2 Stock Picks Punishing Short-Sellers This Month

Short-sellers can't seem to get enough of lululemon athletica (NASDAQ: LULU  ) and Tesla Motors (NASDAQ: TSLA  ) . These are just two of a handful of stock picks that have recently proved that naysayers wrong. In fact, both of these stocks hit fresh 52-week highs this month. But have these names gotten ahead of themselves, or is there more upside from here? Let's take a closer look at whether these stocks can continue to beat the shorts in the month ahead.

Lululemon
The athletic-apparel retailer has bounced back from its March lows, which were a result of a massive recall and wider quality-control issues. Short-sellers rushed into this stock two months ago, after the company was forced to pull more than 17% of its signature luon pants from store shelves because the fabric was too sheer.

However, short sellers certainly felt the squeeze this month, when shares of Lululemon climbed to a new 52-week high of $82. With the run-up in the stock this month, short-sellers are looking for another entry point -- although I'd wait for the company to report earnings on June 10 before betting against it. Lululemon is known for giving conservative guidance.

The Canadian-based company said it expects the recall to hurt its second-quarter earnings. However, there's always the chance that this is at least partially offset by stronger sales in other channels, such as direct-to-consumer. While I wouldn't add to my position in this stock today, I also wouldn't short it ahead of earnings.

Tesla Motors
It's no secret that I'm a longtime fan of Tesla and its outspoken CEO, Elon Musk. However, not everyone shares my enthusiasm for the stock. In fact, when I first bought shares of Tesla in 2011, it was the most shorted stock on the Nasdaq. Since then, short-sellers in this name have been squeezed numerous times. In fact, the stock is up a whopping 245% on the year, with shares gaining as much as 90% this month alone.

Nevertheless, about 28% of the electric-car maker's shares remain sold short today. It's understandable why some investors are betting against Tesla, particularly since Tesla's recent rally has the stock trading at more than 106 times next year's earnings. That said, you'd think the shorts would have learned their lesson by now.

If there's one thing Tesla does well, it is to exceed expectations. Looking ahead, there are more than a few things on the horizon that could keep this stock pick flying high -- for example, the company's plans to expand its supercharger network from coast to coast this year, as well as potential deals with Google for self-driving cars. I suspect Tesla will be around for years to come. Perhaps it's time investors take a long-term approach to Tesla's stock and start playing for keeps.

Tesla's plan to disrupt the global auto business has yielded spectacular results. But giant competitors are already moving to disrupt Tesla. Will the company be able to fend them off? The Motley Fool answers this question and more in our most in-depth Tesla research available. Get instant access by clicking here now.


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