The Nasdaq's 5 Most Hated Stocks

It's been tech boom version 2.0 for the technology-heavy Nasdaq Composite (NASDAQINDEX: ^IXIC  ) , which vaulted higher by an index-topping 38.3% in 2013.

Casting aside any fears of tapering from the Federal Reserve, and with investors giving little credence to bottom-line profits, risk-willing investors gobbled up cloud-computing and next-generation tech companies in droves, sending the Nasdaq Composite to its highest mark in 13 years. Adding to that optimism was stronger-than-expected U.S. third-quarter GDP growth of 4.1%, as well as a five-year low in the unemployment rate at 7%.

But, as we've witnessed in previous months, short-sellers can be somewhat unrelenting on certain stocks when they believe they're right -- and make no mistake, there are warning signs.

Take, for instance, the still wide bifurcation between bottom-line earnings beats and top-line revenue misses with companies in the widely tracked S&P 500. With relatively weak organic growth, many companies have been fueling profit improvements with share repurchase programs and cost-cutting. While improved efficiency and shareholders incentives are a good thing, it could be difficult to maintain these gains over the long run without genuine revenue growth.

With that 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  )

47.03%

Myriad Genetics (NASDAQ: MYGN  )

46.1%

SodaStream International (NASDAQ: SODA  )

40.62%

Ebix

36.56%

Rubicon Technology (NASDAQ: RBCN  )

35.02%

Source: S&P Capital IQ.

Uni-Pixel
Why are investors shorting Uni-Pixel?

  • The rollercoaster ride for Uni-Pixel shares, a maker of flexible touch-screen covers, continued in December, with the company shedding another 22% of its value, finishing the year at $10.01 after touching $41.42 in the spring. A trio of doubts have crept into the picture for shareholders of late, including skepticism surrounding the ability of Uni-Pixel to efficiently ramp up production from nothing to 100% within a year, a fact-finding SEC subpoena regarding the company's InTouch agreements, and, most recently, the departure of both its CEO and COO. To add insult to injury, research firm Cowen downgraded Uni-Pixel to market perform while slashing its price target to $10 from $41 just yesterday.

Is this short interest deserved?

  • Last month I was pretty gung ho about the short case for this company. Following the departure of Uni-Pixel's CEO and COO within the past week, the company's near-term focus could be sorely lacking at a time when it's expected to significantly ramp up its electronic cover production. Putting Uni-Pixel's collaboration and potential in the background, it has a lot of near-term uncertainties to address before it has any chance of a rebound.

Source: U.S. Dept. of Homeland Security, Wikimedia Commons.

Myriad Genetics
Why are investors shorting Myriad Genetics?

  • Speaking of wild years, molecular diagnostics company Myriad Genetics has been clobbered twice. First, a court ruling in June invalidated some of its key patents protecting its BRACAnalysis gene test, which detects the BRCA 1 and BRCA 2 genes -- known to cause an elevated risk of ovarian and breast cancer in carriers -- from competition. This ruling allowed competing tests to enter the market just days later. Then, just last week, the Centers for Medicare and Medicaid Services proposed a 48% decrease in the Medicare reimbursement rate for Myriad's BRACAnalysis gene test. Increasing competition and lower reimbursement rates are an easy ticket to a higher number of short-sellers.

Is this short interest deserved?

  • Similar to last month, there are two distinct cases that could be made here, for and against Myriad. On one side, Myriad's increasing competition and lower reimbursement rates are likely to take a sizable bite into its bottom-line. Then again, an aging population and an increasing push toward personalized care only make genetic tests a more integral part of medical care moving forward. All things considered, though, I would suggest sticking to the sidelines until we have a definitive number for how much the CMS decides to cut Myriad's Medicare reimbursement rates once the open forum period passes on Jan. 27.

SodaStream International
Why are investors shorting SodaStream International?

  • The case against SodaStream remains the same month in and month out -- an expectation by pessimists that weak syrup and CO2 refills will cripple its bottom-line, allowing its peers to grab market share. SodaStream's long-term growth has been questioned on numerous occasions following its 2011 earnings miss, and was only exacerbated in the third-quarter with the company's lukewarm full-year guidance.

Is this short interest deserved?

  • Although growth prospects may not be as robust as certain shareholders would like, SodaStream's growth prospects relative to its current valuation remain very attractive in my eyes. If SodaStream continues to grow independently, there's no reason -- without anything short of an all-out assault from Coca-Cola or PepsiCo., which would cannibalize their own sales -- that SodaStream can't keep growing by double-digits. With a forward P/E of just 15 and a projected growth rate of 19% next year, I believe short-sellers could be in for a rude awakening in 2014.

Ebix
Why are investors shorting Ebix?

  • In a situation similar to the one confronting SodaStream, the month of December didn't bring a lot in the way of relevant news for shareholders in on-demand insurance software provider Ebix, leaving short-sellers with all the more reason to latch onto existing uncertainties. At the top of that list is an ongoing investigation by the state of Georgia into alleged "intentional misconduct" at Ebix. This investigation was the primary reason why a Goldman Sachs subsidiary was able to back out of its proposed $20/share purchase of Ebix last year.

Is this short interest deserved?

  • Having been personally burned by a small-cap Chinese stock in 2011, I'd personally be extremely cautious with a company being investigated for purported "intentional misconduct." Until this gray cloud clears, it's going to be very difficult for investors to trust Ebix's growth figures. In addition, Ebix's third-quarter results, released at the beginning of November, didn't help its cause, with revenue dipping 7% over the previous year as its prior-year acquisition of PlanetSoft negatively affected its top-line. As of now, this is a stock I'd let short-sellers have their way with.

Rubicon Technology
Why are investors shorting Rubicon Technology?

  • Rubicon Technology, a newcomer to the list and a manufacturer of sapphire substrates which are used in light-emitting diode products, has attracted the ire of short-sellers due to its inability to produce consistent growth despite the proliferation of smartphones, tablets, and next-generation televisions. In Rubicon's most recent quarter, the company noted that revenue fell 44% year-over-year as its $0.26 per share loss was $0.04 wider than Wall Street had anticipated. Furthermore, Rubicon's fourth-quarter projections called for sales of about $11 million, which was well below the $13.8 million that the Street was expecting.

Is this short interest deserved?

  • This is one of those cases of a company producing a very cool and usable product, but that product not translating effectively to the bottom-line. Rubicon's biggest issue, really a prevailing issue among most tech companies, is that it doesn't have much pricing power, despite having some key partnerships, including Apple. Until sapphire substrate pricing improves and demand stabilizes, Rubicon's valuation may remain somewhat enigmatic and provide the perfect route for short-sellers to voice their displeasure.

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  • Report this Comment On January 04, 2014, at 3:47 AM, Risky88 wrote:

    MF's front page of their website

    Dumbest things wall street says

    the company missed earning estimates

    ....WOW!

    sorry but the weather is not wrong

  • Report this Comment On January 04, 2014, at 9:46 AM, figglebird wrote:

    Q3 earnings were far from dissapointing. Q4 will punish those who remain behind.

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