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Many people like to follow what institutional and hedge funds are buying, selling and shorting. So I began looking over some companies that have had changes in short interest. These companies are Nokia (NYSE:NOK), Verizon (NYSE:VZ), Sprint (NYSE:S), AT&T (NYSE:T) and T-Mobile (NYSE:TMUS).

Short interest is an indicator of what short sellers think about a particular stock. Selling a stock short is a practice of selling securities that are not currently owned, with the intention of buying them back (covering) at a lower price.

If short interest increases, then shorts are betting that the price of the security will be going down. However, if short interest decreases, then shorts are betting that the price of the security is near the bottom and will likely be going back up.

Many investors use short interest to make predictions about the direction of a particular stock and to measure the bullishness or bearishness of it. Below is a table of the short interest increases and decreases of the following companies.

Date

Nokia

Verizon

Sprint

AT&T

T-Mobile

5/30/13

222,339,115

48,830,204

39,338,179

74,392,240

7,461,757

5/15/13

205,882,057

50,822,239

40,073,726

81,545,918

12,944,897

4/30/13

206,338,765

52,197,965

38,141,273

71,734,837

------------

4/15/13

260,549,003

51,423,346

69,331,739

78,290,079

29,816,713

3/28/13

298,693,341

57,637,352

64,953,515

81,689,643

32,282,751

3/15/13

326,648,817

60,962,809

69,299,597

93,834,102

31,690,370

2/28/13

337,984,576

61,213,346

72,874,141

90,539,512

25,466,923

As you can see from the table above, short interest has been increasing and decreasing in these stocks. Why is this so? There could be many different reasons as to why, so a good question to ask yourself in this situation is what do the shorts know that you don't. Let's take a look at the companies to see what has transpired for the increase and decrease in short interest.

Nokia

Nokia operates as a mobile communications company worldwide. Nokia was founded in 1865 and its headquarters is in Espoo, Finland.

Nokia has a market cap of 13.44 billion with its recent closing price of $3.62 on Friday. As of May 30, 2013, Nokia had short interest of 222.34 million, representing an increase of over 17 million shares or 8% since May 15, 2013. The short float now stands around 5.94% with the days to cover ratio at 7.97 days. Analysts have an average price target of $3.30 on Nokia, which would reflect a decrease of 6.4% from its recent closing price of $3.62.

(click to enlarge)

As we can see from the short interest chart, since the beginning of the year, short interest in Nokia has severely dropped. One of the big reasons for the drop in short interest has been the better-than-expected earnings results that Nokia has produced over the last couple of quarters.

With more than 200 million shares short, any positive news could send shares of Nokia flying as well as the potential to trigger a short squeeze. Just like all investments though, there is always risk. If negative news comes out shorts would take that opportunity to pile back in, which would send shares of Nokia lower. However, I like Nokia at this price and see little downside as its cash per share stands now at $3.64.

Verizon

Verizon provides communications, information and entertainment products and services to consumers, businesses, and governmental agencies worldwide. Verizon Communications Inc. was founded in 1983 and is based in New York, New York.

Verizon has a market cap of 146.12 billion with its recent closing price of $51.07 on Friday. As of May 30, 2013, Verizon had short interest of 48.83 million, representing a decrease of 2 million shares or 4% since May 15, 2013. The short float now stands around 1.71% with the days to cover ratio at 4.19 days. Analysts have an average price target of $55.00 on Verizon, which would reflect an increase of 7.7% from its recent closing price of $51.07.

(click to enlarge)

As we can see from the short interest chart, short interest in Verizon has dropped for the past four months. Some of the reasons for the drop in short interest have been because of Verizon's strong earning results, driven by record margins as well as a continued strong cash flow and year-over-year revenue increases for wireless, FiOS and strategic enterprise services.

A benefit for investors of Verizon is that it rewards its investors with a healthy dividend of 4.11%. Earning interest is never a bad play in my playbook. Just like Warren Buffett has said, "Those who understand interest earn it, those who don't pay it!"

Sprint

Sprint through its subsidiaries, offers a range of wireless communications products and services to individual consumers, businesses and government subscribers. Sprint was founded in 1899 and its headquarters is in Overland Park, Kansas.

