The hills are alive with the sound of pessimism.
Given 2011's rocky ways, it probably wouldn't surprise you to find that there was no shortage of speculators trying to profit from share prices that they feel will be heading lower in the future.
Betting against the bulls by taking short positions -- which essentially means selling shares they don't own and buying them back later to zero out their positions -- is as popular as ever.
Let's make things interesting by taking a look at the five stocks that had the most shares sold short as of the end of the year.
| Dec. 30, 2011 | Dec. 15, 2011 | |
|---|---|---|
| Sirius XM Radio (Nasdaq: SIRI) | 301.4 million | 299.0 million |
| Bank of America (NYSE: BAC) | 157.0 million | 146.2 million |
| Nokia (NYSE: NOK) | 147.9 million | 140.6 million |
| Ford (NYSE: F) | 128.3 million | 132.6 million |
| Intel (Nasdaq: INTC) | 117.5 million | 120.5 million |
Source: Barron's.
These names should be very familiar to you.
- Sirius XM Radio is the country's only satellite radio service. This is a bigger business than you may think with 21.9 million subscribers by the end of last year.
- Bank of America is one of the "too big to fail" banking giants. It certainly didn't make too many friends when it joined other banks in instituting monthly fees to debit card owners using their plastic for purchases, but it did back off when the consumers had enough.
- Nokia has seen its stock slide faster than its share of smartphone market, but hope springs eternal now that it's getting paid a sweet chunk of change to champion Windows Phone as a smartphone operating system.
- Ford is the stateside automaker that didn't get bailed out, though the car manufacturer does have some problematic pension obligations to worry about.
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Intel is the chip giant that's coming to grips with a flattish PC market by breaking into more promising growth areas.
The one thing that all five companies have in common -- beyond having a lot of people cheering against them -- is that they have a lot of shares outstanding. Sirius XM, for example, has roughly 6.5 billion fully diluted shares outstanding (though 40% is in the form of a preferred share stake that can't be shorted).
It probably shouldn't come as a surprise that three of the stocks here -- Sirius XM, Bank of America, and Ford -- were also among the five most shorted stocks a year ago.
Since all five of these companies go through a great deal of trading volume on a typical trading day, it's not as if having a lot of naysayers will trigger a short squeeze. However, a mob of bears clearly can only help those long these five stocks if these companies have positive news to offer in the future.
Betting against heavily shorted stocks isn't usually a smart bet, just as cynics would scoff going long on overbought situations. For investors, it's important to know how much hate is out there for their stocks. However, it's ultimately more important to know why the shorts are so sure that your stock is going down.
If you're still in the mood to go short, check out a new report detailing a pair of "too small to fail" stocks that the government won't let collapse. It's a free report, but it won't be around forever. Check it out now.
