4 Tech Stocks With Increased Shorting Activity
In today’s unstable market environment, it’s crucial that investors consider a stock’s short interest before buying. An increased number of shorting typically means that the Street’s biggest money managers (here’s our Top 10) have grown less fond of a particular stock. Overselling, though, sometimes has a positive effect on stock price, as short sellers may be forced to cover their positions. Despite returning 11.4% year-to-date, the technology sector has been quite the bear in recent months, with many prominent tech high-fliers seeing shorters circle in a shark-like frenzy. Below are four such companies that have seen their sentiment take a turn for the worse in recent weeks.
SanDisk Corp (NASDAQ: SNDK)
This flash memory maker has seen its fair share of ups and downs over the past year, as its stock has returned essentially zilch since last summer. Earlier this month, several analysts downgraded the company, as consumer demand in the NAND flash memory market continues to be weaker than expected. On July 20th, however, shares of SNDK rose by nearly 15% amid reports of better than expect earnings, and currently rest above $40 for the first time since mid-April. Interestingly, bearish sentiment has been increasing since this time, as the stock’s short interest has jumped 36.9% over the past three months. Though a days-to-cover ratio (measures the time short sellers could unload their shares) of 2.65 is not considered to be critically high, it has doubled since last winter.
Apple, Inc. (NASDAQ: AAPL)
The world’s favorite tech giant has been in the news lately, though it has been for all the wrong reasons, as it missed analysts’ earnings expectations last week. Shares of AAPL remained relatively flat in July, though are still up over 44% in 2012. Since the start of 2012, short sentiment surrounding the stock has increased by 27.6%, riding an average daily volume (20.2 million) more than 700 basis points higher than the Q3 and Q4 of 2011. The company is still trading at a Price-to-Earnings (13.8X) and Price-to-Cash Flow (10.6X) ratios below its own 5-year historical averages of 21.9X and 12.5X respectively, so it looks a buy from a valuation standpoint, amid other, very China-centric reasons as well.
Yahoo! Inc. (NASDAQ: YHOO)
Earlier this summer, Yahoo announced the 37-year old Marissa Mayer as their new CEO, though this could not prevent the search engine company from reporting rather dissapointing Q2 earnings on July 17th. Earnings per share of $0.18 missed the Street’s estimates of $0.20. By the end of the year, analysts are expecting YHOO to finish with an EPS of $0.93 a share, up 12.2% from 2011. The short selling community, however, remains unconvinced, as short interest surrounding the stock has spiked to 37.5 million shares, up 46.4% since the start of the summer. With a days-to-cover ratio north of 3, it will be hard for the entirety of shorters to unload their positions in case of an upswing in price; this furthers the bearish case. With a PEG ratio of 1.5 and a PCFG ratio of 4.8, it might be wise for individual investors to stay away, as there is no bargain to be had at current market prices.
Hewlett-Packard (NYSE: HPQ)
Trading near 52-week lows, HPQ may look like a good value, though this computer services company may be more of a value-trap. A bout of bulky acquisitions by former CEO Mark Hurd has trimmed margins significantly, while giving no clear direction on Hewlett-Packard’s future. Now, new CEO Megan Whitman has pledged a renewed focus on its PC business, though a seemingly persistent lack of innovation still plagues the company. It appears that short sellers agree, as short interest is currently at a one-year high (53.5 million shares), threefold more than last summer’s figure. Additionally, HPQ’s days-to-cover ratio has tripled since the start of 2012. With analysts expecting earnings of $4.38 a share by the end of next fiscal year, this stock does have $25 upside in the intermediate term, though concerns of weak discretionary spending on tech products (see Apple, Lexmark) obviously threatens this growth.
Now, this should not serve as a laundry list of stocks to sell, though it should spark individual investors to perform more research if they hold SNDK, AAPL, YHOO, or HPQ in their portfolios. For updates on shorting activity and other financial figures, visit WealthLift INSIDER.
Disclosure: The author has no holdings in the stocks mentioned in this article and has no plans to initiate any positions within the next 72 hours. He does, however, have the intention of rating these stocks on WealthLift.com, a social media website where investment ideas are shared openly and free.