8 of the Most Hated Stocks in the Market

One of the most misunderstood aspects of the stock market is short-selling, a process where investors borrow shares of a stock and sell them into the market collecting the proceeds. If the investor is able to buy back the stock at a later date for less than they he sold it for, they keep the difference as profit. Short-selling not only increases market liquidity but it also helps increase market efficiency. A two-way market where investors can both buy and short stocks helps to prevent prices from moving too far away from intrinsic value. Short-sellers are also well-known for doing excellent research and uncovering accounting improprieties, financial embellishment and outright fraud. Although a high short interest in a stock is not necessarily indicative of a bad company, it is something that investors should keep an eye on when picking stocks. Usually high short interest coincides with some sort of headwind for the business or potential downside catalyst. Although heavily shorted stocks can often be great investments it is important to understand why the market is so bearish before buying. Below, Benzinga takes a look at 8 of the most heavily shorted stocks in the market today and examines the reasons why investors are so bearish on these companies' prospects. First Solar FSLR - According to data taken from finviz.com, more than 30 percent of First Solar's float had been sold short in recent days. Despite the bearish sentiment surrounding the name, FSLR had been rallying in recent months prior to the company's first-quarter earnings release on Tuesday after the closing bell. In after hours trading, the stock was down 11 percent after falling more than 4 percent during the regular session. On a longer term basis, FSLR has been crushed, with the stock falling better than 85 percent over the last 5 years. Shifting trends in the solar industry in recent years have weighed on both First Solar and its competitors. The company has been forced to reduce capacity amid cuts to government solar subsidies and a 31 percent decrease in solar-panel prices in 2012. Herbalife HLF - This stock is Wall Street's biggest battleground right now. Roughly 34 percent of Herbalife's float has been sold short, and hedge fund manager Bill Ackman's Pershing Square Capital Management accounts for a large percentage of the short interest. In December, Ackman publicly revealed that his firm was short around $1 billion worth of Herbalife shares at an investment conference. He said that the company was a "pyramid scheme" and that his price target for the stock was "$0." Subsequently, HLF fell sharply before quickly recovering as two prominent investors stepped up to take the other side of Ackman's trade. Dan Loeb's Third Point LLC purchased a 8.2 percent stake in the company as the stock fell in the wake of Ackman's bear raid. Top activist investor Carl Icahn also revealed a roughly 13 percent stake in the multilevel marketer of nutritional and weight-loss products in February. Research in Motion BBRY - This company's business has experienced a long, steady decline at the hands of competitors such as Apple AAPL and Google GOOG. Between the iPhone and the Android ecosystem, Research in Motion's share of the smartphone market has been devastated. Given the realities that this company faces, it is little surprise that the stock is so heavily shorted. Over the last 5 years, shares have lost around 88 percent of their value and Research in Motion's market cap has dwindled to around $7 billion. Currently, around 32 percent of the company's float has been sold short as RIM attempts to resurrect its business with its recent launch of BlackBerry 10. Deckers Outdoor DECK - This one time high-flier fell on hard times in 2012. Over the last year, the stock has lost 48 percent as revenue growth has slowed and profitability has been hurt by rising input costs. The company is the maker of UGG boots and Teva footwear. Falling demand for UGGs, which account for the majority of Deckers' sales, have made this stock a favorite of short-sellers. According to finviz.com, around 39 percent of the company's float has been sold short as the stock continues to attract negative sentiment even after a large decline in 2012. GameStop GME - This stock has been a favorite of short-sellers who view the company's brick and mortar business as being increasingly cumbersome. The short thesis for GameStop is similar to that of companies such as Best Buy BBY and Barnes & Noble BKS who have been hurt badly by the rise of e-commerce. Over the last 5 years, shares of GameStop have lost around 46 percent. Over the last year, however, the stock is up around 9 percent. Nevertheless, traders have been consistently bearish on this name no matter what the near-term price action has been. In recent weeks, around 33 percent of the company's float had been sold short as investors believe there is more downside ahead. J.C. Penney JCP - This company has been attempting to restructure its business under former Apple executive Ron Johnson. Among the initiatives launched by Johnson was a straight-forward pricing model that eschewed frequent sales in favor of everyday low prices. The company, however, began rolling out sales once again in January as the new pricing scheme flopped with consumers. On February 27, the company is expected to report its fourth consecutive quarter of sales and profit declines. Bill Ackman's Pershing Square was the largest holder of the stock as of December 31, 2011 with a near 18 percent stake. Over the last year, the stock is down almost 50 percent and currently around 33 percent of the company's float has been sold short. Tesla Motors TSLA - It is not difficult to understand why investors would be bearish on Tesla's stock. The electric car manufacturer is an unproven company attempting to carve out a niche in a new and competitive market. Using standard metrics, this is an expensive stock. For example, TSLA trades at a forward P/E above 24, a price/sales ratio over 9 and a price/book ratio of 31. Despite the fact that TSLA is a heavily shorted name, the stock has performed well in recent years with shares rising almost 80 percent since their first trading day on July 9, 2010. Nevertheless, traders continue to bet against the name with around 37 percent of Tesla's float currently sold short. Strum, Ruger & Co. RGR - The strategic landscape for Strum, Ruger & Co's business is extremely interesting. On the one hand, the company may face long-term headwinds if more onerous firearm laws and regulations are passed in the wake of shifting gun control sentiment in the United States. The renewed debate over gun control, however, has set a fire under Strum, Ruger's business with record firearm and ammunition sales. Undoubtedly, this is a near-term catalyst for the company, but investors remain concerned about the long-term ramifications of stricter regulations. The share price also faces headwinds irrespective of how the business is performing as large institutional investors have been dumping the stock due to the unfavorable publicity surrounding the company. Many of these large investors may never invest in a gun company again. Although the future of Strum, Ruger is very much in flux, the stock has attracted a significant amount of negative sentiment with almost 37 percent of its float sold short.