2 Highly Shorted Stocks To Buy, 3 To Sell

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 |  Includes: ATPAQ, GRPN, NFLX, OCZ, TTWO
by: Chris Lau

The Dow Jones Industrial Average closed 400 points below the 12,185 level twice this month, on the 7th and on the 9th of December. At 11,866.39, the index is 2.62% below the current month's high. The Dow’s 12,200-level appears to be a level of resistance, reaching that level on 3 other occasions in October and November before selling-off.

With 2011 drawing to a close, investors will sell off losing positions to generate tax-losses. The largest changes in short positions are a starting point for traders looking for bigger moves this month.

The companies with the largest short interest to free float (by percent) are:

NAME

Nov 30 Short Interest /Free Float %

Nov 15 Short Interest /Free Float %

Increase %

OCZ Technology Group Inc (NASDAQ:OCZ)

44.23

40.83

3.4

ATP Oil & Gas Corporation (ATPG)

43.72

40.38

3.34

Netflix, Inc. (NASDAQ:NFLX)

20.18

17.38

2.8

Groupon, Inc. (NASDAQ:GRPN)

18.98

8.34

10.63

Take-Two Interactive Software (NASDAQ:TTWO)

14.81

11.4

3.41

Click to enlarge

1) OCZ Technology Group Inc (OCZ)

Buy.

OCZ still earns the title as having the largest short interest to free float ratio. The bet against the company’s shares increased 3.4% ending November 30 2011, closing recently at $7.51, 81% above its 52-week low. With a market cap of $388.64M, OCZ sold off steadily throughout the month of November, even though the company issued a higher revenue guidance that month. The company now expects revenue to be towards the top end of the revenue range of $320 to $350 million from a guidance provided on October 5, 2011.

OCZ is rolling out a lower-cost, lower performance version of its solid-state drives. With consumers sensitive to pricing, the “Petrol” product release will boost OCZ’s revenues. Pricing is rumored to be $89.99 for 64GB, $149.99 for 128GB, $339.99 for 256GB, and $649.99 for 512GB.

2) ATP Oil & Gas Corporation (ATPG)

Sell.

ATP’s short interest to free float ratio increased 3.34% to 44.23%. The company’s shares are off 70.05% from its 52-week high, and the market capitalization now sits at $651.27M. Short-sellers continued their bet against the company’s fortunes because its debt level is excessive.

Most recently, ATP announced the completion and testing of the second Clipper, well located in the deepwater Gulf of Mexico. The rate is 9,000 Bbls per day and 4.6 MMcf per day. Along with the first Clipper well, the total test rate is approximately 13.7 MBbls of oil per day and 50.2 MMcf of natural gas per day or 22 MBbls equivalent per day (62% oil).

The company also sold its interest in one of its Telemark Hub for $26M, while retaining a 1% royalty interest. Finally, SEC filings reveal CEO T. Paul Bulmahn bought 65,000 shares at between $5.85 and $6. Burt Adams, a director, bought 100,000 at $6.49.

3) Netflix, Inc. (NFLX)

Sell.

Netflix saw its short float ratio increase to 20%, up 2.8%. Closing recently at $69.82, the company’s P/E is 15.87, but its forward P/E is 199.49 (Thompson-Reuters reports its forward P/E is 1,163.67. The company’s management missteps are well-covered, and explain its 77% drop from its all-time high.

Investors should continue to avoid this stock. The company may be possibly be under investigation by the SEC.

4) Groupon, Inc (GRPN)

Sell.

Groupon saw its short interest to free float percent rise to 18.90, a 10.63% increase. In that time, shares rose to $23.04, up 55.15% from its low. The appetite for risk rose, following a lukewarm but successful IPO by Zynga (ZNGA). This indirectly helped Groupon shares.

Groupon trades at a Price/Sales of 11.39 and has a market capitalization of $14.69B.

5) Take-Two Interactive Software (TTWO)

Buy.

Like Groupon, Take-Two shares saw active trading after Zynga’s IPO. Its short interest to free float percent rose to 14.81, up 3.41%. The return of the basketball season should help its NBA 2K12 product from its 2K Sports division.

The publisher of Grand Theft Auto, Bioshock and Red Dead Redemption recently announced a proposed sale of $200M in convertible notes that would be due in 2016. There is risk for shareholders that the company is pursuing expensive acquisitions to compete with Zynga.

Glenview Capital, an Investment firm, has a 6.9% stake in Take-Two. Only Carl Icahn has a larger position, with an 8.4% stake.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.