4 Stocks to Short Ahead of Earnings

by Tom Taulli | July 30, 2012 2:50 pm

4 Stocks to Short Ahead of Earnings

So far, the second-quarter earnings season has been a boon for short sellers. Investors have been teeing off on bad earnings news[1] for a number of big-name companies, such as Facebook (NASDAQ:FB[2]), Starbucks (NASDAQ:SBUX[3]), Chipotle Mexican Grill (NYSE:CMG[4]) and Zynga (NASDAQ:ZNGA[5]). Even Apple (NASDAQ:AAPL[6]) saw a nearly 5% dip[7]!

Well, if you’re worried about missing out on the short-selling fun, worry no longer. A look ahead at this week’s earnings reports shows the shorts should have a number of interesting opportunities. Here’s a look at four:

Pitney Bowes

Pitney Bowes (NYSE:PBI[8]) provides a wide array of business services, such as postage metering and document management. However, these businesses are in a constant state of erosion.

After all, the U.S. Postal Service continues to see deterioration in volume. Plus, there are alternative services, like those offered by Constant Contact (NASDAQ:CTCT[9]), Stamps.com (NASDAQ:STMP[10]) and Google. Pitney Bowes has been trying to move into other categories, but the results have been mixed.

Pitney Bowes has been driven down nearly 30% this year and roughly 70% in the past five years. The fact it’s trading at roughly 4 times earnings despite a fantastic yield of 11% is merely a reflection of how little confidence Wall Street has in Pitney Bowes’ core business. Short interest — the total of shares currently short — is 35% of the float. Considering anything above 10% represents a glaring red flag, you might want to consider adding to that number before Thursday evening’s earnings report.

OpenTable

OpenTable (NASDAQ:OPEN[11]) operates an extensive online platform that allows consumers to book restaurant reservations. Unfortunately, the company has seen a weakening in revenue growth. Some of the factors include saturation in the U.S. market, as well as increasing competition, such as from Livebookings and Rezbook. Even Google (NASDAQ:GOOG[12]) could make a play for the market.

Short interest is 56% of the float, but expectations still are high considering OPEN still trades at 40 times trailing earnings. Expect that to change if OpenTable disappoints after the bell Thursday.

Blue Nile

Blue Nile (NASDAQ:NILE[13]) operates a popular site for diamonds and fine jewelry, but the company has suffered a grueling 2012.

The company missed first-quarter earnings by more than 80% and has disappointed for four straight reports. Frustrated investors have pounded the stock to nearly 40% losses so far, but with a short interest at roughly 56% of the float, investors apparently think the carnage at Blue Nile will continue.

Not helping NILE is a still-high price-to-earnings ratio of nearly 40, the headwinds from the U.S. economy and the rising cost of diamonds, which has been pinching margins.

Blue Nile also reports Thursday evening.

Skullcandy

Skullcandy (NASDAQ:SKUL[14]) is a manufacturer of headphones and other accessories for iPhones and iPads, so the company could see some vulnerability thanks to the slowing at Apple.

SKUL company has done a great job in keeping its brand fresh, but customer loyalty could wane. Ponying up to continue getting Apple’s latest expensive products is difficult enough in a middling economy; it could be difficult for consumers to justify spending some more on Skullcandy’s products.

The short interest in Skullcandy is a whopping 72% of the float. If the news after the bell is ugly, there’ll be more than a few celebrations.

Tom Taulli runs the InvestorPlace blog IPOPlaybook[15], a site dedicated to the hottest news and rumors about initial public offerings. He also is the author of “All About Short Selling”[16] and “All About Commodities.”[17] Follow him on Twitter at @ttaulli[18]. As of this writing, he did not own a position in any of the aforementioned securities.

Endnotes:
  1. teeing off on bad earnings news: http://investorplace.com/2012/07/the-q2-earnings-season-shooting-gallery/
  2. FB: http://studio-5.financialcontent.com/investplace/quote?Symbol=FB
  3. SBUX: http://studio-5.financialcontent.com/investplace/quote?Symbol=SBUX
  4. CMG: http://studio-5.financialcontent.com/investplace/quote?Symbol=CMG
  5. ZNGA: http://studio-5.financialcontent.com/investplace/quote?Symbol=ZNGA
  6. AAPL: http://studio-5.financialcontent.com/investplace/quote?Symbol=AAPL
  7. saw a nearly 5% dip: http://investorplace.com/2012/07/let-the-day-traders-sell-apple-you-should-keep-holding/
  8. PBI: http://studio-5.financialcontent.com/investplace/quote?Symbol=PBI
  9. CTCT: http://studio-5.financialcontent.com/investplace/quote?Symbol=CTCT
  10. STMP: http://studio-5.financialcontent.com/investplace/quote?Symbol=STMP
  11. OPEN: http://studio-5.financialcontent.com/investplace/quote?Symbol=OPEN
  12. GOOG: http://studio-5.financialcontent.com/investplace/quote?Symbol=GOOG
  13. NILE: http://studio-5.financialcontent.com/investplace/quote?Symbol=NILE
  14. SKUL: http://studio-5.financialcontent.com/investplace/quote?Symbol=SKUL
  15. IPOPlaybook: http://investorplace.com/ipo-playbook/
  16. “All About Short Selling”: http://www.amazon.com/All-About-Short-Selling/dp/0071759344/ref=sr_1_1?s=books&ie=UTF8&qid=1302184310&sr=1-1
  17. “All About Commodities.”: http://www.amazon.com/All-About-Commodities/dp/0071769986/ref=ntt_at_ep_dpi_10
  18. @ttaulli: https://twitter.com/ttaulli

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