Seeking Alpha
Long/short equity, deep value, special situations, growth at reasonable price
Profile| Send Message|
( followers)  

One popular stock trading technique that has proven successful with many short-term investors is buying stocks that are beaten down during the month of December. These are the stocks that have dropped due to people dumping their shares, which were purchased at much higher prices, in order to take a tax loss and establish the loss in the 2010 calendar year. Many shareholders own stocks that they have held for three or four years or longer that are currently trading at a loss. The investors may need to take a loss to offset a capital gain that was generated this year. The sellers usually wait to the end of the year to dispose of their shareholdings, driving down the prices in December.

There are over 35 companies that have dropped more than 70% during the last 52 weeks, according to WallStreetNewsNetwork.com, which could include many tax-selling bargain opportunities. Just remember, you want to be in and out of these stocks quickly, as the drop in stock price could be due to more than just tax selling.

Flagstar Bancorp Inc. (NYSE:FBC), a Troy, Michigan-based banking company, had had a huge drop. The stock traded above $5 a share back in May and even higher earlier in the year on a pre-split basis; it now trades at less than $1.50 per share. Although the company's latest earnings were negative, quarterly revenues were up 218%. The stock trades at way below its book value of $5.30, and trades at 47 times forward earnings. Earlier this year, FBR Capital upgraded its rating of the stock from Market Perform to Outperform.

Broadwind Energy, Inc. (NASDAQ:BWEN) is another company that has taken a big dump, dropping from over $9.80 per share last December to less than $2 now. This wind tower manufacturing company has a forward price to earnings ratio of 197, with current earnings being negative. The book value is $1.64.

The bio-pharmaceutical company Affymax, Inc. (OTCQB:AFFY) traded for about $25 per share during the last year, but now trades at slightly above $6 a share. Recent quarterly earnings were negative but the company is debt free and has $4.14 in cash per share. Last month, WBB Securities initiated coverage on the stock giving it a Buy rating. At the same time, WBB Securities upgraded the stock from a Hold to a Buy.

Disclosure: No positions

Source: Bargain Stocks in Tax-Selling Season