Many investors use short selling to bet that the price of a stock will decline, and the authorities regularly release detailed information on the level of short selling for each stock. A review of this data can sometimes be constructive in helping investors find stocks that are oversold and may be attractive for purchase.
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Bridgepoint Education (NYSE:BPI) is one of the most heavily shorted stocks as measured by the percentage of the float, with 58% of the float or 10 million shares sold short. This appears to have been a successful short, depending on when a position was initiated, as the stock is down 42% from its 52-week high back in the spring of 2010.
Bridgepoint Education seems to be suffering the same fate as many of its peers in the education industry; a combination of overvaluation, regulatory risk and concerns about the sustainability of the for-profit business model has caused major selling.
Another heavily shorted stock is HHGregg (NYSE:HGG), which has 50% of its float sold short. The company is a consumer electronics retailer active mostly in the southeast. HHGregg has had some recent problems with comparable store sales in 2010, a key measure that many analysts use to measure performance. HHGregg reported a 1.5% decline in the third quarter of 2010. The company also recently reduced its earnings outlook for 2010, citing the volatility of demand and an uncertain economy.
Rubicon Technology (Nasdaq:RBCN) has 59% of its outstanding float sold short. This semiconductor company supplies the LCD flat television industry, and the company has suffered from the perception that consumer demand for LCD flat televisions will slow down and cause a reduction in growth.
Although Rubicon Technology has declined from its peak, the company's latest quarter did not give much ammunition to short sellers as the results beat consensus earnings estimates for the third quarter of 2010 and the company raised its fourth quarter outlook.
Cadence Pharmaceuticals (Nasdaq:CADX) has 51% of its float sold short. The company reported a GAAP loss of $11.7 million, or $0.23 per share, in the quarter ending September 30, 2010. This brings the company's total GAAP loss in the first nine months of 2010 to $37.9 million or $0.75 per share. Not all investors are pessimistic, as Cadence Pharmaceuticals just came to market and sold 11.5 million shares at $8 per share.
The Bottom Line
Short sellers are still active in betting that some stocks will fall despite the glimmers of hope in the economy. Investors can peruse this data for stocks that might be oversold and attractive for purchase. (For related reading, take a look at Short Interest: What It Tells Us.)
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