Five More Tax Loss Selling Plays to Buy Before the New Year

By Michael Brush
December 21, 2005

Only seven more shopping days left – to buy tax-loss selling candidates.

These are the 2005 losers that investors are dumping now so they can ring up tax losses before the year ends. They’re shopping for tax losses to offset 2005 capital gains in stocks.

The pressure they’ve been putting on stocks can create bargains -- especially if insiders are buying at the same time.

To find some of the best potential tax loss selling plays, I scanned the small-cap insider buy stocks to find the ones that are down the most for the year. This suggests tax loss selling is pressuring these stocks now as the year comes to a close. But they are potential winners for 2006 because insiders are bullish.

Here are five more to add to a list of five I wrote about in my last column here: click here 

Tercica (TRCA) shareholders got a “baaa humbug” from the Food and Drug Administration a few days ago when the regulators took away marketing exclusivity for a growth hormone product. The stock got hammered, falling to $7 from $10. Then two insiders then stepped up and bought over $1.3 million worth of the stock. That’s pretty bullish!

Avanex (AVNX) shares have fallen to $1.11 from $3.50 this year, leaving plenty of shareholders disgruntled. More of them will be selling shares of this optical networks equipment provider as the year winds up to generate tax losses. But the chief executive recently bought $179,000 worth of stock at 90 cent a share – signaling value near current levels. For a brief walk down memory lane, consider that this stock once traded for $270 per share in the tech bubble days.

Inergy (NRGY) stands out among energy stocks because it is trading near its lows for the year. In contrast, most energy stocks have posted solid gains. The company processes and distributes propane and other derivatives of natural gas in the Midwest and Southeast. Insiders have been buying in the $26.50 to $28.90 range since the stock broke down. At recent levels this company -- which is a limited partnership -- offers a dividend in the 7.8% range. Be warned: Limited partnerships create special complications at tax time which you will have to deal with if you own this stock.

MCG Capital (MCGC), at $14.50, has an entire shareholder base that is looking at losses for 2005. That has to contribute to selling pressure as the year closes. But insiders, including the chief executive, are buying aggressively in the low $14 range. Down here, the company pays a hefty 11% dividend. MCG Capital provides financing and advisory services to smaller companies, especially in the media and telecom space. A.G. Edwards recently started coverage of the company with a buy rating.

MDC Partners (MDCA) shares have fallen to $6 from $11 since the start of the year. It’s been a long and grinding decline for shareholders of this Toronto-based company which provides marketing, and offers products and services that help create secure transactions. So there’s bound to be downward pressure on the stock now from investors who are throwing in the towel for the year. Down here, the stock trades cheap. It goes for .35 times sales and less than book value. Insiders, including the chief executive, recently purchased substantial amounts in the $6 range – or near current prices.

The bottom line: Buying these stocks now puts together two strategies that can give you an edge in the market: Picking up tax loss selling candidates and following the insider cues. I think all of these are buys right now for decent gains as a group in 2006 or beyond.

Disclaimer

At the time of publication, Michael Brush did not own or control shares in any of the companies listed in this column. Mr. Brush is an independent columnist for this web site.

For more on Insiders Corner disclosure, see the disclosure section in About Insiders Corner: http://www.investorideas.com/insiderscorner/. InvestorIdeas.com Disclaimer: www.InvestorIdeas.com/About/Disclaimer.asp. InvestorIdeas is not affiliated or compensated by the companies mentioned in this article.