Do you like to go against the crowd? Earnings season is a great time to cash in on unexpected results. But short-sellers don't feel so optimistic this earnings season -- the small-cap stocks below are seeing an increase in short-selling. But if they're wrong, investors may see a high level of short coverings -- and big gains.
Exploring the ideas
The concept of an earnings surprise is pretty straightforward -- the quarterly earnings come out, and earnings analysts are "surprised" by how they don't match up to their predictions. A surprise can indicate either positive or negative earnings, meaning the annual reports are above or below analysts' earnings estimates. For this list, we're only use positive surprises.
Investors care about these "surprises" because when a stock releases data above expectations, the stock quickly adjusts to price in the new information.
Investors often look to short-seller trends to determine market sentiment. Short sellers are investors that benefit from falling stock prices. If they are increasing their short positions on these names it's a signal that they are becoming more pessimistic about their short-term performance.
Business section: Investing ideas
Contrarian investors tend to go against the crowd. One mind-set of contrarians is that excessive bearishness or bullishness, such as the bearishness shown by short-sellers, might signal that a stock is oversold or undervalued. If so, it may create an investing opportunity before the market value corrects itself.
These stocks are reporting earnings this week: Do you think short-sellers have it right?
All names have market caps between $300 million and $2 billion. (Click here to access free, interactive tools to analyze these ideas.)
2. Builders FirstSource
3. CYS Investments
4. McMoRan Exploration
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.
Kapitall's Rebecca Lipman does not own any of the shares mentioned above. Short data from Yahoo! Finance, all other data sourced from Finviz. The Motley Fool has a disclosure policy.We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.