Everyone loves a winner. It's reasonable to assume, then, that everyone hates a loser. Yet with investing, that's not always the case.
Contrarian investors love to pick through stocks that others have cast away. Value investors are the garbage-divers of the marketplace. Conversely, when stocks have a big run-up, some investors like to bet against them. Those investors are called short sellers, and they bet that a stock is primed for a fall.
What goes up must come down
If a stock lands high on a short interest list, it doesn't necessarily mean there's cause for concern. Sometimes, it can even work in our favor. If the short seller made the wrong bet and the stock price rises, that person can continue losing money, so long as the stock is climbing.
So shorts tend to "cover" their positions quickly if things don't go their way, which can fuel further jumps in the stock price. That, in turn, can cause more shorts to cover, creating what's called a "short squeeze," and it can make a stock's price rise dramatically! Maybe we can use that to our advantage.
Here's a list of stocks that have some of the highest short interest ratios. That ratio measures how many days it would take for all of the shorts to cover their positions. The greater the number of days, the greater the chance shorts can be squeezed. We then turn to the collective intelligence of the Motley Fool CAPS community to learn which of these stocks -- if any -- Foolish investors think have the power to make short work of short sellers.
Last time around, Parkervision had the most number of days to cover, with 51. That's now dropped to 41 days, but its price has also crept down by a little more than 1% since then. Perhaps the threat of a squeeze is abating. Preformed Line Products has seen its stock rise by more than 15% -- and its short interest drop 63% -- since we first profiled it as a stock with a high number of days to cover. Here's this week's list:
|
Company
|
Price
|
Days to Cover
|
CAPS Rating (out of five)
|
|
Big Dog Holding (Nasdaq: BDOG)
|
$17.51
|
100
|
*
|
|
3D Systems (Nasdaq: TDSC)
|
$19.65
|
55
|
*
|
|
Universal Display (Nasdaq: PANL)
|
$17.64
|
53
|
****
|
|
Enzo Biochem (NYSE: ENZ)
|
$16.99
|
40
|
*
|
|
Winnebago (NYSE: WGO)
|
$33.96
|
35
|
*
|
Days to cover provided by Nasdaq and represent most recent data. CAPS rating courtesy of Motley Fool CAPS. Prices as of market close on April 17.
Of course, this isn't a list of stocks to buy -- or short! Maybe these stocks have some serious problems that warrant the high short interest. Maybe not. What do you think? Will they be squeezed?
Tapping the CAPS advantage
Over on CAPS, more than 27,000 investors like you are looking over these same stocks. Some they like, some they don't, and they all vote on how they feel about them. Sometimes, though, the stocks that Foolish CAPS players like cross swords with those that short sellers don't.
While Fools don't seem to think too much of this bunch, there may be something to be said for Universal Display, a maker of organic LED flat-panel display technology. Perhaps short sellers are thinking its move away from research grant funding is a risky maneuver. Nearly 300 investors have weighed in on the OLED leader, though, and 96% think its technology will revolutionize the industry and its stock will beat the market.
Here's what some of the bulls are saying:
-
PurpleBoobies says Universal Display's PHOLED technology "will transform the display industry, from tiny 2 inch displays all the way up to HDTV screens," and will change the lighting industry as well.
- Top-rated CAPS All-Star Ganndalf notes that the company "gets a cut of all OLED sales from Samsung SDI. This is a technology that is right now moving from a long R&D phase into the real commercial mass production sphere."
With a number of states considering restricting incandescent light bulbs and Australia and the European Union moving to an outright ban within a few years, LED technology might profit from the situation. It's certainly something tiny Cambridge Display would hope for, but might those developments lead to a short squeeze, too? The number of days to cover has been increasing since the beginning of the year.
Yet maybe there's reason for the high short interest. Kodak (NYSE: EK) pioneered development of OLED technology, and in partnership with Sanyo Electric, it is creating a low-temperature, thin-film transistor that -- when combined with OLED -- could be seen as a big threat to LCD technology. The payoff for Kodak could eclipse that available to Universal.
Speak up
You've heard from the CAPS players. Now it's your turn to have a say. On Motley Fool CAPS, your opinion counts just as much as the short sellers'. Tell us what you think: Squeeze 'em till it hurts, or short 'em till the sun don't shine. May the best argument prevail!
Universal Display is a recommendation of
Motley Fool Rule Breakers.
Fool contributor Rich Duprey does not own any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.
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