Barron's | Boeing Stock Faces a New Hurdle: Tax Sellers

 Boeing BA has plenty of problems. Most are of its own making, but one that isn’t could weigh on its stock, at least for the next several weeks.

It has been a rough year for Boeing, with a combination of manufacturing problems, a heavy debt load, and labor unrest sending its stock down nearly 40%. It could get worse before it gets better, according to a Monday note from BofA Securities.

The upshot: Investors who think Boeing’s price has reached bottom and that the stock will rebound may turn out to be right. But they should probably wait a few weeks to start buying because the stock is likely to dip again, at least in the short term.

The trouble, in part, is that Boeing’s problems have come amid what is turning out to be a 

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fine year for the broader stock market. The S&P 500 SPX -0.65%  has gained more than 22%.

As a result, mutual funds and other large investors are likely sitting on large capital gains. Mutual funds are required to distribute these gains to fund shareholders each year, an event that can lead to unwelcome tax bills.

One way for funds to reduce or eliminate gains is to sell underwater positions—recognizing losses that cancel out gains in the Internal Revenue Service’s eyes. That means struggling stocks often face a new wave of selling in the final months of the year as large investors rush to unload shares in order to claim losses that will lower their annual net gains.

Given its $96 billion market capitalization, high prominence, and deep losses, Boeing is a prime candidate for such selling, according to Bank of America. Boeing is owned by 22% of mutual funds—the highest ratio for any stock from a list of more than a dozen candidates for tax-loss selling that Bank of America compiled.

Losses tied to tax-related selling can be significant, according to the Bank of America study. “Since 1986, stocks down 10% or more as of September month-end have consistently lagged the S&P 500 in October by an average of 85bp,” the authors note. (A “bp,” or basis point, is equal to 1/100th of a percentage point.)

The good news: Stocks that fall victim to tax-loss selling typically began to bounce back in November, likely because mutual funds face an Oct. 31 deadline to unload shares.

Write to Ian Salisbury at ian.salisbury@barrons.com