5 Stocks Loved By Shorts and Analysts Alike

by Alyssa Oursler | June 27, 2013 9:02 am

money in shape of heart 630 5 Stocks Loved By Shorts and Analysts AlikeIn everything from sports to stocks, people love to disagree. Some of the most impassioned conversations I’ve ever witnessed have been centered around disgust over the Miami Heat or diehard loyalty to Apple (AAPL[1]). Heck, my dad and I go back and forth about stock picks all the time — mostly a result of our differing views of growth vs. value.

Of course, it’s not just my family or Apple fanboys and haters who disagree about a stock’s merits.

In some cases, analysts are generally bullish on the same stocks that short-sellers are piling into. In fact, more than 20 stocks of $1 billion in market cap or more feature both at least a quarter of their float sold short and a consensus “buy” rating or better, according to FinViz.

When I dug a little deeper into analysts’ opinions of those names, I found that many boasted price targets implying upside in the double digits, with some expected to appreciate by as much as 40% in the next 12 months.

Let’s take a closer look at few of these stocks:

SodaStream

SodaStream 185 5 Stocks Loved By Shorts and Analysts AlikeShort Interest: 35%
Analyst Predicted Upside: 12%

SodaStream (SODA[2]), which has far outpaced the market’s strong first half of 2013, has the lowest projected upside of this bunch, according to Thomson analysts.

Yes, Deutsche Bank downgraded the stock in mid-May from “buy” to “hold,” but Oppenheimer and Barclays have reiterated their calls to “overweight” and “outperform,” respectively, since then, with the latter boosting its price target to triple digits — 40% more than SODA’s current price tag of $71.

Of course, the shorts think SodaStream — both the machine and the company behind it — is nothing but a fad … and one that will fade soon. Although overall short interest has been gradually declining, it still made up a whopping 35% of the float as of the most recent short data out June 14.

SODA shares did slip recently after talk of buyout interest from PepsiCo (PEP[3]) and Coca-Cola (KO[4]) fizzled. But since then, the upward trajectory has resumed. So far in 2013, SODA has gained around 60% year-to-date, including a nearly 3% climb yesterday.

Coinstar

coinstar185 5 Stocks Loved By Shorts and Analysts AlikeShort Interest: 38%
Analyst Predicted Upside: 15%

Coinstar (CSTR[5]) — maker of those RedBox kiosks that spit out movie rentals — is sitting in the red during the past 12 months but is outperforming the broader market year-to-date.

Lots of investors are expecting to see more red, though.

Just under 40% of the float was sold short as of June 14, and while that’s a decrease from the short interest back in April, it still makes for an eye-popping short ratio of 15 (in other words, shorts would need 15 days to close out all their positions). The reason for such pessimism: Revenue per Redbox kiosk — kiosks that make up around 90% of the company’s operating income and revenue — has been slipping in recent quarters.

Despite that, Northland Capital recently reiterated its “outperform” rating and upped its price target for CSTR, and Thomson’s consensus estimates still give the stock a projected upside of 15%.

That doesn’t seem unreasonable considering CSTR is trading for a mere 10 times forward earnings — less than expected annual five-year growth of 18% — and considering its high short ratio, the stock could be ripe for a squeeze.

Sarepta Therapeutics

Short Interest: 32%
Analyst Predicted Upside: 21%

sarepta 5 Stocks Loved By Shorts and Analysts AlikeA year ago, Sarepta Therapeutics (SRPT[6]) was worth a mere 67 cents. Today, it’s trading for almost $40.

Welcome to the world of biotech.

Of course, the company’s Duchenne muscular dystrophy treatment eteplirsen — which is currently in phase 2b trials — can be thanked for the “outperform” and “buy” ratings SRPT has been showered with, including bullish coverage initiated by Robert W. Baird & Co. and Needham just a few months back.

Most recently, eteplirsen trials showed that patients demonstrated continued stabilization of walking ability and were able to walk longer distances than those taking a placebo.

On the flipside, the shorts are admittedly skeptical. And who can blame them? The company is not yet making money, and if one thing goes wrong with the drug’s trials, investors will flee as fast as they’ve piled in. Plus, the same optimistic analysts also have been preparing themselves for an even worse loss in the current quarter and full-year.

Then again, a stock like SRPT hardly trades on fundamentals such as earnings.

Francesca’s

Francesca185 5 Stocks Loved By Shorts and Analysts AlikeShort Interest: 33%
Analyst Predicted Upside: 41%

Boutique chain Francesca’s (FRAN[7]) has been an analyst favorite since it hit the market two years ago, but it’s been en vogue for shorts as well.

Most recently, William Blair initiated an “outperform” rating on the stock just a couple days ago, maybe thinking the 20% decline from late May to late June was just a tad overdone. And FRAN indeed looks cheap at current levels considering the chain’s big plans for expansion; the stock has a price/earnings-to-growth ratio of 0.87, indicating it’s somewhat undervalued.

Plus, at least a few short-sellers have already taken a hike since the stock’s recent big dip. More than 40% of the float was sold short at the very end of May — right before FRAN got pounded for a disappointing outlook — while 33% of the float is held short now.

Still, that chunk (and a short ratio of nearly 11) isn’t anything to sneeze at and could easily lead to a short squeeze if FRAN’s recent rebound continues.

Fusion-io

FusionIO185 5 Stocks Loved By Shorts and Analysts AlikeShort Interest: 34%
Analyst Predicted Upside: 42%

For Fusion-io (FIO[8]), short sellers — whose bearish bets represent 34% of the stock’s float — have been right so far this year. The cloud company, which came public in the summer of 2011, has shed 28% since 2013 kicked off, putting FIO’s current price at less than half its 52-week high.

But look at Fusion-io’s short interest, it’s pretty obvious the bears still think FIO has more room to tumble.

Analysts sure seem to think things can’t get much worse. Their bullish calls have largely been in response to the tumble short-sellers predicted for FIO. On June 17, Needham initiated a “buy” rating on the stock after it had already lost 42% year-to-date. In prior months, UBS and Stifel both upgraded the beaten-down stock to a “buy,” from ratings of “neutral” and “hold,” respectively.

Nonetheless, a consensus target of $20 is a risky bet on a big snap-back, especially considering the stock still trades at a rich valuation of 56 times earnings on expected annualized growth of 26%.

As of this writing, Alyssa Oursler did not hold a position in any of the aforementioned securities. Follow her on Twitter at @alyssaoursler[9].

Endnotes:
  1. AAPL: http://studio-5.financialcontent.com/investplace/quote?Symbol=AAPL
  2. SODA: http://studio-5.financialcontent.com/investplace/quote?Symbol=SODA
  3. PEP: http://studio-5.financialcontent.com/investplace/quote?Symbol=PEP
  4. KO: http://studio-5.financialcontent.com/investplace/quote?Symbol=KO
  5. CSTR: http://studio-5.financialcontent.com/investplace/quote?Symbol=CSTR
  6. SRPT: http://studio-5.financialcontent.com/investplace/quote?Symbol=SRPT
  7. FRAN: http://studio-5.financialcontent.com/investplace/quote?Symbol=FRAN
  8. FIO: http://studio-5.financialcontent.com/investplace/quote?Symbol=FIO
  9. @alyssaoursler: https://twitter.com/alyssaoursler

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