Commodity Outlook: Short-Sellers Think These Materials Stocks Are in Trouble

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One of the seemingly infinite drawbacks of Europe's inability to contain its debt crisis: slow economic growth causing lower demand for raw materials.

Bloomberg reports that speculators curbed wagers on higher commodity prices for the first time in four weeks. As a result, over $1.4 trillion was erased from the value of global equities last week.

"Money managers cut combined net-long positions across 18 U.S. futures and options by 3.9 percent to 798,787 contracts in the week ended Nov. 1, Commodity Futures Trading Commission data show. The Standard & Poor's GSCI Index of 24 raw materials has tumbled 13 percent since reaching a 32-month high in April."

More commodity highlights from Bloomberg:

  • Bets on higher crude prices declined 3.6 percent and those on gasoline slid 2.4 percent, falling for the first time in five weeks.
  • Speculators are now the most bearish on soybean prices in almost 16 months, and they expanded wagers on a retreat in wheat by 24 percent.
  • Net-long positions in gold advanced 6.8 percent to the most in six weeks and in silver by 9.5 percent to a five-week high.

Not all is lost for commodities as several economies still plan to expand in 2012. Next year's U.S. growth is anticipated to grow by 2.05%, according to the median estimate of 80 economists surveyed by Bloomberg. This would be a nice increase from this year's 1.7% growth.

Furthermore, the world's biggest consumer, China, is expected to grow 8.6% in 2012. This is "12 times the pace of the euro region, the estimates show."

Investing ideas
Hedge funds are turning more cautious on the outlook for commodities, so we're wondering: which commodity companies are expected to be dragged down?

For ideas, we collected short-seller trends data for the 200 largest commodity companies trading on U.S. markets. Below we list eight names that have seen a significant increase in shares shorted over the last month (i.e., an increase in bets that their share prices will decline).

Short-sellers think these companies are in trouble, and hedge funds seem to think commodity prices are vulnerable to a correction. Do you agree with this excessive pessimism?

Use this list as a starting point for your own analysis. (Click here to access free, interactive tools to analyze these ideas.)

List compiled by Eben Esterhuizen, CFA:

1. Cliffs Natural Resources (NYS: CLF) : Produces iron ore pellets, lump and fines iron ore, and metallurgical coal products. Shares shorted have increased from 6.67M to 8.70M over the last month, an increase which represents about 1.43% of the company's float of 142.11M shares.

2. Eastman Chemical (NYS: EMN) : Engages in the manufacture and sale of chemicals, plastics, and fibers in the United States and internationally. Shares shorted have increased from 1.66M to 5.07M over the last month, an increase which represents about 2.49% of the company's float of 136.90M shares.

3. Tesoro (NYS: TSO) : Engages in refining and marketing petroleum products in the United States. Shares shorted have increased from 15.79M to 17.30M over the last month, an increase which represents about 1.07% of the company's float of 140.73M shares.

4. CARBO Ceramics (NYS: CRR) : CARBO Ceramics manufactures and supplies ceramic proppants primarily used in the hydraulic fracturing of natural gas and oil wells in the United States and internationally. Shares shorted have increased from 1.68M to 2.48M over the last month, an increase which represents about 4.18% of the company's float of 19.13M shares.

5. Molycorp (NYS: MCP) : Focuses on the production and sale of rare earth oxides from stockpiled feedstocks in the western hemisphere. Shares shorted have increased from 12.91M to 13.45M over the last month, an increase which represents about 1.06% of the company's float of 51.00M shares.

6. Patterson-UTI Energy (NAS: PTEN) : Provides onshore contract drilling services to oil and natural gas operators. Shares shorted have increased from 4.42M to 7.07M over the last month, an increase which represents about 1.74% of the company's float of 152.18M shares.

7. Oasis Petroleum (NYS: OAS) : Engages in the acquisition and development of oil and natural gas resources primarily in the Williston Basin. Shares shorted have increased from 8.16M to 8.70M over the last month, an increase which represents about 1.48% of the company's float of 36.40M shares.

8. EXCO Resources (NYS: XCO) : Engages in the exploration, exploitation, development, and production of onshore North American oil and natural gas properties with a focus on shale resource plays. Shares shorted have increased from 10.81M to 13.48M over the last month, an increase which represents about 1.94% of the company's float of 137.54M shares.

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 Eben Esterhuizen and Rebecca Lipman do not own any of the shares mentioned above.

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