Three Stocks from Goldman's Hedge Fund Short List, Will They Pop or Flop?
Goldman Sachs (NYSE: GS) released a Q1 2012 list of stocks that are important short positions for hedge funds. Below are three important companies that made the list. These companies could conform to short seller's expectations or instead see price spikes if short sellers are forced to cover their positions.
Johnson & Johnson (NYSE: JNJ): This producer of healthcare products has a short interest around 1.6% of its $173 billion market capitalization. Since the beginning of this year, Johnson & Johnson's stock price has decreased around 4%, while the S&P 500 Index gained around 5%. Traders who agree with short sellers might think the stock will be hurt by recent recalls or future drug failures, law suits or regulation.
Those who are bullish on the stock might focus on its value. At its current price near $63, if Johnson & Johnson were to meet analyst estimates for this year's earnings, the stock would have a P/E ratio close to 12.5. At that point, the stock might be undervalued enough to drive away short sellers, initiating a short squeeze. Exceeding analyst estimates, providing positive news about pipeline drugs or providing optimistic earnings projections could drive short sellers out even sooner.
Exxon Mobil (NYSE: XOM): As the second largest US corporation, this oil and gas company's short interest of .69% carries a significant dollar value close to $2.7 billion. Short sellers of this stock might be pessimistic about the global economic situation, expecting a recession to hinder demand and drive down oil prices.
Exxon's short interest ratio is around 2.2, meaning that it would take short sellers around 2.2 days to cover all of their positions. Bulls on Exxon might wait for big news about increasing oil prices or economic recovery that could drive away short sellers quickly and cause a pop in the stock.
Amazon (NASDAQ: AMZN): This internet retailer may have a relatively high forward P/E ratio near 86, but its historical growth has provided bulls good reason to think the company will thrive in the future. Short sellers may not buy into the growth story, with a short interest on Amazon around 2.85% of floating shares. Bears may think the stock is overvalued or over-hyped, and nearing the end of its momentous growth.
Bulls might recall that Amazon's previous two quarterly earnings releases have significantly outperformed analyst EPS expectations, beating the consensus by more than 100% in both instances. Amazon has a short interest ratio of 2.6. So if the company releases strong earnings or management gives optimistic future guidance, short sellers may drive the stock price up by covering their positions.
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