Sprint has a market cap of 22.09 billion with its recent closing price of $7.32 on Friday. As of May 30, 2013, Sprint had short interest of 39.34 million, representing a decrease of 700K shares or 2% since May 15, 2013. The short float now stands around 1.31% with the days to cover ratio at one day. Analysts have an average price target of $7.50 on Sprint, which would reflect an increase of 2.5% from its recent closing price of $7.32.

(click to enlarge)

As we can see from the short interest chart, short interest in Sprint has dropped for the past four months. One of the main reasons for the drop in short interest has been the strong earning reports that Sprint has delivered beating estimates by an average of 27% over the last three quarters.

Even though Sprint does not pay a dividend like some of its telecom rivals do, its stock performance hasn't disappointed investors as it has more than doubled over the last year.

AT&T

AT&T provides telecommunications services to consumers, businesses, and other providers in the United States and internationally. AT&T, was founded in 1983 and is based in Dallas, Texas.

AT&T has a market cap of 193.20 billion with its recent closing price of $35.91 on Friday. As of May 30, 2013, AT&T had short interest of 74.39 million, representing a decrease of 7 million shares or 9% since May 15, 2013. The short float now stands around 1.38% with the days to cover ratio at 3.27 days. Analysts have an average price target of $38.00 on AT&T, which would reflect an increase of 5.87% from its recent closing price of $35.91.

(click to enlarge)

As we can see from the short interest chart, even though short interest has dropped from the recent highs back in February and March, short interest is still slightly trending higher. Even though AT&T had respectable earning results, shorts were not as impressed as the chart shows us.

On the bright side for investors, just like Verizon, AT&T rewards its investors with a nice dividend of 5.03%. That's a percent more than Verizon and 5 percent more than some of its other competitors who offer no dividends.

T-Mobile

T-Mobile offers mobile communications services in the United States, Puerto Rico, and the U.S. Virgin Islands. The company its headquarters is in Bellevue, Washington. T-Mobile USA, is a subsidiary of Deutsche Telekom AG.

T-Mobile has a market cap of 3.24 billion with its recent closing price of $22.16 on Friday. As of May 30, 2013, T-Mobile had short interest of 7.46 million, representing a decrease of over 5 million shares or 42% since May 15, 2013. The short float now stands around 4.40% with the days to cover ratio at 1.44. Analysts have an average price target of $21.00 on T-Mobile, which would reflect a decrease of about 5.2% from its recent closing price of $22.16.

(click to enlarge)

As we can see from the short interest chart, short interest in T-Mobile has significantly dropped in May. Not only that, but short interest in general has somewhat been in a downtrend since the start of the year. One of the big reasons for the drop in short interest was due to the recent merger between MetroPCS and T-Mobile.

The merger between the two companies increases T-Mobile's subscribers to over 43 million with the 9 million customers coming from MetroPCS. T-Mobile talked about the merger saying, "By uniting T-Mobile and MetroPCS, we have created a dynamic new player in the wireless industry that has the right strategy and management team in place to compete successfully in today's marketplace."

Now that the merger has been finalized, analysts have a more favorable outlook towards T-Mobile as some have even upgraded the stock. T-Mobile is in a better position now than it was just a couple of months ago and because of this shorts have left the party. T-Mobile will now look to break through the top three barrier that AT&T, Sprint, and Verizon all currently share.

Conclusion

Many investors use short interest to make predictions about the direction of a particular stock and to measure the bullishness or bearishness of it. Investors should also know that short interest is also used by some investors as a hedge against current positions. Investors who can identify the trends from the short interest figures stand to greatly benefit from it.

Investors are always reminded that before making any investment, you should do your own proper diligence on any stock mentioned in this article. Have a great day and as always, I look forward to hearing your thoughts or questions that you might have.


Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Disclaimer: The information that I used in this article came from Nasdaq.com, Yahoo!Finance, CNNMoney, Scottrade and WSJ.com.

Source: Short Interest Decreased 40% In This Stock: So What Happened To These Other Telecom Stocks?