It’s that time of year. Many investors are looking for stocks to sell for a tax loss.
After all, the stock market has a whole has rallied sharply in 2023. Active traders likely have considerable realized capital gains on their books. These can often be offset for tax purposes with the sale of securities at a loss. As such, in the last month or two of the year, we often see stocks that are already down slide some more as folks rush to lock in losses to lower their tax liabilities.
This is all logical and makes sense. But selling a stock simply because it is already down might not be logical aside from the tax considerations. In fact, oftentimes, the best bargains are found in these tax loss stocks that are temporarily depressed by this sort of trading which is detached from a company’s fundamentals.
As of this writing, all three of these tax-loss selling stocks are down at least 25% year-to-date but retain bright long-term prospects. This makes it a great time to pick up these three currently out-of-favor tax loss stocks which should come roaring back in 2024.
British American Tobacco (BTI)
British American Tobacco (NYSE:BTI) is one of the world’s leading tobacco companies.
While the company’s core cigarette business is in decline, nicotine is more stable than investors give it credit for. British American has leading offerings in categories such as vaping and heated-not-burned tobacco products.
BTI stock had been under pressure this year due to rising interest rates. Investors value BTI’s dividend yield less when risk-free bonds offer a high return on capital. Additionally, British American Tobacco has a large debtload, and thus persistently higher interest rates would cost the company over time.
The selling accelerated recently with BTI taking a large write-down on its legacy cigarette business. That’s not too surprising, though, as management has made clear that cigarette alternatives are the company’s future.
And it is a bright one; the company is continuing to grow both revenues and earnings. Investors should look to the future, not the past, and realize that British American Tobacco is a robust business that will last for decades to come. In addition, shares currently yield an amazing 9.7%.
Hormel Foods (HRL)
Hormel Foods (NYSE:HRL) is a leading packaged foods company. It has prioritized the production of protein-rich foods, and today offers a wide array of packaged, prepared, and deli meats; pepperoni and bacon; meat snacks; nuts and nut butters; chilis and beans; and prepared guacamole and Mexican salsas. While Hormel may be famous for its SPAM canned meat, that product is just a tiny piece of Hormel’s portfolio today.
Hormel stock has gotten hammered over the past 18 months. The price of livestock and other raw inputs soared during the pandemic along with Russia’s invasion of Ukraine. Hormel didn’t raise prices on its goods enough to offset the input cost inflation, resulting in a temporary drop in margins. Hormel also gave its employees a large wage increase to avoid strikes or other instability.
Investors saw the slumping margins and dumped HRL stock. Rising interest rates didn’t help matters either, as defensive companies like Hormel hold less interest when risk-free bond rates are elevated.
However, all these factors are now turning back to Hormel’s favor. Commodity prices have rapidly retreated in recent months. Labor costs should be stabilizing as the job market shows signs of cooling off. And interest rates have rapidly retreated over the past month as inflation fears start to abate. All this should set up a tremendous rally in Hormel shares in 2024.
Dollar General (DG)
Dollar General (NYSE:DG) is a leading discount retailer. As the name would suggest, it offers its customers a strong value proposition with most products selling for a dollar or other similarly low price point.
The company has enjoyed tremendous success over the years. It has grown to more than 19,000 locations in the United States alone. Oftentimes, Dollar General builds its stores in rural locations where there is little competition, giving it something close to a monopoly over its immediate service area.
Dollar General’s long-term upward trajectory hit a major bump in the road this year. Shares dropped as much as 50% from the recent highs as the company struggled with keeping its employees content and managing its supply chain in the shifting post-pandemic landscape.
However, much of the fall in DG stock was simply due to overvaluation. Dollar General was trading above 20 times earnings, and as high as 25 at times in recent years. That’s a steep level for a discount retailer. DG stock is down a more reasonable 14 times trailing GAAP earnings today and is back on track, with recent earnings topping expectations considerably.
On the date of publication, Ian Bezek held a long position in HRL, BTI, and DG stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.