Everyone loves a winner. It's reasonable to assume, then, that everyone hates a loser. Yet with investing, that's not always the case.
Contrarian investors love to pick through stocks that others have cast away. Value investors are the garbage-divers of the marketplace. Conversely, when stocks have a big run-up, some investors like to bet against them. They're called short sellers, and they bet that a stock is primed for a fall.
What goes up must come down
Here's a list of stocks on the New York Stock Exchange that reported having some of the largest short-interest positions in May. We'll turn to the collective intelligence of the Motley Fool CAPS community to learn which of these stocks -- if any -- Foolish investors think have the power to make short work of short sellers.
|
Company |
Shares Short-May |
Shares Short-April |
% Change |
CAPS Rating (out of 5) |
|---|---|---|---|---|
|
Ford (NYSE:F) |
208.8 |
200.2 |
4.30% |
* |
|
Motorola (NYSE:MOT) |
125.7 |
125.8 |
(0.08%) |
** |
|
Time Warner (NYSE:TWX) |
86.7 |
71.0 |
22.11% |
*** |
|
CVS Caremark (NYSE:CVS) |
80.9 |
34.2 |
136.55% |
**** |
|
Qwest (NYSE:Q) |
79.7 |
76.8 |
3.78% |
** |
Of course, this isn't a list of stocks to buy -- or short! Maybe these stocks have some serious problems that warrant the high short interest. Maybe not. What do you think? Will they be squeezed?
Tapping the CAPS advantage
Over on CAPS, more than 29,000 rated investors are looking over these same stocks. Some they like, some they don't, and they all vote on how they feel about them. Sometimes, though, the stocks CAPS players like cross swords with those that short sellers don't.
We see a number of stocks returning to the list, meaning that short sellers continue to build up against the stocks. Ford, Time Warner, and Qwest have all appeared on prior short-interest lists that we've chronicled. While the shorts may still be waiting for the market to catch up with Time Warner's weak first-quarter report, it looks like CVS has made one of the more dramatic increases in short interest.
It could be that short sellers believe the CVS-Caremark merger will be the company's undoing. While it created a lot of turmoil, particularly among Caremark shareholders, the market for CVS' success remains intact. An aging population, growing demand for generic drugs, and consolidation like the CVS-Caremark union spell lots of upside potential. Despite Wal-Mart's (NYSE:WMT) presence and even Walgreen's (NYSE:WAG) continued growth, CVS-Caremark will remain a formidable contender.
Nearly a quarter of the professional and novice investors that have weighed in on the pharmacy are considered All-Stars: CAPS players who have consistently outperformed their peers. Almost all of them are bullish on CVS, with that sentiment being fairly well maintained since the beginning of the year. We can tell that by its CAPS trend. Here's what a few CAPS players had to say:
- Top-rated Gtrinvestor says that management as well as investors thinks this is a well-priced company: "Good company in a consolidating (but growing... one of the places where baby boomers going to get their swelling list of meds from) industry. Good (but not great) PEG at 1.23, w/ the forward PE at 16.23 (as of March 16), and a stock buy-back program currently ensuing, makes me believe that CVS management believes their stock is a good value as well."
- ArmyStockTrader noted "If you're number one or number two in every marketplace and everyone needs medications and other items then you have a guaranteed steady flow of customers. The mail order prescription service acquisition should prove lucrative and further increase stock value."
Of course, not everyone is so upbeat. noname25 believes that "[w]hile earnings have been increasing, cash returns to shareholders have been negative. The company takes all earnings and more and plows it back into relocating current stores at sub-par ROIC. Eventually this game of musical chairs will catch up to them, and the market will see that they have subpar returns and selling pharmaceuticals is a competitive business."
Speak up!
You've heard from the CAPS community; now it's your time for a star turn -- tell the community what you have to say. Only on Motley Fool CAPS does your opinion count just as much as the short sellers'. Tell us what you think: Squeeze 'em till it hurts, or short 'em till the sun don't shine? May the best argument prevail!
Time Warner is a recommendation of Motley Fool Stock Advisor. Wal-Mart is a recommendation of Motley Fool Inside Value. A 30-day free trial subscription to either newsletter is your shortcut to market-beating returns. Click here to start yours today.
Fool contributor Rich Duprey owns shares of both Ford and Wal-Mart but does not have a financial position in any of the other stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.
