The 5 Most Shorted Stocks in the S&P 500
May's right around the corner and bears are piling on bets against the most shorted stocks – and the overall market – in preparation for the expected annual sell-off.
During the first two weeks of April, almost 60% of stocks in the Standard & Poor's 500 Index saw an increase in short interest, and the Nasdaq had an overall increase in short positions as well.
Right now, the most shorted stocks include a struggling retailer, a for-profit college and an alternative energy company – and one stock that's up a whopping 131% in 2013.
But don't be misled into going against the grain. These stocks are not "buys."
Rather, investors should steer clear of these risky stocks.
Apple Stock Rises Before Earnings, but No One's Expecting Good Numbers
Apple stock was up nearly 2% by noon today (Tuesday) – but this could be the end of gains for a while depending on what happens this afternoon.
Undeniably the most anticipated earnings report of the season is the Apple earnings report, due out after the close Tuesday. Expectations are for a downright dismal quarter.
Among the issues Apple Inc. (Nasdaq: AAPL) is expected to address include:
- iPhones: Apple generated some $22.7 billion from the sale of 35 million iPhones in the same quarter a year ago. Investors will want to hear how much competition from other smartphone markers, like Samsung, has chipped away at those numbers.
- iPads: Apple sold 11.8 million iPads that generated $6.6 billion in sales over the same period a year earlier. With the bevy of new and cheaper tablets now on the market, it is unlikely Apple has been able to maintain those robust sales.
- Gross Margins: Gross margins peaked at an astounding 47.4% during this quarter last year. Apple's warning last October that margins could drop as low as 38% was the catalyst behind the stock's steep plunge. In January, Apple said profits should come in around 37.5% to 38.5%. These numbers are crucial.
- Revenue and Profit: Last year, Apple earned $12.30 a share on revenue of $39.2 billion. Estimates are for $10.12 a share on revenue of $42.6 billion. Even the slightest miss could wallop shares.
- Guidance: Most importantly will be what the company says about future quarters. Analysts expect Apple to guide lower, at least for the next couple of quarters.
Of particular interest will be what Apple plans to do with its hefty $157 billion cash stash. A special or increased dividend and a bigger share buyback could provide a temporary boost to the stock. But any gains are likely to be short lived.
"People have to be patient. The next quarter will be disastrous and the quarter after that stock will only go in one direction and that is down," Trip Chowdhry, co-founder of Global Equities Research told CNBC.
Oil Prices Have Dipped, Just Don't Expect These Discounts to Last
Markets declined significantly in the wake of last Tuesday's Presidential election. In the two days that followed the S&P shed almost 3.6%.
But now the energy sector in general – and oil in particular – is poised for a major move up.
As I am writing this, six of the nine elements I regularly monitor to determine oil prices are pointing north.
The relationship between refinery margins (the difference between what it costs to produce oil products and the price that can be charged at the wholesale level – where the refiners make their profit) and inventory in gasoline are also indicating an oversold market, even without factoring in the East Coast double whammy of Hurricane Sandy and a Nor'easter.
The underlying dynamics, therefore, haven't changed. If left to its own devices, oil prices should be moving up (and our profits right along with it).
So why the dip?
Build Your Wealth the Warren Buffett Way With These "Wide-Moat" Companies
It's never a bad idea to bullet-proof your stock portfolio with companies that have a clear-cut competitive advantage.
And now may be the right time to bolster your defenses with exchange-traded funds (ETFs) that buy stocks of companies with so-called "wide moats."
Of course, famed investor Warren G. Buffett originally coined the term to describe companies with distinct competitive advantages over other firms in its industry.
The Oracle of Omaha says he is always looking for "economic castles protected by unbreachable moats."
Indeed, Buffett's Berkshire Hathaway Inc. (NYSE: BRK.A, BRK.B) is chock full of wide-moat companies that consistently rake in high returns on invested capital, propelling their shares higher year after year.
The idea is to buy — when they are cheap — shares of companies that have dominant positions in their industries and are likely to maintain their superiority for decades, not months or years.
For example, Berkshire has held positions in The Coca Cola Co. (NYSE: KO) and Exxon Mobile Corp. (NYSE: XOM) for decades, patiently reaping the rewards from their wide moats.
"A company that has a greater duration of competitive advantage is simply worth more," Paul Larson, chief equity strategist at investment research firm Morningstar Inc. (Nasdaq: MORN) told MarketWatch.
So what gives one company a wide moat while others try to scrape by on the leftovers?
Here's what gives them the upper hand…
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U.S. Stocks: Applied Materials (Nasdaq: AMAT) To Cash in On Mobile Growth
Rising demand for chips in 2013 should give a much-needed boost to this U.S. stock.
I'm talking about the flagging stock of semiconductor equipment manufacturer Applied Materials (Nasdaq: AMAT).
Investors have been down on AMAT lately.
Applied Materials lowered its guidance for the year just last week, acknowledging concerns over a decline in technology spending. Such worries had already dinged the stock, which had fallen from a 2012 high of $13.21 on Feb. 16 to about $11 July 09.
