Three Short Ideas: PF Chang's, Palm, LDK Solar

Has anyone else noticed it's getting harder and harder to find "cheap" stocks lately? I for one, have.

I'm thinking once the market hits 10,000, the Sith will reign again. Give yourself to the Dark Side. Together, we will rule the Galaxy (via short positions in the imminent bear market).

It's pointless to resist.

The bears have begun to build up short positions in P.F. Chang's (PFCB), Palm (PALM), and LDK Solar (LDK).

Before we get into these, remember that if the Market decides to go higher, the short squeeze on these stocks could leave your portfolio in ruins. But with the correct timing, you will look like a genius shorting these at the right time, just before the market begins an inevitable correction. Proceed with caution.

P.F. Chang's China Bistro

38% Short Interest

If we've learned anything from South Park, it's that P.F. Chang's will leave you constipated for 2 days straight.

Chang's is ripe for a short position. Although the company beat revenue expectation by .10 during Q2, The Company continues to expect a negative sales environment for the remainder of 2009. As a result, the Company anticipates average weekly sales for fiscal 2009 to decline approximately 6% to 7% at the Bistro and approximately 3% to 4% at Pei Wei. Consolidated revenues for fiscal 2009 are expected to increase 1% to 2% compared to fiscal 2008.

As you know, Wall St. only cares about short term results. So look for PFCB to fall for the rest of the year.

Palm, Inc.

36% Short Interest

The rapid rise in Palm can be attributed to its Palm Pre - and a massive short squeeze.

But analyst Tim Long of BMO Capital Markets last week started the stock at "market perform," saying that Palm's future lies squarely in its ability to manage its core business -- developing and selling smartphones -- against proven names like RIMM and its BlackBerry.

"Our concerns are based on the competitiveness of the market and the company's history of lackluster execution. There has also been a lot of speculation that Palm is an acquisition target of a number of companies, which we think is unlikely," he said.

Once the acquisition talk starts to fizzle, so will PALM's share price.

LDK Solar Co., Ltd.

37% Short Interest

This may be the most risky play of all. With a 52 week range of $3.75 - $52.40, shares are well below peak value. However, look how the bears have been slowly building a position in the stock over the course of the year. If the market goes down like I think it will when we hit 10,000, you can expect LDK shares to be cut in half.

Settlement Date	Short Interest	Avg Daily Share Volume	Days To Cover
7/15/2009	19,696,955	3,839,939	5.129497
6/30/2009	18,044,181	5,219,744	3.456909
6/15/2009	15,863,243	7,605,550	2.085746
5/29/2009	13,719,877	4,743,613	2.892284
5/15/2009	13,174,842	3,413,614	3.859500
4/30/2009	12,743,758	2,066,448	6.166987
4/15/2009	14,574,509	3,817,689	3.817626
3/31/2009	12,699,177	4,510,052	2.815750
3/13/2009	11,831,376	2,248,926	5.260901
2/27/2009	11,456,477	3,401,303	3.368261
2/13/2009	10,609,242	1,765,787	6.008223
1/30/2009	9,528,951	1,502,191	6.343368
1/15/2009	10,850,336	2,699,144	4.019917

Disclosure: No positions in PFCB, PALM, or LDK.

Comments

[Daryan:]

Your data on LDK couldn't be more incorrect FWIW. The actual short percentage of public float is north of 60%, as CEO Peng holds 70% of float himself. Just FYI. I am short LDK via out of the money cheap puts as a pairs trade with JASO long calls, but what exactly is your thesis other than follow the herd?

Aug 05 12:07 PM

[tessant:]

there is no substance here. you basically looked up companies whose short interest has been rising and wrote a crappy article about it. do any macro/fundamental reasons even matter? like the rise of smartphone popularity or the huge solar credits china is going to start giving away? guess not...

Aug 05 12:59 PM

[ezetrader:]

LDK is the world's largest solar wafer maker with the lowest cost production in the world. Skeptics did not believe they could also build the world's largest polysilicon plant. Now that the plant is in startup, the shorts are praying that the market turfs before full production or else this will be one hell of a squeeze. Shorts are probably caught unable to find shares to cover and are doing their best to hedge their position and hold the price down.

On March 12,2009 LDK was at $4 with short interest about 11.5M, April 30 it was $8 when the short position was 12M. Today it is over $11 with a short position over 19M. Get the picture.

I am currently long LDK with some ultra dow puts.

Aug 05 01:00 PM

[ldker:]

I would be concerned of a short squeeze on LDK if anything. There are fundamental changes going on regarding this company like poly silicon bottoming, china credits, etc. which could crush a shorter ala AIG yesterday.

Aug 06 06:39 AM

[Moon Kil Woong:]

PF Chang's doesn't have the massive debt I like to see if I'm going to short. Even though their food is terrible and can't even honestly be called Chinese, I would look for better candidates. In the restaurant business they tend to be momentum plays expanding until they can't and then imploding on themselves. They have plenty of cash to keep expanding their bad food empire.

Aug 07 09:47 AM

[jeffgroove:]

I heard about the pf changs play about a month ago through a newsletter. The argument was a collapse since most of their operations are in california in expensive areas where business is off.

Aug 07 10:06 AM

[Ricard:]

Although PALM looks like a no-brainer short, the problem for anyone using puts is that there's not much profit to be found, unless you use short-term options.

To think that PALM, with its history of mis-steps and its connections to 3Com - another laughably poor executor - has even a chance against the likes of AAPL or RIM is a total joke.

The only question for me is *when* to short, and I can't answer that one.

Aug 07 04:38 PM

[Deepv:]

PF Changs owns Pei Wei which is an amazing experience and potential blockbuster concet a al Chipotle. Would not invest but shorting no mak'e the sense.

Aug 07 09:41 PM

[bzh1111:]

I thought that the highest the short interest was, the more contrarian you should be...LDK, would not short it...the easy trade Long integrated short wafer poly makers is probably one of the worst strategy you could have right now in the solar space...Analysts ' poly input by the end of the year is 35$...basically cash cost on solar grade...NOBODY will sell poly at that price by year end...

Aug 11 02:39 PM