Are These Two Sectors Poised For Upside?

During the first two-weeks of November, investors decreased their bearish position in a number of widely-held U.S. companies listed on the New York Stock Exchange. This is indicated by a decrease in the short-selling of the company’s shares. Companies with the greatest decrease in short-selling volume were in the resource sector. Arch Coal (ACI), Peabody Energy (BTU), Alpha Natural Resources (ANR), US Steel Corp (X) and United States Oil (USO) were some of the companies whose volume of short-selling decreased:

Short-sellers were profitable last month, as illustrated using the COMPARE-O-MATIC Kapitall tool:

Citigroup (C), Pfizer (PFE), and Johnson and Johnson (JNJ) also saw short-selling decline. Investors were less bearish on Nokia (NOK) and Banco Santander (SAN) as well. 

Analysis

There is no surprise that bearishness is declining for companies like Citi, Pfizer, and Johnson & Johnson. Shares appreciated significantly in November, and are up near 52-week highs. Bearishness also declined for a number of companies in the resource sector, but there is likely downside ahead for them. The economy of China and Europe are expected to be tepid. Europe’s GDP forecast was recently lowered. Service PMI reports for Europe were mixed: Italy, UK, and France all missed expectations, while Germany and Spain beat expectations.

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Comments

Value investors may look at the resource sector as being inexpensive, but these companies are trading at levels that support the consensus view that growth in the months ahead will be unimpressive. The rally in bank companies is somewhat surprising: growth in financial companies depends on higher economic activity. Investors should still keep an eye on Bank of America (BAC), Banco Santander (SAN), and Citigroup (C). If the appreciation in shares were based on improving fundamentals in banking activity, then investors should expect more upside. Housing activity showed strength in the last few months in the U.S.. This would lead to more lending, and more business lending activity, and ultimately more upside for banks.

 

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