Since the company announced its profits for the year would come in at 15 to 20 cents per share lower than previous projections, AMAT has slumped further to around $10.39.
But given the company's financial strength, solid position in its market and signs of a turnaround in chip demand for 2013, this pullback could represent a buying opportunity.
"[Applied Materials] is the biggest player in the industry, and it's got a deep and well-established economic moat," writes Jonas Elmerraji of The Street. "That means that once the semiconductor waiting game is over, AMAT should be able to deliver impressive numbers once again."
Santa Clara, CA-based Applied Materials makes most of its money from selling semiconductor chip-making equipment to foundries like Intel Corp. (Nasdaq: INTC) and Taiwan Semiconductor Manufacturing Co. (NYSE ADR: TSM).
Those companies sell chips to the companies that make the computer, tablets, smartphones and other electronic gear, such as Apple Inc. (Nasdaq: AAPL), Hewlett-Packard Co. (NYSE: HPQ) and Samsung Electronics Co. (PINK: SSNLF).
Applied Materials also sells equipment for the manufacturing of solar panels and LCDs, though both of those divisions are significantly smaller than the semiconductor division. Still, the troubles of the solar industry over the past year also have stung AMAT.
But as often happens, it's when things look most glum that investors need to pay closer attention.
The Top Five Eagle Ford Shale Oil Stocks
The shale oil boom is turning out to be even bigger than anyone predicted.
Recently Money Morning told you about the Bakken oil shale boom. The Eagle Ford shale oil formation in south Texas is nearly as large, and production there is ramping up rapidly.
Eagle Ford is among the largest U.S. shale oil deposits, with recoverable reserves estimated as high as 7 billion to 10 billion barrels.
But Eagle Ford is also "liquids-rich." That means it has a high concentration of oil versus gas — a major attraction at a time when oil prices are high and natural gas prices are at historic lows.
Many oil companies are eager to get in on the action at Eagle Ford, and expectations are running high.
Another oil company CEO, Bill Klesse of Valero Energy Corp. (NYSE: VLO), thinks Eagle Ford could have an impact even beyond bigger profits.
"It's going to back out sweet crude imports into the United States, and that's going to happen by 2014," Klesse predicted, speaking at Valero's annual meeting earlier this month.
Indeed, the statistics coming out surrounding the Eagle Ford shale oil operations are impressive.
Data from the Texas Railroad Commission, which regulates energy in the state, tells an amazing story. Shale oil production increased nearly seven-fold from 2010 to 2011, from an average of just less than 12,000 barrels a day to about 83,400 barrels a day.
And that could explode to 500,000 barrels a day by the end of 2012, Klesse said, with output expected to double to 1 million barrels a day "in the next few years."
Impact of Eagle Ford Shale Oil Underestimated
Eagle Ford has progressed so quickly that a forecast of its economic benefits became outdated almost as soon as it was issued last year.
A study by the Center for Community and Business Research at the University of Texas San Antonio's Institute for Economic Development in early 2011 projected the Eagle Ford formation would directly and indirectly contribute $21.5 billion and 68,000 full-time jobs to the 20-county South Texas region by 2020.
Last week UTSA released a follow-up study.
It found the Eagle Ford contributed $25 billion to the local economy in 2011 — $3.5 billion more than the 2020 projection.
The new UTSA study says Eagle Ford will pump about $62.3 billion into the local economy by 2021. The job creation number increased to nearly 117,000.
"We view the Eagle Ford activity as an economic opportunity of a lifetime," said Mario Hernandez, president of the San Antonio Economic Development Foundation. "The key goal is the increase in investment and jobs. And if the communities will partner with the private companies that are creating these jobs, it can be a win-win for everybody."
Growth that outruns forecasts is good news for investors. Money Morning has sorted through the many choices to zero in on five Eagle Ford shale oil stocks that could do particularly well:
QinetiQ Group (QNTQY): If You Like James Bond, You'll Love This Company
In the Digital Age one thing is valued above all others: security. And nothing is more crucial to security than information.
Whether acquired by HUMINT (human intelligence) or SIGINT (signals intelligence) information is a powerful weapon for governments and businesses alike.
The firms that provide this critical information gathering infrastructure will form the foundation for the next generation of security companies.
One of the major players in this growing sector is a Farnborough, England-based company.
Today it's called QinetiQ Group(QNTQY.PK)–pronounced "kinetic". But its beginnings are just as fascinating as its business.
QinetiQ: From 007's Aston to Railguns
Born as the Defense Evaluation and Research Agency (DERA) in the mid-1990s, the agency worked on "unique" problems and solutions.
In essence, DERA's business was staying one step ahead of the bad guys. But DERA's mission actually goes even further back in time.
Ian Fleming, a former intelligence officer and creator of the iconic James Bond character, actually patterned Bond's mad scientist/inventor "Q" and his labs on the formative QinetiQ back in the '60s.
