Five darlings of hedgies and shorts

Despite a booming stock market, there are no shortage of doomsayers who anticipate a 'correction.'

By MoneyShow.com Apr 5, 2013 7:34PM

Businessman with face down on desk © Tetra Images, Tetra images, Getty ImagesBy Rebecca Lipman, Kapitall.com


Should the markets take a quick downward turn for more psychological reasons, like fear, the market will likely rebound in good time. This is a lesson we learned when the Greek crisis gained momentum in 2011 and markets traded with heavy volatility.


But should the markets actually experience a tangible negative event, the climb back could be long and painful.


Certainly the reasons for hoarding cash -- an uncertain future agitated by troubles in Europe, China, and the U.S. -- have not fully disappeared. Cyprus and continued unrest in Greece hold evidence to this. So if economic conditions do worsen, then it's possible the strategy of hoarding cash will benefit companies in the long run.


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Building the List 

With this in mind we created a universe of companies with large cash cushions. So large, in fact, that the companies in question could run operations (on average) for more than four quarters without earning a single penny in profit.


While nobody would want such shares of such a reckless company, a company's cash cushion speaks volumes about its ability to weather tougher economic times, at least in the near term. Large cash holdings also suggest a company has the ability to buy up new companies and expand operations.


To refine the quality of our list we searched for the stocks with an increase of short covering. Short sellers are investors that benefit from falling stock prices. If they are covering their short positions on these cash-rich names, it's a signal that they are becoming less pessimistic about their short-term performance.


Lastly, we applied the wisdom of institutional investors, such as hedge funds, by screening for companies that have seen a significantly net positive number of shares purchased in the current quarter (totaling at least 5% of share float).


The List 
Hedge funds and short sellers seem to think these cash-rich companies have more upside than downside -- do you agree?


It should also be noted that many cash rich stocks offer dividends, but none of the names on this list fit that description. When Apple (AAPL) had loads of cash sitting around, investors were very eager for a dividends announcement. They weren't disappointed. Would investors be foolish to expect the same from these hedge fund favorites? Or are these firms cautious about saving their cash for more difficult times?


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1. HomeAway, Inc. (AWAY): Operates an online marketplace for the vacation rental industry. Market cap at $2.77 billion, most recent closing price at $33.11.


Average quarterly operating expense over the last five quarters at $60.83 million, vs. most recent cash and short-term investments at $269.81 million, implies a cash/average operating expense ratio at 4.44. 


Net institutional purchases in the current quarter at 10.5 million shares, which represents about 16.79% of the company's float of 62.53 million shares. Shares shorted have decreased from 11.73 million to 10.02 million over the last month, a decrease, which represents about 2.73% of the company's float of 62.53 million shares. Days to cover ratio at 12.36 days.


2. Gulfport Energy Corp. (GPOR): Develops and produces oil and gas in the Louisiana Gulf Coast. Market cap at $3.28 billion, most recent closing price at $42.40.


Average quarterly operating expense over the last five quarters at $37.81 million, vs. most recent cash and short term investments at $167.09 million, implies a cash/average operating expense ratio at 4.42. 


Net institutional purchases in the current quarter at 15.2 million shares, which represents about 21.18% of the company's float of 71.77 million shares. Shares shorted have decreased from 6.11 million to 5.18 million over the last month, a decrease which represents about 1.3% of the company's float of 71.77 million shares. Days to cover ratio at 3.44 days.


3. VMware, Inc. (VMW): Provides virtualization and virtualization-based cloud infrastructure solutions primarily in the United States. Market cap at $34.33 billion, most recent closing price at $80.15.


Average quarterly operating expense over the last five quarters at $915.87 million, vs. most recent cash and short term investments at $4630.83 million, implies a cash/average operating expense ratio at 5.06. 


Net institutional purchases in the current quarter at 6.4 million shares, which represents about 8.41% of the company's float of 76.07 million shares. Shares shorted have decreased from 8.31 million to 6.85 million over the last month, a decrease, which represents about 1.92% of the company's float of 76.07 million shares. Days to cover ratio at 2.23 days.


4. Boingo Wireless, Inc. (WIFI): Provides mobile Wi-Fi Internet solutions. Market cap at $199.17 million, most recent closing price at $5.59.


Average quarterly operating expense over the last five quarters at $22.71 million, vs. most recent cash and short term investments at $100.01 million, implies a cash/average operating expense ratio at 4.4. 


Net institutional purchases in the current quarter at 4.5 million shares, which represents about 22.08% of the company's float of 20.38 million shares. Shares shorted have decreased from 2.05 million to 1.80 million over the last month, a decrease, which represents about 1.23% of the company's float of 20.38 million shares. Days to cover ratio at 14.79 days.


5. Zillow, Inc. (Z): Operates an online real estate information marketplace. Market cap at $1.88 billion, most recent closing price at $55.39.


Average quarterly operating expense over the last five quarters at $26.01 million, vs. most recent cash and short-term investments at $194.09 million, implies a cash/average operating expense ratio at 7.46. 


Net institutional purchases in the current quarter at 2.9 million shares, which represents about 13.55% of the company's float of 21.40 million shares. Shares shorted have decreased from 7.71 million to 6.51 million over the last month, a decrease, which represents about 5.61% of the company's float of 21.40 million shares. Days to cover ratio at 9.61 days.

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