ASX tax loss losers that could rebound in the new financial year

One potential way to get ahead in FY22 is to pick bargains among the tax-loss candidates from this financial year.

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ASX tax loss buy Hands hold up the letter V, indicating a share price V-shaped recovery on the ASX

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Some ASX shares that have been dumped to crystalise a tax loss could make a comeback from next month.

These shares tend to underperform, particularly in the last few months of the financial year as investors sell them at a loss to offset capital gains from other investments.

But someone’s trash can turn into treasure. When the selling pressure eases in the new financial year starting July, some of these ASX shares could rebound.

Picking winners among tax loss losers

Mind you, not all will. More often than not, these tax loss candidates are thrown out due to their poor fundamentals, which show little sign of improving.

However, this isn’t always the case, so discretion is advised! One way to find the ugly ducklings with swan potential is to pick those that are still favoured by the majority of brokers covering the shares.

It’s no guarantee that you will be buying a winner, but following these experts are usually a good start.

Why this underperforming ASX share could return to favour in FY22

On that front, the Austal Limited (ASX: ASB) share price could fit the bill. Shares in the shipbuilder sunk further today by 5.7% to a more than two-year low of $2 following its profit downgrade yesterday.

That provided investors more than enough reason to bail ahead of the new tax year although most brokers still rate it a “buy”.

Citigroup is one as it reiterated its “buy” recommendation on the Austal share price and increased its 12-month price target to $3.35 from $3.30 a share.

Austal share price sunk too deep into value

“While the FY21 guidance downgrade is disappointing, it appears to be somewhat driven by circumstances beyond Austal’s control,” said the broker.

“Further, it may not be unreasonable that Austal potentially may recoup some liquidated damages, caused by Covid-19 border closures, in the future.”

The broker also pointed out that investors are paying only circa three times FY22 EBIT for Austal’s shipbuilding business. This is a 77% discount to peers.

While Citi trimmed its FY21 earnings estimates in light of the profit update, it lifted its FY23 forecast by 4% to account for revenue being pushed into later years.

Oil forecast to rebound to US$100

Meanwhile the Beach Energy Ltd (ASX: BPT) share price could also make a comeback in FY22. Shares in the oil and gas producer slumped by over 20% in the last three months but the outlook for the sector is improving.

Some of the world’s leading commodity traders are forecasting oil to return to US$100 a barrel, reported the Financial Times.

Oil floats and so could ASX energy shares

This is due to under investment to bring new supply to market before demand has peaked and before green energy can fill the shortfall.

The Brent crude price is trading a little over US$70 a barrel currently. If these experts are right, the Beach share price could pop along with the rest of the sector as analysts upgrade their earnings forecast to reflect the stronger-than-expected oil price.

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Brendon Lau owns shares of Austal Limited. Connect with me on Twitter @brenlau.

The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended Austal Limited. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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