Since everyone loves a winner, it's reasonable to assume that everyone hates a loser -- everyone but short-sellers, at least. These contrarian investors bet that hot stocks are primed to fall, aiming to turn their pessimism into potential profits.
However, now that the SEC's ban on short-selling has come to an end, there will undoubtedly be the temptation to blame the market's broad decline yesterday on a renewed short attack. It’s doubtful that’s the reason, but let’s take a look at companies on the New York Stock Exchange with the largest number of shares short, and also examine whether the short ban had any impact on keeping the shares afloat.
Combining that with the collective intelligence of Motley Fool CAPS, we'll see which of these firms Fools believe still have the power to make short work of short-sellers.
|
Company
|
Shares Short, Sept. 30
|
CAPS Rating (out of 5)
|
Share Price, Oct. 8
|
Share Price, Sept. 18
|
% Change
|
|
Ford (NYSE: F)
|
273.1
|
*
|
$2.66
|
$5.28
|
(49.6%)
|
|
Wachovia
|
199.6
|
**
|
$5.06
|
$14.50
|
(65.1%)
|
|
National City
|
149.2
|
*
|
$2.23
|
$4.38
|
(49.1%)
|
|
Wells Fargo (NYSE: WFC)
|
126.4
|
***
|
$31.90
|
$37.00
|
(13.8%)
|
|
Citigroup (NYSE: C)
|
123.3
|
**
|
$14.40
|
$16.65
|
(13.5%)
|
|
General Motors (NYSE: GM)
|
110.8
|
*
|
$6.91
|
$11.40
|
(39.4%)
|
|
Bank of America (NYSE: BAC)
|
109.3
|
***
|
$22.10
|
$30.58
|
(27.7%)
|
|
Sprint Nextel (NYSE: S)
|
106.2
|
**
|
$4.44
|
$6.28
|
(29.3%)
|
|
Advanced Micro Devices (NYSE: AMD)
|
94.2
|
**
|
$4.05
|
$5.30
|
(23.6%)
|
|
Coeur D'Alene Mines
|
85.1
|
****
|
$1.33
|
$1.82
|
(26.9%)
|
Source: wsj.com. Share counts in millions. *Shares outstanding, minus shares controlled by insiders, restricted stock, and shares held by 5% owners. Short-selling ban went into effect Sept. 18.
Of course, this isn't a list of stocks to buy. These stocks could have serious problems that warranted their short interest, but they might also be stricken by short-term troubles. Only Foolish due diligence will tell you for certain; our 115,000-strong CAPS community offers a good place to start.
The short list
It’s interesting that the top seven stocks above were on the SEC's protected list, yet their shares were among the worst performers during the shorting ban from Sept. 18 to Oct. 8. On average, the "protected" stocks declined 37% over the three-week period, while the three "unprotected" companies -- Sprint, AMD, and Coeur D'Alene Mines -- declined 27% in that period. Those declines are significant, to be sure, but they’re also indicative of the fact that short-selling has played little role in unfairly driving stock prices down.
It's not often that you can bid seven times more than your rival for a company's assets and still walk away with a steal of a deal, yet Wells Fargo managed to do just that when it trumped Citigroup's $1-per-share bid for the corpse of Wachovia with its own $7-a-stub offer. CAPS member YoungInvestor99 points to Warren Buffett's own holdings in Wells Fargo as a sign that frugal, conservative management reigns at the bank -- a trait that will be a key component to surviving the financial mess:
Who was on CNBC lately saying he was buying more of these shares and couldnt resist buying with his own money in the 20's? And that Wells is one of the best run banks right now that is actually lending more money than ever right now?
Oh yeah it was Warren Buffett.
Word is when he became an early buyer, he and Munger bought even more shares when he learned that management made people buy their own christmas trees if they wanted one in the office. They understand frugality at Wells.
Can it be that a telecom provider that appears on the verge of oblivion in the world of current-generation technology will be resurrected by the advent of the next leap forward in wireless communications? Sprint Nextel certainly seems to have all the hallmarks of being able to revive its flagging fortunes, as it unleashes its WiMax service, which promises transmission speeds twice as fast as its rivals. Moreover, top-rated CAPS All-Star mpapile finds Sprint to be priced very cheaply now, although it's vulnerable in a tight credit environment:
It can be liquidated for this much money. I made money in real life in march riding this from $6-$9. The one caveat here is that this company has a lot of debt, and with credit so tight it may have trouble padding its coffers.
Don't sell yourself short
It pays to start your own research on these stocks on Motley Fool CAPS. Read a company's financial reports, scrutinize key data and charts, and examine the comments your fellow investors have made, all from a stock's CAPS page. Then share your views with the CAPS community: Squeeze 'em till it hurts, or short 'em till the sun don't shine? May the best argument prevail!
In the coming weeks, Fool co-founder David Gardner and his Motley Fool Pro team will invest $1 million in a portfolio designed to help you make money in any market. The service, which just launched, will rely heavily on proprietary CAPS “community intelligence” data to establish long and short positions in a broad range of securities, including common stocks, publicly traded put and call options, and exchange-traded funds. To learn more about Motley Fool Pro and to receive a private invitation to join, simply enter your email address in the box below.
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