Written by Alexander Crawford:

Wish you could know what the market thought about a particular stock? One of the clearest sentiment indicators comes from short sellers. Changes in the number of shares shorted over time can give a clue as to whether investors are becoming more or less pessimistic about the name.

Shorting a share involves borrowing the share and immediately selling it with the agreement to buy it back and return it in the future. This is profitable if the share price drops, so short selling indicates a bearish (or pessimistic) view on the stock's prospects.

Therefore when a stock sees fewer shares shorted over time, it indicates greater optimism from investors. We ran a screen with this in mind, screening the biotech industry for stocks seeing significant decreases in shares shorted month-over-month.

Interactive Chart: Press Play to compare changes in market cap over the last two years for the stocks mentioned below.



Business Section: Investing Ideas
Below are the results of this screen. These biotech stocks have seen increasing bullishness from short sellers month-over-month.

Do you think these names are poised to outperform?

Use this list as a starting point for your own analysis. (Click here to access free, interactive tools to analyze these ideas.)

1. Ariad Pharmaceuticals Inc. (Nasdaq:ARIA): Focuses on the discovery, development, and commercialization of small-molecule drugs for the treatment of cancer. Shares shorted have decreased from 14.69M to 12.63M over the last month, a decrease which represents about 1.34% of the company's float of 153.21M shares

2. AVEO Pharmaceuticals, Inc. (Nasdaq:AVEO): Engages in the discovery and development of cancer therapeutics. Shares shorted have decreased from 2.62M to 2.11M over the last month, a decrease which represents about 1.47% of the company's float of 34.65M shares

3. Corcept Therapeutics Inc. (Nasdaq:CORT): Engages in the discovery and development of drugs for the treatment of severe metabolic and psychiatric disorders. Shares shorted have decreased from 4.62M to 3.35M over the last month, a decrease which represents about 2.69% of the company's float of 47.29M shares

4. Medivation, Inc. (Nasdaq:MDVN): Focuses on the development of small molecule drugs for the treatment of castration-resistant prostate cancer, Alzheimer's disease, and Huntington disease. Shares shorted have decreased from 2.88M to 2.49M over the last month, a decrease which represents about 1.45% of the company's float of 26.86M shares

5. Regeneron Pharmaceuticals, Inc. (Nasdaq:REGN): Develops, and commercializes pharmaceutical products for the treatment of serious medical conditions in the United States. Shares shorted have decreased from 6.66M to 5.16M over the last month, a decrease which represents about 2.1% of the company's float of 71.40M shares.

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

Disclosure: Kapitall's Alexander Crawford does not own any of the shares mentioned above. Short data sourced from Yahoo! Finance.

Related Articles
  1. Mutual Funds & ETFs

    The 3 Best Downside Protection Equity Mutual Funds

    Learn how it is possible to profit in a bear market by owning the correct selection of mutual funds that provide downside protection and opportunity.
  2. Stock Analysis

    Analyzing Altria's Return on Equity (ROE) (MO)

    Learn about Altria Group's return on equity (ROE) and analyze net profit margin, asset turnover and financial leverage to determine what is causing its high ROE.
  3. Investing News

    Icahn's Bet on Cheniere Energy: Should You Follow?

    Investing legend Carl Icahn continues to lose money on Cheniere Energy, but he's increasing his stake. Should you follow his lead?
  4. Stock Analysis

    Analyzing Google's Return on Equity (ROE) (GOOGL)

    Learn about Alphabet's return on equity. How has its ROE changed over time, how does it compare to its peers and what factors are driving ROE for the company?
  5. Investing News

    Is Buffett's Bet on Oil Right for You? (XOM, PSX)

    Oil stocks are getting trounced, but Warren Buffett still likes one of them. Should you follow the leader?
  6. Investing News

    Chipotle Served with Criminal Probe

    Chipotle's beat muted expectations and got a clear bill from the CDC, but it now appears that an investigation into its E.coli breakout has expanded.
  7. Stock Analysis

    Analyzing Sprint Corp's Return on Equity (ROE) (S)

    Learn about Sprint's return on equity. Find out why its ROE is negative and how asset turnover and financial leverage impact ROE relative to Sprint's peers.
  8. Stock Analysis

    Why Alphabet is the Best of the 'FANGs' for 2016

    Alphabet just impressed the street, but is it the best FANG stock?
  9. Investing News

    A 2016 Outlook: What January 2009 Can Teach Us

    January 2009 and January 2016 were similar from an investment standpoint, but from a forward-looking perspective, they were very different.
  10. Mutual Funds & ETFs

    3 Vanguard Equity Fund Underperformers

    Discover three funds from Vanguard Group that consistently underperform their indexes. Learn how consistent most Vanguard low-fee funds are at matching their indexes.
RELATED FAQS
  1. What is a derivative?

    A derivative is a contract between two or more parties whose value is based on an agreed-upon underlying financial asset, ... Read Full Answer >>
  2. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  3. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  4. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  5. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  6. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
COMPANIES IN THIS ARTICLE
Trading Center