Are Analysts Too Optimistic About These Stocks? Short Sellers Think So

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(Article by Becca Lipman. List compiled by Eben Esterhuizen, CFA. Analyst data sourced from Reuters, Short seller data sourced from Fidelity.)

Analysts have by-and-large refused to downgrade stocks despite a financial climate that seems on the verge of a double-dip recession.

Given the heavy fluctuations in the stock market, it might be expected of analysts to lower their positions accordingly. Yet analysts don't seem to buy into doomsday forecasts.


Robert Powell of MarketWatch explains: "None of the 1,485 stocks that make up the S&P 1,500 has a consensus “Sell” rating. And just five, or 0.3%, are ranked as being a “Weak Hold… Just 79 (or 5%) of the 1485 stocks have consensus “Buy” recommendations, while 1,003 (68%) are ranked “Buy/Hold,” 398 (27%) are ranked “Hold."

Reactions are mixed, but they mostly lean towards the "glass is half full" mentality. Indeed, any outright cynicism is hard to find in spite of numerous market indicators such as the drop in consumer spending, consumer confidence, and stagnant unemployment that suggest tough days ahead. This leads some to wonder if the hesitation to downgrade undermines the validity of ratings.

Powell takes data from an analysis published by Sam Stovel, chief investment strategist of Standard & Poor’s Equity Research. In that analysis Stovel concludes that analysts are hesitant to take a "sell" stand because “if stocks for the long run are on an upward trajectory, then everything is a hold,” meaning a sell today might be regretted in the long run.

Stovall says it “appears as if most analysts are not expecting the U.S. to fall back into recession, and that now is the time to scoop up undervalued cyclical issues at bargain-basement prices.” (via MarketWatch)

Some other findings in Stovel's analysis:  The most-loved industries according to analyst ratings include energy, industrials and information tech. The least-loved are consumer staples, financials and utilities.

Are analysts right to act this way? Do analysts think the possibility of a second severe recession is hogwash? Or perhaps they simply hold out hope, believing if they wish for a rebound hard enough, it just might come true.

In light of this optimism, we were interested in finding stocks that analysts are bullish about, yet are receiving negative attention from short sellers. After all, analysts are more interested in seeing stock prices rise while short sellers have interest in their drops.

To create our list we used analyst ratings from Reuters that are presented on a linear scale (with 1 = "Strong Buy" and 5 = "Strong Sell"). We took the names with "strong buy" ratings and searched among them for those experiencing significant levels of short selling.

Our top ten, sorted by analyst rating, are listed below.

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1. Abraxas Petroleum Corp. (AXAS): Engages in the acquisition, development, exploration, and production of oil and gas in the United States and Canada. Average analyst recommendation score at 1.1. Shares shorted have increased from 19.75M to 20.94M over the last month, an increase which represents about 1.52% of the company's float of 78.48M shares.

2. The Active Network, Inc. Common (ACTV): Offers application services technology and marketing access to community service and participatory sports organizations.. Average analyst recommendation score at 1.2. Shares shorted have increased from 1.04M to 1.52M over the last month, an increase which represents about 2.04% of the company's float of 23.54M shares.

3. Caribou Coffee Company, Inc. (CBOU): Operates coffeehouses primarily in the United States. Average analyst recommendation score at 1.2. Shares shorted have increased from 1.14M to 1.75M over the last month, an increase which represents about 3.32% of the company's float of 18.35M shares.

4. Optimer Pharmaceuticals, Inc. (OPTR): Focuses on discovering, developing, and commercializing hospital specialty products worldwide. Average analyst recommendation score at 1.2. Shares shorted have increased from 6.60M to 7.07M over the last month, an increase which represents about 1.11% of the company's float of 42.26M shares.

5. The Spectranetics Corporation (SPNC): Designs, manufactures, and markets single use medical devices used in minimally invasive surgical procedures within the cardiovascular system in conjunction with its proprietary excimer laser system, the CVX-300. Average analyst recommendation score at 1.2. Shares shorted have increased from 978.64K to 1.41M over the last month, an increase which represents about 1.33% of the company's float of 32.40M shares.

6. TTM Technologies Inc. (TTMI): Provides backplane and sub-system assembly services in the United States and internationally. Average analyst recommendation score at 1.2. Shares shorted have increased from 5.17M to 5.91M over the last month, an increase which represents about 1.43% of the company's float of 51.85M shares.

7. Wabash National Corp. (WNC): Engages in the design, manufacture, and marketing of truck trailers and related transportation equipment primarily in North America. Average analyst recommendation score at 1.2. Shares shorted have increased from 7.39M to 9.04M over the last month, an increase which represents about 2.44% of the company's float of 67.66M shares.

8. Ancestry.com Inc. (ACOM): Operates as an online resource for family history for subscribers worldwide. Average analyst recommendation score at 1.3. Shares shorted have increased from 3.84M to 5.12M over the last month, an increase which represents about 4.89% of the company's float of 26.19M shares.

9. AVEO Pharmaceuticals, Inc. (AVEO): Engages in the discovery and development of cancer therapeutics. Average analyst recommendation score at 1.3. Shares shorted have increased from 1.87M to 2.36M over the last month, an increase which represents about 1.51% of the company's float of 32.39M shares.

10. China New Borun Corporation (BORN): Produces and distributes corn-based edible alcohol in the People's Republic of China. Average analyst recommendation score at 1.3. Shares shorted have increased from 1.21M to 1.44M over the last month, an increase which represents about 4.01% of the company's float of 5.73M shares.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas , Stocks


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