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Funds Are Bullish On These 3 Shorted Stocks With Strong Sales Trends

For many investors, companies with significant increases in shares shorted have a negative outlook and should be avoided, but these "smart money"-favored stocks with bearish short trends may deserve a second look. [More Lists:  3 Undervalued Stocks Near Ex-Dividend Dates]

To start our stock list, we began with a universe of stocks with significant increases in shares shorted month-over-month as a percent of share float greater than 1%. This indicates that short sellers are now more bearish on these names than they were last month.

Next, we looked for any suggestions of bullish sentiment from "smart money" investors. To do this, we screened for significant net institutional purchases over the last quarter representing at least 5% of share float. This indicates that institutional investors such as hedge fund managers and mutual fund managers expect these names to outperform into the future.

Finally, we focused on companies with strong sales trends, specifically those with stocks exhibiting faster growth in revenue than inventory year-over-year. Inventory is the portion of goods not yet sold, so faster growth in revenue than inventory is considered an encouraging sign.

The List

For an ‪interactive version of this chart, click on the image below. Analyst ratings sourced from Zacks Investment Research.‬

Do you find these shorted stocks as promising as institutional investors? Use this list as a starting point for your analysis.

 

1. Carriage Services Inc. (CSV): Provides death care services and merchandise in the United States.

  • Market cap at $310.91M, most recent closing price at $17.13.
  • Shares shorted have increased from 507.54K to 758.14K over the last month, an increase which represents about 1.61% of the company's float of 15.60M shares. Days to cover ratio at 3.87 days.
  • Net institutional purchases in the current quarter at 1.1M shares, which represents about 7.05% of the company's float of 15.60M shares. The 2 top holders of the stock are FMR LLC and Dimensional Fund Advisors LP.
  • Revenue grew by 11.53% during the most recent quarter ($53.3M vs. $47.79M y/y). Inventory grew by -61.74% during the same time period ($5.13M vs. $13.41M y/y). Inventory, as a percentage of current assets, decreased from 40.42% to 15.48% during the most recent quarter (comparing 3 months ending 2012-12-31 to 3 months ending 2011-12-31).

Why Shorts May be Bearish

Taking a look at the market, Carriage Services appears to have difficulty gaining upside momentum – a notable issue in this bull market. The company's average daily alpha versus the S&P 500 index stands at -1.15% (measured close to close, over the last month). During this period, the longest losing streak lasted 5 days (i.e. the stock's daily returns underperformed the S&P 500 for 5 consecutive days). The longest winning streak lasted 2 days (i.e. a win streak/losing streak ratio of 0.4).

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