2025 is coming to an end and investors expect another good year for the equities markets. Both the S&P 500 and TSX performed decently and hit new record highs consistently in 2025. The S&P 500 has provided a solid double-digit annualized return three years in a row:

2023 – 24%
2024 – 23%
2025 – (as of mid-November) 13%

While the U.S. market was driven primarily by the technology sector, powered by the Artificial Intelligence (AI) theme, the Canadian market’s strong performance was driven mainly by its large exposure to gold miners amid record gold prices. In addition, the favourable macro backdrop of declining interest rates also benefits equities in the near term.

With that said, there are some corners of the market that have been under pressure either because of challenging operating environments or sentiment towards those industries just became quite bad. Either way, these are where investors can take advantage of their temporary “losers” by claiming capital losses for tax-loss selling, which could offset the capital gain. This source of deduction becomes highly attractive amid a strong equity market this year to help investors shelter their gains.

The strategy can be accomplished by simply selling a temporary losing name in a non-registered account, which could then be used to offset the net capital gains tax investors have on other investments. The unused amount of capital losses can be applied to up to three years in the past or carried forward indefinitely. After 30 days of the sale, investors can buy these holdings back if they still believe in the long-term stories of these names.

Investors should be aware of writing off good companies based on one year of bad performance. Historically, this could potentially become a regret for many investors, though some companies that have gone down may turn out to deserve such underperformance. Separating the wheat from the chaff is partially art, partially experience, and some luck. However, during a bull market cycle, we think investors should respect the wisdom of the crowd and be rational when evaluating these names for future reinvestment on a case-by-case basis.

Below we have screened for companies with the following criteria:
• Market cap larger than $100 million
• The share price has depreciated by at least 15%
• Earnings before interest and tax (EBIT) 3-year compounded annual growth rate (CAGR) of at least 8%.

The criteria above reflect Canadian companies that have had share prices under pressure since the beginning of this year, depreciating at least by 15%, while the momentum of the underlying businesses continues to be strong, which grew at least by 8% on average in the last three years.

Notable Companies

Constellation Software (CSU): CSU has been a long-term holding in our Balanced Model Portfolio. Historically, CSU is one of the highest-quality compounders in the Canadian market with limited drawdown. However, sentiment towards software businesses in general, especially vertical market software (VMS), has become quite negative as investors worry about the long-term competitiveness of VMS businesses because of AI. Consequently, CSU has experienced a drawdown of around 35%, the largest drop since going public. We continue to believe CSU’s fundamentals remain solid. Sentiment will eventually change, and investors will evaluate the company accordingly if CSU can manage to continue to compound capital at a high rate consistently like they used to.

Thomson Reuters Corporation (TRI): TRI operates as a software provider for legal professionals, corporates, as well as tax and accounting professionals. TRI’s portfolio of solutions is highly sticky, providing a high degree of predictable cash flow growth. TRI is another high-quality software name that has underperformed lately due to fears that AI could potentially disrupt demand for TRI’s solutions. TRI is trading at 32x forward P/E, the lowest valuation multiple in years. Though it may take some time for sentiment to reverse for the whole sector, as these companies either apply AI to their solutions or prove that their businesses remain resilient, the company’s current valuation represents an attractive risk/reward.

Propel Holdings (PRL): PRL is one of the names in our Growth Model Portfolio. The company experienced an uptick in delinquencies in the U.S., causing the company to be more conservative in their underwriting. This appears to be due to factors such as student loan repayments restarting, government shutdown risks, and potentially just a bit higher inflation eating into consumer income. PRL is trading at 7.3x forward P/E, and we think a lot of bad news is already priced into the current valuation.

At the end of the day, total return is what matters. Tax-loss selling could be a short-term strategy for investors to take advantage of. However, investors should not “let the tail wag the dog” by putting too much emphasis on tax-loss selling at the expense of long-term total returns.

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Disclosure: The analyst(s) responsible for this report do not have a financial or other interest in the securities mentioned.