Last Friday, we saw a juicy short. The target was Research In Motion (NASDAQ: RIMM), which posted a terrible earnings report. On the news, the shares fell by more than 21%. In fact, they dropped an additional 6.7% on Monday.
Yes, such drops are certainly not uncommon. So how can investors spot the next big short? Well, one approach is to look at the short interest. This is the number of shares — for each company — that are short.
OK, what are some of the latest targets? Let’s take a look:
Sprint Nextel (NYSE: S): Over the past month, the short interest increased from 90.62 million shares to 97.47 million. The current amount represents about 3.30% of the float.
No doubt, Sprint has been terrible for shareholders. For the past five years, the average annual return has been -23.35%.
But things can always get worse. Sprint continues to lose postpaid customers and cash flows are sluggish. And the competitive environment is intense, with major players like Verizon (NYSE: VZ) and AT&T (NYSE: T). Of course, there is also pressure from discount operators like Leap Wireless (NASDAQ: LEAP) and MetroPCS (NYSE: PCS).
Masco (NYSE:MAS): The short interest is 34 million shares, which is about 9.80% of the float.
Masco is a leading company in housing products, such as paint and windows. It also has some marquee brands like Behr and Delta Faucet.
But such things mean little if the housing market continues to languish. And for the most part, it looks like a turnaround will take at least several years. At the same time, Masco has to contend with the pressures from commodities prices.
As a result, Masco has been hemorrhaging losses. These came to $3.11 per share for the past year.
Office Depot (NYSE: ODP): For the past month, the short interest jumped from 22 million shares to 26 million shares. In all, about 15.6% of the float is short.
True, Office Depot pulled off a substantial restructuring, which has resulted in real cost savings. Yet the fact remains that the competitive landscape is extremely tough. Actually, it is not only from direct competitors like Staples (NASDAQ: SPLS) and OfficeMax (NYSE: OMX). There is also pressure from the major discounters, such as Wal-Mart (NYSE: WMT) and Costco (NASDAQ: COST). Oh, and there is also intensive competition from ecommerce alternatives, for instance Amazon.com (NASDAQ: AMZN) continues to grab market share.
Moreover, keep in mind that a major part of Office Depot’s business comes from small businesses. Unfortunately, they continue to be hard hit from the slow US economy.
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.
