3 Nasdaq Stocks Investors Love to Hate

The Nasdaq may be approaching another multi-decade high, but don't tell that to short-sellers in these three most hated stocks.

Jun 4, 2014 at 6:16PM

Don't look now, but it appears that the technology-heavy Nasdaq Composite (NASDAQINDEX:^IXIC) is again slowly marching toward a multi-decade high. Just when it looked as if a viable correction in social media and biotechnology stocks would drag down the mighty Nasdaq, a slew of positive economic data followed by a rebound in highly volatile stocks has led the index higher once again.

Nasdaq

On the surface there are plenty of factors that could help push the Nasdaq even higher. The U.S. unemployment rate, for example, touched its lowest levels in years recently at 6.3%, implying that people are having an easier time finding work. In addition, a lower unemployment rate would suggest that consumers have more disposable cash to spend. Since consumer spending accounts for roughly 70% of GDP, the precipitous drop in the unemployment rate is pivotal to a growing economy.

Aside from the unemployment rate, a number of other metrics have been improving, including factory orders, which hit an all-time high earlier this week, as well as housing prices, which, according to the Case Shiller 20-City Index, are seeing increases of better than 12% year over year.

However, you won't have to look far to find investors who are utterly opposed to the Nasdaq heading any higher -- and with good reason. The unemployment rate, for instance, is primarily down because the labor force participation rate has been dropping for the better part of the decade as baby boomers retire and drop out of the workforce. In terms of real non-farm jobs growth, we're basically flat over the past six years.

Additionally, top-line corporate growth has been practically nonexistent, with companies turning to cost-cutting and share buybacks in order to give the appearance that their bottom lines are growing. While this does work for short periods of time, cost-cutting and share buybacks aren't long-term solutions to replace a lack of organic growth.

With this in mind, let's do what we do every month: take a deeper dive into the three 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 three most hated stocks:

Company

Short Interest as a % of Outstanding Shares

Myriad Genetics (NASDAQ:MYGN)

48.06%

World Acceptance (NASDAQ:WRLD)

40.35%

VIVUS (NASDAQ:VVUS)

35.62%

Source: S&P Capital IQ.

Myriad Genetics
Why are investors shorting Myriad Genetics?

  • Another month may have passed, but not a lot has changed with the bear thesis against molecular diagnostics company Myriad Genetics. At the center of investors' skepticism is the fact that its BRACAnalysis test used to test for the BRCA 1 & BRCA 2 genes makes up close to 70% of its total revenue. This weighting wouldn't be so concerning had the company not had select patents invalidated last year which had been protecting BRACAnalysis from competition. In addition, the Centers for Medicare and Medicaid Services, which proposes reimbursement rates for these tests, enacted a hefty Medicare price cut for the upcoming year. Added together, increased competition for its lead product and reduced Medicare reimbursement rates have investors thinking that Myriad could be in trouble. 

Is this short interest warranted?

  • It's possible that both the aforementioned factors could eat into Myriad's BRACAnalysis sales, but the time to bet against Myriad Genetics appears to have come and gone. The company's diagnostics portfolio is rapidly expanding and presentations at the American Society of Clinical Oncology just this past week show that its BRACAnalysis CDx test used as a supporting diagnostic in metastatic breast cancer patients helped lead to a better than doubling in platinum-based therapy response rates for the screened group compared to the non-screened group. In other words, the opportunity for companion diagnostic tests and personalized medicine is only increasing, which, when added to recent purchase of Crescendo Bioscience in February, gives Myriad a better than 50-50 shot at long-term success, in my opinion.

World Acceptance
Why are investors shorting World Acceptance?

  • Similar to last month, payday lender World Acceptance finds itself among the Nasdaq's 3 most hated stocks following an ongoing investigation into possible violations of consumer protection laws by the Consumer Financial Protection Bureau. Although World Acceptance has asserted that it's done nothing wrong, it certainly didn't sit well with investors yesterday when it was announced that its auditor, KPMG, needed additional time to finishing auditing the company's financial results for the year ended March 31, 2014.

Www
Source: HelenCobain, Flickr.

Is this short interest warranted?

  • Generally speaking, payday lenders have a pretty simple life: They charge high interest rates on short-term loans and often come out ahead even with a high non-collection rate. However, an investigation into possible violations of consumer protection laws is an easy reason for optimists to draw the line and cut their ties from World Acceptance. It's quite possible that the company has done nothing wrong, and if that's the case it could shoot right back up to a triple-digit share price. But if the CFPB does find that World Acceptance has violated some tenets of the consumer protection laws, it's possible the company could face hefty fines and a damaged reputation that adversely affects its business for years to come. Even though the company appears cheap at just six times forward earnings, I wouldn't be charmed by its valuation just yet, and would patiently wait for the CFPB's findings before making a move as a buyer or short-seller.

VIVUS
Why are investors shorting VIVUS?

  • Lastly, we have weight control drug producer VIVUS, which continues to attract the vultures following another disappointing quarter for weight-loss drug Qsymia. For the first quarter, total prescriptions filled dropped nearly 3% to 121,000 from the 124,000 it logged in the sequential fourth quarter. Thankfully for shareholders, milestone revenue from its licensing of Stendra/Spedra has kept VIVUS from sinking even further, as has a recent 13-D filing from Aspen Investments revealing a 9.65% stake in the company and announcing Aspen's possible intent to make up to a $640 million bid for the company by June 13. With losses expected for at least the next few years, short-sellers are not sold on VIVUS' ability to survive without heavy dilution.

G
Graph by author, Source: VIVUS quarterly filings. 

Is this short interest warranted?

  • Of the three stocks mentioned here I would say that VIVUS is the most logical short-sale opportunity by a long shot. Sales of Qsymia, despite having blockbuster potential when approved, have been absolutely abysmal. Qsymia already has a less favorable safety profile when compared to its peer, has had difficulty getting insurers to jump on board and cover its weight-loss drug, and, to add icing on the cake, has no marketing partner. Making matters even worse, clinical-stage competitor Orexigen Therapeutics (NASDAQ:OREX) has already run a massive cardiovascular outcomes study for its investigational weight-loss drug Contrave, which showed it did not increase the potential for adverse cardiovascular events in an interim analysis. Long story short, if approved it's likely to be a top choice over Qsymia. This means ongoing losses for VIVUS and perhaps a merciful end through a buyout by Aspen Investments -- but even that's no guarantee.

Short-sellers would be wise to avoid this top stock
Give us five minutes and we'll show how you could own the best stock for 2014. Every year, The Motley Fool's chief investment officer hand-picks one stock with outstanding potential. But it's not just any run-of-the-mill company. It's a stock perfectly positioned to cash in on one of the upcoming year's most lucrative trends. Last year his pick skyrocketed 134%. And previous top picks have gained upwards of 908%, 1,252% and 1,303% over the subsequent years! Believe me, you don't want to miss what could be his biggest winner yet! Just click here to download your free copy of "The Motley Fool's Top Stock for 2014" today.

Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers