Technology Stocks With High Short Interest
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The latest short interest data has just been released. Short interest data is carefully monitored by short sellers as it is one of the key indicators used by them before deciding on whether to take a short position or not on a particular stock.
Short interest refers to the total number of shares of a particular stock that have been shorted but not yet covered i.e. short sellers have sold the shares of a particular stock, however, they are yet to close their positions by buying back the shares from the open market. Short interest is expressed as a percentage of the total float. For example, if a particular company has 10 million shares outstanding and 1 million of those shares have been shorted, then the short interest is 10% of the total float.
Short interest data is released by NYSE and NASDAQ twice every month. The data for the period between Oct. 31 and Nov. 15 has just been released. I will be focusing on some technology stocks that have high short interest as per the latest short interest data. All three technology stocks that I am focusing on have struggled due to weakness in the PC market, which indicates the reason behind shorting them.
The PC maker has had a difficult year due to weakness in the PC market and challenging macro environment. The substantial growth in mobile computing has had a significant impact on demand for PCs and this is reflected in Hewlett-Packard's performance this year. YTD, HPQ shares have fallen nearly 51%.
As per the latest short interest data, short interest in HPQ shares was 5% of total float. Between Oct. 31 and Nov. 15, short interest in HPQ shares fell 0.4%. The short interest ratio or days to cover stood at 4.
Although short interest in HPQ shares fell marginally, it is still quite high as a percentage of the total float.
Short interest in HPQ probably rose after the company reported dismal quarterly results on Nov. 20, 2012. While expectations ahead of HPQ’s fourth-quarter results release were quite low, the company shocked investors by announcing that it took a $8.8 billion charge related to accounting impropriety at its British subsidiary Autonomy.
HPQ had acquired the U.K.-based company last year. In a statement, the company said that it is extremely disappointed to find that some former members of Autonomy’s management team used accounting improprieties, misrepresentations and disclosure failures to inflate the underlying financial metrics of the company prior to Autonomy’s acquisition by HPQ.
HPQ’s allegations have been rejected by Autonomy’s former CEO.
With so much going wrong for HPQ right now, it is no surprise that the market sentiment is bearish on the stock.
While Dell’s (NASDAQ: DELL) situation is not as bad as rival HPQ’s, the Round Rock, Texas-based company is also struggling due to weakness in the PC market.
DELL reported its third-quarter financial results earlier this month. The PC maker reported adjusted net income of $0.39 per share for the third quarter, down from $0.54 per share reported for the same period in the previous year. The company’s revenue for the quarter fell 11% to $13.72 billion, missing the consensus forecast of $13.90 billion. DELL still reiterated its full-year adjusted earnings forecast of at least $1.70 per share. However, shares fell to a 52-week low following the quarterly results. YTD, DELL shares have fallen more than 34%.
As per the latest data, short interest in DELL shares rose 11.5% between Oct. 31 and Nov. 15 to 4% of the total flat. The short interest ratio as of Nov. 15 was 2.
Short interests in Seagate Technology (NASDAQ: STX) shares also rose sharply. Between Oct. 31 and Nov. 15, short interest in STX shares rose 17.4% to 10.6% of the total float. Short interest ratio or days to cover was 4.
Although short interest has risen sharply in STX, the stock has performed exceptionally this year, gaining more than 57% YTD. Investors’ sentiment has turned bearish on STX after the company recently reported weaker-than-expected first-quarter earnings and also gave a weak forecast for its second quarter.
Like HPQ and DELL, Seagate, which makes storage devices, also struggled due to weak PC sales in the U.S. and Europe. In a conference call, Steve Luczo, CEO of Seagate, said that based on already-completed negotiations associated with the current quarter, the company expects average selling prices will decline about 5% sequentially.
For the second quarter, Seagate expects revenue of $3.5 billion, which is well below the consensus forecast of $3.84 billion.
Weakness in PC Market will Continue to Hurt
While the concerns over the fiscal cliff issue sparked a sell-off in equity markets in the second week of November, the three stocks discussed above have been under pressure for a while. If the fiscal cliff issue is resolved before the year-end deadline, then there is likely to be huge rally in equity markets. However, I expect the market sentiment to remain bearish on Hewlett-Packard, Dell and Seagate since all three companies have suffered due to weakness in the PC market. With PC sales not likely to see any improvement, all three stocks will remain on short sellers’ lists for a while.
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