Take action on strong up days when the believers are pushing the stock for all it’s worth – every stock has them. Some brands like Apple, Harley Davidson (NYSE:HOG) and Facebook (NASDAQ:FB) , for example, are particularly well defended by brand loyalists.
That’s why you’ve got to have a thick skin when you are shorting stocks because you’re essentially betting against the success so many people hope for.
Your friends will accuse you of being un-American or a vulture – mine certainly have over the years. Worse, any butthead with an Internet connection can take a potshot at you in today’s socially driven media age.
Stick to your guns. They’ll get over it when they figure out how much money they could have made and how they can get in on the action.
Where to Find Good Short Candidates Right Now
Here are four industries I believe are ripe for the picking at the moment:
1) European Banks
I know that everybody is looking for profits in the face of unprecedented government meddling but the fundamentals do not bear this out. The biggest banks are under the microscope at the moment and face the most hostile legal environment they’ve seen in years. The ESM and ESFM don’t have enough money and the bailouts are simply propping up a house of cards that will ultimately come crashing down.
Most have had the starch beat out of them already so wait until a new stimulus program is announced then consider shorting Italy’s number three bank, Monte dei Paschi di Siena. It’s reportedly 3 billion euros short of capital and has more than 26 billion euros in exposure to Italian government bonds. Deutsche Bank’s (NYSE:DB) Italian and Spanish Units may be 14 billion euros short of what it would need to weather a euro breakup or break down.
2) Social Media
Facebook is the poster child for everything that’s wrong with this industry. Nine hundred million users or not, if you can’t monetize their eyeballs you’re gonna get Zucked. That stock is worth $7.50 at best. Zynga (NASDAQ:ZNGA) and Groupon (NASDAQ:GRPN) come to mind, too. So does Jive Software (NASDAQ:JIVE).
3) Consumer Electronics
Sony (NYSE:SNE), once a world- class operation and leader in everything from consumer electronics to games, financial services and films, is getting badly beaten. Very few analysts see anything resembling competent management, let alone an Apple style product set that could turn this company around before Godzilla comes out of the Tokyo Bay again.
4) Alternative Energy
The first rule of any profitable industry is that it’s able to stand alone on its own merits. Therefore, any heavily subsidized industry is suspect, particularly if they’re the recipient of mollycoddling Federal initiatives. Right or wrong, green energy subsidies are going to be cut when the government runs out of money or actually investigates the questionable loans that it’s made in the name of progress. So while we may not have another Solyndra yet, it’s only a matter of time before we do.
Those are mine. Let me know what you’re shorting and why.
And remember, there is opportunity in every market. You don’t have to be long to earn a profit.