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 profits.
These are the top companies on the Nasdaq exchange with the largest percentage increases in shares short. Combining that with the collective intelligence of Motley Fool CAPS, we'll see which of these companies Fools believe have the power to make short work of short-sellers.
|
Company
|
Shares Short
April 15
|
Shares Short
March 31
|
% Change
|
% Float
|
CAPS Rating
(out of 5)
|
| E*TRADE Financial (Nasdaq: ETFC ) |
6.2 |
3.6 |
71.7% |
2.5% |
*** |
| Sino Clean Energy (Nasdaq: SCEI ) |
1.2 |
0.8 |
60.5% |
7.8% |
***** |
| Amarin (Nasdaq: AMRN ) |
4.3 |
2.8 |
56.1% |
3.7% |
** |
Sources: wsj.com. Share counts in millions. NM = not meaningful.
Of course, this isn't a list of stocks to buy -- or short! These stocks could have serious problems that warrant their short interest, but they might also be stricken by short-term troubles. Only Foolish due diligence will tell you for certain; our 170,000-strong CAPS community offers a good place to start your research.
The short list
Even though E*TRADE Financial is thought of primarily as a discount broker, presumably generating its money through stock trades, in fact commissions represented only about 23% of its revenues this past quarter. Interest income derived from margin receivables and mortgage-backed securities comprise almost 58% of its total revenues.
It's similar at other brokers. Charles Schwab (NYSE: SCHW ) holds over $8 billion in residential real estate mortgages and 53% of TD AMERITRADE's income comes from non-transaction-based sources.
Of course, it was E*TRADE's mortgage business that almost crushed it when the housing market collapsed. E*TRADE has turned itself around since those dark days, and short-sellers may be thinking the discount broker has achieved something of full value since hedge fund operator Citadel, one of the broker's saviors after injecting much-needed capital into E*TRADE to keep it from going bankrupt, is selling much of its stake. Citadel sold 24 million shares a few months ago and sold another 27 million shares last month. It now has a less-than-10% ownership stake in the broker.
When it was bleakest back in 2008, I had rated E*TRADE to be a successful turnaround story, and while it is not the same company it was back then and has improved its position, it has failed to keep pace with the market. Let us know in the comments section below or on the E*TRADE CAPS page whether this selling by Citadel means individual investors should trade out of the stock, too.
Dirtying its hands
Another potential fraud in small-cap Chinese stocks? Tell me something I didn't already know. Sino Clean Energy should have a lock on the market with its coal-water slurry fuel, which the market analysts at Frost & Sullivan say emits 80% less sulfur dioxide and 49% less soot than an energy-equivalent amount of coal. But short-sellers say that whatever business Sino Clean Energy has, it isn't as robust as the company claims, and suggest the company simply had trucks drive around in a circle to indicate a level of activity that isn't there.
Even if the energy producer is as clean as it claims, investors are not taking chances. Having been burned so many times now, the first whiff of scandal sends them running for the exits. Sino Clean Energy's shares are now almost 75% below the highs attained last November, despite its chairman's purchase of 115,000 shares on the open market as a display of confidence in the company.
While 76% of the CAPS members who have rated Sino Clean Energy believe it will outperform the broad indexes, its one-star rating suggests they also believe there are much better places for your money. You can add the stock to your watchlist or share your thoughts on the Sino Clean Energy CAPS page.
Squeezed to death
Amarin's triglyceride-lowering fish oil therapy AMR101 scored big results when its Anchor clinical trials showed it met all of its endpoints for safety and did what it was supposed to do without raising "bad" LDL cholesterol.
The market potential seems pretty large. Lovaza from GlaxoSmithKline (NYSE: GSK ) , which has been shown to raise "bad" cholesterol in some patients, is still a billion-dollar drug for the company. Abbott Labs (NYSE: ABT ) produces Tricor and Trilipix, and they don't have as good results as AMR101 showed. Investors are hoping someone like Pfizer (NYSE: PFE ) might want a potential blockbuster like that in its portfolio and scoop up Amarin, though even swimming solo it could be a big fish in this otherwise small pond.
CAPS member russellb73 gives Amarin's stock a green thumbs-up:
Read the results of two phase III studies for AMR101....totally better than Lovaza (GSK drug 1 billion in sales). Unless 2 phase III trials are fabricated hard to see how you could lose with this one......I guess someone else finds similar results for specific fish oil protein....otherwise AMRN has a blockbuster.
Add the stock to the Fool's free portfolio tracker to find out if Amarin will swim with the fishes.
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!
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