Is Now the Time to Short Stocks?

Last month, we introduced you to two of our most popular indexes in the stock-picking realm of Motley Fool CAPS: a portfolio of five-star stocks, and a corresponding portfolio of one-star stocks.

That's the long and the short of it
With each, we Fools are seeking to learn what stocks are worth betting on, and which are worth betting against. But we also want to know which strategy pays more. Is it better to bet long? Or is it better to be short?

So far, it's the latter. Here's the breakdown:

Metrics

5-Star Index

1-Star Index

Player rating

80.90

98.34

Rank

6,934

602

Score

3,129.84

3,580.96

Accuracy

47.36%

57.11%

Source: Motley Fool CAPS; data current as of Sept. 25.

What stands out for me here is that, when it comes to shorting in CAPS, it's easier to pick a market-beater. Perhaps that's because of the crazy gyrations the market has been experiencing recently?

Perhaps. But I also find it interesting that the biggest winner for the five-star index, Aluminum Corp. of China, has returned almost triple the gains of American Home Mortgage, which is the top short for the one-star index.

Meanwhile, the biggest loser among the five-star stocks dropped roughly 46% versus the S&P 500. That compares well to the breathtaking 522-point drubbing the one-star index has taken on DryShips. (It's hardly alone.)

What they're buying and selling
Here are three top performers recently added to the one-star index:

Company

Currently Fetching

Recent Return

AtheroGenics

$1.75

46.67%

Green Plains Renewable Energy (NASDAQ:GPRE)

$10.32

41.10%

M/I Homes (NYSE:MHO)

$13.76

25.61%

Sources: Motley Fool CAPS, Yahoo! Finance.

And here are three top performers added to the five-star index:

Company

Currently Fetching

Recent Return

Applix (NASDAQ:APLX)

$17.78

21.48%

Excel Maritime Carriers (NYSE:EXM)

$57.50

21.05%

Ctrip.com (NASDAQ:CTRP)

$51.61

18.36%

Sources: Motley Fool CAPS, Yahoo! Finance.

Of these choices, I'm particularly fond of Applix, which is a Rule Breakers pick. Trouble is, Cognos (Nasdaq: COGN  ) recently acquired Applix for $17.87 a share -- a steep discount to the $28 or so a share that the company is actually worth. What a shame.

And yet we move on. If I have to choose a second option, I choose to short penny stock AtheroGenics, whose signature drug, AGI-1067, suffered a heart attack when AstraZeneca announced that it was ineffective in a large-scale trial.

Why short a stock already down more than 40%? Well, I'm not much of a biotech investor, but I pay attention when smart biotech followers like Foolish colleague Brian Lawler speak out. Quoting from his most recent take:

AtheroGenics' decision to immediately rush into a large and more expensive clinical trial without even an interim study in between is curious. The drugmaker is trading at a low $70 million valuation, but investors who buy into shares today shouldn't get their hopes up for the outcome of the diabetes study until AtheroGenics publishes more evidence corroborating AGI-1067's efficacy and safety ...

Intrigued? Do your own due diligence and then check in with thousands of other investors at CAPS. And, if you'd like, add your own commentary. You'll be helping your fellow Fools and testing your ideas at the same time. Click here to get started now; the service is 100% free.

See you back here next month for more picks from our CAPS contingent.


Read/Post Comments (0) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 537442, ~/Articles/ArticleHandler.aspx, 9/17/2014 11:45:07 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement