nvestors shouldn't wait until year's end to sell stocks for tax purposes, but most will do so anyway this year. That might result in further punishment for the three year-to-date decliners listed below.
It's a bad idea to procrastinate on tax-loss selling because studies show that, for stocks that perform poorly from January through November, December returns tend to be lousy. For the same stocks, returns during the following January tend to be good. This "January Effect" is particularly strong among shares of relatively small companies.
How do I know investors will nonetheless wait until December to sell losers? Two things tell me. First, the January Effect wouldn't exist if they didn't. Studies comparing possible causes point to tax-loss selling as the likeliest one. Dogs get sold in December by investors seeking to capture tax write-offs, and rebound in January when the selling subsides. My second clue is something called loss aversion, which helps explain procrastination among tax-loss sellers. Behavioral finance studies show that investors feel the pain of losses more than they joy of gains. That's why they dump winners quickly (before gains turn to losses) while clutching losers to the bitter end (to resist admitting to losses), just the opposite of what the statistics on share-price momentum say they should do.
All of this means that year-to-date stock losers are likely (but not certain) to underperform in December, especially among small companies. The three stocks listed below are S&P SmallCap 600 members with year-to-date price declines in the double digits; the index has returned 16% year-to-date. I looked for some other less-than-promising signs. These companies fell short of Wall Street's earnings forecasts last quarter, which bodes poorly for coming quarters (based purely on statistics, not company-specific analysis). Also, current-quarter earnings consensuses for these companies are based on widely scattered individual estimates. In financial nerdspeak, each consensus has a standard deviation of estimates that's high relative to the mean. That can signal analyst indecision. Studies have shown that widely scattered forecasts often (not always) predict earnings misses.
Read more: 3 Stocks Likely to Dip in December - Investing - Stocks - SmartMoney.com http://www.smartmoney.com/investing/stocks/3-stocks-likely-to-dip-in-december/#ixzz16PvMVuLb
How do I know investors will nonetheless wait until December to sell losers? Two things tell me. First, the January Effect wouldn't exist if they didn't. Studies comparing possible causes point to tax-loss selling as the likeliest one. Dogs get sold in December by investors seeking to capture tax write-offs, and rebound in January when the selling subsides. My second clue is something called loss aversion, which helps explain procrastination among tax-loss sellers. Behavioral finance studies show that investors feel the pain of losses more than they joy of gains. That's why they dump winners quickly (before gains turn to losses) while clutching losers to the bitter end (to resist admitting to losses), just the opposite of what the statistics on share-price momentum say they should do.
All of this means that year-to-date stock losers are likely (but not certain) to underperform in December, especially among small companies. The three stocks listed below are S&P SmallCap 600 members with year-to-date price declines in the double digits; the index has returned 16% year-to-date. I looked for some other less-than-promising signs. These companies fell short of Wall Street's earnings forecasts last quarter, which bodes poorly for coming quarters (based purely on statistics, not company-specific analysis). Also, current-quarter earnings consensuses for these companies are based on widely scattered individual estimates. In financial nerdspeak, each consensus has a standard deviation of estimates that's high relative to the mean. That can signal analyst indecision. Studies have shown that widely scattered forecasts often (not always) predict earnings misses.
Atlantic Tele-Network
Atlantic Tele-Network (ATNI: 36.33, -0.88, -2.36%) provides telecom services to under-reached areas in North America and the Caribbean, including broadband in rural upstate New York, wire-line phone service in Guyana and cellular service in the Turks and Caicos Islands. That business can be plenty profitable. In recent years the company has turned more than 30 cents of each sales dollar into operating profit. Over the past four quarters, however, that figure has slipped to 12 cents, and in three of the past four quarters, earnings have missed estimates by more than half. Earlier this year, Atlantic agreed to buy wireless spectrum licenses and other assets for rural markets in Georgia, South Carolina and a handful of other states from Verizon (VZ: 32.21, -0.14, -0.43%) for $223 million. (Verizon acquired the assets with its purchase of Alltel last year.) Atlantic is experiencing greater-than-average costs while it puts the new assets to work, analysts say. Shareholders have doubled their money over the past five years, not counting dividends, which currently provide a yield of 2.4%, but the stock price has fallen by more than 30% year-to-date.La-Z-Boy
La-Z-Boy (LZB: 7.62, +0.02, +0.26%) last posted sales of more than $2 billion during its fiscal year ended April 2005. This year's sales are expected to fall just short of $1.2 billion. The good news is that, after a string of losses brought on by the popping of America's house-price bubble and a corresponding drop in demand for home furnishings, La-Z-Boy is forecast to post its second consecutive annual profit during its current fiscal year ending April 24. The bad news is that earnings per share were 43% lower than expected last quarter. A production shift to Mexico hasn't paid off with as much cost savings as hoped; a marketing campaign featuring Brooke Shields is costing plenty; and prices for many commodities, including furniture materials, are soaring. Shares, down more than 20% this year, at least seem inexpensive relative to forecast sales and profits.Skechers
Toning sneakers might have jumped the shark (video). Analysts point out that Shape-Ups, meant to give even casual wearers a subtle workout, are no longer immune to discounting, and that Skechers USA (SKX: 22.68, -0.38, -1.64%), which sells them, has some excess inventory to work off. In its latest quarterly results announcement, Skechers said demand remains strong but that some customers over-ordered for the back-to-school season, leading to some order cancellations, and that inventory will be sold "at reasonable margins over the next six months or so." Earnings fell 28% short of expectations for the quarter. Three months ago, analysts were looking for 2010 earnings of $3.81 a share. Now, they say $2.92 a share. The stock has lost more than 20% of its value this year.Read more: 3 Stocks Likely to Dip in December - Investing - Stocks - SmartMoney.com http://www.smartmoney.com/investing/stocks/3-stocks-likely-to-dip-in-december/#ixzz16PvMVuLb
