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 recently had some of the largest percentage increases in shares sold short -- but they quickly pulled back. Combining that with the collective intelligence of Motley Fool CAPS, we'll see which of these companies Fools believe have the power to still make short work of short-sellers.
CAPS Rating (out of 5)
|YM BioSciences (NYS: YMI)||2.5||2.9||(12.7%)||1.6%||****|
Cheniere Energy (AMEX: LNG)
Source: 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.
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I'll admit to being bearish about biotech YM BioSciences' prospects for beating the market. I marked it to underperform the market indexes earlier this year after it got a big boost for reporting "significant and durable responses" in ongoing phase 1 and phase 2 trials. I figured a more sober reckoning of the long road ahead of it would bring the price back to a more reasonable level, and while it's had its share of ups and downs, the stock has actually moved 22% ahead of the point I entered in at.
At these elevated levels, I obviously still see it as a dicey proposition. Although its once-a-day treatment for myelofibrosis shows a lot of promise, the market for the drug doesn't appear to be particularly large, so it isn't one that will allow for a lot of competition. With Incyte's (NAS: INCY) Jakafi already on the market, albeit at twice-daily dosages, the breakout opportunities seem slim. I noted last month that the shorts were eying it up, but maintained that while it does have other drugs in its pipeline, it's really just focusing on CYT387. But until it successfully runs the FDA gauntlet, I feel as kemp1725 does: "It has nothing." It's tough to bet on hope, but the odds for a positive outcome are long, so I won't be changing my CAPS rating on the biotech.
Tell me in the comments box below or on the YM BioSciences CAPS page whether you think it's time for more shorts to close out their position.
Riding the coattails higher
The market researchers at IHS Global Insight expect almost $2 trillion worth of investments to be made in the shale gas industry by 2035, but with some of the heaviest action coming within the next few years. LNG export projects ought to benefit because they can help drain away the massive glut of inventory that's currently swamped the industry. While Cheniere Energy with its Sabine Pass facility in Louisiana is currently the first -- and only -- such export project approved, it could dominate the market.
According to the Financial Times, the Energy Department is required to sign off on such export permits to make sure they don't violate "the public interest," but after a handful of companies such as Sempra Energy (NYS: SRE) and Dominion Resources (NYS: D) followed Cheniere's lead, DOE suspended approving any more permits until it could be determined what impact exporting LNG would have. Natural gas is cheap and plentiful now; tomorrow, maybe not so much.
Even if a few of these rivals do make it through the gauntlet, Cheniere should still be the leader in export. With shares of the LNG specialist down 25% from their highs, it might represent a special value. CAPS member steelpony71 thinks being first to market is key, even if it's still a ways off from actually happening.
Add your opinion on the Cheniere Energy CAPS page or in the comments section below on whether the fickle nature of government will ultimately work against it.
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?
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The article Do the Shorts Know Something You Don't? originally appeared on Fool.com.Fool contributor Rich Duprey holds no position in any company mentioned. Click here to see his holdings and a short bio. Motley Fool newsletter services have recommended buying shares of Dominion Resources. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.