As we approach the end of the year, investors are gearing up to sell off losing stocks in an effort to offset gains on other investments and reduce their overall tax bill. This annual practice creates additional pressure on the market's biggest losers, making it less appealing for potential buyers to jump in until the tax-loss selling period has passed.

The evidence of this selling pressure can be seen in the deteriorating performance of underperforming stocks towards the end of the year. According to Wolfe Research, historical data shows that the worst-performing stocks for the year tend to experience further underperformance from around mid-November to December's end.

To offer some guidance, Wolfe Research has screened for stocks that are particularly vulnerable to tax-loss selling and may be suitable for shorting or betting against. The criteria for stocks on the screening list require them to be down 25% for the year. In comparison, major indices such as the S&P 500 have seen double-digit gains, while the S&P 600, which tracks small market capitalization names, is experiencing mid-single-digit declines.

Stock Losers in 2022

Introduction

In the past year, select companies have experienced significant declines in their stock prices. These companies have not only seen a substantial decrease in their share value but also low trading volumes, making them attractive targets for short sellers.

The Losers

Here are some of the notable names on this list:

1. Dish Network (ticker: DISH): Down 76% for the year.
2. Macy's (M): Down 47%.
3. Paramount Global (PARA): Down 30%.
4. Walgreens Boots Alliance (WBA): Down 45%.
5. Etsy (ETSY): Down 45%.
6. Campbell Soup (CPB): Down 28%.
7. Burlington Stores (BURL): Down 38%.
8. Harley-Davidson (HOG): Down 35%.

Small-Cap Troubles

A common characteristic among these underperforming stocks is that many of them belong to the small-cap category. Out of the eight companies mentioned above, six have a market worth under $10 billion. In contrast, numerous large-cap companies in the S&P 500 are worth tens of billions, or even more, highlighting the stark difference in market value.

Challenges Faced by Small-Caps

2019 has been a challenging year for small-cap companies due to several factors, including:

• Higher interest rates, leading to decreased economic demand, sales, and profits.
• Difficulty in cost-cutting measures for smaller firms when faced with financial adversity.

Given the current circumstances, it may not be wise to invest in these stocks immediately. However, long-term value investors might find potential opportunities among these underperformers.

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