These Heavily Shorted Stocks May Break Higher
By Sean Williams,The Motley Fool
Usually stocks that have a high percentage of shares held by short-sellers are a red flag. Though high short ratios are not a foolproof method of determining whether or not a stock is worth avoiding, they've served as the warning sign of a poor investment more often than not.
Company | Short Interest as % of Float |
---|---|
China MediaExpress Holdings (CCME) | 64.5% |
Meru Networks (MERU) | 30.8% |
Conn's (CONN) | 29.1% |
Source: The Wall Street Journal
The lesson is that high-short ratios often tell us a convincing story -- but not in all cases. In fact, there are three companies which could bite shorts in the bottom if they aren't careful.
Source: The Wall Street Journal
ATP Oil & Gas had its short interest spike through the roof during the BP oil crisis one year ago, which put a six-month moratorium on all deepwater drilling. Now clear of that crisis and with deepwater permits carefully being reassigned, prospects for ATP are looking up. Personally I like ATP for its undervalued natural gas reserves, but it's ATP's potential oil fields that have most investors excited. If ATP does manage to strike it big in the Gulf of Mexico or off the coast of Israel, short-sellers could really be in a bind.
SunPower, a company that designs and sells solar electric panels -- and is a favorite of our socially responsible investing Fool Alyce Lomax -- simply appears too inexpensive to have attracted such a high short concentration. Short-sellers were lured by a potential slowdown in business from Germany, but based on SunPower's most recent quarterly filing, they've been wrong to focus solely on Europe. Business in the U.S., as well as the potential need for substantially higher solar outputs in Asia helped move the company well past consensus estimates. Short-sellers may want to re-think their position in SunPower.
It remains to be seen if these three companies can squeeze shorts out of their positions. But based on their balance sheets and growth prospects, if I were short these three, I'd be shaking in my boots.
What's your take on the companies mentioned here? Are you buying into these heavily shorted companies? Share your thoughts in the comments section below and consider adding these stocks and your own personalized list of companies to My Watchlist.
Fool contributor Sean Williams has no material interest in any companies mentioned in this article. He would like to remind you not to forget about our friends in Japan who could use a helping hand. You can follow him on CAPS under the screen name TMFUltraLong. Motley Fool Options has recommended a call spread position on Bridgepoint Education, of which the Fool owns shares. 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 that never needs to be sold short.
Company | Short Interest as % of Float |
---|---|
Bridgepoint Education (BPI) | 58.8% |
ATP Oil & Gas (ATPG) | 37.6% |
SunPower (SPWRA) | 27.9% |
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