Since 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 increase in shares short. We'll then consult the collective intelligence of Motley Fool CAPS to see which of these firms Fools believe have the power to make short work of short sellers.
|
Company |
Shares Short, Jan. 31 |
Shares Short, Jan. 15 |
% Change |
Total Shares Out |
1-Year Return |
CAPS Rating (out of 5) |
|---|---|---|---|---|---|---|
|
Ford |
209.3 |
154.7 |
35.25% |
2110 |
(26.4%) |
* |
|
Bank of America |
62.5 |
46.2 |
35.14% |
4440 |
(17.8%) |
*** |
|
Wells Fargo |
100.1 |
84.2 |
18.98% |
3300 |
(11.9%) |
*** |
|
Unum Group |
18.7 |
5.1 |
268.53% |
360.9 |
10.4% |
**** |
|
General Electric |
52.8 |
40.9 |
29.35% |
1005 |
(2.4%) |
**** |
|
Texas Instruments |
48.0 |
37.2 |
29.07% |
1340 |
(2.2%) |
**** |
|
Mylan |
61.1 |
51.2 |
19.37% |
248.9 |
(44.1%) |
**** |
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-plus strong CAPS community just offers a good place to start. Yet most of these companies are generally well-liked -- they've garnered three stars or better on their CAPS ratings.
What a pain
It's not surprising that both Bank of America and Wells Fargo find themselves on the list, as both recently reported large losses thanks to the mortgage situation. Wells Fargo, a conservatively run bank that's attracted Warren Buffett to invest heavily in it, recently reported a 38% decline in profits from the year-ago period thanks to declining housing values and rising late payments.
Wells Fargo is the country's fifth-largest bank, yet has been hurt less by the mortgage market turmoil. This seems to be the result of having sold many of the home loans it originated, while also investing less in the creative financing techniques used by many of its rivals. Even so, the bank had to write down $1.4 billion in the fourth quarter to cover anticipated losses and is getting rid of $12 billion more in its riskiest home equity loans. That, though, was seemingly good news for investors, or at least less bad news, than what they were growing accustomed to hearing. Profits at Bank of America and Wachovia
Not all investors agree that because Wells Fargo wasn't as bad as many others, it's somehow immune to more pain to come. CAPS player stockpickrr views the financial-services company as a "fish in a dry stream" without the regular influx of revenues from mortgages, refis, and home equity loans. That seems to coincide with the opinion of CAPS All-Star marcd77, with a 98.95 player rating, who believes that Wells Fargo's exposure to the epicenter of the country's economic slowdown -- California -- will eventually weigh heavily on the stock.
California has indeed been feeling the brunt of the housing crisis, with reports that six of its cities were among the 20 with the highest levels of foreclosure nationwide. Wells Fargo is still reported to be the No. 2 mortgage lender in the country, behind Countrywide Financial, even though it saw its annual volume drop 32% last year to $272 million.
On the other hand, some investors see opportunity here. Consider CAPS player Progenitor, who expects Wells Fargo to move into the top spot this year. With Countrywide getting acquired by Bank of America, there may yet be such a chance, and if the economy turns and housing rebounds, Wells Fargo could be a beneficiary.
Speak up
You've heard from CAPS investors -- now it's your turn to have a 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!
