Contrarian Ideas: Hedge Funds and Short Sellers are Bearish on These 10 Stocks

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(Written by Rebecca Lipman. List compiled by Eben Esterhuizen, CFA. Short data sourced from Yahoo! Finance, institutional data sourced from Fidelity.)

When market sentiment becomes extreme there are usually investors running in two directions, one to buy and the other to sell. Those “foolish” enough to buy into a company when all signs suggest selling, or sell a stock when all signs suggest buying, identify with the term “contrarian.”

A “contrarian investor” tends to bet against the trend, believing as Mark Twain once said, “whenever you find yourself on the side of the majority, it is time to pause and reflect.”

Specifically within the realm of investing, a contrarian investor acts on the belief that heavy pessimism might signal a stock is oversold or undervalued, creating an investing opportunity before the market value corrects itself. Similarly, excessive optimism might indicate a stock is overvalued.

However, identifying instances where investor sentiment becomes so extreme that they feel a turn-around is imminent is no easy task. It can be a difficult thing for investors to master.
 

Contrarian Trading

Interested in contrarian ideas? We’ve managed to create a list of stocks that have been dragged down by extreme pessimism, which you can use as a starting point for your own analysis.

All of the stocks mentioned below have high short floats and have seen a significant rise in shares shorted. In other words, short sellers have positioned themselves for more downside over the coming weeks.

In addition, all the stocks have seen an increase in net institutional selling in the past six months. Institutions, such as hedge funds, typically have access to more detailed market research than the average investor, and it’s one of the reason they are sometimes referred to as “Smart Money” investors.

Short sellers and “smart money” investors think these companies are in trouble. Is this pessimism justified?

Analyze These Ideas (Tools Will Open In A New Window)

1. Access a thorough description of all companies mentioned
2. Compare analyst ratings for all stocks mentioned below
3. Visualize annual returns for all stocks mentioned

1. Dendreon Corp. (DNDN): Engages in the discovery, development, and commercialization of therapeutics to enhance cancer treatment options for patients. Total short float at 21.17%, which is equivalent to 5.46 days of average trading volume. Net institutional sales in the current quarter at -12.9M shares, which represents about 8.77% of the company's float of 147.12M shares. Shares shorted have increased from 28.40M to 31.34M over the last month, an increase which represents about 2.0% of the company's float of 147.12M shares.

2. Radian Group Inc. (RDN): Provides credit-related insurance coverage and financial services in the United States and internationally. Total short float at 20.52%, which is equivalent to 4.73 days of average trading volume. Net institutional sales in the current quarter at -15.3M shares, which represents about 11.59% of the company's float of 132.01M shares. Shares shorted have increased from 23.72M to 27.19M over the last month, an increase which represents about 2.63% of the company's float of 132.01M shares.

3. MGIC Investment Corp. (MTG): MGIC Investment Corporation, through its subsidiary, Mortgage Guaranty Insurance Corporation, provides private mortgage insurance to the home mortgage lending industry in the United States. Total short float at 20.65%, which is equivalent to 5.65 days of average trading volume. Net institutional sales in the current quarter at -28.5M shares, which represents about 14.46% of the company's float of 197.13M shares. Shares shorted have increased from 35.32M to 41.07M over the last month, an increase which represents about 2.92% of the company's float of 197.13M shares.

4. Vistaprint N.V. (VPRT): Operates as an online provider of marketing products and services to micro businesses worldwide. Total short float at 24.93%, which is equivalent to 13.53 days of average trading volume. Net institutional sales in the current quarter at -2.4M shares, which represents about 7.78% of the company's float of 30.83M shares. Shares shorted have increased from 8.65M to 9.03M over the last month, an increase which represents about 1.23% of the company's float of 30.83M shares.

5. Constant Contact, Inc. (CTCT): Provides on-demand email marketing, social media marketing, event marketing, and online survey solutions primarily in the United States. Total short float at 26.17%, which is equivalent to 14.1 days of average trading volume. Net institutional sales in the current quarter at -2.0M shares, which represents about 6.9% of the company's float of 29.00M shares. Shares shorted have increased from 6.82M to 7.60M over the last month, an increase which represents about 2.69% of the company's float of 29.00M 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 , US Markets

Referenced Stocks: CTCT , DNDN , MTG , RDN , VPRT

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