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Often we see that short sellers and institutions can have different views on the direction a stock will take. What if they are pulling in the opposite direction? Just about anything could happen with these battleground stocks. In either case, the action is likely to be interesting.

To find those stocks locked in this dual between the big money and the short money, this screen was run two ways. First to look for stocks that have institutions making increases in their positions and the shorts with >20% open interest. Second, the opposite, institutions making significant decreases in their positions and the shorts with low open interest of <5%. Both screens run on finviz.com also filtered for a minimum price of $5.

Several of these stocks have been in the headlines recently. The big money players - in both directions - usually have good reasons for their positions and stand by with firm convictions. So, if you do decide to open positions (long or short) in any of these equities, be sure to set stops to protect your equity. These stocks could move up or down very quickly.

These stocks have very positive institutional buying (the big money thinks these are going up) and very high open short interests (the short sellers think they are going down).

TickerCompanyIndustry
(ARNA)Arena Pharmaceuticals, Inc.Biotechnology
(BTH)Blyth, Inc.Personal Products
(CALL)magicJack VocalTec Ltd.Telecom Services - Domestic
(NIHD)NII Holdings Inc.Wireless Communications
(P)Pandora Media, Inc.Broadcasting - Radio
(PHMD)PhotoMedex, IncMedical Appliances & Equipment
(TTS)Tile Shop Holdings, Inc.Diversified Investments
(USNA)USANA Health Sciences Inc.Drug Related Products
(Z)Zillow, Inc.Business Services

Let's look at one of these, Zillow, most closely to see if we can paint the picture on why the big money and short sellers are pulling in opposite directions.

Zillow describes its business this way on SEC filings:

Our mission is to build the most trusted and vibrant home-related marketplace to empower consumers with information and tools to make smart decisions about homes. Overview Zillow is the leading real estate information marketplace. In addition to our websites, including Zillow.com, we operate Zillow Mobile, our suite of mobile real estate applications, and Zillow Mortgage Marketplace, where borrowers connect with lenders to find loans and get competitive mortgage rates.

Short interest in Zillow is up a huge 1082% since a year ago and now stands at 42% of the available float as of 30th November. We will get an update in the next few days during mid-month reporting. (One quick note on short interest, depending on which web site you use, different numbers will be displayed. For example, at the time of this writing, finance.yahoo.com showed a 92% short interest, nasdaq.com showed a 32% short interest and I hand calculated a 42% number. You should pick one source you think is the most reliable and use that consistently.)

Why are the shorts gunning for Zillow? A big part of this could be the stratospheric p/e of 142. Or could it be the pile of class action lawsuits which have or are being filed ?

The 159 institutional holders control 92% of the outstanding shares of Zillow. At last report, they held 26 million shares with a net increase of 5.6 million shares, or a 15.5% increase. This net number came from a variety of changes (based on information available 30th September)

  • 46 new institutions opened positions
  • 90 increased positions
  • 60 decreased positions
  • 25 totally exited
  • 30 holders made no changes

Two questions - where are all the new shares coming from and why might the institutions be increasing their position? Some quick web searches on news indicated Zillow sold $156 million in new stock in September, pumping many more shares into the market. This can be a bad sign because it means the company is working against increasing shareholder value, not working to improve it - a case for the short sellers.

As to why the institutions are increasing their stake? They may not actually be at this point. One of the challenges with the amount of public information is that there is a delay. The most recent data is from the quarter ended 30th September. Since then, Zillow has become embroiled in several class action lawsuits based on alleged misrepresentation of the business performance. One of the suits is based on the following:

The complaint alleges that during the Class Period, defendants issued materially false and misleading statements regarding the Company's business practices and financial results. Specifically, defendants concealed the difficulties Zillow was having signing up new real estate agents as subscribers and the churn it was experiencing in existing subscribers. As a result of defendants' false statements, Zillow's stock traded at artificially inflated prices during the Class Period, reaching a high of $46.17 per share on September 20, 2012. While Zillow's stock price was artificially inflated, Company insiders sold 3.1 million shares of their own Zillow stock for proceeds of nearly $115 million, including $103 million worth of stock sold by the officers named as defendants. The Company also was able to raise $156 million in proceeds through a follow-on offering in September 2012, just eight weeks before the end of the Class Period when defendants were forced to reduce revenue guidance and just 30 days after assuring investors that the filing of a Form S-3 Registration Statement was just part of "good housekeeping," and was not intended for a follow-on offering.

