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Unintended Consequences: What Investment Firms have to Fear

By: Kapitall
Posted: 8/9/2011 6:19:00 PM
Referenced Stocks: AMTD;CME;GHL;SF

(List compiled by Becca Lipman)

Morgan Stanley is in a huff, and rightly so. Standard & Poor just made their business a lot more complicated, and right now it seems the company has plenty to fear.

As the United States has never been an AA+ rated country before, the consequences "are unpredictable and may not be immediately apparent" according to a Morgan Stanley statement on the downgrade.

In the statement, Morgan Stanley argues that the S&P's downgrade will affect their business through changes in money markets, payment systems and foreign exchange markets.

The downgrade is also likely to adversely affect the company's own credit rating, “as well as those of our clients and/or counterparties and could require us to post additional collateral on loans collateralized by U.S. Treasury securities.”

In one week the value of Morgan Stanley has dropped from $22.29/share on August 2nd to its current position at $20.02, representing a 10.18% drop. In the last 10 years, MS has not hit such lows outside of September-March of 2008.

Morgan Stanley is not alone. If their predictions are correct then the credit rating consequences are an inescapable reality for all US investment firms.  After all, the material markets, money systems, foreign exchange rates are a universal factor and are not industry specific.

To explore the idea that investment firms will be negatively impacted by “unforeseen consequences” we list below the US investment firms that have seen a sharp increase in shares shorted over the last month.

Do you think this short selling is fully justified? Do you think any of these names are undervalued? Use the data below as a starting-off point for your own analysis.

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1. TD AMERITRADE Holding Corporation (AMTD): Investment Brokerage (National) Industry. Market cap of $9.51B. Current price at $15. Shares shorted in the most recent month at 17.67M, vs. shares shorted in the previous month at 16.12M. This represents a 0.81% change in the company's 190.64M share float. The stock is currently stuck in a downtrend, trading -18.59% below its SMA20, -20.92% below its SMA50, and -23.52% below its SMA200. It's been a rough couple of days for the stock, losing 9.31% over the last week.

2. Greenhill & Co., Inc. (GHL): Investment Brokerage (Regional) Industry. Market cap of $1.18B. Current price at $37.14. Shares shorted in the most recent month at 5.17M, vs. shares shorted in the previous month at 5.00M. This represents a 0.62% change in the company's 27.54M share float. Relatively low correlation to the market (beta = 0.78), which may be appealing to risk averse investors. The stock is a short squeeze candidate, with a short float at 18.99% (equivalent to 9.91 days of average volume). The stock is currently stuck in a downtrend, trading -20.22% below its SMA20, -26.02% below its SMA50, and -43.12% below its SMA200. It's been a rough couple of days for the stock, losing 9.54% over the last week.

3. Stifel Financial Corp. (SF): Investment Brokerage (Regional) Industry. Market cap of $1.76B. Current price at $29.48. Shares shorted in the most recent month at 2.94M, vs. shares shorted in the previous month at 2.69M. This represents a 0.5% change in the company's 49.61M share float. The stock is currently stuck in a downtrend, trading -21.18% below its SMA20, -20.34% below its SMA50, and -27.83% below its SMA200. It's been a rough couple of days for the stock, losing 13.78% over the last week.

4. CME Group Inc. (CME): Investment Brokerage (National) Industry. Market cap of $18.07B. Current price at $247.41. Shares shorted in the most recent month at 1.28M, vs. shares shorted in the previous month at 1.06M. This represents a 0.35% change in the company's 63.04M share float. The stock is currently stuck in a downtrend, trading -12.96% below its SMA20, -12.12% below its SMA50, and -16.2% below its SMA200. It's been a rough couple of days for the stock, losing 6.84% over the last week.