Trade 5 Hated Names to Beat the Market
Moody's
Last up is financial data firm Moody's (MCO). As one of the "big three" ratings firms, Moody's controls around 40% of the market for debt ratings, a position that gives the firm ample cross selling opportunities among its user base. But this stock hasn't exactly been well liked over the last few years. Moody's deservedly got a lot of the blame for the financial crisis of 2008, as inflated credit ratings on mortgage-backed securities made investors believe that the bad debt they were buying was much safer than it was. And more recently, Warren Buffett's unceremonious selling of his stake in Moody's has spurred other investors to follow suit.
That's helped push MCO's short interest ratio up to 11.9.
At the end of the day, MCO is still one of the biggest games in town for debt ratings, and cheap credit costs have re-opened the debt issuance spigot worldwide. With interest rates expected to remain low for an extended period, that should remain the case for the foreseeable future.
Credit ratings aren't the firm's only business. The firm also sells research and quantitative databases, products that (like ratings) are capital-light and produce impressive margins. The firm has been shoring up its balance sheet over the last few years, moving from a lot of leverage to a nearly debt-neutral position more recently. That extra wherewithal makes the risks of financial stress much less for the firm, and much more likely to see a short squeeze in the near term. To see this week's short squeezes in action, check out the of Large-Cap Short Squeezes portfolio on Stockpickr.Follow Stockpickr on Twitter and become a fan on Facebook.
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