Short selling is tempting, especially when investors are afraid the market is at an inflection point and set for a tumble. But it can be a dangerous game when you’re wrong, and it’s certainly not for the faint of heart.
If you go long a stock at $10 a share, you have theoretically infinite profits. Your stock could go to $100, $1,000 or even higher adjusted for splits … while the worst you could do is go to zero and lose all your money.
Shorting, however, is the same math in reverse. Your best bet is that the $10 stock could go to zero and you make close to 100% profits selling for pennies. But if a dreaded “short squeeze” sends the price sky-high? Well, you could lose even more than 100% of your money.
As a result, many investors don’t short stocks because of how aggressive this strategy is.
But even if you’re not shorting stocks, you can benefit from watching what the bears are betting against — not the least of which is that being on the right side of a short squeeze can deliver a huge one-day pop for savvy traders.
That’s what happened for Abercrombie & Fitch (ANF) a couple weeks back, with the stock jumping 12% overnight.
So whether you’re short or long, it’s wise to be in the know about what stocks investors are short on. With that said, here are some of the most hated stocks on Wall Street, according to the latest research from Bespoke Investment Group:
World Acceptance Corporation (WRLD) is a small-cap consumer finance business, valued at only around $700 million. Top-line troubles have plagued WRLD stock lately, and the stock has a massive short interest as of the end of May — over 64% of available shares! Of course, shares are already down about 17% in the last month, so maybe the worst is over.
NeuStar (NSR) is a marketing and information services company that has fallen on hard times. NSR stock is almost half of what it was at its 2013 high, and the loss of a major government contract has the bears sharpening their claws. Short interest was almost half of all available shares as of the end of May.
Vasco (VDSI) is a cybersecurity firm that you think would be en vogue in this age of hacking concerns. However, while shares are indeed up by double digits year-to-date, they have exploded perhaps a little too much for comfort — up about 300% since January 2014! Bears seem to think this is overdone, and have staked out a short interest that is about 45% of available shares in of VDSI stock.
Sanderson Farms (SAFM) is a major poultry producer, and in addition to the general slow-growth nature of this business, there is the threat of disruptions caused by a recent bird flu outbreak in the Midwest. Shares have drifted down slightly YTD in 2015, and short interest is almost 44% of outstanding shares right now.
GameStop (GME) is the embattled video game retailer that has bounced around a lot in recent years as it looks to move past the old model of used games. Heck, physical games in all forms are challenged in this age of downloadable content! Still, GME is up nearly 30% year-to-date and could move big soon, with a short interest of about 43% as of a few weeks ago.
Outerwall (OUTR) is known to consumers as Redbox and Coinstar, those kiosks at the grocery store that let you rent movies or take your loose change. Redbox has long had one foot in the past, relying on its cheap fees as a way to fend off streaming companies like Netflix (NFLX) and hoping against hope that coins will remain in wide circulation despite the rise of digital and mobile payments. Shares have been quite volatile and normally see big moves in both directions, and a high short interest of over 42% ensures that won’t change anytime soon.
Tidewater (TDW) is an oil service company that focuses on offshore operators. Given the tremendous pressure on oil prices lately, it’s no surprise that servicers like the $1.1 billion Tidewater have taken the brunt of the pain. Shares are off almost 60% in the last year, and a short interest of about 38% of available shares at the end of last month shows that the bumpy road might not be over yet.
Carbo Ceramics (CRR) is in the same boat as TDW stock. Carbo is a provider of special industrial products, including special sands for hydraulic fracturing or “fracking,” and the downturn in energy has resulted in a big downturn for this $1.1 billion company. Shares are down almost 70% in the last year, though they’ve rebounded by about 15% in 2015. The current short interest in CRR stock is about 37%.
JCPenney (JCP) is still on the outs with many consumers and investors alike after its ill-advised shift in strategy under Ron Johnson a few years back. Shares are down about 80% from their 2012 high, though they’ve rebounded more than 30% in 2015. And with a short interest of about 36%, investors should expect another big move one way or the other for this troubled retail stock.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP. As of this writing, he did not hold a position in any of the aforementioned securities.
