Do the Shorts Know Something You Don't?
Since everyone loves a winner, it's reasonable to assume that everyone hates a loser -- everyone but short-sellers, at least. These contrarian investors bet that hot stocks are primed to fall, aiming to turn their pessimism into potential profits.
These companies on the New York Stock Exchange had the largest percentage increases in shares short. Combining that with the collective intelligence of Motley Fool CAPS, we'll see which of these companies Fools believe have the power to make short work of short-sellers.
|AuRico Gold (NYS: AUQ)||13.64||6.19||120.3%||4.8%||***|
|Kohlberg Kravis Roberts (NYS: KKR)||3.23||1.79||80.4%||1.6%||****|
|Mesabi Trust (NYS: MSB)||0.97||0.56||73.7%||7.4%||***|
Sources: wsj.com. Share counts in millions.
Of course, this isn't a list of stocks to buy -- or short! These stocks could have serious problems that warrant their short interest, but they might also be stricken by short-term troubles. Only Foolish due diligence will tell you for certain; our 180,000-strong CAPS community offers such a good place to start.
On a golden path
Maybe short-sellers think gold won't maintain its lofty valuations, so they're expecting AuRico Gold to fall back as well. Or perhaps it's the completion of the Northgate Minerals acquisition that makes them think it will stumble. Seems to me, both of those are primary reasons to look for AuRico to grow.
The global financial situation is still very precarious and any domino falling would knock down the rest, bolstering the case once again for gold being a safe-haven investment. As AuRico just reported in its third-quarter results, it has cash costs of just $487 per gold equivalent ounce and sports margins of $1,217 per ounce companywide. Maybe it won't get as good as the consolidated by-product cash cost of just $94 per ounce of gold equivalent that Yamana Gold (NYS: AUY) realizes, largely due to its Chapada operation in Brazil and its incredible copper output. But it puts AuRico solidly in the same arena as top-tier producer Barrick Gold (NYS: ABX) , which is targeting total cash costs of $460 to $475 per ounce for the year.
AuRico will continue profiting handsomely regardless of which way gold goes, and the addition of Northgate gives it five operating mines, with another one (Young-Davidson) starting production in the first quarter of 2012. Along with AuRico's Ocampo mine, the two have the potential for producing 500,000 ounces at reduced cash costs.
CAPS member TravisRcroteau says AuRico really has nowhere to go but up:
With the recent aquisition of Northgate Minerals (NXG) establishing a solid mid-tier mining company, the upcoming opening of the soon to be finished Young Davidson mine (Northgate's Flagship) in gold rich northern Ontario in early 2012, as well as current operations at 5 mines coupled with the increased fear of inflation, the price of gold isn't going anywhere but up. I'm anticipating strong growth over the next few years as the YD mine ramps up to full production.
Add AuRico Gold to your watchlist and see if it can undermine the bear case against it.
If Yahoo! (NAS: YHOO) is taken private, as much of the rumor mill seems to suggest, will the private equity hounds sniffing at its carcass tear it apart and sell it off piecemeal? Kohlberg Kravis Roberts is but one of the private equity firms said to be interested in grabbing a stake of the once high-flying portal, as are Carlyle Group and TPG Capital.
Reuters has reported that KKR and TPG might take a minority stake in Yahoo!, then have it buy back a large slug of stock financed by debt, which would significantly increase their stake to as much as 40% or 45%.
One thing we do know is that private equity is itching to put more of its cash to work. Kohlberg is said to be interested in the oil and gas assets of El Paso (NYS: EP) , now that Kinder Morgan plans to sell them off after its acquisition of El Paso goes through. While the retail industry makes up a third of KKR's North American investments, it has almost $1.5 billion in energy investments. With TheWall Street Journal estimating El Paso's assets could fetch as much as $10 billion, it would mark a significant investment for KKR.
Each of the more than three dozen CAPS All-Stars rating the private equity firm thinks it will outperform the broad market averages, and all but one member of the broader CAPS community weighing in agrees. You can tell us on the Kohlberg Kravis Roberts CAPS page or in the comments section below if you agree that private equity firms will be more active. Then follow along by adding the stock to your watchlist.
Can't touch this!
The Mesabi Trust derives its riches from mining ore in the Mesabi Iron Range in Minnesota, with its biggest stake being its Peters Lease. Investors are attracted to these operations because of the dividend payouts; Mesabi currently yields north of 16%. The dividend of Great Northern Iron Ore Properties is yielding 15.5%, but the difference is that Great Northern's trust terminates in 2015. Mesabi's trust will extend long beyond 2015, and its primary leases last until there's no more ore to be mined (presumably longer than five years). Even its smaller Cloquet lease doesn't end until 2040.
CAPS member TheMightyKhan explained earlier this year that Mesabi's iron assets are a veritable gold mine of opportunity:
The only legitimate risk to this stock is the dissolving of the trust. If demand for iron falls they don't mine it and it sits in the mountain until demand rises. If iron prices fall, earnings take a hit but since MSB does not participate actively in the mining it is still all profit outside of very meager trust operational expenses. Is there any real question as to which way iron (all commodities for that matter) prices are headed?
You can tell us on the Mesabi Trust CAPS page or in the comments section below if you agree, and then see what happens by adding it to the Fool's portfolio tracker.
Don't sell yourself short
It pays to start your own research on these stocks on Motley Fool CAPS. Read a company's financial reports, scrutinize key data and charts, and examine the comments your fellow investors have made, all from a stock's CAPS page. Then share your views with the CAPS community: Squeeze 'em till it hurts, or short 'em till the sun don't shine? May the best argument prevail!
At the time this article was published Fool contributorRich Dupreyholds no position in any company mentioned.Click hereto see his holdings and a short bio. The Motley Fool owns shares of Yahoo!.Motley Fool newsletter serviceshave recommended buying shares of Yahoo!. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.
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