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Contrarian Ideas: 10 Highly Shorted Stocks Hedge Funds are Selling

Posted
10/18/2011 9:32:00 PM
By: Kapitall
Referenced Stocks:CCSC;HGG;MERU;NILE;PETS;RJET;STRI;MNKD;SYNA;USNA

(Written by Alexander Crawford, list compiled by Eben Esterhuizen, CFA. Data from October 12. Short data sourced from Yahoo! Finance, institutional data sourced from Fidelity, all other data sourced from Finviz.)

If you think there’s value in betting against the crowd, you may associate with the term “contrarian investor.” These investors often trade contrary to what the majority of market participants appear to be doing.

In the never-ending search for extreme sentiment, contrarians look for opportunities in which they believe the market’s sentiment is simply too bearish or too bullish for a stock. It hinges on the belief that crowd mentality gets out of hand.

To provide some examples of contrarian investing, we searched for stocks with very bearish sentiment from two sources – short sellers and institutional investors such as hedge fund managers.

We screened over 4,000 US-traded stocks for those with short floats over 20%, indicating highly bearish sentiment from short sellers. We then screened for those stocks that have also seen significant net selling from institutional investors over the current quarter.

From these two angles, the market is certainly bearish on these names. But do you think this bearishness is excessive? You be the judge.

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List sorted by net institutional shares sold over the current quarter.

1. Republic Airways Holdings Inc. (RJET): Provides scheduled passenger services. Short float at 20.71%, which implies a short ratio of 16.19 days. Net institutional sales in the current quarter at 4.5M shares, which represents about 12.53% of the company's float of 35.91M shares.

2. Synaptics Inc. (SYNA): Develops and supplies custom-designed human interface solutions that enable people to interact with various mobile computing, communications, entertainment, and other electronic devices. Short float at 21.69%, which implies a short ratio of 14.04 days. Net institutional sales in the current quarter at 3.3M shares, which represents about 10.14% of the company's float of 32.56M shares.

3. PetMed Express Inc. (PETS): PetMed Express, Inc., doing business as 1-800-PetMeds, markets non-prescription and prescription pet medications; and other health products for dogs, cats, and horses. Short float at 27.73%, which implies a short ratio of 20.33 days. Net institutional sales in the current quarter at 1.5M shares, which represents about 7.2% of the company's float of 20.84M shares.

4. Country Style Cooking Restaurant Chain Co., Ltd. (CCSC): Operates a quick service restaurant chain under the CSC brand in the People's Republic of China. Short float at 25.50%, which implies a short ratio of 15.75 days. Net institutional sales in the current quarter at 675.5K shares, which represents about 5.37% of the company's float of 12.58M shares.

5. Meru Networks, Inc. (MERU): Engages in the development and marketing of a virtualized wireless LAN solution. Short float at 22.73%, which implies a short ratio of 23.34 days. Net institutional sales in the current quarter at 336.6K shares, which represents about 5.33% of the company's float of 6.32M shares.

6. hhgregg, Inc. (HGG): Operates as a specialty retailer of consumer electronics, home appliances, and related services. Short float at 30.26%, which implies a short ratio of 20.06 days. Net institutional sales in the current quarter at 817.1K shares, which represents about 5.11% of the company's float of 15.99M shares.

7. Blue Nile Inc. (NILE): Operates as an online retailer of diamonds and fine jewelry worldwide. Short float at 28.06%, which implies a short ratio of 15.81 days. Net institutional sales in the current quarter at 673.3K shares, which represents about 5.09% of the company's float of 13.24M shares.

8. USANA Health Sciences Inc. (USNA): Develops, manufactures, distributes, and sells nutritional and personal care products worldwide. Short float at 32.85%, which implies a short ratio of 23.07 days. Net institutional sales in the current quarter at 334.9K shares, which represents about 4.86% of the company's float of 6.89M shares.

9. STR Holdings, Inc. (STRI): Engages in the manufacture and sale of encapsulants to the solar module industry. Short float at 23.42%, which implies a short ratio of 18.2 days. Net institutional sales in the current quarter at 1.4M shares, which represents about 4.1% of the company's float of 34.14M shares.

10. MannKind Corp. (MNKD): Focuses on the discovery, development, and commercialization of therapeutic products for diabetes and cancer. Short float at 31.61%, which implies a short ratio of 25.33 days. Net institutional sales in the current quarter at 2.4M shares, which represents about 3.03% of the company's float of 79.31M shares.