Many of the legendary investors — like Jim Rogers, George Soros and Michael Steinhardt — have been excellent short sellers. Even Warren Buffett is a savvy practitioner.
Hey, their only goal is to make money. So why not focus on companies that fall in value?
But short selling is not easy and requires lots of research. Yet there is one way to help out — that is, looking at a company’s short interest. Essentially, this shows the amount of outstanding short positions.
So what are some of the companies with heavy short interest? Let’s take a look:
Supervalu (NYSE: SVU): This major grocery operator has about 39.58 million shares short, about 18% of the float.
True, Supervalu has made large acquisitions — such Albertsons — to improve scale and efficiencies. But the problem is that it is getting tougher and tougher to compete against companies like Target (NYSE: TGT) and Wal-Mart (NYSE: WMT).
At the same time, the macroeconomic situation in the US is getting worse, as unemployment persists at high levels and food inflation has been perking-up. So consumers will likely try to seek out the cheapest alternatives.
As a sign of the troubles, Supervalu reported a 5% decline in same-store sales in the past quarter.
Best Buy (NYSE: BBY): The overall short position is 37.17 million shares, which comes to about 11.60% of the float.
Once a consistent growth company, Best Buy has been looking haggard lately. Part of the problem is market saturation. How many more stores can it have in the US?
However, perhaps the biggest issue is the major change in consumer behavior. The fact is that people are increasingly buying consumer electronics from e-commerce players, such as Amazon.com
(NYSE: AMZN).
What’s more, Best Buy faces competition from traditional retailers like Wal-Mart and Costco (NASDAQ: COST).
To deal with all this, the company has been trying to provide more value-added services and better shopping experiences. But in today’s world of heavy discounts, it seems like this will get little traction. Instead, the best way to improve things is actually to reduce the number of stores.
Pulte (NYSE: PHM): The shorts have a position of 34.57 million shares or 12.30% of the float.
Pulte is a top homebuilder, with brands like Centex and Del Webb. While the company has been showing some improvement lately, the numbers still look ugly. In the latest quarter, there was a net loss of $40 million and revenues were off by 20% to $782 million.
All in all, the prospects for growth look slim. For example, Robert Shiller recently said there could be a further 10% to 25% decline in residential real estate prices over the next five years.
Tom Taulli’s latest book is “All About Short Selling” and he has an upcoming book called “All About Commodities.” You can find him at Twitter account @ttaulli. He does not own a position in any of the stocks named here.
