Short Sale Stocks: The 5 Companies Bears Love to Hate

WASHINGTON, DC - MARCH 05: Grover Norquist, President, Americans for Tax Reform, is interviewed by SiriusXM Patriot host Andrew Wilkow at SiriusXM Studio on March 5, 2013 in Washington, DC. (Photo by Leigh Vogel/Getty Images)
Leigh Vogel, Getty Images
The market hit a series of fresh highs this month, but there's no shortage of bears betting that share prices will soon fall. A whopping 13.3 billion shares were sold short on the New York Stock Exchange as of the end of last month. Nearly 7.5 billion more shares have been shorted on the tech-heavy Nasdaq.

In a nutshell, selling short means reversing the traditional buy and sell order of a stock transaction. Therefore a short profits from falling prices -- but takes a hit when the market heads higher. (For a bit more background, here's how it works: An investor borrows shares from a broker through an order to sell short. The investor must, at some later point, close out that position by placing a buy order to cover the short. This sort of transaction can be dangerous given the unlimited downside if a stock shoots higher. But it can be lucrative if a shorted stock falls.)

So which stocks are on the most-shorted list?

With 20.8 billion shares sold short between the country's two leading exchanges, there are plenty of prolific companies with huge bearish positions. Here are five with the largest short positions as of the end of February.
Feb. 28Dec. 31
Sirius XM Radio (SIRI)414.0 million355.4 million
Nokia (NOK)338.0 million291.7 million
Frontier Communications (FTR)227.6 million212.5 million
Intel (INTC)216.0 million215.5 million
Bank of America (BAC)161.3 million186.6 million
Source: Barron's.

Why these companies? Let's dig a little deeper:

5 Stocks Investors Love to Hate
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Short Sale Stocks: The 5 Companies Bears Love to Hate

Satellite radio has never been more popular. There are now 23.9 million subscribers after the parent company of Sirius and XM closed out 2012 with 2 million more accounts than it had when the year began.

However, Sirius XM lost its longstanding CEO late last year, and a media conglomerate has acquired a controlling stake in the satellite radio provider -- events that have triggered uncertainty. 

Still, Sirius XM is a company that has been consistently profitable and generating growing amounts of revenue and free cash flow on its own. And, auto sales also remain strong: Those represent the largest source of new subscribers for Sirius XM, as most of its users tune in through car factory-installed receivers.

A few years ago, Nokia was the undisputed top dog in mobile phone handsets. The Finnish company was a global juggernaut at a time when consumers were swapping beepers -- remember those? -- for wireless phones.

But the market has evolved repeatedly since then. Cheaper feature phones have been replaced by smartphones that run apps and surf the Web, and Nokia has been slow to embrace the platforms that matter. Obviously it couldn't put out an iPhone, but it also wasn't able to match Samsung's early push into Android devices that are now globally popular.

Nokia is accepting billions to back Microsoft's fledgling Windows Phone mobile operating system, but the stock has been stuck in the single digits for more than two years.

It isn't easy being a regional telco, offering up landlines, Internet, and cable TV to rural markets.

A big draw for investors in Frontier Communications is its meaty dividend payout. Even after slashing its quarterly rate from $0.1875 a share to $0.10 a share last year, the stock's still yielding 10 percent. The large dividend is significant, since shorts actually have to cover that when it gets paid out.

Analysts see revenue and profitability continuing to decline here, and pessimists are holding out for more dividend cuts in the future.

The old "Intel inside" ads came out at a time when PC sales were booming. Manufacturers were hopping on Intel microprocessors to power desktops and laptops, only turning to smaller rival Advanced Micro Devices (AMD) when they wanted to show Intel that they weren't entirely dependent on the chip giant.

But the tech world have taken an "Intel outside" approach in recent years. PC shipments have fallen for two years, and Intel's efforts to get its chips into the smartphones and tablets that people are actually buying haven't been effective enough to offset its declines on the PC side.

The poster child for the "too big to fail" banking giants is starting to bounce back.

Bank of America stock hit a fresh 52-week high this month, and regulators finally eased up on the bank after it cleared its stress test. That freed Bank of America to return more of its money to shareholders beyond its token quarterly dividend of $0.01 a share, and the financial services giant's first move was to declare a huge share repurchase program.

As long as the housing market holds up and the general state of corporate America makes lending money to companies a smart bet, Bank of America will do just fine. Shorts, naturally, don't see it that way at all.


Motley Fool contributor Rick Munarriz owns shares of Bank of America. The Motley Fool recommends Intel. The Motley Fool owns shares of Bank of America and Intel. Try any of our newsletter services free for 30 days.
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