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Shorts Are Piling Into These Stocks. Should You Be Worried?

Sean Williams
November 12, 2012

The best thing about the stock market is that you can make money in either direction. Historically, stock indexes have tended to trend up over the long term. But when you look at individual stocks, you'll find plenty that lose money over the long haul. According to hedge-fund institution Blackstar Funds, even with dividends included, between 1983 and 2006, 64% of stocks underperformed the Russell 3000, a broad-scope market index.

A large influx of short-sellers shouldn't be a condemning factor to any company, but it could be a red flag from traders that something may not be as cut-and-dried as it appears. Let's look at three companies that have seen a rapid increase in the amount of shares sold short and see whether traders are blowing smoke or whether their worry has some merit.


Short Increase Oct. 15 to Oct. 31

Short Shares as a % of Float

Stillwater Mining (NYSE: SWC  )



HCA Holdings (NYSE: HCA  )



Freescale Semiconductor (NYSE: FSL  )



Source: The Wall Street Journal

Precious metal or fool's gold?
There was a time not too long ago when the rising costs of labor, fuel, and mine maintenance only seriously affected a handful of miners. Now, rising costs are a major concern for metal miners both big and small.

Stillwater, a platinum and palladium miner, has been dealt the double whammy of dealing with rising labor and benefits costs, since it's hiring more workers, as well as with falling prices for both platinum and palladium. According to Stillwater's third-quarter results, the average realized price of platinum group metals (PGM) sold was 18.7% lower than in the previous year, while production of PGMs dipped 2.3% despite the increased workforce.

I'm not ready to concede that short-sellers could be on to something by betting against Stillwater; however, there are two factors that give even more merit to their case. For one, Stillwater is valued at 20 times forward earnings -- a significant premium to many of its mining peers. Second, and most important, a good chunk of PGM sales go to the automotive industry. October's auto sales figures for General Motors (NYSE: GM  ) and Ford (NYSE: F  ) did demonstrate positive unit growth, but at a much slower pace than in previous months. If auto sales continue to taper off, so will demand for platinum and palladium -- that's bad news for Stillwater. My suggestion: Keep a close eye on auto sales, as they will tell the tale of PGM demand in the coming year.

Four more years
As I extolled previously, no sector had more to lose with regard to the U.S. election than the hospital sector.

With the passing of the Affordable Care Act, individual insurance mandates will soon require that people carry health insurance, whether it's paid out of their own pocket or by the upcoming expansion of the government-run Medicaid system. Hospital operators like HCA have been hurt for years by patients who receive care and are unable to pay their bill. Assuming the ACA goes into effect in 2014, hosp