The 10 Most Heavily Shorted U.S. Stocks

Stocks have had a good start to 2012. The blue chip Dow Jones Industrial Average is up more than 6% year to date, and the S&P 500 hit a nearly-four-year high last Friday. So as I've done before, today I'm going to profile the stocks for which pessimism is heavy -- the 10 most heavily shorted stocks on major U.S. exchanges.

The list below looks at the 10 stocks with the highest short interest. I've limited this screen to stocks trading on major U.S. exchanges, and to rule out penny stocks, I set a minimum of $1 a share and required a minimum market cap of $200 million. Finally, I focused on short interest rather than the largest total short positions, because the latter stat predictably skews toward mega-cap stocks and exchange-traded funds with massive trading volume.

Here are the results:

 

Company

Short Interest as % of 
Shares Outstanding

Motley Fool CAPS 
Rating (out of 5)

Market Cap

Diamond Foods (Nasdaq: DMND  ) 48.2% ** $540 million
OpenTable (Nasdaq: OPEN  ) 44.4% * $1.1 billion
KIT digital (Nasdaq: KITD  ) 39.2% *** $529 million
ITT Educational Services 37.4% ** $2.0 billion
SodaStream 37.4% ** $805 million
Coinstar (Nasdaq: CSTR  ) 36.6% *** $1.7 billion
KB Home 36.3% * $937 million
ATP Oil & Gas  (Nasdaq: ATPG  ) 35.7% **** $377 million
Blue Nile 33.7% ** $527 million
GameStop 32.0% ** $3.2 billion

Data from S&P Capital IQ as of Feb. 20. CAPS data from Motley Fool CAPS.

So what?
For balance, I included each stock's Motley Fool CAPS rating, a gauge of the Main Street sentiment. Wall Street sentiment is against these 10 stocks, and with the exception of ATP, the CAPS community is either bearish or neutral.

Why so much pessimism?
Each of these stocks is facing headwinds, either in its core business or in its valuations:

Diamond Foods has been a mess of late. The company's CEO and CFO were fired recently, after the board of directors ruled that financial statements for 2010 and 2011 would need to be restated. Because of that, its deal to buy Pringles from Procter & Gamble fell apart.

OpenTable and Blue Nile have lofty valuations -- P/Es of 54 and 47, respectively. Short-sellers believe those prices to be too lofty.

KB Home and ITT Educational Services are in embattled industries. KB Home has been grappling with the fallout in the housing market (not helping is its huge debt load), while domestic regulations could significantly impact the for-profit education sector.

Also raising eyebrows for its heavy debt load is ATP Oil & Gas, although my colleague Dan Dzombak believes ATP's potential has been ignored.

Doubts persist about whether Sodastream is a fad or for real, and whether Coinstar's bet on the physical delivery of discs (via its Redbox machines) can propel it forward, even against Netflix's streaming model.

Doubts also persist about KIT digital's acquisitive streak and its lack of cash flows, and whether GameStop can turn around shrinking sales.

Many are betting on these stocks' demise. That's not to say the short-sellers are always right -- just that if you own them, you should carefully weigh all that pessimism against your investing thesis. And also, that you should keep closer-than-normal tabs on these stocks.

If you're looking for stocks for which pessimism is less pervasive, click here for a copy of "The Stocks Only the Smartest Investors Are Buying," a new free report that details several stocks for the retail investor.

Fool.com managing editor Brian Richards holds no position in any company mentioned. The Motley Fool owns shares of KIT digital, GameStop, and OpenTable. Motley Fool newsletter services have recommended buying shares of Procter & Gamble, Netflix, SodaStream, Coinstar, Blue Nile, and OpenTable, as well as writing covered calls in GameStop. The Fool has a disclosure policy.


Read/Post Comments (3) | 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.

  • Report this Comment On February 27, 2012, at 10:54 AM, skyisfalling wrote:

    I full heartedly appreciate this article. You know when the news about Redbox and teaming up with Verizon came out I jumped with both feet into CSTR ( I usually don't do that ), I was sort of sucked into it by the media and was perplexed with the share prices dynamics. Now I realize what happened, the shorters took advantage of news ( sell the news ) and left me holding the bag. Thanks.

  • Report this Comment On February 27, 2012, at 5:20 PM, johnmr12 wrote:

    How current is this list? The updated short interest was released today, is this as of today's list or the last update?

  • Report this Comment On February 27, 2012, at 10:31 PM, TMFBrich wrote:

    @johnmr12: This list is as of Feb. 20.

    Best regards,

    Brian Richards

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