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 Nasdaq 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, Dec. 15
Shares Short, Nov. 30
CAPS Rating (out of 5)
|OmniVision Technologies (NAS: OVTI)||5.99||4.05||47.8%||10.3%||*****|
|Spreadtrum Communications (NAS: SPRD)||4.66||2.69||73.1%||9.6%||**|
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.
An ugly picture
With the drubbing OmniVision Technologies took last year as Apple (NAS: AAPL) cut the iPhone pie into a few more slices to let Sony take a piece, you'd think short sellers would relent in their attack. The stock lost more than half its value after OmniVision's CMOS sensor lost its exclusivity, just as mobile communications were going to make yet another bounce higher, with IHS iSuppli predicting the smartphone market to grow to 1 billion units a year in 2015.
The shorts seem to suggest that's not going to be the last of the woe that befalls the chipmaker. But while its current iPhone camera chip may be of lesser quality, the new upgraded BSI-2 ought to squelch any quality concerns. The company shipped 153 million units in the second quarter, and coupled with the cheap valuation the market is assigning OmniVision -- less than its book value and just 70% of its sales -- makes this an interesting comeback stock to be sure.
CAPS member jbtheone understands the Apple issue but thinks that alone shouldn't be enough to knock OmniVision down to the cellar as it has. Add OmniVision Technologies to your watchlist to see whether it can fend off the inroads rivals are making into its once-exclusive territory.
The track record of short seller Muddy Waters is becoming just as muddy as its name. After scoring some impressive results after attacking the likes of Orient Paper, Focus Media, and Sino-Forest, the trail is growing cold. The juries are still out on many of these, and others have rebounded after the initial shock.
Chinese mobile-phone chipmaker Spreadtrum Communications saw its management style critiqued more than accused of impropriety, but it still seems to have gotten snared by the very wide net Muddy Waters, Alfred Little, and other high-profile shorts are casting. As with some allegations against other companies, nothing has yet emerged to bolster the claims made, and Spreadtrum's stock mostly recovered.
Last month, Spreadtrum reaffirmed its sales and gross margin guidance. That wasn't enough to stop the fabless semiconductor maker from giving back many of the gains it made in recent months. With shares now down by a third from recent highs, the company announced a $50 million buyback program.
CAPS member gs77 says investors who run away at the mention of the word "China" are missing out on fabulous opportunities like Spreadtrum represents:"People are hiding behind the C word (China) to justify lazy stock screening and analysis, and in so doing are missing out on some great companies AND the fastest growing major economy in the world."
You can tell us on the Spreadtrum Communications CAPS page or in the comments section below if you agree that the rewards outweigh the risks, and then follow along by adding it to your watchlist.
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?
At the time this article was published Fool contributorRich Dupreyholds no position in any company mentioned. Check out hisholdings and a short bio. The Motley Fool owns shares of Apple.Motley Fool newsletter serviceshave recommended buying shares of and creating a bull call spread position in Apple. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't 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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