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5 Hated Stocks to Buy to Beat the S&P in 2013

Stocks in this article: CERNCMGDLREQIXMCO

Moody's

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It's understandable why investors hate Moody's (MCO) -- the $12 billion ratings agency was at the center of 2008's financial crisis for failing to catch the subprime crisis when it over-rated mortgage-backed securities. But even that hate is looking overblown right now. As I write, Moody's sports a short interest ratio of 10.7, which indicates that it would take short sellers more than two weeks of buying at currently volume levels to exit their bets.

Despite 2008, Moody's (and its peers) remains a major player in the securities rating business. 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. With interest rates sitting near-zero right now, debt issuances are up as firms make the prudent choice of refinancing debt loads at higher rates. That gives Moody's a steady stream of business to keep up with now.

Moody's doesn't stop at debt ratings; like its peers, the firm also sells research and quantitative databases, products that (like ratings) are capital-light and produce impressive margins. Despite a big blemish from 2008, Moody's has retained its position as one of the few go-to ratings agencies in a market with high barriers to entry.

With the firm's recent efforts to shore up its balance sheet (it's now debt-neutral), Moody's made be due for an upgrade of its own. That makes this stock a prime contender for a short squeeze.

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