Investing 101: Consumer Goods Stocks With Short Covering

By Kapitall | May 11, 2012 AAA

Written by Kelly Haugen



Increased spending on consumer goods is key to economic growth and employment, so it follows that seeing which big companies analysts feel bullish about provides direction as to where spending, and possibly job growth, is most concentrated.

With that in mind we ran a screen on the consumer goods sector for names with net short covering month-over-month.

Significant Short Covering
Investors will sell stocks short if they are expecting shares to decrease in value in the near future (bearish). But if, after placing the short bets, they feel the stock has more upside than downside to price in (bullish), they will start to buy back their short sales, or "cover" their position.

Because short sellers require borrowing and background checks, they are sometimes considered to be more savvy and informed investors. Naturally, average investors keep an eye on the actions of short sellers for hints as to what may come.

In summation, short covering can be seen as a bullish signal for a stock.

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 is a list of U.S. traded companies producing consumer goods that has seen a net increase in short covering month over month (or worded another way, a decrease in shares short).

Take a look at the names below. Do you think these stocks will follow an upward run from the covering?

List sorted by market cap. Data sourced from Finviz. (Click here to access free, interactive tools to analyze these ideas.)

1. BorgWarner Inc. (NYSE:BWA): Engages in the manufacture and sale of engineered automotive systems and components primarily for power train applications worldwide. Market cap at $8.91B, most recent closing price at $76.75. Shares shorted have decreased from 18.50M to 15.72M over the last month, a decrease which represents about 2.46% of the company's float of 113.14M shares. Days to cover ratio at 11.97 days.

2. Tesla Motors, Inc. (Nasdaq:TSLA): Designs, develops, manufactures, and sells electric vehicles and advanced electric vehicle powertrain components. Market cap at $3.18B, most recent closing price at $30.37. Shares shorted have decreased from 24.24M to 23.53M over the last month, a decrease which represents about 1.03% of the company's float of 68.70M shares. Days to cover ratio at 20.48 days.

3. TempurPedic International Inc. (NYSE:TPX): Distributes bedding products worldwide. Market cap at $2.96B, most recent closing price at $48.75. Shares shorted have decreased from 6.16M to 5.36M over the last month, a decrease which represents about 1.4% of the company's float of 57.29M shares. Days to cover ratio at 2.34 days.

4. Deckers Outdoor Corp. (Nasdaq:DECK): Engages in the design, production, marketing, and brand management of footwear and accessories for outdoor activities and everyday casual lifestyle use. Market cap at $2.01B, most recent closing price at $51.17. Shares shorted have decreased from 9.35M to 8.33M over the last month, a decrease which represents about 2.71% of the company's float of 37.68M shares. Days to cover ratio at 3.31 days.

5. Vera Bradley, Inc. (Nasdaq:VRA): Engages in the design, production, marketing, and retail of functional accessories for women under the Vera Bradley' brand. Market cap at $1.01B, most recent closing price at $24.29. Shares shorted have decreased from 10.75M to 10.38M over the last month, a decrease which represents about 2.56% of the company's float of 14.48M shares. Days to cover ratio at 11.5 days.

6. La-Z-Boy Inc. (NYSE:LZB): Distributes, and retails upholstery products and wood casegoods furniture products under the La-Z-Boy name in the United States and Canada. Market cap at $761.39M, most recent closing price at $14.78. Shares shorted have decreased from 3.97M to 3.42M over the last month, a decrease which represents about 1.19% of the company's float of 46.26M shares. Days to cover ratio at 6.35 days.

7. Teavana Holdings, Inc. (NYSE:TEA): Operates as a specialty retailer of loose-leaf teas, teawares, and other tea-related merchandise. Market cap at $760.07M, most recent closing price at $19.77. Shares shorted have decreased from 5.72M to 5.29M over the last month, a decrease which represents about 15.25% of the company's float of 2.82M shares. Days to cover ratio at 21.67 days.

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

Disclosure: Kapitall's Danny Guttridge does not own any of the shares mentioned above. Short data sourced from Yahoo Finance! All other data sourced from Fidelity!

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