Contrarian Ideas: Stocks on Losing Streaks With Bullish Investor Trends

Interested in contrarian investing ideas?

The following is a list of stocks have had a rough go of it in the past month, but they've been gaining the support of short-sellers and institutional buyers. Is a turnaround imminent?

Here's our screen:

Losing streaks (bearish)
Stocks with a persistence of days in which they recently underperformed the S&P 500 and little persistence in recently outperforming the S&P 500 benchmark are very likely surrounded by negative market sentiment.

These stocks are essentially seeing more down days than up over the past month when compared to the S&P 500 benchmark. Clearly the broader market is pessimistic about the companies listed below.

Short covering (bullish)
Shorting a share involves borrowing the share and immediately selling it with the agreement to buy it back and return it in the future. This is profitable if the share price drops, so short selling indicates a bearish (or pessimistic) view on the stock's prospects.

Therefore when a stock sees fewer shares shorted over time, it indicates greater optimism from investors. We ran a screen with this in mind, looking for a decrease in shares shorted month over month.

Institutional buying (bullish)
Institutions, such as hedge funds, have had net buying of these names in the current quarter. This is seen as a bullish signal because these institutions typically trade in high volume (hundreds of thousands of dollars per trade) and we can assume some serious thought and research went into these decisions.

Yet, clearly, hedge funds disagree with the broader market -- do you think hedge funds are wrong, or do they know something the market hasn't yet priced in?

Business section: Investing ideas
These names have not been doing well in the market, but sophisticated investors appear optimistic. What do you think?

Use this list as a starting point for your own analysis.

List sorted by ticker alphabetically. (Click here to access free, interactive tools to analyze these ideas.)

1. Barnes & Noble (NYSE: BKS  ) : Operates as a content, commerce, and technology company in the United States. The company has a market cap of $682.67 million, most recent closing price at $12.00. Net institutional purchases in the current quarter stand at 7.4 million shares, which represents about 29.2% of the company's float of 25.34 million shares. Shares shorted have decreased from 19.2 million to 17.63 million over the last month, a decrease which represents about 6.2% of the company's float of 25.34 million shares. Days-to-cover ratio stands at 13.88 days. The stock's average daily alpha vs. the S&P 500 index stands at -1.02% (measured close to close, over the last month). During this period, the longest losing streak lasted nine days (i.e., the stock's daily returns underperformed the S&P 500 for nine consecutive days). The longest winning streak lasted two days (i.e., a win streak/losing streak ratio of 0.22).

2. Merge Healthcare (Nasdaq: MRGE  ) : Provides health information technology interoperability solutions. The company has a market cap of $404.99 million, most recent closing price at $4.32. Net institutional purchases in the current quarter stand at 2.2 million shares, which represents about 8.26% of the company's float of 26.62 million shares. Shares shorted have decreased from 7.26 million to 6.95 million over the last month, a decrease which represents about 1.16% of the company's float of 26.62 million shares. Days-to-cover ratio stands at 8.57 days. The stock's average daily alpha vs. the S&P 500 index stands at -1.51% (measured close to close, over the last month). During this period, the longest losing streak lasted six days (i.e., the stock's daily returns underperformed the S&P 500 for six consecutive days). The longest winning streak lasted 2 days (i.e., a win streak/losing streak ratio of 0.33).

3. OCZ Technology Group (NYSE: OCZ  ) : Designs, develops, manufactures, and distributes computer components for computing devices and systems worldwide. The company has a market cap of $286.94 million, most recent closing price at $5.43. Net institutional purchases in the current quarter stand at 5.2 million shares, which represents about 10.53% of the company's float of 49.4 million shares. Shares shorted have decreased from 21.73 million to 20.97 million over the last month, a decrease which represents about 1.54% of the company's float of 49.4 million shares. Days-to-cover ratio stands at 8.94 days. The stock's average daily alpha vs. the S&P 500 index stands at -1.29% (measured close to close, over the last month). During this period, the longest losing streak lasted six days (i.e., the stock's daily returns underperformed the S&P 500 for six consecutive days). The longest winning streak lasted two days (i.e., a win streak/losing streak ratio of 0.33).

4. Orexigen Therapeutics (Nasdaq: OREX  ) : Focuses on the development of pharmaceutical product candidates for the treatment of obesity. The company has a market cap of $263.51 million, most recent closing price at $3.82. Net institutional purchases in the current quarter stand at 12.5 million shares, which represents about 22.95% of the company's float of 54.47 million shares. Shares shorted have decreased from 5.47 million to 4.18 million over the last month, a decrease which represents about 2.37% of the company's float of 54.47 million shares. Days-to-cover ratio stands at 2.41 days. The stock's average daily alpha vs. the S&P 500 index stands at -1.05% (measured close to close, over the last month). During this period, the longest losing streak lasted six days (i.e., the stock's daily returns underperformed the S&P 500 for six consecutive days). The longest winning streak lasted two days (i.e., a win streak/losing streak ratio of 0.33).

5. Xerium Technologies: Engages in the manufacture and supply of consumable products used in the production of paper primarily in North America, Europe, South America, and the Asia-Pacific. The company has a market cap of $79.84 million, most recent closing price at $5.18. Net institutional purchases in the current quarter stand at 521,700 shares, which represents about 7.41% of the company's float of 7.04 million shares. Shares shorted have decreased from 415,540 to 344,860 over the last month, a decrease which represents about 1.0% of the company's float of 7.04 million shares. Days-to-cover ratio stands at 3.72 days. The stock's average daily alpha vs. the S&P 500 index stands at -1.0% (measured close to close, over the last month). During this period, the longest losing streak lasted five days (i.e., the stock's daily returns underperformed the S&P 500 for five consecutive days). The longest winning streak lasted two days (i.e., a win streak/losing streak ratio of 0.4)

Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.


 

Kapitall's Rebecca Lipman does not own any of the shares mentioned above. Data from April 23, 2012. Institutional data sourced from Fidelity, price and short data sourced from Yahoo! Finance. Motley Fool newsletter services have recommended writing puts on Barnes & Noble. The Motley Fool has a disclosure policy.
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