Smarter Money: A Buyer's Guide to Tax-Loss Selling

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This year might be one of the best for tax-loss selling that I can remember. There is only one problem, though: I don't think you want to wait until year-end to do your buying. In fact, I don't think you even want to wait until December.

I keep trying to dovetail my trading insights with these personal finance stories, and I think this subject is just right for a personal finance column. I am seeing massive tax-loss selling going on right now. Stocks from sectors such as aerospace and defense, savings and loans, and oil and oil service may end up being steals a few months from now. I doubt the selling will intensify toward year-end. I think this rally is too strong, and you'll probably have to act now to get the best buys.

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Unfortunately, with the notable exception of some dogs in defense, these stocks are largely small-cap in nature. I don't like to write about small-cap names because I am afraid that the journalism capos will think I'm trying to manipulate stocks. I think we have to accept the fact that if I said it was time to buy some thinly traded stock, I would move the stock and that would get me in big trouble -- even if I am not long the stock!

But let me give you some grounding on why I like these groups, and then you can pick them up as you choose. Visit the Smarter Money

message boards to suggest good names that go with them.

First, let's deal with aerospace and defense. I am long

Boeing

(BA) - Get Report

, which is no easy feat given all of the things that have gone wrong recently. I am long it, though, because I believe that airline deliveries will go up in 2001 and I want to be ready for that.

If you think a turn could be that close -- and it's very controversial to believe in that projection, but I do -- you could begin to buy all of the parts that go into planes. Most of these stocks are at their 52-week lows. A word of advice: Check the balance sheets of the companies involved. If these companies have too much debt and the cycle doesn't turn in 2001, then you might be buying something that won't make it.

Second, take a look at the savings and loans. As I said in an earlier

piece, these stocks are under heavy liquidation because the mutual funds that own them are facing redemptions. My hope had been to wait until the last week of the year to buy these, but that might be too late. The criteria here should be threefold. First, are the stocks at or around book? Second, have the companies bought stock back? And third, are insiders buying? A run that produces stocks that are thrice blessed will generate winners.

Finally, oil and oil-service stocks have fallen out of favor among momentum holders. As momentum holders also might want to ring the register on some of the names that move nearly 30 points a day, they could aim to offset the movers, sometimes aggressively, with losses in oil-service stocks. I have my eye on

Baker Hughes

(BHI)

, which had a terrible quarter, and

Halliburton

(HAL) - Get Report

, which has committed to a restructuring by year-end. But the best buys might be in some of the smaller-cap drillers and service companies that have really been trashed -- and continue to be trashed.

Again, I know I am long on sectors but short on specific names, but I am a big believer that we can all do homework together and come up with our own lists. I want you to be comfortable with what you buy. For that to happen, you'll first need to research some ideas independently. Then we can hash things out on the message boards.

James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund was long Boeing. His fund often buys and sells securities that are the subject of his columns, both before and after the columns are published, and the positions that his fund takes may change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Cramer's writings provide insights into the dynamics of money management and are not a solicitation for transactions. While he cannot provide investment advice or recommendations, he invites you to comment on his column at

jjcletters@thestreet.com.