5i Stock Screener: Profiting from Tax-loss selling

Chris White Oct 22, 2019

As we approach the end of the year, many investors begin to take advantage of a common practice in investing; tax-loss selling. This is a chance for investors to benefit from stocks that have not performed so well throughout the year by claiming capital losses in their non-registered accounts and in turn reducing their capital gains tax. In addition to this, unused capital losses can be carried back up to three years or carried forward indefinitely.  

Small-cap stocks in particular are usually the most affected by tax-loss selling due to a combination of two factors:

1)    They have a larger retail ownership base who invest using their non-registered accounts. 

2)    Smaller companies tend to be more sensitive changes in price regardless of the underlying reason.

Large-cap stocks are not as affected by tax-loss selling since are generally seen as ‘more stable’ than small-caps, resulting in less sensitivity to price movements and tend to be largely owned by institutional investors who operate with different tax rules and often in tax-sheltered accounts.

Following the sale of these ‘losing’ stocks, many long-term investors may choose to re-invest in those same stocks at the beginning of the year if they continue to court good fundamentals and have strong prospects for the future. After all, even the best of companies can have a bad year. Writing off good companies based on one year of bad performance has proven to be a source of regret for many investors.

The screener 

This month’s screener identifies stocks that have depreciated in price throughout the year by at least 20% while having expected revenue growth of at least 15%. This combination aims to generate names that can be used for tax-loss selling while also being good potential candidates for repurchase in the following year. If you own some of the following names in your portfolio, it might be a good idea to implement this strategy. Stocks on this list you do not own can also serve as a general watch list over the next 30-60 days of names buy into after an unduly sell-off as a result of tax-loss selling.

Ticker Company Name YTD Price PCT Change Estimated Revenue Growth (Next Yr/This Yr) Market Cap
WEED.TO Canopy Growth Corp -29.9% 77.8% 8,835,793,662.86
ACB.TO Aurora Cannabis Inc -28.3% 55.3% 4,959,038,494.26
CRON.TO Cronos Group Inc -27.9% 258.5% 3,538,638,972.56
TOU.TO Tourmaline Oil Corp -27.4% 16.8% 3,354,378,472.80

Disclosure: The author does not hold positions in any stocks or funds mentioned.
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