Insights: Tax-loss selling season should have lots of energy

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November 28th, 2020

The gift-giving season of tax-loss selling is just around the corner as investors sell their losers in the year to harvest tax losses. This type of selling can provide short-term buying opportunities as many of the sales transactions are motivated by tax considerations instead of the fundamentals. In terms of tax-loss selling in Canada, according to the TSX, the last trading day with a settlement day in 2020 is Tuesday, December 29, 2020 (please consult a tax professional before making any tax-related decisions).

The trick in taking advantage of the tax-loss selling season is to identify the stocks that are likely to rebound once tax loss selling ends. At INK, we let the insiders guide us towards tax-loss selling opportunity. Last December, we highlighted several stocks that our insider screens identified as potential tax-loss selling related buying opportunities, and most of them delivered above-average returns in the month after tax-loss selling ended. They are listed here:

  • Millennial Lithium (ML) +28.6%
  • Osisko Metals (OM) +22.0%
  • Sleep Country (ZZZ) +3.8%
  • Taseko Mines (TKO) +3.3%
  • Nutrien (NTR) -10.3%
  • INK Canadian Insider Index -0.1%

In the chart below, by the end of the first two weeks of January, all five stocks had positive returns and had outperformed the INK Canadian Insider Index since the end of tax loss selling which was December 27, 2019.

Returns of Millennial Lithium and other 2019 INK Tax-Loss Selling Stocks

 

Returns of tax-loss selling insider stocks, December 27, 2019 to January 27, 2020 (click to enlarge)

Following the first two weeks, clear winners had emerged, with Millennial Lithium delivering the highest returns. In four out of five cases, subsequent one-month returns from the last day of tax-loss selling were higher than the Index.

While oil & gas stocks have rallied recently, the S&P/TSX Capped Energy Index remains down 37.4% so far this year.  As such we expect oil patch names to be among the stocks with tax-loss selling in the weeks ahead. On Friday, in the INK morning report Insiders bet on a Total Energy turnaround, we set the stage for the tax-loss selling season. We noted that while Total Energy Services (TOT) stock had rebounded sharply over the past month, it remained down more than 50% for the year, which should bring some tax loss sellers out.

While we expect insiders to point us towards plentiful tax-loss related opportunities in the oil patch, we are mindful that macroeconomic and political factors could dominate returns should events take a turn for the worst. This is a particular concern in the oil market. Consequently, we will also be keeping our eyes open for opportunities in other sectors where insiders are buying the tax-loss selling dips. 

We will be posting our INK Edge top movers for the week later this weekend in the INK Chat #stock_ideas channel. Canadian Insider Club members and INK Research subscribers are eligible for an invite. If you do not have your invitation link, please request one via the contact us form.

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Top 3 Gainers Last Week

Company NameStock Symbol1 Week Return %
Lithium AmericasLAC14.1
Canadian Natural ResourcesCNQ10.4
Hudbay MineralsHBM9.4

Top 3 Losers Last Week

Company NameStock Symbol1 Week Return %
Richards Packaging Income FundRPI.UN-12.7
Teranga GoldTGZ-4.7
Turquoise Hill ResourcesTRQ-4.4

Returns are as of the last trading day of the previous week.

Featured Clip

Insider of the Week

John Paulson, founder of Paulson & Co. Inc.

On November 20th, Paulson & Co. made waves when it sent a letter to Midas Gold employees in which it indicated that it wants to reconstitute the company's board by replacing 5 existing directors with US and Idaho-based replacements with the goal of making Midas a US-listed company focused on critical metals. According to Paulson & Co., it manages funds holding 209.4 million, or 44.1% of Midas shares outstanding.

INK Canadian Insider Index

1 Year Total Return Performance


Historical Performance

Annualized Total Return as of November 27, 2020 04:49 pm
1 Year 8.87%
3 Years 1.32%
5 Years 6.77%
10 Years 7.07%


To learn more about the Index please visit
https://index.inkresearch.com

5 Year Total Return Performance


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