So, the investing lesson here - always do your homework. Make sure you know the dates of information and check to see if there have been any material changes since those dates.

Now, let's look at the opposite screen - declining institutional buying (the big money thinks these stocks are going down or have reached their peak) and very low open short interests (the shorts think these are going up or have no interest in playing here).

TickerCompanyIndustry
(ABB)ABB Ltd.Industrial Electrical Equipment
(BOX-OLD)SeaCube Container Leasing Ltd.Rental & Leasing Services
(CNH)CNH Global NVFarm & Construction Machinery
(G)Genpact Ltd.Management Services
(HSH)Hillshire Brands CompanyProcessed & Packaged Goods
(IHG)InterContinental Hotels Group plcLodging
(IR)Ingersoll-Rand PlcDiversified Machinery
(LAZ)Lazard Ltd.Asset Management
(LFL)LAN Airlines S.A.Regional Airlines
(MCEP)Mid-Con Energy Partners, LPIndependent Oil & Gas
(MIL)MFC Industrial LtdIndustrial Metals & Minerals
(MLI)Mueller Industries Inc.Metal Fabrication
(MMSI)Merit Medical Systems, Inc.Medical Instruments & Supplies
(PRE)PartnerRe Ltd.Property & Casualty Insurance
(UGP)Ultrapar Holdings Inc.Oil & Gas Refining & Marketing
(VIP)VimpelCom Ltd.Wireless Communications

As another example, let's look closer at Hillshire. The company describes its business as:

The Hillshire Brands Company engages in the manufacture and marketing of meat-centric food solutions for the retail and foodservice markets worldwide. The company's packaged meat and frozen bakery products include hot dogs and corn dogs, breakfast sausages, breakfast sandwiches and bowls, dinner sausages, premium deli and luncheon meats, cooked hams and frozen pies, cakes, cheesecakes, and other desserts. It also offers meat and bakery products comprising beef and turkey, pastries, and muffins; and frozen desserts, fruits, ice-creams, and savory products. The company offers its products primarily under the Jimmy Dean, Ball Park, Hillshire Farm, State Fair, Sara Lee, and Chef Pierre brand names, as well as artisanal brands, such as Aidells and Gallo Salame. It sells its products to supermarkets, warehouse clubs, national chains, foodservice wholesalers, business agents and representatives, contract caterers, healthcare and educational institutions, distributors, restaurants, hospitals, and other institutions through direct sales force and outside brokers. The company was formerly known as Sara Lee Corporation and changed its name to The Hillshire Brands Company in June 2012

Short interest in HSH stands are a modest 4.1% as of 30th November. However, this is a bit misleading since the current short interest is almost double where it was 90 days ago. So in this case, we need to watch the trends and look beyond just the headline stock screener. Nasdaq.com provides some good history on metrics like this.

The 403 institutional holders of HSH control 78% of the outstanding shares of the company. At last report, they held 95 million shares with a net increase of 18.3 million shares, or a 12% increase.

  • 54 new institutions opened positions
  • 134 increased positions
  • 250 decreased positions
  • 111 totally exited
  • 19 holders made no changes

Now, the answer to both why the shorts have a relative low interest in HSH alone and why are institutions buying may be in the steady-eddy nature of this stock. It trades in a very narrow range (52-week $24.31 - $30.76) with a 0.29 beta. The 1.8% dividend yield is OK and makes this a decent addition to a conservative portfolio. The shorts may also be looking for a gentle ride down from the top to middle or bottom of the trading range. The slow movements here are good for both sides of the trade.

Each of the other stocks in the two screens presented here will undoubtedly have a variety of drivers and stories. You can use this list as both a starting point and outline for your own research.

Disclaimer: I am not a registered investment advisor and do not provide specific investment advice. The information contained herein is only my opinion based on personal research and offered for informational purposes. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any equity, do your own research and reach your own conclusion. Investing includes risks, including loss of principal.

Source: 25 Battleground Stocks - Institutions Vs. Short Sellers