5i Filter – Obliteration of oil

Back in November we took a look at the year-to-date performance of various industries in Canada to try to determine if there were any clear tax- loss selling candidates. The conclusion was that energy and materials are really the only two easy options for sale candidates but with the consistent negative sentiment toward materials, we were just not confident in there being much of a tax-loss selling impact on an industry that has been one of the only sale candidates over the last few years. So a month has gone by and energy has transitioned from a roughly break-even performance over the year and is now down 9.3% on the year. So let’s take some time to look at the companies within the energy sector (specifically oil & gas) that are likely going to be on most investors’ tax-loss selling list.

In this month’s filter we are looking at Canadian companies with (as usual) a market capitalization above $100 million in order to avoid the small, highly speculative names. The filter concentrates on the oil & gas sector as this is likely to be the area on the top of everyone’s mind and the first place most will look when considering tax losses. The filter then looks at stocks who have had a 52 week price percentage change less than or equal to -10% (a loss equal to or worse than 10%). The 10% is a bit of an arbitrary threshold but we needed to account for the fact that investors do not simply sell securities across the board that are sitting at a loss no matter how large or small. A 10% loss is a large enough amount that most investors will examine it closely and consider the potential benefits that claiming a loss of that magnitude may provide. Finally, we decided to use the 52 week change simply because not everyone got into energy at the top of the market. We wanted to account for those holding energy companies over the year. The companies at a loss over a 52 week period are much more likely to be a tax-loss candidate for the majority of investors opposed to a subset, which in theory should make continued weakness in the names all the more likely. Remember that the final day for tax-loss selling of Canadian securities for Canadian investors is December 24, 2014. The filter returned the 51 stocks below: