Contrarian Ideas: Americans Still Avoiding Stocks
Much to the chagrin of the stock market, Americans feel they have learned a hard lesson from the 2008 financial crisis and are not interested in repeating it. Not even positive economic data and the strongest start-of-the-year rally in 25 years are likely to change too many minds.
Bloomberg reports pessimistic investors pulled more than $469 billion from U.S. equity mutual funds over the last five years, and New York Stock Exchange volume slipped to the lowest since 1999.
"Investors are scared to death," Philip Orlando, chief equity strategist at Federated Investors tells Bloomberg in a telephone interview. "The fears are justified, but from a valuation standpoint the market has overshot, as it typically does."
Trading at the NYSE declined to the lowest level since 1999 in January, with the average volume over the 50 days ending Jan. 25 slowing to 838.4 million shares. The value of stock changing hands dropped to $24.9 billion, a 50-day average not seen since at least 2005.
How long can investors stay resentful and resist the call of the market, especially with all the positivity building up around it?
"It was the severity and the quickness of the fall and how long it's taking to come out of the trough that's been adding fear and anxiety," says Warren Koontz, head of U.S. large-cap value stocks at Loomis Sayles & Co. "Over time, if things continue to progress on a step-by-step basis, people will come back to stocks."
Consider also that historically, the market is on track for a nice rebound: "Sentiment is the worst since the early 1980s, when 17 years of equity market stagnation gave way to the biggest rally in history," reports Bloomberg. If investors remain pessimistic, they could miss out.
Business section: Investing ideas
So, despite all the rallies and positivity, we were wondering if there any stocks being targeted by extremely bearish investors.
For ideas, we collected data on short-seller trends, and identified a list of stocks that have seen a sharp increase in shares shorted over the last month (i.e., an increase in bets that these stocks will decline).
This is significant, especially when you consider that short-sellers tend to be more sophisticated investors (because of the fact that they require strict credit approval to perform these trades). So if these investors are turning bearish on a stock, it's worth paying close attention.
To further refine the quality of our list, we collected data on institutional money flows and identified two stocks that have seen significant institutional selling during the current quarter.
Big money managers have extensive resources to analyze investing ideas. So if they're dumping a certain stock, it's worth paying close attention.
Sophisticated investors, like hedge fund managers and short-sellers, think these stocks are in deep trouble -- do you agree? Or is this excessive pessimism a contrarian buy signal? (Click here to access free, interactive tools to analyze these ideas.)
1. RadioShack (NYS: RSH) : Engages in the retail sale of consumer electronic goods and services through its RadioShack store chain and kiosk operations. RSI(14) at 26.06. Net institutional sales in the current quarter at -7.7M shares, which represents about 7.76% of the company's float of 99.27M shares. Shares shorted have increased from 14.88M to 16.31M over the last month, an increase which represents about 1.44% of the company's float of 99.27M shares.
2. Pilgrim's Pride (NYS: PPC) : Produces, processes, markets, and distributes fresh and frozen chicken products to retailers, distributors, and foodservice operators primarily in the United States. RSI(14) at 39.58. Net institutional sales in the current quarter at -2.6M shares, which represents about 5.09% of the company's float of 51.09M shares. Shares shorted have increased from 5.71M to 7.37M over the last month, an increase which represents about 3.25% of the company's float of 51.09M 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.
List compiled by Eben Esterhuizen, CFA. Kapitall's Eben Esterhuizen and Rebecca Lipman do not own any of the shares mentioned above.
At the time this article was published The Motley Fool owns shares of RadioShack. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.