Do the Shorts Know Something You Don't?
May 31st 2012 1:24PM
Updated May 31st 2012 5:04PM
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.
|Thompson Creek Metals (NYS: TC)||17.0||8.9||91.8%||11.1%||*****|
|Clearwire (NAS: CLWR)||65.1||44.2||47.1%||14.5%||**|
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.
Burning the furniture to heat the house?
In the month since it was highlighted as having a buy-one-get-one sale on its shares, Thompson Creek Metals has dropped an additional 40%, mostly occurring after it announced a $200 million rights offering and the sale of 8 million tangible equity units. Those units will automatically settle in three years for shares of common stock.
While it seems the shorts had this one right in the short run, Thompson Creek ought to do better in the long haul because of the money it raised. No doubt it was a fairly dilutive deal to raise the $200 million, but it's going to use that money to complete construction on its Mount Milligan, where it's estimated there are 6 million ounces of gold overlaid on 2.1 billion pounds of copper. When everything comes due, it's expected the gold and copper mine will be operational.
Thompson Creek has been trying to raise cash for a while to complete the project, having sold a stake in the mine's production to Royal Gold (NYS: RGLD) for $270 million. Yet it still retains 60% ownership of Mount Milligan, meaning that the value of what it produces will likely far exceed the value the market is currently assigning to the company. As CAPS member LogicalD points out, the market is essentially saying the project has no value.
I'm rating Thompson Creek on CAPS to outperform the market as a result, but tell me in the comments section below or on the Thompson Creek Metals CAPS page whether it's time for the shorts to close out their position, then add the stock to your Watchlist to see if they end up getting caught short if they don't.
Riding the coattails higher
Wireless service provider Clearwire was also in the market selling stock to finish construction projects, selling $300 million worth to build out its network. The market crushed its stock on the news, and not even the bankruptcy of the politically connected LightSquared could give it a sustained bounce.
Clearwire has been dependent on Sprint (NYS: S) for sustenance, and when Sprint began courting LightSquared for its proposed LTE network, Clearwire's WiMAX offerings were endangered. Now that LightSquared is kaput, despite extraordinary intervention on the part of the FCC as it tried to outmaneuver GlobalStar, Sprint came rushing back with full support for it.
With a fairly strong quarterly report issued by Clearwire last month, there should be plenty of foundation remaining upon which to build. It's building out its own LTE network now, and CAPS member dtrace believes that coupled with the sizable chunk of spectrum it owns, this leaves the wireless service provider cleared for takeoff: "They will have the largest and fastest LTE network available in the U.S., which is also the only one compatible with the LTE used by carriers in [Europe], China and India. Plus they hold a good portion of spectrum as well."
Add your own thoughts on the Clearwire CAPS page or in the comments section below and add its stock to the Fool's free portfolio tracker to see whether it can avoid LightSquared's fate.
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?
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At the time this article was published Fool contributor Rich Duprey holds no position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool has a disclosure policy. We Fools may not 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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