The big investors have just finished their sale at a tax loss. So now is the time to dig through the wreckage for some great bargains to buy.
This trade still works well because mutual funds and other large investors have to realize their tax losses by October 31st. After that, the stocks they hammered tend to outperform.
Since 1986, the S&P 500 SPX,
stocks down more than 10% in the first 10 months of the year (the main candidates for the tax loss sale) rose 5.6% in the next three months, according to Bank of America. That’s a 1.6 percentage point outperformance over the S&P 500’s average return of 3.9% over the same period.
After the tax loss sale, these stocks may be boosted by the seasonal bullish tailwinds in the market. From Nov. 1 to Jan. 31, the S&P 500 posted average gains of 4.5% since 1936, compared to 2.9% for all other rolling three-month periods, according to Bank of America.
Read: Biotech stocks have been tax losers this year
Institutional investors have been big sellers of equities in recent weeks, and they have relied heavily on their potential tax-loss sellers. To find the best deals, Bank of America looked at the S&P 500 for stocks with year-to-date declines (YTDs) greater than 10%. Then the bank suggested that customers consider the 13 notes they bought on. This list includes Global Payments GPN,
and T-Mobile TMUS,
List of insiders
I will take a different approach. I will favor sharply declining names where insiders were recently buying a significant amount of shares – based on my insider buy analysis system in my Brush Up on Stocks share letter. (You can find the link to my letter in the bio below.)
The large insider buying suggests that trading trends will support stock market gains from early November and beyond. I recently suggested 22 of these names in my stock letter. Here are five to consider.
; recent price: $ 48.25
Stock reduction: -3.1% since the beginning of the year; -29.5% from 2021 high
Last insider buy: 25/10/21
Intel stock cracked at the end of October even though the company posted decent results and exceeded estimates, thanks to strong sales in data centers, the so-called Internet of Things and Mobileye (self-driving cars). . The problem: Intel has announced aggressive capital spending that will hurt margins.
Personally, I like companies that invest in their future, especially when the news makes their stocks cheaper. Insiders agree, given their large purchases. The decline in Intel shares this year means that virtually everyone who bought in 2021 is in a losing position. There is no doubt that many of them were selling in late October to realize tax losses, compounding the weakness in equities caused by the further bullish capital spending.
; recent price: $ 1,512
Stock reduction: -7.8% since the beginning of the year; -23.5% from 2021 high
Latest insider buys: 08/18/21
This Latin American online retailer is having a good year. Sales increased more than 100% in the second quarter compared to the previous year. Its user base grew 47% to 75.9 million buyers. The stock has climbed in the $ 1,800 to $ 2,000 range twice this year. But it’s been weak lately, with a lot of big-cap tech. Everyone who bought the tips this year was down pretty much at the end of October and probably sold to reap tax losses.
But insiders are optimistic, and why not? Online retail adoption is lagging behind in Latin America, so it has a lot of growth ahead just to catch up with the rest of the world. It will catch up. The growth of distribution centers and last mile hubs in Latin America is supporting the trend. The eMarketer research group says Latin America will post the world’s fastest annual e-commerce sales growth over the next few years, about 10 percentage points above the global average.
; recent price: $ 12.86
Stock reduction: -17.7% since the start of the year; -38.9% from 2021 high
Latest insider buys: 08/19/21 to 09/10/21
Krispy Kreme debuted as a stock again in early July in the $ 16 to $ 21 range. The stock is now trading at $ 12.89, practically at an all-time low. This means that all funds purchased are subsea. Many of them were undoubtedly seeking to realize tax losses.
But there are several reasons to be bullish. One is the big buy from JAB Holding, a European company specializing in consumer goods stocks. Then the growth of Krispy Kreme is robust. It recorded organic sales growth of 23% in the second quarter.
Krispy Kreme has a lot of leeway to expand into several key US markets where it is under-represented, such as New York, Chicago, Boston and Minneapolis. It has room to develop in China, Brazil and parts of Western Europe. It is also rolling out long-life packaged products and setting up more in-store displays in grocery and convenience stores.
; recent price: $ 57.49
Stock reduction: -25.9% since the start of the year; -32.5% from 2021 high
Latest insider buys: 10/11/21 to 10/20/21
If you order French fries with your meal, chances are you are a customer of this company. Lamb Weston is a huge producer of frozen French fries cooked in restaurants. Based in Idaho (rightfully so), this company sells to the top 100 restaurant chains in North America and internationally. McDonald’s MCD,
is a big customer. You can also find its products in grocery stores, under the brands Grown in Idaho and Alexia.
The company saw strong sales growth, but profits were hit by, you guessed it, inflation and supply chain issues. It may take a few quarters, but these will turn out to be temporary problems.
Meanwhile, Lamb Weston has raised the prices of its products, which will also compensate for the damage. That takes time. Another strength: Lamb Weston has a strong presence in high growth emerging markets.
New Fortress Energy
; recent price: $ 30.56
Stock reduction: -44.4%; -54.8% from 2021 high
Latest insider buys: 08/19/21
I initially suggested this energy infrastructure name to subscribers in my stock letter at $ 10- $ 11 in June 2019. We still have a triple in stocks despite the steep declines this year. I think the action is a buy in the current pullback.
New Fortress Energy buys natural gas from the United States, freezes it into easily transportable liquid natural gas, and then sells it to countries that are converting to the most polluting diesel and heavy fuel oil, typically the Caribbean and Latin America.
New Fortress Energy shares are down amid concerns over the rising cost of natural gas and the company’s large debt load. But natural gas prices will cool after the winter heating season, and continued growth will help the company manage debt levels.
Insiders certainly think so. Executives with strong records recently bought $ 1 million worth of stock.
Keep in mind that tax-loss sellers may experience another bout of weakness at the end of December, as retail investors must complete their tax-loss sale by the end of the year. It will be just another opportunity to add to these businesses.
Michael Brush is a columnist for MarketWatch. At the time of publication, Brush owned DNUT and NFE. Brush suggested INCY, QCOM, INTC, MELI, DNUT, LW and NFE in his stock newsletter, Refresh actions. Follow him on Twitter @mbrushstocks.