Goldman Sachs Study Names Outerwall The Most Shorted Stock

Aug.24.13 | About: Outerwall Inc. (OUTR)

According to an article in the Wall Street Journal's MoneyBeat, hedge funds are having an extremely hard time this year. The article cites a report by Goldman Sachs (NYSE:GS) that shows that 50 companies "heavily" shorted by hedge funds have not only outpaced the S&P 500 this year, but they have produced average gains of 30%. Here is that list which begins with the most shorted stocks as a percent of market cap:

Company Ticker Market Cap (in Millions) # of Hedge Funds Owning Stock Total Return YTD Short Interest as % of Market Cap
Outerwall Inc. OUTR 1,773 33 22% 38%
Cliffs Natural Resources Inc. CLF 3,637 29 -37% 36%
BlackBerry Limited BBRY 5,742 38 -8% 35%
NII Holdings, Inc. Class B NIHD 1,097 25 -11% 34%
WhiteWave Foods Co. Class A WWAV 2,015 26 23% 33%
United States Steel Corporation X 2,733 28 -20% 32%
Sarepta Therapeutics, Inc. SRPT 1,074 24 24% 31%
Herbalife Ltd. HLF 6,723 42 102% 31%
CARBO Ceramics Inc. CRR 1,990 16 11% 31%
Sodastream International Ltd SODA 1,317 15 42% 31%
Liquidity Services, Inc. LQDT 1,034 12 -20% 30%
Francesca's Holdings Corporation FRAN 1,045 18 -8% 30%
VIVUS, Inc. VVUS 1,262 34 -7% 29%
Fusion-io, Inc. FIO 1,062 27 -53% 29%
Pitney Bowes Inc. PBI 3,520 28 72% 29%
Arena Pharmaceuticals, Inc. ARNA 1,547 10 -21% 28%
Radian Group Inc. RDN 2,248 39 113% 27%
Heartland Payment Systems, Inc. HPY 1,410 14 30% 27%
3D Systems Corporation DDD 4,701 26 30% 27%
World Acceptance Corporation WRLD 1,006 14 15% 27%
PHH Corporation PHH 1,257 34 -3% 26%
Deckers Outdoor Corporation DECK 1,942 34 40% 26%
Western Refining, Inc. WNR 2,495 36 12% 26%
Molycorp, Inc. MCP 1,186 20 -33% 26%
Polypore International, Inc. PPO 1,900 15 -9% 25%
Questcor Pharmaceuticals, Inc. QCOR 3,994 29 153% 25%
DreamWorks Animation SKG, Inc. Class ADWA 2,131 17 70% 25%
GameStop Corp. Class A GME 5,610 33 94% 25%
j2 Global, Inc. JCOM 2,354 13 69% 24%
Equinix, Inc. EQIX 8,198 72 -20% 24%
Frontier Communications Corporation ClasFTR 4,679 25 15% 24%
US Airways Group, Inc. LCC 3,019 64 16% 24%
Interoil Corporation IOC 3,617 25 33% 24%
Vistaprint NV VPRT 1,749 10 62% 23%
athenahealth, Inc. ATHN 4,015 15 49% 23%
U.S. Silica Holdings, Inc. SLCA 1,221 28 38% 22%
IMAX Corporation IMAX 1,797 18 19% 22%
American Equity Investment Life Holding CAEL 1,247 20 58% 22%
R.R. Donnelley & Sons Company RRD 3,243 26 112% 22%
Universal Display Corporation OLED 1,671 13 41% 22%
Air Methods Corporation AIRM 1,589 17 11% 22%
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The 708 hedge funds that were included in the study had $1.5 trillion invested, with $1 trillion long and $500 billion short:

A typical hedge fund has risen 4%, on average, this year through Aug. 9, according to an analysis conducted by Goldman Sachs. That performance compares to a 20% total return (including dividends) for the S&P 500 over the same time frame, meaning the market has outperformed an average hedge fund by five times this year.

This is the reason that a lot of the "Big Money" people and/or funds do not short. If a company is heavily shorted, any good news can bring on a short squeeze as the price goes up and short investors are forced to cover. This then makes the price go even higher due to so many short investors competing for limited shares with the long investors that are buying on the good news. And when a stock has a large fund ownership, experienced professional traders intentionally buy to force the stock higher yet.

Redbox Movie Machines

Consider Outerwall (NASDAQ:OUTR), which is the first stock on the list (above) that the hedge funds most heavily shorted. The company owns the "Redbox" movie rental machines that have become so popular due to the sheer convenience and cost. They are on almost every corner with over 43,000 self-service kiosks. Originally Coinstar, it also operates change machines. It has a Price to Earnings of 14.71 and a forward P/E of 10.82. The company's chart shows that the stock has been going straight up for the last year. Of course there are some dips, but the trend line is up over 22% for the year:

Chart forOuterwall Inc.

