(By Becca Lipman. List compiled by Eben Esterhuizen, CFA. Shorts data sourced from Yahoo! Finance.)
European officials are focused on ways to leverage their existing 440 billion-euro rescue funds to stop the fallout from the Eurozone debt crisis. The organization charged with such a daunting task, the European Financial Stability Facility (EFSF), is considering a number of potential policies.
Given the enormity of the situation, it has become clear there is no easy way for the EFSF to effectively leverage their funds without taking on risk or reaching limits. Guaranteed approaches no longer seem viable as the economic climate shits to murkier waters...
David Beers, the head of S&P's sovereign rating group, said to Reuters: "There is some recognition in the euro zone that there is no cheap, risk-free leveraging options for the EFSF any more." (via CNBC) Furthermore, various alternatives could have "potential credit implications in different ways," including credit downgrades across the region. Consequences of the EFSF could even go so far as to affect European powerhouses France and Germany.
But in light of some startling realizations - "Some analysts say at least 2 trillion euros would be needed to safeguard Italy and Spain if the Greek crisis spreads." - it hardly seems the regions can take more downgrades in order to attain the additional capital needed to restructure Greece's debt. And the resulting hits to European banking stocks would likely be significant.
Furthermore, "On the economic outlook, S&P sees rising risks of recession in the United States and parts of Europe as their economies struggle to recover at the same time that major emerging market countries such as China and India tighten monetary policies."
Beers notes that low confidence is at the core of the economic weakness, and any response by the EFSF "needs to go beyond lowering fiscal deficits and should include addressing market concerns about bank capital cushions and focusing on the structural drivers of the fiscal deficits, typically health care and state pensions." A hefty, but perhaps not impractical, call to action.
The weight of the EFSF's impending decisions have already impacted the stock markets. But now we have to ask, how long before most of the bad news is priced into the market? And more importantly, are there any examples of forced short-term liquidations that long-term investors can capitalize on?
To illustrate this idea, we collected data on institutional money flows, and identified a list of about 200 stocks that have seen significant institutional selling over the last quarter.
From this universe, we wanted to identify the names that may have priced in all the bad news. To find those companies, we collected data on insider transactions and short selling, and identified a list of companies that have seen significant short covering and insider buying.
Big money managers have liquidated their holdings of these stocks over the last quarter, but short sellers and insiders think the selling will soon end for these stocks--do you agree?
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List sorted by relative size of institutional selling.
1. American Superconductor Corporation (AMSC): Provides wind turbine designs and electrical control systems primarily in North America, Europe, and the Asia-Pacific. During the current quarter, institutional investors have changed holdings by -11.5M shares. These sales represent about 29.43% of the company's float of 39.07M shares. Shares shorted have decreased from 9.83M to 9.11M over the last month, a decrease which represents about 1.84% of the company's float of 39.07M shares. Over the last six months, insiders were net buyers of 1,508,478 shares, which represents about 3.86% of the company's 39.07M share float.
2. Pacific Sunwear of California Inc. (PSUN): Operates as a retailer rooted in the action sports, fashion, and music influences of the California lifestyle. During the current quarter, institutional investors have changed holdings by -5.2M shares. These sales represent about 14.50% of the company's float of 35.86M shares. Shares shorted have decreased from 9.71M to 8.61M over the last month, a decrease which represents about 3.07% of the company's float of 35.86M shares. Over the last six months, insiders were net buyers of 10,327,071 shares, which represents about 28.8% of the company's 35.86M share float.
3. Dex One Corporation (DEXO): Operates as a marketing solutions company. During the current quarter, institutional investors have changed holdings by -4.6M shares. These sales represent about 11.70% of the company's float of 39.32M shares. Shares shorted have decreased from 5.25M to 4.73M over the last month, a decrease which represents about 1.32% of the company's float of 39.32M shares. Over the last six months, insiders were net buyers of 215,000 shares, which represents about 0.55% of the company's 39.32M share float.