People are betting against these stocks.
Short selling isn’t terribly popular on Wall Street. Like the misanthrope at the craps table, short sellers bet against the way everyone else makes money, profiting when stocks go down, not up. High short interest is often considered bearish; the smart money must know something! But it can also cause “short squeezes” — rallies caused by shorts hurriedly buying back stock to close out their trades. Regardless, the following stocks are all either very heavily shorted by the market or have prominent Wall Street luminaries wagering against them. Each of these stocks can make or break you. Research them carefully before deciding which side you’re on.
Shopify (NYSE: SHOP)
Citron Research is one of the most respected short-selling outfits on Wall Street, most well known in recent memory for exposing Valeant’s (VRX) flawed accounting. In early October, Citron’s Andrew Left asserted Shopify was illegally paying partners like bloggers and online influencers to promote Shopify websites as a way to get rich quick — but without disclosing these paid relationships. “This will have to be addressed with the FTC soon,” Left said, referring to the Federal Trade Commission. Left gave the growth stock a $55 to $60 fair value — before any fallout from the FTC is factored in. Shares lost 17 percent since the report, but still trade in the mid-$90s.
Tesla (TSLA)
Citron may be the premier short-selling research firm, but Jim Chanos is the most famous short seller in the world. And Chanos loathes TSLA. Chanos considers Tesla a “cult stock,” with a mass of followers that view the company through rose-colored glasses. Chanos also feels strongly that the Tesla-SolarCity merger was a financial calamity that helps make TSLA “structurally unprofitable.” While short selling Tesla hasn’t worked well for Chanos recently — TSLA stock is up 65 percent this year — it’s true that the company is embarrassing itself again with the glacial Model 3 rollout. CEO Elon Musk forecast 1,600 Model 3s would be made in the third quarter; it made just 260.
JC Penney Co. (JCP)
By now, you might be thinking to yourself: “What does anyone want with short selling? Shopify is up 120 percent this year and Tesla’s up 65 percent — looking for popular short plays actually seems like a surefire formula for finding the best stocks to buy, not sell!” Well, hold your horses. This is where the ride gets bumpy. Unlike Shopify and Tesla, department store retailer JC Penney isn’t hated by any particular investor — it’s hated by the whole market! A remarkable 45 percent of publicly traded JCP shares have already been borrowed and sold short. In this case, the bears win: JCP is down 60 percent in 2017.
Fitbit (FIT)
The carnage doesn’t stop there. Wearable device-maker Fitbit, known for its eponymous line of fitness trackers and watches, is having a hard time running away from the bears on Wall Street. Thirty-two percent of Fitbit’s so-called “float” — outstanding, publicly traded, non-restricted shares — is sold short. FIT stock is down 51 percent in the last year and 80 percent since its high-flying IPO in 2015. Like Icarus, Fitbit flew too high and paid the consequences. Now, after growing revenue at a breakneck pace from $76 million in 2012 to $2.12 billion in 2016, analysts expect sales to fall for the first year ever, plunging 25 percent in 2017.
Match Group (MTCH)
Generally, stocks with a high percentage of their float sold short tend to do poorly. But such stocks can do well, and MTCH is living proof. The company behind some of the most popular online dating properties including Match.com, Tinder, PlentyOfFish and OkCupid, has seen its stock roar 51 percent higher in 2017. Online dating is here to stay, and after amassing tens of millions of users, MTCH started aggressively monetizing them in 2017. Tinder Plus, which among other benefits allows users infinite swipes each day, is $10 per month, while the additional $5 per month for Tinder Gold lets users see who already likes them. Fifty percent of its float is sold short.
GoPro (GPRO)
Sadly, not all companies can be Wall Street darlings. GoPro was for a while, but when it lost momentum, struggled to differentiate itself from knock-offs, and suffered late and mispriced product rollouts, GPRO stock plunged. Recently, shares have stabilized slightly, gaining 11 percent in 2017, but zooming out, GPRO remains hopelessly removed from its highs above $98 per share three years ago or even the $31/share closing price on its IPO date. Today, 34 percent of the float is sold short, showing the Street doubts whether GoPro can recover. High short interest, though, could also trigger a short squeeze in the right situation, particularly if shares gain independent momentum.
Herbalife (HLF)
Herbalife is easily one of the most avidly debated stocks of the last five years. Interest in the nutritional products company soared in 2012 when Bill Ackman publicly shorted HLF stock to the tune of $1 billion, berating it as a pyramid scheme. Famed activist investor Carl Icahn quickly took the opposing side, buying 13 percent of HLF. The standoff is still going five years later, with Icahn controlling 24 percent of shares (and five of 13 board seats) while Ackman hasn’t backed down either. Icahn is definitively winning this year, however, with HLF shares up 58 percent in 2017, while Ackman shows how short selling can go wrong.
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Short Selling: 7 Stocks Pro Traders and Billionaires Hate originally appeared on usnews.com
