The Buzz
A contrarian play: Get shorty
June 19, 2013: 9:20 AM ET
While betting on falling stocks can be risky, going against short-sellers can be smart.
This article was published in the July issue of Money magazine.
You may think it's crazy to buy shares of companies that have a lot of people betting against them. Yet isn't that the very essence of contrarian investing?
Several stocks that have been recent targets of short-sellers -- investors who borrow shares and sell them, hoping to buy them back later at lower prices -- have been some of Wall Street's big winners this year. Among them: video-streaming giant Netflix (NFLX), electric-car maker Tesla Motors (TSLA), and Green Mountain Coffee Roasters (GMCR).
If they're so hated, why have they soared? In part, their shares have benefited from what's known as a short squeeze. If companies exceed expectations enough to push share prices up, that forces the shorts to rush back to buy the stock to cover themselves. That in turn drives prices even higher.
Related: When insiders buy stocks, should you?
Can you profit by going against the bears? Sure, but recognize that shorts are good at spotting trouble, especially if a company is overvalued. The trick is to identify stocks being unfairly punished that are bargains. The stocks highlighted here all fill that bill.
Coinstar (CSTR)
This change-counting company gets most of its sales from DVD rental firm Redbox. With Netflix on fire, some fear there's no room left in video. But Piper Jaffray analyst Michael Olson says Redbox's $1.20 rentals are still a much better value than cable on-demand viewing services.
Plus, Coinstar isn't sitting out the streaming revolution -- it has a partnership with Verizon (VZ) for online video. Olson expects Redbox's sales to rise 10% to 15% annually in the coming years.
GameStop (GME) and Take-Two Interactive Software (TTWO)
With games increasingly being played on cellphones and not TVs, the videogame retailer GameStop and software developer Take-Two have become targets. But there's still a big world beyond Angry Birds.
Related: 3 stocks people are buying now
"Investors think physical media like DVDs and videogames are dead, but the truth is they're not going away anytime soon," says Wedbush Securities analyst Michael Pachter, who recommends GameStop and Take-Two shares.
GameStop should see a boost in sales with the upcoming launches of Sony's PlayStation 4 and Microsoft's next Xbox. Take-Two is expected to have a monster hit when its fifth Grand Theft Auto game comes out in September.
USANA Health Sciences (USNA)
Hedge fund manager Bill Ackman is waging war against nutritional supplement maker Herbalife (HLF), and other so-called multilevel marketers are getting caught in the crossfire. D.A. Davidson analyst Tim Ramey recommends USANA, another vitamin maker, with solid fundamentals. He notes that because the company's earnings growth and cash flow are so strong, it should defy the shorts.
Send a letter to the editor about this story to money_letters@moneymail.com.
-
Sony shares rally as Loeb ups his stake
You're doing better Sony (SNE), but not good enough... yet.
That's the latest message from Dan Loeb, the firebrand hedge fund manager known for vociferously agitating for changes at some of the world's largest tech firms.
In a sign of "increased confidence," Loeb's Third Point hedge fund increased its stake in Sony to 70 million shares, or roughly 7%, from 6% in May.
Related: Hedge fund targets Sony for spin-off
At least part of MORE
Maureen Farrell - Jun 18, 2013 2:36 PM ETPosted in: Abenomics, activist hedge funds, Carl Icahn, Dan Loeb, electronics, entertainment, Japan, Kazuo Hirai, Sony, spin-off -
HP, Cisco and other tech dinosaurs roar
The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of CNNMoney, Abbott Laboratories and AbbVie, La Monica does not own positions in any individual stocks.
This column is not about what the Federal Reserve is going to do next or the future of Fed chair Ben Bernanke. Capisce?
Investors have blinders (not referring to former Fed vice chair Alan) on right MORE
Paul R. La Monica - Jun 18, 2013 1:01 PM ET -
Look out Tesla, there's a new kid in town.
