by Alyssa Oursler | September 9, 2013 1:08 pm
While the start of football season always comes with plenty of trash-talking between teams, the financial world has a good amount of back-and-forth of its own.
One example is when Wall Street analysts are generally bullish on the very same stocks that short sellers — people making bearish bets against a company — are piling into. Right now, the number of stocks that sport a consensus “buy” rating or better yet also have more than a quarter of their float sold short is in the double-digits, according to FinViz.
Some companies have already been proving analysts right and thus burning short sellers — including momentum investor darling Tesla Motors (TSLA). But it has run so far that analysts are turning cold; Stifel initiated coverage with a “hold” in August, and Barlcays downgraded the stock.
However, there are a few stocks that analysts have reiterated bullishness on even as the shorts continue to maintain their camps. Here’s a look at three:
Short Interest (as % of float): 38%
Average Analyst-Predicted Upside: 6%
At first glance, analyst upside of just 6% doesn’t necessarily scream “bullish” on the part of analysts. But around 75% of analysts covering the stock call Green Mountain Coffee Roasters (GMCR) a “buy” or “strong buy,” while Imperial Capital initiated coverage with an “outperform” rating just a few months back.
Chances are, analysts simply haven’t updated their price targets fast enough to keep up with GMCR’s run. Green Mountain has more than doubled in 2013 and has improved 200% in just 12 months.
Meanwhile, despite getting pounded time and time again, short sellers still are at it — the 31.4 million shares sold short as of Aug. 15 was a slight decrease from the month before, but still represents a whopping 38% of the float.
Those waiting for GMCR to finally cool off might be rewarded sooner than later. The K-Cup maker has frothed up to a price-to-earnings ratio of 23 times next year’s earnings, even though it’s only slated to grow profits at 15% annually for the next few years.
Short Interest (as % of float): 42%
Average Analyst-Predicted Upside: 16%
Herbalife (HLF) isn’t just causing fights between short sellers and analysts, but also between the smart money.
Bill Ackman made headlines late last year when he called the company a pyramid scheme and made a very public bet on it to go lower. Since then, George Soros and Carl Icahn have taken the other side of the coin by going long.
Analysts aren’t buying Ackman’s claims, either. The median price target of the stock implies upside of 16% — a decent difference, especially considering HLF already has gained 94% year-to-date. And Argus recently upgraded the firm to a “buy” from “hold” late last month, giving it a price target of $80 — 25% more upside.
Needless to say, Ackman and the shorts have been burned on the way up, but still, nearly 31 million shares were sold short as of Aug. 15 — around 42% of the float and only slightly lowered than a month earlier.
If analysts continue to push the bullish case and spur more interest, Herbalife could keep delivering pain to the shorts.
Short Interest (as % of float): 26%
Average Analyst-Predicted Upside: 33%
Data center company Equinix (EQIX), which is down 15% year-to-date, has been much kinder to the shorts so far this year. One reason for the drop: The company reported a net loss in the most recent quarter and slashed its full-year revenue forecast.
Still, analysts don’t appear to be fazed. Currently, nine analysts rate the stock a “strong buy,” while another eight call EQIX a “buy.” In fact, Stifel and Deutsche Bank both reiterated their “buy” ratings in late July after second-quarter results came out — although they did lower their price targets. Meanwhile, Citi upgraded it, citing the lowered guidance as “more reasonable.” Even with the lowered price targets, analysts on average expect 33% upside for Equinix.
Still, despite the selloff, EQIX trades for nearly 44 times next year’s earnings, which is double the company’s expected long-term annual earnings growth. That could be more ammo for short sellers, who were sitting on roughly 12.7 million shares as of mid-August, or about 26% of the float.
As of this writing, Alyssa Oursler did not hold a position in any of the aforementioned securities.
Source URL: https://investorplace.com/2013/09/analysts-short-sellers-at-odds-over-these-3-stocks/
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