Why These Stocks Could Be Ripe Targets for Shorts

by: Rougemont
Recent events or trading patterns can lead to new opportunities for shorts. The stocks below are trading at valuations that don't appear to provide sufficient returns for the risks these investors are taking. Some of these companies face significant challenges due to their industry, competition or may have company specific problems. Others have started to exhibit material weakness in the way the stocks are trading lately and some appear to be overbought after recently running up in price. These factors could be making these stocks vulnerable, and this is likely to attract shorts. Here are the companies that shorts may take interest in:
Vantage Drilling (NYSEMKT:VTG) shares are trading at $1.85. Vantage is an offshore drilling company. These shares have traded in a range between 99 cents to $2.26 in the last 52 weeks. The 50 day moving average is $1.96 and the 200 day moving average is $1.70. Earnings estimates indicate a profit of 10 cents per share for 2011.

Why shorts might take interest in VTG: Vantage has been losing money and according to Yahoo Finance, VTG has nearly 300 million shares outstanding which is a significant amount for a small company like this. Without a reverse stock split, it seems unlikely these shares will trade for over $5 per share in the near future. The main issue that concerns me is the very heavy debt loads this company carries as it tries to compete with well capitalized and much larger competitors. I like the company but I don't like the capital structure of VTG. According to Yahoo Finance, VTG carries a debt load of about $1.1 billion. The other factor that could attract shorts is that the stock has not traded well lately, even as oil remains well over $100 and other drillers have been moving higher. If VTG shares can't show strength soon, I expect they will break to the downside and at least test the 200 day moving average around $1.70.

Cybex International, Inc., (NASDAQ:CYBI) shares are trading at $1.20. Cybex manufactures and markets fitness equipment. These shares have traded in a range between 57 cents to $1.80 in the last 52 weeks. The 50 day moving average is about 79 cents and the 200 day moving average is about $1.18.

Why shorts might take interest in CYBI: This company and stock is facing multiple serious challenges. A massive judgment of $66 million was rendered when someone suffered permanent injury using Cybex equipment. You can read about this jury verdict in the December 8, 2010, press release from Cybex here. Also, this company is facing possible delisting for a couple of issues. One is for trading below exchange requirements for a sustained period, which you can read about here. The other reason Cybex has been warned with potential delisting is because it does not comply with the minimum stockholders' equity requirement of $10 million for continued listing on the NASDAQ Global Market. As of December 31, 2010, the company's stockholders' equity was approximately negative $15,010,000. (Way below the minimum required.) You can read about this most recent notice by NASDAQ which was issued on April 8, 2011, here. The stock has rallied recently and is now looking very overbought with a relative strength index of about 78. DA Davidson downgraded the stock from neutral to underperform and set a 65 cent price target which you can see here. With all the pending challenges, a negative book value, and a possible delisting, it seems like Cybex could be a ripe target for shorts at current levels for a correction back under $1 soon.

Majesco Entertainment (NASDAQ:COOL) shares are trading at $3.77. The RSI is about 67, which indicates overbought levels. COOL is a video game company based in New Jersey. The shares have traded in a range between 49 cents to $4.15 in the past 52 weeks. The 50 day moving average is $2.29 and the 200 day moving average is $1.12.

Why shorts may take interest in COOL: Since the shares are currently trading well over the 50 and 200 day moving averages, and close to the 52 week high, they could be ready to drop lower. Earnings estimates for COOL are about 20 cents per share in 2011. After more than tripling in the past few months, these shares appear ready for profit taking or other serious correction. COOL shares might be about to put in a double top which is viewed as very bearish by many investors. According to NPD Group which gathers sales data for this industry, retail software sales fell about 16% last month, and this could be a negative sign for video game sales. You can read this here.

Autodesk, Inc. (NASDAQ:ADSK) shares are trading at $42.70. ADSK is a leading provider of design software. The 50 day moving average is $42.04 and the 200 day moving average is $35.70. Earnings estimates for ADSK are about $1.65 per share in 2011. This puts the PE ratio at about 26.

Why shorts might take interest in ADSK: By looking at the chart for ADSK it looks like this stock has put in a double top around $44. A double top is considered very bearish by most technical traders since the stock failed twice to break out to the upside. Also, when you look at valuations of many other major tech companies, ADSK appears to be fully valued, if not overvalued in comparison.

The data is sourced from Yahoo Finance. The information and data are believed to be accurate, but no guarantees or representations are made. Rougemont is not a registered investment advisor and does not provide specific investment advice. The information contained herein is for informational purposes.

Disclosure: I have no positions in any stocks mentioned, but may initiate a short position in CYBI, ADSK, COOL over the next 72 hours.