The Nasdaq's 5 Most Hated Stocks

The technology-heavy Nasdaq Composite (NASDAQINDEX: ^IXIC  ) may be in the midst of a rare three-day losing streak, but you'd hardly know it, considering that it's crossed the 4,000 mark for the first time since 2000 and is currently up 34% -- or more than 1,000 points -- for the year! The stock market has historically averaged annual returns of 8% to 10% depending on the index, putting this year in line to be one of the strongest performances in history.

An ongoing monetary easing program from the Federal Reserve known as QE3, which has helped keep lending rates low and investors happy, continues to lead the charge higher. The unemployment rate is also hovering near a six-year low, while homebuilder sentiment and new home sales are near a six-year high. Add the fact that third-quarter U.S. GDP growth was a much higher-than-expected 2.8%, and you have what looks like a growing economy.

However, not everyone is on board with this rally. Plenty of skeptics point to steep cost cuts and share buybacks, which have driven bottom-line beats but led to a disappointing number of companies topping their sales expectations. Also, once the Fed begins to taper QE3 -- which is just a matter of time now -- there's the possibility that the housing and banking sectors could feel the pinch as mortgages and loans in general dry up (if lending rates rise as predicted, that is).

Keeping this in mind, I'm suggesting we do what we do every month: take a deeper dive into the five most hated Nasdaq stocks to see what characteristics, if any, they might share in order to avoid buying into similar companies that have drawn the ire of short-sellers.

Here are the Nasdaq's five most hated stocks:

Company

Short Interest as a % of Outstanding Shares

Uni-Pixel (NASDAQ: UNXL  )

51.63%

SodaStream International (NASDAQ: SODA  )

43.48%

Myriad Genetics (NASDAQ: MYGN  )

41.95%

Ebix

38.58%

Dendreon (NASDAQ: DNDN  )

36.95%

Source: S&P Capital IQ.

Uni-Pixel
Why are investors shorting Uni-Pixel?

  • Uni-Pixel, a maker of flexible touch-screen covers, has delivered nothing short of a rollercoaster ride for shareholders in 2013. From a low of $7.25 to a high of $41.42, and now back to a close yesterday in the $11's, Uni-Pixel has collected a growing number of skeptics. On one hand, they are concerned that a company which has never mass produced products before is suddenly ramping up production to go from zero to full tilt! In addition, Uni-Pixel shares slumped two weeks ago after Barron's reported that the SEC had subpoenaed the company concerning its InTouch agreements. This is just a fact-finding SEC inquiry; nonetheless, it represents a level of uncertainty that could drag shares down further. 

Is this short interest deserved?

  • Based on the fact that the company is still ramping up its production facility and didn't generate a lick of revenue in its most recent quarter, you can bet that I agree wholeheartedly with short-sellers in this instance. There are so many question marks here, such as whether or not Uni-Pixel can deliver without too many hiccups, or even be profitable in the first place. Not to mention that Apple has been rumored as a potential competitor, one that could easily have its way with Uni-Pixel. I would strongly suggest waiting for Uni-Pixel to prove its worth before betting on a rebound.

SodaStream International
Why are investors shorting SodaStream International?

  • The bet against SodaStream has revolved around the same two factors for the past couple of months: the expectations that PepsiCo. or Coca-Cola could do something similar and crush the much smaller SodaStream, or that growth for its CO2 refills would slow, which could do something similar to what happened in 2011 when SodaStream lost half of its value. The contention that SodaStream is overvalued has been somewhat thrown out the window, however, with sales expected to grow by 19% next year and the company valued at just 17 times forward earnings.

Is this short interest deserved?

  • Believe it or not, I think short-sellers are nuts in this instance. As I mentioned above, SodaStream's valuation isn't bubbly by any means, and it's giving consumers a unique way to control their soda-drinking experience. If PepsiCo or Coca-Cola isn't smart enough to snatch up SodaStream, then I'd be shocked if another company or group of investors didn't try to purchase it within the next couple of years. This holiday season will make or break SodaStream's next quarterly report, but I remain convinced that SodaStream is in better shape than most investors give it credit for.

Myriad Genetics
Why are investors shorting Myriad Genetics?

  • Molecular diagnostics company Myriad Genetics is a newcomer to the Nasdaq's most hated list, but the skepticism is certainly not without reason. First, Myriad suffered a mixed court decision earlier in the year that invalidated some of the patents allowing it to exclusively sell its BRACAnalaysis BRCA gene test -- the same test that helped Angelina Jolie discover she carries the BRCA gene which carries an increased risk of breast and ovarian cancer. Because of this, Myriad is now facing stiff competition for its BRCA gene test. Also, Wall Street analysts have been raising concerns that there could be hefty Medicare reimbursement cuts on the way from the Centers for Medicare and Medicaid Services, further pressing on Myriad shares. 

Is this short interest deserved?

  • This is really a tough call. On one hand, I see an incredible future in personalized medicine for diagnostic testing manufacturers like Myriad. Also, the majority of its patents were upheld in court, meaning it still has quite a lot of proprietary value. On the flipside, there's a very real threat that the CMS is going to continue to adjust Medicare reimbursement rates lower due to Obamacare, and that competition for its BRCA gene test will only increase. Over the short-term, this pessimism may be warranted, especially when emotions have the better of investors. Over the long run, though, I believe Myriad has the potential to surprise investors with its innovative capabilities.

Ebix
Why are investors shorting Ebix?

  • Ebix, an on-demand software provider to the insurance industry, continues to be haunted by short-sellers ever since an investigation into "intentional misconduct" was opened by the state of Georgia, and a subsidiary of Goldman Sachs backed out of purchasing Ebix for $20 per share based on this material change in events.

Is this short interest warranted?

  • Until Ebix's investigation clears up, I don't really see any reason for short-sellers to relinquish their stranglehold on this company. Furthermore, Ebix's most recent quarterly report didn't exactly give optimists anything to get excited about, with its revenue falling 7% on a year-over-year basis due to negative currency translations and delays associated with its acquisition of PlanetSoft in 2012. This is a company short-sellers have every right to be skeptical of at the moment.

Dendreon
Why are investors shorting Dendreon?

  • Struggling biopharmaceutical company Dendreon continues to draw the ire of short-sellers because of its miserable management of its lead drug, Provenge. Projected to deliver peak sales north of $4 billion at one point, metastatic prostate cancer immunotherapy vaccine Provenge will be lucky to top out around $400 million to $500 million in sales given how fierce competition is in the U.S. and EU. Dendreon has also been burning through its once-amazing cash pile, and is in the process of its second restructuring since last year.

Is this short interest warranted?

  • Dendreon's share price is definitely getting low enough where shorting may no longer be the smartest thing to do here, just in case a suitor does step up and decide to buy the company to gain a hold of Provenge as well as Dendreon's proprietary immunotherapy platform. Dendreon is also moving to drastically cut costs, and will continue to work toward profitability by shaving costs further. Although that doesn't bode well for its long-term growth outlook, it should keep Dendreon from burning through a copious amount of its remaining cash on hand. I'm still not a fan of Dendreon here, but with the vaccine now approved in the EU and more cost cuts on the way, I'm willing to be lured into giving Dendreon one more chance to prove that it belongs.

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  • Report this Comment On December 05, 2013, at 7:31 PM, tomdickandharry wrote:

    You don't have to tell me about SODA or PRLB, LF,

    FB, etc., I'm down $35,000 since I became a fool in October and I'm pissed.

    Tom, dick and Harry

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