5 stocks to dump for their tax benefit


2018 is rapidly coming to a close. It has been an exciting and volatile year on Wall Street featuring not one, but two, market corrections.

The market has reacted to rising interest rates, a trade war with China, and a slew of political uncertainties. Some stocks have weathered the storm to put up large gains during the year, while others have floundered and lost significant amounts of value.

There is no crystal ball on Wall Street, and no one can predict where the market will head in 2019. Some of this year’s big winners will wind up losers next year, and some of this year’s big losers will rally in 2019 and greatly outperform the overall market. Which stocks will enjoy a strong year in 2019 is anyone’s guess, but there are certainly some stocks that have been week in 2018 that will likely remain under pressure.

It is never easy to sell a losing position. Human nature wants us to believe our trade will eventually turn positive, but we have to remove emotion from our decision making process and that means we sometimes have to admit we made a bad trade and cut our losses.

The question you must ask yourself when considering whether or not to sell a losing position is whether or not you buy the stock today if you did not already own it. If you would not buy it today, then you should probably cut it lose and put your money to work in a stock that you would buy today which has a better chance of making back your lost capital.

The advantage to selling a losing position is being able to use that loss to offset some capital gains taken during the year, so now is a good time to take a serious inventory and consider cutting a few losing positions loose.

Here are five stocks that have struggled in 2018 that you may want to sell before the end of the year for the tax benefits.

Toll Brothers (TOL)

U.S. homebuilder Toll Brothers (TOL) has been hit hard in 2018 with shares falling 30% year to date. Wall Street has been worried about the impact of rising interest rates on the housing market, and as such homebuilder stocks have been weak. Toll Brothers recently reported quarterly numbers that topped estimates, but also reported its first order slump in over four years. Rising rates and high home prices are both having an impact on demand, and Toll’s sales of new homes last quarter fell to a two and a half year low. Given the bearish sentiment Wall Street has on the sector and Toll’s drop in orders and sales, it may be wise to sell TOL for its tax benefit and put that money to work in a stock with greater upside potential.

Get More Analysis and Trade Ideas on TOL

General Electric (GE)

Conglomerate General Electric (GE) has been in a tailspin this year, with the stock losing 55% of its value during the year. GE has struggled with earnings, which are expected to fall 33% this year. Over the last five years profits have fallen 15% per annum. Analysts expect the picture to improve slightly moving forward, forecasting average annual earnings growth of 3.2% for the next five years. Even if GE is able to hit its anemic growth estimates it will not be enough to bring enthusiasm back into the stock. In late October the company reported Q3 numbers that missed on both the top and bottom line and big declines in both earnings and sales. Wall Street remains very bearish on GE, and shareholders can find a better value elsewhere.

Get More Analysis and Trade Ideas on GE

International Business Machines (IBM)

International Business Machines (IBM) shares have lost 16% on the year. IBM has struggled in its turnaround program to focus and grow its cloud computing and artificial intelligence business. The company made a bold move earlier this year to acquire Red Hat for $34 billion. The acquisition is IBM’s biggest to date, and is the third-largest acquisition in tech history. The acquisition could put IBM in a leadership role in cloud computing, but it will take time before the company can prove it did not overpay for Red Hat. Sentiment remains bearish on IBM, and it will take time for the benefits of the Red Hat purchase to bring enthusiasm back into the stock. IBM has a lot to prove, and investors would be wise to sit on the sidelines until the company is able to prove it can reinvent itself and become a leader in tech again.

Get More Analysis and Trade Ideas on IBM

Facebook (FB)

Social media leader Facebook (FB) has struggled over the last year. The stock has lost 21% of its value since the start of the year. Privacy concerns stemming from the Cambridge Analytic data breach continue to hang over the company, and the company is struggling with user growth and keeping the important teen market interested in its platform. Teens are moving to “cooler” social media such as Instagram and Snapchat. Facebook does own Instagram but it is far less monetized than Facebook. Facebook user growth in the U.S. is flat while being negative in Europe. Facebook relies on users to continue sharing information and for advertisers to continue paying to reach its users, and as trust has fallen in the company’s ability to safeguard personal information the business model is in jeopardy. Facebook remains a very popular and powerful social media platform and time will tell if it can start to regain user trust and attract young users. Until it can do this investors may want to look for a better growth story.

Get More Analysis and Trade Ideas on FB

Lumber Liquidators (LL)

Flooring retailer Lumber Liquidators (LL) has greatly underperformed the market in 2018 with shares down 61% year to date. The stock has been weak in sympathy to weakness in homebuilders, and the company has reported a string of disappointing quarterly reports. Its most recent report in October was mixed with better than expected earnings by revenues of $270.5 million fell well short of the $281.8 million estimate. The stock is trading just pennies above its 52-week low and at its lowest level since early 2016 when the company was struggling with fallout from reports that some of the company’s Chinese-made laminate flooring contained harmful levels of formaldehyde. There is a lot of concern on Wall Street regarding rising interest rates and their impact on the housing market, and with rates expected to continue rising housing-related stocks will remain under pressure. Shareholders that have lost a lot of capital in their LL positions may want to consider taking the loss for its tax benefit and putting that money to work in a stock with a better chance of appreciating in 2019.

Get More Analysis and Trade Ideas on LL

Michael Fowlkes

Michael Fowlkes

Michael Fowlkes is a financial writer who has been with the Fresh Brewed Media family since 2004. Over the course of his tenure with Fresh Brewed Media, he has worn many hats, including portfolio manager, options analyst, and writer. Michael received his undergraduate degree from Virginia Tech in Accounting and got his start in finance working as a stock trader for six years at Chase Investment Counsel in Charlottesville, Va.

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