The dogs will have their day!
In fact, they just might be the ones to own.
There are lots of bow-wows out there - Intel (INTC), RIM (RIMM), Dell (DELL) and HP (HPQ) come to mind. They've had a terrible year. Year-to-date all three have been big losers. Intel and RIM are down 16%. Dell has plummetted a miserable 30%. HP has really tanked, cratering 45%.
Yet, there's a catalyst that could send them higher, one that no one is considering.
The catalyst? Increasing capital gains taxes.
The reasoning: Usually you sell your losers at the end of year to offset your capital gains. Not this year. Taxes on long-term capital gains are expected to climb from 15% to as much as 23.8% in 2013. As a result, you can get a larger tax benefit by holding your losers and selling them next year. If you dump your canines this December, you may be able to reduce your capital gains taxes by 15% of the losses. But wait until January 1 and your tax loss benefit rises to 23.8% for those in the higher tax brackets.
We've already seen Apple (AAPL) and Amazon.com (AMZN) drop as investors lock-in profits before the 15% tax on long-term capital gains ends. Why can't the reverse be true? Why can't rising taxes push the shares of this year's biggest losers higher?
Oddly no one is mentioning this obvious tax consequence.
I expect a run-up in Intel, RIM, Dell and HP as we go through December because investors will keep their losers for tax purposes. Buyers will outnumber sellers, helping to drive up these weak links. And who knows, these big losers might go up enough to turn losses into gains.
Disclosure: I am long INTC.
Additional disclosure: Disclaimer: The opinions in this document are for informational and educational purposes only and should not be construed as a recommendation to buy or sell the stocks mentioned. Past performance of the companies discussed may not continue and the companies may not achieve the earnings growth as predicted. The information in this document is believed to be accurate, but under no circumstances should a person act upon the information contained within. We do not recommend that anyone act upon any investment information without first consulting an investment advisor as to the suitability of such investments for his specific situation.