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 increases in short-interest positions in August. 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 Aug. |
Shares Short July |
% Change |
CAPS Rating (out of 5) |
|---|---|---|---|---|
|
Countrywide Financial (NYSE:CFC) |
83.6 |
51.4 |
62.65% |
* |
|
Best Buy (NYSE:BBY) |
68.7 |
46.3 |
48.38% |
*** |
|
Home Depot (NYSE:HD) |
61.8 |
41.0 |
50.73% |
** |
|
Tenet Healthcare (NYSE:THC) |
69.8 |
50.7 |
37.67% |
* |
|
Fannie Mae (NYSE:FNM) |
32.5 |
15.4 |
111.04% |
** |
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 65,000 investors are looking over these same stocks. Some they like, some they don't, and they vote on how they feel about them. Sometimes, though, the stocks CAPS players like cross swords with those that short-sellers don't.
While not every stock is new to the list -- Best Buy has been here before -- certainly it's easy to see why some members are included. The mortgage debacle is stretching its tentacles far out into the economy, naturally corralling Countrywide and Fannie Mae. Yet it's also put pressure on the credit markets, which has affected merger and acquisition (M&A) deals, and that may explain Home Depot's inclusion. Not only is HD exposed to the housing market, but the sale of its HD Supply business had to be discounted because the players were balking at the terms and the retailer needed the cash to help finance a huge stock buyback.
Best Buy might be experiencing a slowdown in consumer spending (also affected by the housing industry's woes) while Tenet is saddled with debt and slowing revenue growth. It's little wonder why any of these companies do not rate very high with CAPS investors.
Of all the companies, though, CAPS investors have given grudging props to Best Buy with an average three-star rating, something they've felt all along as we can tell by a stock's CAPS trend.
More than 1,400 professional and novice investors have weighed in on the electronics retailer and almost 90% see it outperforming while almost one out of every five All-Stars also see it as beating the market. Take that, shorts!
At the start of the summer, CAPS All-Star SureBeatsWorking penned the top bull pitch with many of the same factors still holding.
With companies like Tweeter, Circuit City (NYSE:CC) and Comp USA closing stores around me left right and center BBY keeps on chugging along. ... This company seems to have the innovation that [its] competitors lack.
The removal of this competition is good, but the main threat seems to be coming from online stores with some threat from the big box stores such as Wal-Mart (NYSE:WMT). ...
Technology is constantly changing, giving Best Buy lots of new products and repeat customers. Paying a small dividend that it just started recently and is increasing. Just started opening stores in China. Great balance sheet. [2.8B] in cash 650M in debt according to Yahoo Finance. Can reward shareholders with stock buybacks and dividend with this money or use it to push into overseas markets. ...
... This one is going to be a steady grower over the long term.
New CAPS player HaltCatchFire has enumerated the pros and cons of a Best Buy investment and finds that the good far outweighs the bad.
Value pick. BBY has grown earnings consistently over the past few years but stock price has not followed. At this point stock is roughly 45% discounted from my estimate of IV ($80).
Pros:
1. Continued growth in existing domestic markets.
2. Weakened competition from Circuit City and other big-box electronics retailers.
3. Growth of new services (Geek Squad, specifically) going well.
Click here to see his full list of points. Maybe you'll agree -- or not! Whichever side you end up on, now's the time to tell the CAPS community what you have to say. Squeeze 'em till it hurts, or short 'em till the sun don't shine? May the best argument prevail!
