9 Underperforming Stocks Short-Sellers Are Targeting

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 |  Includes: ACIIQ, BBRY, CREE, FSLR, ILMN, MCPIQ, NFLX, SHLD, X
by: Insider Monkey

During the past year, the market was pretty volatile. It was hit by the European debt crisis in the second quarter, losing more than 8%. But it started to recover in the fourth quarter and returned 2.1% including dividends. During the market turmoil, a few stocks suffered huge losses. They are also targeted by short-sellers. Contrarian investors aren’t bearish about these stocks, though. They think underperforming stocks targeted by short-sellers may actually be good investments.

Below we compiled a list of such stocks. All companies have at least $2 billion market cap with an open short interest of at least 5%. Their performances in the past 52 weeks are in the lowest 20% in the market. The market data is sourced from Fidelity.

Company

Symbol

Short %

Return

ARCH COAL INC

ACI

5.55%

-58.85%

SEARS HOLDINGS CORP

SHLD

10.19%

-57.14%

ILLUMINA INC

ILMN

18.91%

-52.36%

RESEARCH IN MOTION

RIMM

8.11%

-75.03%

MOLYCORP INC

MCP

17.82%

-53.88%

UNITED STATES STEEL CORP

X

23.58%

-55.17%

CREE INC.

CREE

13.57%

-66.64%

NETFLIX INC

NFLX

17.85%

-61.46%

FIRST SOLAR INC

FSLR

24.16%

-74.25%

Click to enlarge

Research in Motion Ltd (RIMM) is the worst performing stock on the list above. During the past 52 weeks, RIMM was down 75.03%. The stock’s P/E ratio is also quite low. The $7.6 billion market cap stock has a P/E ratio of only 3.42. The open short interest of RIMM is 8.11%. During the third quarter, Leon Cooperman’s Omega Advisors initiated a brand new $29 million of RIMM stocks.

Another stock that lost over 70% over the past 52 weeks is First Solar Inc (NASDAQ:FSLR), a company that manufactures and sells solar modules. The stock lost 74.25% during the past 52 weeks and has an open short interest of 24.16%. Similar to RIMM, it also has a low P/E ratio. FSLR has a market cap of 2.9B and a P/E ratio of 5.55. Among the hedge funds tracked by Insider Monkey, there are 25 hedge funds with FSLR positions at the end of the third quarter. Lee Ainslie’s Maverick Capital, for example, had $227 million invested in this stock.

Netflix Inc (NASDAQ:NFLX) is another large cap stock that largely underperformed the market. It lost 61.46% during the past 52 weeks and has a short interest ratio of 17.85%. NFLX has a market cap of $3.8B and a P/E ratio of 15.75. John Thaler’s JAT Capital Management invested nearly $300 million in NFLX at the end of September. John Griffin and Jim Simons were also bullish about NFLX. Griffin’s Blue Ridge Capital had $230 million invested in NFLX and Simons’ Renaissance Technologies reported to own $152 million worth of the stock.

Other big-cap underperforming stocks targeted by short sellers include Arch Coal Inc (ACI), Sears Holdings Corp (NASDAQ:SHLD), Illumina Inc (NASDAQ:ILMN), Molycorp Inc (MCP), United States Steel Corp (NYSE:X), and Cree Inc (NASDAQ:CREE). We strongly encourage investors to do some in-depth research on these stocks for their own portfolios.

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