The Shorts Report: 10 Mega-Caps With Increased Short Selling
In today's shaky market environment, it's important for investors to consider a stock's short interest before taking a position. Two indicators typically used are: (1) the percentage of a stock's float (tradable shares) that bears are currently short selling, and (2) the month-to-month change in shorting activity.
An increased amount of shorting typically means what it implies – that the Street has grown less fond of that particular stock. Overselling, however, sometimes has a positive effect on stock price, as short sellers may be forced to cover (buy) their positions – a process known as being ‘called away'. Here are ten mega-cap companies that have seen their short interest increase over the past month.
One point that immediately jumps off the page is that all of the stocks listed here have provided investors with a healthy return since the start of 2012, which is not unexpected as the U.S.'s three major indices have returned an average of about 9 percent during this time.
LinkedIn (NYSE: LNKD), which has provided nearly an 80 percent return YTD, also has the greatest short percentage of float in the group. While a short percentage of nearly 10 percent does not signal that the stock is oversold, it does indicate that short sellers have moved into LNKD in at a level only seen in one-fifth of all publicly traded companies. LNKD is currently trading around $110, slightly off its all-time high of $122.70. The social media company also recently wowed the markets with its first quarter results, reporting revenue and earnings boosts of 101 and 138 percent respectively. Currently, though, shares of LNKD are trading at a price-earnings multiple north of 1,000X, so this situation is worth monitoring further.
Equally as important is the month-to-month changes in short selling activity. Here, Nike (NYSE: NKE) has seen the most dramatic growth in its ‘bear' population – which is notable, considering that its shares have remained flat since April. Over this same time, NKE's primary competitors Under Armour (NYSE: UA), Lululemon Athletica (NASDAQ: LULU), and Adidas (OTC: ADDYY) have all been greener to investors' pockets.
Other major movers in this category – Union Pacific (NYSE: UNP), Merck & Co (NYSE: MRK), and Oracle Corp (NASDAQ: ORCL) – are valued at earnings multiples 10 to 20 percent higher than industry averages, while GlaxoSmithKline (NYSE: GSK) experienced a moderate revenue decline over the past year. Conversely, each one of these companies won their most recent bout with earnings season, as all four met or exceeded Wall Street estimates. It's worth mentioning that these earnings reports were released after investors already reported their short positions for the month of April.
This month's filings will be important to watch, as short-ers have reacted to Q1 earnings reports and other data releases that have occurred over past four weeks. Check Benzinga next week for an updated look at May's short selling activity.
Follow me on Twitter at @mjakemann
© 2014 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.