NEW YORK (TheStreet) - Retail stocks such as Vera Bradley (VRA), J.C. Penney (JCP), Lululemon (LULU), National Grocers (NGVC) and Aeropostale (ARO) may be worth taking a look at, as these companies are some of the most-heavily shorted retail stocks (short interest above 15%), a "high" number, according to Wells Fargo Securities analyst Paul Lejuez.
Among the 62 retail stocks within his team's coverage, 14 stocks had short interest of 15% or greater, which is the highest number of companies above the 15% threshold in the post-recession period. Of the 14 stocks with high short interest, those that have been shorted the longest have seen the largest stock price declines.
"It seems the market isn't feeling too confident about retail these days," Lejuez wrote in the note. "Any stock that crossed the 15% short interest level over the past 12 months (11 stocks in total) is still above 15%. In other words, the market is sticking with its shorts. The market seems to be more convinced than ever about which stocks across our retail universe will be the underperformers."
The retail sector has underperformed the broader markets this year, with the S&P 500 Retailing Index down 5.5%, while the S&P 500 is up 6.2% year to date.
On one hand, it shouldn't be surprising when companies find themselves high on the list. They're typically struggling, and either embarking on or failing at a turnaround attempt - meaning that investors have little confidence that while the companies sort themselves out, the stocks will rise.
Short sellers have been betting on Vera Bradley, J.C. Penney, Lululemon and Aeropostale between one and three years. The four stocks' absolute stock decline has ranged from 44% to 77%, as of June 19, when the note was published. The exception is Natural Grocers, which had at first went against the trend with shares rising 72% in the first year after it hit 15% short interest. However the stock is down 49% year to date.