Blogs & Comment

Bargain hunting and tax-loss selling

This is the time of year when many investors sell lagging stocks to claim capital losses that can be applied to capital gains to reduce taxes. The prices of some securities may therefore come under abnormal selling pressure for a time and fall below what company fundamentals would warrant. Consequently, tax-loss season is a time when many value investors step up their search for investments
Indeed, contrarian investors Messrs. Stadelmann and Gallander of the Contra The Heard newsletterhave said they tend to do most of their buying in the closing weeks of the year. Right on cue, I received from them today an email update announcing two additions to the Contra portfolio: Hemisphere GPS ( HEM) and Hartco Inc. ( HCI). But they come with a proviso: the positions are on the small side — reflecting a lack of enthusiasm for the stock market right now (due to the sharp rally since March).
Hemisphere GPS makes global positioning products for the agriculture sector, and are said to be particularly precise in this application. Its market has cooled recently and the company has cut back on costs. But it increased spending on research and development, a key success variable in this field.
Hartco Inc. specializes in IT solutions and has more than 60 locations across Canada, with a focus in Quebec. Revenues are down but cost cutting enabled a profit to be recorded in the latest quarter. The balance sheet is strong (no debt) and the Contra portfolio is hoping the company will resume a payout. The chairman owns 60% of the stock and the company is buying back shares.