Tax-Loss Harvesting? 3 Smart Stocks for Your Sell List
Not every stock is a winner. While every investor knows this truth, many people learn this lesson first-hand as some of their stocks end up with net losses. While it’s better to profit from an investment, reporting a loss can reduce your tax burden. Throughout this period, of tax-loss harvesting, here are some stocks to drop.
Tax-loss harvesting is a popular strategy where investors trim their losses near the end of the year to reduce their net capital gains. Some investors eliminate capital gains on paper by selling their unprofitable positions. You then have to avoid repurchasing that security for the next 30 days to ensure the capital loss makes it on your tax return.
Interestingly, you can sell a fund with one company for a loss and repurchase a similar fund without violating the wash sale rule. For instance, you can sell an unprofitable position in a Vanguard fund that tracks the S&P 500 and use the money to buy a Fidelity fund that tracks the S&P 500, or vice-versa.
Some investors put their money in comparable stocks and funds while waiting for the 30 days to pass. However, tax-loss harvesting starts with unprofitable stocks. These are some stocks to put on your sell list before the year ends.
Etsy (ETSY)
Etsy (NASDAQ:ETSY) stock looked more compelling during the pandemic when the company reported triple-digit year-over-year revenue growth. The company was seemingly hitting its stride and diversifying into products beyond face masks.
However, revenue and earnings growth have come to a screeching halt. Revenue has been growing by less than 10% year-over-year for back-to-back quarters.
Shares are up by 47% throughout the past five years, but recent investors wouldn’t feel too excited about that return. Shares are more than 70% removed from their all-time high and are down by roughly 30% year-to-date.
Some investors are still bullish on Etsy for its profitability and good position in e-commerce. However, bullish investors have a few reasons to temporarily exit the stock. Shares have gained 26% throughout the past month and may have overextended themselves. In addition, Etsy does not report earnings until February 28, 2024.
Bullish investors who sell their shares now can repurchase shares after 30 days and still have a position before earnings. During the 30-day window, investors can choose from several e-commerce stocks or opt to hold their cash.
Fortinet (FTNT)
Fortinet (NASDAQ:FTNT) has been a leading firm in the cybersecurity industry and has generated a 257% gain over the past five years. Shares are also up by 7% year-to-date, but shares have been falling since August. The stock has recently shed more than 30% of its value and looks like a good tax-harvesting opportunity.
Fortinet delivers exceptional revenue and earnings growth but is facing a few macroeconomic headwinds. Once those headwinds subside, Fortinet should return to growth and reward patient investors. However, that transformation is extremely unlikely to take place within the next one-to-two months.
This window of time gives investors the opportunity to sell shares at a loss and repurchase them in late January. Investors can choose from several cybersecurity stocks that deliver returns similar to Fortinet while waiting for the wash sale timeframe to take its course.
Target (TGT)
Target (NYSE:TGT) is down by 11% year-to-date, and it was much worse a few months ago. Shares briefly fell below $103/share before rocketing to $135/share on the back of a mediocre earnings report. Revenue dropped by 4% year-over-year but net income grew by 36% year-over-year.
The stock’s rally is more of a result of the dramatic beatdown shares have received in recent months. However, the latest earnings report does not suggest a buying opportunity, especially at the elevated price. Target is still likely to struggle with selling discretionary items as consumers cut back on their spending.
A pullback may seem warranted given a quieter Black Friday for retailers. Chatter about Target and culture wars has largely taken a backseat and isn’t on most investors’ minds. The P/E ratio and PEG ratio are both low, but Target likely won’t report earnings until the end of February.
Bullish investors may benefit from selling Target shares, putting the money into another e-commerce stock for a month, and deciding if they want to reinvest in Target stock in a month. They have time before the next earnings report is released.
On this date of publication, Marc Guberti held a long position in FTNT. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
