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The following is a list of heavily shorted stocks that have seen institutional inflows over the last 3 months. Are short-sellers too pessimistic about these names, or are big money managers perhaps betting on a short-covering rally?

We last wrote about this screen on September 12, 2010. On that day, the screen produced 10 companies. Since then, 6 out of 10 companies mentioned in that article have outperformed the S&P 500 index (a success rate of 60.00%). The screen averaged a return of 32.67% vs. an index return of 11.79%. Click here to access a full breakdown of the screen's past performance.

All of the stocks in this list have short floats in excess of 20%, with net positive institutional inflows over the last 3 months. Short float data sourced from Finviz, institutional trading data sourced from Reuters.com.

Interactive Chart: Press Play to visualize changes in market cap and annual return for the top 5 stocks mentioned below.

The list has been sorted by the change in institutional ownership over the last three months.

1. Entropic Communications, Inc. (ENTR): Semiconductor Industry. Market cap of $937.89M. Institutional investors currently own 87,917,539 shares vs. 58,568,052 shares held three months ago (+50.11% change). Short float at 20.73%, which implies a short ratio of 5.45 days. The stock has gained 250.94% over the last year.

2. KIT digital, Inc. (OTC:KITD): Entertainment Industry. Market cap of $362.69M. Institutional investors currently own 17,419,202 shares vs. 13,733,238 shares held three months ago (+26.84% change). Short float at 24.15%, which implies a short ratio of 17.75 days. The stock has gained 44.15% over the last year.

3. STEC, Inc. (STEC): Data Storage Devices Industry. Market cap of $880.57M. Institutional investors currently own 29,188,935 shares vs. 23,677,587 shares held three months ago (+23.28% change). Short float at 22.24%, which implies a short ratio of 4.01 days. The stock has gained 51.22% over the last year.

4. Momenta Pharmaceuticals Inc. (MNTA): Biotechnology Industry. Market cap of $652.35M. Institutional investors currently own 40,180,467 shares vs. 32,703,278 shares held three months ago (+22.86% change). Short float at 24.49%, which implies a short ratio of 12.59 days. The stock has gained 30.22% over the last year.

5. Kronos Worldwide Inc. (KRO): Specialty Chemicals Industry. Market cap of $2.16B. Institutional investors currently own 999,438 shares vs. 857,279 shares held three months ago (+16.58% change). Short float at 22.62%, which implies a short ratio of 2.87 days. The stock has gained 227.87% over the last year.

6. iStar Financial Inc. (SFI): REIT. Market cap of $660.09M. Institutional investors currently own 65,477,519 shares vs. 56,473,566 shares held three months ago (+15.94% change). Short float at 27.86%, which implies a short ratio of 9.28 days. The stock has gained 178.21% over the last year.

7. Sequenom Inc. (SQNM): Biotechnology Industry. Market cap of $501.49M. Institutional investors currently own 47,794,489 shares vs. 41,263,915 shares held three months ago (+15.83% change). Short float at 25.29%, which implies a short ratio of 11.35 days. The stock has gained 56.8% over the last year.

8. DuPont Fabros Technology, Inc. (DFT): Property Management Industry. Market cap of $1.31B. Institutional investors currently own 66,395,490 shares vs. 57,823,616 shares held three months ago (+14.82% change). Short float at 22.75%, which implies a short ratio of 13.73 days. The stock has gained 30.68% over the last year.

9. Skechers USA Inc. (SKX): Apparel Footwear & Accessories Industry. Market cap of $1.06B. Institutional investors currently own 39,730,021 shares vs. 34,677,662 shares held three months ago (+14.57% change). Short float at 20.7%, which implies a short ratio of 3.38 days. The stock has lost -17.96% over the last year.

10. Cavium Networks, Inc. (CAVM): Semiconductor Industry. Market cap of $1.69B. Institutional investors currently own 53,894,582 shares vs. 47,092,539 shares held three months ago (+14.44% change). Short float at 22.36%, which implies a short ratio of 7.41 days. The stock has gained 75.48% over the last year.

11. Coinstar Inc. (CSTR): Business Equipment Industry. Market cap of $2.03B. Institutional investors currently own 42,690,445 shares vs. 37,749,586 shares held three months ago (+13.09% change). Short float at 26.03%, which implies a short ratio of 5.42 days. The stock has gained 159.39% over the last year.

12. Rackspace Hosting, Inc (RAX): Internet Software & Services Industry. Market cap of $3.98B. Institutional investors currently own 102,611,547 shares vs. 90,963,039 shares held three months ago (+12.81% change). Short float at 27.56%, which implies a short ratio of 10.96 days. The stock has gained 58.44% over the last year.

13. Orexigen Therapeutics, Inc. (OREX): Drug Manufacturer. Market cap of $429.17M. Institutional investors currently own 38,511,225 shares vs. 34,227,882 shares held three months ago (+12.51% change). Short float at 21.26%, which implies a short ratio of 4.19 days. The stock has gained 25.98% over the last year.

14. hhgregg, Inc. (HGG): Electronics Stores Industry. Market cap of $972.49M. Institutional investors currently own 42,054,075 shares vs. 37,621,480 shares held three months ago (+11.78% change). Short float at 30.21%, which implies a short ratio of 17.23 days. The stock has gained 14.89% over the last year.

15. NetSuite Inc. (N): Business Software & Services Industry. Market cap of $1.61B. Institutional investors currently own 20,184,081 shares vs. 18,070,183 shares held three months ago (+11.7% change). Short float at 20.07%, which implies a short ratio of 10.74 days. The stock has gained 63.78% over the last year.

16. MannKind Corp. (MNKD): Biotechnology Industry. Market cap of $959.48M. Institutional investors currently own 25,744,244 shares vs. 23,505,736 shares held three months ago (+9.52% change). Short float at 24.2%, which implies a short ratio of 9.71 days. The stock has lost -6.22% over the last year.

17. Diamond Foods, Inc. (DMND): Processed & Packaged Goods Industry. Market cap of $1.16B. Institutional investors currently own 23,755,941 shares vs. 21,768,013 shares held three months ago (+9.13% change). Short float at 29.42%, which implies a short ratio of 24.24 days. The stock has gained 66.76% over the last year.

18. Sonic Solutions (SNIC): Business Software & Services Industry. Market cap of $534.96M. Institutional investors currently own 38,981,059 shares vs. 36,009,703 shares held three months ago (+8.25% change). Short float at 29.27%, which implies a short ratio of 13.9 days. The stock has gained 12.53% over the last year.

Source: 18 Heavily Shorted Stocks Seeing Institutional Buying