Bank of America has identified 13 stocks that may suffer from tax-loss selling through Oct. 31 and then rebound afterward, including Qualcomm (QCOM) - Get Qualcomm Inc Report, Penn National Gaming (PENN) - Get Penn National Gaming, Inc. Report and Fedex (FDX) - Get FedEx Corporation Report.
“Tax loss harvesting for institutional investors became increasingly prevalent after the Tax Reform Act of 1986, which mandated Oct. 31 as the cutoff for most mutual funds to realize capital gains,” BofA strategists, led by Savita Subramanian, wrote in a commentary.
“We’ve seen evidence of tax loss selling by institutional investors in October (peak outflows) and by retail investors in December ahead of the Dec. 31 cutoff for individual investors.”
Nov. 1 to Jan. 31 is traditionally a strong period for the S&P 500, with an average total return of 4.5%, versus an overall rolling three-month average of 2.9% since 1936, BofA said.
And since 1986, stocks down 10% or more from Jan. 1-Oct. 31 beat the S&P 500 by 1.6 percentage points over the following three months, with a 69% hit rate.
To identify stocks that may be temporarily depressed by tax-loss harvesting but could outperform in subsequent months on solid fundamentals, BofA screened the S&P 500 for equities with year-to-date price declines greater than 10% as of Oct. 22.
This process netted 30 stocks, and the strategists selected the 13 that are BofA buy-rated.
In addition to Qualcomm, Penn National Gaming and Fedex, the list includes Global Payments (GPN) - Get Global Payments Inc. Report, Viatris (VTRS), Lamb Weston (LW) - Get Lamb Weston Holdings, Inc. Report, Incyte (INCY) - Get Incyte Corporation Report, Vertex Pharmaceuticals (VRTX) - Get Vertex Pharmaceuticals Incorporated Report, T-Mobile (TMUS) - Get T-Mobile US, Inc. Report, Fidelity National Information (FIS) - Get Fidelity National Information Services, Inc. Report, AT&T (T) - Get AT&T Inc. Report, Western Union (WU) - Get Western Union Company Report and Ross Stores (ROST) - Get Ross Stores, Inc. Report.