores
Kaye is an analyst for Standard & Poor's Portfolio Advisors