3 Tax Loss Stocks to Sell in December, Buy in January

It’s that time of year for investors. Hopes for a Santa Claus rally, some much needed R&R, and yes—tax loss harvesting.

The annual ritual of dumping the year’s losers to offset capital gains taken early in the year is far from a festive event but can be a valuable part of tax efficient portfolio management. When year-to-date capital gains are positive, selling stocks that have incurred losses reduces the overall tax liability of an account.

With the U.S. stock market closing in on a third straight year of double-digit returns, opportunities for tax loss selling may be few and far between. Yet with around 80 of the S&P 500 constituents in the red year-to-date and losses scattered elsewhere, they surely exist.

For those that own some of 2021’s underperformers, this can be a good time to turn a negative into a positive by selling now and buying back inexpensive shares in 30 days. Here are three tax loss candidates that look poised to bounce back in 2022. 

Will Rocket Companies Stock Recover in 2022?

Down 27% year-to-date, Rocket Companies (NYSE:RKT) has tax loss opportunity written all over it. After spiking above $40 in March, the digital mortgage lender has been grounded by slower growth and concerns about the impact of rising interest rates on loan originations.

There’s reason to believe Rocket will get airborne next year. For starters, the March rally fueled by WallStreetBets traders could flare up again at any time. Putting that potential short-term phenomenon aside, Rocket has the growth catalysts in place for a fundamentals-based propulsion.

While mortgage lending remains at the core, Rocket is a more diversified financial services player than it was a year ago. Its Amrock title insurance, property valuation, and settlement arm is expected to make a major revenue contribution going forward. Rocket Auto and Rocket Loans are also relatively new revenue sources that should derive growth from consumers’ increasing interest in digital finance services.

In a real estate market where young homeowners are turning to fast, efficient online solutions, Rocket controls around 10% of the U.S. mortgage business. As this trend persists and the company’s other digital services hit their stride, the underperforming stock could blast off.

What is a Good Chemicals Stock?

After advancing 19% in 2020, Methanex (NASDAQ:MEOH) has slipped 9% this year. The world’s leading methanol supplier has been hampered by expectations of a slowdown next year tied to higher natural gas prices. This has caused customers in China and Europe to reduce their production of formaldehyde and other industrial chemicals. Management has said it expects this situation to persist in the near-term but eventually improve and allow it to rebuild inventories.

As supply challenges subside, elevated methanol prices should drive better financial results at Vancouver-based Methanex. The price of methanol, which is also used to make key gasoline component MTBE, spiked in October amid high demand and tight supply conditions. It has since normalized but is likely to trend higher due to an ongoing demand-supply imbalance.

In the back half of 2022 Methanex is expected to get a boost from its Geismar 3 project which stands to increase production levels and generate higher cash flow. Management forecasts that global methanol demand will grow 4% annually over the next five years. Next year analysts expect EPS of $4.53 which means Methanex has a forward P/E of less than 10x and is one of the best values in the mid-cap materials sector.

Will Harley-Davidson Stock Do Well in 2022?

Depending on entry point, Harley-Davidson (NYSE:HOG) may not be a huge tax loss sale opportunity. The stock is only down 4% year-to-date but more than 30% off its May 2021 peak. More importantly, at 10x next year’s earnings estimate the legendary motorcycle outfit is woefully undervalued.

Harley-Davidson has hit the skids of late because of the impact of supply chain constraints and microchip shortages on its production levels. The rising costs of metals and other commodity have weighed on profit margins and overshadowed what has been some impressive top line growth.

The good news is these pressures are likely to ease as 2022 progresses. And when they do, management’s Hardwire strategy should shine through. The plan is based on launching sportier bikes that appeal to younger consumers and a modernized marketing strategy. If it gains traction with Millennials and others as hoped, it should help offset the temporary pandemic headwinds and drive higher long-term profit growth.

Another exciting growth engine for Harley-Davidson is its LiveWire electric motorcycle business. LiveWire, which will soon become the first publicly traded EV motorcycle company, is getting set to expand the availability of its LiveWire One bike around the world. Given the growing government focus on climate change and consumer interest in all things EV, expect the bargain priced Harley-Davidson and LiveWire to rev higher in 2022.