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 top companies on the New York Stock Exchange have 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.
|Teavana (NYS: TEA)|
|CVS Caremark (NYS: CVS)|
|Edwards Lifesciences (NYS: EW)|
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 170,000-strong CAPS community offers just such a good place to start.
The short list
In theory, Teavana's goal of creating a premium tea-drinking experience the way Starbucks (NAS: SBUX) created one for coffee shops and Green Mountain Coffee Roasters (NAS: GMCR) did for home brew has the potential to be a profitable venture and investment. Although tea is very much a commodity with nonexistent barriers to entry, the same could easily be said of the coffee market.
But according to Packaged Facts, U.S. tea sales are expected to hit nearly $15 billion in 2012, up from $8 billion in 2009, while specialty teas, which currently make up more than a third of the market, will rise to dominate 50% of all sales. And importantly for Teavana, the Tea Association says away-from-home consumption has been increasing by at least 10% annually over the past decade.
But tea still has to overcome the stigma imposed by the American Revolution. Coffee has been the more patriotic caffeinated beverage since 1776, and Americans consume some 400 million cups per day, or 146 billion cups every year. That works out to about 9 billion gallons. Tea drinkers, on the other hand, consume only 65 billion servings annually, or 3 billion gallons, but 85% is iced tea.
Teavana is hoping to boost sales by increasing its footprint globally, and there's risk in that if it doesn't manage it properly. Although it's new to the market, investors are sanguine about its prospects, with just 69% of the CAPS members rating it (and only 58% of the All-Stars) thinking it will succeed.
Steep yourself in their reasoning on the Teavana CAPS page and let us know whether it's time for a new tea party.
Cheap is relative
With the number of drugs expected to go off-patent next year, let alone over the next few years, pharmacy and benefits manager CVS Caremark should be able to exploit the trend. Its PBM segment saw 23.2% revenue growth in the second quarter, hitting $14.6 billion, and driven by signing up Aetna as a partner.
CAPS member mkarias sees a turnaround point on the way.
They had a tough year but will rebound in 2012. They are one of the top PBMs. However with the merger of Express Scripts & Medco, it should be interesting to see how CVS can compete.
Add CVS to your watchlist if you want to read more about its progress, but tell us on the CVS Caremark CAPS page whether you think it has the right prescription for growth.
You gotta have heart
Since abandoning the drug-coated heart-stent market, Johnson & Johnson (NYS: JNJ) has a big hole to plug, and one place it's looking is heart valves or pumps. It also makes no bones about the fact that it wants to take the easiest route to success, whether that means making its own device or buying another company that already makes one.
That puts Edwards Lifesciences in the crosshairs, as well as Thoratec, both of which would fit JNJ's bill -- except for their prices. At 37 and 29 times earnings, both stocks are not cheap, and the consumer-products giant says it's not willing to overpay. Edwards might be the better choice if push came to shove, though, since analysts expect it to grow earnings by nearly 28% over the next five years, compared with only 16.5% for Thoratec. Still, based on current prices, they have a similar earnings-to-growth profile.
Wall Street is unanimous in its opinion that Edwards does well against the market indexes, but CAPS All-Stars aren't expecting any heart-stopping moves higher, as fewer than two-thirds of those rating it think it can pump up outperformance.
Monitor its progress by adding Edwards Lifesciences to the Fool's portfolio tracker feature and see whether it will make the blood of short sellers everywhere boil.
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 contributor Rich Duprey holds no position in any company mentioned. Check out his holdings and a short bio. The Motley Fool owns shares of Johnson & Johnson, Starbucks, and MedcoHealth Solutions. Motley Fool newsletter services have recommended buying shares of Johnson & Johnson, Starbucks, Green Mountain Coffee Roasters, and MedcoHealth Solutions, creating a lurking gator position in Green Mountain Coffee Roasters, and creating a diagonal call position in Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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.
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