These 10 Stocks are Heavily Shorted
Keeping an eye on stocks that are being heavily shorted — stocks with high short interest — can be useful to traders. Typically, short sellers will target companies with poor business models, questionable accounting practices, or a combination of both.
Frequently, when a stock is so heavily shorted, the shorts will wind up being correct and shares will fall — eventually. Even if a trader doesn’t want to follow in with their own short position, they could consider using high short interest as an reason to exit their position in the stock.
On the other hand, stocks that are heavily shorted might see short, powerful rallies. If a company defies the shorts and posts incredible results, shares frequently see a large move to the upside as shorts move to cover their positions; buying shares en masse to limit their losses.
Here are a list of 10 heavily shorted stocks and why short sellers might be interested in the names:
Barnes & Noble (NYSE: BKS): This book retailer has a short interest of more than 30 percent. Barnes & Noble is clearly facing secular headwinds, as its largest competitor — Borders Books — exited the sector last year due to bankruptcy. Amazon (NASDAQ: AMZN) is able to offer books online at a cheaper price due to its reduced overhead, and it has made the Kindle (and its digital books) a household name.
However, Barnes & Noble has fought back against Amazon with its own Nook lineup and digital store, and Microsoft (NASDAQ: MSFT) gave the company a $300 million investment earlier in the year.
Coinstar (NASDAQ: CSTR): As a business, Coinstar is more valuable for its Redbox kiosks than the change machines from which the company derives its name. Renowned short seller Jim Chanos named the company as one of his targets earlier in 2012, explaining that demand for Redbox’s products (DVD rentals) would vanish as more and more consumers opted to stream content directly to their homes.
Coinstar has a short interest of about 35 percent. The company may be able to defy the odds if it can use its expertise in vending machines to expand into markets; most recently, Coinstar inked a deal with Starbucks (NASDAQ: SBUX) for coffee vending machines.
Deckers Outdoor (NASDAQ: DECK): This shoe company owns a number of brands, but its performance has largely been dominated by one in particular: UGGs. As UGG boots gained in popularity, shares experienced a sustained rally, gaining almost 10 fold from the beginning of 2009 to the beginning of 2012. But, as with all matters of fashion, the popularity of UGGs has wavered, and shares have been more than cut in half this year.
Deckers Outdoor has a short interest of about 45 percent. The company might bounce back if it could re-energize its UGG brand, or perhaps another one of its brands could catch on.
First Solar (NASDAQ: FSLR) Shares of the solar panel manufacturer are down significantly from its 2011 high. That said, short sellers must think there is more room for shares to fall. First Solar short interest is currently more than 45 percent.
Many of the alternative energy companies, including First Solar, depend on government subsidies for much of their business. With budgets around the world being squeezed, this funding could increasingly dry up. There’s also the issue of shale oil: U.S. oil production is now expected to top Saudi Arabia’s by 2020, thereby lowering the impetus to switch to alternatives.
But, with President Obama winning a second term, it might be too soon to dismiss alternative energy plays like First Solar. Further, at these levels, the company might be fairly valued.
Gamestop (NYSE: GME): The video game retailer has a short interest around 35 percent. The chain is facing a number of secular headwinds, as video game players opt to order their games online or download the games over the Internet. Overall, video games sold at retail have been declining for months.
The company has attempted to diversify, working to develop a used tablet business — it has been refurbishing consoles for years — and has stepped into the mobile computing world.
J.C. Penney (NYSE: JCP): This could be a case of boom or bust. CEO Ron Johnson took over in 2011 and began to immediately work to transform the company. Unfortunately for him, and hedge fund manager Bill Ackman (who owns a large stake), the turnaround has floundered. Most recently, J.C. Penney posted a disappointing quarter, where the company blew through much of their cash.
But Ackman stands by the retailer and Johnson’s turnaround plan. The ride might prove bumpy, but in the end, things might work out — Johnson’s mall-within-a-mall concept certainly is intriguing.
J.C. Penney has a short interest of around 30 percent.
KB Home (NYSE: KBH): A major trend of 2012 has been the turnaround in the housing market, and most certainly housing-related stocks. KB Home has benefitted, as shares have more than doubled this year.
With a short float near 40 percent, some traders may be thinking that the move is overdone at this point. In its last earnings call, KB Home management detailed how it would work to be aggressive, and how it believed that it the housing market really has “turned.”
Betting against KB Home may just be a broader bet against the U.S. housing recovery.
OCZ Tech (NASDAQ: OCZ): This tech manufacturer is an interesting short. The company is in a sector that is experiencing growth (solid state drives), but is highly shorted.
Much of the roughly 30.3 percent short interest might be due to questions surrounding the company’s accounting practices. Back in August, OCZ had to delay its quarterly filing, and on Wednesday, the company disclosed that it was being investigated by the SEC.
Ultimately, the SEC might fail to discover anything noteworthy. Also, the company has widely been thought to be considered a takeover candidate, although it is hard to see why another company would acquire OCZ during an SEC investigation.
RadioShack (NYSE: RSH): RadioShack, like Gamestop, is experiencing a secular decline in the demand for its products. Short interest is around 37 percent, as traders may doubt the viability of its electronic sales model.
Still, RadioShack is almost 100 years old. Its name originates from its original purpose: a store to sell radios and radio equipment. Over those years, the company has shifted its model and the goods it sells numerous times. Perhaps it is too soon to count out this scrappy retailer.
Skullcandy (NASDAQ: SKUL): This headphone company has more short interest than any other on this list, coming in at over 50 percent.
Short sellers may have fundamental problems with the company’s business model. Skullcandy is a publicly traded company that sells stylish headphones. Producing headphones can no doubt be profitable, but generally speaking, that sort of operation makes up just one department of a larger company (Sony (NYSE: S), Apple (NASDAQ: AAPL), etc.).
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