Searching for Shorts

Every once in a while I will run a screen to find stocks that might be overvalued. This can serve to identify candidates for short sales. After a nice upward move in the market, coupled with increased bullishness among market pundits, searching for some shorts to hedge seems reasonable.

I screened for U.S. companies with market caps of at least $2 billion that sport price-to-sales and price-to-book ratios of at least 10. The screen yielded nine stocks, which are listed below in alphabetical order.

Akamai Tech (AKAM)
Amylin Pharma (AMLN)
CBOT Holdings (BOT)
Celgene (CELG)
Chicago Mercantile Exchange (CME)
Intercontinental Exchange (ICE)
Las Vegas Sands (LVS)
Ultra Petroleum (UPL)
Vertex Pharma (VRTX)

Comment on this article

Comments

[Christopher...:]

Chad - Interesting, but you need something more than just overvaluation. Look for a catalyst.

2006 Sep 19 10:09 PM

[kkin365:]

Of the 9 stocks, I am familiar with only 5. Still, it would be helpful why each stock was oversold. Or, perhaps I should rephrase my question: What are indicators to suggest a stock is oversold? omooc

2006 Sep 20 08:54 AM

[Henry L:]

henryl=" I like it. Brevity has great merit.

2006 Sep 20 09:21 AM

[Chad Brand:]

Christopher - This is not to say that you just go out and short the list because the names show up on it. It's just a way to get a list and then you can work off of it to try and find names that you think make for attractive shorts.

David - The high valuations suggest investor optimism for these stocks is very high. The key would be to explore what exactly these expectations are, and most importantly, how likely is it that such expectations are exceeded. After all, stocks go up because current expectations prove too conservative. When expecations are exceedingly high, the odds of disappointment are decently high.

2006 Sep 20 03:17 PM

[Kraig Jardine:]

I would start the research and keep these in a watch list. I like what Christopher Laudani said, you need a catalyst, but I wouldn't short them until they started to break down. I would wait until the chart starts to turn and enter a position with a trailing stop (if you can't watch them)....

2006 Sep 24 01:23 AM