The earnings for 2013 are projected to be up over $1 a share, with a huge jump during the December quarter:

Earnings Est Current Qtr.
Sep 13
Next Qtr.
Dec 13
Current Year
Dec 13
Next Year
Dec 14
Avg. Estimate 1.44 1.60 5.90 5.84
No. of Analysts 10.00 10.00 7.00 10.00
Low Estimate 1.20 0.94 5.31 4.60
High Estimate 1.59 1.91 6.26 6.52
Year Ago EPS 1.26 0.93 4.83 5.90
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Revenue Est Current Qtr.
Sep 13
Next Qtr.
Dec 13
Current Year
Dec 13
Next Year
Dec 14
Avg. Estimate 609.26M 645.96M 2.38B 2.55B
No. of Analysts 10 10 10 10
Low Estimate 581.40M 583.80M 2.30B 2.34B
High Estimate 631.00M 715.10M 2.48B 2.72B
Year Ago Sales 537.56M 564.08M 2.20B 2.38B
Sales Growth (year/est) 13.30% 14.50% 8.30% 7.10%
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And Outerwall's revenue is also expected to be up. With the flat earnings projected for 2014, I could see a hold call after the 2013 numbers are added to the share price, but to short it? Sorry, I don't see it. And yet the short investors are still actively shorting the company. With nine days to cover, watch for a short squeeze right before the options close near the middle of next month.

Short Interest for Outerwall:

Settlement Date Short Interest Avg Daily Share Volume Days To Cover
7/31/2013 9,526,957 960,648 9.917219
7/15/2013 11,217,294 548,653 20.445152
6/28/2013 10,657,936 529,220 20.138952
6/14/2013 11,006,888 478,197 23.017476
5/31/2013 10,679,803 808,238 13.213686
5/15/2013 12,242,478 683,675 17.906868
4/30/2013 12,460,783 1,130,458 11.022774
4/15/2013 12,970,486 474,410 27.340246
3/28/2013 13,212,770 483,259 27.340970
3/15/2013 14,043,976 957,983 14.659943
2/28/2013 14,219,506 1,123,267 12.659061
2/15/2013 14,255,584 1,653,689 8.620475
1/31/2013 13,566,497 1,110,643 12.214993
1/15/2013 12,901,887 1,098,301 11.747132
12/31/2012 12,971,530 616,891 21.027264
12/14/2012 11,708,856 1,018,868 11.492024
11/30/2012 11,702,366 818,535 14.296720
11/15/2012 11,275,150 787,835 14.311563
10/31/2012 10,628,748 1,989,782 5.341665
10/15/2012 9,356,287 771,514 12.127177
9/28/2012 10,380,194 1,651,589 6.284974
9/14/2012 9,076,824 856,307 10.599965
8/31/2012 9,081,401 1,359,298 6.680949
8/15/2012 9,484,873 1,336,400 7.097331
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According to the last form 13-F which is filed with the Securities and Exchange Commission each quarter, Outerwall has a large institutional following. There are 297 Institutional Holders that own 31,501,311 shares. Interestingly the largest owner is Goldman Sachs, which sold 23% of its Outerwall shares during Q2:

Owner Name Date Shares Held Chg Shares Chg% Value 1,000s
GOLDMAN SACHS GROUP INC 06/30 2,053,723 (623,555) (23.29) 128,070
VANGUARD GROUP INC 06/30 1,963,672 (174,461) (8.16) 122,455
IRIDIAN ASSET MANAGEMENT LLC/CT 06/30 1,950,610 450,423 30.02 121,640
FINE CAPITAL PARTNERS, L.P. 06/30 1,394,025 178,148 14.65 86,931
BLACKROCK FUND ADVISORS 06/30 1,349,931 6,629 .49 84,182
FISHER ASSET MANAGEMENT, LLC 06/30 1,248,814 207,806 19.96 77,876
CIBELLI MARIO 06/30 1,080,000 56,300 5.50 67,349
PARK WEST ASSET MANAGEMENT LLC 06/30 984,958 (220,882) (18.32) 61,422
BARCLAYS GLOBAL INVESTORS UK HOLDINGS LTD 06/30 834,974 (163,085) (16.34) 52,069
WASATCH ADVISORS INC 06/30 704,598 32,024 4.76 43,939
STATE STREET CORP 06/30 650,397 (11,821) (1.79) 40,559
RENAISSANCE TECHNOLOGIES LLC 06/30 622,600 (133,100) (17.61) 38,825
WEITZ INVESTMENT MANAGEMENT, INC. 06/30 602,229 (83,700) (12.2) 37,555
AMERIPRISE FINANCIAL INC 06/30 598,967 12,037 2.05 37,352
THOMPSON SIEGEL & WALMSLEY LLC 06/30 594,469 (60,172) (9.19) 37,071
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The 50-day EMA crossed the 200-day EMA in March of this year to form a golden cross. And that pattern has held with no indication of dipping back down. This is very bullish:

Chart forOuterwall Inc.

Everyone has their reasons for investing the way that they do. Sometimes I think that short investors see a chart that is heading up and think that eventually it will come back down. And this one did drop down to the 200-day EMA recently, but it popped right back up again. Right now the price is sitting comfortably above the 50-day EMA. While many stocks could be heading for an inevitable correction this Fall due to macro events, Outerwall might hold. Why? Because it is an exceptionally cheap form of entertainment, and it will excel when consumers budgets are tight. Obviously, the shorts that are still holding their positions are not going to quit now. This should be good news for all of the Outerwall longs, because the current high target on the stock is $100. However, the shorts are looking at the low target of $30. It will be interesting to see how that works out for them.

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.