Short Sellers Savage Market Laggards

Short sellers often invest in stocks that have had sharp short-term gains and may have reached peak valuations. That would put Netflix (NASDAQ: NFLX) on most of those lists, along with Sirius XM Radio (NASDAQ: SIRI) and eBay (NASDAQ: EBAY)

Shorts has taken a different tack recently. Data from the NYSE and NASDAQ for the period ending July 12 show that short sellers are holding positions in companies that are already in trouble. That list includes AMD (NYSE: AMD), which has not had a CEO for months. Short interest in the chip firm rose 21% to 83.5 million. Shares sold short in Citigroup (NYSE: C), still the financially weakest of the large banks, moved higher by 27% to 52.3 million. The short interest in Bank of America (NYSE: BAC) was up 10% to 108.3 million shares.

GM (NYSE: GM) has been troubled recently as consumer demand for cars and light trucks slackened in June. The trend will continue if unemployment stays high. Shares sold short in the largest car company in the U.S. rose to 52.3 million, up 22%. The retailers that have struggled the most recently are also on the list of most shorted stores. Best Buy (NYSE: BBY) has a short position of 42 million, which is up 18% from the last two week period. Shares short in Office Depot (NYSE: ODP) were higher by 17% to 34.3 million. The short interest in Home Depot (NYSE: HD) were up by 36% to 25.1 million. Home prices are still in free fall, and over 11 million home mortgages are underwater, which leaves their residents with very little capital for home improvement. Shares short in JC Penney (NYSE: JCP) were up by 23% to 28.3 million. The retailer recruited the head of Apple’s store unit, but same-store sales are still poor. The short interest in The Talbots (NYSE: TLB), which is considered the most troubled of the large retailers, was higher by 22% to 25.2 million

Stocks in tech companies that are considered poorly run or that are in businesses with great competition and low margins also made the list of companies with short interest increase. The short interest in Dell (NASDAQ: DELL) rose 28% to 78.9 million shares. Shares short in Aruba Networks (NASDAQ: ARUN) were up 15% to 17.6 million. The short interest in RF Micro (NASDAQ: RFMD) was up 14% to 21.8 million. Shares short in Rambus (NASDAQ: RMBS) 43% to 9.5 million.

Among the most widely traded stocks, the short interest in Intel (NASDAQ: INTC) fell 16% to 94.5 million. Experts may believe that its move into chip for wireless devices will be successful. Shares short in Comcast (NASDAQ: CMCSA) dropped by 18% to 27.0 million. Its takeover of NBCU is in early stages. Shares short in GE (NYSE: GE) fell by 11% to 71.9 million. GE sold its controlling interest in NBCU to Comcast. Shares short in AT&T (NYSE: T) rose 17% to 63 million. Its cellular subscriber growth has slowed recently and regulators have begun to challenge its takeover of T-Mobile.

Data from NYSE and NASDAQ

Douglas A. McIntyre