Fifty years later, QinetiQ is now into everything from rail guns (guns that use electricity to launch rockets or shells), to Scramjets (new jet technology that's three times faster than today's jets), to non-lethal weapons and equipment that today's James Bonds are packing.
But today's QinetiQ has had a bumpy ride since its public offering in 2001.
Investing in Defense Stocks: Why Lockheed Martin (LMT) Is Too Big to Fail
Last year when Congress formed its much-lauded "Supercommittee" to sort out America's debt crisis, there was a lot of handwringing about draconian budget cuts.
But true to form, on the eve of an election year, our politicians did nothing and the sequestration clock began to tick.
In essence, they made the bold move to kick the can down the road.
The problem is if the clock is allowed to keep ticking, those same draconian cuts will happen anyway.
No industry is more aware of this than the defense sector.
For them it is literally like turning a battleship – the major players need a lot of lead time to readjust their bearings.
So it's no surprise that the defense sector, which has a budget bigger than the combined defense budgets of at least the next 30 countries in the world, is worried more than most about significant cuts.
And when corporate execs worry, so does Wall Street.
But somehow, I think the military industrial complex will survive. For investors, it will be all about picking the right players.
Investing in Defense Stocks: Lockheed Martin's Big Advantage
One of them is Lockheed Martin (NYSE: LMT).
As the great military strategist Sun Tzu once said, "Opportunities multiply as they are seized."
Today, there is no company better at seizing opportunities than Lockheed Martin.
Growth in Google's Android Pays Off for InvenSense Inc. (NYSE: INVN)
The exploding number of Google Android devices has become a cash machine for microchip maker InvenSense Inc. (NYSE: INVN).
InvenSense makes the tiny motion sensors used in 70% of Android phones and 90% of motion-sensing Android tablets.
Mobile device makers have enthusiastically adopted Android, an operating system developed by Google Inc. (Nasdaq: GOOG), because Google licenses it for free.
Growth in Android devices is exploding.
At the Mobile World Congress in Barcelona last month, Google Senior Vice President for Mobile Andy Rubin announced that 850,000 Android devices are activated every single day, for year-over-year growth of 250%.
That kind of growth offers tremendous potential for a company like InvenSense, which only went public last November.
With 512 million mobile devices expected to be sold by 2014, the market for InvenSense promises to be huge.
InvenSense: The Best Performing IPO of 2011
These motion-sensor chips, called Micro Electro Mechanical Systems (MEMS), are what enable mobile devices to react to tilting or shaking.
Although MEMS technology has existed for decades, it was when InvenSense's motion sensing chips were used in the Nintendo Co. Ltd. (PINK ADR: NTDOY) Wii controller in 2006 that the technology started to go mainstream.
Agricultural Stocks: Deere & Co. (NYSE: DE) and AGCO (NYSE: AGCO) Are Poised to Reap Gains
Many analysts are forecasting lower food prices this year, and that's taken a toll on many agricultural stocks.
But there are two reasons why investors shouldn't be so quick to abandon the sector.
- Much of the pessimism surrounding crop prices is overdone.
- Many ag stocks are still excellent long-term plays – despite any short-term trepidation.
It's true that farmers currently are planting more staple crops in an effort to exploit high prices. But as we've seen in just the past few months, floods, droughts, and rapidly rising demand could easily intercede to keep prices near record levels.
The most important crop to watch right now is corn.
Preliminary USDA data suggest that farmers this year will plant the biggest corn crop since World War II. However, that's exactly what will be needed, since corn is facing the greatest supply constraints of any staple crop.
Indeed, even a bumper crop will first have to compensate for the shortages of the current crop year, which are significant. By this year's autumn harvest, global stocks of corn as a share of consumption will have fallen to the lowest level since 1974.
"There has been no rebound in global corn stocks," Ed Allen of the USDA's economic research service told the Financial Times. "This has maintained very tight markets for corn."
And while global corn production is expected to rise, there's still a chance bad weather will damage the harvest just as it has in the past two years.
Last year, wet weather early in the season delayed planting while hot weather in the summer scorched young stalks. That contributed to two consecutive years of shrinking supplies.
Analysts say a third straight year would be rare, but according to economists at the University of Illinois, there is a 40% chance corn yields will fall short in any given year.
"The odds slightly favour a corn yield above trend in 2012, but there is certainly precedent for another year below trend," the economists wrote last month. "More specific expectations about the 2012 average yield will depend on how the planting and growing season unfolds."
Good News for Agricultural Stocks
Corn isn't the only crop facing supply constraints, either.
January droughts in Argentina and Brazil reduced global soybean production by 7.2% this year. And with farmers focusing on corn there's less land available for soybeans. The USDA anticipates soybean production will fall by 12.7 million metric tons this year.
On Oct. 1, the start of the next season, soybean inventories will be 20% lower than they were last year, according to Jefferies Bache LLC. As a result, soybean prices, which are up nearly 9% year-to-date, will gain another 6.7% by June, the New York-based commodities trader estimates.