OK, vultures, it's time to start circling the rotting carcasses of the market. It's December, time to begin the annual ritual of picking away at the scraps of tax-loss selling season.

Mind you, a good vulture can't be too hasty in nibbling at the seasonal bargains. Patience is the buzzardword.

There's no point in prematurely swooping down on a stock market casualty with too much meat on its bones. Wait 'til it starts to smell like a Conrad Black expense account or an income trust with a backlog of sardines. Once you see the maggots feeding on your victim, then you'll know that the tax-loss sellers are just about finished their dirty business.

And that's when you may want to take the dive.

December is the time of year when investors with capital gains for the year look to unload their losers so they can write off some losses against those gains. And considering the killing many investors have made from a banner year in the energy sector, there should be some interesting fire sales in stocks vulnerable to tax-loss selling.

Stocks that have fallen off a cliff may look like they're on sale in November, but there's usually one more brisk selloff in December as tax-loss selling season reaches its crescendo. Generally, the prime targets of tax-loss sellers hit bottom in the second or third week in December before rallying in the final few trading days of the year.

In 2004, one of those prime targets was Connacher Oil & Gas (TSX:CLL). From an investment perspective, Connacher had all the appeal of a pile of bones. Early that year, Connacher had traded as high as $1.75, but then the shares fell out of bed as stockholders dumped on discouraging operating results. Finally, the bloodletting was kicked up a notch or two in December when the shares rapidly plunged from 75 cents to 55 cents.

Connacher turned out to be one of the big winners this year. If you played vulture and had the guts to pick Connacher in the 55-cent range, you doubled your money within two months. Within seven months, Connacher was all the rage, largely based on its oilsands exposure, and the stock was a slick four-bagger, up about 300 per cent from its December low. Last year's Hamburger Helper had become this year's prime rib.

Another Calgary oil and gas play that traded at fire-sale prices last December was Antrim Energy (TSX:AEN), an international play that had its stock price cut in half on lousy drilling results at one of its high-impact wells. Antrim shares that bottomed out at 94 cents last December in the height of tax-loss selling season were up 50 per cent by February.

Edmonton biotech company Isotechnika (TSX:ISA) was also taken out to the woodshed and thrashed last December. The stock that had traded as high as $3.40 early in the year traded in the $2.50 range as December hit. Then, in a span of just over two weeks, the shares were beaten down to $2.10. By February, the stock recovered to $3.

Of course, this vulture business can be hazardous to your financial health so investors must be selective as they pick over the carcasses. Sometimes when you're bottom-feeding, you wind up with nothing but a mouthful of maggots. Often, stocks that are prime targets for tax-loss sellers wind up being bottomless pits with a bleak chance of recovery. And some never recover.

For example, if you had bottom-fished battered tech stock Sierra Wireless a year ago in the low $20s when it might have appeared cheap (it had traded as high as $60 in '04), you have not had a good time of it. Sierra shares plunged to $11 by February. By May, they were languishing in the $8 range. And they still haven't recovered.

Among the prime candidates for tax-loss selling on the TSX this year are three Calgary companies that have had brutal years - Grande Cache Coal (GCE), Zi Corp. (ZIC) and CSI Wireless (CSY).

Grande Cache, whose operations have been devastated by shipping problems for its metallurgical coal, is the biggest loser year to date among TSX stocks over $1 with an unsightly 84-per-cent loss. But if you believe the company can turn around its operations, this could be a big winner in 2006.

Zi Corp and CSI have both been punished as a result of disappointing financials in a challenging wireless space. Both are down more than 70 per cent year to date. Yet, these stocks could rebound if they're able to return to profitability in 2006.

Some of the best bargains at this time of year can be found in penny stocks that have taken huge hits this year. At this time of year, the bids dry up on many of the illiquid penny stocks and, as a result, some credible companies are relegated to ridiculously low prices as a result of selling pressure. Yet, greater caution is warranted with penny stocks as volatility generally increases as the market cap decreases.

If some of those rotting carcasses become next year's roses, then you'll have another problem - a mammoth tax bill from your capital gains.

Of course, in that case, vultures, you'll have a friend for life in Ottawa. Ralph Goodale, the finance minister, will love you.

* TRADER WARREN? Maybe we need to get Warren Buffett set up with an online discount trading account. The way Ol' Buy 'N Hold has been busy playing around the market and retooling his Berkshire Hathaway (NYSE:BRK.A) portfolio, he may be jeopardizing his reputation as a long-term holder.

During the quarter ending Sept. 30, Buffett, the Berkshire Hathaway chairman who is generally regarded as the world's greatest stock market investor, pared his weighting in Calgary-based Shaw Communications (NYSE:SJR; TSX:SJR.NV.B) from 22 million to 7.1 million.

Yet, one has to wonder if Buffett has lost some of his clout with investors as Shaw's stock has hardly budged on the headlines, shrugging off the news of Buffett's sale. The Shaw family has also been increasing its position by more than a million shares, which may have tempered the reaction to Buffett's sales.

In recent months, Buffett has also trimmed his company's holdings in Pier 1 Imports (NYSE:PIR) by 58.8 per cent and bolstered his weightings in Home Depot (NYSE:HD) by 400 per cent and Tyco International (NYSE:TYC) by 100 per cent.

You won't find Buffett's stockholders complaining about his recent toying, as Berkshire stock has spiked from $79,000 US a share to $89,500 a share since September and is within striking distance of the 52-week high of $92,000.

But it seems Trader Warren has yet to loosen his brown tie, break away from his philosophy of owning only companies whose businesses are easy to understand and buy something cool such as Google (Nasdaq:GOOG).

How cool is Google?

Shares in the Internet search engine that looked pricey to many at $87 US in the company's initial public offering in August of 2004 recently vaulted the $400 plateau.

Although Buffett has strayed a bit from his conservative stance by becoming more active in the market, he has clearly missed the boat on Google.

* OMINOUS WORDS: "You don't know what you're talking about, but you're still welcome as a shareholder."

- A defiant Conrad Black, then-CEO of Hollinger International, to his critics at the company's 2003 annual meeting two years before he was indicted on fraud charges in the U.S.

Hot Stock

Petrolifera Petroleum Ltd. TSX:PDP

$3.19 Up $1.57 (+97 per cent) on 1.74 million shares (based on weekly stats through Nov. 25 for Canadian stocks over $1)

Just 18 days after listing on the TSX, Petrolifera was the toast of the oilpatch after reporting a "significant" discovery based on encouraging well-test results at its project in Argentina. A stock that was trading a few thousand shares a day recorded a single-day volume of more than 1.6 million shares in its daily 'double.' Connacher Oil & Gas (TSX:CLL), one of the year's hottest plays based on its oilsands assets, boasts a 35-per-cent interest in Petrolifera and hit a 52-week high on the news.

Cold Stock

Granby Industries Income Fund TSX:GBY.UN

$4.61 Down $2.19 (-32.2 per cent) on 614,500 shares (based on weekly stats through Nov. 25 for Canadian stocks over $1)

No shoes, no shirt, no party. While the income trust sector was throwing a bash with a 4.4-per-cent jump as a result of the government backing off on its tough stance, Granby units were unceremoniously slammed on a day when virtually every other trust was getting a nice pop. Unitholders of the storage tank manufacturer were feeling shoeless and shirtless after the company announced it does not expect to meet its 2005 distributable cash target just 18 days after it said was confident it would reach that target.

(Gyle Konotopetz can be reached at gyle@businessedge.ca)