The volume of open-interest short-selling rose for many large capitalization technology companies between October 31 2012 and November 15. Bearishness rose as the share price rallied higher, with many stocks trading above their 50-day moving average. This happened in 8 of the 10 cases, as illustrated in the table below.
Analysis:1) Bearish investors who bet against Apple Inc. (AAPL) earned a profit, as shares dropped from $600 to around $520 between October 31 and November 15. Apple’s low-valuation does not support significant downside: shares have a Price of Profit (“POP”) of just 11. The drop is being driven by negative sentiment.
2) Texas Instruments Inc. (TXN) is roughly flat, trading on average between $28 and $30 since August. Last quarter, inventory remained low. September was a weak month for the company, and the company expects wireless sales to be weak. Sales to Amazon (AMZN) for its Kindle Fire may be driving this weakness.
3) Short-selling increased by 21.8% for Yahoo! Inc. (YHOO). Shares are at a 52-week high, and investors continue to expect positive upside for the company as it turns itself around.
4) Rumors of an executive turnover for Groupon, Inc. (GRPN) are driving shares higher. In the same period, short-selling increased by 20.8%.
5) Seagate Technology (STX) is on a firm downtrend, after shares peaked at $35.32 in August. The company trades at just 5x estimated fiscal 2013 earnings.
6) Brocade Communications Systems (BRCD) shares are range-bound in the $5-range. Management changes should help enhance value in the company.
7) The bell-weather for the economy, Cisco Systems, Inc. (CSCO), rallied strongly in November. Cisco has a POP of 11, similar to that of Apple.
8) Short-sellers were right to bet against Dell Inc. (DELL). Dell reported a weak quarter, but gains were reduced after Goldman upgraded the company. Goldman Sachs ranked Dell a “buy,” up from a “sell,” and thinks the company is worth $13.
9) Bearishness rose for Microsoft Corporation (MSFT) by 10% in November. Windows 8 is not shaping to be turning around the fortunes of this company. Worse still, Surface sales are weak. Microsoft is also raising prices for its corporate software, which could improve margins, but lose customers.
10) Short-selling rose for Electronic Arts Inc. (EA). Like most game-makers, EA is not an attractive investment because demand for games is declining. In 2013, strong sales for the Xbox 360, Playstation 3, and Nintendo’s new Wii U should ensure ongoing demand for games. Conclusion Apple stands out as the company with the most upside. PC sales remain weak, which limits gains for Microsoft, Dell, and Seagate. Investors should look for sentiment to reverse, and check that margins for Apple’s core products are not on the decline.
Written by Chris Lau . Disclosure: Author has a long position on EA. Source: Bloomberg.com and Finviz.com
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV