3 Showbiz Stocks That Could Get Short-Squeezed
BALTIMORE (Stockpickr) -- It's hard to make it in showbiz -- even if you're a publicly traded corporation.
While the movie and television business was once a secretive, flashy enterprise well removed from the public eye, it's not hard to become an owner of a major studio any more. Just buy shares of a large entertainment firm like
Disney
(DIS) - Get Report
or
Sony
(SNE) - Get Report
and you lay claim to the company's studio business.
The problem, though, is that the majority of the major studios today are owned by conglomerates whose main business isn't the entertainment industry. If you want direct exposure to TV and movies in your portfolio (without adding news channels, theme parks, and jet engine factories to your investment), you're left with companies that are being bet against in a big way by short-sellers.
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It shouldn't come as a surprise that short-sellers are quick to bet against the TV and movie business. After all, it's a capital-intense industry with cyclical sales and plenty of speculative bets. But that can be attractive to shareholders too -- especially when heavy shorting prompts a squeeze higher.
A short squeeze is the buying frenzy that ensues when a heavily shorted stock starts to look attractive again to investors, causing short-sellers to cover their positions -- and share price to skyrocket. One of the best indicators of just how high a short-squeezed stock could go is the short interest ratio, which divides shares short by average daily trading volume in order to get a ballpark estimate of the number of days it would take for short-sellers to cover their positions. The higher the short ratio, the higher the potential profits when the shorts get squeezed.
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Here's a look at a handful of
that have the potential to see a short squeeze at current levels.
Even though short-sellers are betting against
Discovery Communications
(DISCA) - Get Report
,
(DISCK) - Get Report
right now, they can't be happy about it. After all, shares of the TV network have rallied nearly 40% so far in 2010, a tough situation for anyone who's staking their cash on a tumble in Discovery's shares.
But shorts continue to show in force. At present, Discovery's short interest ratio sits at 13.9, a number that suggests it would take nearly three weeks for shorts to cover their positions at current volume levels.
Discovery is no small player in TV. In addition to its namesake Discovery Channel, the company also owns networks channels such as TLC, Animal Planet, HD Theater, and a 50% stake in the upcoming Oprah Winfrey Network. While a weak advertising market had been a major challenge for Discovery in the last few years, the company's earnings this week gave Wall Street the impression that recovery is well under way for the firm's main source of revenues. With a massive content library (which Discovery uses across its channels), and a solid balance sheet, this stock should continue to contradict short sellers as we approach 2011.
Discovery's owners are in good company:
(FCNTX) is one of the firm's biggest institutional shareholders. Other holdings in the five-star rated mutual fund include
Apple
(AAPL) - Get Report
and
Amazon.com
(AMZN) - Get Report
.
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Don't confuse
DreamWorks Animation SKG
(DWA)
with its live-action cousin. This animation studio was spun off from DreamWorks in 2004. While the two studios share key people, they operate independently of each other. DWA's sole focus on animation has been cause for concern for some investors -- spurring the company's current short interest ratio of 14.
DreamWorks Animation is home to one of the most successful animated franchises in history,
Shrek
, as well as more than a few flops. It's that speculative nature of the studio business that's spurring the company to increase its output in efforts to minimize the impact of films that fail to become commercially successful. Still, the firm's successes have afforded it a strong balance sheet that's free of debt and laden with cash -- a very good thing when you consider that the budget for the latest
Shrek
film rang in at $160 million.
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The
(RYVPX) Fund is one of the studio's biggest shareholders. The fund's other stakes include
Marshall & Ilsley
( MI) and
Trimble Navigation
(TRMB) - Get Report
.
Even as the world's most commercially successful independent studio,
Lions Gate Entertainment
(LGF)
has significant short-seller bets against its financial performance this year. With a short interest ratio of 12.7, it would take more than two weeks for short sellers to close out their positions at current trading volumes.
Those bets against the company come despite a massive content library and a history of producing blockbusters.
But Lions Gate has been getting votes of confidence from activist investor
, in the form of massive investments in the company's stock. Icahn, who owns around 24% of Lions Gate's outstanding shares, also owns large positions in
Motorola
( MOT) and
Chesapeake Energy
(CHK) - Get Report
.
To see these TV and movie stocks in action, check out the
Entertainment Short-Squeeze portfolio
at Stockpickr.
And to find short-squeeze plays of your own, be sure to check out the
community for insights and investment ideas.
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At the time of publication, author had no positions in stocks mentioned.
Jonas Elmerraji is the editor and portfolio manager of the Rhino Stock Report, a free investment advisory that returned 15% in 2008. He is a contributor to numerous financial outlets, including Forbes and Investopedia, and has been featured in Investor's Business Daily, in Consumer's Digest and on MSNBC.com.
