Tax-loss selling has hit some stocks especially hard this year, so Evercore ISI recommends picking through those companies for the ones with the right attributes that will turn them into "gifts" for patient, long term investors. A team led by Julian Emanuel, head of equities, derivatives and quantitative strategy, produced a list of stocks that are eventually expected to do well. "Stocks which have endured historic tax-loss selling pressure yet have favorable earnings, short interest and price momentum profiles headed into the New Year could prove to be `gifts' for patient long term investors," he wrote in a note. While tax-loss selling will continue into the holidays, Emanuel says opportunities are already emerging. Tax loss harvesting occurs when investors sell losing investments, take the loss and use those tax losses to offset out capital gains elsewhere, or a limited amount of ordinary income. Evercore ISI gleaned its list of candidates from Russell 3000 stocks that had steeper-than-average declines from pandemic peaks. They are in the bottom half of the index and are still underperforming year-to-date but show signs of stabilization since the October low. They also are expected to see 2023 profits and offer have a better profile with profits expected in 2023 and upward earnings revisions since the end of the third quarter. They also have higher than normal short interest, with short interest in the upper half of their two-year ranges. Some of the stocks on Evercore ISI's list include health care companies STAAR Surgical and Progyny. There are also tech stocks Snowflake and Dynatrace and communications services company, Pinterest. "While such stocks are likely candidates for continued tax-loss selling by current holders all the way until the Holidays are upon us, their stabilizing price action, earnings outlooks, and relatively high levels of short interest may produce opportunities," Emanuel wrote. Emanuel said the higher earnings revisions in these stocks contrast with his expectations that earnings will broadly decline 7% in 2023. Consumer discretionary stocks Gap Inc. and Signet Jewelers also made the list. In a broader view, Emanuel recently raised his rating on the consumer discretionary sector to in line. He notes it is trailing the S & P 500 by 19% this year, and some discretionary names rank prominently on his "gift box" list. The sector is a historic outperformer when growth is slow but inflation is falling. "In our Defense playbook for 2023 are Consumer Staples and Health Care, sectors that outperform when inflation is high but fall while growth remains slow," he wrote. He also likes energy, which he notes is already pricing in recession, unlike other sectors.