On the Nasdaq stock exchange, short-selling increased in the weeks where the appetite for risk increased. A lack of negative news in the eurozone led to a sharp rise in the shares of many companies. A rise in the short position implies higher price moves if a company provides good news. With earnings underway, a violent move down happens for stocks that do not meet expectations or forecasts.
Shares Short on Jan. 13 2012
Shares Short on Dec. 30 2011
ZYNGA INC- CL A
MARVELL TECH GRP
Recently breaking out of a trading range, both Intel (INTC) and Microsoft (MSFT) were the most short-sold stocks on the exchange with 131.78M and 101.5M respectively. Yahoo Inc. (YHOO) saw its short position rise by 14.6% to 42M shares.
Yahoo's earnings results showed continued weakness in advertising. After accounting for advertising commissions, revenue was $1.17B. This is the 13th straight quarter where net revenue declined from the previous reporting year.
Yahoo is a stock to avoid, because the company continues to struggle in gaining market share in online advertising. In its most recent results, the company reported an earnings decline of 5%. Revenue did not meet analyst expectations.
In the gaming sector, Electronic Arts (EA) saw its short share position by trader rise to 19.02M from 16.04M, up 18.6%. Short-sellers are in a profitable position, as EA dropped to $18.14 on January 27, down 11.5%. Negativity grew as investors worried about the high cost for developing 'Star Wars,' and digital gaming on social media sites weakened during the holiday.
EA is a stock to buy. EA stand to benefit as Microsoft rolls out an Xbox 720 in 2013 and as the growth in digital games accelerates. The company is scheduled to report earnings on February 1 after market close.
Shorting for Zynga (ZNGA) shares surged 182.4% between December 30 and January 13 to 16.05M. Shares started 2012 down, falling as low as $7.97 as investors bet against Zynga's business model dependency on social media gaming. Negativity changed on January 27, when it was reported that Morgan Stanley (MS) was close to a Facebook IPO. Companies in the social media space, including Sina (SINA) and LinkedIn (LNKD) all rose on the day. Zynga closed at $10.05. This represents a loss of around 5% for the short sellers. As excitement from the Facebook IPO fades, investors should sell into the rally by selling Zynga shares.
The strategy for short-selling expensive stocks was not entirely profitable. Universal Display (PANL) has a market capitalization of $1.99B, saw short selling volume rising to 13.4B, up 19.4% on January 15. Shares are up 17.85% year-to-date. The bullishness is warranted. Universal display is set to benefit from the strength of Samsung's results. OLED, or organic light-emitting diode technology, is used in smart phones, tablets, and TVs.
The company reports its 4th quarter earnings on February 28. Investors will be looking more closely at the 2012 guidance.
In the semiconductor (integrated circuits) space, short-selling rose 54.5% for Marvell Technology (MRVL) to 9.5M shares, as its share price rose 14% in January. Bearish investors correctly anticipated weakness for Marvell. The company lowered its revenue guidance to between $735M and $745M. Its prior forecast was $775M to $825M. The company blamed Thailand flooding for the shortfall. Marvell is a stock to buy, because revenue from solid-state drives is growing. Growth in this segment will not make up for the revenue shortfall, but as demand rises steadily, investors gain exposure to this segment of the market.
Marvell closed at $15.79 and will report earnings on February 23.
In the business software and services space, short-selling volume rose 62% to 3.1M shares for Citrix Systems (CTXS). In the company's most recent quarterly report, Citrix said that net income rose 15% and earnings per share of $0.15. The company made $1.87 per share in 2011, up from $1.46 in 2010. Shares sold off, because the company provided a forecast that was weaker than expected. In comparison, VMWare (VMW) fared better. The competitor reported an earnings per share of $0.62, 2 cents ahead of expectations, and a sales increase of 27%,
Citrix forecast a net income of $1.88 to $1.97 per share on revenue of $2.49B to $2.51B for 2012. This represents a marginal increase compared to last year.
At a closing price of $65.14, the company's 34.83 P/E is excessive for a company not showing improving growth for this year. Investors should sell Citrix shares on any rally.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in EA over the next 72 hours.