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 some of 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.
Shares Short Nov. 30
Shares Short Nov. 15
CAPS Rating (out of 5)
Tim Hortons (NYS: THI)
LyondellBasell Industries (NYS: LYB)
Provident Energy (NYS: PVX)
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 just such a good place to start.
Stay hungry, my friends
From the in-and-out Dunkin' Donuts shops to the more lie-back-and-relax style of Starbucks (NAS: SBUX) , Americans can get a cup of coffee in any number of places. Canadians, it seems, flock to one spot: coffeehouse chain Tim Hortons. With almost 3,200 restaurants north of the border (and over 600 in the U.S.), Tim claims to serve 80% of the coffee sold in Canada.
But McDonald's (NYS: MCD) is making inroads into Hortons' territory, and where it once had just a 3% to 4% share, it now commands almost 11% of the market as its McCafe lineup has impressed coffee drinkers. Hortons was late in responding, but after seeing lackluster earnings recently, it is moving into the specialty coffee niche in a hurry.
Coffee represents some 45% of Hortons' revenues, and with espresso consumption rising 2% annually in Canada, it needed this expansion, particularly with the margins such coffee holds. Problem is, some anecdotal evidence suggests that Tim's quality seems to be a hit-or-miss proposition, so there's no guarantee of success.
I regularly go to four locations and the quality of food and speed of service is very consistent between these locations. Probably because they have great friendly people at each location, even startups. They also continue to develop their menu with interesting choices for lunch and breakfast, plus they have a nice seasonal change in their menu. Plus they are adding Coldstone ice cream service to many locations, so you have a reason to stop for an evening treat.
Add Tim Hortons to your watchlist to see whether it can fend off tougher rivals wanting to tap the hot Canadian coffee market.
Bonding with shareholders
Chemical and oil refining specialist LyondellBasell Industries recently declared a special $4.50 dividend while also raising its regular dividend 25% to $0.25 a share. Its profits in the third quarter soundly beat analyst expectations after nearly doubling as higher crude prices and better efficiencies helped revenues jump 29% to $13.3 billion.
That's not a bad turnaround for a company that emerged from bankruptcy just last year. Although some analysts are looking for chemical companies like Dow Chemical (NYS: DOW) to pursue a path that doesn't necessarily include expanded production of ethylene, LyondellBasell is taking the opposite tack and looks to boost ethylene production. It expects new plants and expansion to increase pre-tax profits by as much as $1 billion by 2016. Because its facilities use the cheap and abundant natural gas component ethane rather than naphtha, LyondellBasell will have a highly competitive cost advantage over foreign rivals.
With CAPS All-Stars unanimous in their opinion that the specialty chemical company will outperform the market averages, it seems the shorts may be misguided in their attack. The stock may be up more than 40% from recent lows, but it's still below its 52-week peak, and at just seven times earnings estimates, it trades at a discount to Dow, DuPont (NYS: DD) , and Celanese.
You can tell us on the LyondellBasell Industries CAPS page or in the comments section below if you agree this is a turning point, and then follow along by adding it to your watchlist.
If Lyondell is going to be producing more ethylene, then we may see a concurrent increase in results from Provident Energy, a Canadian producer of natural-gas liquids, including ethane. Third-quarter earnings saw a 10% year-over-year drop in ethane sales volume, but that was due more to the scheduled maintenance project at its Younger extraction plant than to lack of demand.
If other chemical companies follow Lyondell's lead, Provident stands to gain, as its Redwater plant is the only one in western Canada that can fractionate a high-sulphur ethane-plus mix. With a monthly dividend that currently yields 5.7%, the NGL specialist becomes an even more attractive portfolio candidate, but CAPS member okiedivot worries about the payout ratio, which is exceedingly high. With the company paying more out to owners than the free cash flow it takes in, Provident has little breathing room in the event of a downturn.
You can tell us on the Provident Energy CAPS page or in the comments section below whether this seems to be a problem to you, too, and then see what happens by adding it to the Fool's portfolio tracker.
Don't sell yourself short
Share your views with the CAPS community: Squeeze 'em till it hurts, or short 'em till the sun don't shine?
If you're looking to squeeze out more ideas, The Motley Fool's new special oil report, "3 Stocks for $100 Oil," covers three outstanding oil companies, and you can get free instant access by clicking here!
At the time thisarticle 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 Starbucks.Motley Fool newsletter serviceshave recommended buying shares of McDonald's, Starbucks, and Tim Hortons. 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.
Copyright © 1995 - 2011 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.