This year has been a pretty good one for most stock investors. Unfortunately for stocks that have lagged the market in 2016, ‘tis the season for tax loss selling.
The final weeks of December often provide one last kick in the gut for the year’s worst-performing stocks. Investors have one last chance to sell their losing stocks to offset the gains they’ve made on other stocks throughout the year. Traders who use tax loss selling correctly can significantly reduce their capital gains taxes for the year.
Investors are much more likely to have gains to offset in years when the market has performed well. The S&P 500 is currently on pace to close out the year up 10.6 percent. That means that there are plenty of capital gains out there in need of reduction.
Here are three popular stocks that could see heavy tax loss selling headed into the end of the year.
Tax Loss Selling Stocks to Avoid: First Solar (FSLR)
First Solar, Inc. (NASDAQ:FSLR) stock has been hit especially hard, plummeting 49% year-to-date. FSLR capped off a year to forget in November when the company hosted an investor conference call to announce that it would miss its previous guidance numbers.
At the moment, it seems just about everything is going in the wrong direction for FSLR. Expenses are on the rise, but solar prices continue to fall. In addition, the company continues to pour money into restructuring efforts that may or may not pay off.
First Solar and other solar stocks likely won’t get much relief from Washington either, now that Donald Trump won the election and Republicans control both houses of congress.
“Trump does NOT support solar,” Axiom analyst Gordon Johnson said in October when comparing the two candidates’ energy plans.
FSLR is the second-worst-performing stock in the entire S&P 500 in 2016. That underperformance makes for a major tax loss selling opportunity.
Tax Loss Selling Stocks to Avoid: Allergan (AGN)
Solar isn’t the only segment of the stock market that hasn’t been invited to the 2016 party. Healthcare stocks have lagged the market as well. Allergan plc Ordinary Shares (NYSE:AGN) has been one of the worst-performing healthcare stocks in the entire S&P 500. Shareholders anticipating a mega-merger with Pfizer Inc. (NYSE:PFE) were blindsided in early 2016 when Pfizer pulled the plug on a proposed $160 billion buyout.
The decision came after U.S. regulators began to ramp-up scrutiny of “tax inversion” deals that allow U.S. companies to avoid paying U.S. taxes.
AGN stock tried briefly to mount a comeback along with many other biotech stocks following Trump’s victory. Hillary Clinton made reining in prescription drug prices a centerpiece of her campaign. It looked initially like pharma stocks may have dodged a bullet with Trump’s victory. However, in a post-election interview with Time, Trump pledged to “bring down drug prices” as well.
AGN shares are down 37.6% in 2016, but tax loss selling could make things even worse before they get better.
Tax Loss Selling Stocks to Avoid: Trip Advisor (TRIP)
After years of double-digit growth, Tripadvisor Inc (NASDAQ:TRIP) revenue finally seems to have peaked in 2016. The bad news for TRIP investors is that peaking revenue typically triggers a falling stock.
Increasing competition from Airbnb and others in the online travel space seems to be catching up with TRIP. In an effort to draw new customers to the platform, TripAdvisor has ramped up its marketing spend this year. In addition, TRIP has invested heavily in transitioning its platform from desktop to mobile and expanding its business into online booking.
Predictably, these expenses have weighed on the company’s bottom line. In Q1 and Q3 of this year, TRIP year-over-year earnings per share declined 41% and 31%, respectively.
To make matters worse, TRIP’s reinvention seems to be going a bit slower than anticipated.
TRIP is now on pace to close out 2016 down 45.5% on the year, making it a prime candidate for year-end tax loss selling.
As of this writing, Wayne Duggan did not hold a position in any of the aforementioned securities.