3 Stocks Burning Their Shorts

Naysayers are losing a lot of money by betting against the wrong stocks these days.

Several of the market's biggest recent winners were trading substantially lower when they were shorted the most. Speculators take short positions when they feel investments will head south, but when things don't play out as planned, they often scramble to cover their bearish wagers. That's a short squeeze, and it's a beautiful thing to see if you happen to be on the long side.

Best Buy (NYSE: BBY  ) , Tesla Motors (NASDAQ: TSLA  ) , and Baidu (NASDAQ: BIDU  ) are three stocks that have been rallying lately, fueling massive short covering.

Let's check out the carnage before moving on to what's been driving each of the three companies higher.

 

Best Buy

Tesla

Baidu

Peak Shorts

11/30/12

3/15/13

6/14/13

Shorts

36.9 million

32.3 million

15.5 million

Price

$13.11

$35.29

$98.00

Shorts Now

22.2 million

20.3 million

9.0 million

Price Now

$35.81

$166.45

$138.98

Gain

173%

372%

42%

Source: Nasdaq.com

There are a lot of numbers in that table, but let's break it down company by company.

Best Buy has seen its shares nearly triple since bearish activity peaked ahead of last year's holiday shopping season. There were plenty of doubts about the chain at the time. Sales were slipping. It was too early to trust the new CEO's turnaround strategy.

Sales growth remains hard to come by now, but Best Buy did surprise investors by posting earnings growth in its most recent quarter. It remains a challenging turnaround at Best Buy, but skeptics figuring that this was the next Circuit City now realize that there may be some more life to the consumer electronics superstore chain.

Tesla's been one of this year's biggest winners, and it's nearly a five-bagger since its shorts topped off in mid-March. The debunking process at Tesla has come from well-received moves by the company to make owning a car easier, with financing plans that may translate loosely into leases, and more convenience with its growing fleet of charging stations around the country. Tesla also stunned the market with an earlier-than-expected push into profitability.

Tesla's still only selling hundreds of cars a week -- and the $20-billion market cap isn't for the weak of heart -- but with the prospects of more economical cars, and perhaps even self-driving cars on the horizon, the naysayers have found it safer to boo from the sidelines.

Then we have Baidu. The 42% gain at China's leading search engine may seem lame when stacked against Best Buy and Tesla, but keep in mind that's its happened in a little more than two months. There were 15.5 million shares betting against the fallen dot-com darling in mid-June, but more than a third of them went on to cover after Baidu redeemed itself this summer through a strong quarterly report and a game-changing acquisition that makes it a force in mobile.

Skepticism is a noble trait, but sometimes it can cost you.

3 more investments ready to take off
To learn more about a few ETFs that have great promise for delivering profits to shareholders, check out The Motley Fool's special free report "3 ETFs Set to Soar." Just click here to access it now.

 


Read/Post Comments (0) | Recommend This Article (2)

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.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2616335, ~/Articles/ArticleHandler.aspx, 11/25/2014 5:16:30 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement