by Dan Burrows | August 22, 2013 12:49 pm
A rising tide lifts all boats — even the most unseaworthy ones — and that makes a raging bull market a terrible time to be a short seller.
Even after the recent stumble, U.S. equity markets are on fire this year. The S&P 500 has generated a total return (that’s price appreciation plus dividends) of 17.6% for the year-to-date as of Aug. 21. On a price basis alone, the Nasdaq Composite is up more than 20%.
That long-and-strong performance is naturally crushing short sellers — those punters who are betting on the market or individual stocks to go down. In fact, the shellacking they’re taking is rapidly becoming one of historical proportions. According to an analysis by The Wall Street Journal, short sellers are suffering their worst losses in at least a decade.
Get this — the short sellers’ calls have been so bad, they could hardly have done worse if they tried to lose money. As WSJ reports:
“In the Russell 3000 index, the 100 most heavily shorted stocks are sharply outperforming the average returns of stocks in the index, according to a Journal analysis of data provided by S&P Capital IQ. The shorted stocks are up by an average of 33.8% through Aug. 16, versus 18.3% for all stocks in the index.”
Of course some shorts have been much more painful than others. With that in mind, here are five soaring stocks crushing short sellers:
Year-to-date gains: 353%
Float Short (as of 7/31): 32%
Elon Musk’s revolutionary electric car company Telsa (TSLA) is one of the most heavily shorted stocks in the U.S. market, and it’s not hard to see why. Can you name the last successful new car company, much less one that sells super-pricey vehicles for which there is still no established market?
Furthermore, Tesla trades for an eye-watering 90 times forward earnings. That’s another area of sticker shock when you consider the compound annual earnings growth forecast stands at just 19% a year for the next five years.
As of July 31, nearly a third of Telsa’s float — or 19.8 million shares — was sold short, up from 18.5 million shares in the prior month. And it has been a disastrous trade. Tesla’s stock is up more than 350% so far this year.
Year-to-date gains: 200%
Float Short (as of 7/31): 43%
The well-regarded purveyor of online and mobile real estate information and listings gets no love from the shorts — and you can see their point. Zillow (Z) was barely profitable last year and is forecast to post a net loss for the current year.
Zillow’s stock also looks preposterously expensive. The forward price-to-earnings ratio (P/E) is a stratospheric 154, while the long-term growth forecast stands at just 30%.
That has shorts piling on hard. Nearly 43% of the float — or 5.7 million shares — was sold short as of July 31, down slightly from 6.1 million a month earlier. Meanwhile, the stock has nearly tripled in 2013.
Year-to-date gains: 100%
Float Short (as of 7/31): 38%
Green Mountain Coffee Roasters (GMCR) hit the jackpot with the whole Keurig K-Cup brewing system … and has always been a favorite of short sellers. A look at the stock’s incredible volatility helps explain why.
In the last couple of years, GMCR has been all over the place, from less than $20 a share up to $110 and back again. (It currently fetches about $83.)
Jumping on that volatility (as well as contributing to it), is the 38% of the float sold short as of July 31. That comes to 31.8 million shares, up a notch from 30.9 million in the previous month.
Oh, and GMCR has doubled this year.
Year-to-date gains: 93%
Float Short (as of 7/31): 44%
Bill Ackman’s very public hammering of the company has made Herbalife (HLF) the most famous short in recent memory — and it is squeezing the hell out of the hedge fund manager.
Maybe HLF is is a pyramid scheme, as Ackman contends, and maybe it’s not. One thing that is for certain is that Herbalife has became ground zero in a clash of billionaire titans when Carl Icahn took a long position.
Icahn’s been right so far in this trade, but that hasn’t dissuaded folks from following Ackman’s play. A full 44% of Herbalife’s float was sold short as of the end of July, or nearly 31 million shares. That’s up from 30.2 million a month earlier.
Meanwhile, the stock has soared 93% thus far in 2013.
Year-to-date gains: 135%
Float Short (as of 7/31): 3.7%
Like Herbalife, Nu Skin (NUS) is a multilevel marketer of nutritional and personal care products. Also like Herbalife, Nu Skin is under fire for its business practices and product claims.
This is an even bigger problem considering the company already has a reputation for being kind of sleazy … and if a couple of ex-husbands of the company’s co-founder are going public with all sorts of dirty and scandalous stories.
Too bad the trade has been such bad news for the bears. Nu Skin’s 135% year-to-date gain has already squeezed most of the shorts out. At the end of July, 1.9 million shares were short, or 3.7% of the float. At the start of 2013, more than 9 million shares were sold short.
Don’t be surprised if the other shorted stocks in this group follow Nu Skin’s lead. After all, even bears know when to quit.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
Source URL: http://investorplace.com/2013/08/stocks-short-interest-short-sellers/
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