5 Tax Loss Trading Stocks I’m Watching

Good morning Armchair Army,

Welcome to today's edition of The Armchair Analyst, a 5-minute daily update on the ASX life-sciences sector.

Last year, I went to Noosa for a small-cap conference.

A lot of networking.

But there was one person I’ll never forget.

A retiree, who told me about his investment strategy.

He called it…

The one magic trade per year.

Alright, stranger. You’ve got my attention…

I leaned in a little closer, eager to hear the secrets of the small-cap market.

He whispered, making sure that no one else was in earshot.

“Here it is…

“I buy stocks in June, and sell them in October.

“Every year. Without fail.

“The tax loss trade.

“But I can’t just find any stock.

“The stock had to be beaten down, oversold, unloved.

“That’s the first gate.

“The stock needs a meaningful catalyst to re-rate over the next four months.

“The second gate.

“The stock should be cashed up; don’t want to be walking into a raise.

“The third gate.

“And finally… if all goes wrong, it should be a stock that you’re happy holding.

“Because a long-term portfolio is just a bunch of short-term trades gone wrong.

Ever since that day, I can’t get this trade idea out of my head.

So I want to run an experiament with all of you, my Armchair Army.

Does this work?

I have curated a group of five stocks that fit the bill, and we’ll see what happens over the next few months.

A phantom trade.

The great Armchair Experiment.

This is for entertainment purposes only and does not constitute personal financial advice.

But first…

EBR Systems (ASX: EBR) advances towards a National Coverage Determination by the CMS to have its leadless pacemaker covered by Medicare as early as March 2027. (EBR)

🪑 Nice update, securing medicare coverage for the WiSE produce will be a huge milestone.

A few hoops still to jump through, but the major catalyst/decision is scheduled for March 2027.

…. And then the capital raise comes.

EBR Systems (ASX: EBR) requests a trading halt pending the release of an announcement regarding a proposed capital raising. (EBR)

🪑 Should have seen it coming.

Pro Medicus (ASX: PME) signs a 5-year, A$16M contract renewal with The Ohio State University Wexner Medical Centre. (PME)

🪑 Fourth deal in three weeks.

Big update from Control Bionics (ASX: CBL), which highlights a lot of the good work that the company has done over the last 12 months. Research partnerships (including Mayo Clinic) work with AFL and NRL clubs, and the Brain Computer Interface deal with Apple. (CBL, CBL)

🪑 Loved this update. A good launchpad for the company to take shareholders on a journey over the next few years.

PainChek (ASX: PCK) secures two initial three-year commercial contracts under its Sabra Master Services Agreement. (PCK)

Optiscan Imaging Ltd (ASX: OIL) has reached the halfway recruitment milestone in its human breast cancer imaging study, with 25 of 50 patients. The study will support FDA submissions for its devices by late 2026. (OIL)

🪑 I met with the company a couple of weeks ago, as the product was of particular interest to a friend of the newsletter, Surgeon Dan. 

Interesting stock with some material catalysts in the next 12 months. I’m looking forward to writing up on it as part of the Biotech 165 Challenge.

Island Pharmaceuticals (ASX: ILA) begins GMP manufacturing of Galidesivir to support pivotal Marburg Virus Disease study. (ILA)

🪑 Milestone ticked.

OncoSil Medical (ASX: OSL) enters a trading halt pending the results of the TRIPP-FFX clinical trial and U.S. FDA regulatory correspondence. (OSL)

🪑 🍿

Tetratherix (ASX: TTX) issues 2,163,818 fully paid ordinary shares at $6.00 per share under a placement to institutional investors, and launches its SPP. (TTX)

🪑 Stock’s holding up well.

There is an old market adage.

Sell in May and go away.

The idea is to avoid the typical market weakness in June that comes from tax-loss selling.

Tax-loss selling occurs when investors seek to offset stock market gains by selling stocks that are in the red.

The price that they sell for doesn’t matter as much as the tax offset.

So in June, a bunch of “forced sellers” enter the market and put downward pressure on the share prices of underperforming stocks.

The relentless selling that we saw in Opthea (ASX: OPT) yesterday was a good example of this.

(Even well under cash backing)

What’s the difference between being down 97% or 97.8%? 

It's all a tax loss write-off anyway.

After I pressed send on my email yesterday, I attempted to daytrade Opthea and bought in at 1.8 cents… now trading at 1.4. Maybe I should stick to just writing. 

Alright, back on track.

Tax loss selling.

The downward pressure on underperforming stocks can create conditions in which stocks become oversold.

And in this opportunity is the trade.

As my mate in Queensland would say, selling creates an opportunity.

First, there has to be tax loss selling.

Have a look at the chart range on Market Index and see if it's close to the 52-week lows.

Even better? Stocks that are at all-time lows.

This means you’re not just getting the tax loss selling from the buyers in the last 12 months, but of all time.

Second, the company has a meaningful catalyst in the next few months.

This provides a re-rating opportunity for the stock.

Third, do they have cash?

The worst thing is buying the stock just before a capital-raising discount.

