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BofA Securities analysts told investors in a note Thursday that “tax loss harvesting season is here.”
“Tax loss harvesting for institutional investors became increasingly prevalent after the Tax Reform Act of 1986, which mandated Oct. 31 as the cut-off for most mutual funds to realize capital gains,” the analysts explained. “We’ve historically seen evidence of tax loss selling by institutional investors in Oct. (peak outflows), and by retail investors in Dec. ahead of the Dec. 31 cut-off for individual investors.”
However, the analysts said there are 159 Tax Loss Candidates or TLCs that could bounce.
“To identify TLCs – stocks that may be temporarily depressed by tax loss harvesting but could outperform in subsequent months on solid fundamentals – we screened the S&P 500 for stocks with YTD price declines >10% as of Oct. 5th and include those which are Buy-rated by BofA,” wrote the analysts. “TLC stocks in the bottom decile of S&P 500 returns from Jan.-Oct. tend to see bigger avg. outperformance in Nov.-Jan. (3.6ppt vs. 1.8ppt for all TLC stocks), with a similar hit rate (67% vs. 69%).”
The companies that BofA says could bounce include names such as Meta Platforms (NASDAQ:META), NVIDIA (NASDAQ:NVDA), PayPal (NASDAQ:PYPL), Walt Disney (NYSE:DIS) and General Motors (NYSE:GM).
