Interested In The Short Interest Leaders?

By Aryeh Katz | September 15, 2010 AAA

In the current range-bound market environment, the average investor is caught in a bind. Should he be long or short? And to what degree should he be exposed to equities at all? Managing risk in a sideways-moving market may be the greatest investment challenge of all.
IN PICTURES: 6 Ways To Make Better Options Trades

Of course, it helps to have a well-grounded investment outlook, bullish or bearish, and to invest with stops. As the saying goes, "Bulls make money. Bears make money. Pigs get slaughtered."

For those with a bullish tilt, one of the most salient datum is short interest. The logic goes that with a general rise in the indexes, short sellers will rush to cover - and those companies with the greatest short interest will gain most. To that end, we list below those companies with the greatest short interest on the Russell 1000. Each issue has at least one third of its float in the hands of the shorts.

Cars for Short People
Leading the short sale parade is AutoNation, Inc. (NYSE:AN), a retailer of new and used automobiles headquartered in Ft.Lauderdale. Despite the fact that the company's shares are up nearly 23% year-to-date and 31.5% over the last year, a full 40.7% of the float has been sold short. The S&P 500's proxy, the SPDR S&P 500 ETF (NYSE:SPY) is up just 1% YTD and less than 8% for the last 12 months.

AutoNation recently submitted a proposal to Chrysler Group LLC to secure a number of Fiat S.p.A. (Pink:Fiaty) franchises. Next month marks the return of the Italian automaker to the U.S. market after a hiatus of roughly 30 years.

The Board Vs. the Shorts
Alliance Data Systems Corporation (NYSE:ADS) stock is up 8.6% over the last year, and trades with a P/E of 18. Short interest on the stock sits just below 34% of the company's total float. The company recently extended its stock repurchase program to include an additional $400 million of the company's common shares. Since 2008, ADS has bought roughly $1.6 billion worth of stock. (For more on repurchases, see A Breakdown Of Stock Buybacks.)

ADS provides data-based marketing and customer loyalty services.

A Grand Idea
MGM Resorts International (NYSE:MGM) operates casinos and other gaming resorts worldwide. After a YTD rise of 15.5%, better than 33% of the company's float is now short.

The Bottom Line
It's very likely that if and when the general market breaks higher, the above three listed stocks will see better-than-average volume as the shorts step up to cover their positions. It's also likely that the squeeze will force their share prices considerably higher in a hurry.

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

comments powered by Disqus
Related Analysis
  1. Traders Have Seen This Movie Before
    Stock Analysis

    Traders Have Seen This Movie Before

  2. India Remains An Emerging Market Bright Spot
    Stock Analysis

    India Remains An Emerging Market Bright Spot

  3. Still More Gains Ahead For Semiconductor Makers
    Stock Analysis

    Still More Gains Ahead For Semiconductor Makers

  4. Fed Comments Should Spur Positivity - Ahead of Wall Street
    Stock Analysis

    Fed Comments Should Spur Positivity - Ahead of Wall Street

  5. A 30% Profit Opportunity From Europe's Latest Moves
    Investing

    A 30% Profit Opportunity From Europe's Latest Moves

Trading Center