5 Stocks Under Attack

Because everyone loves a winner, it's reasonable to assume that everyone hates a loser -- everyone but short sellers, at least. These contrarian investors bet that hot stocks are primed to fall, aiming to turn their pessimism into potential profits.

This week, let's look at companies on the New York Stock Exchange with the biggest drop in shares short. Did these companies beat back the attack, or have the short sellers exacted their revenge? We'll consult the collective intelligence of Motley Fool CAPS to see which ones might have the power to make short work of short sellers.

Company

Shares Short Jan. 15

Shares Short Dec. 31

% Change

Total Shares Out

Price Change Dec. 31-Jan. 15

CAPS Rating (out of 5)

Liberty Property Trust (NYSE: LRY  )

4.3

18.5

(76.81%)

91.5

(9.93%)

**

General Electric (NYSE: GE  )

40.9

47.3

(13.58%)

1,010.0

(6.85%)

****

Best Buy (NYSE: BBY  )

58.6

64.4

(8.93%)

419.5

(16.02%)

***

CVS Caremark (NYSE: CVS  )

43.9

48.9

(10.18%)

1,500.0

(9.40%)

****

IBM (NYSE: IBM  )

12.9

17.7

(26.86%)

1,400.0

(5.80%)

***

Share counts in millions. Shares short data courtesy of wsj.com. CAPS ratings courtesy of Motley Fool CAPS.

Of course, this isn't a list of stocks to buy -- or short. These stocks could have serious problems that warrant their short interest, but they might also be stricken by short-term troubles. Only Foolish due diligence will tell you for certain; our 83,000-strong CAPS community just offers a good place to start.

These companies are generally well liked, as most are rated three stars or better in CAPS. While all of their prices declined between Dec. 31 and Jan. 15, each of the stocks is now off the lows they reached on Jan. 15. Even real estate investment trust Liberty Property Trust, which had the worst performance of the five over the past three months, has recovered much of what it lost. It looks like these stocks might be ready to run.

Technically, they did well
Perhaps the short sellers were expecting worse things from IBM's fourth quarter, considering the economic slowdown. We've heard some conflicting comments from Intel (Nasdaq: INTC  ) about whether tech stocks might get hurt if corporate spending falls in the face of tight credit markets. Yet IBM ended up turning in stellar results, beating revenue estimates by more than $1 billion and earnings by $0.20 per share. Even as it led off a chorus of generally upbeat reports, IBM continued its spending spree, with some reports suggesting that even Advanced Micro Devices (NYSE: AMD  ) might be in Big Blue's crosshairs.

IBM's outlook can be summed up best by the top bull and bear pitches on CAPS. Short sellers may have had in mind the thoughts of CAPS All-Star patatepoil6, who sports a 99.12 player rating, when they were selling their shares.

IBM is still making a lot of cash from software sales, particularly to Fortune 500 companies. On the other hand, most of these software [products] suck in my opinion, and many players such as Microsoft are gaining market share on software sold to big companies. This is true for information management software and company productivity suites (Microsoft is still gaining market share against Lotus). IBM may have good profit numbers as of today, but I see it as an old company that is not able to follow the market and invest[s] in the wrong technologies (Linux, Open Source, etc.).

On the other hand, those buyers who've beaten back the short attack might have considered the thoughts of irishmanbob, who sees IBM as positioned to beat the market over the next year.

IBM, like many of the large cap stocks of late, has been languishing until recently. [Its] P/E ratio of 16-17 makes it look more like an old line manufacturing company rather than the high-flying technical innovative leader that it really is. IBM is normally at or near the top of the list of most innovative companies in the world, as measured by the numbers of international patents filed.

Since breaking out of a five year downward trendline at the beginning of 2007, it has been on an upward path that's raised it about 15% so far this year. I don't see this faltering for about another year, until it gets back up to the previous 1999 high of about 130.

Speak up
You've heard from CAPS investors -- now it's your turn to have your say. Share your views with the CAPS community: Squeeze 'em till it hurts, or short 'em till the sun don't shine? May the best argument prevail.


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