The whole DVD rental business has befuddled short-sellers. For
disproved its detractors, and its shares have steadily climbed,
forcing short-sellers to eat big losses. The same appears to be
happening for Netflix's rival
Coinstar (Nasdaq: CSTR)
, which rents DVDs in supermarkets alongside its ubiquitous
coin-counting machines. (See our January profile on Coinstar by
clicking here.) Coinstar just delivered another strong quarter,
forcing some short-sellers to spit the bit as they saw their
negative bet lose nearly -20% in value this morning.
Short-sellers are likely correct. Consumers will eventually
download all movies from their home computer, making DVD-kiosks
obsolete. But they have continually under-estimated how quickly
that transition would take place. Nevertheless, one day, that
bearish thesis will prove correct, and even though Coinstar may
still have some more strong quarters to come, the company will
eventually hit a wall. To the extent that shares keep powering
higher as currently short investors need to buy stock to cover
their positions, the stock could be set up for a more appealing
entry point for fresh short positions.
Earlier this week, we saw robust results from
Integrated Silicon Solution (Nasdaq: ISSI)
, underscoring the notion that chip stocks were poised for a robust
Applied Micro (Nasdaq: AMCC)
is in complete agreement. The maker of chips that help direct
traffic among computers just delivered solid first-quarter results,
and sees business getting even better in the quarters to come. That
helped push shares up more than +12% this morning.
But with shares now up more than 40% this year, compared to a +9%
gain in the broader Philadelphia Semiconductor stock index , shares
may not have much further upside. A clear divergence has emerged
among these chip stocks. Specialized manufacturers of chips are
seeing their shares bid up nicely on the heels of solid quarterly
results. But the vendors of expensive chip-making machinery such as
Applied Materials (Nasdaq: AMAT)
are not getting the same affection. But if history is any guide,
whenever the chip makers start to generate more cash, they start to
spend more on chip-making equipment. Applied Materials may indeed
be the better play in this group, as its shares are relative
Dendreon (Nasdaq: DNDN)
continues its remarkable ascent, up another +8% this morning to an
all-time high of around $55. Less than 15 months ago, this was a $3
stock, which is why people love to bet on biotechs. Where else can
you hope for that kind of return? Of course for every Dendreon,
there are a dozen disappointments.
As a purely speculative suggestion, there has some chatter about a
pair of other promising names that could post Dendreon-like
returns. One is
Star Scientific (Nasdaq: CIGX)
, which is targeting the tobacco-withdrawl market and may also have
a useful remedy for the treatment of Alzheimer's disease.
Cyclacel Pharma (
is another intriguing name. The company has a range of drugs that
target various forms of cancer.
These aren't stock recommendations. Just ideas for further
-- David Sterman
Disclosure: David Sterman does not own shares of any security
mentioned in this article.