Stocks with Significant Rise in Short Interest
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The latest short interest data was released earlier this week. Short interest is an excellent way to gauge the market sentiment on a particular stock.
Short interest is calculated by dividing the number of shares sold short, but not yet covered, by the total number of outstanding shares. Suppose short interest in a particular stock is 5%; this means that 5% of the total outstanding shares have been shorted but not yet covered. Another key data point to watch along with short interest is the short ratio or days to cover. The short ratio is a measured by dividing the current short interest by average daily share volume.
Short sellers look at both the short interest and short ratio before they decide whether or not to take a short position in a particular stock. Short sellers generally avoid stocks with very high short ratios.
Now let’s take a look at some stocks that saw significant increase in short interest between November 15, 2012 and November 30, 2012. The latest short interest data has once again highlighted the fact that market sentiment remains bearish on PC makers and companies relying heavily on the PC market. So here are some of the stocks that saw a sharp rise in short interest between November 15, 2012 and November 30, 2012.
Both companies continue to remain under pressure from short sellers. It has been a difficult year for both PC makers as declining PC sales due to the shift to mobile computing and a weak macro environment have negatively impacted their financial performance.
Between Nov. 15 and Nov. 30, short interest in Hewlett-Packard rose 8.3% to 5.4% of the total float. Days to cover or the short ratio for Hewlett-Packard as of Nov. 30 stood at 2. Meanwhile, short interest in Dell rose 26.6% to 5% of the total float. The short ratio for Dell was 3.
Year-to-date, Hewlett-Packard shares have fallen more than 43%, while Dell shares have fallen more than 28%.
In the last few days there have been rumors that Carl Icahn might acquire a stake in the struggling company. The rumors sent Hewlett-Packard shares sharply higher in trading on Monday.
While Dell has also been struggling due to weak PC markets, the company’s CEO Michael Dell is optimistic about the future. In an interview with CNBC earlier this week, Michael Dell said that social media, mobile devices and cloud computing are all areas in which the company is investing as part of an effort to transform its business. He said that as consumers migrate away from personal computers towards tablets and smartphones, the company is building a portfolio of solutions while expanding aggressively into areas of growth.
Earlier this month, Dell shares were upgraded by Goldman Sachs to a Buy rating. Goldman Sachs analyst Bill Shope said that while the demand for PCs has fallen, the company’s net cash balance of $5.15 billion provides some downside buffer as it produces opportunity for a leveraged buyout or levered recap under the right conditions. Shope also noted that Dell has become an attractive deep value play.
Intel (NASDAQ: INTC)
Another major technology company that has suffered due to the shift from PCs to mobile computing is chip-maker Intel. Between Nov. 15 and Nov. 30, short interest in Intel rose 10.9% to 4.4% of the total float. The short ratio or days to cover as of Nov. 30 was 4.
Year-to-date, Intel shares have fallen more than 15%.
While Intel is still the dominant manufacturer of microprocessors and CPUs in the PC market, the company has to a do a lot of catching up in the mobile computing market. However, given the company’s research and development capabilities and size, it may not be long before it establishes itself in the mobile computing space. Until that happens though, sentiment will remain bearish on Intel.
Research In Motion (NASDAQ: BBRY)
The final company I want to focus on is Research In Motion. In recent weeks, Research In Motion shares have rallied on expectations that the launch of new operating system and two phones early next year will help the struggling company in its turnaround efforts. Still, short sellers think otherwise.
Between Nov. 15 and Nov. 30, short interest in Research In Motion rose 9.1% to 24.3% of the total float. The short ratio or days to cover for Research In Motion as of Nov. 30 was 2.
Intel Still a Good Long Term Opportunity
So these were some of the stocks that saw notable increase in short interest in the Nov. 15-30 period. Not surprisingly, market sentiment remains bearish on PC makers. The interesting thing is that while three of the stocks discussed above, Hewlett-Packard, Dell, and Intel, have struggled this year due to the shift to mobile computing, Research In Motion has struggled in the last couple of years as it has failed to capitalize on the growth in mobile computing.
The BlackBerry maker once dominated the smartphone market, however Apple’s iPhone and phones operating on the Android operating system have taken away significant market share from the company in the last two years. Research In Motion has also suffered due to product delays. The company’s last hope is the launch of its new operating system.
Overall, out of the four companies discussed above I think Intel, despite the high short interest, is still an excellent long-term play. Also, with a dividend yield of 4.39%, Intel is currently attractively valued.
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