Fourth, is it a company that you like?

A long-term portfolio is just a bunch of short-term trades gone wrong.

If you’d ask my charting friend, he’d say all of these charts are “cooked”... 

So take this strategy with a grain of salt.

Finally, the selling has to come.

Friend of the newsletter, Dr Lachlan Tierney, wrote last week that the tax-loss selling season may look a little different this year due to the changes to the CGT discount.

Read the full article: Sell in May? These Aren’t the Losses You’re Looking For

But June has been weak so far at the small end.

So I’m going to assume that things play out as normal.

(In no particular order)

Market Cap: $43M | Cash: $18.6M | EV: $24.4M

What does it do? 

MVP sells the “green whistle” for acute pain injury. 

Next Catalyst: Quarterly Report / Full Year Earnings

Armchair Take: 

MVP is trading at 0.6x sales and 1.1x gross profit, at a 53% margin, for its Penthrox green whistle product. 

Drag from the Respiratory business is balancing out the Penthrox growth engine. 

Any turnaround in sales or a return to growth could see a re-rate.

This happened in late April, when the share price spiked on the company posting an unexpectedly cash-flow-positive quarter.

… So I’m hoping for an unexpected result to the upside (coming off a base of low expectations).

Market Cap: $105M | Cash: $26.6M | EV: $80M

What does it do? 

Dimerix is in the middle of a Phase 3 clinical trial for a rare kidney disease, FSGS. 

Next Catalyst: Funding secured.

Armchair Take:

Dimerix is trading at its lowest price since it reported positive interim data two years ago.

With its current cash balance, the market knows that it doesn’t have enough capital to complete the clinical trial.

So the question is, where will it come from?

In the latest quarterly report, the company highlighted US$50M in non-dilutive royalty funding.

But the deal is yet to be finalised. 

As we saw with Microba (ASX: MAP) yesterday, which went into a trading halt for a capital raise…

Just because the company flags the potential for a transaction to fix the balance doesn’t mean a capital raise is ruled out.

So, without that funding piece, this is probably my highest-risk target for a tax-loss trade.

… but assuming that the funding is secured, there is a big upside on the trial result (billions of $ in milestone payments + royalties on drug sales).

Dimerix chose not to pursue accelerated approval, which gives them a better chance of success in the end (final patient dosed in early 2028).

My full take on Dimerix: Timing the market or time in the market: The Dimerix Story (ASX: DXB)

Market Cap: $90M
Cash: $11M (cash) + $21M (raise) + $14M (financing available)
Debt: $7M
EV: $65M

(Double check these numbers, a bit tricky to get exact figures because the company is in between raising captial and issuing shares)

What does it do: Paradigm is in the middle of a Phase 3 clinical trial for its pain-relief drug.

Next Catalyst: Interim readout in August.

Armchair Take:

The placement and SPP were done at 19 cents and 17 cents, respectively, and the stock is now trading below that. 

I like that PAR is no longer “come raise” and that it has a meaningful catalyst post-FY26 (the interim results).

There is some concern over the convertible note, which, if not managed properly, could put some downward pressure on the price.

The interim result is still essentially a “binary outcome”.

(Either it works or it doesn’t)

Market Cap: $16M | Cash: $8M | EV: $8M

What does it do: Argenica is developing a treatment for severe stroke.

Next Catalyst: Hold lifted on AGN’s IND.

Armchair Take:

Argenica is an interesting one.

Looking at the chart, you can see the big drop in September; this was because the secondary efficacy endpoint was not met in that trial.

However, if you look more closely at the data, Argenica actually found a “signal” that their product worked in a subset of patients.

This is not new in drug development. 

If you look back at some other drugs, they initially failed at the early stages, not because they didn’t work, but because success had the wrong benchmark.

I think that is what happened with Argenica, and the market hasn’t quite woken up to that.

The company still has some work to do before reaching its Phase 2b trial, including additional benchtop/toxicology work to reinstate the IND.

But as that time approaches, investors may start to become interested again.

Market Cap: $15M | Cash: $26M | EV: -$11M

What does it do: Honestly, I don’t really know. That’s not my bet; it’s trading at negative $11M in enterprise value.

Next Catalyst: Quarterly report. 

Armchair Take:

My thinking is that when the next cash balance reveal comes to market and it realises the vast disconnect between market cap and cash balance, a trade will emerge.

Sellers will have dried up by then, because the tax-loss selling season is over.

I did take a position in GSS earlier this week at 6.8.

Let’s see how it plays out.

I did have Epiminder (ASX: EPI) and Saluda (ASX: SLD) on my shortlist. 

As the two IPO companies from last year have been absolutely hammered.

BUT, I’m just worried about how the escrow unlocks will affect the stock trading, so I’ve parked them for now (even though I think that they’re oversold).

So, let’s see how this goes.

A little experiment to run with the Armchair Army.

(As a phantom trade)

If we bought a basket of these stocks today at the set prices… will they be higher in October?

Let’s find out.

This information is general in nature and does not constitute personal financial advice.

See you all tomorrow,

The Armchair Analyst.