When your company is on the shopping list of the AdvisorShares Active Bear ETF (HDGE), shareholders ought to tread cautiously. The exchange-traded fund stands as an actively managed investment that sells short U.S.-traded equities. The objective of the fund is to seek capital appreciation through such short sales, and in doing so to provide a cohesive hedging position geared against the market's direction. The fund considers its investments by seeking out securities with low earnings quality or aggressive accounting that often masks operational deterioration. In doing so, it ideally singles out the companies that are more prone to failure.
On Wednesday, two such long-time holdings of the Active Bear found their shares prices gravely discounted. Green Mountain Coffee Roasters (GMCR) cut its sales forecasts in a blundering performance that epitomized the latest of its corporate woes. After market hours, the company's stock fell a blistering 40%. Likewise, restaurant reservation service OpenTable (OPEN) felt the sting of poor performance as the company fell 15% by the market's close. Poor quarterly results and dragging outlook served to the company's weak performance in light of the built-in investment hype surrounding the stock.
In light of the Active Bear ETF's strategy of identifying corporate weakness, investors in the following companies may wish to take note that their shares have a place alongside the aforementioned. They are all part of the top holdings in the Active Bear's portfolio. As of May 1, the ETF held prominent positions in the following companies:
Goodyear Tire (GT). Goodyear is one the world's leading manufacturers of tires. In 2011, the company did $22.8 billion in revenues with gross profits of $3.9 billion. Nevertheless, the company currently trades with a market capitalization of $2.73 billion and carries shareholder equity of $749 million. The company's debt has been steadily growing, and the company's price-to-book ratio stands at 7.58. With a significant amount of pension obligations coming up on the radar, investors may want to be careful with this company. The company's margins have also been getting squeezed and relies heavily on a large amount of leverage. Goodyear makes up 3.92% of HDGE's holdings.
Rockwell Collins (COL). Rockwell Collins is a services company that specializes in aviation and information technology systems. The company primarily markets to aircraft manufacturers and governmental agencies. Rockwell Collins has a market capitalization of $7.98 billion and trades with a price-to-book ratio of 6.08. The company currently trades with a trailing price-to-earnings ratio of 13.43. Rockwell Collins makes up 3.61% of HDGE's holdings.
Energizer Holdings (ENR). Energizer Holdings is a leading battery and personal care product manufacturer. The company is based in the United States, but sells its products around the world. The company has a market capitalization of $5.14 billion and has a trailing price-to-earnings ratio of 18.21. On Wednesday, the company's stock jumped almost 10% as the company set its first dividend and had profits top its expectations. Nevertheless, the company is facing greater competition in the face of stale growth prospects. The company's earnings are being derived by cutting costs in a time when potential reinvestment can help secure a long-term sustainability. Energizer makes up 3.58% of HDGE's holdings.
Flowserve (FLS). Flowserve Corporation engages in the design and manufacturing of industrial flow management equipment and provides correlated services. The company carries a market capitalization of $6.41 billion and trades with a trailing price-to-earnings of 15.39. The company carries a growing amount of goodwill and intangible assets which can prove to be susceptible. Declining cash balances along with increasing receivables and inventories are also noteworthy. Flowserve makes up 3.13% of HDGE's Holdings.
Disclosure: I am long HDGE.