3 Stocks Shorts Are Starting To Fear
Edgar is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Shrewd investors know exactly when to turn bearish, usually this is when everybody is overwhelmingly bullish. As the Dow reached its peak of 13,000 and made a U-turn, I began keeping a close eye on several stocks that shorts have begun to fear. I pay attention to stocks that are reaching their 52-week lows or highs and have wide fluctuations in their short ratios. This is a great combination for short-term traders and investors that would like to profit 2-5% in quick returns due to overbought and oversold conditions.
CH Energy Group (NYSE: CHG) surged more than 12% on Tuesday with 30 times the average volume despite the investigation into possible breach of fiduciary duty by the board in connection with the sale to Fortis Inc. Bears' stampede to cover was evident today as the company's short ratio has been increasing in prior months, rising from 832,000 to currently 868,000. This billion company owns electric generating facilities in substations having an aggregate transformer capacity of 5,000,000 kV amps, 8200 poll miles of over headlines and 1,400 trench miles of underground lines in New York area. It pays a nice dividend yield of 3.78% and trades with a P/E of 24.5, which is among the highest of any stock in the Electric Utilities industry. I'm bullish on the stock going into 2012, it beat last quarter's earnings reporting a $0.69 per share profit versus the $0.60 consensus.
With Sirius XM Radio (NASDAQ: SIRI) the opposite trend is forming as bears slowly dumping shares in fear of an imminent pop. Stock's short ratio has slightly decreased from 305.1 million in the prior month to currently $304.86 million. This $8 billion company provides satellite radio services in U.S and Canada with approximately 135 channels that includes sports, music, comedy, entertainment, etc. Company's ability to sustain subscriber growth and increase revenue quarter over quarter has earned the 4 start Rank from S&P analysts. While a healthy outlook for new vehicle sales remain the primary catalyst for 2012, company seems to be making modest improvements into the used car segment. The new rollout of the 2.0 initiatives across various channels should also improve company's bottom line going into 2012. I'm expecting company to earn $0.02 on the next earnings results versus last quarter's $0.01 a share.
Sears Holdings (NASDAQ: SHLD) also saw its short ratio decrease from 15.4 million to 14.2 million shares in February. It skyrocketed 20% today as it reassured investors that their massive losses is not something to worry about. Eddie Lampert reiterated that their creditors are focusing on their earnings ability and strong inventory rather than company's poor credit rating. I wholeheratedly don't see any fundamental improvement besides the 11 store spin-off to raise $670 million and report a net loss of $2.4 billion. The stock is still down 30% from its 52 week high and Mr. Lampert's encouraging words are coming mostly from the fact that his ESL investments hold about 61% stake in Sears Holdings. I'm optimistic on Sears's ability to improve its margins and bottom line with economy's slow improvement this year, but I still hold a neutral to bearish position on the stock.
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