Tax-loss selling

Every year at around this time I scour the list of year-to-date losers because they are more prone to being jettisoned for two reasons:

1. They can crystallize a loss for income tax purposes; and
2. A fund manager does not have to be embarrassed by the presence of that security in their portfolio.

One can debate whether reason #1 or #2 is more powerful.

When looking at a very simple screen of Canadian stocks, it is evidently clear that anything energy and resource related has been disproportionately hammered. There are obvious reasons why this is the case – commodity prices – so these companies don’t require much further research. There are likely a couple golden needles to be picked out of the haystack. Those that can pick them out will be handsomely rewarded with a disproportionate out-performance whenever the underlying commodity recovers. Finding these golden needles will never be an easy process – if it was, other investors would likely be able to identify the opportunity which will impact your returns.

However, when scouring the list of non-energy and non-resource stocks, I get the following, in rank order of greatest loss year-to-date to least, with some very superficial remarks:

1. BBD.B – Bombardier – I’ve written about them in the past on this site. Their common shares are down 70% year to date! Preferred shares seem to be the sweet spot of risk/reward.
2. TTH – Transition Therapeutics – One look at their yearly stock chart can tell you when their clinical trial of their lead development candidate failed.
3. CPH – Cipher Pharmaceuticals – Will need to do some research.
4. SW – Sierra Wireless – January 1, 2015 seemed to be a peak in their stock price which is why they made this list. Perils of technology investing.
5. WIN – Wi-Lan – Patent company that is seeing the business model not be as promising as originally hoped. Not interested.
6. CJR.B – Corus Entertainment Group – Media company with various television and radio interests, facing too much internet competition.
7. TS.B – Torstar – Toronto Star. Print Media. Enough said.
8. AFN – Ag Growth International – An obscure but easy-to-analyze company selling grain equipment to farms across the world. 2015 was a fairly poor year for sales compared to 2014 and they’re going through a management transition, also distributing more cash than they are generating. They might have taken a little too much debt.
9. GVC – Glacier Media – Print Media. Enough said.
10. RET.A – Reitmans – Women’s fashion retailer. Will they go back in style? Were they ever in style? Their balance sheet is in shockingly good position ($165 million cash/marketable securities minus debt or $2.58/share!), and if the company ever learns how to make money with its marketing, the stock has very good potential. They’re not bleeding a huge amount of cash at present. I’m not smart enough to figure out whether management will figure out a winning formula – if they do, it could easily double from present prices.
11. LIQ – Liquor Stores – Razor-thin margins, coupled with acquisition-related debt, leaves an entity that makes some money but is highly susceptible to regulatory actions of the entities it operates in, coupled with their ability to maintain credit (albeit their existing facility is dirt-cheap as it is secured by an inventory that will not depreciate and can easily be liquidated – liquor!). They are paying dividends well in excess of their capacity to generate cash, so be warned that the 12% stated yield is an illusion.