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 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 have some of the largest short interest positions relative to their outstanding shares. 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 continue making short work of short sellers.
|
Company |
Shares Short, Oct. 31 |
Shares Short, Oct. 15 |
% Change |
Total Shares Out |
Oct. % Total Out |
CAPS Rating (Out of 5) |
|---|---|---|---|---|---|---|
|
Beazer Homes (NYSE:BZH) |
33.0 |
36.0 |
(8.33%) |
39.20 |
84.18% |
* |
|
Novastar Financial (NYSE:NFI) |
7.9 |
7.4 |
6.76% |
9.47 |
83.42% |
* |
|
WCI Communities (NYSE:WCI) |
26.6 |
24.9 |
6.83% |
42.11 |
63.17% |
* |
|
Hovnanian (NYSE:HOV) |
25.7 |
26.0 |
(1.15%) |
62.21 |
41.31% |
* |
|
FirstFed Financial (NYSE:FED) |
7.4 |
7.0 |
5.71% |
13.64 |
54.25% |
* |
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 74,000 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 that CAPS players like cross swords with those that the short sellers don't.
Investors probably won't be surprised that this week's list of companies is dominated by companies related to the housing industry. The homebuilders and mortgage-finance companies remain despised in the markets -- and apparently among the CAPS community too, since all of our entrants rate only one star.
The percentage of shares short for Beazer still raises eyebrows. It's not necessarily unexpected, yet it is an improvement over last week. In fact, many shorts have seemingly covered their positions. With both Beazer and Hovnanian seeing a decrease in their shares short -- the first time since the spring for Beazer -- perhaps we're seeing a belief that homebuilders have hit bottom and a recovery might soon appear. Of course, Beazer's situation remains precarious.
Reports from the Charlotte Observer that Beazer has decided to delay payments to subcontractors have many CAPS investors thinking the homebuilder may soon fall into bankruptcy.
All-Starbillydakid, with a high 99.74 player rating, puts it this way:
RELOAD!! I think that hope for Beazer is [waning] quickly. I do not know if this [delayed-payment story] is true ... but if it is true would be the straw that breaks this camel's back!
That sentiment also comes from another All-Star, dmcnic, who's performed better than 94% of all CAPS players. He's seen such a scenario play out before with similar results. As he sees it, "Beazer is following the route to bankruptcy created by Levitt."
Fellow homebuilder TOUSA is considering bankruptcy protection, while ratings agencies have downgraded D.R. Horton (NYSE:DHI) and Pulte (NYSE:PHM) to non-investment grade status. Given the situation, a wave of consolidation among the homebuilders is a good possibility.
Speak up
You've heard from the CAPS All-Stars. Now it's your turn to be a star. Tell the CAPS community what you have to say. On Motley Fool CAPS, your opinion counts just as much as the short sellers' do. Tell us what you think: Squeeze 'em till it hurts, or short 'em till the sun don't shine. May the best argument prevail!
