5 Stocks Where The Smart Money and Short Sellers Are at Odds
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We have identified five stocks that have at least 30% of their outstanding shares shorted, but are also loved by billionaires. The first is J.C. Penney (NYSE: JCP), which had 24 notable hedge funds - 13F filers - owning the stock as of 3Q, but still has 33% of its outstanding shares shorted. Sales for Penney are expected to be down in FY2013 on the back of reduced traffic and the absence of coupons.
The retailer also expects to see restructuring charges of $1.19 per share in FY2013, with an expected loss per share of $0.85. Penney still trades well below its peers on a P/S basis at 0.3x, versus Kohl's at 0.5x and Macy's at 0.6x. This discount is for good reason, though, as analysts do not expect the business to show signs of recovery until FY2014.
We believe that hedge funds are looking beyond J.C. Penney's interim pressures to what the company can accomplished after its restructuring. Bill Ackman of Pershing Square owns over 39 million J.C. Penney shares - making up over 10% of his 13F portfolio. Other billionaires backing Ackman by owning shares of Penney include Steve Cohen, Israel Englander and Ken Griffin (check out Bill Ackman's top picks).
GameStop (NYSE: GME) has over 35% of its shares shorted, but also had 18 notable investors and hedge funds owning the stock as of 3Q. The game retailer has seen pressure from online competitors, which should help push revenues down 7% in FY2013. The interim decline should continue with lower sales of new game hardware and software. Longer-term, the retailer should see a rebound from a move toward digital sales and mobile games. FY2014 revenues are expected to be up by 3% thanks to expected hardware launches. It appears hedge funds are confident that GameStop can pivot effectively enough to avoid drastic sales declines. Another long-term positive is expected margin expansion due to a shift toward digital downloads, if the company can capitalize on this space. Ken Griffin and Steve Cohen are both big-name investors owning GameStop (check out Ken Griffin's newest picks).
RadioShack (NYSE: RSH) saw 16 notable investors and hedge funds - 13F filers - owning the stock as of 3Q and meanwhile had 36% of its shares shorted. RadioShack is expected to continue store closures in the U.S., while opening locations in Mexico. The one upside for the company is its expected growth in mobile computing, which should help boost sales up 1% in 2013. RadioShack was pushed down almost 80% in 2012 as it continues a product shift toward smartphones. The next big milestone for RadioShack is a renegotiation of its Target kiosk. Cohen upped his stake in RadioShack over 1,000% last quarter (check out Steve Cohen's biggest bets).
SuperValu (NYSE: SVU) has the highest short interest of the five stocks with 41% of its outstanding shares shorted. The grocery stocks also has some of the highest interest from hedge funds with 23 notable investors and hedge funds owning the stock as of 3Q. Revenues are expected to be down 4% in FY2012, where SuperValu has been reducing prices and squeezing margins to boost volume, but it also plans on cutting $325 million in costs over the next two years. For the longer-term, we believe hedge funds are intrigued by the grocer's strong regional market share position.
Barnes & Noble (NYSE: BKS) has 38% of its outstanding shares shorted, but also saw a net increase of 4 filers and now has fifteen 13F filers owning the stock. Barnes is relatively flat over the past year, but expects sales to be up 2% in FY2013 after a 2% increase in 2012, with the sales expected to be up on increased digital content demand. Future earnings are expected to be much better in FY2013, with a net loss of $0.73 per share, after a loss of $1.41 in FY 2012. This loss is expected to further narrow in FY2014 to $0.34.
Additionally, investments from Microsoft and Liberty Media will help to further prop up the company and accelerate growth of its Nook product. Liberty Media's $204 million cash infusion should boost its digital segment, and so should the $300 million investment made by Microsoft.
To recap: these five stocks have a robust short interest, but are backed by major hedge funds. The overwhelming theme is that each operates in the retail sector.
This article is written by Marshall Hargrave and edited by Jake Mann. Insider Monkey's Editor-in-Chief is Meena Krishnamsetty. They don't own shares in any of the stocks mentioned in this article. The Motley Fool owns shares of GameStop, RadioShack, and Supervalu and is short RadioShack. Motley Fool newsletter services recommend GameStop and Supervalu. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!