Some of the biggest losing stocks in 2024 could be in for even steeper declines as investors jettison them to save on taxes, according to Morgan Stanley. October has been rocky for the three major averages – they are down this month as investors grapple with Middle East tensions and sharply higher oil prices – but for the entire year, the S & P 500 and the Nasdaq Composite have soared more than 20%. With the fourth quarter underway, investors are taking stock of their winners and losers, and considering dumping some of their underperformers to realize capital losses and offset capital gains. Such moves, known as tax loss harvesting, helps investors trim their tax bills the next year. Further, if losses exceed capital gains, investors may apply up to $3,000 of those losses to offset ordinary income on their federal return, and can carry any remaining losses into the future. Tax loss selling To pick out the names that are likely to see tax loss selling pressure as the year winds down, Morgan Stanley scanned the S & P 1500, seeking stocks in the top quintile of Wall Street investment ratings on Jan. 16 as a proxy for stocks that are widely held. Then the firm looked for names that have dropped at least 10% from mid-January through the end of September. “In the month of October, our Tax Loss Selling stocks have tended to underperform the market by an average of 178 [basis points] and underperform sector and industry group peers by 114 and 110 bps, respectively, with hit rates ~55%,” said Morgan Stanley equity strategist Michelle Weaver. A basis point is equal to one one-hundredth of a percent. Here are a few of the names her team turned up. Computer software giant Adobe came up on Morgan Stanley’s screen. The stock has had a rough year, off nearly 17% in 2024, and some on Wall Street see further declines. KeyBanc analyst Jackson Ader is underweight Adobe, and his price target of $450 suggests more than 7% downside from Monday’s close. The company’s weak fourth-quarter guidance raised concerns for Ader. “Almost across the board, the outlook for the final quarter is below what the prior guidance implied and below consensus expectations,” he wrote in a Sept. 12 report. “Most crucially, net-new digital media [annual recurring revenue] is expected to be $20M below what the prior guidance implied, but revenue for the major segments and margins were all set below estimates.” Boeing pressure Beleaguered aerospace company Boeing was also called out by Morgan Stanley as likely to see pressure tied to tax loss selling. Shares are off more than 40% in 2024. Boeing started the year wrong when the door on one of its 737 Max 9 planes blew out an Alaska Airlines flight in January. Deliveries are also down year over year through September, and the company is grappling with a machinist strike at Seattle-area factories. Bank of America analyst Ronald Epstein last week reiterated a neutral rating on the aerospace company. “Boeing in our view is akin to a Greek hero, a company once held up as an example of American greatness, an Aerospace & Defense titan, who’s now in crisis brought on by many of their own decisions,” he wrote. Epstein lowered his price target to $170 from $200, which still reflects 9% upside. The cut accounts for a “potential equity raise, cash burn from the strike, 777x inventory build and defense program issues,” the analyst said. Morgan Stanley also called out oil service giant Halliburton . The stock is off about 17% in 2024. RBC Capital Markets analyst Keith Mackey trimmed his rating on Halliburton to sector perform last month, down from outperform. “As the global [exploration and production] cycle progresses, we think the stock will look less attractive relative to large cap peers,” he said. “We find HAL has lower overall revenue diversification, which we believe disadvantages it in a tepid commodity macro[economic climate],” he added. “Lower revenue diversification could lead to more volatile earnings.” Other names on Morgan Stanley’s list include Chord Energy , Simply Good Foods and timeshare operator Hilton Grand Vacations .
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