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Because of the recent economic turmoil, most investors are bearish on the market, thus betting against the market by increasing their short positions. But there are still some stocks that experienced decreasing short interest, indicating that the majority of the investors is increasingly optimistic about these stocks.

Below we compiled a list of 12 healthcare stocks with declining short interest. Market data are sourced from Fidelity. All companies in this list have at least 1% open interest and open short interest that has declined over the past month. These stocks are in healthcare sector and have at least $5 billion market caps.

Company Name

Symbol

Open Interest

Change in Short Interest

Return since June

BARD (C.R.) INC

(NYSE:BCR)

2.44%

-23.39%

-17.68%

HUMANA INC.

(NYSE:HUM)

1.65%

-23.32%

-3.38%

CEPHALON INC

(NASDAQ:CEPH)

12.73%

-12.88%

1.29%

WATSON PHARMA

(WPI)

2.08%

-12.13%

-3.55%

VALEANT

(NYSE:VRX)

3.77%

-9.51%

-21.96%

ILLUMINA INC

(NASDAQ:ILMN)

15.66%

-7.95%

-31.35%

HOSPIRA INC

(NYSE:HSP)

4.53%

-4.86%

-30.02%

BAXTER INTL

(NYSE:BAX)

1.17%

-2.93%

-7.16%

ZIMMER HOLDINGS

(NYSE:ZMH)

1.87%

-2.30%

-11.61%

ELI LILLY AND CO

(NYSE:LLY)

2.28%

-1.46%

0.46%

CIGNA CORP.

(NYSE:CI)

1.42%

-0.76%

-10.89%

LIFE TECHNOLOGIES

(Pending:LIFE)

2.54%

-0.31%

-23.49%

These 12 stocks have an average return of -13.28% vs. -9.55% for the SPY since the end of June. Five of the stocks -- Humana, Ceophalon, Watson Pharmaceuticals, Baxter and Eli Lilly, outperformed the market during that period. Here are the top 10 healthcare stocks with declining short interest:

Bard (C.R.) Inc (BCR): Bard is engaged in the design, manufacture, packaging, distribution and sale of medical, surgical, diagnostic and patient care devices. BCR has an open interest of 2.44%, and its short interest declined 23.39% last month. It has a market cap of 7.8B, a P/E ratio of 14.2, and lost 17.68% since the end of June. Jeffrey Ubben holds the largest position in BCR.

Humana Inc (HUM): Humana is a health and supplemental benefits company. HUM has an open interest of 1.65%, and its short interest declined 23.32% last month. It has a market cap of 13.0B, a P/E ratio of 10.0, and lost 3.38% since the end of June. Andreas Halvorsen holds the largest position in HUM.

Cephalon Inc (CEPH): Cephalon is a global biopharmaceutical company dedicated to discovering, developing and bringing to market medications to improve the quality of life of individuals around the world. CEPH has an open interest of 12.73%, and its short interest declined 12.88% last month. It has a market cap of 6.3B, a P/E ratio of 9.9, and returned 1.29% since the end of June. Jacob Gottlieb’s Visium Asset Management holds the largest position in CEPH (see Visium Asset’s top positions).

Watson Pharmaceuticals Inc (WPI): Watson is an integrated global pharmaceutical company engaged in the development, manufacturing, marketing, sale and distribution of generic and brand pharmaceutical products. WPI has an open interest of 2.08%, and its short interest declined 12.13% last month. It has a market cap of 8.9B, a P/E ratio of 15.2, and lost 3.55% since the end of June. Andreas Halvorsen holds the largest position in WPI.

Valeant Pharmaceuticals International Inc (VRX): Valeant Pharmaceuticals International, Inc. is a multinational, specialty pharmaceutical company that develops, manufactures and markets a range of pharmaceutical products. VRX has an open interest of 3.77%, and its short interest declined 9.51% last month. It has a market cap of 12.1B, a P/E ratio of 14.5, and lost 21.96% since the end of June. Jeffrey Ubben holds the largest position in VRX (check out Ubben’s top stock picks).

Illumina Inc (ILMN): Illumina is a developer and manufacturer of life science tools and integrated systems for the analysis of genetic variation and function. ILMN has an open interest of 15.66%, and its short interest declined 7.95% last month. It has a market cap of 6.4B, a P/E ratio of 35.1, and lost 31.35% since the end of June. Jim Simons holds the largest position in ILMN (see billionaire Simons’ top stock picks).

Hospira Inc (HSP): Hospira is a specialty pharmaceutical and medication delivery company. HSP has an open interest of 4.53%, and its short interest declined 4.86% last month. It has a market cap of 6.5B, a P/E ratio of 10.1, and lost 30.32% since the end of June. John W. Rogers holds the largest position in HSP.

Baxter International Inc (BAX): Baxter is an American health care company primarily focusing on products to treat hemophilia, kidney disease, immune disorders and other chronic and acute medical conditions. BAX has an open interest of 1.17%, and its short interest declined 2.93% last month. It has a market cap of 31.3B, a P/E ratio of 12.5, and lost 7.16% since the end of June. John Paulson holds the largest position in BAX (check out Paulson’s top stock picks).

Zimmer Holdings Inc (ZMH): Zimmer designs, develops, manufactures and markets orthopaedic reconstructive, spinal and trauma devices, dental implants and related surgical products. ZMH has an open interest of 1.87%, and its short interest declined 2.30% last month. It has a market cap of 10.6B, a P/E ratio of 11.7, and lost 11.61% since the end of June. Sandy Nairn holds the largest position in ZMH.

Eli Lilly & Co (LLY): Eli Lilly and Company discovers, develops, manufactures and sells products in one business segment, pharmaceutical products. LLY has an open interest of 2.28%, and its short interest declined 1.46% last month. It has a market cap of 43.0B, a P/E ratio of 8.6, and returned 0.46% since the end of June. Jim Simons holds the largest position in LLY.

Disclosure: I am long SPY.

Source: 12 Healthcare Stocks With Declining Short Interest