Articles filed under "short sellers"
Since we wrote admiringly about Outerwall (OUTR) on May 14, the stock is off about 14% and the percentage of shares outstanding sold short it up, a discouraging sign at the operator of movie rental vending machines.
But a longer version of that same chart shows that bears have built up huge short positions in Outerwall repeatedly in recent years, believing the company is soon to follow Blockbuster into oblivion, and that it instead has so far enjoyed remarkable success.
With the broad S&P 500 measure of the stock market more than doubling over the past five years, it has been a tough time to be a short seller. Stocks keep going up. Valuations have been on the rise. And some companies that make no money have achieved spectacular market caps.
An extreme example of the hapless short seller played out earlier this week as hedge fund manager Bill Ackman gave a presentation he hoped would torpedo Herbalife (HLF) stock, once and for all. Instead, Herbalife shares rose while he was giving his presentation and ended up closing the day with a 25% gain. It’s as if Ackman’s short position was squeezed by, well, Ackman himself.
Express Scripts (ESRX), the largest pharmacy benefit manager, is a rare opportunity at this market juncture. It has a rock-solid demographic tailwind -- aging Baby Boomers -- in addition to an expected pick-up in prescription demand as more Americans gain coverage through the roll out of the ACA.
Yet some short-term operational issues have kept a lid on price appreciation of late.
Short sellers have enjoyed some notable successes in 2014, with many highly valued stocks tumbling steeply, as seen in a YCharts Stock Screener showing year-to-date price performance. Companies such as Groupon (GRPN), Twitter (TWTR) and lululemon (LULU) are all down more than 30% so far in 2014.
Perhaps winnings on such short positions have been reinvested in bets against GameStop (GME) the video game retailer that spent a good part of 2013 thumping short sellers. The shorts really loaded up on GameStop in 2012, with roughly half the outstanding stock shorted at one point, only to see the shares go on a tear. Short interest fell as shorts covered. But it’s been on the rise against since late last year when some disappointing results sent GameStop stock tumbling. Now there are about 28% of shares shorted.
Though a chunk of operations is in after-market sales and servicing, Joy Global is still very much a live-by-the-commodity-cycle/die-by-the-commodity-cycle business. So last year the shorts did okay as Joy Global’s price fell more than 10% given that major mined commodities -- coal foremost -- were still working through a big supply overhang.
But what’s interesting is that the shorts are still not retreating from Joy Global -- even though since September the stock has outperformed the S&P 500 -- while Caterpillar (CAT) isn’t feeling nearly the amount of heat.
In almost any other company, a 50% share price rally in the weeks following an earnings announcement would reflect real optimism about its future. But for Sears Holding (SHLD), that kind of buying may mean something else entirely.
As seen in a stock chart, Sears shares are trading near its 52-week high, having climbed after an initial fall on its earnings report Aug. 22. Its loss per share in the second quarter, which analysts had estimated at $1.10, was considerably larger at $1.46, and revenues were slightly less than forecasts called for. There’s been no official news from the company in the weeks since earnings to make Sears prospects for running Sears department stores and Kmart stores look any brighter. Christmas sales forecasts for retailers generally this year are week.
This, however, is viewed as good news for a lot of Sears shareholders. Many shareholders – Baker Street Capital estimates it’s those holding some 93.5% of actively traded outstanding shares -- are in the company as an asset play instead of turnaround bet. This group sees the value of their shares going up as Sears, in its desperation, sells off valuable parts like Sears Protection (it sells warranties), Sears Auto, Lands End or Sears Canada. Earlier in September, Baker Street published research estimating a break-up value of Sears at $131 a share, more than twice today’s valuation.
Bets against Joy Global (JOY), the smaller rival to Caterpillar (CAT) have spiked of late. Short interest in the mining equipment and servicing firm has more than tripled in 2013. As a percentage of Joy Global’s float, shorts are also more than triple the level for Caterpillar.
It’s not exactly a secret what ails both Joy Global and Caterpillar, whose stock prices are down 22% and 7% respectively in 2013. Amid a sluggish global economic recovery, the need to pull more commodities out of the earth has fallen off sharply, pushing prices down and causing mines to close.
It’s been a rough year for short sellers all around, but perhaps no company has so consistently baffled its doubters as GameStop (GME). Not only has its share price nearly doubled since February, its share price trajectory gave short sellers very few opportunities to cover their pessimistic bets along the way. And boy, there were a lot of pessimists.
Between the end of February and mid June, short sellers held between 31% and 38% of GameStop’s public float, according to NASDAQ records. That was high enough at times to put it among the most shorted shares in the market.
GameStop’s share price, however, recorded only one significant decline during that period; a 19% drop in the week of May 20. The share price was climbing again by the end of the month. The week of May 15 – the optimal time to be holding shares short to cash in on that decline – happens to have been the low point of short holdings for the period.
Analysis published this week by the Wall Street Journal, showing that short sellers got their heads handed to them so far this year, elicits neither pity nor pleasure in these quarters. The stocks that brought shorts the most grief, according to the Journal analysis, seem from here to be momentum plays. And in some cases the shorts may be right, long-term, but were simply ahead of their time in this nutty 2013 bull market (this week’s slide, aside).
One can understand the shorts’ wanting to drill these stocks into the ground. They’re money losers, collectively, offering a fabulous (or at least swell) service or product, but largely unproven as businesses. Their founders and initial investors are getting wealthy (at least on paper, and they often preen about their success), which would tend to make a hard-working short seller envious.
As part of the brilliant Wall Street Journal article and statistical package on the massacre among short sellers so far in 2013, we learn that heavily-shorted stocks at the beginning of the year have in many cases beaten the market and beaten to a bloody pulp the poor money managers who bet on the companies to crumble.
Among the unlikely-seeming 2013 rallies is Pitney Bowes (PBI), which according to the Journal had a stunning 31% of its shares shorted at December 31, 2012, and yet has soared in trading this year, crushing the S&P 500:
We’ve written about Pitney Bowes with some regularity in recent years. Its super-fat dividend yield, and until recently its reliably-rising dividend, recommended it to investors even as the market for postal meters goes, well, the way of the U.S. Postal Service.
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