Short Sellers Have These 7 Well-Known Stocks In Their Sights
With themarket rally showing no signs of cooling off, it has become quite risky to shortstocks .
Indeed, many hedge fund managers that tend to make a living fromshort selling have moved to the sidelines, waiting for the market to switch direction before loading up on shorts. It's a wise move to preserve both yourcapital and your sanity.
Still, not all short sellers have abandoned ship, and some of them are making increasing bold bets. You may not want to follow their lead -- just yet -- but it's instructive to see which stocks they are targeting. If you own or are thinking of buying one of these stocks, the rising short interest should give you pause.
Here are seven stocks (andfunds ) seeing big changes in short interest in the two week-period that ended June 28. (Actual data were released on July 10.)
|1. Pfizer (NYSE:PFE )|
The short interest in this drugmaker surged a hefty 53%, to
336 millionshares , making it the most heavily shortedstock
on the New York Stock Exchange. Roughly a month ago, I
noted that virtually every major drug stocks have rallied
sharply in the pastyear .
But Pfizer was notably absent from the select few drugmakers that seemingly deserved suchgains .
At the end of the quarter, short sellers often anticipate an imminent shortfall or weakguidance , though a quick review of theanalyst reports following Pfizer reveals no such warning signs. Instead, it may be a concern that rivals are advancing with a key drug that threatens one of Pfizer's top sellers, or that one of Pfizer's own drugs in development is poised to deliver weak clinical results.
|2. Cliffs Natural Resources (NYSE:CLF )|
I've been noticing this iron ore miner appear on a number
of recent screens that I have run, as it sports a range of
impressive value metrics after falling two-thirds from
its52-week high . Short sellers think this stock has
further to fall, as the short interest spiked 13% in just
two weeks to 54.8 million shares. That accounts for 36% of
the tradingfloat , which is one of the highest percentages
of any stock in the S&P 500.
The entire commodities complex is in a massivecorrection mode, and falling prices are leading to curtailed output. Thatwill set the stage for an eventual upturn in commodities, but we're not there yet, and these short sellers likely think we haven't even hit bottom yet.
|3. iShares FTSE China 25Index ETF (NYSE:FXI )|
Throughout the first half of 2013, the Chineseeconomy has
shown signs of slowing.
Whether China's troubles are in fact deepening has become one of the biggest concerns for global investors, which have already been fleeing anyemerging markets that have considerable exposure to China.
Short sellers, led byhedge fund manager Jim Chanos, appear to think China is on the cusp of a big economic downturn. The short interest in thisexchange-traded fund ( ETF ) rose 13% sequentially, to 49 million shares, and is likely to rise further until the Chinese economic picture becomes clearer.
|4. Utilities Select SectorSPDR (NYSE:XLU )|
A number of electric utilities have seen a recent rise in
their short interest, which is probably due to a recent
spike in interest rates that is making the
utilities'dividend yields a bit less attractive.
Short sellers are anticipating further rotation out of this group, boosting their short position in thisETF by 30% in just two weeks to 38.5 million shares.
|5. Six Flags Entertainment (NYSE:SIX )|
It's been a hot and muggy summer in the eastern half of the
U.S., which has led many people to stay inside and bask in
the air conditioning rather than venture outside. Might
that be impacting attendance at this amusement park
The short interest more than doubled in just two weeks to 6.4 million shares, which represents five days' worth of tradingvolume . That makes this a "crowded short" and would lead to ashort squeeze if Six Flags delivers decent quarterly results on July 18.
|6. Intel (Nasdaq:INTC )|
Short sellers likely think weak PCsales will lead this
chipmaker to miss forecasts when second-quarter results are
released July 17. The consensus forecast anticipates
profits of 39 cents a share on sales of $12.9 billion, and
those numbers have not moved in two months, despite further
signs of PC weakness.
If short sellers are right, and Intel misses the forecast, it could have negative ripple effects across the tech sector. Chip equipment makers, for example, are highly reliant on Intel, which remains the largest buyer of semiconductor capital equipment in the world. Intel's short interest rose by 6 million shares (to a hefty 235 million) in the two weeks ended June 28.
|7. NetApp (Nasdaq:NTAP )|
This provider of data storage equipment is also in the
crosshairs of short sellers. The short interest spiked 27%
sequentially to 43 million shares, which represents 12% of
the trading float and seven days' worth of trading volume.
This stock is near 52-week highs, thanks in part to the robust market rally, though signs are emerging that spending on data storage may cool in the second half. Lowered guidance may be the negativecatalyst that short sellers are anticipating when quarterly results are released in mid-August.
Risks to Consider: As noted, it's risky to invest on the short side right now as a rising tide is lifting all boats. So do a substantial amount of research on any stock that you do intend to target for ashort sale .
Action to Take --> Tracking short interest activity right in front of anearnings season can be quite fruitful as we can learn fairly quickly if short sellers were on the mark. Also, if earnings season proves to be disappointing, you can look to these stocks and funds for trading ideas on the short side.