Biotech Stocks are Suffering from Tax Loss Harvesting

Tis the season to be jolly, unless of course you own biotech stock. Your December is going to be a rough ride, but not for the reasons you might think. Those shares you’re thinking about dumping could be some of your biggest earners next year. December is gift-giving season. Harvest your losses to prepare for tax season, then get ready to start buying.

Bloomberg released an article last week about Cathie Wood’s Genomics Fund being down 27% YTD. That number has climbed to 31% since the piece was published. The fund, called ARK Genomic Revolution (ARKG), is an ETF that focuses on AI in health care. Who wouldn’t want to invest in that? Based on the $520 million in November outflows, investors are wavering.

Tax Loss Harvesting Creates Opportunities

As most of my readers know, I’m not really a fan of biotech stocks. In the best of times, they’re volatile and unpredictable. Despite those misgivings, I am tempted to pick up some bargain basement deals this month. Investors are selling funds like ARK because they’re the biggest losers this year. Declaring those losses minimizes tax liability. It’s good business.

Investors sell. Share prices fall. Buyers get a holiday gift. Take Teledoc Health Inc (TDOC) as an example. It dropped 33% last month and has shed more than $100 per share this year, but cash flow is strong, and the company continues to generate growth in telehealth visits. Sales growth is projected at 30% annually for the next few years. I think that’s worth buying.

Teledoc is one of the holdings in the ARK fund. So is Exact Sciences Corporation (EXAS). They’re down 34% for the year, so they are a prime candidate for tax loss harvesting. Dig a little deeper and you’ll find that those losses could be attributed to Pfizer basically abandoning them on the sale of Cologuard. That partnership ended on 11/30. I bought EXAS this morning.

I have a set routine this time of year that I’m happy to share with you. Every holding I harvest goes on a watch list. In two weeks, I’ll review that list and start buying again. Doing it right before Christmas is like meeting Santa Claus in my living room. The gifts are scattered under the tree. I just need to pick them up and unwrap them.

Is it Time to Sell Your Vaccine Stocks?

Let’s look at the opposite side of the coin. Moderna (MRNA) is up 193% this year. They opened at $329 this morning, but share prices peaked at $484 back in August. Have you held it too long? The battle for first place in the vaccine race ended a while ago and has turned into a three-way cold war. Moderna will not emerge victorious. Dump it and call it a day.

Pfizer (PFE) is another story. They’re showing a modest gain this year (46%) by pharmaceutical standards, but they’re up 79.67% over the past five years. That’s rare longevity in this space. Pfizer is diversified, has an active development pipeline, and will be the dominant player in the Covid vaccine space. You can take that to the bank.

I refuse to invest in Johnson & Johnson (JNJ) for ethical reasons. Read into that what you will. They’re a distant third in the vaccine race anyway. If I did own them, I’d sell my shares right now and buy Novo Nordisk (NVO), an ESG company that makes insulin, not vaccines. They’re up 51% this year and are on a five-year uptrend. Now that’s a solid pharma investment.

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About the Author

Biotech Stocks are Suffering from Tax Loss Harvesting

Kevin Flynn

A former financial professional and founder of AdvisorScale Financial Writing, Kevin lives in Leominster, Massachusetts with his wife Evelyn, two cats, and nine wonderful grandchildren.