The best thing about the stock market is that you can make money in either direction. Historically, stock indexes have tended to trend up over the long term. But when you look at individual stocks, you'll find plenty that lose money over the long haul. According to hedge-fund institution Blackstar Funds, even with dividends included, between 1983 and 2006, 64% of stocks underperformed the Russell 3000, a broad-scope market index.
A large influx of short-sellers shouldn't be a condemning factor to any company, but it could be a red flag from traders that something may not be as cut-and-dried as it appears. Let's look at three companies that have seen a rapid increase in the amount of shares sold short and see whether traders are blowing smoke, or if their worry has some merit.
Company | Short Increase Nov. 15 to Nov. 30 | Short Shares as a % of Float |
|---|---|---|
Panasonic (NYSE: PC ) | 110.2% | 0.2% |
Calgon Carbon (NYSE: CCC ) | 181.8% | 10.4% |
Best Buy (NYSE: BBY ) | 39% | 14% |
Source: The Wall Street Journal.�
A death spiral?
I actually had to do a double-take when I looked at the far column for Panasonic and noted that just 0.2% of its float is currently held by short-sellers. That means nearly 100% of all shareholders are living in a fantasy world and are completely out of touch with reality!
Panasonic, a manufacturer of flat-panel TVs, notebooks, and PCs, as well as Blu-ray players and cameras, suffered a gigantic, $9.6 billion writedown in late October as it wrote off nearly all of its underperforming mobile and energy assets. Believe it or not, Panasonic's writedown was actually bigger than that of both Sony (NYSE: SNE ) and Sharp, which recorded writedowns of roughly $6.3 billion and $4.7 billion, respectively, this year.�
At the heart of Panasonic's problems has been the commoditization of nearly all electronic products, which has constrained both price and margins as well as the premium it used to command for its brand's name. Also, cheaper labor outside of Japan has made it difficult for Japanese electronics manufacturers to compete against smaller operations in China, India, and elsewhere. Finally, a reliance on the company's money-losing TV sector has weighed on its results. Sony's eight-straight annual losses in its TV segment should be enough reason to avoid Japanese electronics companies like the plague, Panasonic included!
Clean as a whistle
Calgon Carbon, an oft-forgotten clean-energy play that provides services and solutions for purifying water and air, food, and industrial process streams worldwide, appears to have provoked the ire of short-sellers. But is this recent wave of short-selling merited? I think not.
Calgon's most recent quarter included a slew of one-time costs that weighed down its final results. Its Pearl River plant was damaged by Hurricane Sandy, it incurred $8 million in restructuring charges, and it was hurt by negative currency translation as spending in Europe ebbed more than it flowed. Yet the future for Calgon Carbon looks as bright as ever.
Domestically, the reelection of President Obama should be seen as a positive for Calgon, which should see an added push toward U.S. energy independence and clean energy alternatives. Alternatively, in Europe, where spending has stalled, individual countries like Germany may be forced to try to stimulate their economy through clean energy initiatives, which would also benefit Calgon. Calgon's also taken to rewarding shareholders through a $100 million share repurchase program. Finally, Calgon's fiscal 2013 quarterly reports will compare very favorably to a series of reports in 2012 that were filled with one-time charges. All told, this is a company well-positioned for long-term success.
Thinking outside the box
Here's a news flash: Even well off its highs, hardly anyone likes Best Buy! OK, so that wasn't really news, but I have to think that short-sellers are playing with fire betting against a company whose co-founder, Richard Schulze, has made it very apparent that he's willing to take it private.
The case against Best Buy is also well known. The company's slow transition to mobile and online platforms has allowed online retailers like Amazon.com (NASDAQ: AMZN ) to undercut its prices and effectively allows consumers to use its stores as a showroom while these same consumers purchase at a discount online.
However, a new CEO and a new strategy that includes price-matching, store-size shrinkage, a focus on mobile devices, and sales bonuses for employees could have Best Buy back on its feet. Also, Schulze's efforts to buy the company for somewhere between $5 billion and $6 billion if financing can be arranged have to be sitting in the back of short-sellers' minds. There's still a good amount of cash flow potential with Best Buy even here, and I wouldn't consider betting against this turnaround candidate.
Foolish roundup
This week's theme was all about getting in touch with reality. Panasonic shareholders may want to take a long look at their stock in the coming weeks, while Best Buy and Calgon Carbon short-sellers may have missed the boat already.
What's your take on these three stocks? Do the short-sellers have these stocks pegged, or are they blowing smoke? Share your thoughts in the comments section below.
The bricks-and-mortar versus e-commerce battle wages on, with Best Buy caught in the middle. After what might have been its most tumultuous year in history, there are now even more unanswered questions about the future for the big-box electronics retailer. How will new leadership perform? Will old leadership take the company private? Will a smaller store format work out for both the company and its brave investors? Should you be one such brave investor? To help answer all these questions, The Motley Fool has released a new premium research report detailing the opportunities � and the risks � in store for Best Buy. Simply click here now to claim your comprehensive report by today.
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