It's never fun to have a losing investment, but the loser stocks you own can offer one crumb of comfort - you can use the losses to offset capital gains elsewhere in your portfolio. If you're like most investors, you may be ignoring the stocks that have handed you big losses because the loss is "just on paper."

Unfortunately, not selling a stock just because it's down doesn't make a lot of sense, since the price you paid for the stock has absolutely no bearing on its future performance. The market doesn't care if you've lost money or made money so far - today's buyers and sellers only care about whether the shares are likely to go up or down in the future.

In fact, delaying the recognition of those paper losses can turn down stocks into even bigger losers. Think about it: If you're down 50 percent on WidgetCo stock, and you don't sell even though the outlook for the company is just awful, you're only asking to lose more money. If, on the other hand, you dump your Widget shares, book the loss, and reinvest the money in a more attractive investment, then you've accomplished three positive things for your portfolio: You've capped your losses on WidgetCo, you've helped reduce your taxes, and you've reallocated part of your personal capital to an investment with better prospective returns.

Last year at about this same time, we mentioned five one-star stocks that we thought would be worth flushing from your portfolio: Charles Schwab, Gateway, Yahoo, Siebel Systems and UAL. Aside from Yahoo, which is only down about 10 percent since then, the rest are all down by 35 percent or more, and UAL just filed for Chapter 11. (Of course, we also suggested buying Qwest, which would not have been such a hot idea.)

So which stocks are candidates for portfolio removal right now? Here are some ideas.

SanDisk and Advanced Micro Devices: The recent run in tech stocks - the Nasdaq is up about 25 percent from its early-October low - has made a lot of technology shares absurdly overvalued. Chip stocks in particular seem to be anticipating a pretty big turnaround in their fortunes, with the semiconductor index up more than 50 percent since early October. SanDisk and Advanced Micro Devices are two stocks that seem like flush candidates. SanDisk has a decent business, but it is trading substantially above our (optimistic) $16 fair value estimate, and AMD is unlikely to ever be more than a distant second in the microprocessor industry.

Lucent Technologies and Nortel Networks: These two companies also appear worth selling. Yes, they're down 90 percent-plus from their peaks, but we think they're both still trading for more than the businesses are really worth. There's little reason to have either one stinking up your portfolio.

Gateway: True, Gateway is trading close to its cash value; however, the company is burning through that cash, and it's unclear when (if ever) the firm will return to profitability - and stocks do go to zero. (Trying to gain market share in a commodity industry when you're not the low-cost producer is not a smart strategy.)

Motorola: The best thing I can say about Motorola is that it's not overvalued. However, the shares look like classic "value traps" that are unlikely to generate decent returns in the future. With low quality of earnings and an unconvincing turnaround plan, I don't see much reason to hang on to this one.

Gilead Sciences and Forest Laboratories: Turning to health care, these two firms both look way overvalued at their current prices. They're both strong companies that would be worth owning at the right price, but Wall Street is so optimistic about their prospects right now that the downside risk is much greater than the upside potential.

Computer Associates International: The final three stocks we recommend selling before year-end fall into the "Why would you own this company?" category. The first, Computer Associates, is the poster child for poor corporate governance, and the opening lines of our current analysis say it all: "Questionable management, quirky accounting practices, an ongoing federal investigation, and deteriorating financial health make Computer Associates a highly speculative stock." Why bother owning this one when there are so many other opportunities out there?

AFC Enterprises: AFC has similar, though not as egregious, issues: loans to corporate officers to pay taxes on a performance bonus, share repurchases from a private equity investor despite AFC's significant debt load and a potential violation of SEC regulation FD (fair disclosure).

Martha Stewart Living Omnimedia: Finally, Martha Stewart's issues have been well-documented, but the Imclone Systems affair demonstrated the fundamental reason for avoiding this company: Despite the firm's best efforts to deepen its bench, the company and the person are still one and the same, which means any reputational or bodily harm to Martha hurts your investment. That's way too much risk for me.