Top 10 Activist Short Ideas For 2015

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Includes: AFSI, AME, ATHN, BOFI, FCEL, FRPT, GSAT, IRBT, LKM, NUS
by: Activist Shorts Research

Summary

Activist Shorts Research has selected the top 10 activist short-seller campaigns to watch in 2015.

Globalstar, Ametek and Nu Skin top the list.

Herbalife not included.

On January 5, 2015, Activist Shorts Research sent its year-end report to clients. Included in the report are our year-end awards for campaigns of the year and short-seller of the year, our top 10 campaigns to watch for 2015, and comments from activist short-sellers on their favorite shorts and sectors most ripe for short-selling for 2015. We've included below our top 10 campaigns to watch for 2015.

1. Globalstar (NYSEMKT:GSAT), $2.7 billion market cap: It had a live, three-hour presentation at an auditorium in midtown Manhattan. It's been a very public battle between a short-seller and the company he targeted. It even includes a "factsabout[company].com" website, detailing every latest conference call and report on what's wrong with the company.

You'd be forgiven for thinking of Bill Ackman and Herbalife. Instead, it's Sahm Adrangi, head of Kerrisdale Capital, and Globalstar, a $2+ billion company making a big bet on spectrum. Globalstar says WiFi today is getting overcrowded and plenty of businesses would pay to be certain they have access to the fastest internet speeds. Kerrisdale says WiFi isn't broken and no one will pay Globalstar to use their spectrum, making the company "worthless."

And that's just the tip of the iceberg. Grenades have been lobbed back and forth, technical experts brought out, and battling letters sent to the FCC. The stock is down almost 30% from when Kerrisdale first announced it had an upcoming presentation (without actually disclosing the target), or down 11% since the short officially became public.

Short-sellers John Hempton of Bronte Capital and Richard Pearson have joined the fray, too. With GSAT still sitting as Kerrisdale's largest short position and potential action from the FCC coming in 2015, this is not the end of this battle.

2. Ametek (NYSE:AME), $12.5 billion: Spruce Point Capital Management called Ametek its "largest short idea ever" before releasing its 140- page (or 890-page with exhibits) presentation on November 13, 2014. Run by Ben Axler, Spruce Point has seen an average 40% drop on its 11 public short calls since 2010, which doesn't include Axler's also-successful research for Prescience Point Research Group.

In his extensive report, Axler said Ametek had overstated its margins by 400-600 basis points "resulting in millions of illusory EBITDA," that the company had misrepresented its "largest acquisition ever," and had had auditor troubles at a number of foreign units. The $13 billion electronic instrument and electrochemical device company hasn't responded to the allegations, and the stock is down just slightly since Axler originally announced. Given the relative lack of media coverage, the sheer depth of the report, and Axler's history of success, we'd be surprised if there wasn't more to this story in 2015.

3. Nu Skin (NYSE:NUS), $2.5 billion: Consumer product companies selling in China have been under siege for years. Multi-level marketing sales structures - think Mary Kay - are illegal in mainland China, and several companies have been caught pushing the regulatory envelope.

In 2012, Citron Research said two companies - USANA Health Sciences and Nu Skin Enterprises - were pyramid schemes. USANA has doubled since then. Nu Skin, after rocketing up to almost $140, is back down to hovering around the mid-40s since August, slightly below where it was when Citron released its first report in 2012.

In early 2014, Nu Skin plummeted after a negative report in the Chinese newspaper the People's Daily said the company was a "suspected illegal pyramid scheme." Chinese regulators followed shortly thereafter, ultimately giving the company a small $524,000 fine for directly selling products that were only cleared to be sold by retail.

This August, John Hempton of Bronte Capital entered the fray, calling Nu Skin's product "vastly overpriced vitamin pills." He's pilloried the company's levels of debt and store distribution in China, noting several stores planned for the Gobi Desert, while drawing a contrast between Nu Skin, which he is short, and Herbalife, which he is long and has vociferously defended.

Hempton believes the company's use of its revolving credit facility suggests the company's cash, much of which is located in international subsidiaries, may not be so easily accessible, implying that the company's financial position may be much weaker than it appears.

4. BofI Holding (NASDAQ:BOFI), $1.2 billion: The Bank of Internet soared after some well-timed asset buying just after the 2008 market crash, but in the past year four activist shorts have predicted the company will decline in an increasingly competitive internet banking space.

5. Athenahealth (NASDAQ:ATHN), $5.4 billion: The CEO thinks he's going to transform the health care space, but David Einhorn thinks the company's a bubble just waiting to pop.

6. FuelCell Energy (NASDAQ:FCEL), $410 million: FuelCell Energy has retreated sharply from its 52-week highs because, if you believe Alpha Exposure, The Street Sweeper, or the director who just resigned citing "limited domestic sales," it's going to have trouble finding a replacement for its biggest customer, POSCO.

7. iRobot Corporation (NASDAQ:IRBT), $1.0 billion: iRobot says its robotic vacuums are on the rise, but Spruce Point thinks this company is playing a little sleight-of-hand with its accounting to cover up a decline in sales.

8. NQ Mobile (NQ), $350 million: NQ Mobile has dropped over 80% since Muddy Waters first shorted it while alleging fictitious revenue at the end of 2013, but the company is still hanging on even after swapping out its Big Four auditor this summer.

9. AmTrust Financial Services (NASDAQ:AFSI), $4.2 billion: Alistair Capital just recently jumped into the activist fray on AmTrust Financial, joining GeoInvesting and Gotham Investing (no relation to Gotham City Research), who have argued for months that this insurance company was playing fast and loose with its accounting. Note that despite the large market cap, AmTrust has seen high borrow costs.

10. Freshpet (NASDAQ:FRPT), $570 million: The Street Sweeper thinks Freshpet is going to have a tough time breaking into the ultra-competitive pet food industry.

Institutional investors can request a copy of the full report by emailing support@activistshorts.com.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.