Do the Shorts Know Something You Don't?
May 16th 2012 10:14PM
Updated May 16th 2012 10:16PM
Since everyone loves a winner, it's reasonable to assume that everyone hates a loser -- everyone but short sellers, at least. These contrarian investors bet that hot stocks are primed to fall, aiming to turn their pessimism into potential profits.
These companies had some of the largest percentage increases in shares sold short. Combining that with the collective intelligence of Motley Fool CAPS, we'll see which of these companies Fools believe have the power to make short work of short-sellers.
CAPS Rating (out of 5)
|Sprint Nextel (NYS: S)||139.3||60.1||131.7%||4.7%||**|
|Zynga (NAS: ZNGA)||42.0||27.9||50.7%||51.9%||*|
Sources: wsj.com. Share counts in millions.
Of course, this isn't a list of stocks to buy -- or short! These stocks could have serious problems that warrant their short interest, but they might also be stricken by short-term troubles. Only Foolish due diligence will tell you for certain; our 180,000-strong CAPS community offers just such a good place to start.
Gearing up for growth
As if the smartphone chip shortage isn't enough of a headache for struggling telecom Sprint Nextel, U.S. customs agents are now holding up shipments of HTC's latest and greatest EVO 4G LTE phone because of an ITC ruling limiting the importation of certain handsets.
Chipmaker Qualcomm (NAS: QCOM) is the sole source for new baseband LTE chips and can only produce 15 million of them when demand is running in excess of 30 million because of supply constraints from Taiwan Semiconductor. HTC, Samsung, and even Apple (NAS: AAPL) are dependent on Qualcomm to provide the chips, but TSM has been swamped with orders and can't keep up.
But it's hardly good news for Sprint that its competitors are also being crimped, particularly since it was scheduled to start selling HTC's latest phone that's now sitting on the docks awaiting customs actions. Apple had won an injunction against HTC last year, and even though the handset maker says it's in compliance with the order, it has to iron out the intricacies of the deal and can't say when it will be resolved. AT&T (NYS: T) was also waiting on HTC's One X phones, too.
And Sprint still has to defend its decision to guarantee sales of Apple's iPhones. While it contends, it needed the agreement to stay competitive with AT&T and Verizon and keep customers from leaving. CEO Dan Hesse, who survived vocal opposition to be re-elected to the board, said investors need only look at the performance of T-Mobile, which doesn't have the iPhone, to see the sense in the deal.
I think all of these hurdles are too large for Sprint to climb over, and I'm closing out my (losing) outperform rating of the telecom carrier on CAPS, but kahunacfa says now's just the right time to be climbing on board:
Sprint offers the fastest and most complete, unlimited Data phone Network on the planet. The Sprint network is far, far faster and far better than the AT&T network. Sprint is gaining market share -- especially now that they can offer the iPhone from Apple.
Tell me in the comments section below or on the Sprint CAPS page whether you think I'm jumping ship at precisely the wrong moment, and then add the stock to your Watchlist to see whether the shorts get caught short with their big bets against it.
Riding the coattails higher
As the Facebook IPO goes, so goes Zynga, the game maker behind those annoying Farmville and Cityville updates you're inundated with on the social-networking site. Because of the strong interest in the IPO, Facebook is increasing by 25% the number of shares it will offer to the public, giving early investors a chance to beat feet out the door. PayPal co-founder Peter Thiel, James Breyer from Accel Partners, and investment manager Tiger Global Management will add 84 million shares from their holdings.
With Zynga accounting for about 15% of Facebook's revenue, it's not surprising they're joined together at the hip. It also highlights the different values that companies can derive from the social-network site. General Motors just announced it was ending its advertising on Facebook because it didn't get anything out of it, though a cynic might say Farmville offers more value than a Chevy Volt, and so people will respond more to the former than the latter.
With such a heavy short component to its stock, and with Facebook increasing the offering price of its shares, Zynga's stock could benefit from a squeeze that short sellers will get caught in.
CAPS member EasyAs3141 sees Zynga being swept higher by the pending IPO regardless of the long-term potential of the company, but it's a minority viewpoint, as more than 60% of the 454 community members rating the gaming company think it will fall short of the market's performance.
Add your own thoughts on the Zynga CAPS page or in the comments section below, and add its stock to the Fool's free portfolio tracker to see how quickly the Facebook effect wears off.
Don't sell yourself short
Share your views with the CAPS community: Squeeze 'em till it hurts, or short 'em till the sun don't shine?
Besides heavy short interest, both Sprint and Zynga are reliant on smartphone use in their own ways. At the Fool, we recognize that since the iPhone is the juggernaut in the space, investors need to stay in the know on Apple as well. To learn more about a new research service we are offering specifically on Apple, follow this link.
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At the time this article was published Fool contributor Rich Duprey owns shares of Apple, but he holds no other position in any company mentioned. Check out his holdings and a short bio. The Motley Fool owns shares of Qualcomm and Apple. Motley Fool newsletter services have recommended buying shares of General Motors and Apple and creating a bull call spread position in Apple. The Motley Fool has a disclosure policy. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
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