Debtpocalypse: Hedge Funds And Short Sellers Think These Stocks Will Be OK

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(Article by Andrew Dominguez. List compiled by Andrew Dominguez and Danny Guttridge. Data sourced from Finviz, Fidelity, and Yahoo! Finance.)

The US Federal Government has never defaulted on its debt. As a result, US Treasuries are seen as one of single safest investments in the world.

In recent weeks, however, a political standoff between the Obama administration and the majority-Republican House of Representatives has raised concerns about a possible debt default. And the question of how a debt default would play out has left many economists, industry leaders and pundits scratching their heads. 

Here is a run through of some of the more prominent theories being floated in the media.

In general, people believe there is a low probability of default, even if negotiations run until the very last minute. Yet on Wednesday, Bank of Canada governor Mark Carney made it a point to mention at a conference that a default could lead to unknown, dire consequences.

"I don't think anybody can tell you with certainty what would happen… But it's certainly our view that it's not something that should be tested and it's not our expectation that it will happen," said Carney (via the Toronto Sun.)

Still, in case the unthinkable happens, the Federal Reserve has been coming up with a contingency plan, Philadelphia Fed President Charles Plosser told Reuters. (He did mention that his "gut feeling" was that there would not be a default.)

"We are developing processes and procedures by which the Treasury communicates to us what we are going to do… How the Fed is going to go about clearing government checks. Which ones are going to be good? Which ones are not going to be good?" said Plosser.

Although it seems that central bankers are preparing for the worst, private sector analysts have not reached a consensus on the effects of a default on financial markets.

Credit rating services Fitch, Moody’s, and S&P have all threatened to cut the government’s pristine rating in the event of a default. Some analysts believe this could force money market funds and other institutional investors to sell their Treasury holdings because of strict requirements regarding the creditworthiness of their investments, according to Chris Reese and Emelia Sithole-Matarise of Reuters.

John Carney of CNBC disagrees with this outlook. He believes that a default would not change the perception that Treasuries are the least risky investment option. Therefore, in the event of a default that causes widespread panic in the asset markets, stocks and other bonds would be considered even riskier. Consequently, investors would pull out of stocks and invest in Treasuries. 

As for the restrictions facing money market funds: "While it's true that regulations often require assets have the top ratings from ratings agencies, this isn’t true when it comes to debt issued by the U.S. government. Those are automatically permitted in most cases, regardless of how or whether they are rated."

Interested in seeing what some of the biggest investors make of the current situation? To help you with your own research, here is a list of S&P 500 stocks that have seen significant institutional buying and short covering.

Smart money investors, like hedge funds and short sellers, think these stocks are set for continued gains. Do you agree?


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List sorted alphabetically.

1. AK Steel Holding Corporation (AKS): Steel & Iron industry with a market cap of $1.74B. During the current quarter, institutional investors bought 1.5M shares (net), which represents 1.38% of the 108.75M of the share float. Shares shorted have decreased from 19.38M shares to 18.10M shares month-over-month, a change representing 1.18% of the share float.

2. Alpha Natural Resources, Inc. (ANR): Industrial Metals & Minerals industry with a market cap of $5.59B. During the current quarter, institutional investors bought 41.4M shares (net), which represents 36.37% of the 113.83M of the share float. Shares shorted have decreased from 22.04M shares to 8.50M shares month-over-month, a change representing 11.89% of the share float.

3. Boston Properties Inc. (BXP): REIT industry with a market cap of $16.36B. During the current quarter, institutional investors bought 9.0M shares (net), which represents 6.28% of the 143.30M of the share float. Shares shorted have decreased from 10.96M shares to 10.43M shares month-over-month, a change representing 0.37% of the share float.

4. EOG Resources, Inc. (EOG): Independent Oil & Gas industry with a market cap of $28.34B. During the current quarter, institutional investors bought 19.7M shares (net), which represents 7.38% of the 266.82M of the share float. Shares shorted have decreased from 8.99M shares to 7.92M shares month-over-month, a change representing 0.40% of the share float.

5. First Solar, Inc. (FSLR): Semiconductor industry with a market cap of $10.79B. During the current quarter, institutional investors bought 2.3M shares (net), which represents 3.92% of the 58.70M of the share float. Shares shorted have decreased from 22.32M shares to 20.85M shares month-over-month, a change representing 2.50% of the share float.

6. Gannett Co., Inc. (GCI): Publishing industry with a market cap of $3.31B. During the current quarter, institutional investors bought 12.0M shares (net), which represents 5.02% of the 238.81M of the share float. Shares shorted have decreased from 26.17M shares to 23.53M shares month-over-month, a change representing 1.11% of the share float.

7. KeyCorp (KEY): Money Center Banks industry with a market cap of $7.99B. During the current quarter, institutional investors bought 65.0M shares (net), which represents 6.86% of the 947.89M of the share float. Shares shorted have decreased from 30.27M shares to 26.54M shares month-over-month, a change representing 0.39% of the share float.

8. Lennar Corp. (LEN): Residential Construction industry with a market cap of $3.48B. During the current quarter, institutional investors bought 2.4M shares (net), which represents 1.50% of the 160.28M of the share float. Shares shorted have decreased from 28.13M shares to 26.79M shares month-over-month, a change representing 0.84% of the share float.

9. Noble Corp. (NE): Oil & Gas Drilling & Exploration industry with a market cap of $9.51B. During the current quarter, institutional investors bought 20.1M shares (net), which represents 8.02% of the 250.53M of the share float. Shares shorted have decreased from 9.26M shares to 8.03M shares month-over-month, a change representing 0.49% of the share float.

10. priceline.com Incorporated (PCLN): General Entertainment industry with a market cap of $26.12B. During the current quarter, institutional investors bought 4.4M shares (net), which represents 8.95% of the 49.15M of the share float. Shares shorted have decreased from 3.59M shares to 3.27M shares month-over-month, a change representing 0.65% of the share float.



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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