Written by Rebecca Lipman
Do you like to go against the crowd? Earnings season is a great time to cash in on unexpected results. However, short sellers don't feel so optimistic this earnings season - the small-cap stocks below are seeing an increase in short selling. But if they're wrong, investors may see a high level of short coverings - and big gains.
Exploring the Ideas
The concept of an earnings surprise is pretty straight-forward - the quarterly earnings come out, and earnings analysts are "surprised" by how they don't match up to their predictions. A surprise can indicate either positive or negative earnings, meaning the annual reports are above or below analysts' earnings estimates. For this list we only use positive surprises.
Investors care about these "surprises" because when a stock releases data above expectations, the stock quickly adjusts to price in the new information.
Investors often look to short seller trends to determine market sentiment. Short sellers are investors that benefit from falling stock prices. If they are increasing their short positions on these names it's a signal that they are becoming more pessimistic about their short-term performance.
Interactive Chart: Use the Compar-O-Matic to compare analyst ratings for the stocks mentioned below:
Business Section: Investing Ideas
Contrarian investors tend to go against the crowd. One mindset of contrarians is that excessive bearishness or bullishness, such as the bearishness shown by short sellers, might signal that a stock is oversold or undervalued. If so, it may create an investing opportunity before the market value corrects itself.
These stocks are reporting earnings this week: Do you think short sellers have it right?
All names have market caps between $300 million and $2 billion. (Click here to access free, interactive tools to analyze these ideas.)
1. Arbitron Inc. (NYSE:ARB): Provides media and marketing information services in the United States and internationally. Market cap $1.02B. Shares shorted have increased from 1.52M to 1.77M over the last month, an increase which represents about 1.08% of the company's float of 23.25M shares. Earnings date April 19.
2. Builders FirstSource, Inc. (Nasdaq:BLDR): Engages in the manufacture and supply of structural and related building products for residential new construction primarily in the southern and eastern United States. Market cap $359.5M Shares shorted have increased from 2.53M to 3.01M over the last month, an increase which represents about 1.55% of the company's float of 30.95M shares. Earnings date April 19.
3. Cypress Sharpridge Investments, Inc. (NYSE:CYS): Market cap $1.51B. Shares shorted have increased from 10.73M to 11.94M over the last month, an increase which represents about 1.09% of the company's float of 110.58M shares. Earnings date April 19.
4. McMoRan Exploration Co. (NYSE:MMR): Engages in the exploration, development, and production of oil and natural gas offshore in the Gulf of Mexico and onshore in the Gulf Coast area of the United States. Market cap $1.46B. Shares shorted have increased from 18.15M to 19.13M over the last month, an increase which represents about 1.02% of the company's float of 96.54M shares. Earnings date April 17.
5. USG Corporation (NYSE:USG): Engages in the manufacture and distribution of building materials worldwide. Market cap $1.75B. Shares shorted have increased from 22.36M to 24.73M over the last month, an increase which represents about 3.27% of the company's float of 72.49M shares. Earnings date April 17.
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Disclosure: Kapitall's Rebecca Lipman does not own any of the shares mentioned above. Short data from Yahoo! Finance, all other data sourced from Finviz