In keeping with the pre-June 30 EOFY vibe, this week your columnist opines on a few well known underperformers that arguably are worthy of being sacrificed on the altar of the fiscal fiend.
In other words: they’re unlikely to recover in a hurry and their best use is as a tax loss.
Investors who rode the market’s spectacular recovery from the depths of the pandemic are likely to be sitting on enormous gains, especially with anything pertaining to e-commerce.
They may well want to crystallise these windfalls, especially if they have held the shares for more than 12 months and are eligible for the 50 per cent capital gains tax concession.
Sure, it might make sense to hold off selling until after June 30. But given the arguably toppish market, a prudent strategy might be to take profits and square off with any losses.
So what are the ‘‘taking out the trash’’ candidates? The answer, strictly speaking, could be any stock, depending on when you bought them.
For instance, investors weighing in to BNPL stunner Afterpay (APT) at a Covid low of $9 in March last year are more than 1000 per cent ahead, but nursing a roughly 30 per cent loss if they bought at the peak of $158 in October last year.
Whether Afterpay is laughably overvalued or a screaming success is beyond our pay scale, frankly.
But some faves have been on the decline for years and the obvious starting point is former dividend milch cow Telstra (TLS), which isn’t exactly a small cap but is getting smaller by the day.
Investors flocking to the telco for its (now diminished) dividend yield have paid a hefty price in terms of capital value, with the stock down 32 per cent over the past five years (albeit up 11 per cent in the past 12 months).
Once the monopoly King of Copper, Telstra has suffered from the commodifying effect of the National Broadband Network, in that every telco pays the same price for wholesale access. Competition in mobiles – a key strength for Telstra – isn’t getting any less intense.
And what about Sydney Airport (SYD), another yield favourite? The stock has actually fared quite well during the pandemic and has been steady over the last 12 months despite a $2bn capital raising.
Still, they’re 30 per cent off pre-pandemic levels and with international flights not resuming in a hurry this is a stock arguably not about to take off.
Still on travel, Qantas (QAN) chief Alan Joyce’s plea (or demand) for open borders is likely to fall on deaf ears in Canberra, given the pollies have sussed out that pulling up the drawbridges resonates well with their constituents.
Qantas stock is about 35 per cent lower than pre-pandemic levels, albeit 60 per cent higher on the five-year graph.
In the retail sector, Myer Holdings (MYR) has been an emporium of false hope for years now. A revered retail title, for sure, but then so were consumer names such as Fosseys, McEwans and Blockbuster Video.
In the half-year to January 23 2021, Myer’s online sales grew 71 per cent to $287m, which sounds impressive.
But e-commerce still only accounts for 20 per cent of Myer’s total sales, which fell 13 per cent to $1.4bn.
Myer’s $266m market cap is relative to its net cash position of $200m, so perhaps there’s value in the stock. But given the retailer’s large legacy and surplus bricks and mortar footprint, it could be time to consign this one to the tax time bargain bin.
Meanwhile, it’s questionable whether the fortunes of shopping centre landlord Scentre Group (SCG, formerly Westfield Shopping Centres) will improve in a hurry, given the spectre of ongoing lockdowns, surplus inventory and the hardball negotiating tactics of tenants such as Premier Investments.
Scentre investors are underwater to the tune of 25 per cent over two years and 39 per cent over five years.
In the wealth management sector, shares in the equally strife-prone IOOF (IFL) have lost 7 per cent of their value over the last 12 months and 41 per cent over the last five years.
IOOF’s big play was its $1.4bn acquisition of MLC from the National Australia Bank.
The share price has been weighed down because this purchase was funded by a $1bn capital raising executed at a steep 24 per cent discount ($3.50 a share).
In February last year IOOF acquired OnePath wealth pension and investment business for $850m, so it may well emerge a winner from the banks’ stampede out of wealth management.
But there’s plenty of housekeeping to go in the short term, which is why the stock is a potential tax loss.
Online commerce hero Kogan (KGN) is a more contentious inclusion in our pre-June 30 ‘‘to do’’ list, because the company fared spectacularly during the pandemic ... again, it’s a case of when you bought the stock.
Investors have increased their money six-fold over five years and doubled it over two years, yet johnnies-come-lately who bought in to Kogan a year ago are some 20 per cent under water.
Kogan’s May 21 update was less than impressive, with its guided full-year adjusted underlying earnings coming in at 11-18 per cent below expectations.
Perversely, the online shopping boom has created inventory issues for Kogan that are likely to lead to deeper discounting and demurrage problems (port holding costs, not those pertaining to de marriage of Harry and Meghan).
Your columnist isn’t a qualified tax adviser or licensed financial adviser for the matter so we will stop there.
Tim Boreham edits The New Criterion
tim@independentresearch
.com.au
To fix or not to fix, the answer is not what you think
Anyone with a mortgage or about to get one might think variable rates offer the best chance to take advantage of an expected falling cash rate. But fixing now might be a smarter option.
Brighter Super boss on talent trail after high-profile resignations
Brighter Super boss Kate Farrar has put up the help wanted sign after a couple of senior executive departures in recent weeks including her chief financial officer.