Electric cars are becoming all the rage. And this time, it's not about Tesla.
Chinese electric vehicle maker Kandi Technologies (KNDI) has been moving ahead with an aggressive plan to bring 5,000 to 10,000 electric vehicles to market in the next year or so.
And Kandi's stock has nearly doubled since June 1. Seems like it's not just Americans who are enamored with the idea of 'plug and drive.'
StockTwits traders sure MORE
Catherine Tymkiw - Jun 17, 2013 11:04 AM ET -
Groupon is back from the dead
Groupon (GRPN) used to be the laughing stock of social media firms. Lousy earnings reports. Accounting issues. A CEO who just seemed a little too green to be dealing with Wall Street.
Those days appear to be over. Shares of the daily deal site surged more than 13% Friday after Deutsche Bank upgraded the stock to a "buy." Groupon is now up 60% year-to-date and is 200% above its 52-week low. MORE
Paul R. La Monica - Jun 14, 2013 11:56 AM ET -
Market volatility creating buying opportunity
The recent ups and downs in the stock market may be frustrating, but one strategist said the break in the rally is also creating an attractive entry point for investors who remained on the sidelines during the first few months of the year.
"The market has been up, but a majority of investors have not participated," said Nathan Rowader, director of investments and senior market strategist at Forward Management, an investment MORE
Hibah Yousuf - Jun 14, 2013 10:31 AM ETPosted in: Bernanke, bond buying, bonds, buying opportunity, dividend, economy, federal reserve, inflation, interest rates, quantitative easing, stimulus, stocks, volatility -
Gold prices drop 1%. Is $1,150 next?
U.S. stocks were able to evade the rout in Asia, but gold wasn't so lucky.
In fact, the precious metal has been one of the most jittery asset classes this year.
Gold prices plunged to a two-year low in April on worries about slowing growth in China. Investors also shunned gold in favor of stocks, which have had a record-setting run this year...before all the recent volatility.
Gold prices dropped more than 1% MORE
Maureen Farrell - Jun 13, 2013 2:49 PM ET -
Fed tapering should help, not hurt, the dollar
The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of CNNMoney, Abbott Laboratories and AbbVie, La Monica does not own positions in any individual stocks.
Taper taper taper. Yen yen yen. The world's financial markets are obsessed with just two things right now: the potential beginning of the end of the Federal Reserve's bond purchases and what Japan's currency is MORE
Paul R. La Monica - Jun 13, 2013 1:02 PM ET -
First Solar gets burned on stock offering
Shares of First Solar cooled Wednesday after the solar panel maker said it planned to sell 8.5 million shares in a secondary stock offering.
Secondary offerings are always good news-bad news situations.
First the good news. First Solar's stock has rallied nearly 70% this year, ahead of the offering. Demand for solar panels has been growing. The company swung to a profit in the first quarter.
That creates prime conditions for the company MORE
Catherine Tymkiw - Jun 12, 2013 10:54 AM ET -
Dole's stock goes bananas over CEO's bid
Investors welcomed Dole CEO David Murdock's bid to take the international fruit company private Tuesday.
Murdock offered $12 a share for the remaining 60% of Dole (DOLE) that he doesn't already own. Murdock returned to the helm of Dole earlier this year after David DeLorenzo left to lead Dole's Asia packaged food business as part of its sale to Itochu Corp. in Japan.
jasonzweig
Maureen Farrell - Jun 11, 2013 2:30 PM ET
you're as young as you feel: MORE
- Adobe earnings don't need Photoshop(1:01)
- SPAM gets slammed(1:06)
- Boeing's 787 nightmare is over(0:58)
- Restoration Hardware rides housing wave(1:24)
- Safeway is a safe haven ... for now(1:17)
- Goodyear stock rising like its blimp(1:18)
- Sony fires first shot in gaming price war(1:05)
- Investors say 'da' to McDonald's(1:01)
