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One investor’s portfolio loser could be another’s winning stock as 2023 draws to a close, according to Bank of America. Fall is prime time for investors – both individual and institutional – to dump their losing positions so they can realize losses and save on taxes. This maneuver, known as tax-loss harvesting, involves selling assets that have declined sharply over the year and using those losses to offset taxable capital gains elsewhere within the portfolio. Investors can then use the proceeds from the sales to purchase assets that still meet the portfolio’s goals. Be aware of the wash-sale rule: The Internal Revenue Service won’t allow investors to take the tax write-off if they buy the same asset or one that’s ” substantially identical ” to it within 30 days before or after selling the losing position. Indeed, some of this year’s biggest losers could be primed for a bounce in the November through January period as investors snap up these deeply discounted stocks, according to Savita Subramanian, head of U.S. equity and quantitative strategy at Bank of America. “The companies most likely to move are those that were overweight by [long-only] funds as of 3Q, but were sold for losses,” she said in a Wednesday note. “An overweight indicates fundamental investors have an appetite and are thus more likely to repurchase.” Buy rated and cheap Bank of America screened for buy-rated stocks that fell at least 10% in 2023 through the end of October that were also overweight by long-only funds as of September. Dexcom and Insulet, which manufacture medical devices to treat diabetes, have been thrashed this year as investors grew excited about weight loss medications and their potential to treat an array of related conditions. Dexcom shares are down 17% year to date, while Insulet is off by 47%. However, Bank of America still rates both names as buys – and others on Wall Street spot potential. “All told, we continue to believe the selloff in these names is overstated given the pump companies trade at their fair value for just the [Type 1 diabetes] population and DXCM is sell off on what we believe amounts to minimal impacts to its [total addressable market] at all,” said Piper Sandler’s Matt O’Brien in a report last month. The firm is overweight on Insulet and Dexcom, highlighting the latter as “our favorite way to play.” Retailer Target is another name that made the cut, garnering a buy rating from Bank of America. The company’s shares are off about 29% year to date, and Target is due to report quarterly results on Nov. 15. Soft consumer discretionary spending as well as weakness in traffic spurred Telsey Advisory Group to trim its third-quarter estimates for Target on Friday. But these issues are merely speed bumps for investors playing the long game. “We continue to look at Target beyond these short-term issues, with focus on the multi-year profit recovery potential that should fuel significant earnings growth ahead,” the firm said, opting to maintain an outperform rating on Target but lowering its 12-month price target to $145, a reduction of $17. Other stocks in Bank of America’s list include agriculture play Mosaic , life insurer MetLife , defense giant Northrop Grumman , as well as gas and electric utility CenterPoint Energy . — CNBC’s Michael Bloom contributed reporting
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