By JACK HOUGH
As share prices broadly rise, some investors are betting big against the three stocks listed below.
Each has seen heavy "short-selling" in recent weeks. That's a trading tactic that involves selling shares without actually owning them in hopes of buying them later at a lower price and pocketing the difference. Whereas most stock investors try to buy low and sell high, short-sellers seek to sell high and then buy low.
The strategy is risky; stocks can only fall to zero but there's no limit to how much they can rise, so an unlucky short-seller can lose much more than the initial cost of his bet. For that reason, investors who short stocks are often experienced, confident and deep-pocketed (or else reckless).
That means that a rise in short-selling activity for a stock is generally a negative sign. Of course, on Wall Street, extreme levels of pessimism are sometimes taken as a positive sign. The worst is already priced in, the thinking goes. And heavily shorted stocks can have added appeal to contrarian investors, because of all that "short interest", or shares that must be bought back in the future.
But investors should have strong reason to believe that short-sellers are wrong on the following stocks before buying them. Without such a reason, view this as a list of stocks to avoid for now. Each stock has seen more than a 10% increase in short interest over the past month, to the point where short interest is now more than 10% of the stock's "float", or shares available for trading. Also, each stock has a short interest equal to more than 10 days' worth of average trading volume.
- Short interest as percentage of float: 17%
Best Buy (BBY)
Barnes & Noble
- Short interest as percentage of float: 72%
Barnes & Noble (BKS)
Peet's Coffee & Tea
- Short interest as percentage of float: 21%
Peet's Coffee & Tea (PEET)