Written by Rebecca Lipman
It's earnings season - an opportunity to cash in on mispriced trades and earnings surprises. Of course, the greatest challenge is finding names that will outperform.
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 stocks reporting earnings next week (April 16-20) for those seeing significant decreases in shares shorted month-over-month.
Interactive Chart: Press Play to compare changes in average analyst recommendation over the last two years for the stocks mentioned below.
Business Section: Investing Ideas
Below are the results of this screen. These stocks have seen increasing bullishness from short sellers month-over-month.
Do you think these names will report earnings to the upside? (Click here to access free, interactive tools to analyze these ideas.)
1. United Continental Holdings, Inc. (NYSE:UAL): Engages in the provision of passenger and cargo air transportation services. Earnings date: 04/16/12. Shares shorted have decreased from 38.06M to 33.46M over the last month, a decrease which represents about 1.39% of the company's float of 330.94M shares.
2. First Republic Bank (NYSE:FRC): Provides private banking, private business banking, investment management, brokerage, trust services, and real estate lending services in California, Nevada, and New York. Earnings date: 04/18/12. Shares shorted have decreased from 2.52M to 807.35K over the last month, a decrease which represents about 2.81% of the company's float of 60.86M shares.
3. Textron Inc. (NYSE:TXT): Operates in the aircraft, defense, automobile, industrial, and finance businesses worldwide. Earnings date: 04/18/12. Shares shorted have decreased from 16.56M to 13.23M over the last month, a decrease which represents about 1.19% of the company's float of 279.00M shares
4. Alliance Data Systems Corporation (NYSE:ADS): Provides data-driven and transaction-based marketing, and customer loyalty solutions primarily in the United States and Canada. Earnings date: 04/19/12. Shares shorted have decreased from 10.40M to 9.04M over the last month, a decrease which represents about 2.81% of the company's float of 48.43M shares
5. EMC Corporation (NYSE:EMC): Develops, delivers, and supports the information and virtual infrastructure technologies and solutions. Earnings date: 04/19/12. Shares shorted have decreased from 100.41M to 51.42M over the last month, a decrease which represents about 2.39% of the company's float of 2.05B shares
6. Cytec Industries Inc. (NYSE:CYT): Engages in developing, manufacturing, and selling chemical products worldwide. Earnings date: 04/19/12. Shares shorted have decreased from 2.56M to 2.12M over the last month, a decrease which represents about 1.08% of the company's float of 40.66M shares.
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Disclosure: Kapitall's Rebecca Lipman does not own any of the shares mentioned above. Earnings data sourced from Finviz, short data from Yahoo! Finance.
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