5 Stocks That Will Make Big Moves Tomorrow

You will always find us Fools preaching the virtues of buy-to-hold investing. But we're a motley bunch, and we have a little bit of something for everyone. If you get a rush from the wild swings that sometimes surface in the stock market, this article is for you.

These stocks are heavily shorted, which means people are betting they'll go down. When significant news arises, these stocks can make major moves -- either up or down -- based on whether the shorts are right. If the shorts are correct, a stock could plunge. If they're wrong, we could see the creation of an epic short squeeze.

I've identified heavily shorted stocks before, and sure enough, they've made some pretty big moves. For example, when I did this experiment back in April, the average stock I highlighted changed price by an average of 10.4%.

Here are Monday's five stocks to be aware of:

Company

Short Interest

When

Estimated Revenue (in Millions)

Estimated Earnings Per Share

BancorpSouth (NYSE: BXS  )

9%

After market vlose

$173

$0.26

LINN Energy (NASDAQ: LINE  )

5%

Before market open

$569

$0.20

Netflix (NASDAQ: NFLX  )

12%

After market close

$1,100

$0.49

RadioShack (NYSE: RSH  )

36%

Before market open

$893

($0.36)

VMWare (NYSE: VMW  )

12%

After market close

$1,300

$0.82

Sources: Finviz.com, E*Trade.

BancorpSouth
This regional bank, headquartered in Mississippi, is your traditional small- to medium-size commercial bank. Even though 9% of shares sold short isn't an astronomical number, one has to wonder: Why would so many people bet against a small regional bank?

Part of it might be that shares are already up 45% this year, more than doubling the market's return in the same time frame. Much of that gain came after the company announced second-quarter earnings and revealed that it was successfully offering up early retirement buyouts to control long-term costs.

But the other part could be because income from mortgage loans has soared, and those could take a hit when quantitative easing ends and interest rates rise.

LINN Energy
In late June, LINN, an oil and natural gas company with property rights throughout North America's shale plays, took an enormous hit, seeing shares dip by almost 20% when the company announced that the SEC was investigating it based on questionable accounting strategies.

Since then, the shorts have been covering their positions, which is why only 5% of shares are being sold short right now, the lowest of any company on this list. Investors are likely to pay close attention to any answers on the conference call regarding the SEC investigation, as well as comments on the company's move into the Mississippi Lime formation.

Netflix
Anyone who follows investing knows what a roller-coaster ride it's been for Netflix investors. First there was a ride up to $300 in 2011, followed by the nightmare of Qwikster and the botched messaging of rate increases, which sent shares down more than 80%.

But 2013 has been a different story, as shares have risen almost 250%. Investors are banking heavily on two things: the continued successful expansion of Netflix worldwide, and the ability to retain and grow customers in existing markets because of original and rerun content. With shares trading at 400 times earnings, any missteps will have significant short-term consequences.

RadioShack
Yup, that's right: RadioShack is actually still around. It suffered mightily following the Great Recession, and the showrooming phenomenon hasn't helped, in which people use the store to check out the physical products, only to buy them later on Amazon.com.

But shareholders have happily seen their lot improve dramatically in 2013, with shares up more than 60% on the year. A leaner company, combined with a new concept store designs, has investors excited, but the shorts aren't buying it, as more than one-third of shares are sold short. Count me among the non-believers. 

VMWare
Finally, we have VMWare, a company that specializes in cloud infrastructure products. It's been an up-and-down year for shareholders, enduring a 21% drop in January on disappointing guidance, only to be followed by an 18% pop in late July, when the company exceeded earnings expectations.

The key to understanding these moves is that it's been difficult for Wall Street to tell whether VMWare's licensing revenues are stalling or not. Priced at 44 times earnings, if those revenues come in under the expected $545 million, shares could experience more hard times.

There's a better way
Rather than chase after short-term profits, the best investing approach is to choose great companies and stick with them for the long term. The Motley Fool's free report "3 Stocks That Will Help You Retire Rich" names stocks that could help you build long-term wealth and retire well. I own two of these three stocks, and they make up a whopping 14% of my real-life holdings. Click here now to find out what stocks I'm talking about.


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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 October 20, 2013, at 8:58 AM, Netteligent09 wrote:

    Shorts are the best indicators and most knowledgeable investors.

    Netflix and VMware are perfect for Short: high risk, hyper-inflated stocks, and ready for prime.

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